<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration Nos. 333-13307 and 333-28649
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION. THIS PROSPECTUS
SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Subject to Completion, Dated September 12, 1997
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY 2, 1997
$195,809,000
[LOGO]
Northwest Airlines
1997-1 Pass Through Trusts
PASS THROUGH CERTIFICATES, SERIES 1997-1
---------------------
Each Pass Through Certificate (collectively, the "CERTIFICATES") will represent
a fractional undivided interest in one of the three Northwest Airlines 1997-1
Pass Through Trusts (the "CLASS A TRUST", the "CLASS B TRUST" and the "CLASS C
TRUST" and, collectively, the "TRUSTS") to be formed pursuant to a pass
through trust agreement (the "BASIC AGREEMENT") and three separate
supplements thereto (each a "TRUST SUPPLEMENT" and, together with the
Basic Agreement, collectively, the "PASS THROUGH TRUST AGREEMENTS") by
and among Northwest Airlines, Inc. ("NORTHWEST" or the "COMPANY"),
Northwest Airlines Corporation ("NWA CORP.") and State Street Bank and
Trust Company (the "TRUSTEE"), as trustee under each Trust.
Northwest is an indirect wholly owned subsidiary of NWA Corp.
Pursuant to the Intercreditor Agreement (as defined herein), (i)
the Certificates of the Class B Trust will be subordinated in
right of payment to the Certificates of the Class A Trust and
(ii) the Certificates of the Class C Trust will be subordinated
in right of payment to the Certificates of the Class B Trust.
Payments of interest on the Certificates to be issued by each
Trust will be supported by a separate liquidity facility for the
benefit of the holders of such Certificates, each such
facility to be provided by Royal Bank of Canada, in an
amount sufficient to pay interest thereon at the
applicable interest rate for such Trust on three
successive distribution dates.
The property of the Trusts will include, among other things, equipment notes
(the "EQUIPMENT NOTES") to be issued on a nonrecourse basis by the trustees of
separate owner trusts (each, an "OWNER TRUSTEE") in connection with 12
separate leveraged lease transactions to finance a portion of the purchase
price paid or to be paid by such Owner Trustee in connection with the
purchase of 12 British Aerospace Avro RJ85 aircraft (collectively, the
"AIRCRAFT") which are or are to be leased to Northwest. The Equipment
Notes in respect of each Aircraft will be issued in three series (the
"SERIES A EQUIPMENT NOTES", the "SERIES B EQUIPMENT NOTES" and the
"SERIES C EQUIPMENT NOTES"). Each Trust will purchase one series of
Equipment Notes issued with respect to all of the Aircraft such
that all of the Equipment Notes held in each Trust will have an
interest rate corresponding to the interest rate applicable to
the Certificates to be issued by such Trust. The maturity dates
of the Equipment Notes acquired by each Trust will occur on or
before the final expected distribution date applicable to the
Certificates issued by such Trust. Except as provided below, the
Equipment Notes issued with respect to each Aircraft will be
secured by a security
(CONTINUED ON THE FOLLOWING PAGE)
For a discussion of certain factors that should be considered in connection with
an investment in the
Certificates, see "Risk Factors" commencing on page S-26 hereof.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Pass Through Principal Final Expected Price to
Certificates Amount(1) Interest Rate Distribution Date(1) Public(2)(3)
---------------- ------------ ------------- -------------------- ---------------
<S> <C> <C> <C> <C>
1997--1A........................................ $125,914,000 % January 2, 2016 100%
1997--1B........................................ $46,433,000 % January 2, 2013 100%
1997--1C........................................ $23,462,000 % January 2, 2007 100%
------------
Total........................................... $195,809,000
</TABLE>
(1) The principal amounts and the final expected distribution dates are
indicative only and subject to change.
(2) Plus accrued interest, if any, from September , 1997.
(3) Total fees payable to the Underwriters vary by Trust and aggregate
$ , which constitutes % of the principal amount of the
Certificates offered hereby. The total fees, and certain other expenses
estimated at approximately $ , will be paid by the Owner Trustees
(as defined herein), the Owner Participants (as defined herein) or
Northwest. All proceeds of the Certificates will be used by the Trusts to
purchase the Equipment Notes from the Owner Trustees.
The Certificates are offered by the several Underwriters when, as and if
issued by the Trusts, delivered to and accepted by the Underwriters and subject
to their right to reject orders in whole or in part. It is expected that
delivery of the Certificates in book-entry form will be made through the
facilities of The Depository Trust Company on or about September , 1997,
against payment in immediately available funds.
Credit Suisse First Boston
Lehman Brothers
Morgan Stanley Dean Witter
Prospectus Supplement dated September , 1997
<PAGE>
(CONTINUED FROM COVER PAGE)
interest in such Aircraft and an assignment of certain rights under the lease
relating thereto (each, a "LEASE"), including the right to receive rentals
payable with respect to such Aircraft by Northwest. During the period between
the date of issuance of the Equipment Notes by the Owner Trustee for six of the
Owner Trusts and the date of sale to an Owner Trustee (the "DATE OF SALE") of
the related Aircraft (such Aircraft, the "PREFUNDED AIRCRAFT"), which is
expected to occur from October 1997 through May 1998, such Equipment Notes will
not be secured by such Aircraft or the related Lease, but will be secured by the
related Prefunding Collateral Account (as herein defined). Pursuant to the
related Indenture, the Owner Trustee will deposit the proceeds from the sale of
the related Equipment Notes into the related Prefunding Collateral Account for
the benefit of the indenture trustee (the "LOAN TRUSTEE"). Sums deposited in the
Prefunding Collateral Accounts will be invested in: (a) direct obligations of
the United States of America or obligations fully guaranteed by the United
States of America; (b) commercial paper rated A-1/P-1 by Standard & Poor's
Ratings Group ("STANDARD & POOR'S") and Moody's Investors Service, Inc.
("MOODY'S" and, together with Standard and Poor's, the "RATING AGENCIES"),
respectively or, if such ratings are unavailable, rated by any nationally
recognized rating organization in the United States equal to the highest rating
assigned by such rating organization; (c) investments in negotiable certificates
of deposit, time deposits, banker's acceptances, commercial paper or other
direct obligations of, or obligations guaranteed by, commercial banks organized
under the laws of the United States or of any political subdivision thereof (or
any United States ("U.S.") branch of a foreign bank) with issuer ratings of at
least B/C by Thomson Bankwatch, having maturities no later than eight months
following the date of such investment; (d) overnight federal funds transactions
with members of the Federal Reserve System arranged by federal funds brokers; or
(e) overnight repurchase agreements with respect to the securities described in
clause (a) above entered into with an office of a bank or trust company which is
located in the United States of America or any bank or trust company which is
organized under the laws of the U.S. or any state thereof and has capital,
surplus and undivided profits aggregating at least $500 million. Northwest will
pay to the Loan Trustee on demand any losses on such investments. On the Date of
Sale of each Prefunded Aircraft related to an Owner Trust, upon satisfaction or
waiver of the conditions to the Loan Trustee's release of amounts in the related
Prefunding Collateral Account, the Loan Trustee will release such amounts. Such
amounts will be applied by the Loan Trustee in accordance with the related
Participation Agreement to pay Northwest for a portion of the purchase price for
such Prefunded Aircraft. Northwest will pay to the Loan Trustee on such Date of
Sale the excess if any of amounts required to be paid by the Loan Trustee over
the amounts released from the related Prefunding Collateral Account.
The proceeds of the issuance of Equipment Notes on deposit in a Prefunding
Collateral Account may only (i) be applied to purchase the related Prefunded
Aircraft from Northwest, (ii) be paid to Northwest in connection with an
assumption by Northwest of such Equipment Notes or (iii) be applied to the
redemption of such Equipment Notes. If a Prefunded Aircraft is delivered to
Northwest but not sold to the related Owner Trust on or prior to the earlier
(the "CUT-OFF DATE") of (i) August 31, 1998 or June 15, 1998 with respect to two
Prefunded Aircraft scheduled to be delivered in October and November 1997 (the
"PREPAYMENT DATE") and (ii) the 90th day after the last day of the calendar
month in which such Prefunded Aircraft is delivered to Northwest for any reason,
Northwest will, unless the manufacturer has failed to deliver such Aircraft to
Northwest on or prior to such Cut-off Date, assume, subject to certain
conditions, on a full recourse basis all of the obligations of the Owner Trustee
under the related Equipment Notes pursuant to an indenture containing terms
substantially identical to those contained in the Leases and Indentures
described herein. Such Equipment Notes will be secured by a lien on the related
Prefunded Aircraft (which will be an Owned Aircraft as described in the
Prospectus) and will be Owned Aircraft Notes (as described in the Prospectus).
In connection with such assumption, the Loan Trustee will release the amounts in
the Prefunding Collateral Account to Northwest to reimburse Northwest for a
portion of the purchase price previously paid by it for such Aircraft. If (i)
the manufacturer has failed to deliver a Prefunded Aircraft to Northwest on or
prior to the Prepayment Date or (ii) following the delivery of any Prefunded
Aircraft, the conditions precedent to Northwest's assumption of Equipment Notes
relating to
S-2
<PAGE>
such Prefunded Aircraft are not met on or prior to the thirtieth day after the
Cut-Off Date (but in no event later than the Prepayment Date), then the
Equipment Notes issued under the related Indenture will be prepaid in full on or
before the fifteenth day after (x) the Prepayment Date, in the case of clause
(i) or (y) the date specified in clause (ii) in the case of clause (ii), as the
case may be, and the Loan Trustee will apply amounts in the related Prefunding
Collateral Account together with the amounts required to be paid by Northwest to
pay the aggregate principal amount of such Equipment Notes, together with
accrued and unpaid interest thereon. In addition, if a Triggering Event occurs
prior to the Prepayment Date, then the amounts on deposit in any Prefunding
Collateral Account will be applied, together with the amounts required to be
paid by Northwest, to prepay in full the aggregate principal amount of the
Equipment Notes relating to such Prefunding Collateral Account, together with
accrued and unpaid interest thereon, on or before the fifteenth day after the
occurrence of such Triggering Event.
Although neither the Certificates nor the Leased Aircraft Notes are
obligations of, or guaranteed by, Northwest (other than in respect of its
obligations during the "Prefunding Period", as defined herein) the amounts
unconditionally payable by Northwest for lease of the Aircraft will be
sufficient to pay in full when due all amounts required to be paid on the
Equipment Notes secured by such Aircraft. The Prefunding Period means the period
between (i) the date of issuance of the Equipment Notes relating to any
Prefunded Aircraft and (ii) the earliest to occur of (A) the Date of Sale for
such Prefunded Aircraft, (B) the date of assumption by Northwest of such
Equipment Notes or (C) the Prepayment Date. NWA Corp. will fully and
unconditionally guarantee Northwest's payments under the Leases. Equipment Notes
assumed by Northwest as described above will be direct obligations of Northwest
and such obligations will be fully and unconditionally guaranteed by NWA Corp.
All of the Equipment Notes held in each Trust will accrue interest at the
applicable rate per annum for such Trust, payable on January 2 and July 2 of
each year, commencing January 2, 1998. Such interest will be passed through to
Certificateholders (as defined herein) of such Trust on each such date, in each
case subject to the Intercreditor Agreement. See "Description of the
Certificates -- General" and "-- Payments and Distributions".
Scheduled principal payments on the Equipment Notes held in each Trust will
be passed through to the Certificateholders of each such Trust on January 2 or
July 2 or both in certain years in accordance with the principal repayment
schedule set forth herein under "Description of the Certificates -- Pool
Factors" and "Description of the Equipment Notes -- Principal and Interest
Payments", in each case subject to the Intercreditor Agreement.
Under each Pass Through Trust Agreement, an Event of Default will occur if
the Trustee fails to pay within 10 business days of the due date thereof: (i)
the outstanding Pool Balance (as defined herein) of the applicable Class of
Certificates on the Final Legal Distribution Date (as defined herein) for such
Class or (ii) interest due on such Certificates on any distribution date
(unless, in the case of the Class A, B or C Certificates, the Subordination
Agent (as defined herein) shall have made an Interest Drawing (as defined
herein) in an amount sufficient to pay such interest and shall have distributed
such amount to the Certificateholders entitled thereto).
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE OFFERED
CERTIFICATES OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS,
SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES SEE "UNDERWRITING".
IT IS EXPECTED THAT DELIVERY OF THE CERTIFICATES WILL BE MADE AGAINST
PAYMENT THEREFOR ON OR ABOUT THAT DATE SPECIFIED IN THE LAST PARAGRAPH OF THE
COVER PAGE OF THIS PROSPECTUS SUPPLEMENT, WHICH WILL BE THE BUSINESS DAY
FOLLOWING THE DATE OF PRICING OF THE CERTIFICATES (SUCH SETTLEMENT CYCLE BEING
HEREIN REFERRED TO AS "T+ "), PURCHASERS OF CERTIFICATES SHOULD NOTE THAT
TRADING OF THE CERTIFICATES PRIOR TO THE THIRD BUSINESS DAY BEFORE THE CLOSING
DATE MAY BE AFFECTED BY THE T+ SETTLEMENT. SEE "UNDERWRITING".
S-3
<PAGE>
FOR FLORIDA RESIDENTS:
The Company does not conduct business with the government of Cuba or any
person or affiliate located in Cuba, except that Northwest aircraft conduct
Cuban overflights for which Northwest makes monthly payments through a clearing
house of Cubana de Aviacion pursuant to a specific license from the Office of
Foreign Assets Control, United States Department of the Treasury.
The information set forth above is accurate as of the date hereof. Current
information concerning the Company's business dealings with the government of
Cuba or with any person or affiliate located in Cuba may be obtained from the
Division of Securities and Investor Protection of the Florida Department of
Banking and Finance, The Capital, Tallahassee, Florida 32399-0350, telephone
number (904) 488-9805.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS
TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN
EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT
THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS
OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION.
IT IS UNLAWFUL TO MAKE OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER,
CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS
PARAGRAPH.
S-4
<PAGE>
SUMMARY OF TERMS
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE DETAILED INFORMATION APPEARING ELSEWHERE IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. CERTAIN CAPITALIZED
TERMS USED HEREIN ARE DEFINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT ON THE
PAGES INDICATED IN THE "INDEX OF CERTAIN DEFINED TERMS" APPEARING AS APPENDIX I
HERETO, AND ALL CROSS REFERENCES HEREIN REFER TO SECTIONS OF THIS PROSPECTUS
SUPPLEMENT.
SUMMARY OF TERMS OF CERTIFICATES(1)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
CERTIFICATES CERTIFICATES CERTIFICATES
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Aggregate Face Amount................... $ 125,914,000 $ 46,433,000 $ 23,462,000
Ratings:
Moody's............................... A3 Baa2 Baa3
Standard & Poor's..................... A BBB BBB-
Initial Loan to Aircraft Value
(cumulative)(2)....................... 42.72% 58.37% 66.42%
Expected Principal Distribution Window
(in years)............................ .78 to 18.28 .28 to 15.28 .78 to 9.28
Initial Average Life (in years)......... 12.54 10.79 5.97
Regular Distribution Dates.............. January 2 January 2 January 2
and July 2 and July 2 and July 2
Final Expected Distribution Date........ January 2, 2016 January 2, 2013 January 2, 2007
Final Legal Distribution Date........... July 2, 2017 July 2, 2014 July 2, 2008
Section 1110 Protection(3).............. Yes Yes Yes
Liquidity Facility Coverage(4).......... 3 successive interest 3 successive interest 3 successive interest
payments payments payments
Initial Liquidity Facility Amount(4).... $ $ $
</TABLE>
- ------------------------
(1) The aggregate face amount, the initial Loan to Aircraft Value ratio, the
expected principal distribution window, the initial average life, the Final
Expected Distribution Date and the Final Legal Distribution Date for each
Class of Certificates are indicative only and subject to change.
(2) The Loan to Aircraft Values have been determined as of July 2, 1998 and
assume all Aircraft are delivered prior to such date. The Loan to Aircraft
Values as of such date are based upon the initial aggregate appraised
Aircraft Value of $294,680,000 and certain assumed depreciation thereof as
described in "Summary of Terms -- Loan to Aircraft Value Ratios".
(3) Following the grant of a lien on the related Aircraft, the benefits of
Section 1110 of the Bankruptcy Code ("SECTION 1110") are available to the
related Loan Trustee.
(4) For each Class of Certificates, the initial amount of the Liquidity Facility
will cover interest payments for three successive interest payment dates or,
in the case of the initial period, the 18 month period following the
extension of such facility (without regard to any future payments of
principal on such Certificates). See "Description of the Liquidity
Facilities."
S-5
<PAGE>
EQUIPMENT NOTES AND THE AIRCRAFT
Set forth below is certain information about the Equipment Notes to be held
in the Trusts and the Aircraft securing such Equipment Notes (assuming the
delivery of the Prefunded Aircraft).
<TABLE>
<CAPTION>
DELIVERY LATEST PRINCIPAL
MANUFACTURER'S DATE OR EQUIPMENT AMOUNT OF
AIRCRAFT REGISTRATION SERIAL EXPECTED NOTE MATURITY EQUIPMENT APPRAISED
TYPE NUMBER NUMBER DELIVERY DATE(1) DATE(2) NOTES(2) VALUE
- ------------ ----------- --------------- ------------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN (DOLLARS IN
MILLIONS) MILLIONS)
Avro RJ85... N501XJ E2208 April 1997 Jan. 2, 2015 $ 16.80 $ 24.25
Avro RJ85... N502XJ E2307 May 1997 Jan. 2, 2015 16.80 24.30
Avro RJ85... N503XJ E2310 June 1997 Jan. 2, 2015 16.80 24.35
Avro RJ85... N504XJ E2311 July 1997 Jan. 2, 2015 16.80 24.40
Avro RJ85... N505XJ E2313 August 1997 Jan. 2, 2015 16.80 24.45
Avro RJ85... N506XJ E2314 September 1997 Jan. 2, 2015 16.80 24.50
Avro RJ85... N507XJ E2316 October 1997 Jan. 2, 2016 15.50 24.55
Avro RJ85... N508XJ E2318 November 1997 Jan. 2, 2016 15.45 24.60
Avro RJ85... N509XJ E2321 February 1998 Jan. 2, 2016 16.08 24.75
Avro RJ85... N510XJ E2325 March 1998 Jan. 2, 2016 16.03 24.80
Avro RJ85... N511XJ E2326 April 1998 Jan. 2, 2016 15.99 24.85
Avro RJ85... N512XJ E2348 May 1998 Jan. 2, 2016 15.95 24.88
</TABLE>
- ------------------------
(1) The dates under this column reflect the scheduled delivery month under
Northwest's purchase agreement with the manufacturer. The actual delivery
date for any Aircraft may be subject to delay.
(2) The maturity dates and principal amounts of the Equipment Notes listed here
are indicative only and are subject to change. Differences between the
dollar amounts under the column "Principal Amount of Equipment Notes" and
the actual outstanding balance are due to rounding.
The appraised value of each Aircraft set forth above is based upon the
lesser of the average or median value of such Aircraft as appraised by the
following three independent appraisal and consulting firms as of the dates
indicated: Aircraft Information Services, Inc. ("AISI") as of August 15, 1997,
BK Associates, Inc. ("BK") as of September 3, 1997 and Morten Beyer and Agnew,
Inc. ("MBA") as of August 26, 1997 (AISI, BK and MBA being collectively referred
to herein as the "APPRAISERS").
An appraisal is only an estimate of value and should not be relied upon as a
measure of realizable value. The proceeds realized upon a sale of any Aircraft
may be less than the appraised value thereof. In addition, the value of the
Aircraft in the event of the exercise of remedies under the applicable Indenture
will depend on market and economic conditions, the availability of buyers, the
condition of the Aircraft, whether the Aircraft are sold separately or as a
block and other factors. Accordingly, there can be no assurance that the
proceeds realized upon any such exercise with respect to the Equipment Notes and
the Aircraft pursuant to the applicable Indenture would be as appraised or
sufficient to satisfy in full payments due on the Equipment Notes issued
thereunder or the Certificates.
For a discussion of the assumptions and methodologies used in preparing the
appraisals, see "Risk Factors -- Factors Relating to the Certificates and the
Offering -- Appraisals and Realizable Value of Aircraft" and "Description of the
Aircraft and the Appraisals".
LOAN TO AIRCRAFT VALUE RATIOS
The following table sets forth Loan to Aircraft Value ratios ("LTVs") for
each Class of Certificates as of the expected date of the consummation of the
offering of the Certificates and the Regular Distribution Dates specified
therein. The LTVs for each Class of Certificates were obtained for each such
Regular Distribution Date by dividing (i) the expected Pool Balance of such
Class of Certificates together in each
S-6
<PAGE>
case with the expected Pool Balance of all other Classes of Certificates senior
in right of payment to such Class of Certificates under the Intercreditor
Agreement determined immediately after giving effect to the distributions
expected to be made on such Regular Distribution Date, by (ii) the assumed value
of all of the Aircraft (the "ASSUMED AGGREGATE AIRCRAFT VALUE") on such Regular
Distribution Date based on the assumptions set forth below.
The table below contains forward-looking information that is based on the
assumption that the value of each Aircraft included in the Assumed Aggregate
Aircraft Value opposite the initial Regular Distribution Date included in the
table above depreciates by 3% per year until the tenth year after the year of
delivery of such Aircraft, by 4% per year thereafter until the fifteenth year
after the year of such delivery and by 5.0% per year thereafter, commencing on
July 2, 1998 for all Aircraft delivered to Northwest prior to October 2, 1997,
commencing on January 2, 1999 for all Aircraft delivered to Northwest from
October 2, 1997 to but excluding April 2, 1998 and commencing on July 2, 1999
for all Aircraft delivered to Northwest on or after April 2, 1998. Other rates
or methods of depreciation would result in materially different LTVs and no
assurance can be given (i) that the depreciation rates and method assumed for
the purpose of the table are the ones most likely to occur or (ii) as to the
actual future value of any Aircraft. Many of the factors affecting the value of
the Aircraft are discussed herein under "Risk Factors -- Factors Relating to the
Certificates and the Offering -- Appraisals and Realizable Value of Aircraft".
Although the table is compiled on an aggregate basis, it should be noted that,
because the Equipment Notes are not cross-collateralized with respect to the
Aircraft, the excess proceeds realized from the disposition of any particular
Aircraft would not be available to offset shortfalls on the Equipment Notes
relating to any other Aircraft. Therefore, upon the occurrence of an Indenture
Default, even if the Aircraft as a group could be sold for more than the total
amounts payable in respect of all of the outstanding Equipment Notes, if certain
Aircraft were sold for less than the total amount payable in respect of the
related Equipment Notes, there would not be sufficient proceeds to pay all
Classes of Certificates in full. See "Description of the Equipment Notes -- Loan
to Value Ratios of Equipment Notes" for additional information regarding LTVs
for the Equipment Notes issued in respect of each Aircraft which may be more
relevant in a default situation than the aggregate values shown in the following
table. Thus, the table should not be considered a forecast or prediction of
expected or likely LTVs but simply a mathematical calculation based on one set
of assumptions. In addition, the initial appraised value of each Aircraft was
based upon the lesser of the average and the median value of each Aircraft as
appraised by the Appraisers, are of the respective date of their appraisals and
are projected as of the scheduled delivery month of each such Aircraft.
S-7
<PAGE>
<TABLE>
<CAPTION>
ASSUMED CLASS A CLASS B CLASS C
AGGREGATE CERTIFICATES CLASS A CERTIFICATES CLASS B CERTIFICATES
AIRCRAFT POOL CERTIFICATES POOL CERTIFICATES POOL
DATE VALUE(1) BALANCE(2) LTV(2) BALANCE(2) LTV(2) BALANCE(2)
- ------------------------ -------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
September , 1997...... $ 294,680,000 $125,914,000 42.73% $ 46,433,000 58.49% $ 23,462,000
July 2, 1998............ 290,292,500 124,027,375 42.72 45,404,750 58.37 23,371,909
July 2, 1999............ 281,452,100 121,024,403 43.00 44,263,482 58.73 22,864,306
July 2, 2000............ 272,611,700 117,223,031 43.00 43,095,550 58.81 22,693,731
July 2, 2001............ 263,771,300 113,421,659 43.00 41,949,861 58.90 22,349,624
July 2, 2002............ 254,930,900 109,620,287 43.00 40,653,686 58.95 17,589,158
July 2, 2003............ 246,090,500 105,818,915 43.00 40,653,686 59.52 13,428,712
July 2, 2004............ 237,250,100 102,017,543 43.00 40,653,686 60.14 7,310,316
July 2, 2005............ 228,409,700 98,216,171 43.00 40,005,257 60.51 3,198,929
July 2, 2006............ 219,569,300 94,414,799 43.00 35,579,341 59.20 443,316
July 2, 2007............ 210,728,900 90,613,427 43.00 32,655,455 58.50 0
July 2, 2008............ 200,426,000 86,183,180 43.00 28,858,557 57.40 0
July 2, 2009............ 188,638,800 81,114,684 43.00 24,411,382 55.94 0
July 2, 2010............ 176,851,600 76,046,188 43.00 18,311,260 53.35 0
July 2, 2011............ 165,064,400 70,977,692 43.00 8,934,295 48.41 0
July 2, 2012............ 153,277,200 62,310,681 40.65 1,390,815 41.56 0
July 2, 2013............ 140,027,500 46,265,977 33.04 0 0.00 0
July 2, 2014............ 125,293,500 27,518,695 21.96 0 0.00 0
July 2, 2015............ 110,559,500 9,547,066 8.64 0 0.00 0
<CAPTION>
CLASS C
CERTIFICATES
DATE LTV(2)
- ------------------------ -------------
<S> <C>
September , 1997...... 66.45%
July 2, 1998............ 66.42
July 2, 1999............ 66.85
July 2, 2000............ 67.13
July 2, 2001............ 67.38
July 2, 2002............ 65.85
July 2, 2003............ 64.98
July 2, 2004............ 63.22
July 2, 2005............ 61.92
July 2, 2006............ 59.41
July 2, 2007............ 0.00
July 2, 2008............ 0.00
July 2, 2009............ 0.00
July 2, 2010............ 0.00
July 2, 2011............ 0.00
July 2, 2012............ 0.00
July 2, 2013............ 0.00
July 2, 2014............ 0.00
July 2, 2015............ 0.00
</TABLE>
- ------------------------
(1) The Assumed Aggregate Aircraft Value set forth opposite September , 1997
(but not the Assumed Aggregate Aircraft Values for subsequent dates) was
determined based upon the lesser of the average or median value of all
Aircraft as appraised by the Appraisers as of the respective dates of their
appraisals and projected as of the delivery date of such Aircraft (see
"Description of the Aircraft and the Appraisals"). No assurance can be given
that such value represents the realizable value of any Aircraft. This amount
includes the value of all 12 Aircraft; however six of such Aircraft are
expected to be delivered after the closing date of the offering of the
Certificates. See "Risk Factors -- Risk Factors Relating to the Certificates
and the Offering -- Appraisals and Realizable Value of Aircraft" and
"Description of the Aircraft and the Appraisals".
(2) The information relating to periodic Pool Balances and resulting LTVs is
indicative only and subject to change.
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[LOGO]
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<PAGE>
THE OFFERING
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Trusts: Each of the Class A Trust, the Class B Trust and the Class C Trust is
to be formed pursuant to one of the three separate Pass Through
Trust Agreements to be entered into among the Company, NWA Corp.
and State Street Bank and Trust Company, as trustee under each
Trust. Each Trust will be a separate entity.
Certificates
Offered: The Certificates are pass through certificates to be issued by each
Trust, representing fractional undivided interests in such Trust.
The Certificates to be issued by the Class A Trust, the Class B
Trust and the Class C Trust are referred to herein as "CLASS A
CERTIFICATES", "CLASS B CERTIFICATES" and "CLASS C CERTIFICATES",
respectively.
Use of Proceeds: The proceeds from the sale of the Certificates will be used by the
Trustees to purchase at par all of the Equipment Notes to be issued
by the related Owner Trustee for each of 12 separate Owner Trusts
under separate Indentures. For each of the Aircraft, the proceeds
from the sale of the related Equipment Notes are expected to be
used to finance a portion of the purchase price to be paid by the
related Owner Trustee on behalf of the related Owner Trust (or, in
certain circumstances, by Northwest) for such Aircraft. If (i) the
manufacturer has failed to deliver a Prefunded Aircraft to
Northwest on or prior to the Prepayment Date or (ii) following the
delivery of any Prefunded Aircraft, the conditions precedent to
Northwest's assumption of Equipment Notes relating to such
Prefunded Aircraft are not met on or prior to thirtieth day after
the Cut-Off Date (but in no event later than the Prepayment Date),
then the Equipment Notes issued under the related Indenture will be
prepaid in full on or before the fifteenth day after (x) the
Prepayment Date, in the case of clause (i) or (y) the date
specified in clause (ii), in the case of clause (ii), as the case
may be, and the Loan Trustee will apply amounts in the related
Prefunding Collateral Account together with the amounts required to
be paid by Northwest to pay the aggregate principal amount of such
Equipment Notes, together with accrued and unpaid interest thereon.
In addition, if a Triggering Event occurs prior to the Prepayment
Date, then the amounts on deposit on any Prefunding Collateral
Account will be applied, together with the amounts required to be
paid by Northwest, to prepay in full the aggregate principal amount
of the Equipment Notes relating to such Prefunding Collateral
Account, together with accrued and unpaid interest thereon on or
before the fifteenth day after the occurrence of such Triggering
Event. See "Use of Proceeds".
Subordination Agent: State Street Bank and Trust Company of Connecticut, National
Association, as subordination agent under the Intercreditor
Agreement (in such capacity, the "SUBORDINATION AGENT").
Initial Liquidity
Provider: Royal Bank of Canada (the "BANK" or the "LIQUIDITY PROVIDER" as the
context requires) initially will provide three separate liquidity
facilities for the benefit
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of the holders of Class A Certificates, Class B Certificates and
Class C Certificates, respectively.
Trust Property: The property of the Trusts (the "TRUST PROPERTY") will consist of (i)
Equipment Notes issued on a nonrecourse basis by each of 12 Owner
Trustees to finance the debt portion of the purchase price paid or
to be in paid by such Owner Trustee on behalf of the related Owner
Trust for one of 12 British Aerospace Avro RJ85 aircraft leased, or
to be leased, by such Owner Trustee to Northwest (or owned by
Northwest in the circumstances described below), (ii) the rights of
such Trust under the Intercreditor Agreement (including all monies
receivable in respect of such rights), (iii) all monies receivable
under the Liquidity Facility for such Trust and (iv) funds from
time to time deposited with the Trustee in accounts relating to
such Trust. The Equipment Notes with respect to each Aircraft will
be issued in three series under an Indenture (each, an "INDENTURE")
between the applicable Owner Trustee and the Loan Trustee
thereunder. Each Trust will acquire, pursuant to certain
Participation Agreements (each, a "PARTICIPATION AGREEMENT"), those
Equipment Notes having an interest rate equal to the interest rate
applicable to the Certificates to be issued by such Trust. The
maturity dates of the Equipment Notes acquired by each Trust will
occur on or before the final expected distribution date (the "FINAL
EXPECTED DISTRIBUTION DATE") applicable to the Certificates to be
issued by such Trust. The aggregate original principal amount of
the Equipment Notes to be held in each Trust will be the same as
the aggregate original face amount of the Certificates to be issued
by such Trust.
Guaranty: The payments payable by Northwest under each Lease and each Equipment
Note assumed by Northwest as described below under "Description of
the Certificates--Obligation to Purchase Equipment Notes" will be
unconditionally guaranteed (the "GUARANTY") by NWA Corp.
Certificates;
Denominations: The Certificates of each Trust will be issued in a minimum
denomination of $1,000 and in integral multiples thereof. See
"Description of the Certificates -- General".
Regular Distribution
Dates: January 2 and July 2.
Special Distribution
Dates: Any business day on which a Special Payment is to be distributed.
Record Dates: The fifteenth day preceding a Regular Distribution Date or a Special
Distribution Date.
Distributions: All payments of principal, Make-Whole Premium if any and interest
received by the Trustee on the Equipment Notes held in each Trust
will be distributed by the Trustee to the holders of the
Certificates (the "CERTIFICATEHOLDERS") of such Trust on the
Regular Distribution Dates referred to above, subject to the
provisions of the Intercreditor Agreement. Assuming payments on the
Equipment Notes are made when due, the Final Expected Distribution
Date for each Class of Certificates will be as set forth on the
cover page of this
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Prospectus Supplement. Principal payments on the Equipment Notes
held in each Trust are scheduled to be received in specified
amounts by the Trustee of such Trust, with respect to the Series A
Equipment Notes, commencing on July 2, 1998, with respect to the
Series B Equipment Notes, commencing on January 2, 1998 and, with
respect to the Series C Equipment Notes, commencing on July 2,
1998. Payments of principal, Make-Whole Premium if any and interest
resulting from the early redemption or purchase if any of the
Equipment Notes held in any Trust will be distributed on a Special
Distribution Date after not less than 10 days' notice from the
Trustee to the Certificateholders of such Trust, subject to the
provisions of the Intercreditor Agreement. For a discussion of
distributions upon an Indenture Default, see "Description of the
Certificates -- Indenture Defaults and Certain Rights Upon an
Indenture Default".
Events of Default: Events of Default under each Pass Through Trust Agreement (each, a
"PTC EVENT OF DEFAULT") are the failure to pay within 10 business
days of the due date thereof: (i) the outstanding Pool Balance of
the applicable Class of Certificates on the Final Legal
Distribution Date for such Class or (ii) interest due on such
Certificates on any distribution date (unless the Subordination
Agent shall have made an Interest Drawing with respect thereto in
an amount sufficient to pay such interest and shall have
distributed such amount to the Certificateholders entitled
thereto). The "FINAL LEGAL DISTRIBUTION DATE" for each of the Class
A, B and C Certificates is July 2, 2017, July 2, 2014 and July 2,
2008, respectively. Any failure to make expected principal
distributions on any Class of Certificates on any Regular
Distribution Date (other than the Final Legal Distribution Date)
will not constitute a PTC Event of Default with respect to such
Certificates.
Purchase Rights of
Certificateholders: Upon the occurrence and during the continuation of a Triggering Event
(as defined below), (i) the Class B Certificateholders shall have
the right to purchase all, but not less than all, of the Class A
Certificates and (ii) the Class C Certificateholders shall have the
right to purchase all, but not less than all, of the Class A and B
Certificates, in each case at a purchase price equal to the Pool
Balance of the relevant Class or Classes of Certificates plus
accrued and unpaid interest thereon to the date of purchase without
Make-Whole Premium but including any other amounts due to the
Certificateholders of such Class or Classes.
"TRIGGERING EVENT" means (x) the occurrence of an Indenture Default
under all Indentures resulting in a PTC Event of Default with
respect to the most senior Class of Certificates then outstanding,
(y) the acceleration of all of the outstanding Equipment Notes or
(z) certain bankruptcy or insolvency events involving Northwest.
Equipment Notes
(a) Interest: The Equipment Notes held in each Trust will accrue interest at the
applicable rate per annum for such Trust set forth on the cover
page of this Prospectus Supplement, payable on January 2 and July 2
of each year, commencing January 2, 1998, and such interest
payments will be passed through to Certificateholders of such Trust
on each such date until the final distribution
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date for such Certificates, in each case subject to the
Intercreditor Agreement. Interest is calculated on the basis of a
360-day year consisting of twelve 30-day months. See "Description
of the Certificates -- General" and "-- Payments and
Distributions".
(b) Principal: Scheduled principal payments on the Equipment Notes held in each
Trust will be passed through to the Certificateholders of each such
Trust on January 2 or July 2, or both, in certain years, in
accordance with the principal repayment schedule specified under
"Description of the Certificates -- Pool Factors", subject to the
Intercreditor Agreement.
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(c) Redemption and
Purchase: (i) The Equipment Notes issued with respect to an Aircraft will be
redeemed in whole upon the occurrence of an Event of Loss with
respect to such Aircraft if such Aircraft is not replaced by
Northwest under the related Lease, in each case at a price equal
to the aggregate unpaid principal thereof, together with accrued
interest thereon to, but not including, the date of redemption,
but without any Make-Whole Premium.
(ii) All of the Equipment Notes issued with respect to any Aircraft
may be redeemed prior to maturity at a price equal to the aggregate
unpaid principal thereof, together with accrued interest thereon
to, but not including, the date of redemption, plus a Make-Whole
Premium. See "Description of the Equipment Notes -- Redemption"
for a description of the manner of computing such Make-Whole
Premium and the circumstances under which the Equipment Notes
may be so redeemed. Such Make-Whole Premium, if any, with
respect to each Series of Equipment Notes, will be payable only
if the date of redemption occurs prior to the dates set forth
below.
</TABLE>
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<CAPTION>
SERIES DATE
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<S> <C> <C>
Series A......................... July 2, 2010
Series B......................... July 2, 2008
Series C......................... October 2, 2003
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(iii) If, with respect to an Aircraft, (x) one or more Lease Events
of Default shall have occurred and be continuing, (y) the Loan
Trustee with respect to the related Equipment Notes shall take
action or notify the applicable Owner Trustee that it intends
to take action to foreclose the lien of the related Indenture
or otherwise commence the exercise of any significant remedy
under such Indenture or the related Lease or (z) the Leased
Aircraft Notes with respect to such Aircraft shall have been
accelerated, then in each case the Leased Aircraft Notes issued
with respect to such Aircraft may be purchased by the related
Owner Trustee or the beneficial owner of such Aircraft (the
"OWNER PARTICIPANT"), at a price equal to the aggregate unpaid
principal amount thereof, together with accrued interest
thereon to, but not including, the purchase date, but without
any Make-Whole Premium (provided that a Make-Whole Premium
shall be payable if such Leased Aircraft Notes are to be
purchased pursuant to clause (x) above when a Lease Event of
Default shall have occurred and be continuing for less than 180
days).
(iv) If (i) the manufacturer has failed to deliver a Prefunded
Aircraft to Northwest on or prior to the Prepayment Date or (ii)
following the delivery
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of any Prefunded Aircraft, the conditions precedent to
Northwest's assumption of Equipment Notes relating to such
Prefunded Aircraft are not met on or prior to thirtieth day
after the Cut-Off Date (but in no event later than the
Prepayment Date), then the Equipment Notes issued under the
related Indenture will be prepaid in full on or before the
fifteenth day after (x) the Prepayment Date, in the case of
clause (i) or (y) the date specified in clause (ii), in the case
of clause (ii), as the case may be, and the Loan Trustee will
apply amounts in the related Prefunding Collateral Account
together with the amounts required to be paid by Northwest to
pay the aggregate principal amount of such Equipment Notes,
together with accrued and unpaid interest thereon. In addition,
if a Triggering Event occurs prior to the Prepayment Date, then
the amounts on deposit in any Prefunding Collateral Account will
be applied, together with the amounts required to be paid by
Northwest, to prepay in full the aggregate principal amount of
the Equipment Notes relating to such Prefunding Collateral
Account, together with accrued and unpaid interest thereon, on
or before the fifteenth day after the occurrence of such
Triggering Event.
(v) The Series C Equipment Notes relating to the Prefunded Aircraft
may also be subject to prepayment in part, no later than 20 days
after the related Date of Sale of such Aircraft, in connection
with any reoptimization (subject to the Mandatory Economic Terms)
negotiated with the Owner Participant.
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(d) Security: Except as provided below, the Equipment Notes issued with respect to
each Aircraft will be secured by a security interest in such
Aircraft and an assignment to the related Loan Trustee of certain
of the related Owner Trustee's rights under the Lease (and the
related Guaranty) with respect to such Aircraft, including the
right to receive payments of rent thereunder, with certain
exceptions. See "Description of the Equipment Notes--The Guar-
anty."
In the case of the Indentures subject to the Predelivery Funding
described below, the principal amount of the Equipment Notes issued
by the related Owner Trustee under such Indentures will be secured
prior to delivery of the related Prefunded Aircraft by the related
Prefunding Collateral Account, which will be funded by the proceeds
of the sale of such Equipment Notes. Funds deposited in the related
Prefunding Collateral Account will be invested in obligations of,
or guaranteed by, the United States of America and in certain other
Specified Investments described herein.
Northwest will pay to the Loan Trustee any losses on the Specified
Investments and earnings on such Prefunding Collateral Account will
be paid to Northwest on the related Date of Sale. Northwest will
pay (i) interest due on the related Equipment Notes on each Regular
Distribution Date during the related Prefunding Period and (ii)
interest due on the first Regular Distribution Date after the
related Date of Sale for the period from the preceding Regular
Distribution Date (or, if none, the date of issuance of the
Equipment Notes) to the related Date of Sale.
If a Prefunded Aircraft is not sold to the related Owner Trust on or
prior to the Cut-off Date for any reason, Northwest will, unless
the manufacturer has failed to deliver such Aircraft to Northwest
on or prior to such date, assume, subject to certain conditions, on
a full recourse basis all of the obligations of the Owner Trustee
under the related Equipment Notes pursuant to an indenture
containing terms substantially identical to those contained in the
Leases
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S-14
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and Indentures described herein. Such Equipment Notes will be
secured by a lien on the related Prefunded Aircraft (which will be
an Owned Aircraft as described in the Prospectus) and will be Owned
Aircraft Notes (as described in the Prospectus).
There will be no cross-collateralization provisions in the Indentures
and, consequently, the Equipment Notes issued in respect of any one
Aircraft will not be secured by any other Aircraft or the Lease
related thereto. There will be no cross-default provisions in the
Indentures and, consequently, events resulting it an Indenture
Event of Default under one Indenture may not result in an Indenture
Event of Default occurring under any other Indenture. If the
Equipment Notes issued in respect of any one Aircraft are in
default, the Equipment Notes issued in respect of the other
Aircraft may not be in default and, if not in default, no remedies
will be exercisable under the Indenture with respect to such other
Aircraft. See "Description of the Equipment Certifi-
cates--Security" in the Prospectus and "Description of Equipment
Notes-- Indenture Events of Default, Notice and Waiver" in this
Prospectus Supplement.
Although the Leased Aircraft Notes are not obligations of, or
guaranteed by, Northwest (other than in respect of its obligations
during and ending with the Prefunding Period), the amounts
unconditionally payable by Northwest for lease of the Aircraft,
will be sufficient to pay in full when due all amounts required to
be paid on the Equipment Notes. See "Description of the Equipment
Notes -- General". Amounts payable by Northwest under each Lease
and under each Equipment Note assumed by Northwest (as described
above) will be unconditionally guaranteed by NWA Corp.
(e) Section 1110
Protection: Cadwalader, Wickersham & Taft, special leveraged lease counsel to
Northwest, has advised the Loan Trustees that the Owner Trustee, as
lessor under the Lease relating to each Aircraft, and the related
Loan Trustee, as assignee of such Owner Trustee's rights under such
Lease pursuant to the related Indenture, are entitled to the
benefits of 11 U.S.C. Section 1110 with respect to the airframe and
engines comprising the related Aircraft. See "Description of the
Equipment Notes -- Remedies" for a description of that opinion and
certain assumptions contained therein.
(f) Ranking: Series B Equipment Notes issued in respect of any Aircraft will be
subordinated in right of payment to Series A Equipment Notes issued
in respect of such Aircraft; and Series C Equipment Notes issued in
respect of such Aircraft will be subordinated in right of payment
to Series A and B Equipment Notes issued in respect of such
Aircraft. On each Distribution Date, (i) payments of interest and
principal due on Series A Equipment Notes issued in respect of any
Aircraft will be made prior to payments of interest and principal
due on Series B and C Equipment Notes issued in respect of such
Aircraft and (ii) payments of interest and principal due on such
Series B Equipment Notes will be made prior to payments of interest
and principal due on Series C Equipment Notes issued in respect of
such Aircraft.
Predelivery Funding: For six of the Indentures, the Aircraft related thereto (the
"PREFUNDED AIRCRAFT") will not have been purchased by the related
Owner Trustee on the date of the issuance of the related Equipment
Notes. Each of the Aircraft related to the
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other six Indentures (the "DELIVERED AIRCRAFT") will have been
delivered. The Prefunded Aircraft are expected to be purchased by
the related Owner Trustees between October 1997 and May 1998. Prior
to the purchase thereof by the Owner Trustee from Northwest, such
Prefunded Aircraft will be purchased by Northwest from the
manufacturer. Northwest will hold the beneficial interest under
each of the Trust Agreements relating to each such Prefunded
Aircraft until the Date of Sale. Northwest will transfer to such
Owner Participant on such date Northwest's beneficial interest
under the Trust Agreement. The proceeds of the sale of the
Equipment Notes issued under the Indentures relating to the
Prefunded Aircraft may only be (i) applied by the Owner Trustee to
the purchase of such Aircraft from Northwest, (ii) paid to
Northwest in connection with an assumption of the related Equipment
Notes as described below or (iii) applied to the redemption of such
related Equipment Notes as described below. Northwest is not
permitted to apply such funds to the initial purchase by it from
the manufacturer of a Prefunded Aircraft. If a Prefunded Aircraft
is not sold to the related Owner Trust on or prior to the Cut-off
Date for any reason, Northwest will, unless the manufacturer has
failed to deliver such Aircraft to Northwest on or prior to such
date, assume, subject to certain conditions, on a full recourse
basis all of the obligations of the Owner Trustee under the related
Equipment Notes pursuant to an indenture containing terms
substantially identical to those contained in the Leases and
Indentures described herein. Such Equipment Notes will be secured
by a lien on the related Prefunded Aircraft (which will be an Owned
Aircraft as described in the Prospectus) and will be Owned Aircraft
Notes (as described in the Prospectus). In connection with such
assumption, the Loan Trustee will release the amounts in the
Prefunding Collateral Account to Northwest to reimburse Northwest
for a portion of the purchase price previously paid by it for such
Aircraft. If (i) the manufacturer has failed to deliver a Prefunded
Aircraft to Northwest on or prior to the Prepayment Date or (ii)
following delivery of any Prefunded Aircraft, the conditions
precedent to Northwest's assumption of Equipment Notes relating to
such Prefunded Aircraft are not met on or prior to the thirtieth
day after the Cut-Off Date (but in no event later than the
Prepayment Date), then the Equipment Notes issued under the related
Indenture will be prepaid in full on or before the fifteenth day
after (x) the Prepayment Date, in the case of clause (i) or (y) the
date specified in clause (ii), in the case of clause (ii), as the
case may be, and the Loan Trustee will apply the amounts in the
related Prefunding Collateral Account together with the amounts
required to be paid by Northwest to pay the aggregate principal
amount of such Equipment Notes, together with accrued and unpaid
interest thereon. In addition, if a Triggering Event occurs prior
to the Prepayment Date, then the amounts on deposit on any
Prefunding Collateral Account will be applied, together with the
amounts required to be paid by Northwest, to prepay in full the
aggregate principal amount of the Equipment Notes relating to such
Prefunding Collateral Account, together with accrued and unpaid
interest thereon, on or before the fifteenth day after the
occurrence of such Triggering Event. See "Description of the
Certificates -- Obligation to Purchase of Equipment Notes",
"Description of the Equipment Notes--Prefunding Period" and
"--Redemption.
Liquidity
Facilities: The Subordination Agent and the Liquidity Provider will enter into a
revolving credit agreement (each, a "LIQUIDITY FACILITY") with
respect to each Trust.
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Except as provided below, under each of the Liquidity Facilities,
the Liquidity Provider will, if necessary, make advances ("INTEREST
DRAWINGS") in an aggregate amount (the "REQUIRED AMOUNT")
sufficient to pay interest on the Class A, B or C Certificates, as
the case may be, on up to three successive Regular Distribution
Dates (without regard to any future payments of principal on such
Certificates) at the respective interest rates (without any penalty
or default margin) on such Certificates (the "STATED INTEREST
RATES"). The initial amount available under the Liquidity
Facilities for the Class A Certificates, the Class B Certificates
and the Class C Certificates will be $ , $ ,
$ and $ , respectively. An Interest Drawing under
the relevant Liquidity Facility will be made promptly after any
Regular Distribution Date if, after giving effect to the
subordination provisions of the Intercreditor Agreement, there are
insufficient funds available to the Subordination Agent to pay
interest on any Class of Certificates; PROVIDED, HOWEVER, that on
any date the maximum amount available under such Liquidity Facility
to fund any shortfall in interest due on such Certificates will not
exceed the Required Amount. The Liquidity Facility for any Class of
Certificates does not provide for drawings thereunder to pay for
principal of or Make-Whole Premium on the Certificates of such
Class, any interest on the Certificates of such Class in excess of
the Stated Interest Rates, or principal of or interest or
Make-Whole Premium on the Certificates of any other Class. Further,
the Liquidity Facilities do not provide for drawings thereunder to
pay for interest on the Certificates supported by Equipment Notes
issued in respect of the Prefunded Aircraft for which the Date of
Sale has not occurred and which are not Owned Aircraft Notes.
Upon each Interest Drawing under any Liquidity Facility, the
Subordination Agent will be obligated to reimburse (to the extent
that the Subordination Agent has available funds therefor) the
Liquidity Provider for the amount of such drawing. Such
reimbursement obligation and any other amounts owing to the
Liquidity Provider under each Liquidity Facility or certain other
agreements (the "LIQUIDITY OBLIGATIONS") will rank PARI PASSU with
the Liquidity Obligations relating to all other Liquidity
Facilities and will rank senior to the Certificates in right of
payment. Upon reimbursement in full of the Interest Drawings (but
not other Drawings), together with any accrued interest thereon,
under any Liquidity Facility, the amount available under such
Liquidity Facility will be reinstated to the then Required Amount
of such Liquidity Facility; PROVIDED that the amount will not be
reinstated at any time after (i) the acceleration of all of the
outstanding Equipment Notes or (ii) (A) a Triggering Event shall
have occurred and (B) less than 65% of the then aggregate
outstanding principal amount of all Equipment Notes are Performing
Equipment Notes.
"NON-PERFORMING EQUIPMENT NOTES" are Equipment Notes other than
Performing Equipment Notes.
"PERFORMING EQUIPMENT NOTES" are Equipment Notes with respect to
which there is no payment default (without giving effect to any
acceleration thereof); provided that in the event of a bankruptcy
proceeding involving Northwest under Title 11 of the U.S. Code (the
"BANKRUPTCY CODE"), (i) any payment default existing during a
60-day period under Section 1110(a)(1)(A) of the Bankruptcy Code
(or such longer period as may apply under Section 1110(b)
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of the Bankruptcy Code) (the "SECTION 1110 PERIOD") shall not be
taken into consideration, unless during the Section 1110 Period the
trustee in such proceeding or Northwest refuses to assume or agree
to perform its obligations under the Lease related to such
Equipment Notes and (ii) any payment default occurring after the
date of the order of relief in such proceeding shall not be taken
into consideration if such payment default is cured under Section
1110(a)(1)(B) of the Bankruptcy Code before the later of 30 days
after the date of such default or the expiration of the Section
1110 Period.
"PERFORMING NOTE DEFICIENCY" means any time that less than 65% of the
then aggregate outstanding principal amount of all Equipment Notes
are Performing Equipment Notes.
If at any time the short-term unsecured debt rating of the Liquidity
Provider issued by either of the Rating Agencies is lower than the
Threshold Rating or, in the event the Liquidity Provider's
short-term unsecured debt is not rated by Moody's or Standard &
Poor's, the long-term unsecured debt rating of any Liquidity
Provider issued by either Moody's or Standard & Poor's is lower
than the Threshold Rating, then the Liquidity Provider for the
related Class of Certificates or the Subordination Agent may
arrange for another similar facility to be provided by a financial
institution having unsecured short-term debt ratings or, in the
event a selected financial institution's short-term unsecured debt
is not rated by Moody's or Standard & Poor's, long-term unsecured
debt ratings, issued by the applicable Rating Agencies which are
equal to or higher than the Threshold Rating. If such Liquidity
Facility is not replaced within the period specified in the
Intercreditor Agreement after notice of the downgrading, such
Liquidity Facility will be drawn in full (the "DOWNGRADE DRAWING")
and the proceeds will be deposited into the Cash Collateral Account
(as defined in the Intercreditor Agreement) for the related Class
of Certificates and used for the same purposes and under the same
circumstances and subject to the same conditions as cash payments
of Interest Drawings under such Liquidity Facility would be used.
The initial Liquidity Facility for each Class of Certificates is
scheduled to expire on the fifth anniversary of the closing of the
offering of the Certificates. The Intercreditor Agreement will
provide for the replacement or extension of each such Liquidity
Facility. If such Liquidity Facility or any replacement Liquidity
Facility is scheduled to expire prior to the date which is fifteen
days after the Final Legal Distribution Date for the related Class
of Certificates and such Liquidity Facility cannot be replaced or
extended by the date that is 25 days prior to the scheduled
expiration date of such Liquidity Facility, such Liquidity Facility
will be drawn in full (the "NON-EXTENSION DRAWING") on such
scheduled expiration date and the proceeds will be deposited in the
Cash Collateral Account for the related Class of Certificates and
used for the same purposes as cash payments of Interest Drawings
under such Liquidity Facility.
The Subordination Agent, in consultation with Northwest (whose
recommendations the Subordination Agent will accept in the absence
of a good faith reason not to), may, subject to certain
limitations, arrange for a replacement facility at any time to
replace the Liquidity Facility for any Trust. If such replacement
facility is provided at any time after a Downgrade Drawing or
Non-Extension Drawing for such Liquidity Facility, the funds on
deposit in the
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Cash Collateral Account for such Trust will be returned to the
Liquidity Provider being replaced.
Notwithstanding the subordination provisions of the Intercreditor
Agreement, the Liquidity Facility for any Class of Certificates
does not provide for drawings thereunder to pay principal of or
interest or Make-Whole Premium on the Certificates of any other
Class. Therefore, only the holders of the Certificates to be issued
by a particular Trust will be entitled to receive and retain the
proceeds of drawings under the Liquidity Facility for such Trust.
See "Description of the Liquidity Facilities".
Intercreditor Agree-
ment
(a) Subordination: The Trusts, the Liquidity Provider and the Subordination Agent will
enter into an agreement (the "INTERCREDITOR AGREEMENT") which will
provide as follows:
(i) All payments made in respect of the Equipment Notes and certain
other payments will be made to the Subordination Agent which will
distribute such payments in accordance with the provisions of
paragraphs (ii) and (iii) below.
(ii) On any Regular Distribution Date or Special Distribution Date
(each, a "DISTRIBUTION DATE"), so long as no Triggering Event shall
have occurred (whether or not continuing), all payments received
by the Subordination Agent in respect of the Equipment Notes and
certain other payments will be distributed in the following
order: (1) payment of the Liquidity Obligations; (2) payment of
Expected Distributions to the holders of Class A Certificates;
(3) payment of Expected Distributions to the holders of Class B
Certificates; (4) payment of Expected Distributions to the
holders of Class C Certificates; and (5) payment of certain fees
and expenses of the Subordination Agent and the Trustee.
"EXPECTED DISTRIBUTIONS" means, with respect to the Certificates of
any Trust on any Distribution Date (the "CURRENT DISTRIBUTION
DATE"), the sum of (x) accrued, due and unpaid interest on such
Certificates and (y) the difference between (A) the Pool Balance of
such Certificates as of the immediately preceding Distribution Date
and (B) the Pool Balance of such Certificates as of the Current
Distribution Date, calculated on the basis that (1) the principal
of the Equipment Notes held in such Trust has been paid when due
(whether at stated maturity, upon redemption, prepayment or
acceleration or otherwise) and such payments have been distributed
to the holders of such Certificates and (2) the principal of any
Equipment Note formerly held in such Trust that has been sold
pursuant to the Intercreditor Agreement has been paid in full and
such payment has been distributed to the holders of such
Certificate. In certain circumstances, the Make-Whole Premium will
be included as part of Expected Distributions.
(iii) Upon the occurrence of a Triggering Event and at all times
thereafter, all payments received by the Subordination Agent in
respect of the Equipment Notes and certain other payments will
be distributed in the following order: (1) to reimburse the
Subordination Agent, each Trustee, the Liquidity Provider and
any Certificateholder, as the case may be, for the payment of
Administration Expenses (as defined herein); (2) to the
Liquidity Provider
</TABLE>
S-19
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<TABLE>
<S> <C>
in payment of Liquidity Expenses, Liquidity Obligations and, so
long as no Performing Note Deficiency exists, to replenish Cash
Collateral Accounts; (3) to reimburse the Subordination Agent,
each Trustee and each Certificateholder, as the case may be,
for the payment of Certain Taxes and Fees (as defined herein);
(4) to pay Adjusted Expected Distributions to the holders of
Class A Certificates; (5) to pay Adjusted Expected
Distributions to the holders of Class B Certificates; (6) to
pay Adjusted Expected Distributions to the holders of Class C
Certificates; (7) the balance shall be held in the Collection
Account until the next Distribution Date or, if all Classes of
Certificates have been paid in full, shall be distributed to
the Owner Trustees to the extent that payments received from
the Loan Trustees exceed the amounts described in clauses (1)
through (6) above; and (8) the balance if any shall be
distributed to the Certificateholders of the related Trust.
Notwithstanding the foregoing, following the occurrence of a
Triggering Event, amounts paid to the Subordination Agent on
account of the application of proceeds of the Prefunding
Collateral Accounts (together with the amounts required to be
paid by Northwest) to prepay the aggregate principal amount of
the Equipment Notes, shall be distributed to the holders of the
Certificates of the corresponding Class.
"ADJUSTED EXPECTED DISTRIBUTIONS" means with respect to the
Certificates of any Class on any Current Distribution Date the sum
of (x) the amount of accrued and unpaid interest on such
Certificates plus (y) the greater of:
(A) the difference between (i) the Pool Balance of such Certificates
as of the immediately preceding Distribution Date and (ii) the Pool
Balance of such Certificates as of the Current Distribution Date,
calculated on the basis that (a) the principal of the
Non-Performing Equipment Notes held in such Trust has been paid
in full and such payments have been distributed to the holders of
such Certificates, and (b) the principal of the Performing Equip-
ment Notes has been paid when due (but without giving effect to
any acceleration of Performing Equipment Notes) and has been
distributed to the holders of such Certificates and (iii) the
principal of any Equipment Note formerly held in such Trust that
has been sold pursuant to the Intercreditor Agreement has been
paid in full and such payment has been distributed to the holders
of such Certificates; or
(B) the amount if any by which (i) the Pool Balance of such Class of
Certificates as of the immediately preceding Distribution Date (less
the aggregate principal amount of the Equipment Notes relating to
any Prefunded Aircraft for which the Date of Sale has not
occurred and which Northwest has not assumed) exceeds (ii) the
Aggregate LTV Collateral Amount for such Class of Certificates
for the Current Distribution Date;
PROVIDED, that until the date of the initial LTV Appraisals, clause
(B) above shall not be applicable.
"AGGREGATE LTV COLLATERAL AMOUNT" means for any Class of Certificates
for any Distribution Date the sum of the applicable LTV Collateral
Amounts for each Aircraft minus the Pool Balance for each Class of
Certificates if any senior to such Class after giving effect to any
distribution of principal on such Distribution Date on such senior
Class or Classes.
</TABLE>
S-20
<PAGE>
<TABLE>
<S> <C>
"APPRAISED CURRENT MARKET VALUE" of any Aircraft means the lower of
the average or the median of the most recent three LTV Appraisals
(as defined herein) of such Aircraft. After a Triggering Event
occurs and any Equipment Note becomes a Non-Performing Equipment
Note, the Subordination Agent will be required to obtain LTV
Appraisals to determine the Appraised Current Market Value and
additional LTV Appraisals on or prior to each anniversary of the
date of such initial LTV Appraisals; PROVIDED that, if the
Controlling Party reasonably objects to any LTV Appraisals, the
Controlling Party shall have the right to obtain or cause to be
obtained substitute LTV Appraisals (including any LTV Appraisals
based upon physical inspection of the Aircraft).
"LTV APPRAISAL" means a current fair market value appraisal (which
may be a "desktop" appraisal) performed by an Appraiser or any
other nationally recognized appraiser on the basis of an
arm's-length transaction between an informed and willing purchaser
under no compulsion to buy and an informed and willing seller under
no compulsion to sell, both parties having knowledge of all
relevant facts.
"LTV COLLATERAL AMOUNT" of any Aircraft for any Class of Certificates
for any Distribution Date means the lesser of (i) the LTV Ratio for
such Class of Certificates multiplied by the Appraised Current
Market Value of such Aircraft and (ii) the outstanding principal
amount of the Equipment Notes secured by such Aircraft after giving
effect to any principal payments of such Equipment Notes on or
before such Distribution Date.
"LTV RATIO" means for the Class A Certificates 43%, for the Class B
Certificates 61% and for the Class C Certificates 68.9%.
(b) Intercreditor
Rights: Pursuant to the Intercreditor Agreement, the Trustees and the
Liquidity Provider shall agree that, with respect to any Indenture
at any given time, the Loan Trustee will be directed (a) in taking,
or refraining from taking, any action thereunder, by the holders of
at least a majority of the outstanding principal amount of the
Equipment Notes issued thereunder (provided that, for so long as
the Subordination Agent is the registered holder of the Equipment
Notes, the Subordination Agent shall act with respect to this
clause (a) in accordance with the directions of the Trustees
representing holders of Certificates representing an undivided
interest in such principal amount of Equipment Notes) so long as no
Indenture Default shall have occurred and be continuing thereunder
and (b) after the occurrence and during the continuance of an
Indenture Default thereunder, subject to certain conditions, in
exercising remedies thereunder (including acceleration of such
Equipment Notes or foreclosing the lien on the Aircraft securing
such Equipment Notes), by the Controlling Party.
"CONTROLLING PARTY" with respect to any Indenture means: (x) the
Trustee for the Class A Trust; (y) upon payment of Final
Distributions to the holders of Class A Certificates, the Trustee
for the Class B Trust and (z) upon payment of Final Distributions
to the holders of Class B Certificates, the Trustee for the Class C
Trust. See "Description of the Certificates -- Indenture Defaults
and Certain Rights Upon an Indenture Default" for a description of
the rights of
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
the Certificateholders of each Trust to direct the respective
Trustee. Notwithstanding the foregoing, subject to certain
limitations, the Liquidity Provider shall have the right to elect
to become the Controlling Party at any time after 18 months from
the acceleration of the Equipment Notes, if at the time of such
election the Liquidity Obligations have not been paid in full;
PROVIDED that if there is more than one Liquidity Provider, the
Liquidity Provider with the greatest amount of unreimbursed
Liquidity Obligations shall have such right.
"FINAL DISTRIBUTIONS" means, with respect to the Certificates of any
Trust on any Distribution Date, the sum of (x) the aggregate amount
of all accrued and unpaid interest on such Certificates and (y) the
Pool Balance of such Certificates as of the immediately preceding
Distribution Date.
(i) Upon the occurrence and during the continuation of any Indenture
Default under any Indenture, the Controlling Party may accelerate and
sell all (but not less than all) of the Equipment Notes issued
under such Indenture to any person, subject to the provisions of
paragraph (ii) below. The proceeds of such sale will be
distributed pursuant to the provisions of the Intercreditor
Agreement.
(ii) So long as any Certificates are outstanding, during nine months
after the earlier of (x) the acceleration of the Equipment Notes
under any Indenture or (y) the bankruptcy or insolvency of
Northwest, without the consent of each Trustee, (a) no Aircraft
subject to the lien of such Indenture or such Equipment Notes
may be sold, if the net proceeds from such sale would be less
than the Minimum Sale Price for such Aircraft or such Equipment
Notes, and (b) the amount and payment dates of rentals payable
by Northwest under the Lease for such Aircraft may not be
adjusted, if, as a result of such adjustment, the discounted
present value of all such rentals would be less than 75% of the
discounted present value of the rentals payable by Northwest
under such Lease before giving effect to such adjustment, in
each case, using the weighted average interest rate of the
Equipment Notes outstanding under such Indenture as the discount
rate.
"MINIMUM SALE PRICE" means, with respect to any Aircraft or the
Equipment Notes issued in respect of such Aircraft, at any time,
the lesser of (1) 75% of the Appraised Current Market Value of such
Aircraft and (2) the aggregate outstanding principal amount of such
Equipment Notes, plus accrued and unpaid interest thereon.
Trustee: State Street Bank and Trust Company will act as Trustee and as paying
agent and registrar for the Certificates of each Trust. It will
also act as Loan Trustee for each issue of Equipment Notes. State
Street Bank and Trust Company of Connecticut, National Association,
an affiliate of State Street Bank and Trust Company, will act as
Subordination Agent under the Intercreditor Agreement. The
obligations of State Street Bank and Trust Company of Connecticut,
National Association, as Subordination Agent, will be guaranteed by
State Street Bank and Trust Company.
Federal Income
Tax Consequences: Each Trust should be classified as a grantor trust for federal income
tax purposes, and therefore each Certificate Owner should be
treated as the owner of a pro rata undivided interest in each of
the Equipment Notes and
</TABLE>
S-22
<PAGE>
<TABLE>
<S> <C>
any other property held by such Trust. Each Certificate Owner
should report on its federal income tax return its pro rata share
of income from such Equipment Notes and other property held by such
Trust in accordance with such Certificate Owner's method of
accounting. The Equipment Notes will not be issued with original
issue discount for U.S. federal income tax purposes. See "Certain
United States Federal Income Tax Consequences".
ERISA
Considerations: In general, employee benefit plans subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or an
individual retirement account or employee benefit plan subject to
Section 4975 of the Internal Revenue Code of 1986, as amended (the
"CODE") or entities which may be deemed to hold the assets of any
such plans (collectively, "ERISA PLANS") will be eligible to
purchase the Certificates, subject to certain conditions.
By its purchase and acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted
that either (i) no ERISA Plan assets have been used to purchase
such Certificate or (ii) one or more prohibited transaction
statutory or administrative exemptions applies such that the use of
such plan assets to purchase and hold such Certificate will not
constitute a non-exempt prohibited transaction under ERISA or
Section 4975 of the Code.
Each ERISA Plan fiduciary (and each fiduciary for a governmental or
church plan subject to rules similar to those imposed on ERISA
Plans) should consult with its legal advisor concerning an
investment in any of the Certificates. See "ERISA Considerations".
Rating of
the Certificates: It is a condition to the issuance of the Certificates that the
Certificates be rated by Moody's and Standard & Poor's as set forth
below.
</TABLE>
<TABLE>
<CAPTION>
CERTIFICATES MOODY'S STANDARD & POOR'S
- ------------------ ----------- -------------------
<S> <C> <C>
Class A A3 A
Class B Baa2 BBB
Class C Baa3 BBB-
</TABLE>
<TABLE>
<S> <C>
A rating is not a recommendation to purchase, hold or sell
Certificates, inasmuch as such rating does not address market price
or suitability for a particular investor. There can be no assurance
that such ratings will not be lowered or withdrawn by a Rating
Agency if, in the opinion of such Rating Agency, circumstances
(including the downgrading of Northwest or the Liquidity Provider)
so warrant. See 'Risk Factors -- Factors Relating to the
Certificates and the Offering -- Ratings of the Certificates".
</TABLE>
<TABLE>
<CAPTION>
MOODY'S STANDARD & POOR'S
----------- -------------------
<S> <C> <C> <C>
Rating of the Initial
Liquidity Provider:
Short-term........ P-1 A-1+
Long-term......... Aa2 AA-
Threshold Rating:
Short-term........ P-1 A-1
</TABLE>
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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents summary consolidated financial data and
operating statistics of NWA Corp. The annual historical financial data were
derived from NWA Corp. audited consolidated financial statements and the notes
thereto incorporated by reference in the Prospectus accompanying this Prospectus
Supplement and should be read in conjunction herewith. The consolidated
financial data for the interim periods ended June 30, 1997 and 1996 were derived
from unaudited consolidated financial statements of NWA Corp. and may not be
indicative of results for the year as a whole. See "Incorporation of Certain
Documents by Reference" in the Prospectus accompanying this Prospectus
Supplement.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (IN
MILLIONS, EXCEPT PER SHARE DATA):
Operating revenues
Passenger......................................... $ 4,268.9 $ 4,163.9 $ 8,598.3 $ 7,762.0 $ 7,010.1
Cargo............................................. 366.6 356.3 745.8 751.2 755.8
Other............................................. 297.6 285.0 536.4 571.7 559.0
--------- --------- --------- --------- ---------
4,933.1 4,805.2 9,880.5 9,084.9 8,324.9
Operating expenses(1)............................... 4,507.0 4,296.1 8,826.7 8,171.5 7,485.3
--------- --------- --------- --------- ---------
Operating income.................................... 426.1 509.1 1,053.8 913.4 839.6
Amounts before 1995 extraordinary item(2):
Income............................................ $ 200.8 $ 256.2 $ 536.1 $ 342.1 $ 295.5
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per common share:
Primary......................................... $ 1.84 $ 2.32 $ 4.93(3) $ 3.02(3) $ 2.92
Fully diluted................................... 1.67 2.10 4.48(3) 2.85(3) 2.87
OTHER DATA:
Ratio of earnings to fixed charges.................. 2.34x 2.65x 2.74x 1.90x 1.88x
OPERATING STATISTICS(4):
Scheduled service:
Available seat miles (millions)(5)................ 47,279.8 45,645.6 93,913.7 87,472.0 85,015.6
Revenue passenger miles (millions)(6)............. 34,734.5 33,138.0 68,639.1 62,515.2 57,873.2
Passenger load factor(%)(7)....................... 73.5 72.6 73.1 71.5 68.1
Revenue passengers (millions)..................... 26.5 25.6 52.7 49.3 45.5
Revenue yield per passenger mile
(cents)(8)...................................... 12.18 12.57 12.53 12.42 12.11
Passenger revenue per scheduled ASM (cents)....... 8.95 9.12 9.16 8.87 8.25
Operating revenue per total ASM (cents)(9).......... 9.66 9.82 9.85 9.58 8.93
Operating expense per total ASM (cents)(9).......... 8.82 8.76 8.78 8.66 8.08
Cargo ton miles (millions)(10)...................... 1,046.4 1,042.3 2,215.8 2,246.3 2,322.3
Cargo revenue per ton mile (cents).................. 35.0 34.2 33.7 33.4 32.5
Fuel gallons consumed (millions).................... 966.2 943.8 1,945.1 1,846.2 1,792.8
Average fuel cost per gallon (cents)................ 68.60 62.62 67.21 55.66 56.23
Number of operating aircraft at end of
period............................................ 399 397 399 380 361
Full-time equivalent employees at end
of period......................................... 48,197 46,863 47,536 45,124 43,673
</TABLE>
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<TABLE>
<CAPTION>
AT AT
JUNE 30, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
BALANCE SHEET DATA (IN MILLIONS):
Cash, cash equivalents & unrestricted short-term investments.......................... $ 959.7 $ 752.1
Total assets.......................................................................... 9,038.9 8,511.7
Long-term debt, including current maturities.......................................... 2,259.6 2,060.4
Mandatorily redeemable preferred security of subsidiary............................... 553.9 549.2
Redeemable preferred stock............................................................ 588.8 602.6
Common stockholders' equity........................................................... 309.7 92.9
</TABLE>
- ------------------------
(1) Effective January 1, 1996, NWA Corp. reports gains (losses) relating to the
disposition of assets as operating expenses instead of other income
(expense). This change had no impact on net income and gains (losses) on the
disposition of assets are excluded from unit cost calculations.
Reclassifications increased operating income $11.2 million and $9.2 million
for 1995 and 1994, respectively.
(2) The 1995 extraordinary item was $49.9 million ($.53 per primary share and
$.49 per fully diluted share).
(3) Excludes the effects of the 1996 preferred stock transaction ($.74 per
primary share and $.67 per fully diluted share) and the 1995 preferred stock
transaction ($.62 per primary share and $.58 per fully diluted share).
(4) All statistics exclude Express Airlines I, Inc.
(5) "AVAILABLE SEAT MILES" ("ASMS") represents the number of seats available for
passengers multiplied by the number of scheduled miles the seats are flown.
(6) "REVENUE PASSENGER MILES" represents the number of miles flown by revenue
passengers in scheduled service.
(7) "PASSENGER LOAD FACTOR" is calculated by dividing revenue passenger miles by
available seat miles, and represents the percentage of aircraft seating
capacity utilized.
(8) "REVENUE YIELD PER PASSENGER MILE" represents the average revenue received
from each mile a passenger is flown in scheduled service.
(9) Excludes the estimated revenues and expenses associated with the operation
of Northwest's fleet of eight 747 freighter aircraft and MLT Inc.
(10) "CARGO TON MILES" represents the tonnage of freight and mail carried
multiplied by the number of miles flown.
S-25
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE CERTIFICATES SHOULD CAREFULLY REVIEW THE
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND SHOULD PARTICULARLY CONSIDER THE FOLLOWING MATTERS:
COMPANY RELATED RISKS
INDEBTEDNESS
As of June 30, 1997, NWA Corp. had long-term debt (47% of which bears
interest at floating rates) and capital lease obligations of $2.7 billion
(excluding current maturities of $289 million). Maturities of long-term debt as
of June 30, 1997 were $110 million in 1997, $161 million in 1998 and $184
million in 1999. As of December 31, 1996, future minimum lease payments under
capital leases and noncancellable operating leases with initial or remaining
terms of more than one year were $572 million in 1997 and $566 million in 1998
and $528 million in 1999. These amounts do not include, as of June 30, 1997, (i)
NWA Corp.'s mandatory redemption obligation in an aggregate amount equal to
$339.5 million in respect of its Series C Preferred Stock beginning in 2003,
(ii) the nonrecourse mandatorily redeemable preferred security of NWA Corp.'s
subsidiary in an amount equal to $553.9 million and (iii) approximately $1.37
billion to (a) acquire all NWA Corp. common stock currently held by KLM Royal
Dutch Airlines ("KLM") and (b) acquire all NWA Corp. Series A and B Preferred
Stock. See "The Company -- Recent Developments".
NEGATIVE NET WORTH
NWA Corp. had common stockholders' equity as of June 30, 1997 of $309.7
million. Common stockholders' equity will become negative upon the execution of
definitive documentation providing for the repurchase by NWA Corp. of all of its
common stock currently held by KLM. As a result, there may be investors and
lenders who have policies that limit or preclude their investment in or lending
to companies with a common stockholders' equity deficit, and therefore NWA
Corp.'s potential common stockholders' equity deficit may affect its ability to
obtain additional financing in the future. See "The Company -- Recent
Developments".
POSSIBLE LIMITATION ON NOL CARRYFORWARDS
NWA Corp. utilized net operating loss carryforwards ("NOLS") of
approximately $121.8 million and $684.4 million in 1996 and 1995, respectively,
and alternative minimum tax net operating loss carryforwards ("AMTNOLS") of
$105.1 million in 1995. Sections 382 and 383 of the Code and the regulations
thereunder impose limitations on the carryforward amounts of NOLS, AMTNOLs and
credits that can be used to offset taxable income (or used as a credit) in any
single tax year if the corporation experiences more than a 50% ownership change,
as defined therein, over a three-year testing period ending on any testing date.
In general, if such an "ownership change" occurs, Section 382 limits the amount
of NOLs, AMTNOLs and credits which may be carried forward from pre-ownership
change years that can be used in any one post-change year to an amount equal to
the product of the value of the corporation's stock for tax purposes immediately
before the change multiplied by the "long-term tax-exempt rate" as determined by
the Internal Revenue Service (the "IRS") for the month of the change. NWA Corp.
believes that an offering of outstanding common stock by existing stockholders
in November 1995 triggered an ownership change but that no ownership change
occurred prior to such offering. If such an ownership change in fact occurred as
a result of the November 1995 offering, NWA Corp. believes that, even as limited
by Sections 382 and 383 of the Code, the NOLs, AMTNOLs and credits would be used
significantly earlier than their expiration, and the annual limitations would
not have an adverse impact on NWA Corp. However, if the IRS were to successfully
assert that an ownership change had occurred on any prior date, including August
1, 1993 (the date of NWA Corp.'s labor cost savings agreements), the impairment
of NWA Corp.'s
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<PAGE>
ability to use its NOLs, AMTNOLs and credit carryforwards would be significant
because the value of NWA Corp.'s stock on certain prior testing dates (which
adversely affects the annual limitation described above) was relatively low.
OTHER TAX MATTERS
In November 1995, the IRS issued proposed adjustments to the tax returns of
NWA Corp. for the 1988 through 1991 tax years. Certain of these proposed
adjustments result from a disagreement between NWA Corp. and the IRS as to the
timing of the recognition of approximately $385 million of taxable income. The
IRS also proposed that NWA Corp. recognize additional taxable income of
approximately $375 million. NWA Corp. disagrees with the IRS' proposals. NWA
Corp. is vigorously contesting all of the proposed adjustments and believes its
positions are correct. To the extent the IRS were to prevail on any of these
issues, NWA Corp. would recognize taxable income and utilize net operating loss
carryforwards sooner than otherwise scheduled. For financial reporting purposes,
any adjustments to taxable income would largely be accounted for as temporary
differences and would not result in a material charge to NWA Corp.'s income tax
expense.
FOREIGN CURRENCY EXPOSURE
A significant portion of NWA Corp.'s and its subsidiaries operations is
conducted in foreign countries. Consequently, NWA Corp. has operating revenues
and (to a lesser extent) operating expenses, as well as assets and liabilities,
denominated in foreign currencies, particularly in Japanese yen. Its operating
performance can therefore be significantly affected by fluctuations in those
currencies. From time to time, the Company uses a forward exchange and collar
option strategy to hedge its anticipated yen-denominated net cash flows. As of
June 30, 1997, the Company had entered into forward exchange and collar option
contracts to hedge approximately 90% of its remaining 1997 anticipated
yen-denominated net cash flows.
INDUSTRY RELATED RISKS
INDUSTRY CONDITIONS AND COMPETITION
The airline industry is highly competitive and susceptible to price
discounting. Airline profit levels are highly sensitive to, and from 1990 to
1992 were severely impacted by, adverse changes in fuel costs, average yield
(fare levels) and passenger demand. Passenger demand and yields were adversely
affected during this period by, among other things, the general state of the
economy, the Persian Gulf War and actions taken by carriers with respect to
fares. As a result of this adverse operating environment, from 1990 to 1992 the
domestic airlines industry, including NWA Corp., incurred unprecedented losses.
The emergence in recent years of several new carriers, typically with low
cost structures, has further increased the competitive pressures on the major
U.S. airlines. In some cases, the new entrants have initiated or triggered price
discounting. Aircraft, skilled labor and gates at most airports continue to be
available to start-up carriers. The commencement of service by new carriers on
Northwest's routes could negatively impact Northwest's operating results. In
addition, certain existing U.S. domestic carriers compete primarily by offering
low-cost air service on route networks that do not employ hub and spoke systems.
These discount air carriers could affect the yields of major domestic carriers
such as Northwest.
Although the domestic airline industry has at present abandoned deeply
discounted general pricing structures, and fare levels have continued to
increase from 1992 levels, significant industry-wide discounts could be
reimplemented at any time, and the introduction of broadly available, deeply
discounted fares by a major U.S. airline would result in lower yields for the
entire industry and could have a material adverse effect on NWA Corp.'s
operating results.
S-27
<PAGE>
AIRCRAFT FUEL
Because fuel costs are a significant portion of NWA Corp.'s operating costs
(approximately 14.8% for 1996), significant changes in fuel costs would
materially affect NWA Corp.'s operating results. Fuel prices continue to be
susceptible to, among other factors, political events, and NWA Corp. cannot
control near or longer-term fuel prices. In the event of a fuel supply shortage
resulting from a disruption of oil imports or otherwise, higher fuel prices or
curtailment of scheduled service could result. A one cent change in the cost per
gallon of fuel (based on 1996 consumption) would impact operating expense by
approximately $1.6 million per month. Changes in fuel prices may have a greater
impact on Northwest than some of its competitors because of the composition of
its fleet.
REGULATORY MATTERS
In the last several years, the Federal Aviation Administration (the "FAA")
has issued a number of maintenance directives and other regulations relating to,
among other things, collision avoidance systems, airborne windshear avoidance
systems, noise abatement and increased inspection requirements. Northwest and,
indirectly NWA Corp., expect to continue to incur expenditures for the purpose
of complying with the FAA's noise and aging aircraft regulations.
Additional laws and regulations have been proposed from time to time which
could significantly increase the cost of airline operations by, for instance,
imposing additional requirements or restrictions on operations. Laws and
regulations also have been considered from time to time that would prohibit or
restrict the ownership and/or transfer of airline routes or takeoff and landing
slots. Also, the award of international routes to U.S. carriers (and their
retention) is regulated by treaties and related agreements between the U.S. and
foreign governments which are amended from time to time. NWA Corp. cannot
predict what laws and regulations will be adopted or what changes to
international air transportation treaties will be effected, if any, or how they
will affect Northwest.
FACTORS RELATING TO THE CERTIFICATES AND THE OFFERING
APPRAISALS AND REALIZABLE VALUE OF AIRCRAFT
The appraised value of each Aircraft is based upon the lesser of the average
or median value of such Aircraft as appraised by the Appraisers (the
"APPRAISALS"). The Appraisals are based on various assumptions and
methodologies, which vary among the Appraisals. For a discussion of the
assumptions and methodologies used in preparing each of the Appraisals,
reference is hereby made to the summaries of the Appraiser's reports with
respect to the Appraisals, copies of which are included in Appendix II hereto.
Appraisals that are prepared based on different assumptions or methodologies may
result in valuations that are significantly different from those contained in
the Appraisals. An appraisal is only an estimate of value and should not be
relied upon as a measure of realizable value. The proceeds realized upon the
sale of any Aircraft may be less than the appraised value thereof. In addition,
the value of the Aircraft in the event of the exercise of remedies under the
applicable Indenture will depend on market and economic conditions at the time,
the availability of buyers, the condition of the Aircraft, whether the Aircraft
are sold separately or as a block and other factors. Accordingly, there can be
no assurance that the proceeds realized upon any such exercise with respect to
the Equipment Notes and the Aircraft pursuant to the applicable Indenture would
be as appraised or sufficient to satisfy in full payments due on the Equipment
Notes issued thereunder or the Certificates. See "Description of the Aircraft
and the Appraisals".
The Equipment Notes are not cross-collateralized and, consequently,
liquidation proceeds from the sale of an Aircraft in excess of the principal
amount of the Equipment Notes related to such Aircraft will not be available to
cover losses if any on any other Equipment Notes.
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MAINTENANCE
Northwest is responsible for the maintenance, service, repair and overhaul
of the Aircraft, but only to the extent described in the Leases. The failure of
Northwest (or any Sublessee) to adequately maintain, service, repair or overhaul
an Aircraft may adversely affect the value of such Aircraft and thus, upon a
liquidation of the Aircraft, may affect the proceeds available to repay the
holders of the Equipment Notes. Under the Leases, the applicable maintenance
standards will vary depending upon the jurisdiction in which an Aircraft is
registered and if an Aircraft is subleased. Notwithstanding compliance by
Northwest (or any Sublessee) with its obligations under the Lease to adequately
maintain, service, repair or overhaul the Aircraft, the value of the Aircraft
may deteriorate. Such a deterioration in the value of the Aircraft would not, in
and of itself, constitute a breach by Northwest of its obligations under the
Leases. See "Description of the Equipment Notes -- The Leases".
INSURANCE
Northwest is responsible for the maintenance of public liability, property
damage and all-risk aircraft hull insurance on the Aircraft to the extent
described in the Leases. The failure of Northwest to adequately insure the
Aircraft, or the retention of self-insurance amounts, will affect the proceeds
which could be obtained upon an Event of Loss and, thus, may affect the proceeds
available to repay the holders of the Equipment Notes.
With respect to any insurance required, Northwest may maintain such
deductibles or self-insurance amounts as Northwest customarily maintains with
respect to other aircraft owned or leased, and operated, by Northwest; PROVIDED,
HOWEVER, that, in the case of required all-risk aircraft hull insurance, such
deductibles and self-insurance are subject to certain maximum amounts. See
"Description of the Equipment Notes -- The Leases -- Insurance".
REPOSSESSION
The Leases do not contain any general geographic restriction on Northwest's
(or any Sublessee's) ability to operate the Aircraft. Although Northwest has no
current intention to do so, Northwest is also permitted, upon compliance with
the Leases, to register the Aircraft in foreign jurisdictions. In addition,
Northwest is permitted to and currently intends to sublease the Aircraft, in
accordance with the terms of the Leases, to Mesaba Aviation, Inc. ("MESABA").
See "Description of the Equipment Notes -- The Leases -- Registration,
Subleasing and Possession." While the Loan Trustees' rights and remedies in the
event of a default under the Leases include the right to terminate the Leases
and repossess the Aircraft, it may be difficult, expensive and time-consuming to
obtain possession of the Aircraft, particularly when an Aircraft located outside
the U.S. has been registered in a foreign jurisdiction or is subleased to a
foreign operator. Any such exercise of the right to repossess the Aircraft may
be subject to the limitations and requirements of applicable law, including the
need to obtain consents or approvals for deregistration or reexport of the
Aircraft, which may be subject to delays and to political risk. When a
defaulting Sublessee or other permitted transferee is the subject of a
bankruptcy, insolvency or similar event, such as protective administration,
additional limitations may apply.
Furthermore, certain jurisdictions may accord higher priority to certain
other liens or other third-party rights over the Aircraft. These factors could
limit the benefits of the security interest in the Aircraft.
As permitted under the Leases, an Airframe subject to a Lease may not be
equipped with Engines subject to the same Lease and Engines subject to a Lease
may not be on an Airframe subject to that Lease. As a result, notwithstanding
Northwest's agreement in the Leases to transfer title to engines not owned by
the applicable Owner Trustee that are attached to repossessed Aircraft, at the
time of obtaining repossession it could be difficult, expensive and
time-consuming to assemble an Aircraft consisting of an Airframe and the Engines
subject to the same Lease.
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PRIORITY OF DISTRIBUTIONS; SUBORDINATION
Pursuant to the Intercreditor Agreement to which the Trusts, the
Subordination Agent and the Liquidity Provider will be parties, on each
Distribution Date, so long as no Triggering Event shall have occurred, all
payments received by the Subordination Agent will be distributed in the
following order: (1) payment of the Liquidity Expenses and Liquidity Obligations
to the Liquidity Provider; (2) payment of Expected Distributions to the holders
of Class A Certificates; (3) payment of Expected Distributions to the holders of
Class B Certificates; (4) payment of Expected Distributions to the holders of
Class C Certificates; and (5) payment of certain fees and expenses of the
Subordination Agent and the Trustee.
In addition, upon the occurrence of a Triggering Event and at all times
thereafter, all payments received by the Subordination Agent in respect of the
Equipment Notes and certain other payments will be distributed under the
Intercreditor Agreement in the following order: (1) to reimburse the
Subordination Agent, each Trustee, the Liquidity Provider and any
Certificateholder, as the case may be, for the payment of Administration
Expenses; (2) to the Liquidity Provider in payment of Liquidity Expenses,
Liquidity Obligations and, so long as no Performing Note Deficiency Exists, to
replenish Cash Collateral Accounts; (3) to reimburse the Subordination Agent,
each Trustee and each Certificateholder, as the case may be, for the payment of
Certain Taxes and Fees; (4) to pay Adjusted Expected Distributions to the
holders of Class A Certificates; (5) to pay Adjusted Expected Distributions to
the holders of Class B Certificates; (6) to pay Adjusted Expected Distributions
to the holders of Class C Certificates; (7) the balance shall be held in the
Collection Account until the next Distribution Date or, if all Classes of
Certificates have been paid in full, shall be distributed to the Owner Trustees
to the extent that payments received from the Loan Trustees exceed the amounts
described in clauses (1) through (6) above; and (8) the balance if any shall be
distributed to the Certificateholders of the related Trust. Notwithstanding the
foregoing, following the occurrence of a Triggering Event, amounts paid to the
Subordination Agent on account of the application of proceeds of the Prefunding
Collateral Accounts (together with the amounts required to be paid by Northwest)
to prepay the aggregate principal amount of the Equipment Notes, shall be
distributed to the holders of the Certificates of the corresponding Class.
The priority of distributions after a Triggering Event will have the effect
in certain circumstances of distributing payments received in respect of one or
more junior series of Equipment Notes to more senior Classes of Certificates. If
this should occur, the interest accruing on the remaining Equipment Notes would
be less than the interest accruing on the remaining Certificates because the
Certificates would have a greater proportion of high interest rate junior
classes. As a result of this possible interest shortfall, the holders of one or
more junior Classes of Certificates may not receive the full amount due them
after a Triggering Event even if all the Equipment Notes are eventually paid in
full.
CONTROL OVER COLLATERAL; SALE OF COLLATERAL
Pursuant to the Intercreditor Agreement, the Trustee and the Liquidity
Provider will agree that, with respect to any Indenture at any given time, the
Loan Trustee will be directed (a) in taking, or refraining from taking, any
action thereunder by the holders of at least a majority of the outstanding
principal amount of the Equipment Notes issued thereunder as long as no
Indenture Default has occurred and is continuing thereunder and (b) subject to
certain conditions, in exercising remedies thereunder (including acceleration of
such Equipment Notes or foreclosing the lien on the Aircraft securing such
Equipment Notes) insofar as an Indenture Default has occurred and is continuing
by the Controlling Party. See "Description of the Certificates -- Indenture
Defaults and Certain Rights Upon an Indenture Default" for a description of the
rights of the Certificateholders of each Trust to direct the respective Trustee.
Notwithstanding the foregoing, subject to certain limitations, the Liquidity
Provider shall have the right to direct such Loan Trustee at any time after 18
months from the acceleration of the Equipment Notes under such Indenture, if at
the time of such election the Liquidity Obligations have not been paid in full.
For purposes of giving effect to the foregoing, the Trustees (other than the
Controlling Party) shall irrevocably agree (and the Certificateholders (other
than the Certificateholders represented by the Controlling Party)
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shall be deemed to agree by virtue of their purchase of Certificates) to
exercise their voting rights as directed by the Controlling Party.
Upon the occurrence and during the continuation of any Indenture Default
under any Indenture, the Controlling Party may accelerate and, subject to the
provisions of the immediately following sentence, sell all (but not less than
all) of the Equipment Notes issued under such Indenture to any person. So long
as any Certificates are outstanding, during nine months after the earlier of (x)
the acceleration of the Equipment Notes under any Indenture or (y) the
bankruptcy or insolvency of Northwest, without the consent of each Trustee, (a)
no Aircraft subject to the lien of such Indenture or such Equipment Notes may be
sold, if the net proceeds from such sale would be less than the Minimum Sale
Price for such Aircraft or such Equipment Notes, and (b) the amount and payment
dates of rentals payable by Northwest under the Lease for such Aircraft may not
be adjusted, if, as a result of such adjustment, the discounted present value of
all such rentals would be less than 75% of the discounted present value of the
rentals payable by Northwest under such Lease before giving effect to such
adjustment, in each case, using the weighted average interest rate of the
Equipment Notes outstanding under such Indenture as the discount rate.
OWNER PARTICIPANT; REVISIONS TO AGREEMENTS
In connection with the purchase of Prefunded Aircraft, the Owner Participant
may request revisions to the Participation Agreement, Lease, Trust Agreement and
Indenture applicable to the Owner trust related thereto so that the terms of
such agreements applicable to these Aircraft may differ from the description of
such agreements contained in this Prospectus Supplement.
Notwithstanding the foregoing, the terms of such agreements are required to
(i) contain the Mandatory Document Terms and (ii) not vary the Mandatory
Economic Terms. In addition, Northwest is obligated (i) to certify to the
Trustee that any such modifications will not materially and adversely affect the
Certificateholders and (ii) if the documents are modified in any material
respect, to obtain written confirmation from each Rating Agency that the use of
modified versions of such agreements will not result in a withdrawal, suspension
or downgrading of the rating of any Class of Certificates.
The Owner Participant will have the right to sell, assign or otherwise
transfer its interests as Owner Participant in any leveraged lease, subject to
the terms and conditions of the relevant Participation Agreement and related
documents.
PREFUNDING COLLATERAL ACCOUNT
During the Prefunding Period, Northwest will hold the beneficial interest
under the Trust Agreement relating to each Prefunded Aircraft until the Date of
Sale (which date may be up to 120 days after the delivery date of such Prefunded
Aircraft to Northwest) (each trust, the beneficial interest in which is held by
Northwest, a "NORTHWEST TRUST"). Northwest will transfer to such Owner
Participant on such date Northwest's beneficial interest under the Trust
Agreement. The proceeds of the sale of the Equipment Notes issued under the
Indentures relating to the Prefunded Aircraft will be secured prior to delivery
of the related Prefunded Aircraft by the related Prefunding Collateral Account,
which will be funded by the proceeds of the sale of such Equipment Notes. Funds
deposited in the related Prefunding Collateral Account will be invested in
obligations of, or guaranteed by, the United States of America and in certain
other Specified Investments described herein. In the event Northwest becomes
subject to insolvency proceedings, each Northwest Trust, the related Prefunding
Collateral Account and the obligation to make payments on the related Equipment
Notes might also become subject to such insolvency proceedings. In such event
delays of distributions on such Equipment Notes, possible reductions in the
amount of payments of principal of and interest on such Equipment Notes and
limitations (including a stay) on the exercise of remedies under the related
Indentures could occur.
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RATINGS OF THE CERTIFICATES
It is a condition to the issuance of the Certificates that the Class A
Certificates be rated A3 by Moody's and A by Standard & Poor's, the Class B
Certificates be rated Baa2 by Moody's and BBB by Standard & Poor's and the Class
C Certificates be rated Baa3 by Moody's and BBB- by Standard & Poor's. A rating
is not a recommendation to purchase, hold or sell Certificates, inasmuch as such
rating does not address market price or suitability for a particular investor.
There is no assurance that a rating will remain for any given period of time or
that a rating will not be lowered or withdrawn entirely by a Rating Agency if in
its judgment circumstances in the future (including the downgrading of Northwest
or the Liquidity Provider) so warrant. The rating of the Certificates is based
primarily on the default risk of the Equipment Notes, the availability of the
Liquidity Facility for the holders of the Certificates, the collateral value
provided by the Aircraft and the subordination in right of payment under the
Intercreditor Agreement of the Class B Certificates to the Class A Certificates
and of the Class C Certificates to the Class B Certificates. The foregoing
ratings address the likelihood of timely payment of interest (at the non-default
rate) when due on the Certificates and the ultimate payment of principal of the
Certificates by the Final Legal Distribution Date. Such ratings do not address
the possibility of a PTC Event of Default or an Indenture Default or other
circumstances (such as an Event of Loss) which could result in the payment of
the outstanding principal amount of the Certificates prior to the Final Expected
Distribution Date.
The reduction, suspension or withdrawal of the ratings of the Certificates
will not, in and of itself, constitute an Event of Default.
ABSENCE OF A PUBLIC MARKET FOR THE CERTIFICATES
Prior to the offering of the Certificates, there has been no public market
for the Certificates and neither Northwest nor any Trust intends to apply for
listing of the Certificates on any securities exchange or for quotation of the
Certificates on The Nasdaq Stock Market's National Market or otherwise.
Northwest has been advised by the Underwriters that one or more of them
presently intend to make a market in the Certificates, as permitted by
applicable laws and regulations, after consummation of the offering contemplated
hereby. None of the Underwriters is obligated, however, to make a market in the
Certificates and any such market making activity may be discontinued at any time
without notice at the sole discretion of each Underwriter. There can be no
assurance as to the liquidity of the public market for the Certificates or that
any active public market for the Certificates will develop. If an active public
market does not develop, the market price and liquidity of the Certificates may
be adversely affected.
THE COMPANY
NWA Corp. was incorporated in February 1989 under the laws of the State of
Delaware. Northwest, the principal wholly-owned indirect subsidiary of NWA
Corp., operates the world's fourth largest airline (as measured by 1996 revenue
passenger miles ("RPMs")) and is engaged principally in commercial
transportation of passengers and cargo. Northwest's business focuses on the
development of a global airline network through the optimization of its domestic
hubs at Detroit, Minneapolis/St. Paul and Memphis, an extensive Pacific route
system with hubs at Tokyo and Osaka, and a transatlantic alliance with KLM,
which operates through a hub in Amsterdam. Northwest began operations in 1926.
Northwest operates substantial domestic and international route networks and
as of December 31, 1996, directly served more than 150 cities in 18 countries on
the continents of North America, Asia and Europe. Northwest had more than 52
million enplanements and flew over 68 billion RPMs in 1996.
RECENT DEVELOPMENTS
In July 1997, the Company and KLM reached agreement in principle on a
long-term commercial and operational alliance. The agreement in principle is
subject to the execution of definitive documentation, the approval of the board
of KLM, the consent of NWA Corp.'s other Series B Preferred stockholder,
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NWA Corp.'s and KLM's conclusion that U.S. Department of Transportation (the
"DOT") approval is not necessary or, if such approval is required, the receipt
of such approval, and certain other conditions. The agreement in principle
provides for a minimum term of 10 years for the alliance and includes the
acquisition by NWA Corp. of all its common and preferred stock currently held by
KLM and options held by KLM to purchase additional common stock of NWA Corp.
NWA Corp. will repurchase the stock from KLM in four tranches, the first of
which will include 6.8 million NWA Corp. common shares and the preferred shares
held by KLM. The purchase price for the first tranche of common stock is $40 per
common share. The purchase price for the second, third and fourth tranches,
which will include 4.9 million, 3.22 million and 10.05 million common shares,
respectively, will accrete an amount presently set at approximately seven
percent per year from $40 per common share, subject to adjustment for certain
change in control or equity issuance transactions.
The financial accounting implications of the arrangement to acquire common
stock will be to reduce common stockholders' equity by approximately $1.1
billion when the agreement is executed and to reduce the average outstanding
common shares used in the EPS denominator over time as the common shares are
actually acquired by NWA Corp. In connection with the KLM share repurchases, NWA
Corp. also expects to repurchase all other outstanding shares of Series B
Preferred Stock.
DOMESTIC SYSTEM
Operating revenues from Northwest's domestic operations were $6.26 billion
in 1996, $5.64 billion in 1995 and $5.23 billion in 1994. Northwest's domestic
route authority from the DOT permits it to engage in the interstate and overseas
transportation of passengers, freight and mail between all points in the U.S.
and its territories and possessions. The domestic system serves 43 states, the
District of Columbia, Mexico, Canada and the Caribbean. Northwest operates its
domestic system based on the hub-and-spoke strategy. Northwest's hubs at
Detroit, Minneapolis/St. Paul and Memphis provide point-to-point and connecting
service and feed traffic into Northwest's gateway cities for international
service. Northwest operates international flights from its Detroit and
Minneapolis/St. Paul hubs as well as from Boston, Seattle, San Francisco, Los
Angeles, Honolulu, Chicago, Washington D.C. and New York.
DETROIT. Northwest and its Northwest Airlink regional partners ("NORTHWEST
AIRLINK") together serve over 115 cities from Detroit. In 1996, Northwest
enplaned approximately 68% of originating jet passengers from this hub, while
the next largest competitor enplaned approximately 7%. Detroit, which is the
seventh largest origination/destination hub in the U.S., is Northwest's largest
international gateway from the continental U.S., offering non-stop flights to 15
foreign cities, including 17 non-stop flights to Japan per week.
MINNEAPOLIS/ST. PAUL. Northwest and Northwest Airlink together serve over
130 cities from Minneapolis/St. Paul. In 1996, Northwest enplaned approximately
77% of originating jet passengers from this hub, while the next largest
competitor enplaned approximately 4%. Minneapolis/St. Paul is the tenth largest
origination/destination hub in the U.S.
MEMPHIS. Northwest and Northwest Airlink together serve over 85 cities from
Memphis. In 1996, Northwest enplaned approximately 59% of originating jet
passengers from this hub, while the next largest competitor enplaned
approximately 17%.
MEXICAN/CARIBBEAN/CANADIAN ROUTES. Northwest, together with Northwest
Airlink, currently operates service to six cities in Mexico, 14 cities in Canada
and five cities in the Caribbean.
INTERNATIONAL SYSTEM
Operating revenues from foreign operations were approximately $3.39 billion
in 1996, $3.17 billion in 1995 and $2.83 billion in 1994. Northwest operates its
international routes pursuant to route certificates
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issued by the DOT. A substantial portion of Northwest's Pacific route
certificates are permanent and do not require renewal by the DOT. Certain other
international route certificates are temporary and subject to periodic renewal
by the DOT. Northwest requests extensions of these certificates when and as
appropriate. The DOT typically renews temporary authorities on routes where the
authorized carrier is providing a reasonable level of service.
PACIFIC. Northwest has served the Pacific market since 1947 and has one of
the world's largest Pacific route networks, with over 450 weekly flights.
Northwest's Pacific operations are concentrated at its Tokyo hub.
Northwest provides passenger service between various points in the U.S. and
Japan and operates flights between Japan and Korea, Taiwan, Hong Kong, the
Philippines, Thailand, Singapore, China and Northern Mariana Islands. Northwest
also operates direct flights from Detroit to Seoul, Korea and from Seattle to
Hong Kong. At the end of 1996, Northwest was providing seven flights each week
to China, including three non-stop flights between Detroit and Beijing, the only
regularly scheduled non-stop service from the U.S. to China's capital operated
by a U.S. carrier. Northwest also provides extensive service to Osaka and
currently operates 42 weekly departures from Osaka.
Northwest's Japan presence results from the 1952 U.S.-Japan bilateral
aviation agreement, which establishes route rights to carry traffic between
Japan and as many as 16 U.S. gateway cities and extensive "fifth freedom" rights
between Japan and other Asian destinations. Northwest has the largest slot
portfolio of any non-Japanese airline at Tokyo's slot-constrained Narita
International Airport, with 316 weekly takeoff and landing slots. Northwest uses
its route certificate and slot portfolio to operate a network linking eight U.S.
gateways and ten Asian and Micronesian destinations via Tokyo. Northwest and
United Air Lines, Inc. are the only U.S. passenger carriers that have fifth
freedom rights for Japan.
ATLANTIC. Northwest and KLM presently operate their transatlantic flights
pursuant to a joint venture alliance. Through this alliance, Northwest has
expanded its presence in the transatlantic market by operating joint service
between 11 U.S. cities and Amsterdam, KLM's hub airport. In September 1992, the
U.S. and The Netherlands entered into an "open-skies" bilateral aviation treaty
which authorizes the airlines of each country to provide international air
transportation between any U.S.-The Netherlands city pair and to operate
connecting service to destinations in other countries. Based primarily on the
open-entry market created by this treaty and the limited competitive overlap
between route systems, Northwest and KLM petitioned the DOT for joint immunity
from the U.S. antitrust laws and were granted such immunity in January 1993.
Code-sharing has been implemented on flights to 31 European, eight Middle
Eastern, five African and 180 U.S. cities. Northwest and KLM also coordinate
pricing, scheduling, product development and marketing. See "-- Recent
Developments."
OTHER OPERATIONS
CARGO. Northwest is the world's tenth largest cargo air carrier (based on
1996 freight ton miles) and the only U.S. passenger airline to operate its own
dedicated Boeing 747 all-cargo freighter fleet. Cargo accounts for almost 8% of
Northwest's operating revenues, and the majority of its cargo revenues are of
Asian origination or destination. Through its Tokyo cargo hub, Northwest serves
most major air freight markets between the U.S. and the Pacific market.
AIRLINK AND OTHER PARTNERSHIPS. Northwest has marketing agreements with two
regional carriers: Mesaba and Express Airlines I, Inc. Pursuant to these
agreements, the regional carriers operate their flights under the Northwest "NW"
code. The primary purpose of these marketing agreements is to provide increased
feed traffic at Detroit, Minneapolis/St. Paul and Memphis. On April 1, 1997, NWA
Inc., a wholly owned subsidiary of the NWA Corp., purchased all of the
outstanding stock of Express Airlines I, Inc. and an affiliate.
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Northwest has additional marketing agreements with Horizon Air, Trans States
Airlines, Inc., America West Airlines, Inc. and Alaska Airlines for code-sharing
on some of these carriers' routes in the western U.S. The Company also has
code-sharing agreements with Mahalo Air, Hawaiian Airlines, Asiana Airlines and
Pacific Island Aviation. The primary purpose of the arrangements with these
airlines (which operate their routes under their own names) is to feed
Northwest's Pacific route network and maintain a presence in certain markets
that Northwest does not directly serve. Northwest also has marketing agreements
with Business Express Airlines for code-sharing in the Boston area to feed its
domestic and transatlantic route network and with Eurowings and Air UK, which
further enhance Northwest's service to Europe.
USE OF PROCEEDS
All of the proceeds from the sale of the Certificates will be used by the
Trustee to purchase at par all of the Equipment Notes to be issued by the
related Owner Trustee for each of twelve separate Owner Trusts under a separate
Indenture.
For each of the Aircraft, the proceeds from the sale of the related
Equipment Notes are expected to be used to finance a portion of the purchase
price to be paid by the related Owner Trustee on behalf of the related Owner
Trust (or, in certain circumstances, by Northwest) for such Aircraft. The
Delivered Aircraft were, and the Prefunded Aircraft will be, delivered new to
Northwest and were or will be sold to the related Owner Trust and leased back to
Northwest (or will be Owned Aircraft).
For six Indentures, the Aircraft related thereto will not have been
delivered on the date of the issuance of the related Equipment Notes. The Dates
of Sale of such Prefunded Aircraft are expected to occur between October 1997
and May 1998. If a Prefunded Aircraft is delivered to Northwest but not sold to
the related Owner Trust on or prior to the Cut-off Date for any reason,
Northwest will, unless the manufacturer has failed to deliver such Aircraft to
Northwest on or prior to such date, assume, subject to certain conditions, on a
full recourse basis all of the obligations of the Owner Trustee under the
related Equipment Notes pursuant to an indenture containing terms substantially
identical to those contained in the Leases and Indentures described herein. Such
Equipment Notes will be secured by a lien on the related Prefunded Aircraft
(which will be an Owned Aircraft as described in the Prospectus) and will be
Owned Aircraft Notes (as described in the Prospectus). In connection with such
assumption, the Loan Trustee will release the amounts in the Prefunding
Collateral Account to Northwest to reimburse Northwest for a portion of the
purchase price previously paid by it for such Aircraft. If (i) the manufacturer
has failed to deliver a Prefunded Aircraft to Northwest on or prior to the
Prepayment Date or (ii) following the delivery of any Prefunded Aircraft, the
conditions precedent to Northwest's assumption of Equipment Notes relating to
such Prefunded Aircraft are not met on or prior to the thirtieth day after the
Cut-Off Date (but in no event later than the Prepayment Date), then the
Equipment Notes issued under the related Indenture will be prepaid in full on or
before the fifteenth day after (x) the Prepayment Date, in the case of clause
(i) or (y) the date specified in clause (ii), in the case of clause (ii) as the
case may be, and the Loan Trustee will apply the amounts in the related
Prefunding Collateral Account together with the amounts required to be paid by
Northwest to pay the aggregate principal amount of such Equipment Notes,
together with accrued and unpaid interest thereon. In addition, if a Triggering
Event occurs prior to the Prepayment Date, then the amount on deposit on any
Prefunding Collateral Account will be applied, together with the amounts
required to be paid by Northwest, to prepay in full the aggregate principal
amount of the Equipment Notes relating to such Prefunding Collateral Account
together with accrued and unpaid interest thereon, on or before the fifteenth
day after the occurrence of such Triggering Event.
DESCRIPTION OF THE CERTIFICATES
The Certificates offered hereby will be issued pursuant to three separate
Trust Supplements to be entered into among Northwest, NWA Corp. and the Trustee
pursuant to the terms of the Basic Agreement. The following summary of the
particular terms of the Certificates offered hereby supplements, and to the
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extent inconsistent therewith replaces, the description of the general terms and
provisions of the Certificates set forth in the accompanying Prospectus under
the caption "Description of the Certificates". The statements under this caption
are a summary and do not purport to be complete. The summary makes use of terms
defined in and is qualified in its entirety by reference to all of the
provisions of the Basic Agreement, a form of which has been filed as an exhibit
to the Registration Statement of which the accompanying Prospectus is a part,
and to all of the provisions of the Trust Supplements which, together with the
forms of the related Participation Agreements, Indentures, Leases, Trust
Agreements, Liquidity Facilities and Intercreditor Agreement, will be filed by
Northwest with the Commission as exhibits to a Current Report on Form 8-K.
Except as otherwise indicated, the following summary relates to each of the
Trusts and the Certificates issued by each Trust. The terms and conditions
governing each of the Trusts will be substantially the same, except as described
under "-- Subordination" below and except that the principal amount, the
interest rate, scheduled repayments of principal and maturity date applicable to
the Equipment Notes held by each Trust and the Final Expected Distribution Date
applicable to each Trust will differ. Citations to the relevant sections of the
Basic Agreement appear below in parentheses unless otherwise indicated.
GENERAL
The Certificates of each Trust will be issued in fully registered form only
and will be subject to the provisions described below under "-- Book Entry;
Delivery and Form." Each Certificate will represent a fractional undivided
interest in the Trust created by the Pass Through Trust Agreement pursuant to
which such Certificate is issued. The Trust Property will consist of (i) the
Equipment Notes held in such Trust, all monies at any time paid thereon and all
monies due and to become due thereunder, (ii) the rights of such Trust under the
Intercreditor Agreement (including all monies receivable in respect of such
rights), (iii) all monies receivable under the Liquidity Facility for such Trust
and (iv) funds from time to time deposited with the Trustee in accounts relating
to such Trust. Certificates will represent pro rata shares of the Equipment
Notes and other property held in the related Trust and will be issued only in
minimum denominations of $1,000 and integral multiples thereof. (Section 3.01)
The Certificates represent interests in the respective Trusts and all
payments and distributions thereon will be made only from the Trust Property.
(Section 3.08) The Certificates do not represent an interest in or obligation of
Northwest, NWA Corp., the Trustee, any of the Loan Trustees or Owner Trustees in
their individual capacities, any Owner Participant or any affiliate of any
thereof.
OWNED AIRCRAFT NOTES
For six of the Indentures, the Prefunded Aircraft related thereto will not
have been purchased by the related Owner Trustee on the date of the issuance of
the related Equipment Notes. The proceeds of the sale of the Equipment Notes
issued under the Indentures relating to the Prefunded Aircraft will be deposited
in the Prefunding Collateral Accounts and may only be (i) applied by the Owner
Trustee to the purchase of such Aircraft from Northwest, (ii) paid to Northwest
in connection with an assumption of the related Equipment Notes as described
below or (iii) applied to the redemption of such related Equipment Notes.
Northwest is not permitted to apply such funds to the initial purchase by it of
a Prefunded Aircraft. If a Prefunded Aircraft is delivered to Northwest but not
sold to the related Owner Trust on or prior to the Cut-off Date for any reason,
Northwest will, unless the manufacturer has failed to deliver such Aircraft to
Northwest on or prior to such date, assume, subject to certain conditions, on a
full recourse basis all of the obligations of the Owner Trustee under the
related Equipment Notes pursuant to an indenture containing terms substantially
identical to those contained in the Leases and Indentures described herein. Such
Equipment Notes will be secured by a lien on the related Prefunded Aircraft
(which will be an Owned Aircraft as described in the Prospectus) and will be
Owned Aircraft Notes (as described in the Prospectus). In connection with such
assumption, the Loan Trustee will release the amounts in the Prefunding
Collateral Account to Northwest to reimburse Northwest for a portion of the
purchase price previously paid by it for such Aircraft. The Participation
Agreement contains certain conditions to the assumption of
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such Equipment Notes by Northwest, including, without limitation, obtaining a
certificate of airworthiness with respect to such Aircraft, the Loan Trustee
receiving a legal opinion of counsel to Northwest regarding the Loan Trustee's
entitlement to the benefits of Section 1110 of the Bankruptcy Code with respect
to such Aircraft and filings of certain documents with the FAA.
SUBORDINATION
Pursuant to the Intercreditor Agreement to which the Trustees, the
Subordination Agent and the Liquidity Provider will be parties, on each
Distribution Date, so long as no Triggering Event shall have occurred, all
payments received by the Subordination Agent will be distributed in the
following order: (1) payment of the Liquidity Obligations to the Liquidity
Provider; (2) payment of Expected Distributions to the holders of Class A
Certificates; (3) payment of Expected Distributions to the holders of Class B
Certificates; (4) payment of Expected Distributions to the holders of Class C
Certificates; and (5) payment of certain fees and expenses of the Subordination
Agent and the Trustee.
Upon the occurrence of a Triggering Event and at all times thereafter, all
payments received by the Subordination Agent in respect of the Equipment Notes
and certain other payments will be distributed in the following order: (1) to
reimburse the Subordination Agent, each Trustee, the Liquidity Provider and each
Certificateholder, as the case may be, for the payment of Administration
Expenses; (2) to the Liquidity Provider in payment of Liquidity Expenses,
Liquidity Obligations and, so long as no Performing Note Deficiency Exists, to
replenish Cash Collateral Accounts; (3) to reimburse the Subordination Agent,
each Trustee and each Certificateholder, as the case may be, for the payment of
Certain Taxes and Fees; (4) to pay Adjusted Expected Distributions to the
holders of Class A Certificates; (5) to pay Adjusted Expected Distributions to
the holders of Class B Certificates; (6) to pay Adjusted Expected Distributions
to the holders of Class C Certificates; (7) the balance shall be held in the
Collection Account until the next Distribution Date or, if all Classes of
Certificates have been paid in full, shall be distributed to the Owner Trustees
to the extent that payments received from the Loan Trustees exceed the amounts
described in clauses (1) through (6) above; and (8) the balance if any shall be
distributed to the Certificateholders of the related Trust. Notwithstanding the
foregoing, following the occurrence of a Triggering Event, amounts paid to the
Subordination Agent on account of the application of proceeds of the Prefunding
Collateral Accounts (together with the amounts required to be paid by Northwest)
to prepay the aggregate principal amount of the Equipment Notes, shall be
distributed to the holders of the Certificates of the corresponding Class.
The priority of distributions after a Triggering Event will have the effect
in certain circumstances of distributing payments received in respect of one or
more junior series of Equipment Notes to more senior Classes of Certificates. If
this should occur, the interest accruing on the remaining Equipment Notes would
be less than the interest accruing on the remaining Certificates because the
Certificates would have a greater proportion of high interest rate junior
classes. As a result of this possible interest shortfall, the holders of one or
more junior Classes of Certificates may not receive the full amount due them
after a Triggering Event even if all the Equipment Notes are eventually paid in
full.
PAYMENTS AND DISTRIBUTIONS
Payments of principal, Make-Whole Premium if any and interest with respect
to the Equipment Notes or other Trust Property held in each Trust will be
distributed by the Trustee to Certificateholders of such Trust on the date
receipt of such payment is confirmed, except in the case of certain types of
Special Payments.
The Equipment Notes held in each Trust will accrue interest at the
applicable rate per annum for such Trust set forth on the cover page of this
Prospectus Supplement, payable on January 2 and July 2 of each year commencing
on January 2, 1998, and such interest payments will be passed through to
Certificateholders of such Trust on each such date until the final Distribution
Date for such Trust, in each case, subject to the Intercreditor Agreement.
Interest is calculated on the basis of a 360-day year consisting of
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twelve 30-day months. Payments of interest on the Certificates to be issued by
each Trust will be supported by a separate Liquidity Facility to be provided by
the Liquidity Provider for the benefit of the holders of such Certificates in an
amount sufficient to pay interest thereon at the Stated Interest Rate for such
Trust on three successive Regular Distribution Dates. Notwithstanding the
subordination provisions of the Intercreditor Agreement, the Liquidity Facility
for any Class of Certificates does not provide for drawings thereunder to pay
principal of or interest or Make-Whole Premium on the Certificates of any other
Class. Therefore, only the holders of the Certificates to be issued by a
particular Trust will be entitled to receive and retain the proceeds of drawings
under the Liquidity Facility for such Trust. "Description of the Liquidity
Facilities".
Payments of principal on the Equipment Notes held in each Trust are
scheduled to be received by the Trustee on January 2 or July 2, or both, in
certain years depending upon the terms of the Equipment Notes held in such
Trust, commencing January 2, 1998, in each case subject to the Intercreditor
Agreement. Specifically, principal payments on the Equipment Notes held in each
Trust will be passed through to the Certificateholders of each such Trust, (i)
with respect to the Series A Equipment Notes, commencing on July 2, 1998, (ii)
with respect to the Series B Equipment Notes, commencing on January 2, 1998 and
(iii) with respect to the Series C Equipment Notes, commencing on July 2, 1998.
Scheduled payments of interest and principal on the Equipment Notes are herein
referred to as "SCHEDULED PAYMENTS", and January 2 and July 2 of each year are
herein referred to as "REGULAR DISTRIBUTION DATES". See "Description of the
Equipment Notes -- Principal and Interest Payments". The Final Expected
Distribution Date for each Class of Certificates is set forth on the cover page
of this Prospectus Supplement.
The Trustee of each Trust will distribute, subject to the Intercreditor
Agreement, on each Regular Distribution Date to the Certificateholders of such
Trust all Scheduled Payments, the receipt of which is confirmed by the Trustee
on such Regular Distribution Date. Each Certificateholder of each Trust will be
entitled to receive a pro rata share of any distribution in respect of Scheduled
Payments of principal and interest made on the Equipment Notes held in such
Trust. Each such distribution of Scheduled Payments will be made by the Trustee
of each Trust to the Certificateholders of record of such Trust on the Record
Date applicable to such Scheduled Payment subject to certain exceptions.
(Sections 4.01 and 4.02) If a Scheduled Payment is not received by the Trustee
on a Regular Distribution Date but is received within five days thereafter, it
will be distributed to such holders of record on the date received. If it is
received after such five-day period, it will be treated as a Special Payment (as
defined below) and distributed as described below.
Any payment in respect of, or any proceeds of, any Equipment Note or the
Trust Indenture Estate under (and as defined in) each Indenture (other than a
Scheduled Payment) (each, a "SPECIAL PAYMENT") will be distributed on, in the
case of an early redemption or a purchase of the Equipment Notes relating to one
or more Aircraft, the date of such early redemption or purchase (which shall be
a business day), and otherwise on the business day specified for distribution of
such Special Payment pursuant to a notice delivered by the Trustee as soon as
practicable after the Trustee has received funds for such Special Payment, in
each case subject to the Intercreditor Agreement. The Trustee will mail notice
to the Certificateholders of the applicable Trust not less than ten days prior
to the Special Distribution Date on which any Special Payment is scheduled to be
distributed by the Trustee stating such anticipated Special Distribution Date.
(Section 4.02(c)) Each distribution of a Special Payment, other than a final
distribution, on a Special Distribution Date for any Trust will be made by the
Trustee to the Certificateholders of record of such Trust on the Record Date
applicable to such Special Payment. See "-- Indenture Defaults and Certain
Rights Upon an Indenture Default" and "Description of the Equipment Notes --
Redemption".
Each Pass Through Trust Agreement requires that the Trustee establish and
maintain, for the related Trust and for the benefit of the Certificateholders of
such Trust, one or more accounts (each, a "CERTIFICATE ACCOUNT") for the deposit
of payments representing Scheduled Payments on the Equipment Notes held in such
Trust. Each Pass Through Trust Agreement also requires that the Trustee
establish and maintain, for the related Trust and for the benefit of the
Certificateholders of such Trust, one or more accounts (each, a
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<PAGE>
"SPECIAL PAYMENTS ACCOUNT") for the deposit of payments representing Special
Payments, which account shall be non-interest bearing except in certain
circumstances where the Trustee may invest amounts in such account in certain
permitted investments. Pursuant to the terms of each Pass Through Trust
Agreement, the Trustee is required to deposit any Scheduled Payments relating to
the applicable Trust received by it in the Certificate Account of such Trust and
to deposit any Special Payments so received by it in the Special Payments
Account of such Trust. (Section 4.01) All amounts so deposited will be
distributed by the Trustee on a Regular Distribution Date or a Special
Distribution Date, as appropriate. (Section 4.02)
Distributions by the Trustee from the Certificate Account or the Special
Payments Account of each Trust on a Regular Distribution Date or a Special
Distribution Date in respect of Certificates issued by such Trust in definitive
form will be made to each Certificateholder of record of such Certificates on
the applicable Record Date. (Section 4.02) The final distribution for each
Trust, however, will be made only upon presentation and surrender of the
Certificates for such Trust at the office or agency of the Trustee specified in
the notice given by the Trustee of such final distribution. The Trustee will
mail such notice of the final distribution to the Certificateholders of such
Trust, specifying the date set for such final distribution and the amount of
such distribution. (Section 11.01) See "-- Termination of the Trusts".
Distributions in respect of Certificates issued in global form will be made as
described in "-- Book Entry; Delivery and Form" below.
If any Regular Distribution Date or Special Distribution Date is not a
business day, distributions scheduled to be made on such Regular Distribution
Date or Special Distribution Date will be made on the next succeeding business
day without additional interest.
POOL FACTORS
Unless there has been an early redemption, purchase, or a default in the
payment of principal or interest, in respect of one or more issues of the
Equipment Notes held in a Trust, as described in "-- Indenture Defaults and
Certain Rights Upon an Indenture Default" and "Description of the Equipment
Notes -- Redemption", the Pool Factor with respect to each Trust will decline in
proportion to the scheduled repayments of principal on the Equipment Notes held
in such Trust as described below in "Description of the Equipment Notes --
General". In the event of such redemption, purchase or default, the Pool Factor
and the Pool Balance of each Trust so affected will be recomputed after giving
effect thereto and notice thereof will be mailed to the Certificateholders of
such Trust. Each Trust will have a separate Pool Factor.
The "POOL BALANCE" for each Trust or for the Certificates issued by any
Trust indicates, as of any date, the original aggregate face amount of the
Certificates of such Trust less the aggregate amount of all payments made in
respect of the Certificates of such Trust other than payments made in respect of
interest or Make-Whole Premium thereon or reimbursement of any costs and
expenses in connection therewith. The Pool Balance for each Trust as of any
Regular Distribution Date or Special Distribution Date shall be computed after
giving effect to the payment of principal if any on the Equipment Notes or other
Trust Property held in such Trust and the distribution thereof to be made on
that date.
The "POOL FACTOR" for each Trust as of any Regular Distribution Date or
Special Distribution Date is the quotient (rounded to the seventh decimal place)
computed by dividing (i) the Pool Balance by (ii) the original aggregate face
amount of the Certificates of such Trust. The Pool Factor for each Trust as of
any Regular Distribution Date or Special Distribution Date shall be computed
after giving effect to the payment of principal if any on the Equipment Notes or
other Trust Property held in such Trust and the distribution thereof to be made
on that date. Assuming that no early redemption or purchase, or default, in
respect of any Equipment Notes shall have occurred, the Pool Factor for each
Trust will be 1.0000000 on the date of issuance of the Certificates; thereafter,
the Pool Factor for each Trust will decline as described herein to reflect
reductions in the Pool Balance of such Trust. The amount of a
Certificateholder's pro rata share of the Pool Balance of a Trust can be
determined by multiplying the par value of the holder's Certificate of such
Trust by the Pool Factor for such Trust as of the applicable Regular
Distribution Date or Special Distribution Date. Notice of the Pool Factor and
the Pool Balance for each Trust will be mailed to Certificateholders of such
Trust on each Regular Distribution Date and Special Distribution Date.
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<PAGE>
As of the date of sale by the Trustee of the Certificates and assuming that
no early redemption or purchase, or default in the payment of principal, in
respect of any Equipment Notes shall occur, the Scheduled Payments of principal
on the Equipment Notes held in the Class A Trust, the Class B Trust and the
Class C Trust, and the resulting Pool Factors for such Trusts after taking into
account each Scheduled Payment, are set forth below:
POOL FACTORS*
<TABLE>
<CAPTION>
CLASS A TRUST CLASS A CLASS B TRUST CLASS B CLASS C TRUST CLASS C
EQUIPMENT NOTES TRUST EQUIPMENT NOTES TRUST EQUIPMENT NOTES TRUST
SCHEDULED PAYMENTS EXPECTED SCHEDULED PAYMENTS EXPECTED SCHEDULED PAYMENTS EXPECTED
DATES OF PRINCIPAL POOL FACTOR OF PRINCIPAL POOL FACTOR OF PRINCIPAL POOL FACTOR
- ------------------------- ------------------ ----------- ------------------ ----------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
September 22, 1997....... $ 0.00 1.0000000 $ 0.00 1.0000000 $ 0.00 1.0000000
January 2, 1998.......... 0.00 1.0000000 345,112.08 0.9925675 0.00 1.0000000
July 2, 1998............. 1,886,625.00 0.9850166 683,137.92 0.9778552 90,091.23 0.9961601
January 2, 1999.......... 1,116,347.06 0.9761506 518.46 0.9778440 507,602.30 0.9745250
July 2, 1999............. 1,886,625.00 0.9611672 1,140,750.00 0.9532764 0.00 0.9745250
January 2, 2000.......... 1,914,747.00 0.9459604 27,181.84 0.9526910 170,575.59 0.9672547
July 2, 2000............. 1,886,625.00 0.9309769 1,140,750.00 0.9281233 0.00 0.9672547
January 2, 2001.......... 2,077,316.16 0.9144790 1,145,689.04 0.9034493 344,106.98 0.9525882
July 2, 2001............. 1,724,055.84 0.9007867 0.00 0.9034493 0.00 0.9525882
January 2, 2002.......... 1,914,747.00 0.8855799 1,296,174.96 0.8755343 4,026,863.36 0.7809548
July 2, 2002............. 1,886,625.00 0.8705965 0.00 0.8755343 733,602.48 0.7496871
January 2, 2003.......... 3,801,372.00 0.8404063 0.00 0.8755343 4,160,446.34 0.5723601
July 2, 2003............. 0.00 0.8404063 0.00 0.8755343 0.00 0.5723601
January 2, 2004.......... 3,159,855.00 0.8153109 0.00 0.8755343 6,118,395.67 0.3115811
July 2, 2004............. 641,517.00 0.8102160 0.00 0.8755343 0.00 0.3115811
January 2, 2005.......... 1,273,230.00 0.8001041 648,429.16 0.8615695 4,111,387.32 0.1363451
July 2, 2005............. 2,528,142.00 0.7800258 0.00 0.8615695 0.00 0.1363451
January 2, 2006.......... 1,273,230.00 0.7699139 4,425,915.62 0.7662512 2,755,613.17 0.0188950
July 2, 2006............. 2,528,142.00 0.7498356 0.00 0.7662512 0.00 0.0188950
January 2, 2007.......... 3,159,855.00 0.7247403 2,923,886.01 0.7032812 443,315.56 0.0000000
July 2, 2007............. 641,517.00 0.7196454 0.00 0.7032812 0.00 0.0000000
January 2, 2008.......... 3,788,730.00 0.6895555 3,796,898.00 0.6215096 0.00 0.0000000
July 2, 2008............. 641,517.00 0.6844607 0.00 0.6215096 0.00 0.0000000
January 2, 2009.......... 5,068,496.00 0.6442070 4,447,174.44 0.5257335 0.00 0.0000000
July 2, 2009............. 0.00 0.6442070 0.00 0.5257335 0.00 0.0000000
January 2, 2010.......... 5,068,496.00 0.6039534 6,100,122.07 0.3943588 0.00 0.0000000
July 2, 2010............. 0.00 0.6039534 0.00 0.3943588 0.00 0.0000000
January 2, 2011.......... 5,068,496.00 0.5636998 9,376,965.64 0.1924126 0.00 0.0000000
July 2, 2011............. 0.00 0.5636998 0.00 0.1924126 0.00 0.0000000
January 2, 2012.......... 8,667,011.05 0.4948670 7,543,479.67 0.0299532 0.00 0.0000000
July 2, 2012............. 0.00 0.4948670 0.00 0.0299532 0.00 0.0000000
January 2, 2013.......... 16,044,704.06 0.3674411 1,390,815.09 0.0000000 0.00 0.0000000
July 2, 2013............. 0.00 0.3674411 0.00 0.0000000 0.00 0.0000000
January 2, 2014.......... 18,728,028.74 0.2187044 0.00 0.0000000 0.00 0.0000000
July 2, 2014............. 19,253.46 0.2185515 0.00 0.0000000 0.00 0.0000000
January 2, 2015.......... 17,971,628.39 0.0758221 0.00 0.0000000 0.00 0.0000000
July 2, 2015............. 0.00 0.0758221 0.00 0.0000000 0.00 0.0000000
January 2, 2016.......... 9,547,066.24 0.0000000 0.00 0.0000000 0.00 0.0000000
</TABLE>
- ------------------------
* The information relating to scheduled payments of principal and expected
Pool Factors is indicative only and subject to change.
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<PAGE>
Any failure to make expected principal distributions on any Class of
Certificates on any Regular Distribution Date (other than the Final Legal
Distribution Date) will not constitute a PTC Event of Default with respect to
such Certificates.
The final schedule of principal payments and the resulting schedule of Pool
Balances and Pool Factors may change from that set forth above as a result of
(i) any reoptimization negotiated with the Owner Participant or (ii) the partial
prepayment of Series C Equipment Notes upon the occurrence of any Date of Sale.
In addition, the Pool Factor and Pool Balance of each Trust will be recomputed
if there has been an early redemption, purchase, or a default in the payment of
principal or interest in respect of one or more issues of the Equipment Notes
held in a Trust, as described in "-- Indenture Defaults and Certain Rights Upon
an Indenture Default" and "Description of the Equipment Notes -- Redemption". In
the event of (i) any such change in the repayment schedule with respect to any
Prefunded Aircraft or the prepayment of Series C Equipment Notes or (ii) any
such redemption, purchase or default, the Pool Factors and the Pool Balances of
each Trust so affected will be recomputed after giving effect thereto and notice
thereof will be mailed to the Certificateholders of such Trust promptly after
the Cut-off Date in the case of clause (i) and promptly after the occurrence of
any event described in clause (ii).
REPORTS TO CERTIFICATEHOLDERS
On each Regular Distribution Date and Special Distribution Date, the
applicable Trustee will include with each distribution of a Scheduled Payment or
Special Payment, respectively, to Certificateholders of the related Trust a
statement, giving effect to such distribution to be made on such Regular
Distribution Date or Special Distribution Date, setting forth the following
information (per $1,000 aggregate principal amount of Certificate for such
Trust, as to (i) and (ii) below):
(i) the amount of such distribution allocable to principal and the
amount allocable to Make-Whole Premium if any;
(ii) the amount of such distribution allocable to interest; and
(iii) the Pool Balance and the Pool Factor for such Trust. (Section 4.03)
With respect to the Certificates registered in the name of Cede, as nominee
for DTC, on the record date prior to each Distribution Date, the applicable
Trustee will request from DTC a Securities Position Listing setting forth the
names of all DTC Participants reflected on DTC's books as holding interests in
the Certificates on such record date. On each Distribution Date, the applicable
Trustee will mail to each such DTC Participant the statement described above and
will make available additional copies as requested by such DTC Participant for
forwarding to holders of Certificates.
In addition, after the end of each calendar year, the applicable Trustee
will prepare for each Certificateholder of each Trust at any time during the
preceding calendar year a report containing the sum of the amounts determined
pursuant to clauses (i) and (ii) above with respect to the Trust for such
calendar year or, in the event such person was a Certificateholder during only a
portion of such calendar year, for the applicable portion of such calendar year,
and such other items as are readily available to such Trustee and which a
Certificateholder shall reasonably request as necessary for the purpose of such
Certificateholder's preparation of its U.S. federal income tax returns. (Section
4.03) Such report and such other items shall be prepared on the basis of
information supplied to the applicable Trustee by the DTC Participants and shall
be delivered by such Trustee to such DTC Participants to be available for
forwarding by such DTC Participants to Certificate Owners in the manner
described above. See "-- Book-Entry; Delivery and Form".
With respect to the Certificates issued in definitive form, the applicable
Trustee will prepare and deliver the information described above to each
Certificateholder of record of each Trust as the name of such Certificateholder
appears on the records of the registrar of the Certificates.
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<PAGE>
INDENTURE DEFAULTS AND CERTAIN RIGHTS UPON AN INDENTURE DEFAULT
An event of default under an Indenture (an "INDENTURE DEFAULT") will include
an event of default under the related Lease (a "LEASE EVENT OF DEFAULT"). Since
the Equipment Notes issued under an Indenture will be held in more than one
Trust, a continuing Indenture Default under such Indenture would affect the
Equipment Notes held by each such Trust. There are no cross-default provisions
in the Indentures or Leases. Consequently, events resulting in an Indenture
Default under any particular Indenture may or may not result in an Indenture
Default under any other Indenture. If an Indenture Default occurs in fewer than
all of the Indentures, notwithstanding the treatment of Equipment Notes issued
under any Indenture under which an Indenture Default has occurred, payments of
principal and interest on the Equipment Notes issued pursuant to Indentures with
respect to which an Indenture Default has not occurred will continue to be
distributed to the holders of the Certificates as originally scheduled, subject
to the Intercreditor Agreement. See "Description of the Intercreditor Agreement
- -- Priority of Distributions".
With respect to each Leased Aircraft, the applicable Owner Trustee and Owner
Participant will, under the related Indenture, have the right under certain
circumstances to cure Indenture Defaults that result from the occurrence of a
Lease Event of Default under the related Lease. If the Owner Trustee or the
Owner Participant exercises any such cure right, the Indenture Default will be
deemed to have been cured.
In the event that the same institution acts as Trustee of multiple Trusts,
in the absence of instructions from the Certificateholders of any such Trust,
such Trustee could be faced with a potential conflict of interest upon an
Indenture Default. In such event, each Trustee has indicated that it would
resign as Trustee of one or all such Trusts, and a successor trustee would be
appointed in accordance with the terms of the applicable Pass Through Trust
Agreement. State Street Bank and Trust Company will be the initial Trustee under
each Trust.
Upon the occurrence and continuation of any Indenture Default under any
Indenture, the Controlling Party may accelerate and sell all (but not less than
all) of the Equipment Notes issued under such Indenture to any person, subject
to certain limitations. The proceeds of such sale will be distributed pursuant
to the provisions of the Intercreditor Agreement. Any proceeds received by the
applicable Trustee upon any such sale shall be deposited in the applicable
Special Payments Account and shall be distributed to the Certificateholders of
such Trust on a Special Distribution Date. (Sections 4.01 and 4.02) The market
for Equipment Notes at the time of the existence of any Indenture Default may be
very limited, and there can be no assurance as to the price at which they could
be sold. If such Trustee sells any such Equipment Notes for less than their
outstanding principal amount, certain Certificateholders will receive a smaller
amount of principal distributions than anticipated and will not have any claim
for the shortfall against Northwest, NWA Corp., any Owner Trustee, any Owner
Participant, the Liquidity Provider or any Trustee.
Any amount, other than Scheduled Payments received on a Regular Distribution
Date, distributed to the Trustee of any Trust by the Subordination Agent on
account of the Equipment Notes or other Trust Property held in such Trust
following an Indenture Default under any Indenture shall be deposited in the
Special Payments Account for such Trust and shall be distributed to the
Certificateholders of such Trust on a Special Distribution Date. (Section 4.02)
In addition, if, following an Indenture Default under any Indenture, the
applicable Owner Participant or Owner Trustee exercises its option to redeem or
purchase the outstanding Equipment Notes issued under such Indenture, the price
paid by such Owner Trustee for the Equipment Notes issued under such Indenture
and distributed to such Trust by the Subordination Agent shall be deposited in
the Special Payments Account for such Trust and shall be distributed to the
Certificateholders of such Trust on a Special Distribution Date. (Section 4.02)
Any funds representing payments received with respect to any defaulted
Equipment Notes held in a Trust, or the proceeds from the sale of any Equipment
Notes, held by such Trustee in the Special Payments Account for such Trust
shall, to the extent practicable, be invested and reinvested by such Trustee in
Permitted Investments pending the distribution of such funds on a Special
Distribution Date. (Section
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<PAGE>
4.04) Permitted Investments are defined as obligations of the U.S. or agencies
or instrumentalities thereof the payment of which is backed by the full faith
and credit of the U.S. and which mature in not more than 60 days or such lesser
time as is required for the distribution of any such funds on a Special
Distribution Date. (Section 1.01)
Each Pass Through Trust Agreement provides that the Trustee of the related
Trust shall, within 90 days after the occurrence of any default, give to the
Certificateholders of such Trust notice, transmitted by mail, of all uncured or
unwaived defaults with respect to such Trust known to it, provided that, except
in the case of default in the payment of principal, Make-Whole Premium if any or
interest on any of the Equipment Notes or other Trust Property held in such
Trust, the applicable Trustee shall be protected in withholding such notice if
it in good faith determines that the withholding of such notice is in the
interests of such Certificateholders. (Section 7.01)
Each Pass Through Trust Agreement contains a provision entitling the Trustee
of the related Trust, subject to the duty of such Trustee during a default to
act with the required standard of care, to be offered reasonable security or
indemnity by the holders of the Certificates of such Trust before proceeding to
exercise any right or power under such Pass Through Agreement at the request of
such Certificateholders. (Section 7.01(e))
In certain cases, the holders of the Certificates of a Trust evidencing
fractional undivided interests aggregating not less than a majority in interest
of such Trust may on behalf of the holders of all the Certificates of such Trust
waive any past default under the related Pass Through Trust Agreement or, if the
Trustee of such Trust is the Controlling Party, may direct the Trustee to
instruct the applicable Loan Trustee to waive any past Indenture Default with
respect to such Trust and thereby annul any direction given by all such holders
to such Loan Trustee with respect thereto, except (i) a default in the deposit
of any Scheduled Payment or Special Payment or in the distribution thereof, (ii)
a default in payment of the principal, Make-Whole Premium if any or interest
with respect to any of the Equipment Notes held in such Trust and (iii) a
default in respect of any covenant or provision of the related Pass through
Trust Agreement that cannot be modified or amended without the consent of each
Certificateholder of such Trust affected thereby. (Section 6.05) Each Indenture
will provide that, with certain exceptions, the holders of the majority in
aggregate unpaid principal amount of the Equipment Notes issued thereunder may
on behalf of all such holders waive any past default or Indenture Default
thereunder. Notwithstanding the foregoing provisions of this paragraph, however,
pursuant to the Intercreditor Agreement, only the Controlling Party will be
entitled to waive any such past default or Indenture Default.
PURCHASE RIGHTS OF CERTIFICATEHOLDERS
Upon the occurrence and during the continuation of a Triggering Event, with
ten days' written notice to the Trustee and each other Certificateholder of the
same Class, (i) the Class B Certificateholders shall have the right to purchase
all, but not less than all, of the Class A Certificates and (ii) the Class C
Certificateholders shall have the right to purchase all, but not less than all,
of the Class A Certificates and the Class B Certificates, in each case at a
purchase price equal to the Pool Balance of the relevant Class or Classes of
Certificates plus accrued and unpaid interest thereon to the date of purchase
without Make-Whole Premium but including any other amounts due to the
Certificateholders of such Class or Classes. In each case, if prior to the end
of the ten-day period, any other Certificateholder of the same Class notifies
the purchasing Certificateholder that the other Certificateholder wants to
participate in such purchase, then such other Certificateholder may join with
the purchasing Certificateholder to purchase the Certificates pro rata based on
the interest in the Trust held by each Certificateholder.
PTC EVENT OF DEFAULT
A PTC Event of Default is defined under each Pass Through Trust Agreement as
the failure to pay within 10 business days of the due date thereof: (i) the
outstanding Pool Balance of the applicable Class of
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Certificates on the Final Legal Distribution Date for such Class or (ii)
interest due on such Certificates on any Distribution Date (unless the
Subordination Agent shall have made an Interest Drawing with respect thereto in
an amount sufficient to pay such interest and shall have distributed such amount
to the Certificateholders entitled thereto). A PTC Event of Default with respect
to the most senior Class of Certificates resulting from an Indenture Default
under all Indentures will constitute a Triggering Event.
OBLIGATION TO PURCHASE EQUIPMENT NOTES
Northwest will hold the beneficial interest under the Trust Agreement
relating to each Prefunded Aircraft until the Date of Sale (which date may be up
to 90 days after the scheduled delivery date of such Prefunded Aircraft to
Northwest). Northwest will transfer to such Owner Participant on such date
Northwest's beneficial interest under the Trust Agreement. The proceeds of the
sale of the Equipment Notes issued under the Indentures relating to the
Prefunded Aircraft may only be (i) applied by the Owner Trustee to the purchase
of such Aircraft from Northwest, (ii) paid to Northwest in connection with an
assumption of the related Equipment Notes as described below or (iii) applied to
the redemption of such related Equipment Notes as described below. Northwest is
not permitted to apply such funds to the initial purchase by it of a Prefunded
Aircraft. If a Prefunded Aircraft is delivered to Northwest but not sold to the
related Owner Trust on or prior to the Cut-off Date for any reason, Northwest
will, unless the manufacturer has failed to deliver such Aircraft to Northwest
on or prior to such date, assume, subject to certain conditions, on a full
recourse basis all of the obligations of the Owner Trustee under the related
Equipment Notes pursuant to an indenture containing terms substantially
identical to those contained in the Leases and Indentures described herein. Such
Equipment Notes will be secured by a lien on the related Prefunded Aircraft
(which will be Owned Aircraft as described in the Prospectus) and will be Owned
Aircraft Notes (as described in the Prospectus). In connection with such
assumption, the Loan Trustee will release the amounts in the Prefunding
Collateral Account to Northwest to reimburse Northwest for a portion of the
purchase price previously paid by it for such Aircraft.
In connection with the purchase of Prefunded Aircraft, the Owner Participant
may request revisions to the Participation Agreement, Lease, Trust Agreement and
Indenture applicable to the Owner trust related thereto so that the terms of
such agreements applicable to these Aircraft may differ from the description of
such agreements contained in this Prospectus Supplement.
Notwithstanding the foregoing, the terms of such agreements are required to
(i) contain the Mandatory Document Terms and (ii) not vary the Mandatory
Economic Terms. In addition, Northwest is obligated (i) to certify to the
Trustee that any such modifications will not materially and adversely affect the
Certificateholders and (ii) if the documents are modified in any material
respect, to obtain written confirmation from each Rating Agency that the use of
modified versions of such agreements will not result in a withdrawal, suspension
or downgrading of the rating of any Class of Certificates.
The "MANDATORY ECONOMIC TERMS," defined in the Participation Agreement for
each such Aircraft require, among other things, that:
(i) with respect to each series of Equipment Notes issued with respect
to these Aircraft the schedule of principal payments may be changed but:
(a) the final maturity may not be extended beyond January 2, 2016 for
the Series A Equipment Notes, January 2, 2013 for the Series B Equipment
Notes and January 2, 2007 for the Series C Equipment Notes;
(b) the average life may not be more than 13.73 years in the case of
the Series A Equipment Notes, 13.40 years in the case of the Series B
Equipment Notes and in the case of the Series C Equipment Notes may not
be so great as to cause the average life of the Class C Certificates to
be more than 6.00 years (but in each case may be decreased by any
amount); and the average life
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may not be more than 12.69 years in the case of the Class A Certificates,
10.94 years in the case of the Class B Certificates and 6.00 years in the
case of the Class C Certificates;
(c) the interest rate and the January 2 and July 2 payment dates may
not be changed; and
(d) the loan to aircraft value ratio on any July 2 Distribution Date
shall not exceed 43.0% in the case of the Series A Equipment Notes, 61.0%
in the case of the Series B Equipment Notes and 69.0% in the case of the
Series C Equipment Notes.
(ii) basic rent (plus certain supplemental rent), stipulated loss values
and termination values under the related Lease must be sufficient to pay
amounts due with respect to the related Equipment Notes;
(iii) the amounts payable under the all-risk aircraft hull insurance
maintained with respect to each Aircraft must be sufficient to pay the
applicable stipulated loss value, subject to certain rights of
self-insurance; and
(iv) (a) the past due rate in the related Indenture and the related
Lease;
(b) the Make-Whole Premium payable under the related Indenture;
(c) the provisions relating to the prepayment and purchase of
Equipment Notes in the related Indentures; and
(d) the minimum liability insurance amount on Aircraft in the related
Lease.
(Participation Agreements, Section 1(c) and Schedule IV for NW 1997 G, NW 1997
H, NW 1997 I, NW 1997 J, NW 1997 K and NW 1997 L.)
The "MANDATORY DOCUMENT TERMS" prohibit modifications in any material
adverse respect to certain specified provisions of the operative agreements. In
the case of the Indentures, modifications are prohibited to:
(i) the Granting Clause of the Indentures so as to deprive the holders
of a first priority security interest in the Aircraft and the Lease;
(ii) certain provisions relating to the issuance, prepayment, purchase,
payments and ranking of the Equipment Notes (including the obligation to pay
Make-Whole Premium in certain circumstances);
(iii) certain provisions regarding Indenture Events of Default, remedies
relating thereto and rights of the related Owner Trustee and related Owner
Participant in such circumstances;
(iv) certain provisions relating to any replaced airframe or engines
with respect to an Aircraft; and
(v) the provision that New York law will govern the Indentures.
(Participation Agreements, Section 1(c) and Schedule V for NW 1997 G, NW
1997 H, NW 1997 I, NW 1997 J, NW 1997 K and NW 1997 L.)
In the case of the Lease, modifications are prohibited to certain provisions
regarding the obligation of Northwest to:
(i) pay basic rent, stipulated loss value and termination value to the
Loan Trustee; and
(ii) consent to the assignment of the related Lease by the Owner Trustee
as collateral under the Indenture, as well as modifications which will
either alter the provision that New York law will govern the Lease or will
deprive the Loan Trustee of rights expressly granted to it under the Leases.
(Participation Agreements, Section 1(c) and Schedule V for NW 1997 G, NW
1997 H, NW 1997 I, NW 1997 J, NW 1997 K and NW 1997 L.)
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In the case of the Participation Agreement, modifications are prohibited to:
(i) certain conditions to the obligations of the Trustee to participate
in the purchase price of these Aircraft by releasing the debt portion
thereof from the Prefunding Collateral Account, involving good title to such
Aircraft, obtaining a certificate of airworthiness with respect to such
Aircraft, entitlement to the benefits of Section 1110 of the Bankruptcy Code
with respect to such Aircraft and filings of certain documents with the FAA;
(ii) certain provisions regarding the obligation of Northwest to record
the Indenture with the FAA;
(iii) certain provisions requiring the delivery of legal opinions;
(iv) any indemnification of the Loan Trustee, Subordination Agent,
Liquidity Providers, Pass Through Trustee and registered holders of the
Equipment Notes with respect to certain taxes and expenses; and
(v) the provision that New York law will govern the Participation
Agreement. (Participation Agreements, Section 1(c) and Schedule V for NW
1997 G, NW 1997 H, NW 1997 I, NW 1997 J, NW 1997 K and NW 1997 L.)
In the case of all of the related operative agreements, modifications are
prohibited in any material adverse respect as regards the interest of the
holders, the Subordination Agent, the Liquidity Providers or the Loan Trustee or
in the definition of "Make-Whole Premium." Notwithstanding the foregoing, any
such Mandatory Document Term may be modified to correct or supplement any such
provision which may be defective or to cure any ambiguity or correct any
mistake, unless such action will materially adversely affect the interests of
the holders, the Subordination Agent, the Liquidity Providers, the Loan Trustee
or the Certificateholders. (Participation Agreements, Section 1(c) and Schedule
V for NW 1997 F, NW 1997 G, NW 1997 H, NW 1997 I, NW 1997 J, NW 1997 K and NW
1997 L.)
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
Northwest will be prohibited from consolidating with or merging into any
other corporation or transferring substantially all of its assets as an entirety
to any other corporation unless (i) the surviving successor or transferee
corporation shall (a) be a "citizen of the United States" as defined in Section
40102(a)(15) of Title 49 of the U.S. Code, as amended, relating to aviation, (b)
be a U.S. certificated air carrier and (c) expressly assume all of the
obligations of Northwest contained in the Pass Through Trust Agreements, the
Indentures, the Participation Agreements and the Leases, and any other operative
documents; (ii) immediately after giving effect to such transaction, no Lease
Event of Default shall have occurred and be continuing; and (iii) Northwest
shall have delivered a certificate and an opinion or opinions of counsel
indicating that such transaction complies with such conditions. (Section 5.02)
The Pass Through Trust Agreements and the Indentures will not contain any
covenants or provisions which may afford the applicable Trustee or
Certificateholders protection in the event of a highly leveraged transaction,
including transactions effected by management or affiliates, which may or may
not result in a change in control of Northwest or NWA Corp.
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MODIFICATIONS OF THE PASS THROUGH TRUST AGREEMENTS AND CERTAIN OTHER AGREEMENTS
Each Pass Through Trust Agreement contains provisions permitting the
execution of supplemental trust agreements, without the consent of the holders
of any of the Certificates of such Trust, (i) to evidence the succession of
another corporation to Northwest and the assumption by such corporation of
Northwest's obligations under such Pass Through Trust Agreement, (ii) to add to
the covenants of Northwest for the benefit of holders of such Certificates or to
surrender any right or power in such Pass Through Trust Agreement conferred upon
Northwest, (iii) to correct or supplement any defective or inconsistent
provision of such Pass Through Trust Agreement or to modify any other provisions
with respect to matters or questions arising thereunder, provided such action
shall not materially adversely affect the interests of the holders of such
Certificates, or to cure any ambiguity or correct any mistake, (iv) to add to
such Pass Through Trust Agreement such other provisions as may be expressly
permitted by the Trust Indenture Act and (v) to provide for a successor Trustee
or to add to or change any provision of such Pass Through Trust Agreement as
shall be necessary to facilitate the administration of the Trust thereunder by
more than one Trustee. In addition, each Pass Through Trust Agreement provides
that the Trustee will be permitted to enter into any amendment or supplement to
the Intercreditor Agreement or the Liquidity Facilities, without the consent of
the holders of any Certificates, to cure any ambiguity or correct any mistake or
to correct or supplement any defective or inconsistent provision thereof or to
modify any other provision with respect to matters or questions arising
thereunder; PROVIDED that such action shall not materially adversely affect the
interests of the Certificateholders. (Section 9.01)
Each Pass Through Trust Agreement also contains provisions permitting the
execution, with the consent of the holders of the Certificates of the related
Trust evidencing fractional undivided interests aggregating not less than a
majority in interest of such Trust, and with the consent of the applicable Owner
Trustee (such consent not to be unreasonably withheld), of supplemental trust
agreements adding any provisions to or changing or eliminating any of the
provisions of such Pass Through Trust Agreement or modifying the rights of the
Certificateholders, except that no such supplemental trust agreement may,
without the consent of the holder of each Certificate so affected thereby, (a)
reduce in any manner the amount of, or delay the timing of, any receipt by the
Trustee of payments on the Equipment Notes or other Trust Property held in such
Trust or distributions in respect of any Certificate related to such Trust, or
change the date or place of any payment in respect of any Certificate, or make
distributions payable in coin or currency other than that provided for in such
Certificates, or impair the right of any Certificateholder of such Trust to
institute suit for the enforcement of any such payment when due, (b) permit the
disposition of any Equipment Note held in such Trust, except as provided in such
Pass Through Trust Agreement, or otherwise deprive any Certificateholder of the
benefit of the ownership of the applicable Equipment Notes, (c) alter the
priority of distributions specified in the Intercreditor Agreement, (d) reduce
the percentage of the aggregate fractional undivided interests of the Trust
provided for in such Pass Through Trust Agreement, the consent of the holders of
which is required for any such supplemental trust agreement or for any waiver
provided for in such Pass Through Trust Agreement or (e) modify any of the
provisions relating to the rights of the Certificateholders in respect of the
waiver of Events of Default or receipt of payment. (Section 9.02)
TERMINATION OF THE TRUSTS
The obligations of Northwest if any and the Trustee with respect to a Trust
will terminate upon the distribution to Certificateholders of such Trust of all
amounts required to be distributed to them pursuant to the applicable Pass
Through Trust Agreement and the disposition of all property held in such Trust.
The Trustee will send to each Certificateholder of record of such Trust notice
of the termination of such Trust, the amount of the proposed final payment and
the proposed date for the distribution of such final payment for such Trust. The
final distribution to any Certificateholder of such Trust will be made only upon
surrender of such Certificateholder's Certificates at the office or agency of
the applicable Trustee specified in such notice of termination. (Section 11.01)
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THE TRUSTEE
The Trustee for each Trust will be State Street Bank and Trust Company. With
certain exceptions, the Trustee makes no representations as to the validity or
sufficiency of the Basic Agreement, the Trust Supplements, the Certificates, the
Equipment Notes, the Indentures, the Leases or other related documents.
(Sections 7.03 and 7.14) The Trustee of any Trust shall not be liable, with
respect to the Certificates of such Trust, for any action taken or omitted to be
taken by it in good faith in accordance with the direction of the holders of a
majority in principal amount of outstanding Certificates of such Trust. Subject
to certain provisions, the Trustee shall be under no obligation to exercise any
of its rights or powers under any Pass Through Trust Agreement at the request of
any holders of Certificates issued thereunder unless there shall have been
offered to the Trustee reasonable indemnity. (Section 7.02(e)) Each Pass Through
Trust Agreement provides that the Trustee in their individual or any other
capacity may acquire and hold Certificates issued thereunder and, subject to
certain conditions, may otherwise deal with Northwest, NWA Corp. and with any
Owner Trustee with the same rights they would have if they were not the Trustee.
(Section 7.04)
BOOK-ENTRY; DELIVERY AND FORM
GENERAL
Upon issuance, each Class of Certificates will be represented by one or more
fully registered global certificates. Each global certificate will be deposited
with, or on behalf of, The Depository Trust Company ("DTC") and registered in
the name of Cede & Co. ("CEDE"), or its nominee. No person acquiring an interest
in such Certificates ("CERTIFICATE OWNER") will be entitled to receive a
certificate representing such person's interest in such Certificates, except as
set forth below under "-- Definitive Certificates." Unless and until Definitive
Certificates are issued under the limited circumstances described herein, all
references to actions by Certificateholders shall refer to actions taken by DTC
upon instructions from DTC Participants (as defined below), and all references
herein to distributions, notices, reports and statements to Certificateholders
shall refer, as the case may be, to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of such Certificates, or to
DTC Participants for distribution to Certificate Owners in accordance with DTC
procedures.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and "clearing agency"
registered pursuant to section 17A of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"). DTC was created to hold securities for its
participants ("DTC PARTICIPANTS") and to facilitate the clearance and settlement
of securities transactions between DTC Participants through electronic
book-entries, thereby eliminating the need for physical transfer of
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a DTC Participant
either directly or indirectly ("INDIRECT PARTICIPANTS").
Certificate Owners that are not DTC Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Certificates may do so only through DTC Participants and
Indirect Participants. In addition, Certificate Owners will receive all
distributions of principal and interest from the Trustee through DTC
Participants or Indirect Participants, as the case may be. Under a book-entry
format, Certificate Owners may experience some delay in their receipt of
payments, because such payments will be forwarded by the Trustee to Cede, as
nominee for DTC. DTC will forward such payments in same-day funds to DTC
Participants who are credited with ownership of the Certificates in amounts
proportionate to the principal amount of each such DTC Participant's respective
holdings of beneficial interests in the Certificates. DTC Participants will
thereafter forward payments to Indirect Participants or Certificate Owners, as
the case may be, in accordance with customary industry
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practices. The forwarding of such distributions to the Certificate Owners will
be the responsibility of such DTC Participants. Unless and until the Definitive
Certificates are issued under the limited circumstances described herein, the
only "Certificateholder" will be Cede, as nominee of DTC. Certificate Owners
will not be recognized by the Trustee as Certificateholders, as such term is
used in the Basic Agreement, and Certificate Owners will be permitted to
exercise the rights of Certificateholders only indirectly through DTC and DTC
Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "RULES"), DTC is required to make book-entry transfers of
the Certificates among DTC Participants on whose behalf it acts with respect to
the Certificates and to receive and transmit distributions of principal,
Make-Whole Premium if any and interest with respect to the Certificates. DTC
Participants and Indirect Participants with which Certificate Owners have
accounts with respect to the Certificates similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of their
respective customers. Accordingly, although Certificate Owners will not possess
the Certificates, the Rules provide a mechanism by which Certificate Owners will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect Participants, the ability of a Certificate Owner to pledge
the Certificates to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Certificates, may be limited
due to the lack of a physical certificate for such Certificates.
DTC will take any action permitted to be taken by a Certificateholder under
the Basic Agreement only at the direction of one or more DTC Participants to
whose accounts with DTC the Certificates are credited. Additionally, DTC has
advised Northwest that in the event any action requires approval by
Certificateholders of a certain percentage of beneficial interest in each Trust,
DTC will take such action only at the direction of and on behalf of DTC
Participants whose holders include undivided interests that satisfy any such
percentage. DTC may take conflicting actions with respect to other undivided
interests to the extent that such actions are taken on behalf of DTC
Participants whose holders include such undivided interests.
None of Northwest, NWA Corp. or the Trustee will have any liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Certificates held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Northwest believes to be reliable, but
Northwest takes no responsibility for the accuracy thereof.
DEFINITIVE CERTIFICATES
Certificates will be issued in certificated form ("DEFINITIVE CERTIFICATES")
to Certificate Owners or their nominees, rather than to DTC or its nominee, only
if (i) Northwest advises the Trustee in writing that DTC is no longer willing or
able to discharge properly its responsibilities as depository with respect to
such Certificates and Northwest is unable to locate a qualified successor, (ii)
Northwest, at its option, elects to terminate the book-entry system through DTC
or (iii) after the occurrence of an Event of Default, Certificate Owners with
fractional undivided interests aggregating not less than a majority in interest
in such Trust advise the Trustee, Northwest and DTC through DTC Participants in
writing that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the Certificate Owners' best interest. (Section
3.09(d))
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Certificate Owners through
DTC Participants of the availability of Definitive
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Certificates. Upon surrender by DTC of the certificates representing the
Certificates and receipt of instructions for re-registration, the Trustee will
reissue the Certificates as Definitive Certificates to Certificate Owners.
Distributions of principal, Make-Whole Premium if any and interest with
respect to Certificates will thereafter be made by the Trustee directly in
accordance with the procedures set forth in the Basic Agreement and the
applicable Trust Supplements, to holders in whose names the Definitive
Certificates were registered at the close of business on the applicable record
date. Such distributions will be made by check mailed to the address of such
holder as it appears on the register maintained by the Trustee. The final
payment on any Certificate, however, will be made only upon presentation and
surrender of such Certificate at the office or agency specified in the notice of
final distribution to Certificateholders.
Definitive Certificates will be freely transferable and exchangeable at the
office of the Trustee upon compliance with the requirements set forth in the
Pass Through Trust Agreements. No service charge will be imposed for any
registration of transfer or exchange, but payment of a sum sufficient to cover
any tax or other governmental charge shall be required.
DESCRIPTION OF THE LIQUIDITY FACILITIES
The following summary describes certain terms of the Liquidity Facilities
and certain provisions of the Intercreditor Agreement relating to the Liquidity
Facilities. The summary does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Liquidity Facilities and such
provisions of the Intercreditor Agreement. The provisions of the Liquidity
Facilities are substantially identical to each other except as otherwise
indicated.
GENERAL
With respect to the Certificates of each Trust, the Subordination Agent will
enter into a Liquidity Facility with the Liquidity Provider pursuant to which
the Liquidity Provider will make one or more advances to the Subordination Agent
to pay interest on such Certificates subject to certain limitations. The
Liquidity Facility for any Trust is intended to enhance the likelihood of timely
receipt by the Certificateholders of such Trust of the interest payable on the
Certificates of such Trust at the Stated Interest Rate therefor on three
consecutive Regular Distribution Dates (or, in the case of the initial period,
the first 18 months following the extension of the Liquidity Facilities). If
interest payment defaults occur which exceed the amount covered by or available
under the Liquidity Facility for any Trust, the Certificateholders of such Trust
will bear their allocable share of the deficiencies to the extent that there are
no other sources of funds. Although the Bank is the Liquidity Provider for each
Trust entitled to the benefits of a Liquidity Facility, it may be replaced by
another entity with respect to one or more such Trusts under certain
circumstances. Therefore, the liquidity provider for any such Trust may be
different from the liquidity provider for any other Trust.
DRAWINGS
The initial stated amount available under the Liquidity Facilities for the
Class A Trust, the Class B Trust and the Class C Trust will be $ ,
$ and $ , respectively. Except as otherwise provided below, the
Liquidity Facility for each Trust will enable the Subordination Agent to make
Interest Drawings thereunder promptly after any Regular Distribution Date to pay
interest then due and payable on the Certificates of such Trust at the Stated
Interest Rate for such Trust to the extent that the amount if any available to
the Subordination Agent on such Regular Distribution Date is not sufficient to
pay such interest; provided, however, that the maximum amount available to be
drawn under such Liquidity Facility on any Regular Distribution Date to fund any
shortfall of interest on such Certificates will not exceed the Required Amount
for such Certificates. The Liquidity Facility for any Trust does not provide for
drawings thereunder to pay for principal of or Make-Whole Premium on the
Certificates of
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such Trust or any interest on the Certificates of such Trust in excess of the
Stated Interest Rate or principal of or interest or Make-Whole Premium on the
Certificates of any other Trust. Further, the Liquidity Facilities do not
provide for drawings thereunder to pay for interest on the Certificates
supported by Equipment Notes issued in respect of the Prefunded Aircraft for
which the Date of Sale has not occurred and which are not Owned Aircraft Notes.
(Liquidity Facilities, Section 2.2; Intercreditor Agreement, Section 3.6)
Each payment by the Liquidity Provider under each Liquidity Facility reduces
PRO TANTO the amount available to be drawn under such Liquidity Facility,
subject to reinstatement as hereinafter described. With respect to any Interest
Drawings under the Liquidity Facility for any Trusts, upon reimbursement of the
Liquidity Provider in full for the amount of such Interest Drawings plus
interest thereon, the amount available to be drawn under such Liquidity Facility
in respect of interest on the Certificates of such Trust shall be reinstated to
the Required Amount of such Liquidity Facility; PROVIDED, HOWEVER, that such
Liquidity Facility shall not be so reinstated at any time after (i) the
acceleration of all of the outstanding Equipment Notes or (ii) (A) a Triggering
Event shall have occurred and (B) less than 65% of the then aggregate
outstanding principal amount of all Equipment Notes are Performing Equipment
Notes. With respect to any other drawings under such Liquidity Facility, amounts
available to be drawn thereunder are not subject to reinstatement. The stated
amount of the Liquidity Facility for any Trust will be automatically reduced
from time to time to an amount equal to the next three successive interest
payments due on the Certificates of such Trust (without regard to any future
payments of principal on such Certificates) at the Stated Interest Rate for such
Trust. The Liquidity Provider will be paid a fee on the average amount available
to be drawn under the initial Liquidity Facility until the earlier of the date
when the commitment under the Liquidity Facility terminates and the date when a
Downgrade Drawing if any is made, in an amount and on the dates specified in the
Liquidity Facilities. (Liquidity Facilities, Section 2.4(a); Intercreditor
Agreement, Section 3.6(j))
If at any time the short-term unsecured debt rating of the Liquidity
Provider issued by any of the Rating Agencies is lower than the Threshold Rating
or, in the event the Liquidity Provider's short-term unsecured debt is not rated
by Moody's or Standard & Poor's, the long-term unsecured debt rating of any
Liquidity Provider issued by either Moody's or Standard & Poor's is lower than
the Threshold Rating, then the Liquidity Provider for such Trust or the
Subordination Agent may arrange for a Replacement Facility (as defined below).
In the event that such Liquidity Facility is not replaced with a Replacement
Facility within the period specified in the Intercreditor Agreement after notice
of the downgrading and as otherwise provided in the Intercreditor Agreement, the
Subordination Agent shall request the Downgrade Drawing in an amount equal to
all available and undrawn amounts thereunder and shall hold the proceeds thereof
in the Cash Collateral Account for such Trust as cash collateral to be used for
the same purposes and under the same circumstances as cash payments of Interest
Drawings under such Liquidity Facility would be used. (Liquidity Facilities,
Section 2.6(c); Intercreditor Agreement, Section 3.6(c))
A "REPLACEMENT FACILITY" for any Trust will mean an irrevocable liquidity
facility in substantially the form of the initial Liquidity Facility for such
Trust, including reinstatement provisions, or, subject to certain conditions, in
such other form (which may include a letter of credit) as shall permit the
Rating Agencies to confirm in writing their respective ratings then in effect
for the Certificates (before downgrading of such ratings if any as a result of
the downgrading of the Liquidity Provider), in a face amount equal to the amount
of interest payable on the Certificates of such Trust (at the Stated Interest
Rate for such Trust, and without regard to expected future principal payments)
on the three Regular Distribution Dates following the date of replacement of
such Liquidity Facility (or, in the case of the initial period, the 18 month
period following the extension of such facility) and issued by a person having
short-term unsecured debt ratings issued by the applicable Rating Agencies or,
in the event the selected person's short-term unsecured debt is not rated by
Moody's or Standard & Poor's, long-term unsecured debt ratings issued by the
applicable Rating Agencies which are equal to or higher than the Threshold
Rating. (Intercreditor Agreement, Section 1.1)
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"THRESHOLD RATING" means the short-term unsecured debt rating of P-1 by
Moody's and A-1 by Standard & Poor's or, in the event a person's short-term
unsecured debt is not rated by either Moody's or Standard & Poor's, the
long-term unsecured debt rating by Moody's and Standard & Poor's at least equal
to the initial rating by each of Moody's and Standard & Poor's on the Class A
Certificates. (Intercreditor Agreement, Section 1.1)
The Liquidity Facility for each Trust provides that the Liquidity Provider's
obligations thereunder will expire on the earliest of (i) the fifth anniversary
of the closing date of the offering of the Certificates for each class of
Certificates; (ii) the date on which the Subordination Agent delivers a
certificate certifying that all of the Certificates of such Trust have been paid
in full; (iii) the date on which the Subordination Agent delivers a certificate
certifying that a Replacement Facility has been substituted for such Liquidity
Facility; (iv) the date on which the Liquidity Provider makes the Final Drawing;
and (v) the date on which no amount is or may (by reason of reinstatement)
become available for drawing under such Liquidity Facility (Liquidity
Facilities, Sections 1.1(a) and 2.4(b))
The Intercreditor Agreement will provide for the extension or replacement of
each initial Liquidity Facility. If such Liquidity Facility or any replacement
Liquidity Facility is scheduled to expire prior to the date which is 15 days
after the Final Legal Distribution Date for the related Class of Certificates
and such Liquidity Facility cannot extend or replace the date that is 25 days
prior to the scheduled expiration date of such Liquidity Facility, the
Subordination Agent shall, prior to the expiration of such facility, request the
Non-Extension Drawing in an amount equal to all available and undrawn amounts
thereunder and hold the proceeds thereof in the Cash Collateral Account for such
Trust as cash collateral to be used for the same purposes and under the same
circumstances, and subject to the same conditions, as cash payments of Interest
Drawings under such Liquidity Facility would be used. (Intercreditor Agreement,
Section 3.6(d))
The Subordination Agent, in consultation with Northwest (whose
recommendations the Subordination Agent will accept in the absence of a good
faith reason not to), may, subject to certain limitations, arrange for a
replacement facility at any time to replace the Liquidity Facility for any
Trust. If such replacement facility is provided at any time after the Downgrade
Drawing or Non-Extension Drawing under such Liquidity Facility, all obligations
owed to the Liquidity Provider being replaced shall be repaid. (Intercreditor
Agreement, Section 3.6(e))
The Intercreditor Agreement provides that the Subordination Agent shall hold
the proceeds of a Final Drawing made in accordance with the provisions set forth
under "-- Liquidity Events of Default" below in the Cash Collateral Account for
the related Trust as cash collateral to be used for the same purposes and under
the same circumstances, and subject to the same conditions, as cash payments of
Interest Drawings under such Liquidity Facility would be used. The Intercreditor
Agreement further provides that the Subordination Agent shall not fail to take
any action which may be required to be taken by the Subordination Agent in order
to make a Final Drawing under a Liquidity Facility. (Intercreditor Agreement,
Section 3.6(i))
Drawings (other than a Final Drawing) under any Liquidity Facility will be
made by delivery by the Subordination Agent of a certificate in the form
required by such Liquidity Facility. Upon receipt of such a certificate, the
Liquidity Provider is obligated to make payment of the drawing requested thereby
in immediately available funds. Upon payment by the Liquidity Provider of the
amount specified in any drawing under any Liquidity Facility, the Liquidity
Provider will be fully discharged of its obligations under such Liquidity
Facility with respect to such drawing and will not thereafter be obligated to
make any further payments under such Liquidity Facility in respect of such
drawing to the Subordination Agent or any other person or entity who makes a
demand for payment in respect of interest on the related Certificates.
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<PAGE>
REIMBURSEMENT OF DRAWINGS
Amounts drawn under any Liquidity Facility by reason of an Interest Drawing
or the Final Drawing will be immediately due and payable, together with interest
on the amount of such drawing at a rate equal to the applicable LIBOR plus 2.00%
per annum or the applicable base rate thus 0.5%; provided that the Subordination
Agent will be obligated to reimburse such amounts only to the extent that the
Subordination Agent has available funds therefor.
The amount drawn under the Liquidity Facility for any Trust by reason of the
Downgrade Drawing or Non-Extension Drawing and deposited in the Cash Collateral
Account will be treated as follows: (i) such amount will be released on any
Regular Distribution Date to the Liquidity Provider to the extent that such
amount exceeds the Required Amount for such Trust; (ii) any portion of such
amount withdrawn from the Cash Collateral Account for such Certificates to pay
interest on such Certificates will be treated in the same way as Interest
Drawings; and (iii) the balance of such amount will be invested in Eligible
Investments. The Downgrade Drawing or Non-Extension Drawing under any Liquidity
Facility will bear interest equal to the earnings if any on funds on deposit in
the Cash Collateral Account maintained by the Subordination Agent under the
Intercreditor Agreement. In the event of a Downgrade Drawing or Non-Extension
Drawing under the Liquidity Facility, the Liquidity Provider also will charge a
fee. (Liquidity Facilities, Sections 2.3(b) and 2.6)
LIQUIDITY EVENTS OF DEFAULT
Events of Default under each Liquidity Facility (each, a "LIQUIDITY EVENT OF
DEFAULT") will consist of: (i) the acceleration of all the Equipment Notes; and
(ii) the failure to pay all of the Equipment Notes at maturity. (Liquidity
Facilities, Section 1.1)
If (i) a Liquidity Event of Default shall have occurred and be continuing or
(ii) (A) a Triggering Event shall have occurred and (B) less than 65% of the
then aggregate outstanding principal amount of all Equipment Notes are
Performing Equipment Notes, the Liquidity Provider may, in its discretion, cause
to be made a final drawing ("FINAL DRAWING") of all available and undrawn
amounts under the Liquidity Facilities whereupon (i) the Liquidity Provider
shall have no further obligation to make Drawings under the Liquidity Facility,
(ii) any Drawing remaining unreimbursed shall be automatically converted into a
Final Drawing under such Liquidity Facility, and (iii) all amounts owing to the
Liquidity Provider shall automatically become accelerated. Notwithstanding the
foregoing, the Subordination Agent will be obligated to pay amounts owing to the
Liquidity Provider only to the extent of funds available therefor after giving
effect to the payments in accordance with the provisions set forth under
"Description of the Intercreditor Agreement -- Priority of Distributions".
(Liquidity Facilities, Section 6.1)
Upon the circumstances described below under "Description of the
Intercreditor Agreement -- Intercreditor Rights", the Liquidity Provider may
become the Controlling Party with respect to the exercise of remedies under the
Indentures. (Intercreditor Agreement, Section 2.6(c))
LIQUIDITY PROVIDER
The Liquidity Provider will be Royal Bank of Canada (the "BANK"). The Bank
was established in 1869. It is chartered under the Bank Act (Canada). Compliance
with the provisions of the Bank Act is monitored by the Office of the
Superintendent of Financial Institutions (Canada). The Bank and its subsidiaries
provide a wide range of banking and financial services in Canada and
internationally. The Bank is Canada's largest financial institution with total
consolidated assets of approximately Cdn. $246 billion (approximately $178
billion) as at July 31, 1997.
The Bank has engaged in commercial banking in the United States since 1899.
It has a branch in the City of New York at Financial Square. In addition, the
Bank maintains agencies in Miami, Florida and Los Angeles, California and
representative offices in Chicago, Illinois and Houston, Texas.
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<PAGE>
DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following summary describes certain provisions of the Intercreditor
Agreement. The summary does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Intercreditor Agreement.
INTERCREDITOR RIGHTS
CONTROLLING PARTY
Pursuant to the Intercreditor Agreement, each Trustee and the Liquidity
Provider shall agree that, with respect to any Indenture at any given time, the
Loan Trustee will be directed (a) in taking, or refraining from taking, any
action thereunder by the holders of at least a majority of the outstanding
principal amount of the Equipment Notes issued thereunder (provided that, for so
long as the Subordination Agent is the registered holder of the Equipment Notes,
the Subordination Agent shall act with respect to this clause (a) in accordance
with the directions of the Trustees representing holders of Certificates
representing an undivided interest in such principal amount of Equipment Notes),
so long as no Indenture Default shall have occurred and be continuing thereunder
and (b) after the occurrence and during the continuance of an Indenture Default
thereunder, in taking, or refraining from taking, any action thereunder,
including exercising remedies thereunder (including acceleration of such
Equipment Notes or foreclosing the lien on the Aircraft securing such Equipment
Notes), by the Controlling Party. See "Description of the Certificates --
Indenture Defaults and Certain Rights Upon an Indenture Default" for a
description of the rights of the Certificateholders of each Trust to direct the
respective Trustee.
The Person who shall be the Controlling Party with respect to any Indenture
shall be: (a) the Trustee for the Class A Trust; (b) upon payment of Final
Distributions to the holders of Class A Certificates, the Trustee for the Class
B Trust and (c) upon payment of Final Distributions to the holders of Class B
Certificates, the Trustee for the Class C Trust (the "CONTROLLING PARTY").
Notwithstanding the foregoing, the Liquidity Provider shall have the right to
elect to become the Controlling Party at any time after 18 months from the
acceleration of the Equipment Notes under such Indenture, if at the time of such
election the Liquidity Obligations have not been paid in full; provided that if
there is more than one Liquidity Provider, the Liquidity Provider with the
greatest amount of unreimbursed Liquidity Obligations shall have such right. For
purposes of giving effect to the foregoing, the Trustees (other than the
Controlling Party) shall irrevocably agree (and the Certificateholders (other
than the Certificateholders represented by the Controlling Party) shall be
deemed to agree by virtue of their purchase of Certificates) to exercise their
voting rights as directed by the Controlling Party. (Intercreditor Agreement,
Section 2.6)
SALE OF EQUIPMENT NOTES OR AIRCRAFT
Upon the occurrence and during the continuation of any Indenture Default
under any Indenture, the Controlling Party may accelerate and, subject to the
provisions of the immediately following sentence, sell all (but not less than
all) of the Equipment Notes issued under such Indenture to any person. So long
as any Certificates are outstanding, during nine months after the earlier of (x)
the acceleration of the Equipment Notes under any Indenture or (y) the
bankruptcy or insolvency of Northwest, without the consent of each Trustee, (a)
no Aircraft subject to the lien of such Indenture or such Equipment Notes may be
sold, if the net proceeds from such sale would be less than the Minimum Sale
Price for such Aircraft or such Equipment Notes, and (b) the amount and payment
dates of rentals payable by Northwest under the Lease for such Aircraft may not
be adjusted, if, as a result of such adjustment, the discounted present value of
all such rentals would be less than 75% of the discounted present value of the
rentals payable by Northwest under such Lease before giving effect to such
adjustment, in each case, using the weighted average interest rate of the
Equipment Notes outstanding under such Indenture as the discount rate.
(Intercreditor Agreement, Section 4.1)
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<PAGE>
After a Triggering Event occurs and any Equipment Note becomes a
Non-Performing Equipment Note, the Subordination Agent will be required to
obtain the LTV Appraisals for the Aircraft as soon as practicable and additional
LTV Appraisals on or prior to each anniversary of the date of such initial LTV
Appraisals; provided that, if the Controlling Party reasonably objects to any
LTV Appraisals, the Controlling Party shall have the right to obtain or cause to
be obtained substitute LTV Appraisals (including any LTV Appraisals based upon
physical inspection of the Aircraft).
PRIORITY OF DISTRIBUTIONS
So long as no Triggering Event shall have occurred, the payments in respect
of the Equipment Notes and certain other payments received on any Distribution
Date will be promptly distributed by the Subordination Agent on such
Distribution Date in the following order of priority:
(i) to pay the Liquidity Obligations (other than any interest accrued
thereon or the principal amount of any Drawing) (the "LIQUIDITY EXPENSES")
to the Liquidity Provider;
(ii) to pay interest accrued on the Liquidity Obligations to the
Liquidity Provider;
(iii) to pay or reimburse the Liquidity Provider for the Liquidity
Obligations and, if applicable, to replenish each Cash Collateral Account up
to the amount of interest payable on the related Class of Certificates at
the Stated Interest Rate therefor on three consecutive Regular Distribution
Dates (or, in the case of the initial period, the first 18 months following
the Closing Date) (the "REQUIRED AMOUNT");
(iv) to pay Expected Distributions to the holders of Class A
Certificates;
(v) to pay Expected Distributions to the holders of Class B
Certificates;
(vi) to pay Expected Distributions to the holders of Class C
Certificates; and
(vii) to pay certain fees and expenses of the Subordination Agent and
the Trustee.
Subject to the terms of the Intercreditor Agreement, upon the occurrence of
a Triggering Event and at all times thereafter, all funds received by the
Subordination Agent in respect of the Equipment Notes and certain other payments
will be promptly distributed by the Subordination Agent in the following order
of priority:
(1) to reimburse (a) the Subordination Agent for any out-of-pocket costs
and expenses actually incurred by it in the protection of, or the
realization of value of, the Equipment Notes or any Trust Indenture Estate,
(b) each Trustee for any amounts of the nature described in clause (i)
above, and (iii) the Liquidity Provider or any Certificateholder for
payments if any made by it to the Subordination Agent or any Trustee in
respect of clause (i) above (collectively, the "ADMINISTRATION EXPENSES");
(2) to the Liquidity Provider to pay all accrued and unpaid Liquidity
Expenses (including fees payable in respect of any Downgrade Drawing);
(3) to the Liquidity Provider to pay all accrued and unpaid interest on
the Liquidity Obligations (other than interest in respect of any Downgrade
Drawing) as provided in the Liquidity Facilities;
(4) to the Liquidity Provider (a) to pay in full all Liquidity
Obligations, whether or not then due (other than amounts payable pursuant to
clauses (ii) and (iii) above) and (b) if applicable, so long as not less
than 65% of the then aggregate outstanding principal amount of all Equipment
Notes are Performing Equipment Notes, to replenish the Cash Collateral
Accounts;
(5) to reimburse or pay (a) the Subordination Agent for any tax (other
than taxes imposed on compensation paid under the Intercreditor Agreement),
expense, fee, charge or other loss incurred by or any other amount payable
to the Subordination Agent in connection with the transactions contemplated
hereby (to the extent not previously reimbursed), (b) each Trustee for any
tax (other
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than taxes imposed on compensation paid under the applicable Trust
Agreement), expense, fee, charge, loss, or any other amount payable to such
Trustee under the applicable Trust Agreements, and (c) each
Certificateholder for payments if any made by it in respect of amounts
described in clause (i) above, distributed to the applicable Trustee for the
account of such Certificateholder, in each such case PARI PASSU on the basis
of all amounts described in clauses (i) through (iii) above (collectively,
"CERTAIN TAXES AND FEES");
(6) to pay Adjusted Expected Distributions to the holders of Class A
Certificates;
(7) to pay Adjusted Expected Distributions to the holders of Class B
Certificates;
(8) to pay Adjusted Expected Distributions to the holders of Class C
Certificates;
(9) the balance shall be held in the Collection Account until the next
Distribution Date or, if all Classes of Certificates have been paid in full,
shall be distributed to the Owner Trustee to the extent that payments
received from the Loan Trustees exceed the amounts described in clauses (i)
through (viii) above; and
(10) the balance if any shall be distributed to the Certificateholders
of the related Trust.
Interest Drawings under the Liquidity Facility and withdrawals from the Cash
Collateral Account, in each case in respect of interest on the Certificates of
any Trust will be distributed to the Trustee for such Trust, notwithstanding the
priority of distributions set forth in the Intercreditor Agreement and otherwise
described herein. All amounts on deposit in the Cash Collateral Account for any
Trust which are in excess of the Required Amount for such Trust and all
investment earnings on such amounts on deposit in the Cash Collateral Account
will be paid to the Liquidity Provider.
Notwithstanding the foregoing, following the occurrence of a Triggering
Event, amounts paid to the Subordination Agent on account of the application of
proceeds of the Prefunding Collateral Accounts (together with the amounts
required to be paid by Northwest) to prepay the aggregate principal amount of
the Equipment Notes, shall be distributed to the holders of the Certificates of
the corresponding Class.
VOTING OF EQUIPMENT NOTES
In the event that the Subordination Agent, as the registered holder of any
Equipment Note, receives a request for its consent to any amendment,
modification or waiver under such Equipment Note, the related Indenture, Lease,
Participation Agreement (each, a "PARTICIPATION AGREEMENT") or other related
document, if no Indenture Default with respect thereto shall have occurred and
be continuing, the Subordination Agent shall request instructions for each
Series of Equipment Notes from the Trustee of the Trust which holds such Series
of Equipment Notes. The Trustee in turn will request directions from
Certificateholders of such Trust PROVIDED that the Trustee is not required to
request directions if such consent will not adversely affect the
Certificateholders or an Event of Default shall have occurred and be continuing
under the Pass Through Agreement of such Trust. If any Indenture Default shall
have occurred and be continuing with respect to such Indenture, the
Subordination Agent will exercise its voting rights as directed by the
Controlling Party. (Intercreditor Agreement, Section 9.1(b))
THE SUBORDINATION AGENT
State Street Bank and Trust Company of Connecticut, National Association,
will be the Subordination Agent under the Intercreditor Agreement. Northwest and
its affiliates may from time to time enter into banking and trustee
relationships with the Subordination Agent and its affiliates. The Subordination
Agent's address is c/o State Street Bank and Trust Company, Two International
Place, Boston, Massachusetts 02110, Attention: Corporate Trust Department.
The Subordination Agent may resign at any time, in which event a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. Either the Controlling Party or the Liquidity
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<PAGE>
Provider may remove the Subordination Agent for cause as provided in the
Intercreditor Agreement. In such circumstances, a successor Subordination Agent
will be appointed as provided in the Intercreditor Agreement. Any resignation or
removal of the Subordination Agent and appointment of a successor Subordination
Agent does not become effective until acceptance of the appointment by the
successor Subordination Agent.
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The Aircraft are comprised of twelve British Aerospace Avro RJ85 aircraft,
all of which will use AlliedSignal LF-507-1F engines. The Aircraft are designed
to be in compliance with Stage III noise level standards, which constitute the
most restrictive regulatory standards currently in effect in the U.S. for
aircraft noise abatement. The table below sets forth certain additional
information concerning the Aircraft. See the Summary of Aircraft Appraisals
attached in Appendix II for a detailed description of the British Aerospace Avro
RJ85 aircraft.
<TABLE>
<CAPTION>
MANUFACTURER'S DELIVERY AND APPRAISED VALUE
AIRCRAFT REGISTRATION SERIAL EXPECTED DELIVERY -------------------------------
TYPE(1) NUMBER NUMBER DATE(1) AISI BK MBA
- ------------ ----------- --------------- ------------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Avro RJ85 N501XJ E2208 April 1997 $ 25.02 $ 24.0 $ 24.25
Avro RJ85 N502XJ E2307 May 1997 25.26 24.0 24.30
Avro RJ85 N503XJ E2310 June 1997 25.51 24.0 24.35
Avro RJ85 N504XJ E2311 July 1997 25.75 24.0 24.40
Avro RJ85 N505XJ E2313 August 1997 25.75 24.0 24.45
Avro RJ85 N506XJ E2314 September 1997 25.75 24.0 24.50
Avro RJ85 N507XJ E2316 October 1997 25.75 24.0 24.55
Avro RJ85 N508XJ E2318 November 1997 25.75 24.0 24.60
Avro RJ85 N509XJ E2321 February 1998 25.75 24.0 24.75
Avro RJ85 N510XJ E2325 March 1998 25.25 24.0 24.80
Avro RJ85 N511XJ E2326 April 1998 25.75 24.0 24.85
Avro RJ85 N512XJ E2348 May 1998 25.75 24.0 24.90
</TABLE>
- ------------------------
(1) The dates under this column reflect the scheduled delivery month under
Northwest's purchase agreement with the manufacturer. The actual delivery
date for any Aircraft may be subject to delay.
APPRAISED VALUE
The appraised values set forth in the foregoing chart were determined by
AISI as of August 15, 1997, BK as of September 3, 1997 and MBA as of August 26,
1997. As part of this process, all three Appraisers performed "desk-top"
appraisals without any physical inspection of the Aircraft. The Appraisals are
based on various assumptions and methodologies, which vary among the Appraisals.
The Appraisers have delivered letters summarizing their respective Appraisals,
copies of which are annexed to this Prospectus Supplement as Appendix II. For a
discussion of the assumptions and methodologies used in preparing each of the
Appraisals, reference is hereby made to such summaries.
An appraisal is only an estimate of value and should not be relied upon as a
measure of realizable value. The proceeds realized upon the sale of any Aircraft
may be less than the appraised value thereof. In addition, the value of the
Aircraft in the event of the exercise of remedies under the applicable Indenture
will depend on market and economic conditions at the time, the availability of
buyers, the condition of the Aircraft, whether the Aircraft are sold separately
or as a block and other factors. Accordingly, there can be no assurance that the
proceeds realized upon any such exercise with respect to the Equipment Notes and
the Aircraft pursuant to the applicable Indenture would be as appraised or
sufficient to satisfy in full payments due on the Equipment Notes issued
thereunder or the Certificates.
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<PAGE>
DESCRIPTION OF THE EQUIPMENT NOTES
The statements under this caption are summaries and do not purport to be
complete. The summaries make use of terms defined in and are qualified in their
entirety by reference to all of the provisions of the Equipment Notes, the
Indentures, the Leases, the Participation Agreements and the Trust Agreements.
Except as otherwise indicated, the following summaries relate to the Equipment
Notes, the Indenture, the Lease, the Participation Agreement and the Trust
Agreement relating to each Delivered Aircraft. The provisions of such documents
relating to any Prefunded Aircraft may be modified, subject to the Mandatory
Document Terms and the Mandatory Economic Terms.
GENERAL
The Equipment Notes will be issued in three series with respect to each
Aircraft. The Equipment Notes with respect to each Aircraft will be issued under
a separate Indenture between the applicable Owner Trustee, as trustee of a trust
for the benefit of the Owner Participant who is the beneficial owner of such
Aircraft, and the applicable Loan Trustee. In all cases, the Loan Trustee is
State Street Bank and Trust Company.
Except as described below, the Owner Trustee leases the related Aircraft to
Northwest pursuant to a separate Lease between such Owner Trustee as lessor and
Northwest as lessee with respect to such Aircraft. Under each Lease, Northwest
is obligated to make or cause to be made rental and other payments to the
related Loan Trustee on behalf of the related Owner Trustee, which rental and
other payments will be at least sufficient to pay in full when due all payments
required to be made on the Leased Aircraft Notes issued with respect to such
Aircraft. The Equipment Notes are not, however, obligations of, or guaranteed
by, Northwest. Northwest's rental obligations under each Lease are general
obligations of Northwest. Amounts payable by Northwest under each Lease will be
unconditionally guaranteed by NWA Corp.
For six of the Indentures, the Prefunded Aircraft related thereto will not
have been purchased by the related Owner Trustee on the date of the issuance of
the related Equipment Notes. The Prefunded Aircraft are expected to be purchased
by the related Owner Trustees between October 1997 and May 1998. Northwest will
hold the beneficial interest under the Trust Agreement relating to each
Prefunded Aircraft until the Date of Sale for Prefunded Aircraft (which date may
be up to 120 days after the delivery date of such Prefunded Aircraft to
Northwest). Northwest will transfer to such Owner Participant on such date
Northwest's beneficial interest under the Trust Agreement. The proceeds of the
sale of the Equipment Notes issued under the Indentures relating to the
Prefunded Aircraft may only be (i) applied to the purchase of such Aircraft,
(ii) paid to Northwest in connection with an assumption of the related Equipment
Notes as described below or (iii) applied to the redemption of such related
Equipment Notes. Pending such acquisition, the proceeds of such Equipment Notes
will be held by the Loan Trustee for such Equipment Notes in a Prefunding
Collateral Account and invested in certain Specified Investments at the
direction of such Loan Trustee.
Each Owner Participant has the right to sell, assign or otherwise transfer
its interests as Owner Participant in any of such leveraged leases, subject to
the terms and conditions of the relevant Participation Agreement and related
documents.
SUBORDINATION
Series B Equipment Notes issued in respect of any Aircraft will be
subordinated in right of payment to Series A Equipment Notes issued in respect
of such Aircraft, and any Series C Equipment Notes issued in respect of such
Aircraft will be subordinated in right of payment to such Series B Equipment
Notes. On each Equipment Note payment date, (i) payments of interest and
principal due on Series A Equipment Notes issued in respect of any Aircraft will
be made prior to payments of interest and principal due on Series B Equipment
Notes issued in respect of such Aircraft and (ii) payments of interest and
principal due
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on such Series B Equipment Notes will be made prior to payments of interest and
principal due on any Series C Equipment Notes issued in respect of such
Aircraft.
PRINCIPAL AND INTEREST PAYMENTS
Subject to the provisions of the Intercreditor Agreement, interest paid on
the Equipment Notes held in each Trust will be passed through to the
Certificateholders of such Trust on the dates and at the rate per annum set
forth on the cover page of this Prospectus Supplement until the final expected
Regular Distribution Date for such Trust. Subject to the provisions of the
Intercreditor Agreement, principal paid on the Equipment Notes held in each
Trust will be passed through to the Certificateholders of such Trust in
scheduled amounts on the dates set forth herein until the final expected Regular
Distribution Date for such Trust.
The aggregate original principal amounts of the Equipment Notes issued with
respect to each Aircraft, as such Equipment Notes will initially be held in each
of the Trusts, are as follows:
<TABLE>
<CAPTION>
REGISTRATION SERIES A TRUST SERIES B TRUST SERIES C TRUST
NUMBER EQUIPMENT NOTES EQUIPMENT NOTES EQUIPMENT NOTES(1) TOTAL
- ------------------------------------------ ---------------- ---------------- ------------------ -------------
<S> <C> <C> <C> <C>
N501XJ.................................... $ 10,481,250 $ 4,387,500 $ 1,931,250 $ 16,800,000
N502XJ.................................... 10,481,250 4,387,500 1,931,250 16,800,000
N503XJ.................................... 10,481,250 4,387,500 1,931,250 16,800,000
N504XJ.................................... 10,481,250 4,387,500 1,931,250 16,800,000
N505XJ.................................... 10,481,250 4,387,500 1,931,250 16,800,000
N506XJ.................................... 10,481,250 4,387,500 1,931,250 16,800,000
N507XJ.................................... 10,369,024 3,169,029 1,964,000 15,502,054
N508XJ.................................... 10,369,451 3,112,328 1,968,000 15,449,778
N509XJ.................................... 10,560,952 3,538,462 1,980,000 16,079,415
N510XJ.................................... 10,574,427 3,474,730 1,984,000 16,033,157
N511XJ.................................... 10,583,770 3,419,604 1,988,000 15,991,374
N512XJ.................................... 10,568,876 3,393,846 1,990,500 15,953,223
</TABLE>
- ------------------------
(1) The principal amount of the Series C Equipment Notes associated with any
Prefunded Aircraft may be prepaid in part in connection with any
reoptimization negotiated with Owner Participants
Interest will be payable on the unpaid principal amount of each Equipment
Note at the rate applicable to such Equipment Note on January 2 and July 2 in
each year, commencing January 2, 1998. Such interest will be computed on the
basis of a 360-day year of twelve 30-day months. Overdue amounts of principal,
Make-Whole Premium and interest on such Series of Equipment Note will bear
interest at a rate equal to 2% per annum over the applicable rate on such Series
of Equipment Note.
The principal of the Equipment Notes purchased by each Trust will be payable
on the dates and in the amounts set forth in Appendix III.
The final payment made under each Equipment Note will be in an amount
sufficient to discharge in full the unpaid principal amount, Make-Whole Premium
if any and to the extent permitted by law, interest and any other amounts
payable but unpaid.
If any date scheduled for any payment of principal, Make-Whole Premium if
any or interest with respect to the Equipment Notes is not a business day, such
payment will be made on the next succeeding business day without any additional
interest.
All payments of principal amount, interest, Make-Whole Premium if any and
other amounts to be made by the Owner Trustee will be payable only from the
Trust Indenture Estate. In the case of each Equipment Note, each payment of
principal amount, Make-Whole Premium if any and interest or other amounts due
thereon will be applied in the following order: (i) to the payment of accrued
interest on such
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Equipment Note (as well as any interest on any overdue principal amount,
Make-Whole Premium if any and any interest) to the date of such payment; (ii) to
the payment of the principal amount of such Equipment Note then due; (iii) to
the payment of the Make-Whole Premium if any and any other amount due under the
Indenture or such Equipment Note; and (iv) the balance if any to the payment of
the principal amount of such Equipment Note remaining unpaid (applied to the
installments of principal amount in the inverse order of their normal maturity).
(Indentures, Section 2.05)
PREFUNDING PERIOD
During the period between the date of issuance of the related Equipment
Notes and the related Date of Sale of six Prefunded Aircraft, the related
Equipment Notes will not be secured by such Aircraft or the related Lease, but
will be secured by the related Prefunding Collateral Account. Pursuant to the
related Indentures, the Owner Trustee will deposit the proceeds from the sale of
the related Equipment Notes into the related Prefunding Collateral Account for
the benefit of the Loan Trustee. Funds deposited in each Prefunding Collateral
Account will be invested in Specified Investments. (Participation Agreements,
Section 18 for NW 1997 G, NW 1997 H, NW 1997 I, NW 1997 J, NW 1997 K and NW 1997
L.)
If a Prefunded Aircraft is delivered to Northwest but not sold to the
related Owner Trust on or prior to the Cut-off Date for any reason, Northwest
will, unless the manufacturer has failed to deliver such Aircraft to Northwest
on or prior to such date, assume, subject to certain conditions, on a full
recourse basis all of the obligations of the Owner Trustee under the related
Equipment Notes pursuant to an indenture containing terms substantially
identical to those contained in the Leases and Indentures described herein. Such
Equipment Notes will be secured by a lien on the related Prefunded Aircraft
(which will be Owned Aircraft as described in the Prospectus) and will be Owned
Aircraft Notes (as described in the Prospectus). In connection with such
assumption, the Loan Trustee will release the amounts in the Prefunding
Collateral Account to Northwest to reimburse Northwest for a portion of the
purchase price previously paid by it for such Aircraft. If (i) the manufacturer
has failed to deliver a Prefunded Aircraft to Northwest on or prior to the
Prepayment Date or (ii) following the delivery of any Prefunded Aircraft, the
conditions precedent to Northwest's assumption of Equipment Notes relating to
such Prefunded Aircraft are not met on or prior to the thirtieth day after the
Cut-Off Date (but in no event later than the Prepayment Date), then the
Equipment Notes issued under the related Indenture will be prepaid in full on or
before the fifteenth day after (x) the Prepayment Date, in the case of clause
(i) or (y) the date specified in clause (ii), in the case of clause (ii) as the
case may be, and the Loan Trustee will apply the amounts in the related
Prefunding Collateral Account together with the amounts required to be paid by
Northwest to pay the aggregate principal amount of such Equipment Notes,
together with accrued and unpaid interest thereon. In addition, if a Triggering
Event occurs prior to the Prepayment Date, then the amounts on deposit on any
Prefunding Collateral Account will be applied, together with the amounts
required to be paid by Northwest, to prepay in full the aggregate principal
amount of the Equipment Notes relating to such Prefunding Collateral Account,
together with accrued and unpaid interest thereon, on or before the fifteenth
day after the occurrence of such Triggering Event. (Participation Agreements,
Section 1(e) for NW 1997 G, NW 1997 H, NW 1997 I, NW 1997 J, NW 1997 K and NW
1997 L.)
REDEMPTION
The Equipment Notes issued with respect to any Aircraft will be redeemed, in
whole, at a price equal to the aggregate unpaid principal amount together with
accrued interest to, but not including, the date of redemption, but without
Make-Whole Premium, upon the occurrence of an Event of Loss to such Aircraft if
such Aircraft is not replaced. (Indentures, Section 2.10(a))
The Leased Aircraft Notes relating to an Aircraft may be redeemed, in whole,
on a Special Distribution Date, in connection with Northwest's exercise of its
right to terminate the related Lease or to purchase the Aircraft subject to such
Lease. In connection with any such termination or purchase, the amount to be
paid by Northwest under such Lease will be at least equal to the aggregate
unpaid principal
S-60
<PAGE>
amount of the related Equipment Notes, together with accrued interest thereon
to, but not including, the date of redemption, plus the Make-Whole Premium
thereon, PROVIDED that in lieu of redeeming the Leased Aircraft Notes in
connection with any such purchase of an Aircraft, Northwest may elect to assume
all of the obligations of the relevant Owner Trustee under the related Indenture
pursuant to Section 2.13 of the Indenture and Section 8(x) of the relevant
Participation Agreement. In connection with any such assumption of the Owner
Trustee's obligations in respect of the Leased Aircraft Notes, Northwest shall
enter into a supplemental indenture satisfactory to the relevant Loan Trustee
which contains provisions regarding permitted liens, registration and
maintenance, subleases, replacement of parts, alteration and modification to the
Aircraft, events of loss and insurance which are substantially similar to the
provisions contained in the related Lease. In addition, in connection with any
such assumption, NWA Corp. shall deliver a guaranty of the Leased Aircraft Notes
substantially in the form of the Guaranty and Northwest shall deliver an opinion
of counsel that such assumption has been duly and validly effected. See
"Description of the Equipment Notes--The Guaranty." Upon the effectiveness of
such assumption, the Owner Trustee and the Owner Participant will be released
from further obligations under the related Indenture and the related
Participation Agreement. (Indentures, Sections 2.10(b) and 2.13; Participation
Agreements, Section 8(x); Leases, Sections 9 and 19(d)) See "-- The Leases --
Lease Termination" and "-- The Leases -- Renewal and Purchase Options".
All of the Equipment Notes issued with respect to an Aircraft may be
redeemed prior to maturity as part of a refunding or refinancing plan upon at
least 30 days revocable prior written notice to the Loan Trustee and the holders
of the Equipment Notes, at a price equal to the aggregate unpaid principal
amount thereof, together with accrued interest to, but not including, the date
of redemption, plus a Make-Whole Premium, if any. (Indentures, Section 2.11)
If notice of such redemption is given in connection with a termination of
the Lease, such notice is revocable and is deemed revoked in the event that the
Lease does not in fact terminate on the specified termination date. If notice of
such redemption is given in connection with a refinancing, it is revocable not
later than three days prior to the redemption date. (Indentures, Section
2.12(b))
Either the Owner Trustee or the Owner Participant may purchase all of the
outstanding Equipment Notes issued under the related Indentures for the
aggregate unpaid principal amount, plus accrued and unpaid interest to the date
of purchase. This option may be exercised upon (i) the declaration by the Loan
Trustee that the Equipment Notes have become due and payable following an
Indenture Default or notification by the Loan Trustee to the Owner Trustee that
it intends to take actions to foreclose the lien or otherwise commence the
exercise of any significant remedy under the Indenture or Lease (each, a "Loan
Trustee Event"), or (ii) a continuing Lease Event of Default. If the option is
exercised in connection with a Lease Event of Default continuing for less than
180 days, then the Make-Whole Premium will be added to the purchase price.
(Indentures, Section 2.14)
"MAKE-WHOLE PREMIUM" means, with respect to any Equipment Note, the amount
(as determined by an independent investment banker selected by Northwest and
reasonably acceptable to the Loan Trustee and related Owner Participant) by
which (a) the present value of the remaining scheduled payments of principal and
interest to maturity of such Equipment Note computed by discounting such
payments on a semiannual basis on each Payment Date (assuming a 360-day year of
twelve 30-day months) using a discount rate equal to the Treasury Yield exceeds
(b) the outstanding principal amount of such Equipment Note plus accrued
interest. Such Make-Whole Premium, if any, with respect to each Series of
Equipment Notes, will be payable prior to the dates set forth below.
<TABLE>
<CAPTION>
SERIES DATE
- ------------------------------------------------------ ------------------
<S> <C>
Series A.............................................. July 2, 2010
Series B.............................................. July 2, 2008
Series C.............................................. October 2, 2003
</TABLE>
S-61
<PAGE>
For purposes of determining the Make-Whole Premium, "TREASURY YIELD" means,
at the time of determination with respect to any Equipment Note, the interest
rate (expressed as a semi-annual equivalent and as a decimal and, in the case of
U.S. Treasury bills, converted to a bond equivalent yield) determined to be the
per annum rate equal to the semi-annual yield to maturity for U.S. Treasury
securities maturing on the Average Life Date of such Equipment Note and trading
in the public securities markets either as determined by interpolation between
the most recent weekly average yield to maturity for two series of U.S. Treasury
securities, trading in the public securities markets, (A) one maturing as close
as possible to, but earlier than, the Average Life Date of such Equipment Note
and (B) the other maturing as close as possible to, but later than, the Average
Life Date of such Equipment Note, in each case as published in the most recent
H.15 (519) or, if a weekly average yield to maturity for U.S. Treasury
securities maturing on the Average Life Date of such Equipment Note is reported
on the most recent H.15 (519), such weekly average yield to maturity as
published in such H.15 (519). "H.15 (519)" means the weekly statistical release
designated as such, or any successor publication, published by the Board of
Governors of the Federal Reserve System. The date of determination of a
Make-Whole Premium shall be the third business day prior to the applicable
redemption date and the "most recent H.15 (519)" means the H.15 (519) published
prior to the close of business on the third business day prior to the applicable
redemption date.
"AVERAGE LIFE DATE" for any Equipment Note is the date which follows the
redemption date by a period equal to the Remaining Weighted Average Life of such
Equipment Note. "REMAINING WEIGHTED AVERAGE LIFE" on a given date with respect
to any Equipment Note is the number of days equal to the quotient obtained by
dividing (a) the sum of each of the products obtained by multiplying (i) the
amount of each then remaining scheduled payment of principal of such Equipment
Note by (ii) the number of days from and including such redemption date to but
excluding the date on which payment of principal is scheduled to be made; by (b)
the then outstanding principal amount of such Equipment Note.
In the case of each Indenture related to the six Prefunded Aircraft, if the
manufacturer has not delivered the related Aircraft to Northwest by the
Prepayment Date, then the Equipment Notes issued under such Indenture will be
prepaid in full on or before the fifteenth day after the Cut-off Date. On such
date, the Loan Trustee will apply the amounts in the related Prefunding
Collateral Account together with the amounts required to be paid by Northwest to
pay the aggregate principal amount of such Equipment Notes, together with
accrued and unpaid interest thereon. (Indentures, Sections 2.10(c) and 2.12 for
NW 1997 F, NW 1997 G, NW 1997 H, NW 1997 I, NW 1997 J, NW 1997 K and NW 1997 L.)
The Series C Equipment Notes relating to the Prefunded Aircraft may also be
subject to prepayment in part, no later than 20 days after the related Date of
Sale of such Aircraft, in connection with any reoptimization (subject to the
Mandatory Economic Terms) negotiated with the Owner Participant.
PREFUNDING COLLATERAL ACCOUNT; INVESTMENTS
The proceeds from the sale of the Equipment Notes related to a Prefunded
Aircraft will be deposited in an Eligible Deposit Account (as defined below)
held in the name of the related Loan Trustee (each, a "PREFUNDING COLLATERAL
ACCOUNT"). Such proceeds will (i) be applied to purchase the related Prefunded
Aircraft from Northwest, (ii) be paid to Northwest in connection with an
assumption by Northwest of such Equipment Notes or (iii) be applied to the
redemption of such Equipment Notes. An "ELIGIBLE DEPOSIT ACCOUNT" is either (a)
a segregated account with an Eligible Institution (as defined below) or (b) a
segregated trust account with the corporate trust department of a depository
institution with corporate trust powers organized under the laws of the United
States of America or any state thereof, or the District of Columbia, and whose
deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC"),
provided that such institution also has a combined capital and surplus of at
least $100,000,000 and a rating of A or better from the Thomson Bank Watch. An
"ELIGIBLE INSTITUTION" is a depository institution organized under the laws of
the United States of America or any one of the states thereof, or the District
of Columbia, or any domestic branch of a foreign bank, which in any such case at
all times (a) has either (x)
S-62
<PAGE>
a long-term unsecured debt rating of at least Aa2 by Moody's or (y) a short-term
certificate of deposit rating of P-1 by Moody's, (b) has either (x) a long-term
unsecured debt rating of a least AA by S&P or (y) a short-term certificate of
deposit rating of A-1+ by S&P and (c) is a member of the FDIC.
Amounts on deposit in each Prefunding Collateral Account may be invested
from time to time by the Loan Trustee at the direction of Northwest in Specified
Investments. "SPECIFIED INVESTMENTS" mean any of the following:
(a) direct obligations of the United States of America or obligations
fully guaranteed by the United States of America;
(b) commercial paper rated A-1/P-1 by Standard & Poor's and Moody's,
respectively or, if such ratings are unavailable, rated by any nationally
recognized rating organization in the U.S. equal to the highest rating
assigned by such rating organization;
(c) investments in negotiable certificates of deposit, time deposits,
banker's acceptances, commercial paper or other direct obligations of, or
obligations guaranteed by, commercial banks organized under the laws of the
U.S. or of any political subdivision thereof (or any U.S. branch of a
foreign bank) with issuer ratings of at least B/C by Thomson Bankwatch,
having maturities no later than eight months following the date of such
investment;
(d) overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers; or
(e) overnight repurchase agreements with respect to the securities
described in clause (a) above entered into with an office of a bank or trust
company which is located in the United States of America or any bank or
trust company which is organized under the laws of the U.S. or any state
thereof and has capital, surplus and undivided profits aggregating at least
$500 million.
Northwest will pay to the Loan Trustee any losses on such Specified
Investments. Such Specified Investments must mature no later than the scheduled
delivery date for the related Prefunded Aircraft. If Specified Investments are
not available on any day on which funds are to be invested, the Loan Trustee may
leave such funds in the related Prefunding Collateral Account until the earliest
of (i) the date on which an appropriate Specified Investment becomes available,
(ii) the Date of Sale and (iii) the Cut-off Date. If the Date of Sale is
postponed, the proceeds of such investments maturing prior to such postponed
delivery date will be invested in Specified Investments and any such Specified
Investments must mature no later than 14 days after the rescheduled Date of Sale
or, if no notice of rescheduled Date of Sale has been given, no later than 14
days after the Cut-off Date. (Indentures, Section 2.17 for NW 1997 G, NW 1997 H,
NW 1997 I, NW 1997 J, NW 1997 K and NW 1997 L. )
Funds (other than funds in the related Prefunding Collateral Account) if any
held from time to time by the Loan Trustee with respect to any Aircraft will be
invested, except under certain circumstances, upon the written instructions of
Northwest in direct obligations of, or obligations fully guaranteed by, the
United States of America; certificates of deposit, bankers' acceptances, time
deposits or deposit accounts with certain banks, trust companies or national
banking associations; or commercial paper rated A-1/P-1 by Standard & Poor's and
Moody's, respectively, or, if such ratings are unavailable, rated by any
nationally recognized rating organization in the U.S. equal to the highest
rating assigned by such rating organization. Northwest will be responsible for
any loss realized upon maturity, sale or other disposition of any such
investment. (Indentures, Section 5.09; Leases, Section 22(a))
SECURITY
Except as described below, the Equipment Notes issued with respect to each
Aircraft are or will be secured by a first priority security interest in the
Aircraft, the related Lease and all rent thereunder, as well as the related
Guaranty all rents, profits and other income of such Aircraft, all insurance and
similar
S-63
<PAGE>
proceeds with respect to such Aircraft, all rights of the related Owner Trustee
to amounts paid or payable by Northwest under the related Participation
Agreement, all monies and securities deposited with the related Loan Trustee,
and all proceeds of the foregoing. Unless an Indenture Default with respect to
an Aircraft has occurred and is continuing, the related Loan Trustee may not
exercise the Owner Trustee's rights under the related Lease except such Owner
Trustee's right to receive rent. The assignment by the Owner Trustee to the Loan
Trustee of its rights under the related Lease excludes the rights of the Owner
Trustee and the Owner Participant relating to the indemnification by Northwest
for certain matters, insurance proceeds payable to the Owner Trustee in its
individual capacity and to the Owner Participant under liability insurance
maintained by Northwest under the Lease or by the Owner Trustee or such Owner
Participant, insurance proceeds payable to the Owner Trustee in its individual
capacity or to such Owner Participant under certain casualty insurance
maintained by the Owner Trustee or the Owner Participant under the Lease and
certain reimbursement payments made by Northwest to the Owner Trustee.
(Indenture, Granting Clause).
The Equipment Notes are not cross-collateralized and, consequently, the
Equipment Notes issued in respect of any one Aircraft are not secured by any of
the other Aircraft, replacement aircraft (as described in the "Leases--Events of
Loss") or the Leases related thereto. There are no cross-default provisions in
the Indentures or Leases and, consequently, events resulting in an event of
default under any particular Indenture or Lease may or may not result in an
event of default occurring under any other Indenture or Lease. If the Equipment
Notes issued with respect to one or more Aircraft are in default and the
Equipment Notes issued with respect to the remaining Aircraft are not in
default, no remedies will be exercisable under the Indentures with respect to
such remaining Aircraft.
Although the Leased Aircraft Notes are not obligations of, or guaranteed by,
Northwest (other than in respect of its obligations during and ending with the
Prefunding Period), the amounts unconditionally payable by Northwest for lease
of the Aircraft, will be sufficient to pay in full when due all amounts required
to be paid on the Equipment Notes. See "Description of the Equipment Notes --
General". Amounts payable by Northwest under each Lease will be unconditionally
guaranteed by NWA Corp.
The principal amount of the Equipment Notes issued by the related Owner
Trustee under the Indentures related to the Prefunded Aircraft will be secured
prior to delivery of the related Prefunded Aircraft by the related Prefunding
Collateral Account, which will be funded by the proceeds of the sale of such
Equipment Notes. Funds deposited in the related Prefunding Collateral Account
will be invested in obligations of, or guaranteed by, the United States of
America and in certain other Specified Investments described herein. Northwest
will pay to the Loan Trustee any losses on the Specified Investments and
earnings on such Prefunding Collateral Account will be paid to Northwest on the
related Date of Sale. Northwest will pay (i) interest due on the related
Equipment Notes on each Regular Distribution Date during the related Prefunding
Period and (ii) interest due on the first Regular Distribution Date after the
related Date of Sale for the period from the preceding Regular Distribution Date
(or, if none, the date of issuance of the Equipment Notes) to the related Date
of Sale. If a Prefunded Aircraft is delivered to Northwest but not sold to the
related Owner Trust on or prior to the Cut-off Date for any reason, Northwest
will, unless the manufacturer has failed to deliver such Aircraft to Northwest
on or prior to such date, assume, subject to certain conditions, on a full
recourse basis all of the obligations of the Owner Trustee under the related
Equipment Notes pursuant to an indenture containing terms substantially
identical to those contained in the Leases and Indentures described herein. Such
Equipment Notes will be secured by a lien on the related Prefunded Aircraft
(which will be an Owned Aircraft as described in the Prospectus) and will be
Owned Aircraft Notes (as described in the Prospectus). In connection with such
assumption, the Loan Trustee will release the amounts in the Prefunding
Collateral Account to Northwest to reimburse Northwest for a portion of the
purchase price previously paid by it for such Aircraft. Northwest's obligations
in respect of such assumed Equipment Notes will be unconditionally guaranteed by
NWA Corp.
S-64
<PAGE>
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
The following tables set forth loan to Aircraft value ratios for the
Equipment Notes issued in respect of each Aircraft as of the dates specified and
was obtained by dividing (i) the outstanding balance of such Equipment Notes
determined immediately after giving effect to the payments scheduled to be made
on each such date by (ii) the assumed value (the "Assumed Aircraft Value") of
the Aircraft securing such Equipment Notes. The table assumes that (i) the
Prefunded Aircraft were delivered prior to the respective expected date of
delivery, (ii) no reoptimization will be negotiated with the Owner Participant
pursuant to the Mandatory Economic Terms, (iii) no prepayments of interest or
principal on the Equipment Notes will occur and (iv) no payment defaults shall
have occurred and be continuing with respect to the Equipment Notes. Upon the
occurrence of the Date of Sale with respect to any Prefunded Aircraft, the
related Equipment Notes may be reoptimized (subject to the Mandatory Economic
Terms) and the related Series C Equipment Notes may be partially prepaid,
resulting in adjustments to principal repayment schedules contained in Appendix
IV hereto.
The tables contain forward-looking information that is based on the
assumption that the value of each Aircraft included in the Assumed Aircraft
Value opposite the initial Regular Distribution Date included in the table
depreciates by 3% per year until the tenth year after the year of delivery of
such Aircraft, by 4% per year thereafter until the fifteenth year after the year
of such delivery and by 5% per year thereafter. Other rates or methods of
depreciation would result in materially different loan-to-value ratios and no
assurance can be given (i) that the depreciation rates and method assumed for
the purposes of the table are the ones most likely to occur or (ii) as to the
actual value of any Aircraft. Thus the table should not be considered a forecast
or prediction of expected or likely loan to Aircraft value ratios but simply a
mathematical calculation based on one set of assumptions.
S-65
<PAGE>
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES*
<TABLE>
<CAPTION>
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER N501XJ NUMBER N502XJ
----------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EQUIPMENT EQUIPMENT
NOTE ASSUMED NOTE ASSUMED
OUTSTANDING AIRCRAFT LOAN OUTSTANDING AIRCRAFT LOAN TO
BALANCE VALUE VALUE BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
- ------------------------------------------------ ----------- ----------- --------- ----------- ----------- -----------
July 2, 1998.................................... $ 16.314 $ 23.523 69.36% $ 16.314 $ 23.571 69.21%
July 2, 1999.................................... 15.810 22.795 69.36 15.810 22.842 69.21
July 2, 2000.................................... 15.305 22.068 69.35 15.305 22.113 69.21
July 2, 2001.................................... 14.801 21.340 69.36 14.801 21.384 69.21
July 2, 2002.................................... 13.562 20.613 65.79 13.562 20.655 65.66
July 2, 2003.................................... 12.669 19.885 63.71 12.669 19.926 63.58
July 2, 2004.................................... 12.157 19.158 63.46 12.157 19.197 63.33
July 2, 2005.................................... 11.291 18.430 61.26 11.291 18.468 61.14
July 2, 2006.................................... 10.300 17.703 58.18 10.300 17.739 58.06
July 2, 2007.................................... 9.751 16.975 57.44 9.751 17.010 57.32
July 2, 2008.................................... 9.083 16.005 56.75 9.083 16.038 56.64
July 2, 2009.................................... 8.178 15.035 54.39 8.178 15.066 54.28
July 2, 2010.................................... 7.117 14.065 50.60 7.117 14.094 50.50
July 2, 2011.................................... 5.830 13.095 44.52 5.830 13.122 44.43
July 2, 2012.................................... 4.446 12.125 36.67 4.446 12.150 36.59
July 2, 2013.................................... 2.957 10.913 27.10 2.957 10.935 27.04
July 2, 2014.................................... 1.357 9.700 13.99 1.357 9.720 13.96
July 2, 2015.................................... 0.000 0.000 0.00 0.000 0.000 0.00
</TABLE>
<TABLE>
<CAPTION>
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER N503XJ NUMBER N504XJ
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EQUIPMENT EQUIPMENT
NOTE ASSUMED NOTE ASSUMED
OUTSTANDING AIRCRAFT LOAN TO OUTSTANDING AIRCRAFT LOAN TO
BALANCE VALUE VALUE BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
- -------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
July 2, 1998................................ $ 16.314 $ 23.620 69.07% $ 16.314 $ 23.668 68.93%
July 2, 1999................................ 15.810 22.889 69.07 15.810 22.936 68.93
July 2, 2000................................ 15.305 22.159 69.07 15.305 22.204 68.93
July 2, 2001................................ 14.801 21.428 69.07 14.801 21.472 68.93
July 2, 2002................................ 13.562 20.698 65.53 13.562 20.740 65.39
July 2, 2003................................ 12.669 19.967 63.45 12.669 20.008 63.32
July 2, 2004................................ 12.157 19.237 63.20 12.157 19.276 63.07
July 2, 2005................................ 11.291 18.506 61.01 11.291 18.544 60.89
July 2, 2006................................ 10.300 17.776 57.94 10.300 17.812 57.82
July 2, 2007................................ 9.751 17.045 57.21 9.751 17.080 57.09
July 2, 2008................................ 9.083 16.071 56.52 9.083 16.104 56.40
July 2, 2009................................ 8.178 15.097 54.17 8.178 15.128 54.06
July 2, 2010................................ 7.117 14.123 50.39 7.117 14.152 50.29
July 2, 2011................................ 5.830 13.149 44.34 5.830 13.176 44.25
July 2, 2012................................ 4.446 12.175 36.51 4.446 12.200 36.44
July 2, 2013................................ 2.957 10.958 26.99 2.957 10.980 26.93
July 2, 2014................................ 1.357 9.740 13.93 1.357 9.760 13.90
July 2, 2015................................ 0.000 0.000 0.00 0.000 0.000 0.00
</TABLE>
- ------------------------
* The information relating to the Loan to Value Ratios of Equipment Notes is
indicative only and subject to change.
S-66
<PAGE>
<TABLE>
<CAPTION>
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER N505XJ NUMBER N506XJ
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EQUIPMENT EQUIPMENT
NOTE ASSUMED NOTE ASSUMED
OUTSTANDING AIRCRAFT LOAN TO OUTSTANDING AIRCRAFT LOAN TO
BALANCE VALUE VALUE BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
- ----------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
July 2, 1998......................................... $ 16.314 $ 23.717 68.79% $ 16.314 $ 23.765 68.65%
July 2, 1999......................................... 15.810 22.983 68.79 15.810 23.030 68.65
July 2, 2000......................................... 15.305 22.250 68.79 15.305 22.295 68.65
July 2, 2001......................................... 14.801 21.516 68.79 14.801 21.560 68.65
July 2, 2002......................................... 13.562 20.783 65.26 13.562 20.825 65.12
July 2, 2003......................................... 12.669 20.049 63.19 12.669 20.090 63.06
July 2, 2004......................................... 12.157 19.316 62.94 12.157 19.355 62.81
July 2, 2005......................................... 11.291 18.582 60.76 11.291 18.620 60.64
July 2, 2006......................................... 10.300 17.849 57.71 10.300 17.885 57.59
July 2, 2007......................................... 9.751 17.115 56.97 9.751 17.150 56.86
July 2, 2008......................................... 9.083 16.137 56.29 9.083 16.170 56.17
July 2, 2009......................................... 8.178 15.159 53.95 8.178 15.190 53.84
July 2, 2010......................................... 7.117 14.181 50.19 7.117 14.210 50.08
July 2, 2011......................................... 5.830 13.203 44.16 5.830 13.230 44.07
July 2, 2012......................................... 4.446 12.225 36.37 4.446 12.250 36.29
July 2, 2013......................................... 2.957 11.003 26.88 2.957 11.025 26.82
July 2, 2014......................................... 1.357 9.780 13.87 1.357 9.800 13.84
July 2, 2015......................................... 0.000 0.000 0.00 0.000 0.000 0.00
</TABLE>
<TABLE>
<CAPTION>
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER N507XJ NUMBER N508XJ
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EQUIPMENT EQUIPMENT
NOTE ASSUMED NOTE ASSUMED
OUTSTANDING AIRCRAFT LOAN TO OUTSTANDING AIRCRAFT LOAN TO
BALANCE VALUE VALUE BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
- ----------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
July 2, 1998......................................... $ 15.443 $ 24.550 62.90% $ 15.419 $ 24.600 62.68%
July 2, 1999......................................... 15.092 23.814 63.38 15.071 23.862 63.16
July 2, 2000......................................... 14.718 23.077 63.78 14.698 23.124 63.56
July 2, 2001......................................... 14.316 22.341 64.08 14.298 22.386 63.87
July 2, 2002......................................... 13.885 21.604 64.27 13.869 21.648 64.06
July 2, 2003......................................... 13.422 20.868 64.32 13.408 20.910 64.12
July 2, 2004......................................... 12.926 20.131 64.21 12.915 20.172 64.02
July 2, 2005......................................... 12.394 19.395 63.90 12.385 19.434 63.73
July 2, 2006......................................... 11.053 18.658 59.24 11.152 18.696 59.65
July 2, 2007......................................... 10.470 17.922 58.42 10.495 17.958 58.44
July 2, 2008......................................... 9.764 17.185 56.82 9.788 17.220 56.84
July 2, 2009......................................... 9.082 16.203 56.05 9.109 16.236 56.11
July 2, 2010......................................... 8.129 15.221 53.41 8.162 15.252 53.51
July 2, 2011......................................... 7.179 14.239 50.42 7.200 14.268 50.46
July 2, 2012......................................... 5.851 13.257 44.13 5.878 13.284 44.25
July 2, 2013......................................... 4.423 12.275 36.03 4.456 12.300 36.23
July 2, 2014......................................... 2.887 11.048 26.13 2.927 11.070 26.44
July 2, 2015......................................... 1.235 9.820 12.58 1.283 9.840 13.04
</TABLE>
S-67
<PAGE>
<TABLE>
<CAPTION>
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER N509XJ NUMBER N510XJ
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EQUIPMENT EQUIPMENT
NOTE ASSUMED NOTE ASSUMED
OUTSTANDING AIRCRAFT LOAN TO OUTSTANDING AIRCRAFT LOAN TO
BALANCE VALUE VALUE BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
- ----------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
July 2, 1998......................................... $ 16.079 $ 24.750 64.97% $ 16.033 $ 24.800 64.65%
July 2, 1999......................................... 15.808 24.008 65.85 15.789 24.056 65.63
July 2, 2000......................................... 15.466 23.265 66.48 15.449 23.312 66.27
July 2, 2001......................................... 15.099 22.523 67.04 15.084 22.568 66.84
July 2, 2002......................................... 14.706 21.780 67.52 14.692 21.824 67.32
July 2, 2003......................................... 14.284 21.038 67.90 14.273 21.080 67.71
July 2, 2004......................................... 12.808 20.295 63.11 12.804 20.336 62.96
July 2, 2005......................................... 12.227 19.553 62.53 12.224 19.592 62.39
July 2, 2006......................................... 11.602 18.810 61.68 11.602 18.848 61.55
July 2, 2007......................................... 10.932 18.068 60.51 10.935 18.104 60.40
July 2, 2008......................................... 10.206 17.325 58.91 10.227 17.360 58.91
July 2, 2009......................................... 9.526 16.335 58.31 9.548 16.368 58.33
July 2, 2010......................................... 8.820 15.345 57.48 8.846 15.376 57.53
July 2, 2011......................................... 7.655 14.355 53.32 7.638 14.384 53.10
July 2, 2012......................................... 6.338 13.365 47.42 6.324 13.392 47.23
July 2, 2013......................................... 4.922 12.375 39.77 4.911 12.400 39.61
July 2, 2014......................................... 3.399 11.138 30.52 3.391 11.160 30.39
July 2, 2015......................................... 1.761 9.900 17.79 1.757 9.920 17.71
</TABLE>
<TABLE>
<CAPTION>
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER N511XJ NUMBER N512XJ
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EQUIPMENT EQUIPMENT
NOTE ASSUMED NOTE ASSUMED
OUTSTANDING AIRCRAFT LOAN TO OUTSTANDING AIRCRAFT LOAN TO
BALANCE VALUE VALUE BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
- ----------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
July 2, 1998......................................... $ 15.991 $ 24.850 64.35% $ 15.953 $ 24.880 64.12%
July 2, 1999......................................... 15.773 24.105 65.43 15.761 24.134 65.31
July 2, 2000......................................... 15.431 23.359 66.06 15.421 23.387 65.94
July 2, 2001......................................... 15.065 22.614 66.62 15.057 22.641 66.50
July 2, 2002......................................... 14.673 21.868 67.10 14.666 21.894 66.98
July 2, 2003......................................... 14.252 21.123 67.47 14.247 21.148 67.37
July 2, 2004......................................... 12.794 20.377 62.79 12.793 20.402 62.70
July 2, 2005......................................... 12.223 19.632 62.26 12.224 19.655 62.19
July 2, 2006......................................... 11.614 18.886 61.50 11.617 18.909 61.44
July 2, 2007......................................... 10.963 18.141 60.43 10.968 18.162 60.39
July 2, 2008......................................... 10.266 17.395 59.01 10.290 17.416 59.09
July 2, 2009......................................... 9.584 16.401 58.44 9.609 16.421 58.52
July 2, 2010......................................... 8.856 15.407 57.48 8.843 15.426 57.33
July 2, 2011......................................... 7.636 14.413 52.98 7.625 14.430 52.84
July 2, 2012......................................... 6.323 13.419 47.12 6.314 13.435 46.99
July 2, 2013......................................... 4.910 12.425 39.52 4.903 12.440 39.41
July 2, 2014......................................... 3.390 11.183 30.32 3.385 11.196 30.24
July 2, 2015......................................... 1.757 9.940 17.67 1.754 9.952 17.63
</TABLE>
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<PAGE>
LIMITATION OF LIABILITY
Except with respect to the Owned Aircraft Notes if any, which will be direct
obligations of Northwest and will be guaranteed by NWA Corp., the Equipment
Notes will not be obligations of, or guaranteed by, Northwest, NWA Corp., the
Owner Participants or the Owner Trustees in their individual capacity. None of
the Owner Trustees, the Owner Participants or the Loan Trustees, or any
affiliates thereof, will be personally liable to any holder of an Equipment Note
or, in the case of the Owner Trustees and the Owner Participants, to the Loan
Trustees for any amounts payable under the Equipment Notes or, except as
provided in each Indenture, for any liability under such Indenture. All payments
of principal of, Make-Whole Premium if any and interest on the Equipment Notes
issued with respect to any Aircraft (other than payments made in connection with
an optional redemption or purchases of Equipment Notes by the related Owner
Trustee or the related Owner Participant) will be made only from the assets
subject to the lien of the Indenture with respect to such Aircraft or the income
and proceeds received by the related Loan Trustee therefrom (including rent
payable by Northwest under the Lease with respect to such Aircraft or NWA
Corp.'s Guaranty thereof). See "Description of the Equipment Notes--The
Guaranty."
Except as otherwise provided in the Indentures, each Owner Trustee in its
individual capacity is not answerable or accountable under the Indentures or
under the Equipment Notes under any circumstances except for its own willful
misconduct, gross negligence, negligence with respect to the distribution of
funds, or the falsity of a representation or warranty when made. None of the
Owner Participants has any duty or responsibility under any of the Indentures or
the Equipment Notes to the Loan Trustees or to any holder of any Equipment Note.
INDENTURE DEFAULTS, NOTICE AND WAIVER
Indenture Defaults under each Indenture include: (a) the occurrence of any
Lease Event of Default under the related Lease (other than the failure to make
certain indemnity payments and other payments to the related Owner Trustee or
Owner Participant unless a notice is given by such Owner Trustee that such
failure will constitute an Indenture Default), (b) the failure by the Owner
Trustee (other than as a result of a Lease Default or Lease Event of Default) to
pay any interest or principal or Make-Whole Premium if any when due, under such
Indenture or under any Equipment Note issued thereunder continued for more than
ten business days after notice, (c) the failure by the Owner Participant or the
Owner Trustee to discharge certain liens, continued after notice and specified
cure periods, (d) any representation or warranty made by the related Owner
Trustee or Owner Participant in such Indenture, the related Participation
Agreement or certain related documents furnished to the Loan Trustee pursuant
thereto being false or incorrect when made and continuing to be material and
remaining unremedied after notice and specified cure periods, (e) failure by the
related Owner Trustee or Owner Participant to perform or observe any covenant or
obligation for the benefit of the Loan Trustee or holders of Equipment Notes
under such Indenture or certain related documents, continued after notice and
specified cure periods, (f) the registration of the related Aircraft ceasing to
be effective as a result of the Owner Participant not being a citizen of the
U.S. and such circumstances continue for 60 days, or (g) the occurrence of
certain events of bankruptcy, reorganization or insolvency of the related Owner
Trustee or Owner Participant. There are no cross-default provisions in the
Indentures or the Leases. Consequently, events resulting in an Indenture Default
under any particular Indenture may or may not result in an Indenture Default
occurring under any other Indenture. (Indentures, Section 4.02)
The Loan Trustee will give the holders of the Equipment Notes, the Owner
Trustee and the Owner Participant prompt written notice of any Indenture Default
of which the Loan Trustee has actual knowledge and, if the Indenture Default
results from a Lease Event of Default, it will give the holders of the Equipment
Notes, the Owner Trustee and the Owner Participant not less than ten business
days prior written notice of the date on or after which the Loan Trustee may
commence the exercise of any remedy described in "-- Remedies" below.
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<PAGE>
If Northwest fails to make any semi-annual basic rental payment due under
any Lease, within a specified period after notice from the Loan Trustee of such
failure the applicable Owner Trustee or Owner Participant may furnish to the
Loan Trustee the amount due on the Equipment Notes, together with any interest
thereon on account of the delayed payment thereof, in which event the Loan
Trustee and the holders of outstanding Equipment Notes issued under such
Indenture may not exercise any remedies otherwise available under such Indenture
or such Lease as the result of such failure to make such rental payment, unless
the relevant Owner Trustee or Owner Participant has previously cured the
preceding three consecutive payment defaults or six total payment defaults with
respect to Basic Rent. (Indentures, Section 4.03)
The Owner Trustee and/or the Owner Participant also have certain rights, but
not obligations, to cure Indenture Defaults not resulting from the nonpayment of
Basic Rent.
If an Owner Trustee or Owner Participant pays the amount due on the
Equipment Notes to the Loan Trustee or cures the Indenture Default, the Owner
Trustee or Owner Participant will be subrogated to the rights of the Loan
Trustee and the holders of the Equipment Notes in respect of the Rent which was
overdue at the time of such payment, as well as interest payable by Northwest on
account of its being overdue, and thereafter the Owner Trustee or the Owner
Participant, as the case may be, will be entitled to receive such overdue Rent
and interest thereon upon receipt by the Loan Trustee; PROVIDED, HOWEVER, that
(i) if the principal amount and interest on the Equipment Notes is due and
payable following an Indenture Default, such subrogation will, until the
principal amount of, interest on, Make-Whole Premium if any and all other
amounts due with respect to all Equipment Notes has been paid in full, be
subordinate to the rights of the Loan Trustee and the holders of the Equipment
Notes in respect of such payment of overdue Rent and interest and (ii) the Owner
Trustee will not be entitled to recover any such payment except pursuant to the
foregoing right of subrogation, by demand or suit for damages.
The holders of a majority in principal amount of the outstanding Equipment
Notes issued with respect to any Aircraft, by notice to the Loan Trustee, may on
behalf of all the holders waive any existing default and its consequences under
the Indenture with respect to such Aircraft, except a default in the payment of
the principal of, interest on, or Make-Whole Premium if any on any such
Equipment Notes or a default in respect of any covenant or provision of such
Indenture that cannot be modified or amended without the consent of each holder
of Equipment Notes affected thereby. (Indentures, Section 4.08)
REMEDIES
Each Indenture provides that if an Indenture Default occurs and is
continuing, the related Loan Trustee may, and upon receipt of written demand
from the holders of a majority in principal amount of the Equipment Notes
outstanding under such Indenture shall, subject to the applicable Owner
Participant's or Owner Trustee's right to cure, as discussed above, declare the
principal of all such Equipment Notes issued thereunder immediately due and
payable, together with all accrued but unpaid interest thereon (without the
Make-Whole Premium). The holders of a majority in principal amount of Equipment
Notes outstanding under such Indenture may rescind any such declaration at any
time before the judgment or decree for the payment of the money so due shall be
entered if (i) there has been paid to the related Loan Trustee an amount
sufficient to pay all principal and interest on any such Equipment Notes, to the
extent such amounts have become due otherwise than by such declaration of
acceleration and (ii) all other Indenture Defaults and potential Indenture
Defaults under such Indenture have been cured or waived. (Indentures, Section
4.04(b))
Each Indenture provides that if an Indenture Default under such Indenture
has occurred and is continuing, the related Loan Trustee may exercise certain
rights or remedies available to it under such Indenture or under applicable law,
including (if the corresponding Lease has been declared in default) one or more
of the remedies under such Indenture or such Lease with respect to the Aircraft
subject to such Lease. If an Event of Default shall have occurred and be
continuing under the corresponding Lease, the
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<PAGE>
related Loan Trustee's right to exercise remedies under such Indenture is
subject, with certain exceptions, to its having proceeded to exercise one or
more of the remedies under the Lease to terminate the Lease or take possession
of and/or sell the Aircraft; PROVIDED that the requirement to exercise such
remedies under such Lease shall not apply in circumstances where such exercise
has been involuntarily stayed or prohibited by applicable law or court order for
a continuous period in excess of 60 days or such other period as may be
specified in Section 1110(a)(1)(A) of the Bankruptcy Code (plus an additional
period if any resulting from (i) Northwest or its trustee in such proceeding
assuming, or agreeing to perform its obligations under, such Lease with the
approval of the applicable court, (ii) such Loan Trustee's consent to an
extension of such 60-day period or (iii) such Loan Trustee's failure to give any
requisite notice). See "-- The Leases -- Lease Events of Default". Such remedies
may be exercised by the related Loan Trustee to the exclusion of the related
Owner Trustee, subject to certain conditions specified in such Indenture, and
Northwest, subject to the terms of such Lease. Any Aircraft sold in the exercise
of such remedies will be free and clear of any rights of those parties,
including the rights of Northwest under the Lease with respect to such Aircraft.
(Indentures, Section 4.04; Leases, Section 15)
If the Equipment Notes issued in respect of one Aircraft are in default, the
Equipment Notes issued in respect of the other Aircraft may not be in default,
and, if not, no remedies will be exercisable under the applicable Indentures
with respect to such other Aircraft.
Section 1110 of the Bankruptcy Code provides that the right of lessors,
conditional vendors and holders of security interests with respect to
"equipment" (as defined in Section 1110 of the Bankruptcy Code) to take
possession of such equipment in compliance with the provisions of a lease,
conditional sale contract or security agreement, as the case may be, is not
affected after 60 days after the filing of petition under Chapter 11 of the
Bankruptcy Code by (a) the automatic stay provision of the Bankruptcy Code,
which provision enjoins repossessions by creditors for the duration of the
reorganization period, (b) the provision of the Bankruptcy Code allowing the
trustee in reorganization to use property of the debtor during the
reorganization period, (c) Section 1129 of the Bankruptcy Code (which governs
the confirmation of plans of reorganization in Chapter 11 cases) and (d) any
power of the bankruptcy court to enjoin a repossession. Section 1110 provides
that the right to take possession of an aircraft may not be exercised for 60
days following the date of commencement of the reorganization proceedings and
may not be exercised at all after such 60-day period (or such longer period
consented to by the lessor, conditional vendor or holder of a security
interest), if the trustee in reorganization agrees to perform the debtor's
obligations that become due on or after such date and cures all existing
defaults (other than defaults that are a breach of a provision relating to the
financial condition, bankruptcy, insolvency or reorganization of the debtor).
"Equipment" is defined in Section 1110 of the Bankruptcy Code, in part, as "an
aircraft, aircraft engine, propeller, appliance, or spare part (as defined in
section 40102 of title 49) that is subject to a security interest granted by,
leased to, or conditionally sold to a debtor that is a citizen of the U.S. (as
defined in section 40102 of title 49) holding an air carrier operating
certificate issued by the Secretary of Transportation pursuant to chapter 447 of
title 49 for aircraft capable of carrying 10 or more individuals or 6,000 pounds
or more of cargo".
Cadwalader, Wickersham & Taft, special leveraged lease counsel to Northwest,
has advised the Loan Trustees that, if Northwest were to become a debtor under
Chapter 11 of the Bankruptcy Code, the Owner Trustee, as lessor under each of
the Leases, and the Loan Trustee, as assignee of such Owner Trustee's rights
under each of the Leases pursuant to each of the related Indentures, would be
entitled to the benefits of Section 1110 of the Bankruptcy Code with respect to
the airframe and engines comprising the related Aircraft, but may not be
entitled to such benefits with respect to any replacement of an Aircraft after
an Event of Loss in the future, the consummation of which is conditioned upon
the contemporaneous delivery of an opinion of counsel to the effect that the
related Loan Trustee's entitlement to Section 1110 benefits should not be
diminished as a result of such replacement. This opinion is subject to certain
qualifications and assumptions, including the assumptions that Northwest is and
will continue to be a citizen of the U.S. holding an air carrier operating
certificate issued by the Secretary of Transportation
S-71
<PAGE>
pursuant to chapter 447 of title 49 of the U.S. Code for aircraft capable of
carrying 10 or more individuals or 6,000 pounds or more of cargo. See "-- The
Leases -- Events of Loss". The opinion of Cadwalader, Wickersham & Taft does not
address the availability of Section 1110 with respect to the bankruptcy
proceedings of any possible sublessee of an Aircraft. For a description of
certain limitations on the Loan Trustee's exercise of rights contained in the
Indenture, see "-- Indenture Defaults, Notice and Waiver".
In the event of bankruptcy, insolvency, receivership or like proceedings
involving an Owner Participant, it is possible that, notwithstanding that the
applicable Aircraft is owned by the related Owner Trustee in trust, such
Aircraft and the related Lease and Equipment Notes might become part of such
proceeding. In such event, payments under such Lease or on such Equipment Notes
may be interrupted and the ability of the related Loan Trustee to exercise its
remedies under the related Indenture might be restricted, though such Loan
Trustee would retain its status as a secured creditor in respect of the related
Lease and the related Aircraft.
MODIFICATION OF INDENTURES AND LEASES
Without the consent of holders of a majority in principal amount of the
Equipment Notes outstanding under any Indenture, the provisions of such
Indenture and the Lease, the Participation Agreement and the Trust Agreement
corresponding thereto may not be amended or modified, except to the extent
indicated below. See the summary of the "Mandatory Document Terms" in
"Description of the Certificates -- Obligation to Purchase Equipment Notes" for
a discussion of certain sections of the operative documents which may not be
modified.
Certain provisions of any Indenture, and of the Lease, the Participation
Agreement, and the Trust Agreement related thereto, may be amended or modified
by the parties thereto without the consent of the relevant Loan Trustee or any
holders of the Equipment Notes outstanding under such Indenture, subject to
certain conditions. In the case of each Lease, such provisions include, among
others, provisions relating to (i) the return to the related Owner Trustee of
the related Aircraft at the end of the term of such Lease, (ii) the voluntary
early termination of such Lease by Northwest, and (iii) the renewal of such
Lease and the option of Northwest at the end of the term of such Lease to
purchase the related Aircraft. (Indentures, Section 9.01)
Without the consent of the holder of each Equipment Note outstanding under
any Indenture affected thereby, no amendment of or supplement to such Indenture
may among other things (a) reduce the principal amount of, or Make-Whole Premium
if any or interest payable on, any Equipment Notes issued under such Indenture
or change the date on which any principal or Make-Whole Premium if any or
interest is due and payable, (b) create any security interest with respect to
the property subject to the lien of such Indenture, except as provided in such
Indenture, or deprive any holder of an Equipment Note issued under such
Indenture of the benefit of the lien of such Indenture upon the property subject
thereto or (c) reduce the percentage in principal amount of outstanding
Equipment Notes issued under such Indenture necessary to modify or amend any
provision of such Indenture or to waive compliance therewith. (Indentures,
Section 9.01(b))
INDEMNIFICATION
Northwest will be required to indemnify each Loan Trustee, each Owner
Participant and each Owner Trustee for certain losses, claims and other matters.
Northwest is required under certain circumstances to indemnify each Owner
Participant against the loss of depreciation deductions and certain other
benefits allowable for certain income tax purposes with respect to the related
Aircraft. Each Owner Trustee indemnifies the Loan Trustee to the extent not
reimbursed by Northwest. Prior to seeking indemnification from the Indenture
Estate, the Loan Trustee will demand and take necessary action to pursue
indemnification under the Participation Agreement. If necessary, the Loan
Trustee is entitled to indemnification from the Indenture Estate for any
liability, obligation, loss, damage, penalty, claim or action to the extent not
S-72
<PAGE>
reimbursed by Northwest. The Loan Trustee is not indemnified, however, for
actions arising from its gross negligence, willful misconduct or, in the case of
handling funds, negligence, or for the inaccuracy of any representation or
warranty made in its individual capacity under the Indenture.
Each Owner Participant is required to indemnify the related Loan Trustee and
the holders of the Equipment Notes issued with respect to the Aircraft in which
such Owner Participant has an interest for certain losses that may be suffered
as a result of the failure of such Owner Participant to discharge certain liens
or claims on or against the assets subject to the lien of the related Indenture.
The Loan Trustee is not under any obligation to take any action, risk liability
or expend its own funds under the Indenture if it has reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
is not reasonably assured to it.
THE GUARANTY
NWA Corp. does or will irrevocably, fully and unconditionally guarantee the
payment and performance of all obligations of Northwest as lessee under each
Lease, will fully and unconditionally guarantee the payment of all obligations
of Northwest under any Owned Aircraft Notes and does or will irrevocably, fully
and unconditionally guarantee the payment obligations of Northwest in respect of
the Prefunding Collateral Accounts. If Northwest fails to make a payment or
perform a nonfinancial obligation when due for any reason, including
liquidation, bankruptcy or reorganization, NWA Corp. will make the payment and
perform any nonfinancial obligations. The Guaranty is an absolute, present and
continuing guaranty of performance and payment rather than collectibility, and
it is not contingent upon any attempt to collect payment from or file suit
against Northwest.
THE LEASES
Each Aircraft is or, except as discussed above, will be leased by an Owner
Trustee to Northwest under the relevant Lease.
TERMS AND RENTALS
Each Aircraft is or will be leased separately for a term commencing on the
Date of Sale of such Aircraft to the relevant Owner Trustee and expiring not
earlier than the latest maturity date of the Equipment Notes issued pursuant to
the related Indenture. Basic Rent payments for each Aircraft are or will be
payable semiannually on each Lease Payment Date. Such payments, together with
certain other payments that Northwest is obligated to make or cause to be made
under the related Lease, have been or will be assigned by the Owner Trustee
under the related Indenture to provide the funds necessary to make payments of
principal and interest due or expected to be due from the Owner Trustee on the
Equipment Notes issued under such Indenture and Liquidity Obligations under the
related Liquidity Facility. In certain cases, the Basic Rent payments under the
Leases may be adjusted, but each Lease provides that under no circumstances will
rent payments by Northwest be less than the scheduled payments on the related
Equipment Notes. (Leases, Section 3) The balance of any such semiannual Basic
Rent payment and such other payments, after payment of amounts due or expected
to be due on the related Equipment Notes and certain other amounts, including
certain amounts owing to the Liquidity Provider, will be paid over to the
related Owner Participant. (Indentures, Section 3.01) Northwest's obligations to
pay rent and to make, or cause to be made, other payments under each Lease are
senior unsecured obligations of Northwest and will rank PARI PASSU in right of
payment with all other senior unsecured indebtedness of Northwest, but may not
be senior in right of payment to any future subordinated indebtedness of
Northwest. The rental obligations will also be effectively subordinated to any
secured indebtedness of Northwest to the extent of the value of the assets
securing such indebtedness and will be effectively subordinated to all
obligations of Northwest's subsidiaries.
S-73
<PAGE>
NET LEASE
Northwest's obligations in respect of each of the Aircraft under a Lease are
those of a lessee under a "net lease." Accordingly, Northwest is obligated to
cause the Aircraft under each Lease to be duly registered in the name of the
Owner Trustee (or Northwest in connection with the re-registration of the
Aircraft in certain jurisdictions), to pay all costs of operating the Aircraft
and, at the expense of Northwest and to the extent set forth in such Lease, to
maintain, service, repair and overhaul the Aircraft (or cause the Aircraft to be
maintained, serviced, repaired and overhauled) so as to keep the Aircraft in as
good operating condition as delivered to Northwest under the Lease, ordinary
wear and tear excepted, and, in such condition as may be necessary to enable the
airworthiness certification of such Aircraft to be maintained in good standing
at all times (a) under the Federal Aviation Act except, subject to certain
limitations under certain Leases, when all aircraft of the same model and type
powered by engines of the same type and registered in the U.S. have been
grounded by the FAA, or (b) subject to certain limitations, under the applicable
laws of any other jurisdiction in which the Aircraft may be registered.
Notwithstanding anything to the contrary set forth above (except with respect to
certain Leases), Northwest is also required to cause the Aircraft then subject
to such Leases to be maintained in accordance with maintenance standards
approved by, or substantially equivalent to those required by, the FAA or the
central civil aviation authority of Canada, France, Germany, Japan, The
Netherlands or the United Kingdom. In all cases Northwest will utilize, except
when a sublease is in effect, the same manner and standards of maintenance,
service, repair or overhaul used by Northwest with respect to similar aircraft
operated by Northwest in similar circumstances and, during any period that a
sublease is in effect, cause the Sublessee thereunder to agree to utilize the
same manner and standards of maintenance, service, repair or overhaul used by
such Sublessee with respect to similar aircraft operated by such Sublessee in
similar circumstances. (Leases, Section 7(a))
Northwest will not (and will not permit any Sublessee to) maintain, use,
service, repair, overhaul or operate any Aircraft in violation of any law or any
rule, regulation, order or certificate of any government having jurisdiction
over such Aircraft, or in violation of any airworthiness certificate, license or
registration relating to such Aircraft, except to the extent Northwest (or any
Sublessee) is in good faith contesting the validity or application of any such
requirements, in any reasonable manner which, among other things specified in
each Lease, does not materially adversely affect the Owner Trustee. (Leases,
Section 7(a))
Northwest must make (or cause to be made) all alterations, modifications and
additions to each Airframe and Engine necessary to meet the applicable standards
of the FAA or any other applicable governmental authority of another
jurisdiction in which the Aircraft may be registered; PROVIDED, HOWEVER, that
Northwest (or any Sublessee) may in good faith contest the validity or
application of any such standards in any reasonable manner which, among other
things specified in each Lease, does not adversely affect the Owner Trustee or
the relevant Loan Trustee. Northwest (or any Sublessee) may add further parts
and make other alterations, modifications and additions to any Airframe or any
Engine as Northwest (or any Sublessee) may deem desirable in the proper conduct
of its business, including removal of parts determined by Northwest (or any
Sublessee) in its reasonable judgment to be obsolete or no longer suitable or
appropriate for use, so long as such alterations, modifications or additions, do
not, among other things specified in each Lease, (x) materially diminish the
value, utility or remaining useful life of such Airframe or Engine, below the
value, utility or remaining useful life thereof immediately prior to such
alteration, modification, addition or removal (assuming such Airframe or Engine
was maintained in accordance with the Lease), except that the value (but not the
utility or remaining useful life) of any Airframe or Engine may be reduced from
time to time by the value of the obsolete parts which are removed so long as the
aggregate current value of such obsolete parts removed and not replaced shall
not exceed $200,000. Title to parts incorporated or installed in or added to
such Airframe or Engine as a result of such alterations, modifications or
additions vest in the Owner Trustee subject to certain exceptions. In certain
circumstances, Northwest (or any Sublessee) is permitted to remove parts which
were added by Northwest (or any Sublessee) (without replacement) from an
Airframe or Engine so long as certain
S-74
<PAGE>
conditions are met and any such removal does not, among other things specified
in each Lease, diminish or impair the value, utility, or remaining useful life
which such Airframe or Engine would have had at such time had such addition,
alteration or modification not occurred. (Leases, Section 8)
Except as set forth above, Northwest is obligated to replace or cause to be
replaced all parts (other than severable parts added at the option of Northwest
or unsuitable parts that Northwest is permitted to remove to the extent
described above) that are incorporated or installed in or attached to any
Airframe or any Engine and become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use. Any
such replacement parts become subject to the related Lease and the lien of the
related Indenture in lieu of the part replaced. (Leases, Section 8(a))
REGISTRATION, SUBLEASING AND POSSESSION
Although Northwest has no current intention to do so, Northwest may, under
certain circumstances, register an Aircraft in certain jurisdictions outside the
U.S., subject to, among other conditions specified in each Lease, the lien of
the related Indenture continuing as a first priority security interest in the
related Aircraft and Lease. Northwest is also permitted, subject to certain
limitations, to sublease any Aircraft to any U.S. certificated air carrier or to
certain foreign entities so long as the term of any such sublease does not
extend beyond the term of the Lease applicable to such Aircraft subject to
certain exceptions. Northwest currently intends to sublease the Aircraft to
Mesaba, subject to the terms and limitations of the Leases. In addition, subject
to certain limitations, Northwest is permitted to transfer possession of any
Airframe or any Engine other than by sublease, including transfers of possession
by Northwest or any Sublessee in connection with certain interchange and pooling
arrangements, transfers to the U.S. government and any instrumentality or agency
thereof, "wet leases" and transfers in connection with maintenance or
modifications. There are no general geographical restrictions on Northwest's (or
any Sublessee's) ability to operate the Aircraft. The extent to which the
relevant Loan Trustee's lien would be recognized in an Aircraft if such Aircraft
were located in certain countries is uncertain. See "Description of the
Equipment Notes -- Remedies". In addition, any exercise of the right to
repossess an Aircraft may be difficult,
expensive and time-consuming, particularly when such Aircraft is located outside
the U.S. and has been registered in a foreign jurisdiction or subleased to a
foreign operator, and may be subject to the limitations and requirements of
applicable law, including the need to obtain consents or approvals for
deregistration or re-export of the Aircraft, which may be subject to delays and
political risk. When a defaulting Sublessee or other permitted transferee is the
subject of a bankruptcy, insolvency or similar event such as protective
administration, additional limitations may apply. (Leases, Section 7(b))
In addition, at the time of obtaining repossession of the Aircraft under the
related Lease or foreclosing on the lien on the Aircraft under the related
Indenture, an Airframe subject to such Lease may not be equipped with Engines
subject to the same Lease and, in such case, Northwest is required to deliver
engines attached to such Airframe which have not less than equivalent value,
utility and remaining useful life as the Engines subject to such Lease.
Notwithstanding Northwest's agreement in each Lease, in the event Northwest
fails to transfer title to engines not owned by the Owner Trustee that are
attached on repossessed Aircraft, it could be difficult, expensive and
time-consuming to assemble an Aircraft consisting of an Airframe and Engines
subject to the Lease. See "Risk Factors -- Factors Relating to the Certificates
and the Offering -- Repossession."
LIENS
Northwest is required to maintain each Aircraft free of any liens, other
than the respective rights of the Owner Trustee as owner of the Aircraft, and
Northwest as provided in the Lease, the lien of the Indenture, and any other
rights existing pursuant to the Operative Documents related thereto, the rights
of others in possession of the Aircraft in accordance with the terms of the
Lease (including Sublessees), and other than certain other customary liens
permitted under such documents, including liens for taxes of Northwest or any
Sublessee either not yet due or being contested in good faith by appropriate
proceedings
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so long as such proceedings do not, among other things as may be specified in
each Lease, involve any material danger of the sale, forfeiture or loss of such
Airframe or any Engine or any interest therein; materialmen's, mechanics' and
other similar liens arising in the ordinary course of Northwest's (or any
Sublessee's) business securing obligations that are not overdue for a period of
more than 60 days or are being contested in good faith by appropriate
proceedings not involving any material danger of the sale, forfeiture or loss of
such Airframe or Engines or any interest therein; judgment liens discharged,
vacated or reversed within a period of 60 days as specified in, and subject to
other limitations which may be contained in, each Lease, and any other lien with
respect to which Northwest (or any Sublessee) has provided a bond or other
security adequate in the reasonable opinion of the relevant Owner Trustee.
(Leases, Section 6)
INSURANCE
Subject to certain exceptions, Northwest is obligated, at its or any
Sublessee's expense, to maintain or cause to be maintained on each Aircraft,
with insurers of recognized responsibility, public liability and property damage
insurance (exclusive of manufacturer's product liability insurance) and all-risk
aircraft hull insurance, in such amounts, covering such risks and in such form
as Northwest (or, if a sublease is then in effect, as the Sublessee) customarily
maintains with respect to other aircraft owned or operated by Northwest (or if a
Sublease is then in effect, by the Sublessee), in each case similar to such
Aircraft; provided, however, that, except to the extent of any self-insurance,
the all-risk hull insurance shall be at least in an amount equal to the
Stipulated Loss Value (as defined in each Lease) of such Aircraft and the public
liability and property damage insurance shall be in an amount not less than
$150,000,000 per occurrence. (Leases, Sections 11(a) and 11(b))
Subject to certain exceptions, the policies covering loss of or damage to an
Aircraft shall be made payable, up to the Stipulated Loss Value for such
Aircraft, to the related Loan Trustee for any loss involving proceeds in excess
of $3,500,000, and the entire amount of any loss involving proceeds of
$3,500,000 or less shall be paid to Northwest so long as the related Owner
Trustee or the related Loan Trustee has not notified the insurers that a Lease
Event of Default exists. (Leases, Sections 11(b) and 11(g))
With respect to any insurance required, Northwest may self-insure by way of
deductible, premium adjustment or otherwise under a program applicable to all
aircraft in Northwest's fleet; provided, that, the aggregate amount of such
self-insurance during any policy year shall not be in excess of the lower of (a)
50% of the largest replacement value of any single aircraft in Northwest's fleet
or (b) 1 1/2% of the average aggregate insurable value of all aircraft on which
Northwest carries insurance. In addition, Northwest (and any Sublessee) may
self-insure to the extent of any applicable minimum amount of hull or liability
insurance deductible imposed by the aircraft hull or liability insurers.
(Leases, Section 11(d))
In respect of each Aircraft, Northwest is required to cause the relevant
Owner Trustee and Loan Trustee and certain other persons to be included as
additional insureds as their respective interests may appear under all insurance
policies required by the terms of each Lease with respect to such Aircraft.
(Leases, Sections 11(a) and 11(b))
Subject to certain customary exceptions, Northwest may not operate (or
permit any Sublessee to operate) any Aircraft in any area that is excluded from
coverage by any insurance policy in effect with respect to such Aircraft and
required by the Lease. (Leases, Section 7(a))
Northwest's obligation to provide any insurance required by each Lease shall
be satisfied if indemnification from, or insurance provided by, the U.S.
government or one of certain other permitted foreign governments or any agency
or instrumentality thereof, against the risks requiring such insurance under
such Lease is at least equal, when added to the amount of insurance against such
risks otherwise maintained by Northwest (or any Sublessee), to the amount of
insurance against such risks otherwise required by such Lease. (Leases, Section
11(f))
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LEASE TERMINATION
Northwest may terminate any Lease on any Lease Payment Date occurring on or
after the fifth anniversary of the lease commencement of the Aircraft subject to
such Lease, if it determines that such Aircraft is obsolete or surplus to its
needs and subject to certain other limitations specified in such Lease. Upon
payment of termination value for such Aircraft which will be in an amount at
least equal to the outstanding principal amount of the related Equipment Notes
and an amount equal to the Make-Whole Premium if any payable on such date of
payment, together with certain additional amounts and together with all accrued
and unpaid interest thereon, the lien of the relevant Indenture shall be
released, the relevant Lease shall terminate, and the obligation of Northwest
thereafter to make scheduled rent payments under such Lease shall cease.
(Leases, Section 9; Indentures, Sections 2.10(b), 2.12 and 2.13). See
"Description of the Equipment Notes -- Redemption".
RENEWAL AND PURCHASE OPTIONS
At the end of the term of each Lease after final maturity of the related
Equipment Notes and subject to certain conditions, Northwest will have certain
options to renew such Lease for additional limited periods. In addition,
Northwest will have the right at the end of the term of each Lease to purchase
the Aircraft subject thereto for an amount to be calculated in accordance with
the terms of such Lease. (Leases, Section 19)
Northwest will also have the option to purchase the Aircraft subject to each
Lease on certain Lease Payment Dates occurring, with respect to the Delivered
Aircraft, no earlier than and, with respect to the Prefunded Aircraft, no
earlier than . In the event Northwest exercises a purchase option in respect
of an Aircraft, the purchase price therefor shall be calculated in accordance
with the provisions of the related Lease, but in any event shall be sufficient
to pay all principal of, Make-Whole Premium if any on and interest on the
related Equipment Notes in full and, upon payment thereof, Northwest shall
acquire such Aircraft free of the lien of the related Indenture, unless upon
satisfaction of certain conditions, Northwest chooses to assume on a full
recourse basis all of such Owner Trustee's obligations in respect of the related
Equipment Notes and acquires the Aircraft subject to the lien of the related
Indenture. (Leases, Section 19; Indentures, Sections 2.10(b) and 2.13;
Participation Agreements, Section 8(x)) See
"-- Description of the Equipment Notes -- Redemption".
EVENTS OF LOSS
If an Event of Loss occurs with respect to any Aircraft, Northwest is
obligated either (i) to replace such Aircraft or (ii) to pay to the related
Owner Trustee the applicable Stipulated Loss Value, together with certain
additional amounts. If Northwest elects to replace such Aircraft, it must do so
no later than the business day next succeeding the 120th day after the related
Event of Loss with an airframe or airframe and engines of the same or improved
make and model free and clear of all liens (other than certain permitted liens)
and having a value, utility and remaining useful life at least equal to such
Aircraft immediately prior to the Event of Loss, assuming maintenance thereof in
accordance with the relevant Lease. If Northwest elects to pay the Stipulated
Loss Value for such Aircraft or elects to replace such Aircraft but fails to do
so within the time periods specified therefor, Northwest must make such payment
not later than the business day next succeeding 120 days after the related Event
of Loss. Upon making such payment, together with all other amounts then due
under the related Lease with respect to such Aircraft, which in all
circumstances will be at least sufficient to pay in full as of the date of
payment the principal amount of the related Equipment Notes and all accrued and
unpaid interest due thereon (but without any Make-Whole Premium), the Lease for
such Aircraft shall terminate and the obligation of Northwest to make the
scheduled Basic Rent payments with respect thereto shall cease. (Leases,
Sections 3(d)(v) and 10(a); Indentures, Section 5.06)
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If an Event of Loss occurs with respect to an Engine alone, Northwest is
required to replace such Engine within 60 days from the date of such Event of
Loss with another engine, free and clear of all liens (other than certain
permitted liens), of the same or improved model (subject to certain exceptions)
and having a value, utility and remaining useful life at least equal to the
Engine being replaced (assuming that such Engine had been maintained in
accordance with the Lease). (Leases, Section 10(b); Indentures, Section 5.06)
An "EVENT OF LOSS" with respect to an Aircraft, Airframe or any Engine means
any of the following events with respect thereto:
(i) loss of such property or its use due to destruction or damage
rendering repair uneconomic or such property permanently unfit for normal
use by Northwest (or any Sublessee);
(ii) any damage to such property which results in an insurance
settlement with respect to such property on the basis of a total loss or
constructive or compromised total loss;
(iii) the theft, disappearance, confiscation, condemnation or seizure of,
or requisition of title to or use of, such property (other than a
requisition for use by the U.S. government or certain other specified
governments of registry of the Aircraft or any agency or instrumentality
thereof), involving, in the case of any event referred to in this clause
(iii), loss of possession of such property for a period of more than 180
consecutive days or, in the case of a requisition of title, such requisition
has not been reversed within 90 days;
(iv) as a result of any law, rule, regulation, order or other action by
the FAA, or any other governmental authority of the country of registry of
such property, the use of such property in the normal course of business of
air transportation shall have been prohibited for 180 consecutive days,
unless Northwest (or any Sublessee), prior to the expiration of such 180-day
period, has undertaken and is diligently carrying forward all steps
necessary or desirable to permit normal use of such property, but in any
event (subject to certain limitations) if such prohibition has continued for
a period of three years;
(v) the requisition for use by the U.S. government or certain other
specified governments of registry of the Aircraft or any instrumentality or
agency thereof that continues for 30 days beyond the term of the Lease for
such Aircraft; and
(vi) with respect to any Engine, any divestiture of title to an Engine
treated as an Event of Loss pursuant to the Lease.
An Event of Loss with respect to an Aircraft is deemed to have occurred if
an Event of Loss occurs with respect to the Airframe which is a part of such
Aircraft. (Leases, Section 1)
LEASE EVENTS OF DEFAULT
Lease Events of Default include: (i) failure by Northwest to pay any payment
of Basic Rent or Stipulated Loss Value under such Lease within 10 business days
after the same shall have become due; (ii) failure by Northwest to pay
Supplemental Rent (other than Stipulated Loss Value) within 10 business days
after Northwest's receipt of written demand therefor; (iii) failure by Northwest
to perform or observe any other covenant or agreement to be performed or
observed by it under such Lease or related Participation Agreement, and such
failure shall have continued unremedied for a period of 30 days after Northwest
shall have received written notice of such failure from the Owner Trustee or the
Loan Trustee; PROVIDED, HOWEVER, that no such failure with respect to covenants
in such Lease pertaining to maintenance, service repair, alteration,
modification and replacement of parts shall constitute a Lease Event of Default
so long as such failure is curable and Northwest is diligently proceeding to
remedy such failure, and, if specified in such Lease, such failure is remedied
within 270 days of receipt of such notice; (iv) any representation or warranty
made by Northwest under such Lease, the related Participation Agreement or
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any other document or certificate furnished by Northwest in connection
therewith, shall have proved to have been incorrect in any material respect when
made and shall remain unremedied for a period of 30 days after notice to
Northwest of such incorrectness by the Owner Trustee or the Loan Trustee; (v)
the occurrence of certain events of bankruptcy, reorganization or insolvency of
Northwest; and (vi) failure by Northwest to carry and maintain (or cause to be
carried and maintained) insurance on or in respect of any Aircraft in accordance
with the provisions of such Lease, subject to certain exceptions. No event will
constitute a Lease Event of Default if such event is caused solely by reason of
an event that constitutes an Event of Loss and Northwest is complying with the
terms relating to an Event of Loss of the Aircraft set forth in such Lease.
(Leases, Section 14)
If a Lease Event of Default has occurred and is continuing and the Lease has
been declared to be in default, the Owner Trustee may, subject to certain
limitations relating to aircraft subject to the Civil Reserve Air Fleet Program,
exercise one or more of the remedies provided in such Lease with respect to the
related Aircraft. Such remedies include the right to repossess and use or
operate such Aircraft, to sell or re-lease such Aircraft free and clear of
Northwest's rights and retain the proceeds and to require Northwest to pay as
liquidated damages any accrued and unpaid Basic Rent plus an amount equal to the
excess of the Stipulated Loss Value of such Aircraft over either (i) the fair
market sales value or fair market rental value of such Aircraft (as determined
by independent appraisal) or (ii) if such Aircraft has been sold, the net sale
proceeds thereof. (Leases, Section 15)
CERTAIN DEFINED TERMS UNDER THE LEASES
"BASIC RENT" means, for any Aircraft, the scheduled rent payable
semiannually for the term for such Aircraft pursuant to the related Lease.
"CIVIL RESERVE AIR FLEET PROGRAM" means the Civil Reserve Air Fleet Program
currently administered by the United States Air Force Air Mobility Command
pursuant to Executive Order No. 11490, as amended, or any substantially similar
program of the U.S. government.
"LEASE PAYMENT DATES" means, with respect to each Lease, January 2 and July
2 of each year, so long as Equipment Notes are outstanding under the related
Indenture.
"LEASE PAYMENT DEFAULT" means a default under a Lease relating to either
payments of rent or involuntary bankruptcy or similar events.
"SUBLESSEE" means any sublessee under a Lease from time to time.
"SUPPLEMENTAL RENT" means all amounts, liabilities and obligations (other
than Basic Rent) which are owed by Northwest under each Lease and the agreements
related thereto.
THE PARTICIPATION AGREEMENT
INDEMNIFICATION
Subject to certain exceptions, Northwest has agreed to indemnify, among
others, each Owner Participant, each Owner Trustee, each of the Trustees and
each of the Loan Trustees, but not the holders of the Certificates, for certain
liabilities, losses, fees and expenses and for certain other matters arising out
of the transactions described herein or relating to the Aircraft. In addition,
under certain circumstances Northwest is required to indemnify certain of such
persons, but not the holders of the Certificates, against certain taxes, levies,
duties, withholdings and for certain other matters (but excluding, among other
things, income and capital gains taxes) relating to such transactions or the
Aircraft.
TRANSFER OF OWNER PARTICIPANT INTERESTS
Subject to certain restrictions, each Owner Participant may transfer its
beneficial interest in the relevant Owner Trust.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary describes the principal U.S. federal income tax
consequences to Certificateholders of the purchase, ownership and disposition of
the Certificates offered hereby. Except as otherwise specified, the summary is
addressed to beneficial owners of Certificates ("U.S. CERTIFICATEHOLDERS") that
are citizens or residents of the U.S., corporations, partnerships or other
entities created or organized in or under the laws of the U.S. or any State,
estates, the income of which is subject to U.S. federal income taxation
regardless of its source, or trusts if a court within the U.S. is able to
exercise primary jurisdiction over the administration of the trust and one or
more U.S. persons have the authority to control all substantial decisions of the
trust ("U.S. PERSONS") that will hold the Certificates as capital assets. This
summary does not address the tax treatment of U.S. Certificateholders that may
be subject to special tax rules, such as banks, insurance companies, dealers in
securities or commodities, tax-exempt entities, holders that will hold
Certificates as part of a straddle or holders that have a "functional currency"
other than the U.S. Dollar, nor does it address the tax treatment of U.S.
Certificateholders that do not acquire Certificates as part of the initial
offering. The summary does not purport to be a comprehensive description of all
of the tax considerations that may be relevant to a decision to purchase
Certificates. This summary does not describe any tax consequences arising under
the laws of any State, locality or taxing jurisdiction other than the U.S. The
Trusts are not indemnified for any federal income taxes that may be imposed upon
them, and the imposition of any such taxes on a Trust could result in a
reduction in the amounts available for distribution to the Certificateholders of
such Trust.
The summary is based upon the tax laws and practice of the U.S. as in effect
on the date of this Prospectus Supplement, as well as judicial and
administrative interpretations thereof (in final or proposed form) available on
or before such date. All of the foregoing are subject to change, which change
could apply retroactively. Prospective investors should note that no rulings
have been or will be sought from the Internal Revenue Service with respect to
any of the U.S. federal income tax consequences discussed below and no assurance
can be given that the Internal Revenue Service will not take contrary positions.
This summary supersedes the discussion in the Prospectus under the heading
"United States Federal Income Tax Consequences" to the extent it is inconsistent
therewith. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE CERTIFICATES.
TAX STATUS OF THE TRUSTS
In the opinion of Cadwalader, Wickersham & Taft, special tax counsel to
Northwest, each Trust will not be classified as an association or a publicly
traded partnership taxable as a corporation for U.S. federal income tax
purposes, but rather should be classified as a grantor trust under Subpart E,
Part I of Subchapter J of the Code or, if not classified as a grantor trust,
then it would be classified as a partnership. If a Trust were treated as a
partnership for U.S. federal income tax purposes, in the opinion of Cadwalader,
Wickersham & Taft, the consequences to U.S. Certificateholders would not be
materially different. The remainder of this discussion describes the
consequences of the treatment as a grantor trust. Certificateholders who are not
U.S. Persons should consult their own tax advisors as to the suitability to them
of an investment in the Certificates.
TAXATION OF CERTIFICATEHOLDERS GENERALLY
A U.S. Certificateholder should be treated as owning a pro rata undivided
interest in each of the Equipment Notes and any other property held by the
related Trust and as paying directly its share of fees and expenses paid by such
Trust. Accordingly, each U.S. Certificateholder's share of interest paid on the
Equipment Notes will be taxable as ordinary income, as it is paid or accrued, in
accordance with such owner's method of accounting for U.S. federal income tax
purposes and a U.S. Certificateholder's share of
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Make-Whole Premium if any paid on the Equipment Notes will be treated as capital
gain. With respect to Equipment Notes relating to Prefunded Aircraft, Northwest,
each Owner Trustee, each Owner Participant, and each Pass Through Trustee have
agreed to treat such Equipment Notes as indebtedness of Northwest maturing upon
the earliest of (i) the Date of Sale for such Prefunded Aircraft, (ii) the date
of assumption by Northwest of such Equipment Notes or (iii) the date of
redemption of such Equipment Notes, and as indebtedness of the related Owner
Trustee thereafter (or, in the case of a failure of an Owner Trust to take
delivery of an Aircraft, as indebtedness of Northwest thereafter). Any amounts
received by a Trust from Interest Drawings under the relevant Liquidity Facility
will be treated for U.S. federal income tax purposes as having the same
characteristics as the payments they replace. The Equipment Notes will not be
issued with original issue discount for federal income tax purposes.
Each U.S. Certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding Trust as provided in Section 162 or 212 of the Code.
Certain fees and expenses, including fees paid to the Trustee and the Liquidity
Provider, will be borne by parties other than the Certificateholders. It is
possible that such fees and expenses will be treated as constructively received
by the Trust, in which event a U.S. Certificateholder will be required to
include in income and will be entitled to deduct its pro rata share of such fees
and expenses. If a U.S. Certificateholder is an individual, estate or trust, the
deduction for such holder's share of such fees or expenses will be allowed only
to the extent that all of such holder's miscellaneous itemized deductions,
including such holder's share of such fees and expenses, exceed 2% of such
holder's adjusted gross income. In addition, in the case of U.S.
Certificateholders who are individuals, certain otherwise allowable itemized
deductions will be subject generally to additional limitations on itemized
deductions under the applicable provisions of the Code.
EFFECT OF SUBORDINATION OF CLASS B AND CLASS C CERTIFICATEHOLDERS
If any of the Class B Trust or the Class C Trust (such Trusts being the
"SUBORDINATED TRUSTS" and the related Certificates being the "SUBORDINATED
CERTIFICATES") receives less than the full amount of the receipts of principal
or interest paid with respect to the Equipment Notes held by it (any shortfall
in such receipts being the "SHORTFALL AMOUNTS") because of the subordination of
the Equipment Notes held by such Trust under the Intercreditor Agreement, the
corresponding owners of beneficial interests in the Subordinated Certificates
(the "SUBORDINATED CERTIFICATEHOLDERS") would probably be treated for federal
income tax purposes as if they had (1) received as distributions their full
share of such receipts, (2) paid over to the relevant senior class of
Certificateholders an amount equal to their share of such Shortfall Amount, and
(3) retained the right to reimbursement of such amounts to the extent of future
amounts payable to such Subordinated Certificateholders with respect to such
Shortfall Amount.
Under this analysis, (1) Subordinated Certificateholders incurring a
Shortfall Amount would be required to include as current income any interest or
other income of the corresponding Subordinated Trust that was a component of the
Shortfall Amount, even though such amount was in fact paid to the relevant
senior class of Certificateholders, (2) a loss would only be allowed to such
Subordinated Certificateholders when their right to receive reimbursement of
such Shortfall Amount became worthless (i.e., when it becomes clear that funds
will not be available from any source to reimburse such loss), and (3)
reimbursement of such Shortfall Amount prior to such a claim of worthlessness
would not be taxable income to Subordinated Certificateholders because such
amount was previously included in income. These results should not significantly
affect the inclusion of income for Subordinated Certificateholders on the
accrual method of accounting, but could accelerate inclusion of income to
Subordinated Certificateholders on the cash method of accounting by, in effect,
placing them on the accrual method.
SALE OR OTHER DISPOSITION OF THE CERTIFICATES
Upon the sale, exchange or other disposition of a Certificate, a U.S.
Certificateholder generally will recognize capital gain or loss equal to the
difference between the amount realized on the disposition (other
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than any amount attributable to accrued interest not previously reported as
income, which will be taxable as ordinary income) and the U.S.
Certificateholder's adjusted tax basis in the related Equipment Notes and any
other assets held by the corresponding Trust. A U.S. Certificateholder's
adjusted tax basis will equal the holder's cost for its Certificate less any
payments of principal received and any previously recognized losses. Any gain or
loss will be capital gain or loss if the Certificate was held as a capital
asset. Net long-term capital gains of individuals generally are taxed at a 28%
maximum rate compared to a 39.6% maximum rate for ordinary income for property
held for more than one year but not more than eighteen months, and at a 20%
maximum rate for property held for more than eighteen months.
With respect to the Certificates, an Owner Participant's conveyance of its
interest in an Owner Trust should not constitute a taxable event to the holders
of interests in the related Certificates. However, if Northwest were to assume
an Owner Trust's obligations under the related Equipment Notes upon a purchase
of the related Aircraft by Northwest, such assumption may be treated for federal
income tax purposes as a taxable exchange of the respective Equipment Notes
resulting in the recognition of taxable gain or loss equal to the difference
between the Certificateholder's adjusted basis and the amount realized on such
exchange (except to the extent attributable to accrued interest, which would be
taxable as interest income if not previously included in income). For this
purpose the amount realized, as determined under current Treasury regulations on
original issue discount, will be equal to the fair market value of the
Certificateholder's PRO RATA share of the respective Equipment Notes at such
time.
BACKUP WITHHOLDING
Payments made on the Certificates and proceeds from the sale of Certificates
will not be subject to a backup withholding tax of 31% unless, in general, the
Certificateholder fails to comply with certain reporting procedures or otherwise
fails to establish an exemption from such tax under applicable provisions of the
Code.
CERTAIN MASSACHUSETTS AND CONNECTICUT TAXES
The Trustee is a Massachusetts trust company with its corporate trust office
in Massachusetts. The Subordination Agent is a national banking association with
its corporate trust office in Connecticut. In the opinion of Bingham, Dana &
Gould LLP, counsel to the Trustee and the Subordination Agent, under currently
applicable law, assuming that the Trusts will not be taxable as corporations,
but, rather, will be classified as grantor trusts under Subpart E, Part I of
Subchapter J of the Code (i) the Trusts will not be subject to any tax
(including, without limitation, net or gross income, tangible or intangible
property, net worth, capital, franchise or doing business tax), fee or other
governmental charge under the laws of the Commonwealth of Massachusetts or the
State of Connecticut or any political subdivision of either thereof and (ii)
Certificateholders that are not residents of or otherwise subject to tax in
Massachusetts or Connecticut will not be subject to any tax (including, without
limitation, net or gross income, tangible or intangible property, net worth,
capital, franchise or doing business tax), fee or other governmental charge
under the laws of the Commonwealth of Massachusetts or the State of Connecticut
or any political subdivision of either thereof as a result of purchasing,
holding (including receiving payments with respect to) or selling a Certificate.
ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to ERISA or an entity which
is deemed to hold the assets of any such plan should consider fiduciary
standards under ERISA in the context of the particular circumstances of such
plan before authorizing an investment in the Certificates. Such fiduciary should
determine whether the investment satisfies ERISA's diversification and prudence
requirements and whether the investment is in accordance with the documents and
instruments governing the plan. In addition, ERISA and the Code prohibit a wide
range of transactions ("PROHIBITED TRANSACTIONS") involving ERISA Plans and
persons who have certain specified relationships to the ERISA Plan ("parties in
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interest," within the meaning of ERISA and "disqualified persons," within the
meaning of the Code). Such transactions may require "correction" and may cause
an ERISA Plan fiduciary to incur certain liabilities and the parties in interest
or disqualified persons to be subject to excise taxes.
Each of the Owner Participants, the manufacturers of the Aircraft, the
holders of the Equipment Trust Certificates and the NWA Corp. may be a party in
interest or a disqualified person with respect to an ERISA Plan purchasing the
Certificates; therefore, the purchase by an ERISA Plan of the Certificates may
give rise to a direct or indirect Prohibited Transaction. Any person who is, or
who in acquiring the Certificates is or may be using the assets of, an ERISA
Plan may purchase the Certificates, if such person determines that a statutory
or an administrative exemption from the Prohibited Transaction rules discussed
below or otherwise available is applicable to such person's purchase and holding
of the Certificates (or a participation interest therein).
Certain statutory or administrative exemptions from the Prohibited
Transaction rules under ERISA and the Code may be available to an ERISA Plan
which is purchasing the Certificates. Included among these exemptions are:
Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding investments by
insurance company pooled separate accounts; PTCE 91-38, regarding investments by
bank collective investment funds; PTCE 84-14, regarding transactions effected by
a qualified professional asset manager; PTCE 95-60, regarding investments by
insurance company general accounts or PTCE 96-23, regarding investments by an
in-house professional asset manager. Certain of the exemptions, however, do not
afford relief from the Prohibited Transaction rules under Section 406(b) of
ERISA and Section 4975(c)(1)(E)-(F) of the Code.
The United States Department of Labor (the "DOL") has issued individual
administrative exemptions to certain of the Underwriters which are substantially
the same as the administrative exemption issued to Morgan Stanley & Co.
Incorporated (Prohibited Transaction Exemption 90-24 et al., Exemption
Application No. D-8019 et al., 55 Fed. Reg. 20,548 (1990) (the "UNDERWRITER
EXEMPTION")) which generally exempts from certain of the Prohibited Transaction
rules the initial purchase, the holding and the subsequent resale by an ERISA
Plan of certificates in certain pass through trusts, the assets of which pass
through trust consist of secured credit instruments that bear interest or are
purchased at a discount in transactions by or between business entities
(including qualified equipment trust certificates secured by leases). The
limited relief provided by the DOL in the Underwriter Exemption is subject to
several other conditions, including a requirement that certificates acquired by
an ERISA Plan under the Underwriter Exemption have received a rating at the time
of acquisition by the ERISA Plan that is in one of the three highest rating
categories from either Standard & Poor's or Moody's. Under the Underwriter
Exemption, an equipment trust certificate secured by a lease will be considered
qualified only under certain circumstances. The Underwriter Exemption also
requires that the acquisition of certificates by an ERISA Plan be on terms
(including the price for the certificate) that are at least as favorable to an
ERISA Plan as they would be in an arm's length transaction with an unrelated
party, and that the rights and interests evidenced by the certificates must be
not subordinated to the rights and interests evidenced by other certificates of
the same trust estate.
The DOL has issued an amendment to the Underwriter Exemption, 62 FR 39,021
(Jul. 21, 1997), which allows the assets of a pass through trust to include a
prefunding account under certain circumstances. The relief provided by this
amendment is subject to several conditions, including a requirement that the
prefunding period end no later than the earliest to occur of: (i) the date the
amount on deposit in the pre-funding account is less than the minimum dollar
amount specified in the pooling and servicing agreement; (ii) the date on which
an event of default occurs under the pooling and servicing agreement; or (iii)
the date which is the later of three months or 90 days after the closing date.
Such restrictions on prefunding accounts may not be applicable in certain
circumstances where, although certain of the equipment securing equipment trust
certificates held by the trust have not been delivered on the date of the
issuance of such equipment trust certificates, such equipment trust certificates
otherwise constitute, at the time an ERISA Plan acquires the pass through
certificates, secured credit instruments that bear
S-83
<PAGE>
interest. However, there can be no assurance that the DOL would agree that the
prefunding restrictions would not apply in such a case. Moreover, even if such
restrictions would not apply, no monitoring or other measures will be taken to
ensure that all of the conditions of the Underwriter Exemption, as amended, will
be satisfied.
It is clear that the Underwriter Exemption will not apply to subordinated
classes of certificates, such as the Class B Certificates or the Class C
Certificates. It also appears that the Underwriter Exemption will not apply to
the purchase by Class B Certificateholders or Class C Certificateholders of
Class A Certificates in connection with the exercise of their rights upon the
occurrence and during the continuance of a Triggering Event. In addition, for
the reasons noted above, no assurance can be given that the Underwriter
Exemption will otherwise apply with respect to any particular transaction
involving the Class A Certificates or the assets of the Class A Trust.
If an ERISA Plan acquires a Certificate, the ERISA Plan's assets may include
both the Certificate acquired and an undivided interest in the underlying assets
of the Trust, unless the actual investment by "benefit plan investors" in the
Certificates is not "significant" within the meaning of the DOL plan assets
regulations. Consequently, the Trust assets could be deemed to be "plan assets"
of such ERISA Plan for the purposes of the fiduciary responsibility provisions
of ERISA and the Prohibited Transaction rules and, accordingly, any person who
exercises any authority or control with respect to the management or disposition
of the assets of an ERISA Plan would be considered to be a fiduciary of such
ERISA Plan. The Trustee could, therefore, become a fiduciary of ERISA Plans that
have invested in the Certificates and be subject to general fiduciary
requirements of ERISA in exercising its authority with respect to the management
of the assets of the Trust. If the Trustee becomes a fiduciary with respect to
the ERISA Plans purchasing the Certificates, there may be an improper delegation
by such ERISA Plans of the responsibility to manage plan assets. In order to
avoid such prohibited transactions, each investing ERISA Plan, by purchasing the
Certificates, will be deemed to have directed the Trust to invest in the assets
held in such trust. Any ERISA Plan purchasing the Certificates must ensure that
any statutory or administrative exemption from the Prohibited Transaction rules
on which such ERISA Plan relies with respect to its purchase or holding of the
Certificates also applies to such ERISA Plan's indirect holding of the assets of
the Trust.
Governmental plans and certain church plans (each as defined under ERISA)
are not subject to the Prohibited Transaction rules. Such plans may, however, be
subject to federal, state or local laws or regulations which may affect their
investment in the Certificates. Any fiduciary of such a governmental or church
plan considering a purchase of the Certificates must determine the need for, and
the availability, if necessary, of any exemptive relief under any such laws or
regulations.
The foregoing discussion is general in nature and is not intended to be all
inclusive. Any fiduciary of an ERISA Plan, governmental plan or church plan
considering the purchase and holding of the Certificates should consult with its
legal advisors regarding the consequences of such purchase and holding. By its
purchase and acceptance of a Certificate, each Certificateholder will be deemed
to have represented and warranted that either (i) no ERISA Plan assets have been
used to purchase such Certificate, or (ii) one or more prohibited transaction
statutory or administrative exemptions applies such that the use of such ERISA
Plan assets to purchase and hold such Certificate will not constitute a
non-exempt Prohibited Transaction.
EACH PLAN FIDUCIARY (AND EACH FIDUCIARY FOR A GOVERNMENTAL OR CHURCH PLAN
SUBJECT TO RULES SIMILAR TO THOSE IMPOSED ON PLANS UNDER ERISA) SHOULD CONSULT
WITH ITS LEGAL ADVISOR CONCERNING AN INVESTMENT IN ANY OF THE CERTIFICATES.
S-84
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated as of September , 1997 (the "UNDERWRITING AGREEMENT") by and among
Northwest, NWA Corp. and the underwriters named below (collectively, the
"UNDERWRITERS"), the Underwriters have severally but not jointly agreed to
purchase from the Trustee the respective principal amounts of Certificates of
each Trust, as set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A CLASS B CLASS C
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES
- -------------------------------------------------------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
Credit Suisse First Boston Corporation........................ $ $ $
Lehman Brothers Inc...........................................
Morgan Stanley & Co. Incorporated.............................
Total....................................................... $ 125,914,000 $ 46,433,000 $ 23,462,000
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all the Certificates if any are purchased. The
Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances the purchase commitments of non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Underwriters initially propose to offer all or part of the Certificates
directly to the public at the public offering price per Certificate designation
set forth on the cover page of this Prospectus Supplement and may offer a
portion of the Certificates to dealers at a price which represents a concession
not in excess of the amounts set forth below for the respective designations of
the Certificates. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of the amounts set forth below for the respective
designations of the Certificates for certain dealers. After the initial public
offering, the public offering prices and such concessions may from time to time
be varied by the Underwriters.
<TABLE>
<CAPTION>
PASS THROUGH CONCESSION REALLOWANCE
CERTIFICATE DESIGNATION TO DEALERS CONCESSION
- -------------------------------------------------------------------- ----------------- -------------------
<S> <C> <C>
1997-1A...........................................................
1997-1B...........................................................
1997-1C...........................................................
</TABLE>
Northwest does not intend to apply for listing of the Certificates on a
national securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Certificates, as permitted by
applicable laws and regulations. No Underwriter is obligated, however, to make a
market in the Certificates and any such market making may be discontinued at any
time at the sole discretion of such Underwriter. Accordingly, no assurance can
be given as to the liquidity of, or trading markets for, the Certificates.
It is expected that delivery of the Certificates will be made against
payment therefor on or about the date specified in the last paragraph of the
cover page of this Prospectus Supplement (the "CLOSING DATE"), which will be the
business day following the date of pricing of the Certificates (such
settlement cycle being herein referred to as "T+ "). Under Rule 15c6-1
under the Exchange Act, trades in the secondary market generally are required to
settle in three business days, unless the parties to any such trade expressly
agree otherwise. Accordingly, purchasers who wish to trade Certificates on any
day prior to the third business day before the Closing Date will be required, by
virtue of the fact that the Certificates initially will settle in T+ , to
specify an alternate settlement cycle at the time of any such trade to prevent a
failed settlement. Purchasers of Certificates who wish to trade Certificates on
any day prior to the third business day before the Closing Date should consult
their own advisor.
S-85
<PAGE>
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Certificates in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Underwriters to reclaim a selling concession from a
syndicate member when the Certificates originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
position. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Certificates to be higher than it would
otherwise be in the absence of such transactions.
Northwest has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act or contribute
to payments which the Underwriters may be required to make in respect thereof.
Affiliates of Credit Suisse First Boston Corporation are lenders under NWA
Corp.'s principal credit agreement. In addition, the Underwriters and certain of
their respective affiliates perform investment banking, commercial banking and
other financial services for Northwest, NWA Corp. and certain of their
affiliates in the ordinary course of business.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Certificates in Canada is being made only on a
private placement basis exempt from the requirement that the Trustee prepare and
file a prospectus with the securities' regulatory authorities in each province
where trades of Certificates are effected. Accordingly, any resale of the
Certificates in Canada must be made in accordance with applicable securities
laws which will vary depending on the relevant jurisdiction, and which may
require resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the Certificates.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Certificates in Canada who receives a purchase
confirmation will be deemed to represent to the Trustee and the dealer from whom
such purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Certificates without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale of
Restrictions".
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
S-86
<PAGE>
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer of such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Certificates to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Certificates acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from Northwest. Only one such
report must be filed in respect of Certificates acquired on the same date and
under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Certificates should consult their own legal and tax
advisors with respect to the tax consequence of an investment in the
Certificates in the particular circumstances and with respect to the eligibility
of the Certificates for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of the Certificates offered hereby will be passed upon for NWA
Corp. and Northwest by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York, and for the Underwriters by
Shearman & Sterling, New York, New York. Certain federal income tax matters with
respect to the Trust and Certificateholders will be passed upon by Cadwalader,
Wickersham & Taft, special tax counsel to Northwest. The respective counsel for
Northwest and the Underwriters may rely upon Bingham, Dana & Gould LLP,
Hartford, Connecticut, counsel to State Street Bank and Trust Company, as to
certain matters relating to the authorization, execution and delivery of the
Basic Agreement, each Trust Supplement and the issuance of the Certificates.
EXPERTS
The consolidated financial statements and schedule of NWA Corp. at December
31, 1996 and 1995, and for each of the three years in the period ended December
31, 1996, incorporated by reference in the Prospectus accompanying this
Prospectus Supplement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon. Such consolidated financial
statements and schedule are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The references to AISI, BK and MBA, and to their respective appraisal
reports, dated as of August 15, 1997 in the case of AISI, September 3, 1997 in
the case of BK and August 26, 1997 in the case of MBA, are included herein in
reliance upon the authority of each such firm as an expert with respect to the
matters contained in its appraisal report.
S-87
<PAGE>
APPENDIX I--INDEX OF CERTAIN DEFINED TERMS
The following is an index showing the page in this Prospectus Supplement and
the accompanying Prospectus where certain defined terms appear.
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- -------------------------------------------------------------------------------------------- --------------------
<S> <C>
Adjusted Expected Distributions............................................................. S-20
Administration Expenses..................................................................... S-55
Aggregate LTV Collateral Amount............................................................. S-20
Aircraft.................................................................................... S-1
AISI........................................................................................ S-6
AMTNOLs..................................................................................... S-26
Appraisals.................................................................................. S-28
Appraised Current Market Value.............................................................. S-20
Appraisers.................................................................................. S-6
ASMs........................................................................................ S-25
Available seat miles........................................................................ S-25
Assumed Aggregate Aircraft Value............................................................ S-7
Assumed Aircraft Value...................................................................... S-65
Average Life Date........................................................................... S-62
Aviation Act................................................................................ S-41
Bank........................................................................................ S-10, S-53
Bankruptcy Code............................................................................. S-17
Basic Agreement............................................................................. S-1
Basic Rent.................................................................................. S-79
BK.......................................................................................... S-6
Cargo ton miles............................................................................. S-25
Cede........................................................................................ S-48
Certain Taxes and Fees...................................................................... S-56
Certificate Account......................................................................... S-38
Certificate Owner........................................................................... S-48
Certificateholders.......................................................................... S-11
Certificates................................................................................ S-1
Civil Reserve Air Fleet Program............................................................. S-79
Class A Certificates........................................................................ S-10
Class A Trust............................................................................... S-1
Class B Certificates'....................................................................... S-10
Class B Trust............................................................................... S-1
Class C Certificates........................................................................ S-10
Class C Trust............................................................................... S-1
Closing Date................................................................................ S-84
Code........................................................................................ S-23
Company..................................................................................... S-1
Controlling Party........................................................................... S-21, S-54
Current Distribution Date................................................................... S-19
Cut-off Date................................................................................ S-2
Date of Sale................................................................................ S-2
Definitive Certificates..................................................................... S-49
Delivered Aircraft.......................................................................... S-15
Distribution Date........................................................................... S-19
DOL......................................................................................... S-83
DOT......................................................................................... S-33
Downgrade Drawing........................................................................... S-18
DTC......................................................................................... S-48
DTC Participants............................................................................ S-48
Eligible Deposit Account.................................................................... S-62
Eligible Institution........................................................................ S-62
</TABLE>
A-1-1
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- -------------------------------------------------------------------------------------------- --------------------
Equipment Notes............................................................................. S-1
<S> <C>
ERISA....................................................................................... S-22
ERISA Plans................................................................................. S-22
Event of Loss............................................................................... S-78
Exchange Act................................................................................ S-48
Expected Distributions...................................................................... S-19
FAA......................................................................................... S-28
FDIC........................................................................................ S-62
Final Distributions......................................................................... S-21
Final Drawing............................................................................... S-53
Final Expected Distribution Date............................................................ S-11
Final Legal Distribution Date............................................................... S-12
Guaranty.................................................................................... S-11
H.15 (519).................................................................................. S-62
Indenture................................................................................... S-11
Indenture Default........................................................................... S-42
Indirect Participants....................................................................... S-48
Intercreditor Agreement..................................................................... S-18
Interest Drawings........................................................................... S-16
IRS......................................................................................... S-26
KLM......................................................................................... S-26
Lease....................................................................................... S-2
Lease Event of Default...................................................................... S-42
Lease Payment Dates......................................................................... S-79
Lease Payment Default....................................................................... S-79
Liquidity Event of Default.................................................................. S-53
Liquidity Expenses.......................................................................... S-55
Liquidity Facility.......................................................................... S-16
Liquidity Obligations....................................................................... S-17
Liquidity Provider.......................................................................... S-10
Loan Trustee................................................................................ S-3
LTV Appraisal............................................................................... S-20
LTV Collateral Amount....................................................................... S-21
LTV Ratio................................................................................... S-21
LTVs........................................................................................ S-6
Make-Whole Premium.......................................................................... S-61
Mandatory Document Terms.................................................................... S-45
Mandatory Economic Terms.................................................................... S-44
MBA......................................................................................... S-6
Mesaba...................................................................................... S-29
Minimum Sale Price.......................................................................... S-22
Moody's..................................................................................... S-2
NOLs........................................................................................ S-25
Non-Extension Drawing....................................................................... S-16
Non-Performing Equipment Notes.............................................................. S-17
Northwest................................................................................... S-1
Northwest Airlink........................................................................... S-33
Northwest Trust............................................................................. S-31
NWA Corp.................................................................................... S-1
Owned Aircraft.............................................................................. Prospectus page 1
Owned Aircraft Notes........................................................................ Prospectus page 1
Owner Participant........................................................................... S-12
Owner Trustee............................................................................... S-1
Participation Agreement..................................................................... S-11, S-56
</TABLE>
A-1-2
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- -------------------------------------------------------------------------------------------- --------------------
Passenger load factor....................................................................... S-25
<S> <C>
Pass Through Trust Agreements............................................................... S-1
Performing Equipment Notes.................................................................. S-17
Performing Note Deficiency.................................................................. S-18
Pool Balance................................................................................ S-39
Pool Factor................................................................................. S-39
Prefunded Aircraft.......................................................................... S-2, S-15
Prefunding Collateral Account............................................................... S-62
Prefunding Period........................................................................... S-3
Prepayment Date............................................................................. S-2
Prohibited Transactions..................................................................... S-83
PTC Event of Default........................................................................ S-12
PTCE........................................................................................ S-83
Rating Agencies............................................................................. S-2
Regular Distribution Dates.................................................................. S-32
Remaining Weighted Average Life............................................................. S-62
Replacement Facility........................................................................ S-51
Required Amount............................................................................. S-17
Revenue passenger miles..................................................................... S-25
Revenue yield per passenger mile............................................................ S-25
RPMs........................................................................................ S-32
Rules....................................................................................... S-49
Scheduled Payments.......................................................................... S-38
Section 1110................................................................................ S-5
Section 1110 Period......................................................................... S-17
Series A Equipment Notes.................................................................... S-1
Series B Equipment Notes.................................................................... S-1
Series C Equipment Notes.................................................................... S-1
Shortfall Amounts........................................................................... S-81
Special Payment............................................................................. S-38
Special Payments Account.................................................................... S-39
Specified Investments....................................................................... S-63
Standard & Poor's........................................................................... S-2
Stated Interest Rates....................................................................... S-17
Sublessee................................................................................... S-79
Subordinated Certificateholders............................................................. S-81
Subordinated Certificates................................................................... S-81
Subordinated Trusts......................................................................... S-81
Subordination Agent......................................................................... S-10
Supplemental Rent........................................................................... S-79
T+ .................................................................................... S-3, S-84
Threshold Rating............................................................................ S-52
Treasury Yield.............................................................................. S-62
Triggering Event............................................................................ S-12
Trust Property.............................................................................. S-11
Trust Supplement............................................................................ S-1
Trustee..................................................................................... S-1
Trusts...................................................................................... S-1
Underwriters................................................................................ S-84
Underwriting Agreement...................................................................... S-84
Underwriter Exemption....................................................................... S-83
U.S......................................................................................... S-2
U.S. Certificateholders..................................................................... S-80
U.S. Persons................................................................................ S-80
</TABLE>
A-1-3
<PAGE>
APPENDIX II--SUMMARY OF AIRCRAFT APPRAISALS
(ON THE FOLLOWING PAGES)
A-2-1
<PAGE>
[LETTERHEAD FOR AIRCRAFT INFORMATION SERVICES, INC.]
15 August 1997
Northwest Airlines, Inc.
Department A4010
5101 Northwest Drive
St. Paul, MN 55111-3034
Attn: Mr. Christopher Chaput, Director- Corporate Finance
Subject: AISI Report No.: A7D088B85
AISI Sight Unseen New Aircraft Current Market Value Appraisal, Twelve
Avro RJ85 Aircraft
Gentlemen:
In response to your request, Aircraft Information Services, Inc. (AISI) is
pleased to offer Northwest Airlines, Inc. our opinion of the sight unseen
current market value of twelve new Avro RJ85 aircraft delivered/to be
delivered from the manufacturer to Northwest Airlines between April 1997 and
May 1998 as listed and defined in Table I.
1. Methodology and Definitions
The historical standard term of reference for commercial aircraft value has
been 'half-life fair market value' of an 'average' aircraft. However, 'fair
market value' could mean a fair value in the given market or a value in a
hypothetical 'fair' or balanced market, and the two definitions are not
equivalent. Recently, the term 'base value' has been created to describe the
theoretical balanced market condition and to avoid the potentially misleading
term 'fair market value' which has now become synonymous with the term
'current market value' or a 'fair' value in the actual current market. AISI
value definitions are consistent with those of the International Society of
Transport Aircraft Trading (ISTAT) of 01 January 1994; AISI is a member of
that organization and employs an ISTAT Certified Senior Aircraft Appraiser.
AISI defines a 'base value' as that of a transaction between equally willing
and informed buyer and seller, neither under compulsion to buy or sell, for a
single unit cash transaction with no hidden value or liability, and with
supply and demand of the sale item roughly in balance. Base values are
typically given for aircraft in 'new' condition, 'average half-life'
condition, or in a specifically described condition unique to a single
aircraft at a specific time. An 'average' aircraft is an operable airworthy
aircraft in average physical condition and with average accumulated flight
hours and cycles, with clear title and standard unrestricted certificate of
A-2-2
<PAGE>
15 August 1997
AISI File No. A7D088B85
Page - 2 -
airworthiness, and registered in an authority which does not represent a
penalty to aircraft value or liquidity, with no damage history and with
inventory configuration and level of modification which is normal for its
intended use and age. AISI assumes average condition unless otherwise
specified in this report. 'Half-life' condition assumes that every component
or maintenance service which has a prescribed interval that determines its
service life, overhaul interval or interval between maintenance services, is
at a condition which is one-half of the total interval. It should be noted
that AISI and ISTAT value definitions apply to a transaction involving a
single aircraft, and that transactions involving more than one aircraft are
often executed at discounts to a single aircraft price, for a variety of
reasons relating to an individual buyer or seller.
AISI defines a 'current market value' or 'fair market value' as that value
which reflects the real market conditions, whether at, above or below the
base value conditions. Assumption of a single unit sale arms length
transaction and definitions of aircraft condition, buyer/seller
qualifications and type of transaction remain unchanged from that of base
value. Current market value takes into consideration the status of the
economy in which the aircraft is used, the status of supply and demand for
the particular aircraft type, the value of recent transactions and the
opinions of informed buyers and sellers. Current market value assumes that
there is no short term time constraint to buyer or sell.
AISI encourages the use of base values to consider historical trends, to
establish a consistent baseline for long term value comparisons and future
value considerations, or to consider how actual market values vary from
theoretical base values. Base values are less volatile than current market
values and tend to diminish regularly with time. Base values are normally
inappropriate to determine near term values. AISI encourages the use of
current market values to consider the probable near term value of an aircraft.
The method used by AISI in its valuation of the Aircraft was based both on a
review of information and Aircraft specifications supplied by Northwest
Airlines and the manufacturer and also on a review of present and past market
conditions, various expert opinions (such as aircraft broker and financiers)
and information contained in AISI's databases that help determine aircraft
availability and price data in order to arrive at the appraised values for
the new aircraft to be delivered to Northwest Airlines.
2. Market Analysis RJ85
The Avro RJ85 is a single aisle Stage III noise compliant narrowbody high
wing passenger aircraft powered by four Allied Single Lycoming LF507-1F FADEC
turbofan engines. The aircraft is capable of seating from approximately 70
passengers in a dual class configuration to approximately 100 single class 6
abreast passengers, positioning the aircraft flexibly at the top
A-2-3
<PAGE>
15 August 1997
AISI File No. A7D088B85
Page - 3 -
of the regional airline fleet or as the smallest of the domestic airline
fleet. The RJ85 is the middle member of the Avro RJ family, with the smaller
RJ70 offering 60 to 82 passenger capability and the larger RJ100 offering
approximately 90 to 122 passenger capacity. All Avro RJ aircraft are similar
in configuration, engines and systems, the chief differences being in
fuselage length and operating weights.
The RJ85, at 93,000 pounds maximum gross takeoff weight, has a range of
approximately 1,350 nautical miles, and particularly good takeoff/landing
performance with low exterior noise levels, making the aircraft well suited
for hot/high operations and for use in environmentally sensitive situations.
The aircraft cruises at a relatively slow .73 mach, indicative of a speed
disadvantage compared to other aircraft such as the Fokker 70/100 and DC-9
which cruise at .77 to .78 mach; the aircraft is in its element at ranges of
less than 1,000 nautical miles.
The Avro RJ family is the successor to the similar earlier BAe 146 family of
three models, the -100/200/300, which corresponded generally to the Avro
RJ70/85/100 but which suffered from an unreliable ALF 502 engine and systems
problems. In the process of curing these problems Avro improved the aircraft
to the extent that it was decided to redesignate the family as the Avro RJ.
The three BAe 146 models were in production from 1982 to 1993. In all, 216
aircraft were produced, including cargo variants; the dominant type being the
- -200/QC/QT with 113 of these produced. These aircraft are now in service with
50 airlines worldwide.
The Avro RJ's were first delivered in 1992. As of 21 July 1997, 12 RJ70's are
in service with 4 operators, primarily in Europe; none are presently on
order. 43 RJ85's are in service with 7 operators, predominantly in western
Europe (Lufthansa, Crossair, Delta Air/Sabena) but also the US (NWA/Mesaba),
Indonesia and the CIS. 37 Avro RJ85's are on order, including 24 for
Northwest. There are 34 RJ100's in service with 5 airlines worldwide, with 10
on order.
In 1994 BAe formed a wholly owned subsidiary, AMO, charged with marketing and
remarketing the BAe 146 and Avro RJ family of aircraft, both by direct sale
and as an operating lease company. AMO has been quite effective at putting
idle aircraft to use, although at times it would appear likely that
significant manufacturer or AMO subsidy was involved. In essence, the
manufacturer has always controlled the market for these aircraft, and that
situation is not likely to change in the near future.
The Avro RJ family have inherited a favorable competitive position; the
primary competitor, the Fokker 70/100 family, is no longer in production, and
with the bankruptcy and liquidation of Fokker as a manufacturer, it is likely
that Avro stands to benefit from the 100 or so
A-2-4
<PAGE>
15 August 1997
AISI File No. A7D088B85
Page - 4 -
unfulfilled, canceled Fokker orders. The Avro RJ family, with a cabin width
of 11 feet 1 inch, has a wider cabin than any competitor and permits the most
flexibility in seating configurations and the best first class cabin in a
dual class configuration. This is a significant advantage to regional
airlines who are affiliated with larger airlines and under pressure to
provide a level of service equivalent to that on larger aircraft, to fulfill
the affiliated regional's chief role of capturing thin markets and providing
feed to the larger partner airline. A first class cabin capability offers the
regional airline a unique ability to provide a first class service at
significantly higher fares and yields.
The Fokker family and the McDonnell Douglas DC-9/MD-80/90/95 both have a
slightly smaller cabin width of 10 feet, 1 inch. The DC-9-10 family and the
older Fokker F-28 will compete with the Avro RJ family in the used market,
along with the older BAe 146 family.
There are at least three development aircraft that may provide future
competition for the upper end of the Avro RJ family. BAe is now a member of
the AIR consortium which includes the turboprop manufacturer ATR and who plan
a new AIR low wing 80 to 120 passenger twin engined fanjet transport. However
design definition is yet to be fixed and initial delivery date continues to
advance and is now estimated to be beyond year 2000. Likewise the
China/Singapore/Airbus coalition plans to produce an aircraft in the 100 to
130 seat class and probably contemplate a derivative model of less than 100
seats, but production deliveries before 2001 to 2002 are not likely. The
MD-95 could also be shortened to produce a 100 seat aircraft, but the future
of the project is in doubt due to the Boeing/McDonnel Douglas merger; we
suspect Boeing will produce the 100 to 130 seat MD-95 and meet whatever
demand materializes for the type, which is smaller than any competing Boeing
model, but we doubt that Boeing will commit significant funds to further
development of the model.
Also the stretched 70 seat version of the Canadair RJ will compete, with
first deliveries due in year 2000, however with an 8 foot 10 inch wide cabin
there is little chance that this aircraft can provide a dual class cabin,
thus not affording access to higher yield first class fares. It is unlikely
that Embraer can stretch their 50 seat EMB-145 to 70 seats as that aircraft
cabin is already a long, narrow 7 foot 6 inch wide, 3 abreast economy cabin.
Given the serendipitous inheritance of a market niche advantage of the
RJ85/100 for at least the next three years we expect new Avro RJ aircraft
prices to be fairly firm for single orders, but probably subject to
significant discounts from list price for larger or strategic orders. Orders
will be primarily by airlines who either directly or by virtue of their
affiliation with major airlines, place a high value on the ability of the
aircraft to provide a higher level of passenger service. We expect the used
aircraft market to continue to be controlled by the manufacturer in the near
term and characterized by significant manufacturer support and financial
assistance;
A-2-5
<PAGE>
15 August 1997
AISI File No. A7D088B85
Page - 5 -
free sales of used aircraft without manufacturer involvement would likely be
limited and at lower prices.
3. Current Market Valuation
Following is AISI's opinion of the unit current market value as of the
scheduled delivery month of each aircraft. Valuations are presented in Table
1 subject to the assumptions, definitions and disclaimers herein. All
aircraft values are listed in constant 1997 USDollars.
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft.
AISI has no past, present, or anticipated future interest in the subject
aircraft. The conclusions and opinions expressed in this report are based on
published information, information provided by others, reasonable
interpretations and calculations thereof and are given in good faith. Such
conclusions and opinions are judgments that reflect conditions and values
which are current at the time of this report. The values and conditions
reported upon are subject to any subsequent change. AISI shall not be liable
to any party for damages arising out of reliance or alleged reliance on this
report, or for any parties action or failure to act as a result of reliance
or alleged reliance on this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
/s/ Fred E. Bearden
Fred E. Bearden President
FB/JDM/jm
A-2-6
<PAGE>
Northwest Airlines - AISI File # A7D088B85
August 15,1997
Table I
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Manufacturer's Scheduled Registration Serial Constant 1997 USDollars-New Current Market
Delivery Date Number Number Value
- --------------------------------------------------------------------------------------------
Avro RJ85, LF507-1F Engines, 93,000 lbs MTOW
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Apr-97 N501XJ E2208 $25,020,000
- --------------------------------------------------------------------------------------------
May-97 N502XJ E2307 $25,260,000
- --------------------------------------------------------------------------------------------
Jun-97 N503XJ E2310 $25,510,000
- --------------------------------------------------------------------------------------------
Jul-97 N504XJ E2311 $25,750,000
- --------------------------------------------------------------------------------------------
Aug-97 N505XJ E2313 $25,750,000
- --------------------------------------------------------------------------------------------
Sep 97 N506XJ E2314 $25,750,000
- --------------------------------------------------------------------------------------------
Oct-97 N507XJ E2316 $25,750,000
- --------------------------------------------------------------------------------------------
Nov-97 N508XJ E2318 $25,750,000
- --------------------------------------------------------------------------------------------
Feb-98 N509XJ E2321 $25,750,000
- --------------------------------------------------------------------------------------------
Mar-98 N510XJ E2325 $25,750,000
- --------------------------------------------------------------------------------------------
Apr-98 N511XJ E2326 $25,750,000
- --------------------------------------------------------------------------------------------
May-98 N512XJ E2348 $25,750,000
- --------------------------------------------------------------------------------------------
</TABLE>
A-2-7
<PAGE>
BK Associates, Inc.
1295 Northern Boulevard
Manhasset, New York 11030
(516) 365-6272 o Fax (516) 365-6287
September 3, 1997
NORTHWEST AIRLINES, INC.
5101 Northwest Drive, Dept. A4010
St. Paul, MN 55111
Gentlemen:
In response to your request, BK Associates, Inc. is pleased to provide this
opinion on the current fair market value (FMV) as of September 1997 on each
of 12 British Aerospace Avro RJ85 aircraft, which have been or will be
delivered to Northwest Airlines between April 1997 and May 1998. The Aircraft
are powered by Allied Signal LF507-IF engines and will be operated by
Northwest Airlink Partners, Mesaba Airlines. The Aircraft are further
identified in the conclusion to this letter.
Set forth below is a summary of the methodology, considerations and
assumptions utilized in this appraisal.
CURRENT FAIR MARKET VALUE
According to the International Society of Transport Aircraft Trading's
(ISTAT) definition of fair market value, to which BK Associates subscribes,
the quoted fair market value is the Appraiser's opinion of the most likely
trading price that may be generated for an aircraft under the market
circumstances that are perceived to exist at the time in question. The fair
market value assumes that the aircraft is valued for its highest and best
use, that the parties to the hypothetical sale transaction are willing, able,
prudent and knowledgeable, and under no unusual pressure for a prompt sale,
and that the transaction would be negotiated in an open and unrestricted
market on an arm's length basis, for cash or equivalent consideration, and
given an adequate amount of time for effective exposure to prospective
buyers, which BK Associates considers to be 12 to 18 months.
VALUE METHODOLOGY
Fair market valuations are determined based upon one of three methods:
comparable recent sales, replacement cost or rate of return to investor. In
this appraisal, BK used the comparable sales method, which is the most common
method, in determining the half-time
A-2-8
<PAGE>
BK Associates, Inc.
Northwest Airlines, Inc.
September 3, 1997
Page 2
base value of the Aircraft. This method uses industry data to ascertain the
prices realized in recent sales of comparable models. The current fair market
value of the base Aircraft is based on BK's familiarity with the aircraft
type, its earnings potential in commercial service, its knowledge of its
capabilities and the uses to which it will be put worldwide, its knowledge of
the marketing of used aircraft, and the factors affecting the fair market
value of such aircraft, and on its knowledge of the asking, offered and
transaction prices for similar competitive, and alternative equipment, as
well as transactions and negotiations involving basically identical aircraft.
These realizations, however, which reflect the market supply and demand at
the time of sale, are subject to minor adjustments for other conditions
existing at the time of the appraisal. In arriving at the current fair market
value, BK considered the impact of many factors affecting the market for used
aircraft, including the current demand for and availability of aircraft, the
projected demand for lift, the suitability and operating economies of the
aircraft, regulatory factors, and recent sales experience.
LIMITING CONDITIONS AND ASSUMPTIONS
BK has inspected one Aircraft, N5O4XJ, at Teterboro, New Jersey on August 4,
1997. No other Aircraft nor maintenance records have been reviewed, but we have
relied upon information supplied by you and from BK's own database. In
determining the fair market value of a used aircraft, the following assumptions
apply to the base aircraft:
1. Unless it is new, the aircraft has half-time remaining to its next major
overhauls or scheduled shop visit on its airframe, engines, landing gear
and auxiliary power unit.
2. The aircraft is in compliance under a Federal Aviation Administration
approved airline maintenance program, with all airworthiness directives,
mandatory modifications and applicable service bulletins currently up to
industry standard.
3. The interior of the aircraft is in a standard configuration for its
specific type, with the buyer furnished equipment and options of the types
and models generally accepted and utilized in the industry.
4. The aircraft is in current flight operations.
5. The aircraft is sold for cash without seller financing.
A-2-9
<PAGE>
BK Associates, Inc.
Northwest Airlines, Inc.
September 3, 1997
Page 3
6. The aircraft is in average or better condition.
7. There is no accident damage.
CONCLUSIONS
Based on the above methodology, considerations and assumptions, and considering
that one Aircraft was inspected, it is our opinion that the current fair market
value of each Aircraft is as follows:
Delivery Date or
Expected Date Serial Current Fair
Model of Delivery Number Market Value
----- -- -------- ------ ------------
AVRO RJ85 April 1997 E2208 $24,000,000
AVRO RJ85 May 1997 E2307 24,000,000
AVRO RJ85 June 1997 E2310 24,000,000
AVRO RJ85 July 1997 E2311 24,000,000
AVRO RJ85 August 1997 E2313 24,000,000
AVRO RJ85 September 1997 E2314 24,000,000
AVRO RJ85 October 1997 E2316 24,000,000
AVRO RJ85 November 1997 E2318 24,000,000
AVRO RJ85 February 1998 E2321 24,000,000
AVRO RJ85 March 1998 E2325 24,000,000
AVRO RJ85 April 1998 E2326 24,000,000
AVRO RJ85 May 1998 E2348 24,000,000
BK Associates, Inc. has no present or contemplated future interest in the
Aircraft, nor any interest that would preclude our making a fair and unbiased
estimate. This appraisal represents the opinion of BK Associates, Inc. and
reflects our best judgment based on the information available to us at the time
of preparation and the time and budget constraints imposed by the client. It is
not given as a recommendation, or as an inducement, for any financial
transaction and further, BK Associates, Inc. assumes no responsibility or legal
liability for any action taken or not taken by the addressee, or any other
party, with regard to the appraised equipment. By accepting this appraisal, the
addressee agrees that BK
A-2-10
<PAGE>
BK Associates, Inc.
Northwest Airlines, Inc.
September 3, 1997
Page 4
Associates, Inc. shall bear no such responsibility or legal liability. This
appraisal is prepared for the use of the addressee and shall not be provided to
other parties without the express consent of the addressee.
Sincerely yours,
BK ASSOCIATES, INC.
/s/ R. L. Britton
R. L. Britton
Vice President
ISTAT Certified Appraiser
RLB/kf
A-2-11
<PAGE>
MBA [LETTERHEAD OF MORTEN BEYER & AGNEW]
August 26, 1997
Northwest Airlines, Inc.
5101 Northwest Drive
St. Paul, MN 55111-3034
Gentlemen:
Pursuant to your request, Morten Beyer & Agnew, Inc. (MBA) has set forth
its opinion regarding the value of twelve British Aerospace Avro RJ-85 aircraft
being delivered new from the manufacturer to Northwest Airlines during 1997 and
1998. More specifically, our mandate is to render our opinion on this date as to
the value of the aircraft on their delivery dates.
There are several terms used to describe the "value" of an aircraft. MBA
uses the definitions of various value terms as promulgated by the International
Society of Transport Aircraft Trading (I STAT), a not-for-profit organization of
some 500 members who have an interest in the commercial aviation industry. The
membership consists of management level personnel from banks, leasing companies,
airlines, appraisers, brokers, manufacturers, etc. ISTAT has also established
standards for appraisal practice and a code of ethics for those members who want
to be certified by the Society as appraisers. To attain certification, members
must meet rigid educational and experience requirements and must successfully
complete written examinations. Both Morten Beyer and Robert Minnich of MBA are
ISTAT Certified Senior Appraisers.
ISTAT defines Current Market Value (CMV) as the most likely trading price
that may be generated for an aircraft under the market conditions that are
perceived to exist at the time in question. Market Value (MV) assumes that the
aircraft is valued for its highest, best use; that the parties to the
hypothetical sales transaction are willing, able, prudent and knowledgeable, and
under no unusual pressure for a prompt sale; and that the transaction will be
negotiated in an open and unrestricted market on an arm's length basis,
A-2-12
<PAGE>
for cash or equivalent consideration and given an adequate amount of time for
effective exposure to prospective buyers. Fair Market Value is synonymous to MV
and Current Fair Market Value is synonymous with CMV because the criteria
typically used in those documents that use the term "fair" reflect the same
criteria set forth in the above definition of Market Value.
Base Value (BV) contains the same elements as MV except the market
conditions are always assumed to be in a reasonable state of equilibrium. Base
values are related to long term trends, and may or may not reflect the actual
value of the aircraft in question. Base values are founded in the historical
values of aircraft and are usually used for analysis of historic values or for
future value projections.
The values set forth herein are Current Market Values. CMVs are provided
for each aircraft, identified by assigned manufacturer's serial numbers and FAA
registration numbers, taking into account the expected month of delivery to
Northwest.
The delivery period for the aircraft that are the subject of this report
terminates in May, 1998. As of the date of this report, we see no events that
may cause us to revise valuations. However, unforeseen circumstances can occur
with little or no warning, and, if something does occur, MBA would revise its
market valuations accordingly.
All of the aircraft included in this appraisal are new aircraft with
delivery dates starting in April, 1997.
The Current Market Values are shown in the following table. Values are
stated in terms of millions of 1997 US dollars.
2/A-2-13
<PAGE>
Registration Serial Delivery Current Market
Number Number Dates Value
------ ------ ----- -----
501 XJ E2208 April 29, 1997 $ 24.25
502 XJ E2307 May 23, 1997 24.30
503 XJ E2310 June 30, 1997 24.35
504 XJ E2311 July 25, 1997 24.40
505 XJ E2313 Aug.27, 1997 24.45
506 XJ E2314 Sept.26, 1997 24.50
507 XJ E2316 Oct.24, 1997 24.55
508 XJ E2318 Nov., 1997 24.60
509 XJ E2321 Feb., 1998 24.75
510 XJ E2325 March, 1998 24.80
511 XJ E2326 April, 1998 24.85
512 XJ E2348 May, 1998 24.90
As of this date, Current Market Values and Base Values are the same, i.e.,
CMV is 100 percent of BV.
The Avro RJ-85 is one of a series of upgraded new variants of the British
Aerospace 146 family. It is powered by a totally redesigned and significantly
improved engine. Renamed the Allied Signal LF-507-1F, the engine is now
controlled by a computer optimized system known as FADEC (Full Authority Digital
Electronic Control). This system allows for consistent monitoring of engine
performance in the cockpit and provides for the most efficient fuel burn. Allied
Signal ensures outstanding performance and continued enhanced development of the
engine through its Power-By-The-Hour program which supports Northwest and Mesaba
Airlines. This program provides Northwest with a long term fixed cost
maintenance program that relieves the operator of the burden of maintaining the
engines. Allied Signal also provides spare engines while maintenance is being
performed.
3/A-2-14
<PAGE>
The aircraft's specifications are as follows:
Aircraft Data:
Length 93 ft. 8 in.
Height 28 ft. 3 in.
Wingspan 86 ft. 5 in.
Maximum take-off weight 93,000 lbs.
Maximum landing weight 85,000 lbs.
Payload 24,857 lbs.
Minimum useable fuel 3,096 US gal.
Range 1,592 statute miles
Speed 450 mph/Mach 0.73
Service ceiling 35,000 ft.
Engine Data:
Engine manufacturer Allied Signal
Engine designation LF507-1F
Take-off thrust (static, sea level, ISA) 7,000 lbs.
Bypass ratio 5.0:1
In the configuration which Northwest plans to offer, the RJ-85 will have
16 First Class seats four abreast at 37-inch pitch, and 53 seats five abreast at
33-inch pitch in a cabin which is substantially wider than other regional jets.
It is also significantly higher from floor to ceiling than its regional jet
competitors.
The Avro RJ-85 is a niche aircraft, as was the BAe 146. It is viable in
short-haul markets that are not being hotly contested with larger, longer range
jets. Too often in the past the BAe 146 was operated in markets where its slower
speed put it at a disadvantage, and MBA believes that trying to overcome this
was at least partially responsible for the early engine problems which were
experienced.
Fortunately, it appears that Northwest will use the RJ-85 in a role which
will emphasize and utilize its strong points by providing ongoing jet service
beyond Northwest
4/A-2-15
<PAGE>
hubs to the smaller and medium-sized cities served by Northwest and Mesaba.
This will be especially appealing to the Domestic and International
high-yield Business and First Class passengers for whom Northwest must
compete with other major carriers.
In addition to its strengths of low noise levels and Short Take Off and
Landing (STOL) capabilities, the RJ-85 can utilize existing jetway loading
bridges at the major airline gates which other Regional Jets may not be able
to accomplish. It also has quick-turn capabilities at outgoing stations such
as dual passenger loading doors and the lack of a need for airstairs (an
asset totally unutilized to date by any operator).
Northwest intends to operate the RJ-85 with 16 seats in First Class and
53 seats in Coach for a total of 69 available seats, in a more spacious
interior than would be available in other types of Regional Jets. The RJ-85
is expected to be used as a replacement for Northwest's small DC-9-10 models,
and also to stimulate growth in mid-sized markets which cannot yet support
100-seat jets but are too large to be served effectively with 35-seat
turboprops.
The RJ series has found a home with some large and small operators
around the world, including subsidiaries of Lufthansa, British Airways,
Sabena and Swissair, and also with Northwest's Regional partner Mesaba
Airlines. Overall some 46 operators have either -146s, RJs or both in their
fleets.
While the BAe 146 series and the RJ's popularity up until now has been
primarily outside the United States, it seems probable to MBA that
Northwest's large order of the aircraft will enhance significantly the RJ's
marketability in the United States and North America - just as Northwest's
large order for the Airbus A320 paved the way for orders by other carriers.
The manufacturer has offered very strong support packages, including
dispatch reliability guarantees and convenient spare parts availability and
training programs on attractive terms to expand its participation in the US
Regional Jet market. The manufacturer's sustained effort to support its
product over the long-term is likely to attract other purchasers of the RJ-85
in this period of high demand for Regional Jet aircraft, and thereby broaden
the market for secondary sales in the future.
5/A-2-16
<PAGE>
This report has been prepared for the exclusive use of Northwest Airlines,
Inc. and shall not be provided to other parties by MBA without the express
consent of Northwest.
MBA certifies that this report has been independently prepared and that
it fully and accurately reflects MBA's opinion, as of the date of this
report, of the values set forth herein. MBA further certifies that it does
not have, and does not expect to have, any financial interest in the subject
or similar aircraft.
This report represents MBA's opinion as to the subject aircraft, and is
intended to be advisory only, in nature. Therefore, MBA assumes no
responsibility or legal liability for any actions taken, or not taken, by
Northwest or any other party with regard to the subject aircraft. By
accepting this report, all parties agree that MBA shall bear no such
responsibility or legal liability.
Sincerely,
/s/ Morten S. Beyer
Morten S. Beyer
Chairman & CEO
ISTAT Certified Senior Appraiser
6/A-2-17
<PAGE>
APPENDIX III--EQUIPMENT NOTES
PRINCIPAL PAYMENT SCHEDULE*
PASS-THROUGH TRUST 1997-1-A EQUIPMENT NOTES
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATES N501XJ N502XJ N503XJ N504XJ N505XJ N506XJ N507XJ N508XJ N509XJ N510XJ
- ------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 2,
1998...... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
July 2,
1998...... 314,438 314,438 314,438 314,438 314,438 314,438 0 0 0 0
January 2,
1999...... 0 0 0 0 0 0 129,219 108,791 237,727 230,347
July 2,
1999...... 314,438 314,438 314,438 314,438 314,438 314,438 0 0 0 0
January 2,
2000...... 0 0 0 0 0 0 316,695 317,340 319,275 319,920
July 2,
2000...... 314,438 314,438 314,438 314,438 314,438 314,438 0 0 0 0
January 2,
2001...... 27,095 27,095 27,095 27,095 27,095 27,095 316,695 317,340 319,275 319,920
July 2,
2001...... 287,343 287,343 287,343 287,343 287,343 287,343 0 0 0 0
January 2,
2002...... 0 0 0 0 0 0 316,695 317,340 319,275 319,920
July 2,
2002...... 314,438 314,438 314,438 314,438 314,438 314,438 0 0 0 0
January 2,
2003...... 314,438 314,438 314,438 314,438 314,438 314,438 316,695 317,340 319,275 319,920
July 2,
2003...... 0 0 0 0 0 0 0 0 0 0
January 2,
2004...... 314,438 314,438 314,438 314,438 314,438 314,438 316,695 317,340 319,275 319,920
July 2,
2004...... 0 0 0 0 0 0 0 0 0 0
January 2,
2005...... 0 0 0 0 0 0 316,695 317,340 319,275 319,920
July 2,
2005...... 314,438 314,438 314,438 314,438 314,438 314,438 0 0 0 0
January 2,
2006...... 0 0 0 0 0 0 316,695 317,340 319,275 319,920
July 2,
2006...... 314,438 314,438 314,438 314,438 314,438 314,438 0 0 0 0
January 2,
2007...... 314,438 314,438 314,438 314,438 314,438 314,438 316,695 317,340 319,275 319,920
July 2,
2007...... 0 0 0 0 0 0 0 0 0 0
January 2,
2008...... 419,250 419,250 419,250 419,250 419,250 419,250 316,695 317,340 319,275 319,920
July 2,
2008...... 0 0 0 0 0 0 0 0 0 0
January 2,
2009...... 419,250 419,250 419,250 419,250 419,250 419,250 422,260 423,120 425,700 426,560
July 2,
2009...... 0 0 0 0 0 0 0 0 0 0
January 2,
2010...... 419,250 419,250 419,250 419,250 419,250 419,250 422,260 423,120 425,700 426,560
July 2,
2010...... 0 0 0 0 0 0 0 0 0 0
January 2,
2011...... 419,250 419,250 419,250 419,250 419,250 419,250 422,260 423,120 425,700 426,560
July 2,
2011...... 0 0 0 0 0 0 0 0 0 0
January 2,
2012...... 1,214,248 1,214,248 1,214,248 1,214,248 1,214,248 1,214,248 271,845 257,417 425,700 426,560
July 2,
2012...... 0 0 0 0 0 0 0 0 0 0
January 2,
2013...... 1,488,609 1,488,609 1,488,609 1,488,609 1,488,609 1,488,609 1,428,386 1,421,969 825,023 847,350
July 2,
2013...... 0 0 0 0 0 0 0 0 0 0
January 2,
2014...... 1,597,263 1,597,263 1,597,263 1,597,263 1,597,263 1,597,263 1,535,840 1,528,939 1,523,185 1,519,868
July 2,
2014...... 3,209 3,209 3,209 3,209 3,209 3,209 0 0 0 0
January 2,
2015...... 1,356,545 1,356,545 1,356,545 1,356,545 1,356,545 1,356,545 1,651,376 1,643,957 1,637,769 1,634,203
July 2,
2015...... 0 0 0 0 0 0 0 0 0 0
January 2,
2016...... 0 0 0 0 0 0 1,235,323 1,282,958 1,760,974 1,757,139
<CAPTION>
REGULAR
DISTRIBUTION
DATES N511XJ N512XJ
- ------------ --------- ---------
<S> <C> <C>
January 2,
1998...... $ 0 $ 0
July 2,
1998...... 0 0
January 2,
1999...... 218,835 191,428
July 2,
1999...... 0 0
January 2,
2000...... 320,565 320,952
July 2,
2000...... 0 0
January 2,
2001...... 320,565 320,952
July 2,
2001...... 0 0
January 2,
2002...... 320,565 320,952
July 2,
2002...... 0 0
January 2,
2003...... 320,565 320,952
July 2,
2003...... 0 0
January 2,
2004...... 0 0
July 2,
2004...... 320,565 320,952
January 2,
2005...... 0 0
July 2,
2005...... 320,565 320,952
January 2,
2006...... 0 0
July 2,
2006...... 320,565 320,952
January 2,
2007...... 0 0
July 2,
2007...... 320,565 320,952
January 2,
2008...... 0 0
July 2,
2008...... 320,565 320,952
January 2,
2009...... 427,420 427,936
July 2,
2009...... 0 0
January 2,
2010...... 427,420 427,936
July 2,
2010...... 0 0
January 2,
2011...... 427,420 427,936
July 2,
2011...... 0 0
January 2,
2012...... 0 0
July 2,
2012...... 0 0
January 2,
2013...... 1,287,797 1,302,523
July 2,
2013...... 0 0
January 2,
2014...... 1,519,430 1,517,188
July 2,
2014...... 0 0
January 2,
2015...... 1,633,732 1,631,321
July 2,
2015...... 0 0
January 2,
2016...... 1,756,632 1,754,040
</TABLE>
- ------------------------
* The final schedule of Equipment Notes Principal Payment may change from that
set forth above as a result of any reoptimization negotiated with any Owner
Participant.
A-3-1
<PAGE>
PASS-THROUGH TRUST 1997-1-B EQUIPMENT NOTES
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATES N501XJ N502XJ N503XJ N504XJ N505XJ N506XJ N507XJ N508XJ N509XJ
- ------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 2, 1998......... $ 57,519 $ 57,519 $ 57,519 $ 57,519 $ 57,519 $ 57,519 $ 0 $ 0 $ 0
July 2, 1998............ 113,856 113,856 113,856 113,856 113,856 113,856 0 0 0
January 2, 1999......... 0 0 0 0 0 0 0 0 0
July 2, 1999............ 190,125 190,125 190,125 190,125 190,125 190,125 0 0 0
January 2, 2000......... 0 0 0 0 0 0 0 0 0
July 2, 2000............ 190,125 190,125 190,125 190,125 190,125 190,125 0 0 0
January 2, 2001......... 190,125 190,125 190,125 190,125 190,125 190,125 0 0 0
July 2, 2001............ 0 0 0 0 0 0 0 0 0
January 2, 2002......... 216,029 216,029 216,029 216,029 216,029 216,029 0 0 0
July 2, 2002............ 0 0 0 0 0 0 0 0 0
January 2, 2003......... 0 0 0 0 0 0 0 0 0
July 2, 2003............ 0 0 0 0 0 0 0 0 0
January 2, 2004......... 0 0 0 0 0 0 0 0 0
July 2, 2004............ 0 0 0 0 0 0 0 0 0
January 2, 2005......... 104,903 104,903 104,903 104,903 104,903 104,903 0 0 19,012
July 2, 2005............ 0 0 0 0 0 0 0 0 0
January 2, 2006......... 676,468 676,468 676,468 676,468 676,468 676,468 138,999 0 133,650
July 2, 2006............ 0 0 0 0 0 0 0 0 0
January 2, 2007......... 234,372 234,372 234,372 234,372 234,372 234,372 266,498 338,989 222,718
July 2, 2007............ 0 0 0 0 0 0 0 0 0
January 2, 2008......... 248,221 248,221 248,221 248,221 248,221 248,221 388,850 389,825 406,918
July 2, 2008............ 0 0 0 0 0 0 0 0 0
January 2, 2009......... 486,079 486,079 486,079 486,079 486,079 486,079 260,073 255,518 254,571
July 2, 2009............ 0 0 0 0 0 0 0 0 0
January 2, 2010......... 641,907 641,907 641,907 641,907 641,907 641,907 530,855 524,790 279,737
July 2, 2010............ 0 0 0 0 0 0 0 0 0
January 2, 2011......... 867,656 867,656 867,656 867,656 867,656 867,656 527,758 538,757 739,976
July 2, 2011............ 0 0 0 0 0 0 0 0 0
January 2, 2012......... 170,114 170,114 170,114 170,114 170,114 170,114 1,055,994 1,064,449 890,628
July 2, 2012............ 0 0 0 0 0 0 0 0 0
January 2, 2013......... 0 0 0 0 0 0 0 0 591,252
July 2, 2013............ 0 0 0 0 0 0 0 0 0
January 2, 2014......... 0 0 0 0 0 0 0 0 0
July 2, 2014............ 0 0 0 0 0 0 0 0 0
January 2, 2015......... 0 0 0 0 0 0 0 0 0
July 2, 2015............ 0 0 0 0 0 0 0 0 0
January 2, 2016......... 0 0 0 0 0 0 0 0 0
<CAPTION>
REGULAR
DISTRIBUTION
DATES N510XJ N511XJ N512XJ
- ------------------------ --------- --------- ---------
<S> <C> <C> <C>
January 2, 1998......... $ 0 $ 0 $ 0
July 2, 1998............ 0 0 0
January 2, 1999......... 0 0 518
July 2, 1999............ 0 0 0
January 2, 2000......... 0 7,758 19,423
July 2, 2000............ 0 0 0
January 2, 2001......... 0 0 4,939
July 2, 2001............ 0 0 0
January 2, 2002......... 0 0 0
July 2, 2002............ 0 0 0
January 2, 2003......... 0 0 0
July 2, 2003............ 0 0 0
January 2, 2004......... 0 0 0
July 2, 2004............ 0 0 0
January 2, 2005......... 0 0 0
July 2, 2005............ 0 0 0
January 2, 2006......... 82,090 12,365 0
July 2, 2006............ 0 0 0
January 2, 2007......... 242,063 236,920 210,464
July 2, 2007............ 0 0 0
January 2, 2008......... 388,135 376,762 357,083
July 2, 2008............ 0 0 0
January 2, 2009......... 253,041 254,026 253,470
July 2, 2009............ 0 0 0
January 2, 2010......... 275,439 300,331 337,526
July 2, 2010............ 0 0 0
January 2, 2011......... 781,177 792,830 790,531
July 2, 2011............ 0 0 0
January 2, 2012......... 886,930 1,313,356 1,311,437
July 2, 2012............ 0 0 0
January 2, 2013......... 565,854 125,255 108,454
July 2, 2013............ 0 0 0
January 2, 2014......... 0 0 0
July 2, 2014............ 0 0 0
January 2, 2015......... 0 0 0
July 2, 2015............ 0 0 0
January 2, 2016......... 0 0 0
</TABLE>
A-3-2
<PAGE>
PASS-THROUGH TRUST 1997-1-C EQUIPMENT NOTES
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATES N501XJ N502XJ N503XJ N504XJ N505XJ N506XJ N507XJ N508XJ N509XJ
- ------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 2, 1998......... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
July 2, 1998............ 0 0 0 0 0 0 59,399 30,692 0
January 2, 1999......... 0 0 0 0 0 0 220,983 239,706 33,200
July 2, 1999............ 0 0 0 0 0 0 0 0 0
January 2, 2000......... 0 0 0 0 0 0 58,076 55,613 22,955
July 2, 2000............ 0 0 0 0 0 0 0 0 0
January 2, 2001......... 0 0 0 0 0 0 85,280 82,684 47,502
July 2, 2001............ 0 0 0 0 0 0 0 0 0
January 2, 2002......... 585,585 585,585 585,585 585,585 585,585 585,585 114,463 111,725 74,118
July 2, 2002............ 122,267 122,267 122,267 122,267 122,267 122,267 0 0 0
January 2, 2003......... 578,469 578,469 578,469 578,469 578,469 578,469 145,773 142,883 102,674
July 2, 2003............ 0 0 0 0 0 0 0 0 0
January 2, 2004......... 197,880 197,880 197,880 197,880 197,880 197,880 179,367 176,312 1,157,012
July 2, 2004............ 0 0 0 0 0 0 0 0 0
January 2, 2005......... 447,049 447,049 447,049 447,049 447,049 447,049 215,410 212,179 242,712
July 2, 2005............ 0 0 0 0 0 0 0 0 0
January 2, 2006......... 0 0 0 0 0 0 885,249 916,205 171,953
July 2, 2006............ 0 0 0 0 0 0 0 0 0
January 2, 2007......... 0 0 0 0 0 0 0 0 127,873
July 2, 2007............ 0 0 0 0 0 0 0 0 0
January 2, 2008......... 0 0 0 0 0 0 0 0 0
July 2, 2008............ 0 0 0 0 0 0 0 0 0
January 2, 2009......... 0 0 0 0 0 0 0 0 0
July 2, 2009............ 0 0 0 0 0 0 0 0 0
January 2, 2010......... 0 0 0 0 0 0 0 0 0
July 2, 2010............ 0 0 0 0 0 0 0 0 0
January 2, 2011......... 0 0 0 0 0 0 0 0 0
July 2, 2011............ 0 0 0 0 0 0 0 0 0
January 2, 2012......... 0 0 0 0 0 0 0 0 0
July 2, 2012............ 0 0 0 0 0 0 0 0 0
January 2, 2013......... 0 0 0 0 0 0 0 0 0
July 2, 2013............ 0 0 0 0 0 0 0 0 0
January 2, 2014......... 0 0 0 0 0 0 0 0 0
July 2, 2014............ 0 0 0 0 0 0 0 0 0
January 2, 2015......... 0 0 0 0 0 0 0 0 0
July 2, 2015............ 0 0 0 0 0 0 0 0 0
January 2, 2016......... 0 0 0 0 0 0 0 0 0
<CAPTION>
REGULAR
DISTRIBUTION
DATES N510XJ N511XJ N512XJ
- ------------------------ --------- --------- ---------
<S> <C> <C> <C>
January 2, 1998......... $ 0 $ 0 $ 0
July 2, 1998............ 0 0 0
January 2, 1999......... 13,712 0 0
July 2, 1999............ 0 0 0
January 2, 2000......... 20,677 13,254 0
July 2, 2000............ 0 0 0
January 2, 2001......... 44,958 45,220 38,464
July 2, 2001............ 0 0 0
January 2, 2002......... 71,437 71,765 69,849
July 2, 2002............ 0 0 0
January 2, 2003......... 99,844 100,243 98,215
July 2, 2003............ 0 0 0
January 2, 2004......... 1,148,356 1,137,169 1,132,897
July 2, 2004............ 0 0 0
January 2, 2005......... 260,721 250,296 247,775
July 2, 2005............ 0 0 0
January 2, 2006......... 219,765 276,382 286,058
July 2, 2006............ 0 0 0
January 2, 2007......... 104,529 93,671 117,243
July 2, 2007............ 0 0 0
January 2, 2008......... 0 0 0
July 2, 2008............ 0 0 0
January 2, 2009......... 0 0 0
July 2, 2009............ 0 0 0
January 2, 2010......... 0 0 0
July 2, 2010............ 0 0 0
January 2, 2011......... 0 0 0
July 2, 2011............ 0 0 0
January 2, 2012......... 0 0 0
July 2, 2012............ 0 0 0
January 2, 2013......... 0 0 0
July 2, 2013............ 0 0 0
January 2, 2014......... 0 0 0
July 2, 2014............ 0 0 0
January 2, 2015......... 0 0 0
July 2, 2015............ 0 0 0
January 2, 2016......... 0 0 0
</TABLE>
A-3-3
<PAGE>
PROSPECTUS
$500,000,000
NORTHWEST AIRLINES, INC.
PASS THROUGH CERTIFICATES
APPLICABLE UNDERLYING PAYMENTS FULLY AND UNCONDITIONALLY GUARANTEED BY
NORTHWEST AIRLINES CORPORATION
Up to $500,000,000 aggregate public offering price of Pass Through
Certificates (the "Certificates") (or its equivalent (based on the applicable
exchange rate at the time of sale) in one or more foreign currencies or currency
units) may be offered for sale from time to time pursuant to this Prospectus and
related Prospectus Supplements (as defined below). Certificates may be issued in
one or more series in amounts, at prices and on terms to be determined at the
time of the offering. In respect of each offering of Certificates, a separate
Northwest Airlines Pass Through Trust for each series of Certificates being
offered (each, a "Trust") will be formed pursuant to one or more Pass Through
Trust Agreements (each, a "Basic Agreement") and one or more supplements thereto
(each, a "Trust Supplement") relating to such Trust to be entered into among
Northwest Airlines, Inc. ("Northwest"), Northwest Airlines Corporation ("NWA
Corp." and, together with its subsidiaries, the "Company") and the trustee named
therein (the "Trustee"), as trustee under each Trust. Each Certificate in a
series will represent a fractional undivided interest in the related Trust and
will have no rights, benefits or interests in respect of any other Trust. The
property of the Trusts will consist of equipment notes issued (a) on a
nonrecourse basis by one or more owner trustees pursuant to separate leveraged
lease transactions (the "Leased Aircraft Notes") to finance or refinance a
portion of the equipment cost of aircraft, including engines (each, a "Leased
Aircraft" and, collectively, the "Leased Aircraft"), which have been or will be
leased to Northwest pursuant to a separate lease agreement (each such lease
agreement, a "Lease") for each Leased Aircraft, or (b) with recourse to
Northwest (the "Owned Aircraft Notes" and, together with any Leased Aircraft
Notes, the "Equipment Notes") to finance all or a portion of the equipment cost
of, or to purchase all or a portion of the outstanding debt with respect to,
aircraft, including engines (each, an "Owned Aircraft" and, collectively, the
"Owned Aircraft"; together with Leased Aircraft, the "Aircraft"), which have
been or will be purchased and owned by Northwest. NWA Corp. will fully and
unconditionally guarantee (the "Parent Guaranty") to the holders from time to
time of Certificates (i) with respect to related Owned Aircraft Notes, the full
and prompt payment of principal, premium, if any, and interest thereon when and
as the same shall become due and payable, whether at maturity, upon redemption
or otherwise and (ii) with respect to related Leased Aircraft Notes, the full
and prompt payment of all amounts payable by Northwest under the related Lease
when and as the same shall become due and payable.
The specific terms of the particular Certificates in respect of which this
Prospectus is being delivered will be set forth in a supplement to this
Prospectus (the "Prospectus Supplement") which will be delivered together with
this Prospectus, including, where applicable, the specific designation, form,
aggregate principal amount, initial public offering price and distribution dates
relating to such Certificates, the currency in which such Certificates will be
payable, the Trust or Trusts relating to such Certificates, the Equipment Notes
to be purchased by such Trust or Trusts, the Aircraft relating to such Equipment
Notes, the leveraged lease transactions or financing arrangements, as the case
may be, relating to such Equipment Notes and other special terms relating to
such Certificates and the net proceeds from the offering of such Certificates.
The Certificates shall be issued in registered form only and may, if so
specified in the applicable Prospectus Supplement, be issued in accordance with
a book-entry system.
With respect to one or more Aircraft, Equipment Notes may be issued, each of
which may have a different interest rate, final maturity date and ranking in
respect of priority of payment. For each series of Certificates, the Trustee
will purchase one or more Equipment Notes issued with respect to one or more
Aircraft such that all of the Equipment Notes held in the related Trust will
have identical ranking and identical interest rates (in each case equal to the
rate applicable to the Certificates issued by such Trust), and such that the
latest maturity date for such Equipment Notes will occur on or before the final
distribution date for such Certificates. Interest paid on the Equipment Notes
held in each Trust will be passed through to the holders of the Certificates
relating to such Trust on the dates and at the rate per annum set forth in the
Prospectus Supplement relating to such Certificates until the final distribution
date for such Trust. Principal paid on the Equipment Notes held in each Trust
will be passed through to the holders of the Certificates relating to such Trust
in scheduled amounts on the dates set forth in the Prospectus Supplement
relating to such Certificates until the final distribution date for such Trust.
The Equipment Notes issued with respect to any Aircraft will be secured by a
security interest in such Aircraft and, in the case of the Leased Aircraft, by a
security interest in the Lease relating thereto, including the right to receive
rentals payable in respect of such Leased Aircraft by Northwest. Although
neither the Certificates nor the Leased Aircraft Notes will be direct
obligations of, or guaranteed by, Northwest, the amounts unconditionally payable
by Northwest for lease of Leased Aircraft will be sufficient to pay in full when
due all payments required to be made on the corresponding Leased Aircraft Notes.
The Certificates may be sold to or through underwriters, through dealers or
agents or directly to purchasers. See "Plan of Distribution." The Prospectus
Supplement will set forth the names of any underwriters, dealers or agents
involved in the sale of the Certificates in respect of which this Prospectus is
being delivered, the proposed amounts, if any, to be purchased by underwriters
and the compensation, if any, of such underwriters or agents. See "Plan of
Distribution" for information concerning secondary trading of the Certificates.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
THE DATE OF THIS PROSPECTUS IS JULY 2, 1997.
<PAGE>
AVAILABLE INFORMATION
NWA Corp. and Northwest together have filed with the Securities and Exchange
Commission (the "Commission") Registration Statements on Form S-3 (together with
all amendments and exhibits, the "Registration Statements") under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the Certificates
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statements, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, and to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statements, reference is made to the exhibit
for a more complete description of the matter involved.
NWA Corp. is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports and other information with the Commission. Such
reports and other information, as well as the Registration Statement, including
exhibits and schedules filed therewith, may be inspected at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, Room 1024, and at the regional offices of the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and at 7 World Trade Center, New York, New York 10048. Copies of such materials
may be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a Web Site (http.//www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. Northwest is not required to file separate
reports, proxy statements or other information with the Commission pursuant to
the requirements of the Exchange Act. Instead, information with respect to
Northwest is provided, to the extent required, in filings made by NWA Corp.
Separate financial statements of Northwest are not being provided because
all of the Certificates being issued by Northwest under this Prospectus will be
supported by full and unconditional guarantees by NWA Corp. and, therefore, such
financial statements are not deemed material.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of NWA Corp., which have been filed with the
Commission, are hereby incorporated by reference in this Prospectus:
(a) NWA Corp.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1996; and
(b) NWA Corp.'s Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
All documents filed by NWA Corp. pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Certificates offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the respective dates of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus. The Exchange Act file number is
0-23642.
NWA Corp. will provide without charge to any person to whom a copy of this
Prospectus has been delivered, upon written or oral request, a copy of any or
all of the foregoing documents incorporated herein by reference (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to the Secretary's
Office, NWA
2
<PAGE>
Corp., 5101 Northwest Drive, Dept. A1180, St. Paul, Minnesota 55111-3034,
telephone number (612) 726-2111.
THE COMPANY
Northwest, the principal wholly-owned indirect subsidiary of NWA Corp.,
operates the world's fourth largest airline (as measured by 1994 revenue
passenger miles ("RPMs")) and is engaged principally in commercial
transportation of passengers and cargo. Northwest's business focuses on the
development of a global airline network through the optimization of its domestic
hubs at Detroit, Minneapolis/St. Paul and Memphis, an extensive Pacific route
system with hubs at Tokyo and Osaka, and a transatlantic alliance with KLM Royal
Dutch Airlines ("KLM"), which operates a hub through Amsterdam.
Northwest operates substantial domestic and international route networks. As
of December 31, 1996, directly served more than 150 cities in 18 countries on
the continents of North America, Asia and Europe. Northwest had more than 52
million enplanements and flew over 68 billion RPMs in 1996.
NWA Corp. was originally formed under the name Wings Holdings Inc. The
Company's principal executive offices are located at 2700 Lone Oak Parkway,
Eagan, Minnesota 55121; its mailing address is 5101 Northwest Drive, St. Paul,
Minnesota 55111-3034 and its telephone number is (612) 726-2111.
GENERAL OUTLINE OF TRUST STRUCTURE
In respect of each offering of Certificates, one or more Trusts will be
formed, and the related Certificates issued, pursuant to separate Trust
Supplements to be entered into among the Trustee, NWA Corp. and Northwest in
accordance with the terms of the Basic Agreement. Concurrently with the
execution and delivery of each Trust Supplement, the Trustee, on behalf of the
Trust formed thereby, will enter into one or more purchase or refunding
agreements (each such agreement being herein referred to as a "Note Purchase
Agreement") pursuant to which it will purchase one or more Equipment Notes
relating to one or more of the Aircraft described in the applicable Prospectus
Supplement. Pursuant to the applicable Note Purchase Agreement or Note Purchase
Agreements, the Trustee, on behalf of each Trust, will purchase one or more
Equipment Notes such that the Equipment Notes that constitute the property of
such Trust will have identical interest rates (in each case equal to the rate
applicable to the Certificates issued by such Trust) and identical priority of
payment relative to each of the other Equipment Notes issued under the Related
Indentures (as defined below). The maturity dates of the Equipment Notes
acquired by each Trust will occur on or before the final distribution date
applicable to the Certificates that will be issued by such Trust. The Trustee
will distribute the amount of payments of principal, premium, if any, and
interest received by it as holder of the Equipment Notes to the
Certificateholders of the Trust in which such Equipment Notes are held. See
"Description of the Certificates" and "Description of the Equipment Notes."
USE OF PROCEEDS
Except as set forth in a Prospectus Supplement for a specific offering of
Certificates, the Certificates will be issued in order to facilitate (a) the
financing or refinancing of the debt portion and, in certain cases, the
refinancing of some of the equity portion of one or more separate leveraged
lease transactions entered into by Northwest, as lessee, with respect to the
Leased Aircraft as described in the applicable Prospectus Supplement, and (b)
the financing or refinancing of the aggregate principal amount of debt to be
issued, or the purchase of the aggregate principal amount of the debt previously
issued, by Northwest in respect of the Owned Aircraft as described in the
applicable Prospectus Supplement. The proceeds from the sale of Certificates in
respect of such Owned or Leased Aircraft is not expected to exceed 80% of the
appraised value of such Owned or Leased Aircraft at the time of financing or
refinancing. Except as set forth in a Prospectus Supplement for a specific
offering of Certificates, the proceeds from the sale of the Certificates will be
used by the Trustee on behalf of the applicable Trust or Trusts to purchase
either (a) Leased
3
<PAGE>
Aircraft Notes issued by the respective Owner Trustee or Owner Trustees to
finance or refinance (as specified in the applicable Prospectus Supplement) the
related Leased Aircraft, or (b) Owned Aircraft Notes issued by Northwest to
finance or refinance (as specified in the applicable Prospectus Supplement) the
related Owned Aircraft. Any portion of the proceeds from the sale of
Certificates not used by the Trustee to purchase Equipment Notes on or prior to
the date specified therefor in the applicable Prospectus Supplement will be
distributed on a Special Distribution Date (as defined below) to the applicable
Certificateholders, together with interest, but without premium. See
"Description of Certificates -- Special Distribution Upon Unavailability of
Aircraft."
The Leased Aircraft Notes will be issued under separate trust indentures
(the "Leased Aircraft Indentures") between a bank, trust company or other
institution specified in the related Prospectus Supplement, as trustee
thereunder (in such capacity, herein referred to as the "Loan Trustee"), and an
institution specified in the related Prospectus Supplement acting, not in its
individual capacity, but solely as owner trustee (an "Owner Trustee") of a
separate trust for the benefit of one or more institutional investors (each, an
"Owner Participant"). With respect to each Leased Aircraft, the related Owner
Participant will have provided or will provide from sources other than the
Leased Aircraft Notes a portion of the equipment cost of the related Leased
Aircraft. No Owner Participant, however, will be personally liable for any
amount payable under the related Leased Aircraft Indenture or the Leased
Aircraft Notes issued thereunder. Simultaneously with the acquisition of each
Leased Aircraft, the related Owner Trustee leased or will lease such Aircraft to
Northwest pursuant to a separate Lease. The Owned Aircraft Notes will be issued
under separate trust indentures (the "Owned Aircraft Indentures" and, together
with any Leased Aircraft Indentures, the "Indentures") between the applicable
Loan Trustee and Northwest.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
NWA Corp. and its consolidated subsidiaries for the periods indicated. The ratio
of earnings to fixed charges represents the number of times that fixed charges
were covered by earnings. In computing the ratio, earnings represent
consolidated earnings (loss) before income taxes, cumulative effect of
accounting change and fixed charges (excluding capitalized interest). Fixed
charges consist of interest expense (including capitalized interest), one-third
of rental expense, which is considered representative of the interest factor,
and amortization of debt discount and expense.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
- -------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
- --------- --------- --------- --------- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1.85 1.67 2.74 1.90 1.88 (a) (a)
</TABLE>
(a) Earnings did not cover fixed charges by $121.5 million for the year
ended December 31, 1993 and $1,513.5 million for the year ended December 31,
1992. Excluding non-recurring special charges of $94.3 million for the year
ended December 31, 1993, and $792.7 million for the year ended December 31,
1992, earnings did not cover fixed charges by $27.2 million and $720.8 million
for the two periods, respectively.
DESCRIPTION OF THE CERTIFICATES
In connection with each offering of Certificates, one or more separate
Trusts will be formed and one or more series of Certificates will be issued
pursuant to the Basic Agreement and one or more separate Trust Supplements to be
entered into among Northwest, NWA Corp. and the Trustee. The statements made
under this caption are summaries and reference is made to the detailed
provisions of the Basic Agreement, the form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
summaries relate to the Basic Agreement and each of the Trust Supplements, the
Trusts to be formed thereby and the Certificates to be issued by each Trust
except to the extent, if any, described in the applicable Prospectus Supplement.
The Prospectus Supplement that accompanies this
4
<PAGE>
Prospectus contains a glossary of the material terms used with respect to the
specific series of Certificates being offered thereby. The Trust Supplement
relating to each series of Certificates and the forms of the related Note
Purchase Agreement, Indenture, Lease, Trust Agreement, Participation Agreement,
Refunding Agreement, Intercreditor Agreement and Revolving Credit Agreement, as
applicable, will be filed as exhibits to a post-effective amendment to the
Registration Statement of which this Prospectus is a part, a Current Report on
Form 8-K, a Quarterly Report on Form 10-Q or an Annual Report on Form 10-K, as
applicable, filed by NWA Corp. with the Commission.
The Certificates offered pursuant to this Prospectus will be limited to
$500,000,000 aggregate public offering price (or its equivalent (based on the
applicable exchange rate at the time of sale) in one or more foreign currencies
or currency units).
Certain provisions of the description of the Certificates in this Prospectus
do not necessarily apply to one Certificate of each Trust which may be issued in
a denomination of less than $1,000.
TO THE EXTENT THAT ANY PROVISION IN ANY PROSPECTUS SUPPLEMENT IS
INCONSISTENT WITH ANY PROVISION IN THIS SUMMARY, THE PROVISION OF SUCH
PROSPECTUS SUPPLEMENT WILL CONTROL.
GENERAL
Each Certificate will represent a fractional undivided interest in the Trust
created by the Trust Supplement pursuant to which such Certificate was issued
and all payments and distributions shall be made only from the related Trust
Property (as defined below). The property of each Trust (the "Trust Property")
will include the Equipment Notes held in such Trust, all monies at any time paid
thereon and all monies due and to become due thereunder and funds from time to
time deposited with the Trustee in accounts relating to such Trust and, if so
specified in the Prospectus Supplement related to a series of Certificates,
rights under intercreditor agreements relating to cross-subordination
arrangements and monies receivable under a liquidity facility. Each Certificate
will represent a pro rata share of the outstanding principal amount of the
Equipment Notes held in the related Trust and, unless otherwise specified in the
applicable Prospectus Supplement, will be issued in minimum denominations of
$1,000 or any integral multiple thereof. The Certificates do not represent an
interest in or obligation of Northwest, NWA Corp., the Trustee, any of the Loan
Trustees or Owner Trustees in their individual capacities, any Owner
Participant, or any affiliate of any thereof. Each Certificateholder by its
acceptance of a Certificate agrees to look solely to the income and proceeds
from the Trust Property as provided in the Basic Agreement and the applicable
Trust Supplement.
The Equipment Notes issued under an Indenture may be held in more than one
Trust and one Trust may hold Equipment Notes issued under more than one
Indenture (each Indenture the Equipment Notes of which are held in a Trust, a
"Related Indenture"). Unless otherwise provided in a Prospectus Supplement, only
Equipment Notes having the same priority of payment (the Equipment Notes of any
such priority, a "Class") may be held in the same Trust.
Interest will be passed through to Certificateholders of each Trust at the
rate per annum payable on the Equipment Notes held in such Trust, as set forth
for such Trust on the cover page of the applicable Prospectus Supplement.
Reference is made to the Prospectus Supplement that accompanies this
Prospectus for a description of the specific series of Certificates being
offered thereby, including: (1) the specific designation and title of such
Certificates; (2) the Regular Distribution Dates (as defined below) and Special
Distribution Dates (as defined below) applicable to such Certificates; (3) the
currency or currencies (including currency units) in which such Certificates may
be denominated; (4) the specific form of such Certificates, including whether or
not such Certificates are to be issued in accordance with a book-entry system;
(5) a description of the Equipment Notes to be purchased by such Trust,
including (a) the period or periods within which, the price or prices at which,
and the terms and conditions upon which such Equipment Notes may or must
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be redeemed or defeased in whole or in part, by Northwest or, with respect to
Leased Aircraft Notes, the Owner Trustee, (b) the payment priority of such
Equipment Notes in relation to any other Equipment Notes issued with respect to
the related Aircraft, (c) any additional security or liquidity enhancements
therefor and (d) any intercreditor or other rights or limitations between or
among the holders of Equipment Notes of different priorities issued by the same
Owner Trustee; (6) a description of the related Aircraft, including whether such
Aircraft is a Leased Aircraft or an Owned Aircraft; (7) a description of the
related Note Purchase Agreement and Related Indentures, including a description
of the events of default under the Related Indentures, the remedies exercisable
upon the occurrence of such events of default and any limitations on the
exercise of such remedies with respect to such Equipment Notes; (8) if such
Certificates relate to Leased Aircraft, a description of the related Lease,
Trust Agreement and Participation Agreement, including (a) the names of the
related Owner Trustees, (b) a description of the events of default under the
related Leases, the remedies exercisable upon the occurrence of such events of
default and any limitations on the exercise of such remedies with respect to
such Leased Aircraft Notes, and (c) the rights of the related Owner Trustee, if
any, and/or Owner Participant, if any, to cure failures of Northwest to pay rent
under the related Lease; (9) the extent, if any, to which the provisions of the
operative documents applicable to such Equipment Notes may be amended by the
parties thereto without the consent of the holders of, or only upon the consent
of the holders of a specified percentage of aggregate principal amount of, such
Equipment Notes; (10) cross-default or cross-collateralization provisions in the
Related Indentures; (11) subordination provisions among the holders of
Certificates, including any cross-subordination provisions among the holders of
Certificates in separate Trusts; and (12) any other special terms pertaining to
such Certificates.
If any Certificates are denominated in one or more foreign currencies or
currency units, the restrictions, certain United States federal income tax
considerations, specific terms and other information with respect to such
Certificates and such foreign currency or currency units will be set forth in
the applicable Prospectus Supplement.
BOOK-ENTRY REGISTRATION
GENERAL
If specified in the applicable Prospectus Supplement, the Certificates will
be subject to the provisions described below and under the caption "--
Definitive Certificates." Upon issuance, each series of Certificates will be
represented by one fully registered global certificate. Each global certificate
will be deposited with, or on behalf of, The Depository Trust Company ("DTC")
and registered in the name of Cede & Co. ("Cede"), or its nominee. No person
acquiring an interest in such Certificates ("Certificate Owner") will be
entitled to receive a certificate representing such person's interest in such
Certificates, except as set forth below under "-- Definitive Certificates."
Unless and until Definitive Certificates are issued under the limited
circumstances described herein, all references to actions by Certificateholders
shall refer to actions taken by DTC upon instructions from DTC Participants (as
defined below), and all references herein to distributions, notices, reports and
statements to Certificateholders shall refer, as the case may be, to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of such Certificates, or to DTC Participants for distribution to
Certificate Owners in accordance with DTC procedures.
Northwest has been advised that DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and "clearing agency" registered pursuant to section 17A
of the Exchange Act. DTC was created to hold securities for its participants
("DTC Participants") and to facilitate the clearance and settlement of
securities transactions between DTC Participants through electronic
book-entries, thereby eliminating the need for physical transfer of
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust companies
that clear
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through or maintain a custodial relationship with a DTC Participant either
directly or indirectly ("Indirect Participants").
Certificate Owners that are not DTC Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Certificates may do so only through DTC Participants and
Indirect Participants. In addition, Certificate Owners will receive all
distributions of principal and interest from the Trustee through DTC
Participants or Indirect Participants, as the case may be. Under a book-entry
format, Certificate Owners may experience some delay in their receipt of
payments, because such payments will be forwarded by the Trustee to Cede, as
nominee for DTC. DTC will forward such payments in same-day funds to DTC
Participants who are credited with ownership of the Certificates in amounts
proportionate to the principal amount of each such DTC Participant's respective
holdings of beneficial interests in the Certificates. DTC Participants will
thereafter forward payments to Indirect Participants or Certificate Owners, as
the case may be, in accordance with customary industry practices. The forwarding
of such distributions to the Certificate Owners will be the responsibility of
such DTC Participants. Unless and until the Definitive Certificates are issued
under the limited circumstances described herein, the only "Certificateholder"
will be Cede, as nominee of DTC. Certificate Owners will not be recognized by
the Trustee as Certificateholders, as such term is used in the Basic Agreement,
and Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and DTC Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
the Certificates among DTC Participants on whose behalf it acts with respect to
the Certificates and to receive and transmit distributions of principal,
premium, if any, and interest with respect to the Certificates. DTC Participants
and Indirect Participants with which Certificate Owners have accounts with
respect to the Certificates similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective customers.
Accordingly, although Certificate Owners will not possess the Certificates, the
Rules provide a mechanism by which Certificate Owners will receive payments and
will be able to transfer their interests.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect Participants, the ability of a Certificate Owner to pledge
the Certificates to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Certificates, may be limited
due to the lack of a physical certificate for such Certificates.
DTC has advised Northwest that it will take any action permitted to be taken
by a Certificateholder under the Basic Agreement only at the direction of one or
more DTC Participants to whose accounts with DTC the Certificates are credited.
Additionally, DTC has advised Northwest that in the event any action requires
approval by Certificateholders of a certain percentage of beneficial interest in
each Trust, DTC will take such action only at the direction of and on behalf of
DTC Participants whose holders include undivided interests that satisfy any such
percentage. DTC may take conflicting actions with respect to other undivided
interests to the extent that such actions are taken on behalf of DTC
Participants whose holders include such undivided interests.
Neither Northwest, NWA Corp. nor the Trustee will have any liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Certificates held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The applicable Prospectus Supplement will specify any additional book-entry
registration procedures applicable to Certificates denominated in a currency
other than United States dollars.
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SAME-DAY SETTLEMENT AND PAYMENT
So long as the Certificates are registered in the name of Cede, as nominee
for DTC, all payments made by Northwest to the Loan Trustee under any Lease or
any Owned Aircraft Indentures will be in immediately available funds. Such
payments, including the final distribution of principal with respect to the
Certificates of any Trust, will be passed through to DTC in immediately
available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, secondary
trading in pass through certificates is generally settled in immediately
available or same-day funds. Any Certificates registered in the name of Cede, as
nominee for DTC, will trade in DTC's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the Certificates will
therefore be required by DTC to settle in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in same-day funds
on trading activity in the Certificates.
DEFINITIVE CERTIFICATES
Certificates will be issued in certificated form ("Definitive Certificates")
to Certificate Owners or their nominees, rather than to DTC or its nominee, only
if (i) Northwest advises the Trustee in writing that DTC is no longer willing or
able to discharge properly its responsibilities as depository with respect to
such Certificates and Northwest is unable to locate a qualified successor, (ii)
Northwest, at its option, elects to terminate the book-entry system through DTC
or (iii) after the occurrence of certain events of default or other events
specified in the related Prospectus Supplement. Certificate Owners with
fractional undivided interests aggregating not less than a majority in interest
in such Trust advise the Trustee, Northwest and DTC through DTC Participants in
writing that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the Certificate Owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Certificate Owners through
DTC Participants of the availability of Definitive Certificates. Upon surrender
by DTC of the certificates representing the Certificates and receipt of
instructions for re-registration, the Trustee will reissue the Certificates as
Definitive Certificates to Certificate Owners.
Distributions of principal, premium, if any, and interest with respect to
Certificates will thereafter be made by the Trustee directly in accordance with
the procedures set forth in the Basic Agreement and the applicable Trust
Supplements, to holders in whose names the Definitive Certificates were
registered at the close of business on the applicable record date. Such
distributions will be made by check mailed to the address of such holder as it
appears on the register maintained by the Trustee. The final payment on any
Certificate, however, will be made only upon presentation and surrender of such
Certificate at the office or agency specified in the notice of final
distribution to Certificateholders.
Definitive Certificates will be freely transferable and exchangeable at the
office of the Trustee upon compliance with the requirements set forth in the
Basic Agreement and the applicable Trust Supplements. No service charge will be
imposed for any registration of transfer or exchange, but payment of a sum
sufficient to cover any tax or other governmental charge shall be required.
PAYMENTS AND DISTRIBUTIONS
Subject to the effect of any cross-subordination provisions set forth in the
Prospectus Supplement for a series of Certificates, payments of principal,
premium, if any, and interest with respect to the Equipment Notes held in each
Trust will be distributed by the Trustee, upon receipt, to Certificateholders of
such Trust on the dates and in the currency specified in the applicable
Prospectus Supplement, except in certain cases when some or all of such
Equipment Notes are in default as described in the applicable Prospectus
Supplement. Payments of principal of, and interest on, the unpaid principal
amount of the Equipment
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Notes held in each Trust will be scheduled to be received by the Trustee on the
dates specified in the applicable Prospectus Supplement (such scheduled payments
of interest and principal on the Equipment Notes to the Trustee are herein
referred to as "SCHEDULED PAYMENTS," and the dates specified in the applicable
Prospectus Supplement for distribution of Scheduled Payments to the Trustee are
herein referred to as "REGULAR DISTRIBUTION DATES"). See "Description of the
Equipment Notes -- General." Subject to the effect of any cross-subordination
provisions set forth in the Prospectus Supplement for a series of Certificates,
each Certificateholder of each Trust will be entitled to receive a pro rata
share of any distribution in respect of Scheduled Payments of principal and
interest made on the Equipment Notes held in the Trust.
Payments of principal, premium, if any, and interest received by the Trustee
on account of the early redemption, if any, of the Equipment Notes relating to
one or more Aircraft held in a Trust, and payments, other than Scheduled
Payments received on a Regular Distribution Date, received by the Trustee
following default in respect of Equipment Notes held in a Trust relating to one
or more Aircraft ("SPECIAL PAYMENTS") will be distributed on the date determined
pursuant to the applicable Prospectus Supplement (a "SPECIAL DISTRIBUTION DATE")
except that, unless otherwise specified in the applicable Prospectus Supplement,
payments received by the Trustee following default in respect of the Equipment
Notes on a Regular Distribution Date as a result of a drawing under any
liquidity facility specified in the applicable Prospectus Supplement (each, a
"LIQUIDITY FACILITY"), provided for the benefit of the Certificateholders shall
be distributed on such Regular Distribution Date. The Trustee will mail notice
to the Certificateholders of record of the applicable Trust not less than 20
days prior to the Special Distribution Date on which any Special Payment is
scheduled to be distributed by the Trustee stating such anticipated Special
Distribution Date.
POOL FACTORS
Unless there has been an early redemption, a purchase of an issue of
Equipment Notes by the related Owner Trustee after an Indenture Default (as
defined below), a default in the payment of principal in respect of one or more
issues of the Equipment Notes held in a Trust or certain actions have been taken
following a default thereon, as described in the applicable Prospectus
Supplement, the Pool Factor (as defined below) for the Trusts will decline in
proportion to the scheduled repayments of principal on the Equipment Notes held
in such Trust as described in the applicable Prospectus Supplement. In the event
of such redemption, purchase or default, the Pool Factor and the Pool Balance
(as defined below) of each Trust so affected will be recomputed after giving
effect thereto and notice thereof will be mailed to the Certificateholders of
such Trust. Each Trust will have a separate Pool Factor.
Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Balance" for each Trust or for the Certificates issued by any Trust
indicates, as of any date, the original aggregate face amount of the
Certificates of such Trust less the aggregate amount of all payments made in
respect of the Certificates of such Trust other than payments made in respect of
interest or premium thereon or reimbursement of any costs and expenses in
connection therewith. The Pool Balance for each Trust as of any Regular
Distribution Date or Special Distribution Date shall be computed after giving
effect to the payment of principal, if any, on the Equipment Notes or other
Trust Property held in such Trust and the distribution thereof to be made on
that date.
Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Factor" for each Trust as of any Regular Distribution Date or Special
Distribution Date is the quotient (rounded to the seventh decimal place)
computed by dividing (i) the Pool Balance by (ii) the aggregate original
principal amount of the Equipment Notes held in such Trust. The Pool Factor for
each Trust as of any Regular Distribution Date or Special Distribution Date
shall be computed after giving effect to the payment of principal, if any, on
the Equipment Notes held in such Trust and distribution thereof to be made on
that date. The Pool Factor for each Trust will initially be 1.0000000;
thereafter, the Pool Factor for each Trust will decline as
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described above to reflect reductions in the Pool Balance of such Trust. The
amount of a Certificateholder's pro rata share of the Pool Balance of a Trust
can be determined by multiplying the original denomination of the holder's
Certificate of such Trust by the Pool Factor for such Trust as of the applicable
Regular Distribution Date or Special Distribution Date. The Pool Factor and the
Pool Balance for each Trust will be mailed to Certificateholders of such Trust
on each Regular Distribution Date and Special Distribution Date.
REPORTS TO CERTIFICATEHOLDERS
On each Regular Distribution Date and Special Distribution Date, the Trustee
will include with each distribution of a Scheduled Payment or Special Payment to
Certificateholders of the related Trust a statement, giving effect to such
distribution to be made on such Regular Distribution Date or Special
Distribution Date, setting forth the following information (per $1,000 aggregate
principal amount of Certificate for such Trust, as to (i) and (ii) below):
(i) the amount of such distribution allocable to principal and the
amount allocable to premium, if any;
(ii) the amount of such distribution allocable to interest; and
(iii) the Pool Balance and the Pool Factor for such Trust.
So long as the Certificates are registered in the name of Cede, as nominee for
DTC, on the record date prior to each Regular Distribution Date and Special
Distribution Date, the Trustee will request from DTC a Securities Position
Listing setting forth the names of all DTC Participants reflected on DTC's books
as holding interests in the Certificates on such record date. On each Regular
Distribution Date and Special Distribution Date, the Trustee will mail to each
such DTC Participant the statement described above and will make available
additional copies as requested by such DTC Participant for forwarding to
Certificate Owners.
In addition, after the end of each calendar year, the Trustee will prepare
for each Certificateholder of each Trust at any time during the preceding
calendar year a report containing the sum of the amounts determined pursuant to
clauses (i) and (ii) above with respect to the Trust for such calendar year or,
in the event such person was a Certificateholder during only a portion of such
calendar year, for the applicable portion of such calendar year, and such other
items as are readily available to the Trustee and which a Certificateholder
shall reasonably request as necessary for the purpose of such
Certificateholder's preparation of its federal income tax returns. Such report
and such other items shall be prepared on the basis of information supplied to
the Trustee by the DTC Participants and shall be delivered by the Trustee to
such DTC Participants to be available for forwarding by such DTC Participants to
Certificate Owners in the manner described above.
At such time, if any, as the Certificates are issued in the form of
Definitive Certificates, the Trustee will prepare and deliver the information
described above to each Certificateholder of record of each Trust as the name
and period of beneficial ownership of such Certificateholder appears on the
records of the registrar of the Certificates.
VOTING OF EQUIPMENT NOTES
Subject to the effect of any cross-subordination provisions set forth in the
related Prospectus Supplement, the Trustee, as holder of the Equipment Notes
held in each Trust, has the right to vote and give consents and waivers with
respect to such Equipment Notes under the Related Indentures. The Basic
Agreement and related Trust Supplement set forth (i) the circumstances in which
the Trustee may direct any action or cast any vote as the holder of the
Equipment Notes held in the applicable Trust at its own discretion, (ii) the
circumstances in which the Trustee shall seek instructions from the
Certificateholders of such Trust and (iii) the percentage of Certificateholders
required to direct the Trustee to take any such
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action. If specified in the related Prospectus Supplement, the right of a
Trustee to vote and give consents and waivers with respect to the Equipment
Notes held in the related Trust may, in the circumstances set forth in an
intercreditor agreement to be executed by such Trustee, be exercisable by
another person specified in such Prospectus Supplement.
EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
The Prospectus Supplement will specify the events of default under the Basic
Agreement (an "EVENT OF DEFAULT") and the Related Indentures (an "INDENTURE
DEFAULT"). The Indenture Defaults will include events of default under the
related Leases (a "LEASE EVENT OF DEFAULT"). With respect to any Equipment Notes
which are supported by a Liquidity Facility the Indenture Defaults or Events of
Default may include events of default under such Liquidity Facility. Unless
otherwise provided in a Prospectus Supplement, all of the Equipment Notes issued
under the same Indenture will relate to a specific Aircraft and there will be no
cross-collateralization or cross-default provisions in the Indentures, and
events resulting in an Indenture Default under any particular Indenture will not
necessarily result in an Indenture Default occurring under any other Indenture.
If an Indenture Default occurs in fewer than all of the Indentures,
notwithstanding the treatment of Equipment Notes issued under any Indenture
under which an Indenture Default has occurred, payments of principal and
interest on the Equipment Notes issued pursuant to Indentures with respect to
which an Indenture Default has not occurred will continue to be made as
originally scheduled. As described below under "-- Cross-Subordination Issues,"
a Prospectus Supplement may provide the terms of any cross-subordination
provisions among Certificateholders of separate Trusts. If such provisions are
so provided, payments made pursuant to a Related Indenture under which an
Indenture Default has not occurred may be distributed first to the holders of
the Certificates issued under the Trust which holds the most senior Equipment
Notes issued under all Related Indentures.
The ability of the applicable Owner Trustee or Owner Participant under the
Related Indenture to cure Indenture Defaults, including Indenture Defaults that
result from the occurrence of a Lease Event of Default under the related Lease
will be described in the Prospectus Supplement. Unless otherwise provided in a
Prospectus Supplement, with respect to any Certificates or Equipment Notes
entitled to the benefits of a Liquidity Facility, a drawing under any such
Liquidity Facility for the purpose of making a payment of interest as a result
of the failure by Northwest to have made a corresponding payment will not cure
an Indenture Default related to such failure by Northwest.
The Prospectus Supplement related to a series of Certificates will describe
the circumstances under which the Trustee of the related Trust may vote some or
all of the Equipment Notes issued under the applicable Indenture or issued under
any Related Indentures. Such Prospectus Supplement will also set forth (i) the
percentage of Certificateholders of such Trust entitled to direct the Trustee to
take any action with respect to such Equipment Notes and, if applicable,
Equipment Notes issued under any other Related Indenture. If the Equipment Notes
outstanding under an Indenture are held by more than one Trust, then the ability
of the Certificateholders issued with respect to any one Trust to cause the Loan
Trustee with respect to any Equipment Notes held in such Trust to accelerate the
Equipment Notes under the Related Indenture or to direct the exercise of
remedies by the Loan Trustee under the Related Indenture will depend, in part,
upon the proportion between the aggregate principal amount of the Equipment
Notes outstanding under such Indenture and held in such Trust and the aggregate
principal amount of all Equipment Notes outstanding under such Indenture. In
addition, if cross-subordination provisions are applicable to any series of
Certificates, then the ability of the Certificateholders of any one Trust
holding Equipment Notes issued under Related Indentures to cause the Loan
Trustee with respect to any Equipment Notes held in such Trust to accelerate the
Equipment Notes under the Related Indenture or to direct the exercise of
remedies by the Loan Trustee under the Related Indenture will depend, in part,
upon the Class of Notes held in such Trust. If the Equipment Notes outstanding
under an Indenture are held by more than one Trust, then each Trust will hold
Equipment Notes with different terms from the Equipment Notes held in the other
Trusts and therefore the Certificateholders of a Trust may have divergent or
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conflicting interests from those of the Certificateholders of the other Trusts
holding Equipment Notes relating to the same Indenture. In addition, so long as
the same institution acts as Trustee of each Trust, in the absence of
instructions from the Certificateholders of any such Trust, the Trustee for such
Trust could for the same reason be faced with a potential conflict of interest
upon an Indenture Default. In such event, the Trustee has indicated that it
would resign as Trustee of one or all such Trusts, and a successor trustee would
be appointed in accordance with the terms of the Basic Agreement.
The Prospectus Supplement for a series of Certificates will specify whether
and under what circumstances the Trustee may or shall sell for cash to any
person all or part of such Equipment Notes. Any proceeds received by the Trustee
upon any such sale shall be deposited in an account established by the Trustee
for the benefit of the Certificateholders of such Trust for the deposit of such
Special Payments (the "SPECIAL PAYMENTS ACCOUNT") and shall be distributed to
the Certificateholders of such Trust on a Special Distribution Date. The market
for Equipment Notes in default may be very limited, and there can be no
assurance that they could be sold for a reasonable price. Furthermore, so long
as the same institution acts as Trustee of multiple Trusts, it may be faced with
a conflict in deciding from which Trust to sell Equipment Notes to available
buyers. If the Trustee sells any such Equipment Notes with respect to which an
Indenture Default exists for less than their outstanding principal amount, the
Certificateholders of such Trust will receive a smaller amount of principal
distributions than anticipated and will not have any claim for the shortfall
against Northwest, any Owner Trustee, Owner Participant or the Trustee.
Furthermore, neither the Trustee nor the Certificateholders of such Trust could
take any action with respect to any remaining Equipment Notes held in such Trust
so long as no Indenture Defaults exist with respect thereto.
Any amount, other than Scheduled Payments received on a Regular Distribution
Date, distributed to the Trustee of any Trust by the Loan Trustee under any
Indenture on account of the Equipment Notes held in such Trust following an
Indenture Default under such Indenture shall be deposited in the Special
Payments Account for such Trust and shall be distributed to the
Certificateholders of such Trust on a Special Distribution Date. In addition, if
a Prospectus Supplement provides that the applicable Owner Trustee may, under
circumstances specified therein, redeem or purchase the outstanding Equipment
Notes issued under the Related Indenture, the price paid by such Owner Trustee
to the Trustee of any Trust for the Equipment Notes issued under such Indenture
and held in such Trust shall be deposited in the Special Payments Account for
such Trust and shall be distributed to the Certificateholders of such Trust on a
Special Distribution Date.
Any funds representing payments received with respect to any Equipment Notes
held in a Trust in default, or the proceeds from the sale by the Trustee of any
such Equipment Notes, held by the Trustee in the Special Payments Account for
such Trust shall, to the extent practicable, be invested and reinvested by the
Trustee in Permitted Investments pending the distribution of such funds on a
Special Distribution Date. "Permitted Investments" will be specified in the
related Prospectus Supplement.
The Basic Agreement provides that the Trustee of each Trust shall, within 90
days after the occurrence of a default in respect of such Trust, give to the
Certificateholders of such Trust notice, transmitted by mail, of all uncured or
unwaived defaults with respect to such Trust known to it, provided that, except
in the case of default in the payment of principal, premium, if any, or interest
on any of the Equipment Notes held in such Trust, the Trustee shall be protected
in withholding such notice if it in good faith determines that the withholding
of such notice is in the interests of such Certificateholders. The term
"default" as used in this paragraph only means the occurrence of an Event of
Default with respect to a Trust as described above, except that in determining
whether any such Event of Default has occurred, any grace period or notice in
connection therewith shall be disregarded.
The Basic Agreement contains a provision entitling the Trustee of each
Trust, subject to the duty of the Trustee during a default to act with the
required standard of care, to be offered reasonable security or indemnity by the
Certificateholders of such Trust before proceeding to exercise any right or
power under the Basic Agreement at the request of such Certificateholders.
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The Prospectus Supplement for a series of Certificates will specify the
percentage of Certificateholders entitled to waive, or to instruct the Trustee
to waive, any past Event of Default with respect to such Trust and thereby annul
any direction given with respect thereto. The Prospectus Supplement for a series
of Certificates will also specify the percentage of Certificateholders (and
whether of such Trust or of any other Trust holding Equipment Notes issued under
Related Indentures) entitled to waive, or to instruct the Trustee or the Loan
Trustee to waive, any past Indenture Default with respect to the Equipment Notes
held in such Trust and thereby annul any direction given with respect thereto.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
Northwest will be prohibited from consolidating with or merging into any
other corporation or transferring substantially all of its assets as an entirety
to any other corporation unless (i) the surviving successor or transferee
corporation shall (a) be a "citizen of the United States" (as defined in Section
40102(a)(15) of Title 49 of the United States Code) holding a carrier operating
certificate issued by the Secretary of Transportation pursuant to Chapter 447 of
Title 49, United States Code, for aircraft capable of carrying 10 or more
individuals or 6,000 pounds or more of cargo and with respect to which there is
in force an air carrier operating certificate issued pursuant to Part 121 of the
regulations under the sections of Title 49, United States Code, relating to
aviation and (b) expressly assume all of the obligations of Northwest contained
in the Basic Agreement and any Trust Supplement, the Note Purchase Agreements
and the Indentures and, with respect to the Leased Aircraft Notes, the
Participation Agreements and the Leases, and any other operative documents; (ii)
immediately after giving effect to such transaction, no Indenture Default (with
respect to the Owned Aircraft Notes) or Lease Event of Default (with respect to
the Leased Aircraft Notes) shall have occurred and be continuing; and (iii)
Northwest shall have delivered a certificate and an opinion or opinions of
counsel indicating that such transaction, in effect, complies with such
conditions.
MODIFICATIONS OF THE BASIC AGREEMENT
The Basic Agreement contains provisions permitting Northwest, NWA Corp. and
the Trustee of each Trust to enter into a supplemental trust agreement, without
the consent of the holders of any of the Certificates of such Trust, (i) to
provide for the formation of such Trust and the issuance of a series of
Certificates, (ii) to evidence the succession of another corporation to
Northwest or NWA Corp. and the assumption by such corporation of Northwest's or
NWA Corp.'s obligations under the Basic Agreement and the applicable Trust
Supplement, (iii) to add to the covenants of Northwest or NWA Corp. for the
benefit of holders of such Certificates, or to surrender any right or power in
the Basic Agreement conferred upon Northwest or NWA Corp., (iv) to cure any
ambiguity or correct or supplement any defective or inconsistent provision of
the Basic Agreement or the applicable Trust Supplement or to make any other
provisions with respect to matters or questions arising thereunder, provided
such action shall not adversely affect the interests of the holders of such
Certificates, or to cure any ambiguity or correct any mistake, (v) to modify,
eliminate or add to the provisions of the Basic Agreement to the extent as shall
be necessary to continue the qualification of the Basic Agreement (including any
supplemental agreement) under the Trust Indenture Act of 1939, as amended (the
"TRUST INDENTURE ACT") and to add to the Basic Agreement such other provisions
as may be expressly permitted by the Trust Indenture Act, (vi) to provide for a
successor Trustee or to add to or change any provision of the Basic Agreement as
shall be necessary to facilitate the administration of the Trusts thereunder by
more than one Trustee, (vii) to add, eliminate or change any provisions under
such Basic Agreement that will not adversely affect the Certificateholders in
any material respect, provided that in each case, such modification does not
cause the corresponding Trust
to become taxable as an "association" within the meaning of Treasury Regulation
Section 301.7701-2 or a "publicly traded partnership" within the meaning of
Section 7704 of the Code taxable as a corporation and (viii) to make any other
amendments or modifications to the Basic Agreement, provided such amendments or
modifications shall only apply to Certificates issued thereafter.
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The Basic Agreement also contains provisions permitting Northwest, NWA Corp.
and the Trustee of each Trust, with the consent of the Certificateholders of
such Trust evidencing fractional undivided interests aggregating not less than a
majority in interest of such Trust, and, with respect to any Leased Aircraft,
with the consent of the applicable Owner Trustee (such consent not to be
unreasonably withheld), to execute supplemental trust agreements adding any
provisions to or changing or eliminating any of the provisions of the Basic
Agreement, to the extent relating to such Trust, and the applicable Trust
Supplement, or modifying the rights of the Certificateholders, except that no
such supplemental trust agreement may, without the consent of each
Certificateholder so affected thereby, (a) reduce in any manner the amount of,
or delay the timing of, any receipt by the Trustee of payments on the Equipment
Notes held in such Trust or distributions in respect of any Certificate related
to such Trust, or change the date or place of any payment in respect of any
Certificate, or make distributions payable in coin or currency other than that
provided for in such Certificates, or impair the right of any Certificateholder
of such Trust to institute suit for the enforcement of any such payment when
due, (b) permit the disposition of any Equipment Note held in such Trust, except
as provided in the Basic Agreement or the applicable Trust Supplement, or
otherwise deprive any Certificateholder of the benefit of the ownership of the
applicable Equipment Notes, (c) reduce the percentage of the aggregate
fractional undivided interests of the Trust provided for in the Basic Agreement
or the applicable Trust Supplement, the consent of the holders of which is
required for any such supplemental trust agreement or for any waiver provided
for in the Basic Agreement or such Trust Supplement, (d) modify any of the
provisions relating to the rights of the Certificateholders in respect of the
waiver of events of default or receipt of payment or (e) cause the Trust to
become taxable as an "association" within the meaning of Treasury Regulation
Section 301.7701-2 or a "publicly traded partnership" within the meaning of
Section 7704 of the Code taxable as a corporation.
MODIFICATION OF INDENTURE AND RELATED AGREEMENTS
The Prospectus Supplement will specify the Trustee's obligations in the
event that the Trustee, as the holder of any Equipment Notes held in a Trust,
receives a request for its consent to any amendment, modification or waiver
under the Indenture or other documents relating to such Equipment Notes
(including any Lease with respect to Leased Aircraft Notes or any Liquidity
Facility).
CROSS-SUBORDINATION ISSUES
The Equipment Notes issued under an Indenture may be held in more than one
Trust and one Trust may hold Equipment Notes issued under more than one Related
Indenture. Unless otherwise provided in a Prospectus Supplement, only Equipment
Notes of the same Class may be held in the same Trust. In such event, payments
made on account of a subordinate Class of Equipment Notes issued under a Related
Indenture may, under circumstances described in the related Prospectus
Supplement, be subordinated to the prior payment of all amounts owing to
Certificateholders of a Trust which holds senior Equipment Notes issued under
all Related Indentures. The Prospectus Supplement related to an issuance of
Certificates will describe any such "cross-subordination" provisions and any
related terms, including the percentage of Certificateholders under any Trust
which are permitted to (i) grant waivers of defaults under any Related
Indenture, (ii) consent to the amendment or modification of any Related
Indentures or (iii) direct the exercise of remedial actions under any Related
Indentures.
TERMINATION OF THE TRUSTS
The obligations of Northwest, NWA Corp. and the Trustee with respect to a
Trust will terminate upon the distribution to Certificateholders of such Trust
of all amounts required to be distributed to them pursuant to the Basic
Agreement and the applicable Trust Supplement and the disposition of all
property held in such Trust. The Trustee will send to each Certificateholder of
record of such Trust notice of the termination of such Trust, the amount of the
proposed final payment and the proposed date for the
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distribution of such final payment for such Trust. The final distribution to any
Certificateholder of such Trust will be made only upon surrender of such
Certificateholder's Certificates at the office or agency of the Trustee
specified in such notice of termination.
DELAYED PURCHASE
In the event that, on the delivery date of any Certificates, all of the
proceeds from the sale of such Certificates are not used to purchase the
Equipment Notes contemplated to be held in the related Trust, such Equipment
Notes may be purchased by the Trustee at any time on or prior to the date
specified in the applicable Prospectus Supplement. In such event, the Trustee
will hold the proceeds from the sale of such Certificates not used to purchase
Equipment Notes in an escrow account pending the purchase of the Equipment Notes
not so purchased. Such proceeds will be invested at the direction and risk of,
and for the account of, Northwest in certain specified investments, which may
include: (i) obligations of, or guaranteed by, the United States Government or
agencies thereof, (ii) open market commercial paper of any corporation
incorporated under the laws of the United States of America or any State thereof
rated at least P-2 or its equivalent by Moody's Investors Service, Inc. or at
least A-2 or its equivalent by Standard & Poor's Corporation, (iii) certificates
of deposit issued by commercial banks organized under the laws of the United
States or of any political subdivision thereof having a combined capital and
surplus in excess of $500,000,000 which banks or their holding companies have a
rating of A or its equivalent by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, provided, however, that the aggregate amount at any one time
so invested in certificates of deposit issued by any one bank shall not exceed
5% of such bank's capital and surplus, (iv) U.S. dollar denominated offshore
certificates of deposit issued by, or offshore time deposits with, any
commercial bank described in clause (iii) above or any subsidiary thereof and
(v) repurchase agreements with any financial institution having combined capital
and surplus of at least $500,000,000 with any of the obligations described in
(i) through (iv) as collateral; provided that if all of the above investments
are unavailable, the entire amounts to be invested may be used to purchase
federal funds from an entity described in clause (iii) above; and provided
further that no investment shall be eligible as a "specified investment" unless
the final maturity date or date of return of such investment is on or before (x)
the scheduled date for the purchase of such Equipment Notes, or (y) if no date
has been scheduled for the purchase of such Equipment Notes, the next business
day, or (z) if Northwest has given notice that such Equipment Notes will not be
purchased, the next applicable Special Distribution Date. Earnings on such
investments in the escrow account for each Trust will be paid to Northwest
periodically, and Northwest will be responsible for any losses.
On the next Regular Distribution Date specified in the applicable Prospectus
Supplement, Northwest will pay to the Trustee an amount equal to the interest
that would have accrued on any Equipment Notes purchased after the date of the
issuance of such Certificates from the date of the issuance of such Certificates
to, but excluding, the date of the purchase of such Equipment Notes by the
Trustee.
SPECIAL DISTRIBUTION UPON UNAVAILABILITY OF AIRCRAFT
To the extent that, due to a casualty to, or other event causing the
unavailability of, one or more Aircraft, the full amount of the proceeds from
the sale of any Certificates held in the escrow account referred to above is not
used to purchase Equipment Notes on or prior to the date specified in the
applicable Prospectus Supplement, an amount equal to the unused proceeds will be
distributed by the Trustee to the holders of record of such Certificates on a
pro rata basis upon not less than 20 days' prior notice to them on a Special
Distribution Date, together with interest thereon at a rate equal to the rate
applicable to such Certificates, but without premium, and Northwest will pay to
the Trustee on such date an amount equal to such interest.
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THE PARENT GUARANTY
NWA Corp. will unconditionally guarantee (i) with respect to related Owned
Aircraft Notes, the full and prompt payment of principal, premium, if any, and
interest thereon when and as the same shall become due and payable, whether at
maturity, upon redemption or otherwise, and (ii) with respect to related Leased
Aircraft Notes, the full and prompt payment of all amounts payable by Northwest
under the related Lease when and as the same shall become due and payable. The
Parent Guaranty will be enforceable without any need first to enforce any Owned
Aircraft Note or Lease against Northwest. The Parent Guaranty will be an
unsecured obligation of NWA Corp.
LIQUIDITY FACILITY
The related Prospectus Supplement may provide that one or more payments of
interest on the Certificates of one or more series will be supported by a
Liquidity Facility issued by an institution identified in the related Prospectus
Supplement. The provider of such Liquidity Facility will have a claim senior to
the Certificateholders' as specified in the related Prospectus Supplement.
THE TRUSTEE
The Trustee for each series of Certificates will be identified in the
Prospectus Supplement. With certain exceptions, the Trustee makes no
representations as to the validity or sufficiency of the Basic Agreement, the
Trust Supplements, the Certificates, the Equipment Notes, the Indentures, the
Leases or other related documents. The Trustee shall not be liable with respect
to any series of Certificates, for any action taken or omitted to be taken by it
in good faith in accordance with the direction of the holders of a majority in
principal amount of outstanding Certificates of such series issued under the
Basic Agreement. Subject to such provisions, such Trustee shall be under no
obligation to exercise any of its rights or powers under the Basic Agreement at
the request of any holders of Certificates issued thereunder unless they shall
have offered to the Trustee indemnity satisfactory to it. The Basic Agreement
provides that the Indenture Trustee in its individual or any other capacity may
acquire and hold Certificates issued thereunder and, subject to certain
conditions, may otherwise deal with Northwest and, with respect to the Leased
Aircraft, with any Owner Trustee with the same rights it would have if it were
not the Trustee.
The Trustee may resign with respect to any or all of the Trusts at any time,
in which event Northwest will be obligated to appoint a successor trustee. If
the Trustee ceases to be eligible to continue as Trustee with respect to a Trust
or becomes incapable of acting as Trustee or becomes insolvent, Northwest may
remove such Trustee, or any Certificateholder of such Trust for at least six
months may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of such Trustee and the
appointment of a successor trustee. Any resignation or removal of the Trustee
with respect to a Trust and appointment of a successor trustee for such Trust
does not become effective until acceptance of the appointment by the successor
trustee. Pursuant to such resignation and successor trustee provisions, it is
possible that a different trustee could be appointed to act as the successor
trustee with respect to each Trust. All references in this Prospectus to the
Trustee should be read to take into account the possibility that the Trusts
could have different successor trustees in the event of such a resignation or
removal.
The Basic Agreement provides that Northwest will pay the Trustee's fees and
expenses and indemnify the Trustee against certain liabilities.
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DESCRIPTION OF THE EQUIPMENT NOTES
The statements made under this caption are summaries and reference is made
to the entire Prospectus and detailed information appearing in the applicable
Prospectus Supplement. Where no distinction is made between the Leased Aircraft
Notes and the Owned Aircraft Notes or between their respective Indentures, such
statements refer to any Equipment Notes and any Indenture.
TO THE EXTENT THAT ANY PROVISION IN ANY PROSPECTUS SUPPLEMENT IS
INCONSISTENT WITH ANY PROVISION IN THIS SUMMARY, THE PROVISION OF SUCH
PROSPECTUS SUPPLEMENT WILL CONTROL.
GENERAL
All Equipment Notes will be issued under a separate Indenture either (a)
between the related Owner Trustee of a trust for the benefit of the Owner
Participant who is the beneficial owner of the related Aircraft, and the related
Loan Trustee, or (b) between Northwest and the related Loan Trustee. The
Equipment Notes issued pursuant to clause (a) of the preceding sentence will be
nonrecourse obligations of the applicable Owner Trust. Each Equipment Note will
be authenticated under an Indenture by the Loan Trustee. All Equipment Notes
issued under the same Indenture will relate to, and be secured by, one or more
Aircraft identified and described in the related Prospectus Supplement and
which, in the case of Equipment Notes issued as described in such clause (a),
are leased to Northwest pursuant to a Lease between the Owner Trustee under the
applicable Owner Trust and Northwest or, in the case of Equipment Notes issued
as described in clause (b), owned by Northwest.
With respect to each Leased Aircraft, the related Owner Trustee has acquired
or will acquire such Aircraft from Northwest or the manufacturer of such
Aircraft, as the case may be, has granted or will grant a security interest in
such Aircraft to the related Loan Trustee as security for the payments of the
related Leased Aircraft Notes, and has leased or will lease such Aircraft to
Northwest pursuant to the related Lease which has been or will be assigned to
the related Loan Trustee. Pursuant to each such Lease, Northwest will be
obligated to make or cause to be made rental and other payments to the related
Loan Trustee on behalf of the related Owner Trustee in amounts that will be
sufficient to make payments of the principal, interest and premium, if any,
required to be made in respect of such Leased Aircraft Notes when and as due and
payable.
The rental obligations of Northwest under each Lease and the obligations of
Northwest under each Owned Aircraft Indenture and under the Owned Aircraft Notes
will be general obligations of Northwest. Except in certain circumstances
involving Northwest's purchase of a Leased Aircraft and the assumption of the
Leased Aircraft Notes related thereto, the Leased Aircraft Notes are not
obligations of, or guaranteed by, Northwest.
PRINCIPAL AND INTEREST PAYMENTS
Interest received by the Trustee on the Equipment Notes held in each Trust
will be passed through to the Certificateholders of such Trust on the dates and
at the rate per annum set forth in the applicable Prospectus Supplement until
the final distribution for such Trust. Principal received by the Trustee on the
Equipment Notes held in each Trust will be passed through to the
Certificateholders of such Trust in scheduled amounts on the dates set forth in
the applicable Prospectus Supplement until the final distribution date for such
Trust.
If any date scheduled for any payment of principal, premium, if any, or
interest with respect to the Equipment Notes is not a business day, such payment
will be made on the next succeeding business day without any additional
interest.
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REDEMPTION
The applicable Prospectus Supplement will describe the circumstances,
whether voluntary or involuntary, under which the Equipment Notes may be
redeemed or purchased prior to the stated maturity date thereof, in whole or in
part, the premium, if any, applicable upon certain redemptions or purchases and
other terms applying to the redemptions or purchases of such Equipment Notes.
SECURITY
The Leased Aircraft Notes will be secured by (i) an assignment by the
related Owner Trustee to the related Loan Trustee of such Owner Trustee's rights
(except for certain rights, including those described below) under the Lease or
Leases with respect to the related Aircraft, including the right to receive
payments of rent thereunder, (ii) a mortgage granted to such Loan Trustee in
such Aircraft, subject to the rights of Northwest under such Lease or Leases and
(iii) an assignment to such Loan Trustee of certain of such Owner Trustee's
rights with respect to such Aircraft under the purchase agreement between
Northwest and the related manufacturer. Under the terms of each Lease,
Northwest's obligations in respect of each Leased Aircraft will be those of a
lessee under a "net lease." Accordingly, Northwest will be obligated, among
other things and at its expense, to cause each Leased Aircraft to be duly
registered, to pay all costs of operating such Aircraft and to maintain,
service, repair and overhaul (or cause to be maintained, serviced, repaired and
overhauled) such Aircraft. With respect to the Leased Aircraft, the assignment
by the related Owner Trustee to the related Loan Trustee of its rights under the
related Lease will exclude, among other things, rights of such Owner Trustee and
the related Owner Participant relating to indemnification by Northwest for
certain matters, insurance proceeds payable to such Owner Trustee in its
individual capacity and to such Owner Participant under liability insurance
maintained by Northwest pursuant to such Lease or by such Owner Trustee or such
Owner Participant, insurance proceeds payable to such Owner Trustee in its
individual capacity or to such Owner Participant under certain casualty
insurance maintained by such Owner Trustee or such Owner Participant pursuant to
such Lease and any rights of such Owner Participant or such Owner Trustee to
enforce payment of the foregoing amounts and their respective rights to the
proceeds of the foregoing.
The Owned Aircraft Notes will be secured by (i) a mortgage granted to the
related Loan Trustee of all of Northwest's right, title and interest in and to
such Owned Aircraft and (ii) an assignment to such Loan Trustee of certain of
Northwest's rights with respect to such Aircraft under the purchase agreement
between Northwest and the related manufacturer. Under the terms of each Owned
Aircraft Indenture, Northwest will be obligated, among other things and at its
expense, to cause each Owned Aircraft to be duly registered, to pay all costs of
operating such Aircraft and to maintain, service, repair and overhaul (or cause
to be maintained, serviced, repaired and overhauled) such Aircraft.
The Prospectus Supplement will specify the required insurance coverage with
respect to the Aircraft.
Northwest will be required, except under certain circumstances, to keep each
Aircraft registered under the Federal Aviation Act of 1958 (the "Federal
Aviation Act"), and to record the Indenture and the Lease, if applicable, among
other documents, with respect to each Aircraft under the Federal Aviation Act.
Such recordation of the Indenture, the Lease, if applicable, and other documents
with respect to each Aircraft will give the related Loan Trustee a perfected
security interest in the related Aircraft whenever it is located in the United
States or any of its territories and possessions; the Convention on the
International Recognition of Rights in Aircraft (the "CONVENTION") provides that
such security will also be recognized, with certain limited exceptions, in those
jurisdictions that have ratified or adhere to the Convention. Although Northwest
has no current intention to do so, Northwest will have the right, subject to
certain conditions, at its own expense to register each Aircraft in countries
other than the United States. Unless otherwise specified in the applicable
Prospectus Supplement, prior to any such change in the jurisdiction of registry,
the related Loan Trustee shall have received an opinion of Northwest's counsel
that, among other things, confirms the perfected status of the lien of the
Related Indenture and, in the case of Leased
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Aircraft, confirms the validity and enforceability of the related Lease in such
jurisdiction, in each case subject, in certain cases, to certain filings,
recordations or other actions. Each Aircraft may also be operated by Northwest
or under lease, sublease or interchange arrangements in countries that are not
parties to the Convention. The extent to which the related Loan Trustee's
security interest would be recognized in an Aircraft located in a country that
is not a party to the Convention, and the extent to which such security interest
would be recognized in a jurisdiction adhering to the Convention if the Aircraft
is registered in a jurisdiction not a party to the Convention, is uncertain.
Moreover, in the case of an Indenture Default, the ability of the related Loan
Trustee to realize upon its security interest in an Aircraft could be adversely
affected as a legal or practical matter if such Aircraft were registered or
located outside the United States.
Unless otherwise specified in the applicable Prospectus Supplement, the
Equipment Notes will not be cross-collateralized and consequently the Equipment
Notes issued in respect of any one Aircraft will not be secured by any other
Aircraft or, in the case of Leased Aircraft Notes, the Lease related thereto.
Unless and until an Indenture Default with respect to a Leased Aircraft has
occurred and is continuing, the related Loan Trustee may exercise only limited
rights of the related Owner Trustee under the related Lease.
Funds, if any, held from time to time by the Loan Trustee with respect to
any Aircraft, prior to the distribution thereof, will be invested and reinvested
by such Loan Trustee. Such investment and reinvestment will be at the direction
of Northwest (except, with respect to a Leased Aircraft, in the case of a Lease
Event of Default under the applicable Lease or, with respect to an Owned
Aircraft, in the case of an Indenture Default under the applicable Indenture),
in certain investments described in the Related Indenture. The net amount of any
loss resulting from any such investments will be paid by Northwest.
Section 1110 of the Bankruptcy Code provides that, in reorganization cases
under Chapter 11 of the Bankruptcy Code, the right of a lessor with respect to,
and of the holder of a security interest in, aircraft capable of carrying 10 or
more individuals or 6,000 pounds or more of cargo (subject to certain
limitations in the case of any such aircraft first placed in service on or prior
to October 22, 1994) leased to or subject to a security interest granted by a
citizen of the United States (as defined in the Federal Aviation Act) holding an
air carrier operating certificate issued by the Secretary of Transportation
pursuant to the Federal Aviation Act for such aircraft (a certificate which
Northwest presently possesses) to take possession of such aircraft in compliance
with the provisions of the lease or security agreement is not affected by (a)
the automatic stay provision of the Bankruptcy Code, which provision generally
enjoins the taking of any action against a debtor by a creditor, (b) the
provision of the Bankruptcy Code allowing the trustee or debtor-in-possession to
use, sell or lease property of the estate and (c) any power of the bankruptcy
court to enjoin a repossession. Section 1110 provides, however, that the right
of a lessor or secured party to take possession of an aircraft in compliance
with the provisions of the lease or security agreement in the event of a default
may not be exercised for 60 days following the date of commencement of the
reorganization proceedings (unless specifically permitted by the bankruptcy
court) and may not be exercised at all if, within such 60-day period, the
trustee or debtor-in-possession agrees to perform the debtor's obligations that
become due on or after such date and cures all existing defaults (other than
defaults resulting solely from the financial condition, bankruptcy, insolvency
or reorganization of the debtor). Section 1110 does not prevent the trustee or
debtor-in-possession from rejecting a lease (including any Lease) or demanding a
renegotiation of such lease as a condition to not rejecting such lease. In
addition, if more than one aircraft are leased pursuant to a master lease and
accompanying lease supplement, the applicability of Section 1110 would be
determined on an aircraft-by-aircraft basis. Assuming Section 1110 is applicable
to all aircraft subject to a master lease, Section 1110 does not prevent the
trustee or debtor-in-possession from complying with the provisions of Section
1110 with respect to some lease supplements, and thereby retaining possession of
the related aircraft, and not complying with the provisions of Section 1110 with
respect to other lease supplements, and thereby enabling a repossession of other
aircraft.
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In connection with any issuance of Certificates under this Prospectus and
the applicable Prospectus Supplement, Northwest shall have received an opinion
from its counsel to the effect that (i) with respect to any Leased Aircraft, the
related Owner Trustee, as lessor under the related Lease, and the related Loan
Trustee, upon foreclosure of the Owner Trustee's interest in such Lease as
assignee of such Owner Trustee's rights under such Lease pursuant to the Related
Indenture, would be entitled to the benefits of Section 1110 of the Bankruptcy
Code with respect to the Aircraft initially delivered under such Lease and
subjected to the Related Indenture or (ii) with respect to any Owned Aircraft,
the related Loan Trustee under the Related Indenture would be entitled to the
benefits of Section 1110 of the Bankruptcy Code with respect to the Aircraft
initially subjected to the Related Indenture. Such opinions will not address the
possible replacement of an Aircraft after an Event of Loss (as defined in the
Indenture) in the future.
RANKING OF EQUIPMENT NOTES
Some of the Equipment Notes related to one or more Aircraft, as described in
the related Prospectus Supplement, may be subordinated and junior in right of
payment to other Equipment Notes related to the same Aircraft. The terms of such
subordination, if any, will be described in the related Prospectus Supplement.
PAYMENTS AND LIMITATION OF LIABILITY
Each Leased Aircraft will be leased by the related Owner Trustee to
Northwest for a term commencing on the delivery date thereof to such Owner
Trustee and expiring on a date not earlier than the latest maturity date of the
related Leased Aircraft Notes, unless previously terminated as permitted by the
terms of the related Lease. The basic rent and other payments under each such
Lease will be payable by Northwest in accordance with the terms specified in the
applicable Prospectus Supplement, and will be assigned by the related Owner
Trustee under the Related Indenture to the Loan Trustee to provide the funds
necessary to pay principal of, premium, if any, and interest due from such Owner
Trustee on the Leased Aircraft Notes issued under such Indenture. In certain
cases, the basic rent payments under a Lease may be adjusted, but each Lease
will provide that under no circumstances will rent payments by Northwest be less
than the scheduled payments on the related Leased Aircraft Notes. The balance of
any basic rent payment under each Lease, after payment of amounts due on the
Leased Aircraft Notes issued under the Indenture corresponding to such Lease,
will be paid over to the applicable Owner Participant. Northwest's obligation to
pay rent and to cause other payments to be made under each Lease will be general
obligations of Northwest.
With respect to the Leased Aircraft Notes, except in certain circumstances
involving Northwest's purchase of a Leased Aircraft and the assumption of the
Leased Aircraft Notes related thereto, the Leased Aircraft Notes will not be
obligations of, or guaranteed by, Northwest. With respect to the Leased Aircraft
Notes, none of the Owner Trustees, the Owner Participants or the Loan Trustees
shall be personally liable to any holder of such Leased Aircraft Notes for
amounts payable under such Leased Aircraft Notes, or, except as provided in the
Indentures relating thereto in the case of the Owner Trustees and the Loan
Trustees, for any liability under such Indentures. Except in the circumstances
referred to above, all amounts payable under any Leased Aircraft Notes (other
than payments made in connection with an optional redemption or purchase by the
related Owner Trustee or the related Owner Participant) will be made only from
(i) the assets subject to the lien of the Related Indenture with respect to such
Aircraft or the income and proceeds received by the related Loan Trustee
therefrom (including rent payable by Northwest under the related Lease) or (ii)
if so provided in the related Prospectus Supplement, the applicable Liquidity
Facility.
With respect to the Leased Aircraft Notes, except as otherwise provided in
the Related Indentures, no Owner Trustee shall be personally liable for any
amount payable or for any statements, representations, warranties, agreements or
obligations under such Indentures or under such Leased Aircraft Notes except for
its own willful misconduct or gross negligence. None of the Owner Participants
shall have any duty or
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responsibility under the Leased Aircraft Indentures or under such Leased
Aircraft Notes to the related Loan Trustee or to any holder of any such Leased
Aircraft Note.
Northwest's obligations under each Owned Aircraft Indenture and under the
Owned Aircraft Notes will be general obligations of Northwest.
DEFEASANCE OF THE INDENTURES AND THE EQUIPMENT NOTES IN CERTAIN CIRCUMSTANCES
Unless otherwise specified in the applicable Prospectus Supplement, the
applicable Indenture provides that the obligations of the related Loan Trustee
and, with respect to any Leased Aircraft Notes, the related Owner Trustee or,
with respect to any Owned Aircraft Notes, Northwest under the applicable
Indenture shall be deemed to have been discharged and paid in full (except for
certain obligations, including the obligations to register the transfer or
exchange of Equipment Notes, to replace stolen, lost, destroyed or mutilated
Equipment Notes and to maintain paying agencies and hold money for payment in
trust) on the 91st day after the date of irrevocable deposit with the related
Loan Trustee of money or certain obligations of the United States or any agency
or instrumentality thereof the payment of which is backed by the full faith and
credit of the United States which, through the payment of principal and interest
in respect thereof in accordance with their terms, will provide money in an
aggregate amount sufficient to pay when due (including as a consequence of
redemption in respect of which notice is given on or prior to the date of such
deposit) principal of, premium, if any, and interest on all Equipment Notes
issued thereunder in accordance with the terms of such Indenture. Such discharge
may occur only if, among other things, there has been published by the Internal
Revenue Service a ruling to the effect that holders of such Equipment Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit, defeasance and discharge and will be subject to federal income
tax on the same amount and in the same manner and at the same time as would have
been the case if such deposit, defeasance and discharge had not occurred.
Upon such defeasance, or upon payment in full of the principal of, premium,
if any, and interest on all Equipment Notes issued under any Indenture on the
maturity date therefor or deposit with the applicable Loan Trustee of money
sufficient therefor no earlier than one year prior to the date of such maturity,
the holders of such Equipment Notes will have no beneficial interest in or other
rights with respect to the related Aircraft or other assets subject to the lien
of such Indenture and such lien shall terminate.
ASSUMPTION OF OBLIGATIONS BY NORTHWEST
Unless otherwise specified in the applicable Prospectus Supplement with
respect to Leased Aircraft, upon the exercise by Northwest of any purchase
options it may have under the related Lease prior to the end of the term of such
Lease, Northwest may assume on a full recourse basis all of the obligations of
the Owner Trustee (other than its obligations in its individual capacity) under
the Indenture with respect to such Aircraft, including the obligations to make
payments in respect of the related Leased Aircraft Notes. In such event, certain
relevant provisions of the related Lease, including (among others) provisions
relating to maintenance, possession and use of the related Aircraft, liens,
insurance and events of default will be incorporated into such Indenture, and
the Leased Aircraft Notes issued under such Indenture will not be redeemed and
will continue to be secured by such Aircraft. It is a condition to such
assumption that, if such Aircraft is registered under the laws of the United
States, an opinion of counsel be delivered at the time of such assumption
substantially to the effect that the related Loan Trustee under such Indenture
should, immediately following such assumption, be entitled to the benefits of
Section 1110 of the Bankruptcy Code with respect to such Aircraft (including the
engines related thereto), but such opinion need not be delivered to the extent
that the benefits of such Section 1110 are not available to the Loan Trustee
with respect to such Aircraft or any engine related thereto immediately prior to
such assumption.
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LIQUIDITY FACILITY
The related Prospectus Supplement may provide that one or more payments of
interest on the related Equipment Notes of one or more series or distributions
made by the Trustee of the related Trust will be supported by a Liquidity
Facility issued by an institution identified in the related Prospectus
Supplement. Unless otherwise provided in the related Prospectus Supplement, the
provider of the Liquidity Facility will have a senior claim upon the assets
securing the Equipment Notes.
INTERCREDITOR ISSUES
Equipment Notes may be issued in different Classes, which means that the
Equipment Notes may have different payment priorities even though they are
issued by the same Owner Trustee and relate to the same Aircraft. In such event,
the related Prospectus Supplement will describe the priority of distributions
among such Equipment Notes (and any Liquidity Facilities therefor), the ability
of any Class to exercise and/or enforce any or all remedies with respect to the
related Aircraft (and, if the Equipment Notes are Leased Aircraft Notes, the
Lease related thereto) and certain other intercreditor terms and provisions.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion describes the principal U.S. federal income tax
consequences to Certificateholders of the purchase, ownership and disposition of
the Certificates and in the opinion of Cadwalader, Wickersham & Taft such
discussion is accurate in all material respects of the matters discussed herein.
Except as otherwise specified, the discussion is addressed to beneficial owners
of Certificates ("U.S. Certificateholders") that are citizens or residents of
the United States, corporations, partnerships or other entities created or
organized in or under the laws of the United States or any State, or estates or
trusts the income of which is subject to U.S. federal income taxation regardless
of its source ("U.S. PERSONS") that will hold the Certificates as capital
assets. This discussion does not address the tax treatment of U.S.
Certificateholders that may be subject to special tax rules, such as banks,
insurance companies, dealers in securities or commodities, tax-exempt entities,
holders that will hold Certificates as part of a straddle or holders that have a
"functional currency" other than the U.S. Dollar, nor does it address the tax
treatment of U.S. Certificateholders that do not acquire Certificates as part of
the initial offering. This discussion does not describe any tax consequences
arising under the laws of any State, locality or taxing jurisdiction other than
the United States.
This discussion is based upon the tax laws of the United States as in effect
on the date of this Prospectus, as well as judicial and administrative
interpretations thereof (in final or proposed form) available on or before such
date. All of the foregoing are subject to change or differing interpretations,
which could apply retroactively. Prospective investors should note that no
rulings have been or will be sought from the Internal Revenue Service (the
"IRS") with respect to any of the federal income tax consequences discussed
below, and no assurance can be given the IRS will not take contrary positions.
Prospective investors should consult their own tax advisors with respect to the
federal, state, local and foreign tax consequences of the purchase, ownership
and disposition of the Certificates.
TAX STATUS OF THE TRUSTS
In the opinion of Cadwalader, Wickersham & Taft, special tax counsel to
Northwest, in the case of each Series of Certificates, each Trust will be
classified as a grantor trust under subpart E, Part I of Subchapter J of the
Internal Revenue Code of 1986, as amended (the "CODE") and not as an association
taxable as a corporation for U.S. federal income tax purposes. Accordingly, each
U.S. Certificateholder will be subject to federal income taxation as if it owned
directly a pro rata undivided interest in each asset owned by the corresponding
Trust and paid directly its share of fees and expenses paid by such Trust.
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<PAGE>
TAXATION OF CERTIFICATEHOLDERS GENERALLY
A U.S. Certificateholder will be treated as owning its pro rata undivided
interest in each of the Equipment Notes and any other property held by the
related Trust. Accordingly, each U.S. Certificateholder's share of interest paid
on the Equipment Notes will be taxable as ordinary income, as it is paid or
accrued, in accordance with such owner's method of accounting for U.S. federal
income tax purposes and a U.S. Certificateholder's share of premium, if any,
paid on the Equipment Notes will be treated as capital gain. Any amounts
received by a Trust from Interest Drawings under the relevant Liquidity Facility
will be treated for U.S. federal income tax purposes as having the same
characteristics as the payments they replace.
Each U.S. Certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding Trust as provided in Section 162 or 212 of the Code.
Certain fees and expenses, including fees paid to the Trustee and the Liquidity
Provider, will be borne by parties other than the Certificateholders. It is
possible that such fees and expenses will be treated as constructively received
by the Trust, in which event a U.S. Certificateholder will be required to
include in income and will be entitled to deduct its pro rata share of such fees
and expenses. If a U.S. Certificateholder is an individual, estate or trust, the
deduction for such holder's share of such fees or expenses will be allowed only
to the extent that all of such holder's miscellaneous itemized deductions,
including such holder's share of such fees and expenses, exceed 2% of such
holder's adjusted gross income. In addition, in the case of U.S.
Certificateholders who are individuals, certain otherwise allowable itemized
deductions will be subject generally to additional limitations on itemized
deductions under the applicable provisions of the Code.
EFFECT OF SUBORDINATION OF SUBORDINATED CERTIFICATEHOLDERS
If any Trust with respect to a Series are subordinated with respect to other
Trusts of the same Series (such Trusts being the "SUBORDINATED TRUSTS" and the
related Certificates being the "SUBORDINATED CERTIFICATES") receives less than
the full amount of the receipts of principal or interest paid with respect to
the Equipment Notes held by it (any shortfall in such receipts being the
"SHORTFALL AMOUNTS") because of the subordination of the Equipment Notes held by
such Trust under the Intercreditor Agreement, the corresponding owners of
beneficial interests in the Subordinated Certificates (the "SUBORDINATED
CERTIFICATEHOLDERS") would probably be treated for federal income tax purposes
as if they had (1) received as distributions their full share of such receipts,
(2) paid over to the relevant preferred class of Certificateholders an amount
equal to their share of such Shortfall Amount, and (3) retained the right to
reimbursement of such amounts to the extent of future amounts payable to such
Subordinated Certificateholders with respect to such Shortfall Amount.
Under this analysis, (1) Subordinated Certificateholders incurring a
Shortfall Amount would be required to include as current income any interest or
other income of the corresponding Subordinated Trust that was a component of the
Shortfall Amount, even though such amount was in fact paid to the relevant
preferred class of Certificateholders, (2) a loss would only be allowed to such
Subordinated Certificateholders when their right to receive reimbursement of
such Shortfall Amount became worthless (i.e., when it becomes clear that funds
will not be available from any source to reimburse such loss), and (3)
reimbursement of such Shortfall Amount prior to such a claim of worthlessness
would not be taxable income to Subordinated Certificateholders because such
amount was previously included in income. These results should not significantly
affect the inclusion of income for Subordinated Certificateholders on the
accrual method of accounting, but could accelerate inclusion of income to
Subordinated Certificateholders on the cash method of accounting by, in effect,
placing them on the accrual method.
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<PAGE>
ORIGINAL ISSUE DISCOUNT
The Equipment Notes may be issued with original issue discount ("OID"),
which may require U.S. Certificateholders to include such OID in gross income in
advance of the receipt or accrual of the stated interest on such Equipment
Notes. The Prospectus Supplement will state whether any Equipment Notes to be
held by the related Trust will be issued with OID. Generally, a holder of a debt
instrument issued with original issue discount that is not DE MINIMIS must
include such original issue discount in income for federal income tax purposes
as it accrues, in advance of the receipt of the cash attributable to such
income, under a method that takes into account the compounding of interest.
MARKET DISCOUNT
Generally, the term "market discount" means the excess of the remaining
principal amount of a Certificate over the holder's tax basis in such
Certificate immediately after its acquisition, subject to a DE MINIMIS
exception.
A holder who acquires a Certificate at a market discount will be required to
treat any gain realized on the disposition of such Certificate, except in
certain nonrecognition transactions, as ordinary income to the extent of the
market discount that accrued during the period that such holder held such
Certificate. Further, a disposition of a Certificate by gift (and in certain
other circumstances) could result in the recognition of market discount income,
computed as if such Certificate had been sold for its fair market value.
In the case of a partial principal payment on indebtedness subject to the
market discount rules, Section 1276 of the Code requires that such payment be
included in gross income as ordinary income to the extent such payment does not
exceed the market discount that has accrued during the period such indebtedness
was held. The amount of any accrued market discount later required to be
included in income upon a disposition, or subsequent partial principal payment,
will be reduced by the amount of accrued market discount previously included in
income.
Until Treasury regulations are issued, the explanatory Conference Committee
Report to the Tax Reform Act of 1986 (the "Conference Report") indicates that
holders of installment obligations (such as the Equipment Notes) with market
discount may elect to accrue market discount either (i) on the basis of a
constant interest rate or (ii) in the ratio to the total amount of remaining
market discount that the amount of stated interest paid in the accrual period
bears to the total amount of stated interest remaining to be paid on the
installment obligation as of the beginning of such period. Under Section 1277 of
the Code, if in any taxable year interest paid or accrued on indebtedness
incurred or continued to purchase or carry indebtedness subject to the market
discount rules exceeds the interest currently includable in income with respect
to such indebtedness, deduction of the excess interest must be deferred to the
extent of the market discount allocable to the taxable year. The deferred
portion of any interest expense will generally be deductible when such market
discount is included in income upon the sale or other disposition (including
repayment) of the indebtedness.
A holder of a Certificate acquired at a market discount may elect under
Section 1278 of the Code, in the manner provided by Revenue Procedure 92-67,
1992-34 I.R.B. 6, to include such discount in income as it accrues. The current
inclusion election applies to all market discount obligations acquired on or
after the first day to which the election applies, and may not be revoked
without the consent of the IRS. If a holder of a Certificate elects to include
market discount in income as it accrues, the foregoing rules of Section 1276 and
1277 of the Code with respect to the recognition of ordinary income on a sale or
other disposition of such Certificate and the deferral of interest deductions on
indebtedness related to such Certificate would not apply.
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<PAGE>
The IRS is authorized to issue regulations to implement the market discount
provisions of the Code. No such regulations have been issued or proposed. It is
impossible to anticipate what effect, if any, such regulations could have on the
Certificateholders.
AMORTIZABLE BOND PREMIUM
A U.S. Certificateholder should generally be considered to have acquired an
interest in an Equipment Note at a premium to the extent the purchaser's tax
basis allocable to such interest exceeds the remaining principal amount of the
Equipment Note allocable to such interest. In that event, a U.S.
Certificateholder who holds a Certificate as a capital asset may elect to
amortize that premium as an offset to interest income under Section 171 of the
Code with corresponding reductions in the U.S. Certificateholder's tax basis in
its Certificate. In the case of installment obligations (such as the Equipment
Notes), the Conference Report indicates a Congressional intent that amortization
will be in accordance with the same rules that will apply to the accrual of
market discount on installment obligations (see discussion above).
Under certain circumstances, amortizable bond premium may be determined by
reference to any early call date. It is unclear how the amortizable bond premium
rules apply where, as in the case with the Equipment Notes, the amount of
redemption premium payable on an early call date is unknown. In addition, the
treatment of any unamortized bond premium remaining at the time of an early call
is unclear. The U.S. Certificateholders are urged to consult their own tax
advisors as to the treatment of any amortizable bond premiums.
SALE OR OTHER DISPOSITION OF THE CERTIFICATES
Upon the sale, exchange or other disposition of a Certificate, a U.S.
Certificateholder generally will recognize capital gain or loss equal to the
difference between the amount realized on the disposition (other than any amount
attributable to accrued interest which will be taxable as ordinary income) and
the U.S. Certificateholder's adjusted tax basis in the related Equipment Notes
and any other assets held by the corresponding Trust. A U.S. Certificateholder's
adjusted tax basis will equal the holder's cost for its Certificate, plus any
accrued OID or market discount previously included in income or less any
amortized bond premium or any previously recognized losses or prior principal
payments. Any gain or loss generally will be capital gain or loss (other than
accrued market discount not previously included in income) if the Certificate
was held as a capital asset.
FOREIGN CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of principal
and interest on the Equipment Notes to, or on behalf of, any beneficial owner of
a Certificate that is not a U.S. Person (a "Non-U.S. Certificateholder") will
not be subject to U.S. federal withholding tax; PROVIDED, in the case of
interest, that (i) such Non-U.S. Certificateholder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of the stock of any Owner Participant or any transferee of such interest, (ii)
such Non-U.S. Certificateholder is not a controlled foreign corporation for U.S.
tax purposes that is related to an Owner Participant and (iii) either (A) the
Non-U.S. Certificateholder certifies, under penalties of perjury, that it is not
a U.S. Person and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Certificate certifies, under penalties of perjury,
that such statement has been received from the Non-U.S. Certificateholder by it
or by another financial institution and furnishes the payor with a copy thereof.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a Certificate or upon receipt of premium paid on an Equipment
Note by a Non-U.S. Certificateholder will not be subject to U.S. federal income
or withholding taxes if (i) such gain is not effectively connected with a U.S.
trade or
25
<PAGE>
business of the holder and (ii) in the case of an individual, such holder is not
present in the United States for 183 days or more in the taxable year of the
sale, exchange, retirement or other disposition or receipt.
BACKUP WITHHOLDING
Payments made on the Certificates and proceeds from the sale of Certificates
will not be subject to a backup withholding tax of 31% unless, in general, the
Certificateholder fails to comply with certain reporting procedures or otherwise
fails to establish an exemption from such tax under applicable provisions of the
Code.
ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, the
Certificates may, subject to certain legal restrictions, be purchased and held
by an employee benefit plan (a "PLAN") subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or an individual
retirement account or an employee benefit plan subject to section 4975 of the
Code. A fiduciary of a Plan must determine that the purchase and holding of a
Certificate is consistent with its fiduciary duties under ERISA and does not
result in a non-exempt prohibited transaction as defined in section 406 of ERISA
or section 4975 of the Code. Employee benefit plans which are governmental plans
(as defined in section 3(32) of ERISA) and certain church plans (as defined in
section 3(33) of ERISA) are not subject to Title I of ERISA or section 4975 of
the Code. The Certificates may, subject to certain legal restrictions, be
purchased and held by such plans.
PLAN OF DISTRIBUTION
Certificates may be sold to one or more underwriters for public offering and
sale by them or to investors or other persons directly or through one or more
dealers or agents. Any such underwriter, dealer or agent involved in the offer
and sale of the Certificates will be named in an applicable Prospectus
Supplement.
The Certificates may be sold at a fixed price or prices, which may be
changed, or from time to time at market prices prevailing at the time of sale,
at prices related to such prevailing market prices or at negotiated prices.
Dealer trading may take place in certain of the Certificates, including
Certificates not listed on any securities exchange. Northwest does not intend to
apply for listing of the Certificates on a national securities exchange.
Northwest also may, from time to time, authorize underwriters acting as
Northwest's agents to offer and sell the Certificates upon the terms and
conditions as shall be set forth in any Prospectus Supplement. In connection
with the sale of Certificates, underwriters may be deemed to have received
compensation from Northwest in the form of underwriting discounts or commissions
and may also receive commissions from purchasers of Certificates for whom they
may act as agent. Underwriters may sell Certificates to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions (which may be changed from
time to time) from the purchasers for whom they may act as agent.
If a dealer is used directly by Northwest in the sale of Certificates in
respect of which this Prospectus is delivered, such Certificates will be sold to
the dealer, as principal. The dealer may then resell such Certificates to the
public at varying prices to be determined by such dealer at the time of resale.
Any such dealer and the terms of any such sale will be set forth in the
Prospectus Supplement relating thereto.
Certificates may be offered and sold through agents designated by Northwest
from time to time. Any such agent involved in the offer or sale of the
Certificates in respect of which this Prospectus is delivered will be named in,
and any commissions payable by Northwest to such agent will be set forth in, the
applicable Prospectus Supplement. Unless otherwise indicated in the applicable
Prospectus Supplement, any such agent will be acting on a best efforts basis for
the period of its appointment.
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<PAGE>
Offers to purchase Certificates may be solicited directly by Northwest and
sales thereof may be made by Northwest directly to institutional investors or
others who may be deemed to be underwriters within the meaning of the Securities
Act with respect to any resale thereof. The terms of any such sales will be
described in the Prospectus Supplement relating thereto. Except as set forth in
the applicable Prospectus Supplement, no director, officer or employee of
Northwest or NWA Corp. will solicit or receive a commission in connection with
direct sales by Northwest of the Certificates, although such persons may respond
to inquiries by potential purchasers and perform ministerial and clerical work
in connection with any such direct sales.
Any underwriting compensation paid by Northwest to underwriters, dealers or
agents in connection with the offering of Certificates, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in an applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Certificates may be deemed
to be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Certificates may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements with Northwest, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act, and to reimbursement by
Northwest for certain expenses.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, NWA Corp. and its subsidiaries in the ordinary course of business.
If so indicated in an applicable Prospectus Supplement and subject to
existing market conditions, Northwest will authorize dealers acting as
Northwest's agents to solicit offers by certain institutions to purchase
Certificates at the public offering price set forth in such Prospectus
Supplement pursuant to Delayed Delivery Contracts ("Contracts") providing for
payment and delivery on the date or dates stated in such Prospectus Supplement.
Each Contract will be for an amount not less than, and the aggregate principal
amount of Certificates sold pursuant to Contracts shall not be less nor more
than, the respective amounts stated in such Prospectus Supplement. Institutions
with whom Contracts, when authorized, may be made include commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions and other institutions, but will in all cases be subject
to the approval of Northwest. Contracts will not be subject to any conditions
except the purchase by an institution of the Certificates covered by its
Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject. A
commission indicated in the applicable Prospectus Supplement will be granted to
underwriters and agents soliciting purchases of Certificates pursuant to
Contracts accepted by Northwest. Agents and underwriters will have no
responsibility in respect of the delivery or performance of Contracts.
If an underwriter or underwriters are utilized in the sale of any
Certificates, the applicable Prospectus Supplement will contain a statement as
to the intention, if any, of such underwriters at the date of such Prospectus
Supplement to make a market in the Certificates. No assurances can be given that
there will be a market for the Certificates.
The place and time of delivery for the Certificates in respect of which this
Prospectus is delivered will be set forth in the applicable Prospectus
Supplement.
LEGAL OPINIONS
Unless otherwise indicated in the applicable Prospectus Supplement, the
validity of the Certificates and the Parent Guaranty will be passed upon for
Northwest by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York. Unless otherwise indicated in
the applicable Prospectus Supplement, Simpson Thacher & Bartlett will rely on
the opinion of counsel for the Trustee as to certain matters relating to the
authorization, execution and delivery of such Certificates by,
27
<PAGE>
and the valid and binding effect thereof on, such Trustee. Certain federal
income tax matters will be passed upon by Cadwalader, Wickersham & Taft, New
York, New York, special tax counsel to Northwest.
EXPERTS
The consolidated financial statements and schedule of Northwest Airlines
Corporation, appearing or incorporated by reference in Northwest Airlines
Corporation's Annual Report (Form 10-K) for the year ended December 31, 1996,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included or incorporated by reference therein and
incorporated herein by reference. Such consolidated financial statements and
schedule are incorporated herein by reference in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
28
<PAGE>
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No dealer, salesperson or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by Northwest
Airlines Corporation, Northwest Airlines, Inc. or any Underwriters. This
Prospectus Supplement and the Prospectus do not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction. Neither the delivery of this Prospectus Supplement or the
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time subsequent
to the date hereof or that there has been no change in the affairs of Northwest
Airlines Corporation or Northwest Airlines, Inc. since such date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
Prospectus Supplement
Summary of Terms............................... S-5
Risk Factors................................... S-26
The Company.................................... S-32
Use of Proceeds................................ S-35
Description of the Certificates................ S-35
Description of the Liquidity Facilities........ S-50
Description of the Intercreditor Agreement..... S-54
Description of the Aircraft and the
Appraisals................................... S-57
Description of the Equipment Notes............. S-58
Certain United States Federal Income Tax
Consequences................................. S-80
Certain Massachusetts and Connecticut Taxes.... S-81
ERISA Considerations........................... S-82
Underwriting................................... S-84
Notice to Canadian Residents................... S-85
Legal Matters.................................. S-86
Experts........................................ S-86
Index of Certain Defined Terms................. Appendix I
Summary of Aircraft Appraisal.................. Appendix II
Appendix
Equipment Notes Principal Payment Schedule..... III
Prospectus
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
The Company.................................... 3
General Outline of Trust Structure............. 3
Use of Proceeds................................ 3
Ratio of Earnings to Fixed Charges............. 4
Description of the Certificates................ 4
Description of the Equipment Notes............. 17
United States Federal Income Tax
Consequences................................. 22
ERISA Considerations........................... 26
Plan of Distribution........................... 26
Legal Opinions................................. 27
Experts........................................ 28
</TABLE>
Until , 1997 (90 days after the commencement of the offering) all
dealers effecting transactions in the Certificates, whether or not participating
in this distribution, may be required to deliver a Prospectus Supplement and
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus Supplement and Prospectus when acting as underwriters with respect to
their unsold allotments or subscriptions.
$195,809,000
Northwest Airlines
Pass Through Certificates
Series 1997-1
[LOGO]
PROSPECTUS SUPPLEMENT
Credit Suisse First Boston
Lehman Brothers
Morgan Stanley Dean Witter
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