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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-23642
NORTHWEST AIRLINES CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 95-4205287
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) No.)
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2700 LONE OAK PARKWAY, EAGAN, MINNESOTA 55121
(Address of principal executive offices)
(612) 726-2111
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE THE NASDAQ NATIONAL MARKET
PREFERRED STOCK PURCHASE RIGHTS THE NASDAQ NATIONAL MARKET
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 27, 1998 was $4.6 billion.
As of February 27, 1998, there were 98,146,317 shares of the registrant's Class
A Common Stock and 11,837 shares of the registrant's Class B Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information from
the registrant's Proxy Statement for its Annual Meeting of Stockholders to be
held on April 24, 1998.
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PART I
ITEM 1. BUSINESS
Northwest Airlines Corporation ("NWA Corp." and, together with its
subsidiaries, the "Company") was incorporated in February 1989 under the laws of
the State of Delaware. Northwest Airlines, Inc. ("Northwest"), the principal
wholly-owned indirect subsidiary of NWA Corp., operates the world's fourth
largest airline (as measured by 1997 revenue passenger miles ("RPMs")) and is
engaged principally in the 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 trans-Atlantic alliance with KLM Royal Dutch Airlines ("KLM") which operates
through a hub in Amsterdam and beginning in 1998, a global alliance with
Continental Airlines, Inc. ("Continental"). When fully implemented, the new
alliance will result in a domestic presence as large as any other U.S. airline,
access to Latin America and an increased Pacific presence.
OPERATIONS AND ROUTE NETWORK
Northwest operates substantial domestic and international route networks and
directly serves more than 150 cities in 18 countries on the continents of North
America, Asia and Europe. Northwest had more than 54 million enplanements and
flew over 72 billion RPMs in 1997. Northwest began operations in 1926.
Through the use of domestic and international alliances and code-share
agreements, Northwest is able to expand its network and provide greater service
to its customers while avoiding the financial and human costs of acquistions. By
coordination of scheduling, product development and marketing, Northwest,
together with its alliance partners, will be able to provide their customers
with a seamless global travel network.
DOMESTIC SYSTEM
Operating revenues from Northwest's domestic operations were $6.45 billion
in 1997, $6.26 billion in 1996 and $5.64 billion in 1995. Northwest's domestic
route authority from the U.S. Department of Transportation (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 44 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 partner ("Northwest
Airlink") together serve over 125 cities from Detroit. In 1997, 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 the Company's
largest international gateway from the continental U.S., offering non-stop
flights to 17 foreign cities, including 17 non-stop flights to Japan per week.
MINNEAPOLIS/ST. PAUL. Northwest and Northwest Airlink together serve over
135 cities from Minneapolis/St. Paul. In 1997, Northwest enplaned approximately
78% of originating jet passengers from this hub, while the next largest
competitor enplaned approximately 5%. Minneapolis/St. Paul is the tenth largest
origination/destination hub in the U.S.
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MEMPHIS. Northwest and Northwest Airlink together serve over 85 cities from
Memphis. In 1997, Northwest enplaned approximately 61% of originating jet
passengers from this hub, while the next largest competitor enplaned
approximately 20%.
MEXICAN/CARIBBEAN/CANADIAN ROUTES. Northwest, together with Northwest
Airlink, currently operates service to eight cities in Mexico, 15 cities in
Canada and five cities in the Caribbean.
CONTINENTAL. On January 25, 1998, Northwest and Continental entered into an
agreement providing for a global strategic operating alliance. The thirteen year
alliance, when fully implemented, will connect the two carriers' networks and
will include code-sharing, frequent flyer program reciprocity, cooperation
between Continental and KLM and other cooperative activities. Full
implementation of the alliance agreement is contingent on approval under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, approval of
the Department of Transportation and the successful conclusion of negotiations
with Northwest's pilots' union. Continental is the fifth largest U.S. airline
(as measured by 1997 revenue passenger miles) serving 191 airports worldwide and
operates its domestic route system primarily through its domestic hubs at
Newark, Houston Intercontinental and Cleveland. Northwest and Continental have
complementary systems, with overlap on only eight routes. Northwest's and
Continental's combined network will be comparable in magnitude to United Air
Lines, Inc. ("United") and American Airlines, Inc. and will offer more North
American daily jet departures than any other U.S. airline.
INTERNATIONAL SYSTEM
Operating revenues from foreign operations were approximately $3.42 billion
in 1997, $3.39 billion in 1996 and $3.17 billion in 1995. Northwest operates its
international routes pursuant to route certificates 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 480 weekly flights.
Northwest's Pacific operations are concentrated at its Tokyo hub. 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 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, Guam and Saipan. Northwest also
provides extensive service to Osaka and currently operates 49 weekly departures
from Osaka. As of April 1, 1998, weekly departures from Osaka will increase to
56 and effective June 2, 1998, Northwest will begin non-stop service between
Detroit and Nagoya, Japan. Northwest currently provides eight flights each week
to China, including four 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 operates non-stop service from Minneapolis/St.
Paul to Hong Kong.
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 and United are the only
U.S. passenger carriers that have fifth freedom rights for Japan. On March 14,
1998, the U.S. and Japan signed a Memorandum of Understanding ("MOU"). Among
other things, the MOU (1) confirms Northwest's "fifth freedom" rights between
Japan and other Asian destinations, (2) provides unlimited opportunities to fly
between any point in the U.S. and any point in Japan, (3) allows certain
code-sharing
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rights, (4) provides opportunities for competitive pricing, (5) provides one
additional Japanese passenger airline and one additional Japanese all-cargo
airline with certificate authority issued pursuant to the 1952 aviation
agreement, and (6) permits expanded frequencies for U.S. and Japan airlines not
holding certificate authority issued pursuant to the 1952 aviation agreement. In
addition, the U.S. has received assurances that Northwest will retain all 316 of
its weekly takeoff and landing slots at Tokyo's slot-constrained Narita
International Airport, along with Northwest's allocation of 114 slots at Osaka's
Kansai Airport and will have access to new slots as they become available. As a
result of the MOU, Northwest expects its U.S. and Japan airline competitors to
add capacity between the U.S. and Japan. Northwest expects to respond to the
increased competition and to take advantage of its affirmed and additional
rights resulting from the MOU.
ATLANTIC. Northwest and KLM presently operate their trans-Atlantic flights
pursuant to a joint venture alliance. Through this alliance, Northwest has
expanded its presence in the trans-Atlantic market by operating joint service
between 12 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.-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. Pursuant to
conditions imposed by the DOT in 1993 at the time the DOT granted antitrust
immunity, Northwest and KLM re-submitted in January 1998 their alliance
agreement to the DOT. The European Commission ("EC") has commenced a review of
all trans-Atlantic airline alliances, including Northwest and KLM. The EC has
under consideration imposing certain regulatory conditions that may restrict the
areas of permissable cooperation.
Code-sharing has been implemented on flights to 31 European, eight Middle
Eastern, seven African, three Asian and over 180 U.S. cities. Northwest began
service to Mumbai and Delhi, India effective October, 1997 from Amsterdam.
Northwest and KLM also coordinate pricing, scheduling, product development and
marketing. In addition, KLM has a memorandum of understanding with Alitalia that
provides hubbing opportunities in southern Europe and greater European scope.
Northwest and KLM are parties to a Commercial Cooperation and Integration
Agreement and in September 1997, expanded their alliance by entering into an
enhanced commercial and operational alliance providing for a minimum term of 13
years. Under the enhanced alliance agreement, the two airlines will expand their
current areas of cooperation to include services between Europe and Canada,
India and Mexico. In addition, the two companies plan to increase the level of
cooperation between their respective cargo divisions and will explore extending
their alliance to include additional partners and to further develop strategies
for joint marketing and product development. In February 1998, a leading
aviation trade magazine, AIR TRANSPORT WORLD, awarded its "1997 Airline of the
Year" honor to the Northwest/KLM alliance.
CONTINENTAL. Through the Company's planned thirteen year alliance with
Continental which will include code-sharing, Northwest will increase its Latin
America presence. Continental flies to over 55 international destinations
including seven cities in South America and offers additional connecting service
through alliances with foreign carriers. Continental provides more service to
Mexico and Central America than any other U.S. airline. Continental also owns
the majority interest in and maintains a code-sharing agreement with CMI, the
principal air carrier in the Micronesian Islands, with hub operations based on
the island of Guam.
OTHER OPERATIONS
CARGO. Northwest, utilizing eight Boeing 747 aircraft, is the world's tenth
largest cargo air carrier (based on 1996 freight ton miles) and one of only two
U.S. passenger airlines to operate a dedicated all-
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cargo freighter fleet. Cargo accounts for almost 8% of the Company's operating
revenues, and the majority of its cargo revenues are of Asian origination or
destination. Through its Tokyo and Anchorage cargo hubs, Northwest serves most
major air freight markets between the U.S. and the Pacific market. In 1997,
Northwest Cargo introduced a more efficient flight schedule which eliminated
domestic stops less integral to the cargo operation and customer requirements
while improving connections with all important U.S. destinations. This new
schedule increased peak season flying time by approximately 10%.
AIRLINK AND OTHER PARTNERSHIPS. Northwest has marketing agreements with two
regional carriers: Mesaba Aviation, Inc. 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 NWA Corp., purchased all
of the outstanding stock of Express Airlines I, Inc. and an affiliate.
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 and/or marketing agreements with Hawaiian Airlines, Pacific Island
Aviation, Aloha Airlines, Garuda Indonesia, Japan Air Systems and Jet Airways
Private Ltd. 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 and Midwest Express Airlines to
feed its domestic and trans-Atlantic route network and with Eurowings, KLM UK
and Braathens S.A.F.E., which further enhance Northwest's service to Europe.
OTHER ACTIVITIES
NORTHWEST AEROSPACE TRAINING CORPORATION. Northwest Aerospace Training
Corporation ("NATCO") provides training and aircraft simulation services to
pilots for Northwest, other airlines, governments and corporations. The NATCO
training facility is among the world's largest aircraft simulation facilities,
with 24 full-flight simulators and training devices. In 1997, 40% of NATCO's
revenues came from third parties. NATCO's customer base includes both domestic
and international airlines.
MLT INC. MLT Inc. ("MLT") is among the largest vacation wholesale companies
in the U.S. In addition to its MLT Vacations charter program, MLT markets and
supports Northwest's WorldVacation packages and offers leisure fares to several
domestic and international destinations, primarily on Northwest.
NORTHWEST PARS, INC. Northwest PARS, Inc. holds a 32% limited partnership
interest in WORLDSPAN. WORLDSPAN operates and markets a computer reservations
and passenger processing system ("CRS") for the travel industry. Delta Air
Lines, Inc., Trans World Airlines, Inc. and ABACUS Distributions Systems Pte Ltd
own 38%, 25% and 5% of WORLDSPAN, respectively.
INDUSTRY CONDITIONS AND COMPETITION
The airline industry is both cyclical and seasonal in nature. The demand for
air transportation is closely related to general U.S. and worldwide economic
conditions. Due to seasonal fluctuations, the Company's operating results for
any interim period are not necessarily indicative of those for the entire year.
The Company's second and third quarter operating results have historically been
more favorable due to increased leisure travel on domestic and international
routes during the spring and summer months.
Since the passage of the Airline Deregulation Act of 1978, the airline
industry has been characterized by strong competition and industry
consolidation. A number of airlines have filed for bankruptcy and/or ceased
operations. Airlines offer discount fares, a wide range of schedules, frequent
flyer mileage programs and ground and in-flight services as competitive tools to
attract passengers and increase market
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share. Because of the relative ease with which U.S. carriers can enter new
markets, Northwest's domestic service is subject to potential increases in
competition from other air carriers, the extent and effect of which cannot be
predicted.
The airline industry is subject to substantial price competition as U.S.
airlines are free to determine domestic pricing policies without government
regulation. Price competition has accelerated the efforts of airline management
to reduce costs and improve productivity. Northwest's pricing decisions are
influenced by, among other things, competition from other airlines. Northwest
utilizes yield management programs that are designed to manage the number of
discount seats offered on each flight in an effort to maximize revenues.
Northwest expects to continue periodic discount fare programs in order to
attract discretionary customers who might not otherwise travel at normal fare
levels. International fares are subject to the jurisdiction of the governments
of the foreign countries being served and the DOT. However, the Company
generally has substantial discretion with respect to its international pricing
policies.
Northwest has developed strategies that are designed to utilize the
Company's strategic assets to its competitive advantage. These strategies focus
on providing reliable, convenient and consistent air transportation. In
addition, the Company's frequent flyer program, targeted fare promotions and
customer service improvements are designed to maintain and improve its
competitive position.
WORLDSPAN COMPUTER RESERVATION SYSTEM
The large majority of travel agencies in the U.S. obtain their airline
travel information through access to a CRS. A CRS, which is typically owned or
operated by an airline or airlines, is used by travel agents to make airline,
hotel and car reservations and to issue airline tickets. Northwest's presence
through WORLDSPAN in the CRS market gives it a voice in the distribution of its
airline product. Based on the number of passenger segments sold and the number
of agency locations, WORLDSPAN ranks third in market share among travel agents
in the U.S. WORLDSPAN is subject to CRS regulations promulgated by the DOT and
the European Economic Community.
MARKETING
Consistent with the experience of other carriers, approximately 83% of
ticket sales for travel on Northwest are sold by travel agents. Travel agents
generally receive commissions on sales of tickets. Airlines often pay additional
commissions in connection with special incentive programs.
In 1996, Northwest introduced electronic ticketing for its flights between
Minneapolis/St. Paul and Chicago's O'Hare Airport. During 1996, Northwest's
entire U.S. and Canadian route system became "E-ticket capable" and its
acceptance in these markets is approaching 40%. The Company plans to expand
electronic ticketing to Japan and Europe in the Spring of 1998. In addition, the
recent introduction of electronic ticketing for frequent flyer travel awards has
been very successful with a significant percentage of frequent flyers choosing
electronic ticketing.
In 1997, Northwest became the first major airline to deploy compact
self-service kiosks to enhance its electronic ticketing services. These
electronic service centers enable E-Ticket customers to obtain boarding passes,
make current-day flight or seat changes, obtain WORLDPERKS upgrades and, at some
kiosks, check their own bags. Electronic service centers have been installed at
Detroit, Minneapolis/St. Paul and Memphis and also at Chicago /O'Hare,
Milwaukee, San Francisco and Seattle. Plans call for electronic service centers
to be installed in an additional 12 cities in 1998.
Northwest offers CyberSaver fares through its web site on the World Wide Web
(www.nwa.com). These fares offer travelers the opportunity to realize deep
discounts for weekend travel on selected domestic routes. Northwest also allows
customers to make direct bookings in the U.S. from its web site. In 1998,
Northwest, in conjunction with KLM, will expand booking capability on its web
site for sales made in Japan, Netherlands, Canada, United Kingdom, Germany and
France.
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FREQUENT FLYER PROGRAM
Northwest operates a frequent flyer marketing program known as "WORLDPERKS"
under which mileage credits are earned by flying on Northwest or participating
airlines and by using the services of participating bank credit cards, hotels
and car rental firms. Northwest sells mileage credits to the other companies
participating in the program. The program was designed to retain and increase
the business of frequent travelers by offering incentives for their continued
patronage.
The WORLDPERKS program is based on a mileage banking system (pursuant to
which miles earned are accumulated in an account for each member). Mileage
credits can be redeemed for free or upgraded travel on Northwest and other
participating airlines or for other travel industry awards. Additional features
include the use of seasonal awards based on peak/off-peak period travel and a
two-tier award structure.
Northwest accounts for its frequent flyer obligation on the accrual basis
using the incremental cost method. Northwest includes food and beverage, fuel,
insurance, security, miscellaneous claims and WORLDPERKS service center expense
in its incremental cost calculation. The incremental costs do not include any
contribution to overhead or profit. Food, beverage and other costs are based on
average cost per passenger for the current twelve-month period. The incremental
fuel unit cost per passenger is based on engineering formulas that determine the
average fuel cost per pound carried. Average year-to-date fuel price and
estimated average weight of each added onboard passenger and luggage are
factored into the incremental cost computation and converted to a rate per
passenger per award.
The number of estimated travel awards outstanding at December 31, 1997, 1996
and 1995 was approximately 5,123,000, 4,536,000 and 3,853,000 awards,
respectively (based on an average of 23,900 miles per award for domestic and
45,500 miles per award for international travel). Northwest estimated its
recorded liability based on 4,198,000, 3,642,000 and 3,001,000 of these awards,
respectively. The estimated liability excludes accounts that have never attained
the lowest travel award level and awards that are expected to be redeemed for
upgrades or are not expected to be redeemed at all, and includes an estimate for
partially earned awards on accounts that previously earned an award. The number
of estimated travel awards used for travel on Northwest during the years ended
December 31, 1997, 1996 and 1995 was approximately 1,111,000, 1,025,000 and
1,213,000, respectively. These awards represented an estimated 5.8%, 5.5% and
6.0% of Northwest's total RPMs for each such year, respectively. Northwest
believes displacement of revenue passengers is minimal based on the low ratio of
WORLDPERKS award usage to revenue passenger miles, the Company's ability to
manage frequent flyer inventory through seat allocations and blackout dates, and
program incentives to travel during off-peak periods.
AIRCRAFT FUEL
Northwest's worldwide aircraft fuel requirements are met by approximately 50
different suppliers. Northwest has contracts with these suppliers, the terms of
which vary as to price, payment terms, quantities and duration. Northwest also
makes purchases of fuel based on price and availability. In order to provide a
measure of control over price and supply, Northwest trades and ships fuel and
maintains fuel storage facilities to support its flight operations. Petroleum
product prices, including jet fuel, are primarily driven by crude oil costs. The
market's alternate uses of crude oil to produce petroleum products other than
jet fuel (e.g., heating oil and gasoline) as well as the adequacy of refining
capacity and other supply constraints affect the price and availability of jet
fuel. Major changes in the price or availability of fuel could materially affect
the financial results of the Company.
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The following table summarizes Northwest's fuel consumption and costs for
the years ended December 31, 1997, 1996 and 1995:
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YEARS ENDED DECEMBER 31
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1997 1996 1995
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Gallons consumed (in millions)................................... 1,996 1,945 1,846
Total costs (in millions)(1)..................................... $ 1,295 $ 1,307 $ 1,027
Average cost per gallon (cents).................................. 64.86 67.21 55.66
Percentage of operating expenses................................. 14.3% 14.8% 12.6%
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(1) Excludes taxes and into-plane fees.
REGULATION
GENERAL. Four of the nation's airports, Chicago's O'Hare, New York's
LaGuardia and Kennedy International and Washington's National airports, have
been designated by the Federal Aviation Administration (the "FAA") as "high
density traffic airports", and the number of take-offs and landings at such
airports ("slots") have been limited during certain peak demand time periods.
Currently the FAA permits the buying, selling, trading or leasing of these
slots, subject to certain restrictions. The DOT has the authority to regulate
deceptive and unfair competitive practices and maintains jurisdiction over
international route authorities and certain consumer protection matters, such as
advertising, denied boarding compensation, baggage liability and CRSs. The DOT
has under consideration using its authority to regulate unfair and deceptive
competitive practices to establish rules governing the extent to which the large
network airlines like Northwest can respond competitively to the fares and
schedules of the "new entrance airlines."
With respect to foreign air transportation, the DOT must approve agreements
between air carriers, including code-sharing agreements, and may grant antitrust
immunity for those agreements. The DOT must also approve the transfer between
U.S. carriers of international route certificates. Northwest's rights to operate
to foreign countries, including Japan and other countries in the Pacific, are
governed by aviation agreements between the U.S. and the respective foreign
countries. Many aviation agreements permit an unlimited number of carriers to
operate between the U.S. and the respective foreign country, while other
aviation agreements limit the number of carriers and flights on a given
international route. From time to time, the U.S. or its foreign country
counterpart may seek to renegotiate or cancel an aviation agreement. In the
event an aviation agreement is amended or canceled, such a change could
adversely affect Northwest's ability to maintain and/or expand air service to
the foreign country.
Operations to and from foreign countries are subject to the applicable laws
and regulations of those countries. There are restrictions on the number and
timing of operations at certain international airports served by Northwest,
including Tokyo and Osaka. Additionally, slots for international flights are
subject to certain restrictions on use and transfer.
LABOR. The Railway Labor Act ("RLA") governs the labor relations of
employers and employees engaged in the airline industry. Comprehensive
provisions are set forth in the RLA establishing the right of airline employees
to organize and bargain collectively along craft or class lines and imposing a
duty upon air carriers and their employees to exert every reasonable effort to
make and maintain collective bargaining agreements. The RLA contains detailed
procedures that must be exhausted before a lawful work stoppage may occur.
Pursuant to the RLA, Northwest has collective bargaining agreements with six
domestic unions representing 11 separate employee groups. For current status of
agreements, see "Item 1. Business--Employees." In addition, Northwest has
agreements with four unions representing its employees in countries throughout
Asia, which agreements are not subject to the RLA.
NOISE ABATEMENT. The Airport Noise and Capacity Act of 1990 ("ANCA")
requires the phaseout of Stage II aircraft operations (as defined in Part 36 of
the Federal Aviation Regulations) by December 31,
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1999, subject to certain exceptions. The FAA regulations which implement the
ANCA require carriers to modify or reduce the number of Stage II aircraft
operated by 75% by the end of 1998 and 100% by the end of 1999. Alternatively, a
carrier could satisfy these compliance requirements by operating a fleet that is
at least 75% Stage III by the end of 1998 and 100% Stage III by the end of 1999.
As of December 31, 1997, Northwest operated 272 Stage III aircraft and 133 Stage
II aircraft. Northwest is currently in compliance and has plans in place to
enable it to meet the future year-end operational requirements.
The ANCA also recognizes the right of airport operators with special noise
problems to implement local noise abatement procedures as long as such
procedures do not interfere unreasonably with the interstate and foreign
commerce of the national air transportation system. The ANCA generally requires
FAA approval of local noise restrictions on Stage II aircraft and establishes a
regulatory notice and review process for local restrictions on Stage II aircraft
first proposed after October 1990. As a result of litigation and pressure from
airport area residents, airport operators have taken local actions over the
years to reduce aircraft noise. These actions include restrictions on nighttime
operations, restrictions on frequency of aircraft operations and various
operational procedures for noise abatement. While to date Northwest has
sufficient operational and scheduling flexibility to accommodate current local
noise restrictions, its operations could be adversely affected if
locally-imposed regulations become more restrictive or widespread.
SAFETY. The FAA has jurisdiction over aircraft maintenance and operations,
including equipment, dispatch, communications, training, flight personnel and
other matters affecting air safety. To ensure compliance with its regulations,
the FAA requires all U.S. airlines to obtain operating, airworthiness and other
certificates which are subject to suspension or revocation for cause. During the
most recent National Aviation Safety Inspection Program audit in 1995, Northwest
received an exceptional report from the FAA.
The Company's aircraft require various levels of maintenance or "checks" and
periodically undergo complete overhauls. Maintenance efforts are monitored
closely by the FAA, with FAA representatives present at the Company's
maintenance facilities. The FAA has issued several Airworthiness Directives
("ADs") which mandate changes to an air carrier's maintenance program for older
aircraft. These ADs (which include structural modifications to certain aircraft)
were issued to ensure that the oldest portion of the nation's transport aircraft
fleet remains airworthy. The Company is currently, and expects to remain, in
compliance with all applicable requirements under the FAA-issued ADs.
A combination of FAA and Occupational Safety and Health Administration
regulations on both the federal and state levels apply to all of Northwest's
ground-based operations.
ENVIRONMENTAL. The Company is subject to regulation under various
environmental laws and regulations, which are administered by numerous state and
federal agencies, including the Clean Air Act, the Clean Water Act and
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"). In addition, many state and local governments have adopted
environmental laws and regulations to which the Company's operations are
subject.
Federal and state laws and regulations impose certain requirements for the
upgrading of underground storage tanks ("USTs"). These requirements, including
upgrading of USTs to new construction standards and installation with leak
detection systems, are phased into effect based on the age, construction and use
of existing tanks. Northwest operates a number of underground and above-ground
storage tanks throughout its system, which are primarily used for the storage of
fuel, deicing fluids and solvents. A program for the removal or upgrading of
USTs and remediation of any contamination from such USTs has been ongoing since
1989.
The Massachusetts Department of Environmental Protection has identified a
number of contaminated sites at Boston's Logan Airport. Northwest has been
identified as a potentially responsible party under Massachusetts law.
9
<PAGE>
Management believes that neither compliance with the federal and state UST
laws and regulations nor the remediation of the site described above will have a
material adverse effect on the Company's financial statements when taken as a
whole.
CIVIL RESERVE AIR FLEET PROGRAM. Northwest is a participant in the Civil
Reserve Air Fleet Program pursuant to which Northwest has agreed to make
available, during the period beginning October 1, 1998 and ending September 30,
1999, 33 747 aircraft and 36 DC10 aircraft for use by the U.S. military under
certain stages of readiness related to national emergencies.
EMPLOYEES
As of December 31, 1997, the Company had approximately 49,000 full-time
equivalent employees of which approximately 2,600 were foreign nationals working
in Asia and Europe. Approximately 90% of the Company's employees are represented
by unions. Collective bargaining agreements provide standards for wages, hours
of work, working conditions, settlement of disputes and other matters. The major
agreements with domestic employees became amendable on various dates as follows:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
FULL-TIME
EQUIVALENT
EMPLOYEES AMENDABLE
EMPLOYEE GROUP COVERED UNION DATE
- ------------------------------------------- ------------- ------------------------------------------- ----------
<S> <C> <C> <C>
Pilots..................................... 5,800 Air Line Pilots Association International 10/31/96
Flight Attendants.......................... 9,400 International Brotherhood of Teamsters, 08/02/96
Chauffeurs, Warehousemen & Helpers of
America
Clerks and Agents.......................... 10,100 International Association of Machinists & 10/03/96
Aerospace Workers ("IAM")
Mechanics and Related Employees............ 9,100 IAM 10/03/96
Equipment Service Employees and
Stock Clerks............................... 6,700 IAM 10/03/96
</TABLE>
As previously discussed, the above agreements are governed by the RLA.
Pursuant to the RLA, each agreement became amendable at the expiration of its
stated term, and continues in effect while the parties pursue agreement on a new
contract. Contract negotiations with each union commenced in late 1996. In
addition to the direct negotiation phase, the RLA also provides for a period of
mediation, potential arbitration of unresolved issues, and a 30-day "cooling
off" period before either party can resort to self help.
For further discussion regarding the status of the collective bargaining
agreements and the expiration of the wage savings agreements with each of the
Company's domestic unions, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
10
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain of the statements made in this section and elsewhere in this report
are forward-looking and are based upon information available to the Company on
the date hereof. The Company through its management may also from time to time
make oral forward-looking statements. In connection with the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the Company
is hereby identifying important factors that could cause actual results to
differ materially from those contained in any forward-looking statement made by
or on behalf of the Company. Any such statement is qualified by reference to the
following cautionary statements.
It is not reasonably possible to itemize all of the many factors and
specific events that could affect the outlook of an airline operating in the
global economy. Some factors that could significantly impact expected capacity,
load factors, revenues, expenses and cash flows include the airline pricing
environment, fuel costs, labor negotiations both at the Company and other
carriers, low-fare carrier expansion, capacity decisions of other carriers,
actions of the U.S. and foreign governments, foreign currency exchange rate
fluctuation, inflation, the general economic environment in the U.S. and other
regions of the world and other factors discussed herein.
Developments in any of these areas, as well as other risks and uncertainties
detailed from time to time in the Company's Securities and Exchange Commission
filings, could cause the Company's results to differ from results that have been
or may be projected by or on behalf of the Company. The Company cautions that
the foregoing list of important factors is not exclusive. The Company undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. These
statements deal with the Company's expectations about the future and are subject
to a number of factors that could cause actual results to differ materially from
the Company's expectations.
ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
The Company operated a fleet of 405 aircraft at December 31, 1997,
consisting of 326 narrow-body and 79 wide-body aircraft. The diversity of the
fleet accommodates both the Company's domestic hub-and-spoke system and its
international routes and enhances the Company's ability to more efficiently
match its aircraft to its route network requirements.
As of December 31, 1997, 285 aircraft were owned and 120 aircraft were
leased. The Company currently operates 50 (of which 22 are owned) Airbus A320
aircraft with an average age of 6.1 years. The Company's fleet of Boeing
aircraft includes 40 (of which 29 are owned) 727 aircraft with an average age of
18.5 years, 48 (of which 15 are owned) 757 aircraft with an average age of 8.3
years, 35 (of which 20 are owned) 747 aircraft with an average age of 16.4 years
and eight (of which five are owned) 747 freighters with an average age of 17.9
years. The Company's fleet of McDonnell Douglas aircraft includes 180 (of which
158 are owned) DC9 aircraft with an average age of 27.3 years, 36 (of which 28
are owned) DC10 aircraft with an average age of 23.5 years and eight (all of
which are owned) MD-80 aircraft with an average age of 15.5 years.
Although the DC9 and DC10 average aircraft age exceeds twenty years, these
aircraft have considerable remaining technological life, based upon the cycle
life (capacity for number of landings) expected by the manufacturer and other
factors. The Company also believes that these aircraft have economic value for
the Company given its route network and maintenance programs. The Company has
adopted programs to hushkit and modify 173 DC9 aircraft. As a result of these
programs, the Company estimates these aircraft could fly on average
approximately 15 additional years beyond 1997 based upon the manufacturer's
expected cycle life for such aircraft and their projected annual utilization by
Northwest. The Company estimates that its DC10 aircraft fleet could fly on
average approximately 23 additional years beyond 1997
11
<PAGE>
based upon the manufacturer's expected cycle life for such aircraft and their
projected annual utilization by Northwest.
For further information related to the Company's aircraft leases and
commitments see Notes E, K and O to Consolidated Financial Statements included
within Item 8. Consolidated Financial Statements and Supplementary Data.
OTHER PROPERTY AND EQUIPMENT
Northwest's primary offices are located at or near the Minneapolis/St. Paul
International Airport. The Company owns a 160-acre site east of the
Minneapolis/St. Paul International Airport containing the Company's corporate
offices. Additional owned buildings include reservation centers in Baltimore,
Detroit, Tampa and Chisholm, Minnesota; a data processing center in Eagan,
Minnesota; and several office buildings. The Company owns property in Tokyo,
including a 1.3-acre site in downtown Tokyo and a 33-acre land parcel, 512-room
hotel and flight kitchen located near Tokyo's Narita International Airport.
Northwest leases the majority of its airport facilities, support services
buildings and sales and reservations offices. Expiration dates on these leases
range from 1998 to 2027. The Company operates reservations centers in or near
Honolulu, Los Angeles, New York City and Seattle. Maintenance bases under
operating leases are located in Minneapolis/St. Paul, Atlanta, Georgia, and
Duluth, Minnesota. The Company also operates approximately 50 city ticket
offices. In certain cases, the Company has constructed a facility on leased land
which reverts to the lessor upon expiration of the lease. These facilities
include cargo buildings in Anchorage, Boston, Los Angeles, San Francisco and
Honolulu; support buildings at the Minneapolis/St. Paul International Airport;
and a flight kitchen and line maintenance hangar in Seattle. Northwest opened a
new international departures facility in Detroit in September 1997 and is
managing the design and construction of a new $960 million terminal in Detroit
which will provide Northwest with 74 gates compared to the 60 present gates.
To improve service for its cargo customers, Northwest is investing in a new
facility at New York's John F. Kennedy International Airport with scheduled
completion in 1998. The highly automated facility will enable Northwest to
increase capacity by approximately 15%. Northwest completed facilities
improvements in 1997 at Anchorage, Alaska to create a "cargo hub" where freight
inbound from Asia can be cross-loaded for delivery to various points in the U.S.
ITEM 3. LEGAL PROCEEDINGS
In January 1998, Northwest received a civil investigative demand ("CID")
from the Antitrust Division of the Department of Justice ("DOJ") related to an
antitrust investigation to determine whether there are, have been or may be
violations of Sections 1 and 2 of the Sherman Act related to, among other
things, monopolization of hub markets. Northwest understands that this is part
of a larger DOJ investigation of competitive practices in the airline industry.
The CID is a request for information in the course of a civil antitrust
investigation and does not constitute the institution of legal proceedings.
Northwest anticipates filing information with the DOJ that it believes will be
responsive to the CID.
In addition, in the ordinary course of its business, the Company is party to
various other legal actions which the Company believes are incidental to the
operation of its business. The Company believes that the outcome of the
proceedings to which it is currently a party (including those described above)
will not have a material adverse effect on the Company's consolidated financial
statements taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of 1997.
12
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, together with their ages and business
experience, are set forth below:
JOHN H. DASBURG, age 55, has served as President & Chief Executive Officer
and a director of NWA Corp. and Northwest since 1990. Mr. Dasburg joined
Northwest in November 1989 as Executive Vice President-Finance and
Administration and was named President and Chief Executive Officer in November
1990. From 1987 to 1989, Mr. Dasburg served as President of Marriott's Lodging
Group and as an Executive Vice President of Marriott Corp. From 1980 through
1987, he held various senior executive positions at Marriott. Prior to 1980, he
was a partner of KPMG Peat Marwick. Mr. Dasburg is on the board of directors of
Owens Corning, The St. Paul Companies, Inc. and the Mayo Foundation.
JAMES A. LAWRENCE, age 45, has served as Executive Vice President & Chief
Financial Officer of NWA Corp. and Northwest since October 1996. Prior to
joining Northwest, Mr. Lawrence was President & Chief Executive Officer of The
Pepsi-Cola Company, Asia, Middle East and Africa from 1993 to 1996. From 1992
through 1993, he served as Executive Vice President, Pepsi-Cola International.
Prior to joining PepsiCo in 1992, Mr. Lawrence co-founded a management
consulting firm, The LEK Partnership, and was a partner at Bain and Company.
MICHAEL E. LEVINE, age 56, has served as Executive Vice President-Marketing
& International of Northwest since August 1994. He joined Northwest as Executive
Vice President-Marketing in July 1992. Prior to joining Northwest, Mr. Levine
was a professor at Yale University's School of Management from 1987 to 1992, and
was Dean from 1988 to 1992. Mr. Levine also served as Executive Vice President-
Marketing at Continental from 1981 to 1982 and then as President and Chief
Executive Officer of New York Air from 1982 to 1984. Mr. Levine held senior
positions at the U.S. Civil Aeronautics Board, serving as General Director,
International and Domestic Aviation, in 1979.
WILLIAM D. SLATTERY, age 55, has served as Executive Vice
President-Chairman-Northwest Cargo, a division of Northwest, since July 1997.
From August 1994 to July 1997, he served as President of Northwest Cargo &
Charter. From August to December 1996, he also served as Executive Vice
President of Northwest. From June 1992 to August 1994, he served as Northwest's
Executive Vice President-International. He joined Northwest in April 1988 as
Executive Vice President-Operations and Chief Safety Officer.
RAYMOND J. VECCI, age 55, joined Northwest as Executive Vice
President-Customer Service in July 1997. From January 1997 to March 1997, he was
Executive Vice President and Chief Operating Officer for Carnival Airlines and
President and Chief Executive Officer from March 1997 to June 1997. He was
Executive Vice President and Chief Operating Officer of Tower Air from September
1996 to December 1996. From 1991 to 1995, Mr. Vecci was Chairman, President and
Chief Executive Officer of Alaska Air Group and Alaska Airlines.
DONALD A. WASHBURN, age 53, has served as Executive Vice President-Flight
Operations and President-Northwest Cargo since July 1997. From July 1994 to July
1997, he served as Executive Vice President-Customer Service and Operations. He
joined Northwest in 1990 and has served in a number of executive positions. From
1980 to 1990, Mr. Washburn held various executive positions with Marriott
Corporation, including Executive Vice President and General Manager of
Marriott's Courtyard Division.
RICHARD H. ANDERSON, age 42, has served as Senior Vice President-Technical
Operations & Airport Affairs of NWA Corp. and Northwest since January 1997. From
July 1994 to December 1996, he was Senior Vice President-Labor Relations, State
Affairs & Law. He joined Northwest in 1990 as Vice President-Deputy General
Counsel. Prior to joining Northwest, Mr. Anderson was Staff Vice President
13
<PAGE>
and Deputy General Counsel of Continental. From 1989 to 1990, Mr. Anderson was
Associate General Counsel of Continental.
CHRISTOPHER E. CLOUSER, age 46, has served as Senior Vice
President-Administration since September 1996. From July 1993 to September 1996,
he served as Senior Vice President-Communications, Advertising & Human
Resources. He joined Northwest in April 1991 as Senior Vice President-Corporate
Communications and Advertising. From 1988 to 1991, Mr. Clouser was Vice
President-Corporate Relations and Advertising for Bell Atlantic Corporation. He
also served on the board of directors of the Bell Telephone Company of
Pennsylvania. Mr. Clouser has previously held officer positions at Hallmark
Cards, U.S. Sprint and United Telecommunications, Inc.
JOSEPH E. FRANCHT, JR., age 47, has been Senior Vice President-Finance and
Treasurer since July 1990. From 1980 to 1990, Mr. Francht held senior executive
positions with the New York branch of Banque Paribas, including the post of
Senior Vice President-Leveraged Capital Group.
RICHARD B. HIRST, age 53, has served as Senior Vice President-Corporate
Affairs of NWA Corp. and Northwest since July 1994. He joined Northwest as
Senior Vice President, General Counsel in 1990. From 1986 to 1990, Mr. Hirst
served as Vice President, General Counsel and Secretary at Continental.
ROLF S. ANDRESEN, age 62, joined the Company as Vice President-Finance and
Controller in July 1994. Prior to joining Northwest, Mr. Andresen held the Chief
Financial Officer position at Private Jet Corp. in 1994 and various officer
positions, including Chief Financial Officer, at Pan American World Airways from
1991 to 1993.
DOUGLAS M. STEENLAND, age 46, has served as Senior Vice President, General
Counsel and Secretary of NWA Corp. and Northwest since July 1994. He joined
Northwest as Vice President-Deputy General Counsel and Secretary in July 1991.
Prior to joining Northwest, Mr. Steenland was a senior partner at the
Washington, D.C. law firm of Verner, Liipfert, Bernhard, McPherson and Hand.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the Nasdaq National Market under
symbol NWAC. The table below shows the high and low sales prices for the
Company's Class A Common Stock during 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
QUARTER HIGH LOW HIGH LOW
- --------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1st............................................................ 41 3/4 33 1/8 55 1/8 40 1/2
2nd............................................................ 43 3/4 33 7/8 52 7/8 38
3rd............................................................ 42 19/32 35 1/4 40 1/2 34
4th............................................................ 49 1/8 40 1/2 42 1/8 30 1/2
</TABLE>
As of February 27, 1998, there were 445 stockholders of record.
Since the acquisition in 1989 of NWA Corp.'s principal subsidiary, NWA Inc.,
which is the parent of Northwest, NWA Corp. has not declared or paid any
dividends on its common stock and does not currently intend to do so. In
addition, under the provisions of certain of the Company's debt arrangements,
NWA Corp.'s ability to pay dividends on or repurchase its common stock is
restricted. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors, subject to applicable limitations under
Delaware law, and will be dependent upon the Company's results of operations,
financial condition, contractual restrictions and other factors deemed relevant
by the Board of Directors.
14
<PAGE>
LIQUIDITY FOR EMPLOYEE SHARES
NWA Corp. has previously contributed to the Northwest Airlines Corporation
Employee Stock Plan (the "Plan") shares of its capital stock representing
29,845,183 shares of Class A Common Stock on a fully converted basis. Such
contributed shares are allocated to individual participants' accounts in
accordance with criteria specified in the Plan.
A participant may from time to time direct the relevant trustee under the
Plan to sell all or any portion of the "liquid shares" allocated to such
participant, which have not been previously sold or withdrawn from the Plan. The
aggregate cumulative number of liquid shares that may be designated for sale by
participants (which will be reduced by prior sales or withdrawals from the Plan)
increases over time, as reflected in the following table:
<TABLE>
<CAPTION>
AGGREGATE CUMULATIVE
DATE NUMBER OF LIQUID SHARES
- --------------------------------------------------------------------- -----------------------
<S> <C>
12/31/97 to 3/30/98.................................................. 24,255,039
3/31/98 to 6/29/98................................................... 26,460,042
6/30/98 to 9/29/98................................................... 28,665,046
9/30/98 and thereafter............................................... 29,845,183
</TABLE>
The number of liquid shares that an individual participant could direct for
sale as of a given date would be the "liquid percentage" of such participant's
allocated shares as of such period, minus the number of shares previously sold
or otherwise withdrawn from the Plan by such participant. The "liquid
percentage" means the percentage based on a fraction, the numerator of which is
the aggregate cumulative number of liquid shares as of the date of determination
and the denominator of which is the number of previously allocated shares as of
such date for all participants, without regard to prior sales or withdrawals.
15
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
NORTHWEST AIRLINES CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME (IN MILLIONS, EXCEPT PER
SHARE DATA)
Operating revenues
Passenger.................................. $ 8,822.1 $ 8,598.3 $ 7,762.0 $ 7,010.1 $ 6,619.5
Cargo...................................... 789.4 745.8 751.2 755.8 734.8
Other...................................... 614.3 536.4 571.7 559.0 510.5
--------- --------- --------- --------- ---------
10,225.8 9,880.5 9,084.9 8,324.9 7,864.8
Operating expenses........................... 9,068.6 8,826.7 8,171.5 7,485.3 7,586.5
--------- --------- --------- --------- ---------
Operating income............................. 1,157.2 1,053.8 913.4 839.6 278.3
OPERATING MARGIN............................. 11.3% 10.7% 10.1% 10.1% 3.5%
Income (loss) before extraordinary item...... $ 605.8 $ 536.1 $ 342.1 $ 295.5 $ (115.3)
Net income (loss)............................ $ 596.5 $ 536.1 $ 392.0 $ 295.5 $ (115.3)
Earnings (loss) per common share:
BASIC.................................... $ 5.89(1) $ 5.05(1) $ 3.11(1) $ 3.00 $ (3.12)
DILUTED.................................. $ 5.29(1) $ 4.52(1) $ 2.90(1) $ 2.90 $ (2.85)
BALANCE SHEETS (IN MILLIONS)
Cash, cash equivalents and unrestricted
short-term investments..................... $ 1,039.9 $ 752.1 $ 970.9 $ 968.3 $ 139.6
Total assets................................. 9,336.2 8,511.7 8,412.3 8,070.1 7,571.3
Long-term debt, including current
maturities................................. 2,069.3 2,060.4 2,467.1 4,013.5 4,437.9
Long-term obligations under capital leases,
including current obligations.............. 705.3 772.2 841.2 890.3 928.1
Mandatorily redeemable preferred security of
subsidiary................................. 486.3 549.2 618.4 -- --
Redeemable stock............................. 1,154.7 602.6 945.5 795.0 749.9
Common stockholders' equity (deficit)(2)..... (311.0) 92.9 (818.8) (1,370.7) (2,030.5)
OPERATING STATISTICS(3)
Scheduled service:
Available seat miles (ASM) (millions)...... 96,963.6 93,913.7 87,472.0 85,015.6 87,212.5
Revenue passenger miles (millions)......... 72,031.3 68,639.1 62,515.2 57,873.2 58,130.1
Passenger load factor...................... 74.3% 73.1% 71.5% 68.1% 66.7%
Revenue passengers (millions).............. 54.7 52.7 49.3 45.5 44.1
Revenue yield per passenger mile........... 12.11 CENTS 12.53 CENTS 12.42 CENTS 12.11 CENTS 11.39 CENTS
Passenger revenue per scheduled ASM........ 9.00 CENTS 9.16 CENTS 8.87 CENTS 8.25 CENTS 7.59 CENTS
Operating revenue per total ASM(4)........... 9.76 CENTS 9.85 CENTS 9.58 CENTS 8.93 CENTS 8.23 CENTS
Operating expense per total ASM(4)........... 8.63 CENTS 8.78 CENTS 8.66 CENTS 8.08 CENTS 8.00 CENTS
Cargo ton miles (millions)................... 2,282.8 2,215.8 2,246.3 2,322.3 2,188.0
Cargo revenue per ton mile................... 34.5 CENTS 33.7 CENTS 33.4 CENTS 32.5 CENTS 33.6 CENTS
Fuel gallons consumed (millions)............. 1,996.3 1,945.1 1,846.2 1,792.8 1,801.7
Average fuel cost per gallon................. 64.86 CENTS 67.21 CENTS 55.66 CENTS 56.23 CENTS 62.09 CENTS
Number of operating aircraft at year end..... 405 399 380 361 358
Full-time equivalent employees at year end... 48,984 47,536 45,124 43,673 43,358
</TABLE>
- ------------------------
(1) Excludes the effects of the 1997 extraordinary loss ($.10 per basic share
and $.08 per diluted share), the 1996 preferred stock transaction ($.75 per
basic share and $.68 per diluted share), the 1995 preferred stock
transaction ($.64 per basic share and $.58 per diluted share) and the 1995
extraordinary gain ($.55 per basic share and $.50 per diluted share).
(2) No dividends have been paid on common stock for any period presented.
(3) All statistics exclude Express Airlines I, Inc.
(4) Excludes the estimated revenues and expenses associated with the operation
of Northwest's fleet of eight 747 freighter aircraft and MLT Inc.
16
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Northwest Airlines Corporation ("NWA Corp." and, together with its
subsidiaries, the "Company") reported record net income of $596.5 million and
operating income of $1.16 billion for the year ended December 31, 1997. Diluted
earnings per share were $5.21 compared with $5.20 per diluted share in 1996.
Excluding the impact of the 1997 extraordinary item and 1996 preferred stock
transaction, diluted earnings per share were $5.29 in 1997 compared with $4.52
in 1996, a 17% improvement. Operating income increased by $103.4 million
compared with 1996, with operating margin increasing to 11.3% from 10.7% in
1996.
The Company completed several transactions in 1997 to strengthen its
long-term financial position and enhance earnings as described in "Liquidity and
Capital Resources." As of December 31, 1997, total available liquidity was $2.12
billion, the highest level in Company history.
Northwest Airlines, Inc. ("Northwest") is the principal indirect operating
subsidiary of NWA Corp., accounting for more than 95% of the Company's 1997
consolidated operating revenues and expenses. The Company acquired Express
Airlines I, Inc. ("Express") on April 1, 1997 and the operating results of
Express are included in the consolidated financial statements commencing on that
date. The Company's operating results are significantly impacted by both general
and industry economic environments. Small fluctuations in revenue per available
seat mile ("RASM") and cost per available seat mile ("CASM") can have
significant impacts on the Company's profitability.
RESULTS OF OPERATIONS--1997 COMPARED TO 1996
OPERATING REVENUES. Operating revenues were $10.23 billion, an improvement
of $345.3 million (3.5%). Operating revenue per total service available seat
mile ("ASM") decreased .9%. System passenger revenue increased $223.8 million
(2.6%) due to a 3.2% increase in scheduled service ASMs and the inclusion of
Express revenues of $100.1 million. These increases were offset by a 1.7%
decrease in passenger RASM driven by unfavorable foreign currency translation
and the reinstatement of federal ticket taxes in March 1997.
The composition of the Company's operating revenues in each of the past
three years is summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Passenger revenue
Domestic......................................................... 57.5% 57.9% 56.1%
Pacific.......................................................... 21.5 22.8 23.8
Atlantic......................................................... 6.3 6.4 5.5
Express.......................................................... 1.0 -- --
--------- --------- ---------
Total passenger revenue............................................ 86.3 87.1 85.4
Cargo revenue........................................................ 7.7 7.5 8.3
Other revenue........................................................ 6.0 5.4 6.3
--------- --------- ---------
Total operating revenues......................................... 100.0% 100.0% 100.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Domestic passenger revenue, excluding Express, increased $165.5 million
(2.9%) to $5.88 billion. A 2.2% increase in scheduled service ASMs and a .7%
increase in passenger RASM resulted in the improved performance. The Company
increased frequencies to ten cities and entered six new markets which accounts
for the increase in scheduled service ASMs. The increase in RASM was due to a
2.6% (1.8 points) increase in passenger load factor offset by a 2.0% decrease in
yield due to the reinstatement of federal taxes on airline tickets and
international departures. The Company benefited from the absence of ticket
17
<PAGE>
taxes for only two months in 1997 versus eight months in 1996. See also "Other
Information--U.S. TRANSPORTATION TAXES."
Pacific passenger revenue decreased $58.4 million (2.6%) to $2.19 billion
due to a 7.7% decrease in Pacific passenger RASM which was partially offset by a
5.6% increase in scheduled service ASMs related to initiation of Minneapolis/St.
Paul-Osaka service and additional trans-Pacific frequencies, mainly for the
Minneapolis/St. Paul-Tokyo service. The decrease in Pacific RASM was primarily
due to a 7.4% decrease in yield which was largely attributable to a weaker
Japanese yen. The average yen per United States ("U.S.") dollar exchange rate
for the twelve months ended December 31, 1997 and 1996 was 120 and 108,
respectively, a weakening of the yen of 11.2%. Atlantic passenger revenue
increased $16.6 million (2.6%) to $647.1 million due to a 1.7% increase in
scheduled service ASMs and an increase in passenger RASM of .9%.
Cargo revenue increased $43.6 million (5.8%) due to a 2.6% increase in cargo
revenue per ton mile and 3.0% more cargo ton miles primarily due to the
development of a more efficient freighter schedule. The increase in cargo
revenue per ton mile was primarily due to increased import sales driven by the
continued strength of the U.S. dollar versus Asian currencies. Other revenue
increased $77.9 million (14.5%) due to settlements under the joint venture
alliance with KLM Royal Dutch Airlines ("KLM") and increased charter activity.
OPERATING EXPENSES. Operating expenses increased $241.9 million (2.7%)
compared to the 3.3% capacity increase to 97.1 billion total service ASMs.
Operating expense per total service ASM decreased for the first time in four
years from 8.78 cents per total service ASM to 8.63 cents, a decrease of 1.7%.
Salaries, wages and benefits increased $314.5 million (11.6%) due primarily to
the end of the Wage Savings Period as discussed under "Liquidity and Capital
Resources--LABOR AGREEMENTS" and an increase in average full-time equivalent
employees of 3.3%. The increase in full-time equivalent employees was
attributable to the increased flying of 3.3% and increased traffic of 3.7%.
Offsetting the increased salaries, wages and benefits expense was $49.2 million
in lower pension expense due to a higher pension discount rate applied in 1997
compared to 1996. Aircraft fuel and taxes decreased $3.1 million (.2%) due to a
3.5% decrease in the average fuel price per gallon from 67.21 cents to 64.86
cents offset by an increase of 2.6% in fuel gallons consumed. Commissions
decreased $13.2 million (1.5%) primarily due to increased domestic revenue where
effective commission rates are lower than those paid internationally and also
due to changes in the Company's commission structure beginning in September 1997
which reduced commissions paid from 10% to 8% on tickets purchased in the U.S.
or Canada for travel to destinations outside North America. Aircraft maintenance
materials and repairs increased $64.2 million (11.5%) due primarily to $19.1
million (3.4%) related to Express and an increased number of scheduled airframe
and engine overhauls in accordance with the Company's maintenance program. The
Company contracted for some of its additional maintenance work with outside
suppliers, resulting in labor costs that would normally be classified as
salaries and wages to be included in maintenance materials and repairs expense.
Other expenses (the principal components of which include outside services,
selling and marketing expenses, passenger food, personnel, advertising and
promotional expenses, communication expenses and supplies) increased $88.7
million (4.7%), due primarily to increased volume and rates for outside
services, selling and marketing fees and personnel expenses.
OTHER INCOME AND EXPENSE. Interest expense-net decreased $28.4 million
(10.8%) primarily due to the retirement of debt prior to scheduled maturity and
lower interest rates on debt. The foreign currency gain for the twelve months
ended December 31, 1997 was primarily attributable to balance sheet
remeasurement of foreign currency-denominated assets and liabilities.
EXTRAORDINARY ITEM. The Company repurchased for $78.7 million certain NWA
Trust No. 2 aircraft notes in January 1998 pursuant to a tender offer. An
extraordinary loss of $9.3 million, net of tax, was recorded in 1997 as 99% of
the notes were tendered by December 31, 1997.
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RESULTS OF OPERATIONS--1996 COMPARED TO 1995
OPERATING REVENUES. Operating revenues were $9.88 billion, an improvement
of $795.6 million (8.8%). Operating revenue per total service ASM increased
2.8%. System passenger revenue increased 10.8% due to a 7.4% increase in
scheduled service ASMs and a 3.3% increase in passenger RASM which was
attributable to a .9% increase in system yield and a 2.2% (1.6 points) increase
in passenger load factor.
Domestic passenger revenue of $5.72 billion increased $618.1 million
(12.1%). A 6.3% increase in scheduled service ASMs and a 5.4% increase in RASM
resulted in the improved performance. The increase in scheduled service ASMs
resulted primarily from the addition of 19 aircraft, which allowed the Company
to increase frequencies to 23 cities and enter seven new markets. The increase
in RASM was largely driven by a 4.6% increase in yield which was favorably
impacted by the lapsed federal ticket taxes. See "Other Information--U.S.
TRANSPORTATION TAXES."
Pacific passenger revenue increased $92.4 million (4.3%) to $2.25 billion
due to an 8.3% increase in scheduled service ASMs resulting primarily from new
service to Beijing, China and additional frequencies due to higher utilization
of existing aircraft. However, RASM decreased by 3.8% because of a 7.5% decrease
in yield which was somewhat mitigated by a 4.1% (3.1 points) increase in
passenger load factor. The Pacific yield decreased primarily because of a weaker
Japanese yen. The average yen per U.S. dollar exchange rate for the years ended
December 31, 1996 and 1995 was 108 and 94, respectively, a weakening of the yen
of 14.9%. Atlantic passenger revenue increased $125.9 million (24.9%) to $630.5
million, due to a 12.0% increase in scheduled service ASMs and an 11.5% increase
in RASM which was largely yield related.
Cargo revenue decreased $5.4 million (.7%) due to 1.4% fewer cargo ton
miles. Cargo capacity was reduced because of increased passenger loads. Other
revenue decreased $35.3 million (6.2%) due primarily to decreased charter
activity.
OPERATING EXPENSES. Operating expenses increased $655.2 million (8.0%).
While operating capacity increased 7.3% to 94.0 billion total service ASMs,
operating expense per total service ASM increased 1.4% largely related to higher
fuel prices and increased maintenance costs somewhat offset by lower stock-based
compensation. Salaries, wages and benefits increased $297.3 million (12.3%) due
primarily to an increase in average full-time equivalent employees of 4.7% and
the end of the Wage Savings Period. The increase in full-time equivalent
employees was attributable to the increased flying of 7.3% and increased traffic
of 6.8%. Additionally, included in the increased salaries, wages and benefits
expense was a $73.8 million unfavorable impact of pension expense due to a lower
pension discount rate applied in 1996 compared to 1995. Non-cash stock-based
employee compensation expense is a function of shares earned by employees and
the period-ending common stock price. The 1996 stock-based compensation expense
decreased to $242.8 million from $478.0 million for 1995 because fewer shares
were earned by employees in 1996 (7.2 million common equivalent shares compared
with 9.4 million common equivalent shares earned in 1995) and the common stock
price used to measure expense decreased to a weighted average of $33.77 per
share for 1996 from $51.00 per share for 1995. Aircraft fuel and related taxes
increased 28.9% from $1.08 billion to $1.40 billion. A 20.8% increase in average
fuel cost per gallon and an excise tax increase which was effective October 1995
caused $256.6 million of the increase with the balance attributable to increased
flying. Commissions increased $27.9 million (3.3%) as a result of a 10.8%
increase in passenger revenue somewhat offset by the impact of a decrease in the
effective domestic commission rate. Aircraft maintenance materials and repairs
increased $160.8 million (40.7%) due to a number of factors including the timing
of maintenance activities, increased flying, higher engine overhaul costs and
the impact of favorable vendor settlements in 1995. Other rentals and landing
fees decreased $22.2 million (4.7%) due primarily to the weakening of the
Japanese yen. Other expenses increased $86.5 million (4.8%), due primarily to
increased volume and rates for outside services, promotional and personnel
expenses.
OTHER INCOME AND EXPENSE. Interest expense-net decreased $124.8 million
(32.2%) primarily due to the retirement of debt prior to scheduled maturity and
the October 1995 restructuring of the Company's
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financing arrangement related to certain property in Japan. The foreign currency
gain of $19.1 million was attributable to balance sheet remeasurement of foreign
currency-denominated assets and liabilities. The $18.0 million benefit in
other-net was largely due to a $25.5 million increase in income related to an
equity investment in an affiliate offset by the payment of $10.9 million made
related to the travel agency litigation settlement.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had cash and cash equivalents of $740.4
million, unrestricted short-term investments of $299.5 million, borrowing
capacity of $839.2 million under its revolving credit facility and the ability
under another facility to borrow up to $240 million using existing aircraft as
collateral, providing total available liquidity of $2.12 billion.
Cash flows from operating activities were $1.61 billion for 1997 which
included higher than normal sale proceeds of frequent flyer miles in excess of
revenue, in the amount of $387.7 million. Such higher than normal sale proceeds
were due to a 1997 bulk sale of such miles to the Company's frequent flyer
partners. Cash flows from operating activities were $1.37 billion for 1996 and
$1.46 billion for 1995. Net cash used in investing and financing activities
during 1997, 1996 and 1995 was $1.43 billion, $1.66 billion and $1.08 billion,
respectively.
INVESTING ACTIVITIES. Investing activities in 1997 consisted primarily of
costs to commission aircraft before entering revenue service, aircraft deposits,
the refurbishment of DC9 aircraft, engine hushkitting, ground equipment
purchases, the acquisition of Express, the purchase off lease of four aircraft
and the purchase of eight RJ85 aircraft, one DC10-30 aircraft and three DC9-30
aircraft. Investing activities in 1996 pertained primarily to the acquisition of
13 Boeing 757 aircraft, seven DC9-30 aircraft, three DC10-30 aircraft and two
747-200 aircraft; the purchase off lease of 22 aircraft; and the refurbishment
of DC9 aircraft. Capital expenditures for 1995 pertained primarily to aircraft
modifications, the acquisition of two Boeing 757 aircraft for sale and
leaseback, the acquisition of 14 DC9 aircraft and deposits on ordered aircraft.
On January 25, 1998, NWA Corp. entered into an Investment Agreement pursuant
to which NWA Corp. will acquire the beneficial ownership of 8,535,868 shares of
Class A Common Stock of Continental Airlines, Inc. ("Continental"). The
aggregate consideration was valued at approximately $519 million as of the time
of entering into the Investment Agreement and was expected to consist of $311
million in cash and 4.2 million shares of newly issued common stock. The cash is
expected to be funded from the Company's general working capital which may be
supplemented by the proceeds of unsecured borrowings in the public capital
markets. The transaction is expected to close by the end of 1998. For additional
information regarding the formation of a new holding company and the related
corporate restructuring, the Governance Agreement with Continental and the
operating alliance, see Note S to the Consolidated Financial Statements.
On February 27, 1998, NWA Corp. entered into an amendment to the Investment
Agreement to change the composition of the aggregate consideration to now
consist of $308 million in cash and 4.2 million shares of newly issued common
stock. On March 2, 1998, NWA Corp. entered into a Purchase Agreement pursuant to
which it will acquire 979,000 additional shares of Continental Class A Common
Stock for $59.5 million in cash. This transaction is scheduled to close
simultaneously with the transactions contemplated by the Investment Agreement.
These shares, together with the shares to be acquired by NWA Corp. pursuant to
the Investment Agreement, represent approximately 15.4% of Continental's common
stock and 58% of its outstanding common stock voting power.
FINANCING ACTIVITIES. Financing activities in 1997 pertained primarily to
NWA Corp.'s repurchases of its common stock and Series A and B Preferred Stock,
the issuance of $250 million of unsecured notes, the sale and leaseback of eight
RJ85 aircraft and the payment of debt and capital lease obligations. In December
1997, the Company repurchased $39 million of its sale-leaseback financing
obligations. The
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Company's Credit Agreement was amended in December 1997 to increase its existing
unsecured revolving credit facility from $500 million to $675 million and to
extend the availability period to December 2002, and to add a new $175 million
364-day unsecured revolving credit facility. If the 364-day facility is not
renewed for an additional 364-day period, the Company may borrow up to the
entire amount of the facility and all such borrowings mature in December 2002.
On September 29, 1997, the Company entered into agreements to repurchase for
$1.12 billion over three years the 25 million shares of NWA Corp. common stock
held by KLM. On that date, 6.8 million of such shares were repurchased for
$273.1 million. Concurrently, all of NWA Corp.'s Series A and B Preferred Stock
held by KLM and other holders was repurchased for $251.3 million. Both
repurchases were funded using existing cash resources. The remaining 18.2
million shares of common stock to be repurchased were reclassified to redeemable
common stock from common stockholders' equity, as required for such stock
transactions. However, earnings per share calculations will continue to include
the 18.2 million shares until actually repurchased. The Company and KLM also
expanded their alliance by entering into an enhanced commercial and operational
alliance providing for a minimum term of 13 years.
Subsequently, on January 16, 1998, NWA Corp. reached an agreement in
principle with KLM to accelerate the repurchase of the remaining 18.2 million
shares of common stock. The agreement in principle is subject to the execution
of definitive documentation and the approval of the respective boards of NWA
Corp. and KLM. The estimated purchase price of $775 million will be paid with a
combination of approximately $335 million of cash and three senior unsecured
notes for the remainder. The cash is expected to be funded from the Company's
general working capital which may be supplemented by the proceeds of unsecured
borrowings in the public capital markets. The transaction is expected to close
before May 1, 1998 at which time the 18.2 million remaining common shares will
be repurchased and excluded from the earnings per share calculations. See Note H
to the Consolidated Financial Statements.
Northwest sells certain receivables on an ongoing basis to Northwest Capital
Funding Corp., pursuant to a receivable financing program (the "Receivable
Program"). The Receivable Program provides for the early retirement of the
related term certificates upon the occurrence of certain events, one of which
occurred on January 25, 1998. Accordingly, these certificates were paid in full
on February 25, 1998.
Financing activities in 1996 pertained primarily to the sale and leaseback
of seven Boeing 757 aircraft and the payment of debt and capital lease
obligations, including prepayments of $180 million. In October 1996, the Credit
Agreement was amended to increase the term loan to $150 million and extend the
final maturity to 2002. In July 1996, NWA Corp. acquired from KLM 3,691.2 shares
of NWA Corp. Series A Preferred Stock and 2,962.8 shares of NWA Corp. Series B
Preferred Stock in exchange for $379 million of unsecured promissory notes which
were repaid in December 1996.
In October 1995 the Company completed a restructuring of its financing
arrangement related to certain property the Company owns in Japan. As a result,
long-term debt decreased by $695.9 million and was replaced by a $622.0 million
yen-denominated non-recourse obligation with longer maturities which is
reflected in the Company's balance sheet as a Mandatorily Redeemable Preferred
Security of Subsidiary which holds a solely non-recourse obligation of Company.
In December 1995 the Company retired the 1989 acquisition loan by prepaying the
remaining $837 million loan outstanding using proceeds from a new credit
facility and available funds. Also during 1995, Bankers Trust New York
Corporation exchanged 1,727 shares of NWA Corp.'s Series B Preferred Stock for
2,050,000 shares of NWA Corp.'s common stock.
See Note D to the Consolidated Financial Statements for maturities of
long-term debt for the five years subsequent to December 31, 1997.
CAPITAL COMMITMENTS. The current aircraft delivery schedule provides for
the acquisition of 115 aircraft over the next eight years. See Notes K and O to
Consolidated Financial Statements for additional discussion of aircraft capital
commitments. Other capital expenditures, including costs to commission
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presently owned aircraft that have not yet entered revenue service, are
projected for 1998 to be approximately $395 million which the Company
anticipates funding primarily with cash from operations.
The Company has adopted programs to hushkit and modify 173 DC9 aircraft to
meet noise and aging aircraft requirements. As of December 31, 1997, the Company
had hushkitted 89 of these 173 DC9 aircraft. Capital expenditures for engine
hushkits and aging aircraft modifications were $51 million in 1997 and are
expected to aggregate $360 million during the next five years for these
aircraft. The Company has also elected to upgrade aircraft systems and refurbish
interiors for the 173 DC9 aircraft. Capital expenditures associated with
upgrading systems and interior refurbishment were $74 million in 1997 and are
expected to aggregate $54 million during the next five years.
The Company has commenced its program, adopted in 1996, to refurbish the
interiors of its international 747 and DC10 aircraft, estimated to aggregate
$120 million over the next five years. In 1996, the Company adopted a program to
hushkit and modify 29 Boeing 727-200 aircraft, estimated to cost approximately
$65 million over the next two years.
LABOR AGREEMENTS. The labor cost savings discussed in Note C to
Consolidated Financial Statements which improved the Company's 1993 to 1996 cash
flow from operating activities ended on July 31, 1996 for flight attendants,
September 30, 1996 for mechanics, ground personnel and management and October
30, 1996 for pilots. The Company's agreements with the employee unions provided
that wage scales at the end of the Wage Savings Period snapback to August 1,
1993 levels and snap-up pursuant to formulae based in part on wage rates and
wage rate increases at other large U.S. airlines. Consequently, at the end of
the Wage Savings Period, salaries and wages increased by approximately $340
million on an annualized basis including $50 million for snap-ups.
The Company's labor contract with each of its unions became amendable as
each labor cost savings agreement ended. Consequently, future labor wage rates
and costs are subject to collective bargaining. While the Company cannot predict
the wage rates that will ultimately be in effect (since such rates will be
determined by collective bargaining), management believes that its labor costs
will remain competitive in comparison to other large U.S. airlines. The Company
cannot predict the ultimate outcome of the negotiations at this time.
WORKING CAPITAL. The Company operates, like its competitors, with a working
capital deficit which aggregated $674.2 million at December 31, 1997. The
working capital deficit is primarily attributable to the $1.22 billion air
traffic liability for advance ticket sales.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in the price of
fuel, foreign currency exchange rates and interest rates as discussed below. The
sensitivity analyses presented do not consider the effects that such adverse
changes may have on overall economic activity nor do they consider additional
actions management may take to mitigate its exposure to such changes. Actual
results may differ. See Notes A and P to the Consolidated Financial Statements
for accounting policies and additional information, respectively.
AIRCRAFT FUEL. The Company's earnings are affected by changes in the price
and availability of aircraft fuel. In order to provide a measure of control over
price and supply, the Company trades and ships fuel and maintains fuel storage
facilities to support its flight operations. The Company also manages the price
risk of fuel costs primarily utilizing futures contracts traded on regulated
exchanges. Market risk is estimated as a hypothetical 10% increase in the
December 31, 1997 cost per gallon of fuel based on projected 1998 fuel usage
which would result in an increase to aircraft fuel expense of approximately $90
million in 1998, net of gains realized from fuel hedge instruments outstanding
at December 31, 1997. Gains or losses on hedge contracts are deferred until the
related fuel inventory is expensed. As of December 31,
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1997, the Company had hedged approximately 28% of its 1998 fuel requirements,
including 63% of the first quarter.
FOREIGN CURRENCY. The Company is exposed to the effect of foreign exchange
rate fluctuations on the U.S. dollar value of foreign currency-denominated
operating revenues and expenses. The Company's largest exposure comes from the
Japanese yen. From time to time, the Company uses options and forward contracts
to hedge its anticipated yen-denominated net cash flows. The result of a uniform
10% strengthening in the value of the U.S. dollar from December 31, 1997 levels
relative to each of the currencies in which the Company's sales and expenses are
denominated would result in a decrease in operating income of approximately $48
million for the year ending December 31, 1998, net of gains realized from yen
hedge instruments outstanding at December 31, 1997, due to the Company's
foreign-denominated revenues exceeding its foreign-denominated expenses. The
increase to other income due to the remeasurement of net foreign
currency-denominated liabilities and the increase to common stockholders' equity
deficit due to the translation of net yen-denominated liabilities resulting from
a 10% strengthening in the value of the U.S. dollar is not material. This
sensitivity analysis was prepared based upon projected 1998 foreign
currency-denominated revenues and expenses and foreign currency-denominated
assets and liabilities as of December 31, 1997.
In 1997, the Company's yen-denominated revenues exceeded its yen-denominated
expenses by approximately 75 billion yen (approximately $625 million) and its
yen-denominated liabilities exceeded its yen-denominated assets by an average of
13.3 billion yen ($109 million) during 1997. In general, each time the yen
strengthens (weakens), the Company's on-going operating income is favorably
(unfavorably) impacted due to net yen-denominated cash flows and a nonoperating
foreign currency loss (gain) is recognized due to the remeasurement of net
yen-denominated liabilities. The Company's operating income was negatively
impacted by approximately $70 million due to a weaker yen in 1997 compared to
1996. The yen to U.S. dollar exchange rate at December 31, 1997, 1996 and 1995
was 131 yen to $1, 116 yen to $1 and 103 yen to $1, respectively. There was no
material impact on 1997 earnings associated with the Japanese yen collar option
and forward contracts. As of December 31, 1997, the Company had purchased put
options to hedge approximately 90% of its 1998 net yen-denominated cash flows.
INTEREST. The Company's earnings are also affected by changes in interest
rates due to the impact those changes have on its interest income from cash
equivalents and short-term investments and its interest expense from
variable-rate debt instruments. The Company has mitigated this risk by limiting
its variable-rate debt instruments to approximately 47% of long-term debt at
December 31, 1997. If long-term interest rates average 10% more in 1998 than
they did during 1997, the Company's net interest expense would increase by
approximately $7 million. If short-term interest rates average 10% more in 1998
than they did during 1997, the Company's interest income from cash equivalents
and short-term investments would increase by approximately $7 million. These
amounts are determined by considering the impact of the hypothetical interest
rates on the Company's variable-rate long-term debt and cash equivalent and
short-term investment balances at December 31, 1997.
Market risk for fixed-rate long-term debt is estimated as the potential
increase in fair value resulting from a hypothetical 10% decrease in interest
rates and amounts to approximately $45 million. The fair values of the Company's
long-term debt were estimated using quoted market prices or discounted future
cash flows based on the Company's incremental borrowing rates for similar types
of borrowing arrangements.
OTHER INFORMATION
INCOME TAXES. Sections 382 and 383 of the Internal Revenue Code of 1986
(the "Code") and the regulations thereunder impose limitations on the
carryforward amounts of net operating losses ("NOLs"), alternative minimum tax
net operating losses ("AMTNOLs") and credits that can be used to offset taxable
income (or used as a credit) in any single 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. See Note J to the
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Consolidated Financial Statements for information regarding income taxes and
NOLs, AMTNOLs and credits.
Management 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, management 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 limitation would not have an adverse impact on the Company. However, if
the Internal Revenue Service (the "IRS") were to successfully assert that an
ownership change had occurred on any prior date, including August 1, 1993 (the
date of the labor agreements), the impairment of the Company's ability to use
its NOLs, AMTNOLs and credit carryforwards would be significant because the
value of the Company's stock on certain prior testing dates (which adversely
affects the annual limitation) was relatively low.
U.S. TRANSPORTATION TAXES. The United States 10% passenger ticket tax
applicable to domestic travel, the 6.25% domestic cargo waybill tax and the $6
per passenger international departure tax expired on December 31, 1995.
Consequently, the Company ceased collecting these taxes on January 1, 1996.
These taxes were reinstated for tickets sold subsequent to August 27, 1996 for
travel through December 31, 1996. These taxes lapsed again on December 31, 1996
and were reinstated for tickets sold from March 7, 1997 to September 30, 1997.
The Company estimates that the reinstatement of the transportation taxes had
approximately a $183 million adverse impact on passenger revenues for the year
ended December 31, 1997.
The Taxpayer Relief Act enacted by Congress revised transportation taxes and
instituted new taxes for tickets for travel from October 1, 1997 to December 31,
2007. The legislation included a reduction in the domestic passenger ticket tax
to 7.5% over three years (the rate decreased to 9% on October 1, 1997) with
certain rural airports subject to a 7.5% tax throughout the life of the bill.
The $6 international departure tax increased to $12 and a new $12 international
arrival tax was imposed (both began for tickets sold on or after August 13, 1997
for travel commencing on or after October 1, 1997). The departure tax on travel
between the U.S. 48 states and Alaska or Hawaii remained at $6. A new segment
fee applicable to domestic travel began at $1 for the period from October 1,
1997 to September 30, 1998 and will gradually increase to $3 for the calendar
year 2002. Rural airports are exempt from this segment fee, but travel between
the U.S. 48 states and Alaska or Hawaii is subject to this new tax. Both the
international departure and arrival taxes and the segment fee will be indexed
each year to the consumer price index. In addition, a 7.5% tax on the sale of
frequent flyer miles was included in the legislation. The impact of the changes
is expected to increase annualized U.S. transportation taxes collected by
Northwest from current levels by approximately $50 million resulting in an
undetermined dilution of future passenger revenue.
U.S.--JAPAN AVIATION BILATERAL. On March 14, 1998, the U.S. and Japan
signed a Memorandum of Understanding ("MOU") to modify the 1952 U.S.-Japan
bilateral aviation agreement. Among other things, the MOU (1) confirms
Northwest's "fifth freedom" rights between Japan and other Asian destinations,
(2) provides unlimited opportunities to fly between any point in the U.S. and
any point in Japan, (3) allows certain code-sharing rights, (4) provides
opportunities for competitive pricing, (5) provides one additional Japanese
passenger airline and one additional Japanese all-cargo airline with certificate
authority issued pursuant to the 1952 aviation agreement and (6) permits
expanded frequencies for U.S. and Japan airlines not holding certificate
authority issued pursuant to the 1952 aviation agreement. In addition, the U.S.
has received assurances that Northwest will retain all 316 of its weekly takeoff
and landing slots at Tokyo's slot-constrained Narita International Airport,
along with Northwest's allocation of 114 slots at Osaka's Kansai Airport and
will have access to new slots as they become available. As a result of the MOU,
Northwest expects its U.S. and Japan airline competitors to add capacity between
the U.S. and Japan. Northwest expects to respond to the increased competition
and to take advantage of its affirmed and additional rights resulting from the
MOU. The increased competitive environment resulting from the MOU and the
general economic environment in Asia may adversely impact the Company's Pacific
revenues in 1998.
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DETROIT MIDFIELD TERMINAL. In October 1996, the Company and Wayne County,
Michigan (the "County") entered into an agreement pursuant to which, subject to
the satisfaction of certain conditions set forth in the agreement, the Company
will manage and supervise the design and construction of a $960 million terminal
at Detroit Metropolitan Wayne County Airport. The new terminal is scheduled to
be completed in 2001 and is anticipated to be funded from federal and State of
Michigan grants, passenger facility charges and the County's issuance of airport
bonds payable primarily from future passenger facility charges. The Company and
the County have entered into agreements pursuant to which the Company will lease
space in the new terminal for a term of 30 years from the date the terminal
opens.
YEAR 2000 ISSUE. The Company uses a significant number of computer software
programs and embedded operating systems that are essential to its operations. As
a result, the Company implemented a Year 2000 project in 1996 to ensure that the
Company's computer systems will function properly in the Year 2000 and
thereafter. The Company anticipates completing its Year 2000 project in early
1999 and believes that with modifications to its existing software and systems
and/or conversions to new software, the Year 2000 Issue will not pose
significant operational problems for its computer systems.
The Company has also initiated communications with its significant suppliers
and vendors with whom the Company's systems interface and exchange data or upon
whom the Company's business depends and is coordinating efforts with these
outside third parties to minimize the extent to which its business will be
vulnerable to such third parties' failure to remediate their own Year 2000
Issues. The Company's business is also dependent upon certain governmental
organizations or entities which provide essential aviation industry
infrastructure, such as the Federal Aviation Administration ("FAA"). There can
be no assurance that the systems of such third parties on which the Company's
business relies (including those of the FAA) will be modified on a timely basis.
The Company's business, financial condition or results of operations could be
materially adversely affected by the failure of its systems or those operated by
other parties to operate properly beyond 1999. To the extent possible, the
Company will be developing and executing contingency plans designed to allow
continued operation in the event of failure of the Company's or third parties'
systems.
The total cost of the Company's Year 2000 project is currently estimated at
$55 million (of which $10 million has been spent and expensed) and is being
funded through cash from operations. The remaining costs for the Year 2000
project will be expensed as incurred. The costs of the Company's Year 2000
project and the date on which the Company believes it will be completed are
based on management's best estimates and include assumptions regarding third
party modification plans. However, in particular due to the potential impact of
third party modification plans, there can be no assurance that these estimates
will be achieved and actual results could differ materially from those
anticipated.
NEW ACCOUNTING STANDARDS. See Note A to the Consolidated Financial
Statements for recent accounting standards that impact future financial
statement disclosure requirements.
FORWARD-LOOKING STATEMENTS. Certain statements made throughout the
Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward-looking and are based upon information available to the
Company on the date hereof. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. These statements deal with the
Company's expectations about the future and are subject to a number of factors
that could cause actual results to differ materially from the Company's
expectations.
It is not reasonably possible to itemize all of the many factors and
specific events that could affect the outlook of an airline operating in the
global economy. Some factors that could significantly impact expected capacity,
load factors, revenues, expenses and cash flows include the airline pricing
environment, fuel costs, labor negotiations both at the Company and other
carriers, low-fare carrier expansion, capacity decisions of other carriers,
actions of the U.S. and foreign governments, foreign currency exchange rate
fluctuation, inflation, the general economic environment in the U.S. and other
regions of the world and other factors discussed herein.
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ITEM 8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Northwest Airlines Corporation
We have audited the accompanying consolidated balance sheets of Northwest
Airlines Corporation as of December 31, 1997 and 1996, and the related
consolidated statements of income, common stockholders' equity (deficit), and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Northwest
Airlines Corporation at December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Minneapolis, Minnesota
January 25, 1998
26
<PAGE>
NORTHWEST AIRLINES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................................................ $ 740.4 $ 559.4
Short-term investments................................................................... 437.7 253.1
Accounts receivable, less allowance (1997--$21.2; 1996--$19.7)........................... 664.8 656.1
Flight equipment spare parts, less allowance (1997--$148.9; 1996--$127.3)................ 376.1 262.2
Deferred income taxes.................................................................... 84.8 95.5
Prepaid expenses and other............................................................... 294.0 263.6
--------- ---------
2,597.8 2,089.9
PROPERTY AND EQUIPMENT
Flight equipment......................................................................... 5,246.7 4,724.0
Less accumulated depreciation............................................................ 1,295.6 1,107.6
--------- ---------
3,951.1 3,616.4
Other property and equipment............................................................. 1,489.0 1,484.2
Less accumulated depreciation............................................................ 612.4 560.1
--------- ---------
876.6 924.1
--------- ---------
4,827.7 4,540.5
FLIGHT EQUIPMENT UNDER CAPITAL LEASES
Flight equipment......................................................................... 907.1 927.4
Less accumulated amortization............................................................ 270.0 255.9
--------- ---------
637.1 671.5
OTHER ASSETS
Investments in affiliated companies...................................................... 185.9 164.4
International routes, less accumulated amortization (1997--$239.9;
1996--$216.3).......................................................................... 727.8 751.4
Other.................................................................................... 359.9 294.0
--------- ---------
1,273.6 1,209.8
--------- ---------
$ 9,336.2 $ 8,511.7
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
NORTHWEST AIRLINES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Air traffic liability.................................................................... $ 1,222.5 $ 1,010.7
Accounts payable and other liabilities................................................... 944.6 796.7
Accrued compensation and benefits........................................................ 376.5 456.8
Accrued commissions...................................................................... 183.9 177.4
Accrued aircraft rent.................................................................... 207.5 196.7
Current maturities of long-term debt..................................................... 227.4 144.4
Current obligations under capital leases................................................. 55.9 61.7
Short-term borrowings.................................................................... 53.7 38.8
--------- ---------
3,272.0 2,883.2
LONG-TERM DEBT............................................................................. 1,841.9 1,916.0
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES................................................. 649.4 710.5
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes.................................................................... 1,161.5 947.2
Long-term pension and postretirement health care benefits................................ 407.3 461.2
Other.................................................................................... 674.1 348.9
--------- ---------
2,242.9 1,757.3
MANDATORILY REDEEMABLE PREFERRED SECURITY OF SUBSIDIARY WHICH HOLDS SOLELY NON-RECOURSE
OBLIGATION OF COMPANY-- NOTE F
(Redemption value 1997--$551.0; 1996--$628.8)............................................ 486.3 549.2
REDEEMABLE STOCK
Preferred, liquidation value (1997--$311.3; 1996--$610.8)................................ 306.2 602.6
Common (18,177,874 shares)............................................................... 848.5 --
--------- ---------
1,154.7 602.6
COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value; shares authorized--315,000,000; shares issued and
outstanding (1997--103,780,875; 1996--97,604,056)...................................... 1.0 1.0
Additional paid-in capital............................................................... 1,273.8 1,151.1
Accumulated deficit...................................................................... (362.2) (945.2)
Other.................................................................................... (102.0) (114.0)
Treasury stock (6,800,000 shares repurchased and 18,177,874 shares to be repurchased).... (1,121.6) --
--------- ---------
(311.0) 92.9
--------- ---------
$ 9,336.2 $ 8,511.7
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
NORTHWEST AIRLINES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUES
Passenger....................................................................... $ 8,822.1 $ 8,598.3 $ 7,762.0
Cargo........................................................................... 789.4 745.8 751.2
Other........................................................................... 614.3 536.4 571.7
--------- --------- ---------
10,225.8 9,880.5 9,084.9
OPERATING EXPENSES
Salaries, wages and benefits.................................................... 3,023.9 2,709.4 2,412.1
Stock-based employee compensation............................................... -- 242.8 478.0
Aircraft fuel and taxes......................................................... 1,393.8 1,396.9 1,083.8
Commissions..................................................................... 855.2 868.4 840.5
Aircraft maintenance materials and repairs...................................... 620.4 556.2 395.4
Other rentals and landing fees.................................................. 456.7 454.0 476.2
Aircraft rentals................................................................ 358.9 346.3 338.9
Depreciation and amortization................................................... 396.0 377.7 358.1
Other........................................................................... 1,963.7 1,875.0 1,788.5
--------- --------- ---------
9,068.6 8,826.7 8,171.5
--------- --------- ---------
OPERATING INCOME.................................................................. 1,157.2 1,053.8 913.4
OTHER INCOME (EXPENSE)
Interest expense................................................................ (244.7) (269.8) (401.2)
Interest capitalized............................................................ 10.6 7.3 13.9
Interest of mandatorily redeemable preferred security holder.................... (24.3) (27.2) (7.1)
Investment income............................................................... 68.0 71.2 72.7
Foreign currency gain (loss).................................................... 1.8 19.1 (36.9)
Other--net...................................................................... 16.0 18.0 (11.3)
--------- --------- ---------
(172.6) (181.4) (369.9)
--------- --------- ---------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM................................. 984.6 872.4 543.5
Income tax expense.............................................................. 378.8 336.3 201.4
--------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM.................................................. 605.8 536.1 342.1
Gain (loss) on extinguishment of debt, net of taxes............................. (9.3) -- 49.9
--------- --------- ---------
NET INCOME 596.5 536.1 392.0
Preferred stock requirements.................................................... (13.5) (37.5) (57.8)
Preferred stock transactions.................................................... -- 74.5 58.9
--------- --------- ---------
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS...................................... $ 583.0 $ 573.1 $ 393.1
--------- --------- ---------
--------- --------- ---------
EARNINGS PER COMMON SHARE:
BASIC
Before effects of extraordinary item and preferred stock transactions......... $ 5.89 $ 5.05 $ 3.11
Gain (loss) on extinguishment of debt......................................... (0.10) -- .55
Preferred stock transactions.................................................. -- .75 .64
--------- --------- ---------
Earnings per common share..................................................... $ 5.79 $ 5.80 $ 4.30
--------- --------- ---------
--------- --------- ---------
DILUTED
Before effects of extraordinary item and preferred stock transactions......... $ 5.29 $ 4.52 $ 2.90
Gain (loss) on extinguishment of debt......................................... (0.08) -- .50
Preferred stock transactions.................................................. -- .68 .58
--------- --------- ---------
Earnings per common share..................................................... $ 5.21 $ 5.20 $ 3.98
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
NORTHWEST AIRLINES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................... $ 596.5 $ 536.1 $ 392.0
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 396.0 377.7 358.1
Income tax expense.......................................................... 378.8 336.3 201.4
Payment of income taxes..................................................... (114.3) (256.6) (116.9)
Pension and other postretirement benefit contributions (in excess of) less
than expense.............................................................. (125.8) 14.7 (97.6)
Stock-based employee compensation........................................... -- 242.8 478.0
Sale proceeds of frequent flyer miles in excess of revenue.................. 387.7 31.3 7.5
Other--net.................................................................. (1.8) (40.2) (59.4)
Changes in certain assets and liabilities:
Decrease (increase) in accounts receivable................................ 39.5 18.6 (56.0)
Decrease (increase) in flight equipment spare parts....................... (136.7) 12.2 (59.7)
Decrease (increase) in prepaid expenses and other......................... (13.3) (6.6) 28.3
Increase in air traffic liability......................................... 108.1 91.0 119.8
Increase (decrease) in accounts payable and other liabilities............. 82.3 (60.7) 243.3
Increase in accrued compensation and benefits............................. 10.3 75.7 21.8
--------- --------- ---------
Net cash provided by operating activities............................... 1,607.3 1,372.3 1,460.6
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.......................................................... (724.3) (1,205.3) (569.5)
Purchases of short-term investments........................................... (632.0) (501.2) (659.3)
Proceeds from maturities of short-term investments............................ 469.3 511.2 991.4
Other--net.................................................................... 1.1 (46.6) (8.3)
--------- --------- ---------
Net cash used in investing activities................................... (885.9) (1,241.9) (245.7)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common and preferred stock...................................... (524.4) -- --
Payment of long-term debt and capital lease obligations....................... (407.8) (550.4) (1,279.3)
Payment of short-term notes payable........................................... -- (379.2) --
Proceeds from long-term debt.................................................. 250.6 184.8 352.1
Proceeds from sale and leaseback transactions................................. 168.0 350.0 100.0
Other--net.................................................................... (26.8) (27.1) (4.8)
--------- --------- ---------
Net cash used in financing activities................................... (540.4) (421.9) (832.0)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ 181.0 (291.5) 382.9
Cash and cash equivalents at beginning of period................................ 559.4 850.9 468.0
--------- --------- ---------
Cash and cash equivalents at end of period...................................... $ 740.4 $ 559.4 $ 850.9
--------- --------- ---------
--------- --------- ---------
Cash and cash equivalents and unrestricted short-term investments at end of
period........................................................................ $ 1,039.9 $ 752.1 $ 970.9
--------- --------- ---------
--------- --------- ---------
Available to be borrowed under credit facilities................................ $ 1,079.2 $ 726.8 $ 187.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE>
NORTHWEST AIRLINES CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(IN MILLIONS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------- PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT OTHER STOCK TOTAL
------ ------ ---------- ----------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1995...................... 84.3 $0.8 $ 636.6 $(1,910.9) $ (97.2) $ -- $(1,370.7)
Net income................................... 392.0 392.0
Exchange of preferred stock for common
stock...................................... 2.0 37.9 58.9 96.8
Shares earned by employees including shares
issued to employee benefit plans........... 3.4 280.3 280.3
Accrued cumulative dividends on Series A and
B Preferred Stock.......................... (50.3) (50.3)
Accretion of Series C Preferred Stock........ (7.7) (7.7)
Tax benefit related to stock issued to
employees.................................. 2.1 2.1
Translation adjustments, net of income
taxes...................................... 1.7 1.7
Pension liability adjustment, net of income
taxes...................................... (179.1) (179.1)
Series C Preferred Stock converted to common
stock...................................... 0.5 8.1 8.1
Other........................................ 1.1 0.1 5.7 0.2 2.0 8.0
------ ------ ---------- ----------- ------- --------- ---------
BALANCE DECEMBER 31, 1995.................... 91.3 0.9 970.7 (1,517.8) (272.6) -- (818.8)
Net income................................... 536.1 536.1
Acquisition of preferred stock............... 74.5 74.5
Shares earned by employees including shares
issued to employee benefit plans........... 4.8 137.5 137.5
Accrued cumulative dividends on Series A and
B Preferred Stock.......................... (36.6) (36.6)
Accretion of Series C Preferred Stock........ (0.9) (0.9)
Tax benefit related to stock issued to
employees.................................. 7.0 7.0
Translation adjustments, net of income
taxes...................................... (0.1) (0.1)
Pension liability adjustment, net of income
taxes...................................... 157.5 157.5
Series C Preferred Stock converted to common
stock...................................... 1.0 32.0 32.0
Other........................................ 0.5 .1 3.9 (0.5) 1.2 4.7
------ ------ ---------- ----------- ------- --------- ---------
BALANCE DECEMBER 31, 1996.................... 97.6 1.0 1,151.1 (945.2) (114.0) -- 92.9
Net income................................... 596.5 596.5
Repurchase of common stock................... 7.0 (273.1) (266.1)
Common stock committed to be repurchased..... 21.9 (848.5) (826.6)
Shares issued to employee benefit plans...... 3.5 --
Accrued cumulative dividends on Series A and
B Preferred Stock.......................... (14.4) (14.4)
Accretion of Series C Preferred Stock........ (1.1) (1.1)
Tax benefit related to stock issued to
employees.................................. 29.1 29.1
Translation adjustments, net of income
taxes...................................... 5.8 5.8
Pension liability adjustment, net of income
taxes...................................... 5.3 5.3
Series C Preferred Stock converted to common
stock...................................... 1.8 57.7 57.7
Other........................................ 0.9 7.0 2.0 0.9 9.9
------ ------ ---------- ----------- ------- --------- ---------
BALANCE DECEMBER 31, 1997.................... 103.8 $1.0 $1,273.8 $ (362.2) $(102.0) $(1,121.6) $ (311.0)
------ ------ ---------- ----------- ------- --------- ---------
------ ------ ---------- ----------- ------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: Northwest Airlines Corporation ("NWA Corp.") is a
holding company whose principal indirect operating subsidiary is Northwest
Airlines, Inc. ("Northwest"). The consolidated financial statements include the
accounts of NWA Corp. and all subsidiaries (collectively, the "Company"). All
significant intercompany transactions have been eliminated. Investments in 20%
to 50% owned companies are accounted for by the equity method. Other investments
are accounted for by the cost method.
Certain prior year amounts have been reclassified to conform with the
current year financial statement presentation.
BUSINESS: Northwest's operations comprise more than 95% of the Company's
consolidated operating revenues and expenses. Northwest is a major air carrier
engaged principally in the commercial transportation of passengers and cargo,
directly serving more than 150 cities in 18 countries in North America, Asia and
Europe. Northwest's global airline network includes domestic hubs at Detroit,
Minneapolis/St. Paul and Memphis, an extensive Pacific route system with hubs at
Tokyo and Osaka, and a trans-Atlantic alliance with KLM Royal Dutch Airlines
("KLM") which operates through a hub in Amsterdam.
FLIGHT EQUIPMENT SPARE PARTS: Flight equipment spare parts are carried at
average cost. An allowance for depreciation is provided at rates which
depreciate cost, less residual value, over the estimated useful lives of the
related aircraft.
PROPERTY, EQUIPMENT AND DEPRECIATION: Owned property and equipment are
stated at cost. Property and equipment acquired under capital leases are stated
at the lower of the present value of minimum lease payments or fair market value
at the inception of the lease. Property and equipment are depreciated to
residual values using the straight-line method over the estimated useful lives
of the assets. Commencing with the acquisition of the parent of Northwest in
1989, estimated useful lives generally range from 4 to 25 years for flight
equipment and 3 to 32 years for other property and equipment. Leasehold
improvements are generally amortized over the remaining period of the lease or
the estimated service life of the related asset, whichever is less. Property and
equipment under capital leases are amortized over the lease terms or the
estimated useful lives of the assets.
AIRFRAME AND ENGINE MAINTENANCE: Routine maintenance and airframe and
engine overhauls are charged to expense as incurred. Modifications that enhance
the operating performance or extend the useful lives of airframes or engines are
capitalized and amortized over the remaining useful life of the asset.
FREQUENT FLYER PROGRAM: The estimated incremental cost of providing travel
awards earned under Northwest's WorldPerks frequent flyer program is accrued.
The Company sells mileage credits to participating companies in its frequent
flyer program. A portion of such revenue is deferred and amortized as
transportation is provided.
OPERATING REVENUES: Passenger and cargo revenues are recognized when the
transportation is provided. The air traffic liability represents the estimated
value of sold but unused tickets and is regularly evaluated by the Company.
ADVERTISING: Advertising costs, included in other operating expenses, are
expensed as incurred and were $109.8 million, $120.4 million and $119.4 million
in 1997, 1996 and 1995, respectively.
32
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EMPLOYEE STOCK OPTIONS: The Company uses the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for employee
stock options. Under the intrinsic value method, compensation expense is
recognized only to the extent the market price of the common stock exceeds the
exercise price of the stock option at the date of the grant.
FOREIGN OPERATIONS: Operating revenues from foreign operations, primarily
in the Pacific region, totaled approximately $3.43 billion, $3.39 billion and
$3.17 billion in 1997, 1996 and 1995, respectively. International routes are
amortized on a straight-line basis, generally over 40 years. International
operating route authorities and alliances are regulated by governmental policy
and bilateral agreements between nations. Changes in such policies or agreements
could impact Northwest.
Assets and liabilities denominated in foreign currency are remeasured at
current exchange rates with resulting gains and losses generally included in net
income.
The Preferred Security (see Note F) and other assets and liabilities of
certain properties located outside of the United States whose cash flows are
primarily in the local functional currency are translated at current exchange
rates, with translation gains and losses recorded directly to common
stockholders' equity deficit. The cumulative foreign translation loss, net of
tax, was $33.6 million as of December 31, 1997.
INCOME TAXES: The Company accounts for income taxes utilizing the liability
method. Deferred income taxes are primarily recorded to reflect the tax
consequences of differences between the tax and financial reporting bases of
assets and liabilities.
EARNINGS PER SHARE: In 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share". SFAS 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. All
earnings per share amounts for all periods have been presented and restated to
conform to SFAS 128 requirements. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of stock options and
convertible securities. Diluted earnings per share is similar to the previously
reported fully diluted earnings per share.
USE OF ESTIMATES: The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in its
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
NEW ACCOUNTING STANDARDS: In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income" and Statement of Financial Accounting Standards
No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 130 establishes standards for the reporting and presentation
of comprehensive income and its components. SFAS 131 establishes standards for
defining operating segments and the reporting of certain information regarding
operating segments. Because these statements only impact how financial
information is disclosed in interim and annual reports, the adoption will have
no impact to the Company's financial condition or results of operations.
33
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--EARNINGS PER SHARE DATA
The following table sets forth the computation of basic and diluted earnings
per common share (in millions, except share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Numerator:
Income before extraordinary item.................................. $ 605.8 $ 536.1 $ 342.1
Preferred stock requirements.................................... (13.5) (37.5) (57.8)
Preferred stock transactions.................................... -- 74.5 58.9
------------- ------------- -------------
Income applicable to common stockholders for basic earnings per
share......................................................... 592.3 573.1 343.2
Effect of dilutive securities:
Series C Preferred Stock........................................ 1.1 0.9 7.7
------------- ------------- -------------
Income applicable to common stockholders after assumed conversions
for diluted earnings per share.................................. $ 593.4 $ 574.0 $ 350.9
------------- ------------- -------------
------------- ------------- -------------
Denominator:
Weighted-average shares outstanding for basic earnings per
share........................................................... 100,616,605 98,731,917 91,378,509
Effect of dilutive securities:
Series C Preferred Stock........................................ 9,981,547 10,216,939 7,441,240
Employee stock options.......................................... 1,319,177 1,482,406 1,838,509
Common stock repurchase obligation.............................. 280,253 -- --
------------- ------------- -------------
Adjusted weighted-average shares and assumed conversions for
diluted earnings per share...................................... 112,197,582 110,431,262 100,658,258
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
For additional disclosures regarding the outstanding Series C Preferred
Stock, the employee stock options, the common stock repurchase obligation and
additional shares to be issued, see Notes C, G, H, I and S.
NOTE C--LABOR AGREEMENTS
The Company's labor agreements provided for wage and other compensation
savings (the "Actual Savings") by domestic employees, including management, and
other cost reductions which aggregated $897 million over a 36 to 39 month period
(depending on the labor group) (the "Wage Savings Period") which ended between
August and November 1996. As part of an overall revised compensation plan
provided by the labor agreements, the Company, among other things, issued to
trusts for the benefit of participating employees 9.1 million shares of a new
class of NWA Corp. Series C cumulative, voting, convertible, redeemable
preferred stock (the "Series C Preferred Stock") and 17.5 million shares of NWA
Corp. Class A and Class B Common Stock and provided the union groups with three
positions on the Board of Directors.
34
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--LABOR AGREEMENTS (CONTINUED)
Information with respect to the shares issued to trusts for the benefit of
employees is as follows (in millions):
<TABLE>
<CAPTION>
SERIES C PREFERRED STOCK COMMON STOCK
-------------------------------------------------- ------------------------
FINANCIAL
SHARES TO SHARES SHARES HELD STATEMENT SHARES TO SHARES
BE ISSUED EARNED BY TRUSTS AMOUNT BE ISSUED EARNED
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1995........................ 5.9 4.0 3.0 $ 91.3 12.0 7.8
Shares earned by employees................... -- 2.9 -- 197.7 -- 5.5
Shares issued to trusts...................... (1.8) -- 1.8 -- (3.4) --
Series C Preferred Stock converted to common
stock...................................... -- -- (.4) (8.1) -- --
Withdrawals from trusts...................... -- -- -- -- -- --
Accretion.................................... -- -- -- 7.7 -- --
--- --- --- ----------- --- ---
Balance December 31, 1995...................... 4.1 6.9 4.4 288.6 8.6 13.3
Shares earned by employees................... -- 2.2 -- 105.3 -- 4.2
Shares issued to trusts...................... (2.6) -- 2.6 -- (4.8) --
Series C Preferred Stock converted to common
stock...................................... -- -- (.8) (32.0) -- --
Withdrawals from trusts...................... -- -- -- -- -- --
Accretion and other.......................... .2 -- -- .9 (.3) --
--- --- --- ----------- --- ---
Balance December 31, 1996...................... 1.7 9.1 6.2 362.8 3.5 17.5
Shares issued to trusts...................... (1.7) -- 1.7 -- (3.5) --
Series C Preferred Stock converted to common
stock...................................... -- -- (1.3) (57.7) -- --
Withdrawals from trusts...................... -- -- -- -- -- --
Accretion.................................... -- -- -- 1.1 -- --
--- --- --- ----------- --- ---
Balance December 31, 1997...................... -- 9.1 6.6 $ 306.2 -- 17.5
--- --- --- ----------- --- ---
--- --- --- ----------- --- ---
<CAPTION>
FINANCIAL
SHARES HELD STATEMENT
BY TRUSTS AMOUNT
----------- -----------
<S> <C> <C>
Balance January 1, 1995........................ 5.8 $ 121.4
Shares earned by employees................... -- 280.3
Shares issued to trusts...................... 3.4 --
Series C Preferred Stock converted to common
stock...................................... .5 8.1
Withdrawals from trusts...................... (2.0) --
Accretion.................................... -- --
--- -----------
Balance December 31, 1995...................... 7.7 409.8
Shares earned by employees................... -- 137.5
Shares issued to trusts...................... 4.8 --
Series C Preferred Stock converted to common
stock...................................... 1.0 32.0
Withdrawals from trusts...................... (2.3) --
Accretion and other.......................... -- --
--- -----------
Balance December 31, 1996...................... 11.2 579.3
Shares issued to trusts...................... 3.5 --
Series C Preferred Stock converted to common
stock...................................... 1.8 57.7
Withdrawals from trusts...................... (4.2) --
Accretion.................................... -- --
--- -----------
Balance December 31, 1997...................... 12.3 $ 637.0
--- -----------
--- -----------
</TABLE>
NWA Corp. has authorized 25,000,000 shares of Series C Preferred Stock, par
value $.01 per share. The Series C Preferred Stock ranks senior to common stock
with respect to liquidation and certain dividend rights. As long as the Class A
Common Stock is publicly traded, no dividends accrue on the Series C Preferred
Stock. Each share of the Series C Preferred Stock is convertible at any time
into 1.364 shares of common stock. As of December 31, 1997, 2.5 million shares
of Series C Preferred Stock have been converted into common stock and the
remaining 6.6 million shares outstanding are convertible into 9.0 million shares
of common stock.
Series C Preferred Stock is required to be redeemed in 2003 for a pro rata
share of Actual Savings ($311.3 million as of December 31, 1997). NWA Corp. has
the option to redeem in cash, issue additional common stock, or use a
combination thereof, to satisfy the redemption requirement. A decision to issue
only additional common stock must be approved by a majority of the three
directors elected by the holders of the Series C Preferred Stock. If NWA Corp.
fails to redeem the Series C Preferred Stock, dividends accrue at the higher of
(i) 12% or (ii) the highest penalty rate on any then outstanding series of
preferred stock, and the employee unions receive three additional Board of
Directors positions. The financial statement carrying value of the Series C
Preferred Stock is being accreted over ten years commencing
35
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--LABOR AGREEMENTS (CONTINUED)
August 1993 to the ultimate redemption amount. Prior to 2003, NWA Corp. at its
option may redeem in whole or in part the Series C Preferred Stock at its
liquidation value.
Because of applicable accounting requirements, the Company recognized
compensation expense for each year based on the values at the measurement date
of the Series C Preferred Stock and the common stock earned by employees. Such
non-cash stock-based compensation expense was calculated each month by (1)
determining the aggregate current value of all Series C Preferred Stock and
common stock earned by employees since the previous January 1 using current per
share values as of the balance sheet date and then (2) subtracting the non-cash
compensation previously recognized since January 1. The final measurement dates
for 1996 coincided with the end of the Wage Savings Period for each of the labor
groups and the final measurement date for 1995 was December 31, 1995.
Approximately ninety percent of the Company's employees are members of
collective bargaining units. All of the labor agreements became amendable in
1996 at the end of the Wage Savings Period and hence future labor costs are
subject to collective bargaining. The Company is currently negotiating with each
of the collective bargaining units, but cannot predict the ultimate outcome of
the negotiations at this time.
NOTE D--LONG-TERM DEBT AND SHORT-TERM BORROWINGS
Long-term debt consisted of the following (in millions, with interest rates
as of December 31, 1997):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Secured notes due through 2009, 7.2% weighted average rate (a)......... $ 348.9 $ 348.9
NWA Trust No. 2 aircraft notes due through 2012, 10.6% weighted average
rate (b)............................................................. 330.9 337.9
Unsecured notes due in 2004 and 2007, 8.5% weighted average rate (c)... 249.7 --
Equipment pledge notes due through 2013, 7.8% weighted average rate.... 248.4 286.8
Sale-leaseback financing obligations due through 2020, 9.9% imputed
rate (d)............................................................. 223.0 262.5
NWA Trust No. 1 aircraft notes due through 2006, 8.6% weighted average
rate (e)............................................................. 208.7 220.4
Term loan due through 2002, 6.9% (f)................................... 150.0 150.0
Term certificates due 1999, 7.0% (g)................................... 135.0 145.0
Senior unsecured floating rate note due 1998, 6.9%..................... 76.0 152.0
Other.................................................................. 98.7 156.9
--------- ---------
Total long-term debt................................................... 2,069.3 2,060.4
Less current maturities.............................................. 227.4 144.4
--------- ---------
$ 1,841.9 $ 1,916.0
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) In April 1996, the Company restructured floating rate notes with certain
manufacturers. Principal repayments are due semi-annually beginning 2001.
36
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D--LONG-TERM DEBT AND SHORT-TERM BORROWINGS (CONTINUED)
(b) In December 1994, the Company completed a structured aircraft financing
transaction in which 13 Airbus A320 aircraft were transferred from Northwest
(subject to existing indebtedness) to an owner trust (NWA Trust No. 2). A
limited partnership, of which Northwest is the limited partner and Norbus,
Inc. (an affiliate of Airbus Industrie A.I.E.) is the general partner, is
the sole equity participant in the owner trust. All proceeds from the
transaction were used to repay equipment pledge notes which had previously
been issued to finance the acquisition of these aircraft by Northwest. The
aircraft were simultaneously leased back to Northwest.
Financing of $352 million was obtained through the issuance of $176 million
of 9.25% Class A Senior Aircraft Notes, $66 million of 10.23% Class B
Mezzanine Aircraft Notes, $44 million of 11.30% Class C Mezzanine Aircraft
Notes and $66 million of 13.875% Class D Subordinated Aircraft Notes. The
notes are payable semi-annually from rental payments made by Northwest under
the lease of the aircraft and are secured by the aircraft subject to the
lease as well as the lease itself.
In December 1997, the Company initiated a tender offer for the repurchase of
the 13.875% Class D Subordinated Aircraft Notes. The offer expired on
December 30, 1997 with 99% of the notes tendered. On January 2, 1998, the
notes were repurchased for $78.7 million. Consequently, a loss of $9.3
million, net of $5.4 million in income taxes, was recorded as an
extraordinary item in 1997.
(c) In March 1997, the Company issued $150 million of 8.375% notes due 2004 and
$100 million of 8.70% notes due 2007. Interest on the notes is payable
semi-annually.
(d) In March 1992, the Company completed agreements with the Minneapolis-St.
Paul Metropolitan Airports Commission ("MAC") for the sale and leaseback of
various corporate assets. The sale-leaseback agreements, which are accounted
for as debt, call for increasing quarterly payments over a 30-year term and
include a provision which gives the Company the option to repurchase the
assets. The agreements with the MAC are part of a group of financing
arrangements with the State of Minnesota and other government agencies. In
December 1997, the Company prepaid $39 million of these obligations.
(e) In March 1994, Northwest consummated a financing transaction in which six
Boeing 747-200 and four Boeing 757-200 aircraft were sold to an owner trust
(NWA Trust No. 1) of which NWA Aircraft Finance, Inc., an indirect
subsidiary of the Company, is the sole equity participant. A portion of the
purchase price was financed through the issuance of $177 million of 8.26%
Class A Senior Aircraft Notes and $66 million of 9.36% Class B Subordinated
Aircraft Notes. The aircraft were simultaneously leased back to Northwest.
The notes are payable semi-annually from rental payments made by Northwest
under the lease of the aircraft and are secured by the aircraft subject to
the lease as well as the lease itself.
(f) The floating rate term loan is payable in three equal installments beginning
2001 with final maturity of the loan in 2002. During 1996, the Company
prepaid $150 million of its $300 million term loan.
The Company's Credit Agreement was amended in December 1997 to increase its
existing unsecured revolving credit facility from $500 million to $675
million and to extend the availability period to December 2002, and to add a
new $175 million 364-day unsecured revolving credit facility. If the 364-day
facility is not renewed for an additional 364-day period, the Company may
borrow up to the entire amount of the facility and all such borrowings
mature in December 2002. Commitment fees are payable by the Company on the
unused portion of these revolving credit facilities at a rate per annum
determined by reference to the Company's unsecured debt rating and are not
considered material. At
37
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D--LONG-TERM DEBT AND SHORT-TERM BORROWINGS (CONTINUED)
December 31, 1997, $839.2 million remained available to be borrowed in the
aggregate under both facilities as a result of the issuance on behalf of the
Company of $10.8 million of letters of credit.
(g) In March 1994, Northwest agreed to sell certain receivables on an ongoing
basis to Northwest Capital Funding Corp. ("NCF"), pursuant to a receivable
financing program (the "Receivable Program"). NCF, an indirect subsidiary of
the Company, has issued through a master trust floating rate Term
Certificates. The Receivable Program provides for the early retirement of
the related Term Certificates upon the occurrence of certain events, one of
which occurred on January 25, 1998. Accordingly, the Company advised the
trustee for the certificateholders that these certificates will be paid in
full on February 25, 1998.
Maturities of long-term debt for the five years subsequent to December 31,
1997, assuming the accelerated maturity in (g) above, are as follows (in
millions):
<TABLE>
<S> <C>
1998................................................................ $ 362.4
1999................................................................ 50.1
2000................................................................ 47.4
2001................................................................ 125.8
2002................................................................ 189.8
</TABLE>
The debt and lease agreements of the Company contain certain restrictive
covenants, including limitations on indebtedness, equity redemptions and the
declaration of dividends, as well as requirements to maintain certain financial
ratios, including collateral coverage ratios. At December 31, 1997, the Company
was in compliance with the covenants of all of its debt and lease agreements.
Various assets, principally aircraft, having an aggregate book value of $2.2
billion at December 31, 1997, were pledged under various loan agreements.
Cash payments of interest, net of capitalized interest, aggregated $231.3
million in 1997, $263.3 million in 1996, and $365.6 million in 1995.
The weighted average interest rates on short-term borrowings outstanding at
December 31 were 6.24%, 5.69% and 5.73% for 1997, 1996 and 1995, respectively.
These short-term borrowings were used primarily for financing aircraft insurance
premiums, fuel hedging activities and the acquisition of preferred stock (see
Note G).
NOTE E--LEASES
The Company leases under noncancelable operating leases certain aircraft,
space in airport terminals, land and buildings at airports, ticket, sales and
reservations offices, and other property and equipment which expire in various
years through 2027. Portions of certain facilities are subleased under
noncancelable operating leases expiring in various years through 2020.
At December 31, 1997, the Company leased 120 of the 405 aircraft it
operates. Of these, 30 were capital leases and 90 were operating leases.
Expiration dates range from 1998 to 2009 for aircraft under capital leases, and
from 1998 to 2019 for aircraft under operating leases. The Company's aircraft
leases can generally be renewed for terms ranging from one to five years at
rates based on the aircraft's fair market value at the end of the lease term.
Ninety-five of the 120 aircraft lease agreements provide the Company with
purchase options at the end of the lease term which approximate fair market
value.
38
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E--LEASES (CONTINUED)
Rental expense for all operating leases consisted of (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Gross rental expense............................................. $ 627.1 $ 596.5 $ 601.9
Sublease rental income........................................... (79.5) (62.2) (57.6)
--------- --------- ---------
Net rental expense............................................... $ 547.6 $ 534.3 $ 544.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 31, 1997, future minimum lease payments under capital leases and
noncancelable operating leases with initial or remaining terms of more than one
year were as follows (in millions):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1998................................................................... $ 112.8 $ 473.5
1999................................................................... 105.3 460.2
2000................................................................... 103.0 439.2
2001................................................................... 103.5 425.8
2002................................................................... 274.2 431.6
Thereafter............................................................. 301.6 4,560.7
--------- -----------
1,000.4 6,791.0
Less sublease rental income............................................ 327.4
-----------
Total minimum operating lease payments................................. $ 6,463.6
-----------
-----------
Less amounts representing interest..................................... 295.1
---------
Present value of future minimum capital lease payments................. 705.3
Less current obligations under capital leases.......................... 55.9
---------
Long-term obligations under capital leases............................. $ 649.4
---------
---------
</TABLE>
NOTE F--MANDATORILY REDEEMABLE PREFERRED SECURITY OF SUBSIDIARY WHICH HOLDS
SOLELY NON-RECOURSE OBLIGATION OF COMPANY
In October 1995, the Company completed a restructuring of its
yen-denominated non-recourse obligation secured by land and buildings the
Company owns in Tokyo. A newly formed consolidated subsidiary of the Company
(the "Subsidiary") entered into a Japanese business arrangement designated under
Japanese law as a tokumei kumiai ("TK"). Pursuant to the TK arrangement, the
holder of the non-recourse obligation restructured such obligation and then
assigned title to and ownership of such obligation to the Subsidiary as operator
under the TK arrangement in exchange for a preferred interest in the profits and
returns of capital from the business of the Subsidiary (the "Preferred
Security"). The restructured non-recourse obligation is the sole asset of the
Subsidiary. As a result of this restructuring, the original holder of such
non-recourse obligation ceased to be a direct creditor of the Company and the
Company's obligation is reflected in the Company's Consolidated Balance Sheet as
"Mandatorily Redeemable Preferred Security of Subsidiary which holds solely
non-recourse obligation of Company." NWA Corp. has guaranteed the obligation of
the Subsidiary to distribute payments on the Preferred Security pursuant to the
TK arrangement if and to the extent payments are received by the Subsidiary.
39
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F--MANDATORILY REDEEMABLE PREFERRED SECURITY OF SUBSIDIARY WHICH HOLDS
SOLELY NON-RECOURSE OBLIGATION OF COMPANY (CONTINUED)
The restructured obligation matures in three approximately equal annual
installments due in 2005, 2006 and 2007. In addition to these installments, cash
payments on the restructured obligation will be payable semi-annually at the
rate of 4% per annum until March 31, 2000 and at a rate based upon a floating
long-term Japanese prime rate (capped at 6%) thereafter. During the first three
years, one-fourth of the cash payments are applied to reduce the obligation. The
obligation remains non-recourse to the Company. In addition, the Company retains
the ability (exercisable at any time after September 30, 2001) to transfer the
property in full satisfaction of all Company obligations related to the
financing.
The initial financial statement carrying value of the Preferred Security
reflected the fair value as of the closing date. The excess of the financial
statement carrying value of the original non-recourse obligation over the fair
value of the Preferred Security at the date of the restructuring resulted in a
1995 gain of $61.9 million, net of $36.6 million in income taxes. This gain,
together with losses on other debt extinguishments, is shown as an extraordinary
item net of $29.4 million in income taxes in 1995.
The carrying value is being accreted over 12 years from October 1995 to the
ultimate maturity value of 72.2 billion yen ($551 million based on the December
31, 1997 exchange rate). Such accretion is included as a component of "Interest
of mandatorily redeemable preferred security holder" in the Consolidated
Statements of Income.
NOTE G--SERIES A AND SERIES B REDEEMABLE PREFERRED STOCK
Series A and Series B Preferred Stock consisted of the following (dollars in
millions):
<TABLE>
<CAPTION>
SERIES A SERIES B
-------------------- -------------------- ACCRUED
SHARES AMOUNT SHARES AMOUNT DIVIDENDS TOTAL
--------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1995........................ 5,000.0 $ 250.0 6,853.0 $ 342.7 $ 111.0 $ 703.7
Exchange of preferred stock for
common stock............................... -- -- (1,727.0) (86.4) (10.7) (97.1)
Accrued dividends............................ -- -- -- -- 50.3 50.3
--------- --------- --------- --------- ----------- ---------
Balance December 31, 1995...................... 5,000.0 250.0 5,126.0 256.3 150.6 656.9
Acquisition of preferred stock............... (3,691.2) (184.6) (2,962.8) (148.1) (121.0) (453.7)
Accrued dividends............................ -- -- -- -- 36.6 36.6
--------- --------- --------- --------- ----------- ---------
Balance December 31, 1996...................... 1,308.8 $ 65.4 2,163.2 $ 108.2 $ 66.2 $ 239.8
Acquisition of preferred stock............... (1,308.8) (65.4) (2,163.2) (108.2) (80.6) (254.2)
Accrued dividends............................ -- -- -- -- 14.4 14.4
--------- --------- --------- --------- ----------- ---------
Balance December 31, 1997...................... -- -- -- -- -- --
--------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- ----------- ---------
</TABLE>
In September 1997, NWA Corp. repurchased all of the Series A and B Preferred
Stock outstanding for $251.3 million in cash.
For each of the Series A and Series B Preferred Stock, 10,000 shares were
authorized, par value was $.01 per share and the stated value was $50,000 per
share. Both series were entitled to a preference in voluntary and involuntary
liquidation, in the amount of $50,000 per share, plus accrued and unpaid
40
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--SERIES A AND SERIES B REDEEMABLE PREFERRED STOCK (CONTINUED)
dividends. Holders of the Series A and Series B Preferred Stock had voting
rights for the election of directors. Both series accrued dividends at 8% per
year and were cumulative if unpaid.
In July 1996, NWA Corp. acquired from KLM 3,691.2 shares of Series A
Preferred Stock and 2,962.8 shares of Series B Preferred Stock in exchange for
two unsecured promissory notes aggregating $379 million, both of which were
repaid December 1996. These transactions resulted in an increase to net income
applicable to common stockholders of $74.5 million.
In January 1995, NWA Corp. consummated an agreement with Bankers Trust New
York Corporation to exchange 1,727 shares of NWA Corp. Series B Preferred Stock
for 2,050,000 shares of newly issued Class B Common Stock. This transaction
resulted in a transfer from redeemable preferred stock to common stockholders'
equity deficit of $96.8 million, net of expenses, and an increase to net income
applicable to common stockholders of $58.9 million.
NOTE H--REDEEMABLE COMMON STOCK
On September 29, 1997, NWA Corp. and KLM entered into agreements providing
for the acquisition by NWA Corp. of all the NWA Corp. common stock held by KLM
(24,977,874 shares) for $1.12 billion, which included 3,293,775 million shares
of common stock that KLM acquired from other stockholders. On that date, 6.8
million shares were repurchased for $273.1 million. Concurrently with the
purchase of the first tranche, all of KLM's existing governance rights under
various stockholder and other agreements were canceled, NWA Corp. and KLM
entered into an agreement containing customary standstill obligations and KLM
withdrew its pending legal actions against the Company, its directors and
certain stockholders. The remaining 18.2 million shares of common stock to be
repurchased (4.9 million in 1998, 3.2 million in 1999 and 10.1 million in 2000)
were reclassified to redeemable common stock from common stockholders' equity
deficit, as required for such stock transactions. However, earnings per share
calculations will continue to include the 18.2 million shares until actually
repurchased. The Company and KLM also expanded their alliance by entering into
an enhanced commercial and operational alliance providing for a minimum term of
13 years.
Subsequently, on January 16, 1998, NWA Corp. reached an agreement in
principle with KLM to accelerate the repurchase of the remaining 18.2 million
shares of common stock to 1998 versus over a three-year period. The estimated
purchase price of $775 million will be paid with a combination of approximately
$335 million of cash and three senior unsecured notes for the remainder. The
notes will bear interest at 7.88% and mature each September 29, 1998, 1999 and
2000. This transaction will result in a transfer from redeemable common stock to
common stockholders' equity deficit of approximately $73 million.
The cash requirements under the original repurchase obligation compared to
the cash requirements under the accelerated repurchase are shown below (in
millions):
<TABLE>
<CAPTION>
1998 1999 2000
--------- --------- ---------
<S> <C> <C> <C>
AS OF DECEMBER 31, 1997.......................................... $ 210.1 $ 147.4 $ 491.0
INITIAL CASH PAYMENT AND MATURITIES OF THE UNSECURED NOTES....... $ 539.0 $ 136.0 $ 100.0
</TABLE>
41
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--REDEEMABLE COMMON STOCK (CONTINUED)
The agreement in principle is subject to the execution of definitive
documentation and the approval of the respective boards of NWA Corp. and KLM.
The transaction is expected to close before May 1, 1998 at which time the 18.2
million remaining common shares will be repurchased and excluded from the
earnings per share calculations. In certain limited circumstances (e.g., the
failure of the alliance to maintain certain antitrust immunity or Northwest's
default under the alliance agreement), KLM will have an option to buy back from
NWA Corp. up to 18.2 million shares.
NOTE I--COMMON STOCKHOLDERS' EQUITY (DEFICIT)
NWA Corp.'s classes of common stock consisted of (shares in millions):
<TABLE>
<CAPTION>
CLASS A VOTING CLASS B NON-VOTING
PAR VALUE $.01 PAR VALUE $.01 TOTAL
--------------- --------------------- ---------
<S> <C> <C> <C>
Balance at January 1, 1995........................ 77.1 7.2 84.3
Exchange of Series B Preferred Stock for common
stock......................................... -- 2.0 2.0
Shares issued to employee trusts................ 3.0 .4 3.4
Conversion of Class B to Class A................ 6.2 (6.2) --
Conversion of Series C Preferred Stock.......... .4 .1 .5
Exercise of stock options....................... 1.1 -- 1.1
----- --- ---------
Balance at December 31, 1995...................... 87.8 3.5 91.3
Shares issued to employee trusts................ 4.2 .6 4.8
Conversion of Class B to Class A................ .3 (.3) --
Conversion of Series C Preferred Stock.......... .9 .1 1.0
Exercise of stock options....................... .5 -- .5
----- --- ---------
Balance at December 31, 1996...................... 93.7 3.9 97.6
Shares issued to employee trusts................ 3.1 .4 3.5
Conversion of Class B to Class A................ 3.1 (3.1) --
Conversion of Series C Preferred Stock.......... 1.6 .2 1.8
Exercise of stock options....................... .9 -- .9
----- --- ---------
Balance at December 31, 1997...................... 102.4 1.4 103.8
----- --- ---------
----- --- ---------
</TABLE>
Authorized shares are 250 million and 65 million of Class A and Class B
Common Stock, respectively. Shares of Class B Common Stock are convertible at
any time into an equal number of shares of Class A Common Stock and vice versa.
Pursuant to the Stockholder Rights Plan (the "Rights Plan"), each share of
common stock has attached thereto a right and, until the rights expire or are
redeemed, each new share of common stock issued by NWA Corp., including the
shares of common stock into which the Series C Preferred Stock is convertible,
will include one right. Upon the occurrence of certain events, each right
entitles the holder to purchase one one-hundredth of a share of Series D Junior
Participating Preferred Stock at an exercise price of $150, subject to
adjustment. The rights become exercisable only after any person or group (other
than the trusts holding common stock for the benefit of employees) acquires
beneficial ownership of 19% or more of NWA Corp's "outstanding" common stock (as
defined in the Rights Plan) or commences a tender or exchange offer that would
result in such person or group acquiring beneficial ownership of 19%
42
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--COMMON STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
or more of NWA Corp's outstanding common stock. If any person or group acquires
beneficial ownership of 19% or more of NWA Corp's outstanding common stock, the
holders of the rights (other than the acquiring person or group) will be
entitled to receive upon exercise of the rights, Class A Common Stock of NWA
Corp having a market value of two times the exercise price of the right. In
addition, if after the rights become exercisable NWA Corp is involved in a
merger or other business combination or sells more than 50% of its assets or
earning power, each right will entitle its holder (other than the acquiring
person or group) to receive common stock of the acquiring company having a
market value of two times the exercise price of the rights. The rights expire on
November 16, 2005 and may be redeemed by NWA Corp at a price of $.01 per right
prior to the time they become exercisable.
NWA Corp. has stock option plans for officers and key employees. Options
generally become exercisable in equal annual installments over four or five
years and expire 10 years from the date of the grant. NWA Corp.'s policy is to
grant options with the exercise price equal to the market price of the common
stock on the date of grant. To the extent that options are granted with an
exercise price less than the market price on the date of the grant, compensation
expense is recognized over the vesting period of the grant.
Following is a summary of stock option activity (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- ------------------------
WEIGHTED-AVG WEIGHTED-AVG WEIGHTED-AVG
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ------------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........... 4,774 $ 20.11 3,509 $ 10.56 4,525 $ 8.70
Granted.................................... 1,454 39.26 1,836 35.04 206 26.06
Forfeited.................................. (154) 36.24 (118) 15.55 (165) 10.72
Exercised.................................. (870) 7.49 (453) 7.92 (1,057) 5.38
Outstanding at end of year................. 5,204 27.09 4,774 20.11 3,509 10.56
Exercisable at end of year................. 1,894 15.55 1,907 9.16 1,594 7.95
Class A Common Stock:
Reserved for issuance.................... 7,948 7,948 4,948
Available for future grants.............. 187 1,487 205
</TABLE>
AT DECEMBER 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------ OPTIONS EXERCISABLE
WEIGHTED-AVERAGE ------------------------------
REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- ------------------------------------------ ----------- ---------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$4.74 to $13.00........................... 1,624 5.9 years $ 10.40 1,257 $ 9.90
14.00 to 31.875........................... 1,061 7.6 26.25 428 21.75
34.00 to 44.125........................... 2,519 9.2 38.20 209 36.87
</TABLE>
The weighted-average fair value of options granted during 1997, 1996 and
1995 is $16.50, $14.89 and $11.68 per option, respectively. The fair value of
each option grant is estimated as of the date of grant using the Black-Scholes
single option-pricing model assuming a weighted average risk-free interest rate
of 6.1%, 6.4% and 6.9% for 1997, 1996 and 1995, respectively, and expected lives
of six years and volatility of
43
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--COMMON STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
30% for all years presented. Had compensation expense for stock options been
determined based on the fair value method (instead of intrinsic value method) at
the grant dates for awards, the Company's 1997, 1996 and 1995 net income and
earnings per share would have decreased by less than 1%. The effects of applying
the fair value method of measuring compensation expense for 1997, 1996 and 1995
are likely not representative of the effects for future years in part because
the fair value method was applied only to stock options granted after December
31, 1994.
In 1996, NWA Corp. adopted long term performance and retention arrangements
under which 500,000 phantom stock units were awarded at no cost. Vested units
are payable in cash based on the market value of NWA Corp.'s common stock at the
time of payment. Of the units granted, 100,000 of the units vested and were paid
in 1996. The remaining 400,000 units can vest, subject to the satisfaction of
performance criteria, in eight installments over two-year performance periods,
the first of which ended in 1997 and the final of which ends in 2004.
Compensation expense is recorded over each two-year vesting period. As of
December 31, 1997, 400,000 units were outstanding, 50,000 of which were vested.
NOTE J--INCOME TAXES
Income tax expense consisted of the following (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal........................................................ $ 108.5 $ 175.0 $ 89.1
Foreign........................................................ 3.7 4.1 3.9
State.......................................................... 10.9 22.3 13.0
--------- --------- ---------
123.1 201.4 106.0
Deferred:
Federal........................................................ 236.8 112.1 91.4
Foreign........................................................ -- 16.6 .7
State.......................................................... 18.9 6.2 3.3
--------- --------- ---------
255.7 134.9 95.4
--------- --------- ---------
Total income tax expense......................................... $ 378.8 $ 336.3 $ 201.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
44
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J--INCOME TAXES (CONTINUED)
Reconciliation of the statutory rate to the Company's income tax expense is
as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory rate applied to income before income taxes and
extraordinary item............................................. $ 344.6 $ 305.3 $ 190.2
Add (deduct):
State income tax net of federal benefit........................ 19.2 18.5 13.5
Adjustment to valuation allowance and other income tax
accruals..................................................... 5.8 6.2 (12.3)
Other.......................................................... 9.2 6.3 10.0
--------- --------- ---------
Total income tax expense......................................... $ 378.8 $ 336.3 $ 201.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
The net deferred tax liabilities listed below include a current net deferred
tax asset of $84.8 million and $95.5 million and a long-term net deferred tax
liability of $1,161.5 million and $947.2 million as of December 31, 1997 and
1996, respectively.
Significant components of the Company's net deferred tax liability were as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Financial accounting basis of assets in excess of tax basis.......... $ 1,445.7 $ 1,394.5
Expenses other than depreciation accelerated for tax purposes........ 305.0 283.7
Other................................................................ 12.5 11.3
--------- ---------
Total deferred tax liabilities..................................... 1,763.2 1,689.5
Deferred tax assets:
Pension and postretirement benefits.................................. 128.3 180.2
Expenses accelerated for financial reporting purposes................ 406.8 430.9
Leases capitalized for financial reporting purposes.................. 97.0 123.8
Alternative minimum tax credit carryforwards......................... 54.4 102.9
--------- ---------
Total deferred tax assets............................................ 686.5 837.8
--------- ---------
Net deferred tax liability............................................. $ 1,076.7 $ 851.7
--------- ---------
--------- ---------
</TABLE>
During 1996, the Company utilized all of its regular net operating loss
carryforwards ("NOLs"). For tax purposes, the Company utilized NOLs of
approximately $121.8 million, $684.4 million and $394.4 million in 1996, 1995
and 1994, respectively, and alternative minimum tax net operating loss
carryforwards ("AMTNOLs") of $105.1 million and $446.7 million in 1995 and 1994,
respectively. The Company has alternative minimum tax credits of approximately
$54.4 million available for carryforward to future years' tax returns. The
alternative minimum tax credit has an unlimited carryforward period. In 1996,
the Company utilized its remaining foreign tax credit carryforward available for
regular tax purposes. In 1995, the Company utilized its remaining AMTNOL
carryforward, as well as its remaining investment tax credit carryforward and
its remaining foreign tax credit carryforward available for alternative minimum
tax purposes.
45
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J--INCOME TAXES (CONTINUED)
Sections 382 and 383 of the Internal Revenue Code of 1986 (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 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. The annual limitation on the amount of such NOLs, AMTNOLs and
credits is calculated in part based on the value of NWA Corp.'s stock.
Management believes that the offering of outstanding common stock by existing
stockholders in November 1995 triggered an ownership change, but that no
ownership change occurred prior to the offering. If such an ownership change in
fact occurred as a result of the November 1995 offering, management 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 limitation would not have an adverse impact on the Company. 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 the labor agreements), the
impairment of the Company's ability to use its NOLs, AMTNOLs and credit
carryforwards would be significant because the value of the NWA Corp.'s stock on
certain prior testing dates (which adversely affects the annual limitation
described above) was relatively low.
In November 1995, the IRS issued proposed adjustments to the tax returns of
the Company for the 1988 through 1991 tax years. Certain of these proposed
adjustments result from a disagreement between the Company and the IRS as to the
timing of the recognition of approximately $385 million of taxable income. The
Company disagrees with the IRS' proposals. The Company is vigorously contesting
these proposed adjustments and believes its positions are correct. To the extent
the IRS were to prevail on any of these issues, the Company 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 income tax expense.
NOTE K--COMMITMENTS
As of December 31, 1997, the Company had firm orders for 115 new aircraft
including 20 Airbus A320 aircraft (13 in 1998 and seven in 1999), 50 Airbus A319
aircraft (ten per year beginning in 1999), 25 Boeing 757-200 aircraft from 2003
through 2005, 16 Airbus A330 aircraft (eight each in 2004 and 2005) and four
Boeing 747-400 aircraft (one each in 1999 and 2000 and two in 2002). Committed
expenditures for these aircraft and related equipment, including estimated
amounts for contractual price escalations and predelivery deposits, will be
approximately: $526 million in 1998, $665 million in 1999, $418 million in 2000,
$425 million in 2001, $854 million in 2002 and $3.6 billion from 2003 to 2005.
The Company has substitution rights with respect to the Airbus A330 aircraft
and has the option to defer the delivery of one Boeing 747-400 aircraft from
2000 to 2003. The Company has options to purchase 50 additional Airbus A319
and/or A320 aircraft for delivery from 2000 through 2003 and 50 roll-over
options which would allow the replacement of the initial 50 options and are
assigned delivery slots commencing in January 2004 as the initial 50 options are
exercised.
Consistent with prior practice, the Company intends to finance its aircraft
deliveries through a combination of internally generated funds, debt and lease
financing. Financing has been arranged for the committed Airbus A320 and A319
aircraft deliveries. This financing is available for use at the option of the
Company. In addition, the Company has another facility (which expires in October
1999) pursuant to
46
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K--COMMITMENTS (CONTINUED)
which the lenders have extended commitments to provide, at the option of the
Company, up to $240 million of debt financing for up to six Boeing 757 aircraft
delivered in 1996 and/or the Airbus A320 aircraft to be delivered in 1998 and
1999. There were no borrowings outstanding under this facility at December 31,
1997. Loans thereunder have a final maturity not later than October 2016.
NOTE L--LITIGATION
The Company is involved in a variety of legal actions relating to antitrust,
contract, trade practice, environmental and other legal matters relating to the
Company's business. While the Company is unable to predict the ultimate outcome
of these legal actions, it is the opinion of management that the disposition of
these matters will not have a material adverse effect on the Company's
Consolidated Financial Statements taken as a whole.
NOTE M--PENSION BENEFITS
The Company has several noncontributory pension plans covering substantially
all of its employees. The benefits for these plans are based primarily on years
of service and/or employee compensation. It is the Company's policy to annually
fund at least the minimum contribution as required by the Employee Retirement
Income Security Act of 1974. In 1997 and 1996, the Company made contributions in
excess of its minimum requirements of $133 million and $85 million,
respectively.
The net periodic pension cost of defined benefit pension plans included the
following (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits earned during the period............... $ 113.2 $ 115.7 $ 77.3
Interest cost on projected benefit obligations................ 286.4 267.2 237.0
Actual gain on plan assets.................................... (623.6) (399.1) (564.8)
Net amortization and deferral................................. 359.9 201.3 361.8
--------- --------- ---------
Net periodic pension cost..................................... $ 135.9 $ 185.1 $ 111.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table sets forth the defined benefit pension plans' funded
status and amounts recognized in the Company's Consolidated Balance Sheets as of
December 31 (in millions):
<TABLE>
<CAPTION>
1997 1996
-------------------------- ---------------------------
ASSETS ACCUMULATED ACCUMULATED
EXCEED BENEFITS ASSETS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligations.......... $ 2,381.0 $ 1,077.0 $ 218.9 $ 2,792.4
Nonvested benefit obligations....... 204.8 116.0 25.3 245.7
------------ ------------ ------ ------------
Accumulated benefit obligations..... 2,585.8 1,193.0 244.2 3,038.1
Effect of projected future salary
increases......................... 389.0 83.5 42.2 374.5
------------ ------------ ------ ------------
Projected benefit obligations......... $ 2,974.8 $ 1,276.5 $ 286.4 $ 3,412.6
------------ ------------ ------ ------------
------------ ------------ ------ ------------
</TABLE>
47
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M--PENSION BENEFITS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
-------------------------- ---------------------------
ASSETS ACCUMULATED ACCUMULATED
EXCEED BENEFITS ASSETS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Plan assets at fair value............. $ 2,724.7 $ 1,033.4 $ 292.4 $ 2,716.3
Less projected benefit obligations.... 2,974.8 1,276.5 286.4 3,412.6
------------ ------------ ------ ------------
Projected benefit obligations (in
excess of) less than plan assets.... (250.1) (243.1) 6.0 (696.3)
Unrecognized prior service cost....... 121.6 60.3 5.1 198.0
Unrecognized net loss................. 172.2 152.5 5.4 346.7
Adjustment required to recognize
minimum liability................... -- (144.6) -- (188.4)
------------ ------------ ------ ------------
Prepaid (accrued) pension cost at
December 31......................... $ 43.7 $ (174.9) $ 16.5 $ (340.0)
------------ ------------ ------ ------------
------------ ------------ ------ ------------
</TABLE>
As of December 31, 1997 and 1996, plan assets were invested primarily in
equity and debt securities.
Assumptions used in the accounting for the defined benefit plans as of
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate.................................... 7.10% 7.60% 7.10%
Rate of increase in future compensation levels.................... 3.50% 3.50% 3.50%
Expected long-term rate of return on plan assets.................. 10.50% 10.50% 10.50%
</TABLE>
An additional minimum liability is required to be recorded to the extent
that a plan's accumulated benefit obligation exceeds plan assets. The minimum
liability is recorded as a long-term liability with an offsetting intangible
asset. Because the intangible asset is not allowed to exceed the unrecognized
prior service cost, the balance is reported as a reduction to equity (net of
tax). The minimum pension liability adjustment resulted in a $36.4 million
intangible asset included in other assets and a $68.2 million, net of tax,
cumulative reduction in common stockholders' equity deficit at December 31,
1997.
NOTE N--POSTRETIREMENT HEALTH CARE BENEFITS
The Company sponsors various contributory and noncontributory medical,
dental and life insurance benefit plans covering certain eligible retirees and
their dependents. The expected future cost of providing such postretirement
benefits is accrued over the service life of active employees. Retired employees
are not offered Company-paid medical and dental benefits after age 64, with the
exception of certain employees who retired prior to 1987 and receive lifetime
Company-paid medical and dental benefits. Prior to age 65, the retiree share of
the cost of medical and dental coverage is based on a combination of years of
service and age at retirement. Medical and dental benefit plans are unfunded and
costs are paid as incurred. The pilot group is provided Company-paid life
insurance coverage in amounts which decrease based on age at retirement and age
at time of death.
48
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N--POSTRETIREMENT HEALTH CARE BENEFITS (CONTINUED)
Net periodic postretirement benefit cost included the following components
(in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost......................................................... $ 10.3 $ 10.3 $ 7.3
Interest cost........................................................ 23.8 22.1 20.8
Net amortization and deferral........................................ 2.1 3.2 .2
Actual gain on plan assets........................................... (.4) (.4) (.4)
--------- --------- ---------
Net periodic postretirement benefit cost............................. $ 35.8 $ 35.2 $ 27.9
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table sets forth the plans' combined funded status and amounts
recognized in the Company's Consolidated Balance Sheet as of December 31 (in
millions):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................................... $ 99.5 $ 103.7
Fully eligible active plan participants................................ 78.1 67.1
Other active plan participants......................................... 169.5 142.8
--------- ---------
347.1 313.6
Plan assets at fair value................................................ 5.3 5.1
--------- ---------
Accumulated postretirement benefit obligation in excess of plan assets... 341.8 308.5
Unrecognized net loss.................................................... (85.0) (72.4)
--------- ---------
Accrued postretirement benefit cost...................................... $ 256.8 $ 236.1
--------- ---------
--------- ---------
</TABLE>
At December 31, 1997, the weighted average annual assumed rate of increase
in the per capita cost of covered benefits (i.e., health care cost trend rate)
is 6.5% for 1998 and is assumed to decrease gradually to 4.5% for 2002 and
remain at that level thereafter (a rate of 7.0% was assumed for 1997). This
health care cost trend assumption has a significant impact on the amounts
reported. For example, increasing the assumed health care cost trend rates by
one percentage point would increase the accumulated postretirement benefit
obligation as of December 31, 1997, by $40.3 million and the aggregate of the
service and interest cost components of net periodic postretirement benefit cost
for 1997 by $4.8 million. The weighted average discount rate used in determining
the accumulated postretirement benefit obligation was 7.1% at December 31, 1997
and 7.6% at December 31, 1996.
NOTE O--RELATED PARTY TRANSACTIONS
KLM Royal Dutch Airlines owned 18,177,874 shares of Class A Common Stock of
NWA Corp. at December 31, 1997. During 1992, Northwest and KLM signed a
Commercial Cooperation and Integration Agreement. The intent of the agreement is
to enhance the joint presence of each airline in the United States, Europe and
other destinations by integrating the systems and services of each carrier.
Northwest and KLM have been granted antitrust immunity by the U.S. Department of
Transportation, enabling them to operate their trans-Atlantic flights pursuant
to a joint venture alliance and to coordinate pricing,
49
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE O--RELATED PARTY TRANSACTIONS (CONTINUED)
scheduling, product development and marketing. Northwest and KLM implemented
code-sharing (the joint designation of flights under the Northwest "NW" code and
the KLM "KL" code) on flights to certain European, Middle Eastern, African and
U.S. cities. In September 1997, the Company and KLM expanded their alliance by
entering into an enhanced commercial and operational alliance providing for a
minimum term of 13 years. Under the alliance agreement, the two airlines will
expand their current areas of cooperation to include services between Europe and
Canada, India and Mexico. In addition, the two companies plan to increase the
level of cooperation between their respective cargo divisions and will explore
extending their alliance to include additional partners and to further develop
strategies for joint marketing and product development.
The Company has an investment in WORLDSPAN, an affiliate that provides
computer reservations services, which it accounts for using the equity method.
The Company recorded expenses for certain reservation system services provided
by this affiliate of $78.6 million, $77.1 million and $81.8 million in 1997,
1996 and 1995, respectively.
The Company owns 29.3% of the common stock of Mesaba Holdings, Inc., the
holding company of Mesaba Aviation, Inc. ("Mesaba"), which operates as a
Northwest Airlink. The Company also holds warrants in Mesaba stock, which, if
exercised, would increase the Company's ownership to 35.8% as of December 31,
1997. Northwest and Mesaba signed a new ten-year Airline Services Agreement
("ASA") effective July 1, 1997 under which Northwest determines Mesaba's
commuter aircraft scheduling and fleet composition. As of December 31, 1997, the
Company has leased 27 Saab 340 aircraft which are in turn subleased to Mesaba.
The lease agreements provide the Company with renewal options ranging from one
to five years and purchase options at the end of the lease or renewal term which
approximate fair market value. The Company has committed to lease an additional
45 aircraft which Mesaba has agreed to sublease pursuant to the new ASA.
In addition, as of December 31, 1997, the Company has subleased eight of
twelve Avro Regional Jet aircraft to Mesaba under a Regional Jet Services
Agreement consummated in October 1996. In October 1997, the Company exercised an
option to purchase 24 additional Avro Regional Jet aircraft, bringing the number
of aircraft on order as of December 31, 1997 to 28, with ten scheduled for
delivery in each of 1998 and 1999 and eight in 2000. Committed expenditures for
these aircraft, including contractual price escalations, are approximately $600
million. The Company will lease four of the 28 aircraft to Mesaba under its
Regional Jet Services Agreement. The Company intends to lease the remaining 24
aircraft to one or more regional commuter airline partners.
On April 1, 1997, NWA Inc., a wholly owned subsidiary of the Company,
purchased all of the outstanding stock of Express Airlines I, Inc. and an
affiliate ("Express") and their operating results are included in the Company's
consolidated financial statements commencing on that date. Express is a regional
carrier that provides passenger traffic to Northwest at Memphis.
NOTE P--RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
RISK MANAGEMENT The Company uses financial instruments to manage the price
risk of fuel and its exposure to foreign currency fluctuations. The Company does
not hold or issue derivative financial instruments for trading purposes. The
notional amounts of financial instruments summarized below did not represent
amounts exchanged between parties and, therefore, are not a measure of the
Company's exposure resulting from its use of derivatives.
50
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE P--RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (CONTINUED)
FOREIGN CURRENCY The Company is exposed to the effect of foreign exchange
rate fluctuations on the U.S. dollar value of foreign currency-denominated
operating revenues and expenses. The Company's largest exposure comes from the
Japanese yen. In 1997, the Company's yen-denominated revenues exceeded its
yen-denominated expenses by approximately 75 billion yen. From time to time, the
Company uses options and forward contracts to hedge its anticipated
yen-denominated net cash flows. The changes in market value of such agreements
have a high correlation to the movements in the yen exchange rate fluctuations.
The Company is exposed to credit loss in the event of nonperformance by
counterparties to these financial instruments, but it does not expect any of the
counterparties to fail to meet its obligations. The amount of such credit
exposure is generally the unrealized gains in such contracts. To manage credit
risks, the Company selects counterparties based on credit ratings, limits
exposure to a single counterparty and monitors the market position with each
counterparty. As of December 31, 1997, the Company had $523.5 million (67.5
billion yen) in purchased yen put options outstanding to hedge approximately 90%
of its anticipated 1998 yen-denominated net cash flows. The fair value of the
options is not recognized in the financial statements and is not material at
December 31, 1997. Premiums paid for the options are classified as prepaid
expense. Realized gains and the amortization of the premiums will be recognized
as a component of passenger revenue.
FUEL The Company manages the price risk of fuel primarily utilizing futures
contracts traded on regulated exchanges. The changes in market value of such
contracts have a high correlation to the price changes of fuel being hedged.
Gains or losses on open and closed hedge contracts are deferred and included in
the statements of financial position as accounts payable and other liabilities
or prepaid expenses, respectively, until the related fuel inventory is expensed,
at which time both the fuel cost and the gain or loss on the hedge instrument
are accounted for as fuel expense. As of December 31, 1997, the Company had
hedged approximately 28% of its 1998 fuel requirements, including 63% of the
first quarter.
51
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE P--RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS The financial statement carrying
values and estimated fair values of the Company's financial instruments,
including current maturities, as of December 31 were (in millions):
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents:
Held-to-maturity debt securities:
Commercial paper........................... $ 372.4 $ 372.4 $ 435.6 $ 435.6
Other...................................... 281.1 281.1 8.5 8.5
Available-for-sale debt securities........... 68.8 68.8 101.5 101.5
Cash......................................... 18.1 18.1 13.8 13.8
--------- --------- --------- ---------
$ 740.4 $ 740.4 $ 559.4 $ 559.4
--------- --------- --------- ---------
Short-term Investments:
Held-to-maturity debt securities:
Commercial paper........................... $ 176.3 $ 176.3 $ 10.5 $ 10.5
Other...................................... 122.1 122.1 91.9 91.9
Available-for-sale debt securities........... 139.3 139.3 150.7 150.7
--------- --------- --------- ---------
$ 437.7 $ 437.7 $ 253.1 $ 253.1
--------- --------- --------- ---------
Long-term Debt................................. $ 2,069.3 $ 2,239.7 $ 2,060.4 $ 2,166.7
Mandatorily Redeemable Preferred Security of
Subsidiary................................... 486.3 434.1 549.2 536.2
Series A and B Preferred Stock................. -- -- 239.8 198.7
Series C Preferred Stock....................... 306.2 432.9 362.8 332.4
Redeemable Common Stock........................ 848.5 767.7 -- --
</TABLE>
The Company considers all unrestricted investments with an original maturity
of three months or less on their acquisition date to be cash equivalents. The
Company classifies investments with an original maturity of more than three
months that are expected to be sold or called by the issuer within the next
year, and those temporarily restricted, as short-term investments. Purchases of
short-term investments classified as available-for-sale securities during 1997
and 1996 were $63.1 and $161.3 million, respectively, and proceeds from sales of
such securities were $74.5 and $10.6 million, respectively. At December 31, 1997
and 1996, short-term investments included $138.2 and $60.4 million,
respectively, of temporarily restricted investments. The temporarily restricted
investments were pledged as collateral under various agreements.
The fair values of the Company's long-term debt were estimated using quoted
market prices, where available. For long-term debt, preferred securities and
redeemable common stock not actively traded, fair values were estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of securities. The fair value of the Series C
Preferred Stock shares is based on the assumed conversion to common stock and
valuing such shares at the closing quoted market price for Class A Common Stock.
52
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE Q--QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited quarterly results of operations for the years ended December 31,
1997 and 1996, are summarized below (in millions, except per share amounts):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1997:
Operating revenues................................................. $ 2,375.5 $ 2,557.6 $ 2,801.4 $ 2,491.3
Operating income................................................... 135.0 291.1 503.8 227.3
Income before extraordinary item................................... 64.6 136.2 290.3 114.7
Net loss on extinguishment of debt................................. -- -- -- (9.3)
Net income......................................................... $ 64.6 $ 136.2 $ 290.3 $ 105.4
--------- --------- --------- ---------
--------- --------- --------- ---------
BASIC EARNINGS PER COMMON SHARE:
Before effect of extraordinary item.............................. $ .59 $ 1.29 $ 2.80 $ 1.18
Net loss on extinguishment of debt............................... -- -- -- (.09)
--------- --------- --------- ---------
Earnings per common share........................................ $ .59 $ 1.29 $ 2.80 $ 1.09
--------- --------- --------- ---------
--------- --------- --------- ---------
DILUTED EARNINGS PER COMMON SHARE:
Before effect of extraordinary item.............................. $ .53 $ 1.16 $ 2.53 $ 1.06
Net loss on extinguishment of debt............................... -- -- -- (.09)
--------- --------- --------- ---------
Earnings per common share........................................ $ .53 $ 1.16 $ 2.53 $ .97
--------- --------- --------- ---------
--------- --------- --------- ---------
1996:
Operating revenues................................................. $ 2,264.8 $ 2,540.4 $ 2,735.2 $ 2,340.1
Operating income................................................... 134.4 374.7 469.4 75.3
Net income......................................................... $ 53.4 $ 202.8 $ 253.9 $ 26.0
--------- --------- --------- ---------
--------- --------- --------- ---------
BASIC EARNINGS PER COMMON SHARE:
Before effect of acquisition of preferred stock.................. $ .42 $ 1.95 $ 2.48 $ .21
Acquisition of preferred stock................................... -- -- .74 --
--------- --------- --------- ---------
Earnings per common share........................................ $ .42 $ 1.95 $ 3.22 $ .21
--------- --------- --------- ---------
--------- --------- --------- ---------
DILUTED EARNINGS PER COMMON SHARE:
Before effect of acquisition of preferred stock.................. $ .38 $ 1.73 $ 2.22 $ .19
Acquisition of preferred stock................................... -- -- .67 --
--------- --------- --------- ---------
Earnings per common share........................................ $ .38 $ 1.73 $ 2.89 $ .19
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with SFAS 128.
The sum of the quarterly earnings per share amounts does not equal the
annual amount reported since per share amounts are computed independently for
each quarter and for the full year based on respective weighted average common
share equivalents outstanding.
53
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE R--CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF NORTHWEST AIRLINES, INC.
Northwest Airlines Corporation (formerly Wings Holdings Inc.) and its wholly
owned subsidiary, Wings Acquisition Corp., were formed and incorporated by a
group of investors in order to acquire all of the outstanding stock of NWA Inc.
(the "Acquisition"), the parent company of Northwest Airlines, Inc. In 1989,
Wings Acquisition Corp. was merged with and into NWA Inc., with NWA Inc. being
the surviving entity. The Acquisition was recorded using the purchase method of
accounting and, accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair market value at
the date of Acquisition, determined primarily by independent appraisals.
After reflecting these values and certain acquisition indebtedness of NWA
Inc. in the financial statements of Northwest, condensed financial information
of Northwest consists of the following (in millions):
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Operating revenues............................................................. $ 9,882.9 $ 9,651.3 $ 8,806.6
Operating expenses............................................................. 8,773.9 8,641.7 7,937.0
--------- --------- ---------
Operating income............................................................... 1,109.0 1,009.6 869.6
Other income (expense)......................................................... (212.9) (183.6) (316.4)
--------- --------- ---------
Income before income taxes and extraordinary item.............................. 896.1 826.0 553.2
Income tax expense............................................................. 342.6 308.8 215.9
--------- --------- ---------
Income before extraordinary item............................................... 553.5 517.2 337.3
Net gain (loss) on extinguishment of debt...................................... (9.3) -- 50.4
--------- --------- ---------
Net income..................................................................... $ 544.2 $ 517.2 $ 387.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Current assets............................................................................. $ 2,015.0 $ 1,626.8
Noncurrent assets.......................................................................... 6,114.6 5,818.3
Current liabilities........................................................................ 3,164.7 2,832.2
Long-term debt and obligations under capital leases........................................ 2,016.9 2,103.9
Deferred credits and other liabilities..................................................... 1,191.0 935.7
Mandatorily redeemable preferred security of subsidiary.................................... 486.3 549.2
</TABLE>
54
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE S--SUBSEQUENT EVENT
On January 25, 1998, NWA Corp. and its newly-formed, wholly-owned
subsidiary, Newbridge Parent Corporation ("Newbridge"), and Air Partners, L.P.,
a Texas limited partnership, its partners and certain of its affiliates, entered
into an Investment Agreement. Pursuant to the Investment Agreement, NWA Corp.
and Newbridge will acquire the beneficial ownership of 8,535,868 shares of Class
A Common Stock of Continental Airlines, Inc. ("Continental"). These shares
represent approximately 14 percent of Continental's common stock equity and 52
percent of its outstanding voting common stock. The aggregate consideration was
valued at approximately $519 million and is expected to consist of $311 million
in cash and 4.1 million shares of newly issued Newbridge Class A Common Stock,
par value $.01 per share.
Concurrently with the execution of the Investment Agreement, NWA Corp.,
Newbridge and Newbridge Merger Sub, a wholly owned subsidiary of Newbridge
("Merger Sub"), entered into an Agreement and Plan of Merger providing for the
merger of Merger Sub with and into NWA Corp. (the "Merger"), as a result of
which NWA Corp. will become a wholly owned subsidiary of Newbridge and each
outstanding share of Class A Common Stock of NWA Corp. will be exchanged for one
share of Newbridge Class A Common Stock. The merger will occur concurrently with
the closing of the transactions contemplated by the Investment Agreement.
Following the Merger, Newbridge will change its name to "Northwest Airlines
Corporation" and NWA Corp. will change its name to "Northwest Airlines Holding
Corporation."
The closing of the transactions under the Investment Agreement and the
Merger, which are expected to close by the end of 1998, are subject to approval
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
("HSR"), and satisfactory review by the Department of Transportation.
In connection with the Investment Agreement and the alliance agreement
discussed below, NWA Corp. and Newbridge have entered into a Governance
Agreement with Continental for a six-year term. The Governance Agreement
contains certain restrictions on NWA Corp.'s and Newbridge's ability to acquire
additional shares of Continental common stock and to vote such shares and
restrictions on Northwest's and Newbridge's ability to affect the composition
and conduct of Continental's Board of Directors. Due to the restrictions in the
Governance Agreement, the Company will account for this investment under the
equity method.
On January 25, 1998, Northwest and Continental entered into an agreement
providing for a global strategic operating alliance (the "alliance agreement").
The thirteen year alliance, when fully implemented, will connect the two
carriers' networks and will include code-sharing, frequent flyer program
reciprocity, cooperation between Continental and KLM and other cooperative
activities. Full implementation of the alliance agreement is contingent on
approval under HSR, approval of the Department of Transportation and the
successful conclusion of negotiations with Northwest's pilots' union. The two
airlines have no plans to merge their operations and will retain separate
boards, management and headquarters. No layoffs, mergers of workforces,
transfers of flying or assets or closures of facilities are planned.
55
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is set forth under the heading
"Election of Directors-- Information Concerning Director--Nominees" included in
the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders filed
with the Commission, and is incorporated herein by reference. The information
regarding executive officers is included in Part I of this report under the
caption "Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth under the headings
"Election of Directors-- Compensation of Directors", "Election of
Directors--Compensation Committee Interlocks and Insider Participation" and
"Executive Compensation" included in the Company's Proxy Statement for the 1998
Annual Meeting of Stockholders filed with the Commission, and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth under the heading
"Beneficial Ownership of Securities" included in the Company's Proxy Statement
for the 1998 Annual Meeting of Stockholders filed with the Commission, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth under the headings
"Election of Directors-- Compensation Committee Interlocks and Insider
Participation" and "Election of Directors--Related Party Transactions" included
in the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders
filed with the Commission, and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
The following is an index of the financial statements, schedule and exhibits
included in this Report.
(A) 1. FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Consolidated Balance Sheets--December 31, 1997 and December 31, 1996............................. 27
Consolidated Statements of Income--For the years ended December 31, 1997, 1996 and 1995.......... 29
Consolidated Statements of Cash Flows--For the years ended December 31, 1997, 1996 and 1995...... 30
Consolidated Statements of Common Stockholders' Equity (Deficit)--For the years ended December
31, 1997, 1996 and 1995......................................................................... 31
Notes to Consolidated Financial Statements....................................................... 32
</TABLE>
56
<PAGE>
2. FINANCIAL STATEMENT SCHEDULE:
<TABLE>
<S> <C>
Schedule II-Valuation and Qualifying Accounts--For the years ended December
31, 1997, 1996 and 1995...................................................... S-1
</TABLE>
Schedules not included have been omitted because they are not applicable or
because the required information is included in the consolidated financial
statements or notes thereto.
3. EXHIBITS
The following is an index of the exhibits included in this Report or
incorporated herein by reference.
<TABLE>
<C> <S>
2.1 Investment Agreement among NWA Corp., Newbridge Parent Corporation, Air Partners,
L.P., the Partners of Air Partners identified on the signature pages thereto,
Bonderman Family Limited Partnership, 1992 Air, Inc. and Air Saipan, Inc., dated as
of January 25, 1998 (without exhibits and schedules) (filed as Exhibit 2.1 to NWA
Corp.'s Current Report on Form 8-K dated January 25, 1998 and incorporated herein by
reference).
2.2 Governance Agreement among NWA Corp., Newbridge Parent Corporation and Continental
Airlines, Inc., dated as of January 25, 1998 (filed as Exhibit 2.2 to NWA Corp.'s
Current Report on Form 8-K dated January 25, 1998 and incorporated herein by
reference).
2.3 Merger Agreement among NWA Corp., Newbridge Parent Corporation, and Newbridge Merger
Corporation, dated as of January 25, 1998 (filed as Exhibit 2.3 to NWA Corp.'s
Current Report on Form 8-K dated January 25, 1998 and incorporated herein by
reference).
2.4 Purchase Agreement among NWA Corp., Newbridge Parent Corporation, Barlow Investors
III, LLC and the Guarantors signatory thereto, dated as of March 2, 1998 (filed as
Exhibit 2.1 to NWA Corp.'s Current Report on Form 8-K dated March 2, 1998 and
incorporated herein by reference).
2.5 First Amendment to the Governance Agreement, among Continental Airlines, Inc., NWA
Corp. and Newbridge Parent Corporation, dated as of March 2, 1998 (filed as Exhibit
2.2 to NWA Corp.'s Current Report on Form 8-K dated March 2, 1998 and incorporated
herein by reference).
2.6 Amendment No. 1 to the Investment Agreement among NWA Corp., Newbridge Parent
Corporation, Air Partners, L.P., the Partners of Air Partners, L.P. signatory
thereto, Bonderman Family Limited Partnership, Air Saipan, Inc. and 1992 Air, Inc.,
dated as of February 27, 1998 (filed as Exhibit 2.3 to NWA Corp.'s Current Report on
Form 8-K dated March 2, 1998 and incorporated herein by reference).
2.7 Assignment Agreement among NWA Corp., Newbridge Parent Corporation, Air Partners,
L.P., the Partners of Air Partners, L.P. signatory thereto, Bonderman Family Limited
Partnership, Air Saipan, Inc., 1992 Air, Inc. and Coulco, Inc., dated as of February
27, 1998.
3.1 Second Amended and Restated Certificate of Incorporation of NWA Corp. (filed as
Exhibit 3.1 to the Registration Statement on Form S-1, File No. 33-74210 (the "S-1")
and incorporated herein by reference).
3.2 Certificate of Amendment to the Second Amended and Restated Certificate of
Incorporation of NWA Corp. (filed as Exhibit 3.3 to the S-1 and incorporated herein
by reference).
3.3 Amended and Restated Bylaws of NWA Corp. (filed as Exhibit 3.2 to the S-1 and
incorporated herein by reference).
3.4 Restated Certificate of Incorporation of Northwest (filed as Exhibit 3.3 to
Northwest's Registration Statement on Form S-3 File No. 33-74772 (the "Debt S-3")
and incorporated herein by reference).
</TABLE>
57
<PAGE>
<TABLE>
<C> <S>
3.5 Bylaws of Northwest (filed as Exhibit 3.4 to the Debt S-3 and incorporated herein by
reference).
4.1 Amended and Restated Certificate of Designation of Series A Preferred Stock of NWA
Corp. (included in Exhibit 3.1).
4.2 Amended and Restated Certificate of Designation of Series B Preferred Stock of NWA
Corp. (included in Exhibit 3.1).
4.3 Certificate of Designation of Series C Preferred Stock of NWA Corp. (included in
Exhibit 3.1).
4.4 Certificate of Designation of Series D Junior Participating Preferred Stock of NWA
Corp. (filed as Exhibit A to Exhibit 1 to NWA Corp.'s Current Report on Form 8-K
dated November 16, 1995 (the "8-K") and incorporated herein by reference).
4.5 Certificate of Elimination of Series A Preferred Stock of NWA Corp.
4.6 Certificate of Elimination of Series B Preferred Stock of NWA Corp.
4.7 Rights Agreement dated as of November 16, 1995 between NWA Corp. and Norwest Bank
Minnesota, N.A., as Rights Agent (filed as Exhibit 1 to the 8-K and incorporated
herein by reference).
4.8 Amendment of Rights Agreement dated as of September 29, 1997 between NWA Corp. and
Norwest Bank Minnesota, N.A., as Rights Agent (filed as Exhibit 4.1 to NWA Corp.'s
Form 10-Q for the quarter ended September 30, 1997 and incorporated herein by
reference).
4.9 The registrant hereby agrees to furnish to the Commission, upon request, copies of
certain instruments defining the rights of holders of long-term debt of the kind
described in Item 601 (b) (4) of Regulation S-K.
10.1 Second Amended and Restated Investor Stockholders' Agreement dated as of December
23, 1993 among NWA Corp. and the Original Investors named therein ("Second Amended
and Restated Stockholders' Agreement") (filed as Exhibit 4.9 to the S-1 and
incorporated herein by reference).
10.2 Supplement dated as of December 23, 1993 to Second Amended and Restated
Stockholders' Agreement (filed as Exhibit 4.11 to NWA Corp.'s Annual Report on Form
10-K for the year ended December 31, 1994 (the "10-K") and incorporated herein by
reference).
10.3 Amendment dated as of December 14, 1994 to Second Amended and Restated Stockholders'
Agreement (filed as Exhibit 4.13 to the 10-K and incorporated herein by reference).
10.4 Amendment dated as of January 6, 1995 to Second Amended and Restated Stockholders'
Agreement (filed as Exhibit 4.14 to the 10-K and incorporated herein by reference).
10.5 Amendment dated as of January 25, 1995 to Second Amended and Restated Stockholders'
Agreement (filed as Exhibit 4.15 to the 10-K and incorporated herein by reference).
10.6 Amendment dated as of October 23, 1995 to the Second Amended and Restated
Stockholders' Agreement (filed as Exhibit 4.11 to NWA Corp.'s Registration Statement
on Form S-3, File No. 33-98494 (the "S-3") and incorporated herein by reference).
10.7 Amendment to Second Amended and Restated Investor Stockholders' Agreement dated
September 29, 1997 (filed as Exhibit 10.7 to NWA Corp.'s Form 10-Q for the quarter
ended September 30, 1997 and incorporated herein by reference).
10.8 Standstill Agreement between Koninklijke Luchtvaart Maatschappij N.V. and NWA Corp.
dated September 29, 1997 (filed as Exhibit 10.6 of NWA Corp.'s 10-Q for the quarter
ended September 30, 1997).
</TABLE>
58
<PAGE>
<TABLE>
<C> <S>
10.9 Common Stock Repurchase Agreement dated September 29, 1997 between NWA Corp. and
Koninklijke Luchtvaart Maatschappij N.V. (filed as Exhibit 10.2 to NWA Corp.'s Form
10-Q for the quarter ended September 30, 1997 and incorporated herein by reference).
10.10 Preferred Stock Repurchase Agreement dated September 29, 1997 between NWA Corp. and
Koninklijke Luchtvaart Maatschappij N.V. (filed as Exhibit 10.3 to NWA Corp.'s Form
10-Q for the quarter ended September 30, 1997 and incorporated herein by reference).
10.11 BTNY Preferred Stock Repurchase Agreement dated September 29, 1997 NWA Corp. and
Bankers Trust New York Corporation (filed as Exhibit 10.4 to NWA Corp.'s Form 10-Q
for the quarter ended September 30, 1997 and incorporated herein by reference).
10.12 Blum Preferred Stock Repurchase Agreement dated September 29, 1997 between NWA Corp.
and Richard C. Blum & Associates--NWA Partners, L.P. (filed as Exhibit 10.5 to NWA
Corp.'s Form 10-Q for the quarter ended September 30, 1997 and incorporated herein
by reference).
10.13 Amended and Restated Agreement, dated as of October 29, 1997, among NWA Corp.,
Alfred A. Checchi, Gary L. Wilson, Frederic V. Malek, Frederic W. Malek, Michelle A.
Malek, Frederick V. Malek as trustee of a trust for the benefit of Frederic W. Malek
and Frederic V. Malek as trustee of a trust for the benefit of Michelle A. Malek.
10.14 Stockholders' Agreement, dated as of September 9, 1994, among NWA Corp., the
Original Investors named therein and the Unions named therein (the "Stockholders'
Agreement") (filed as Exhibit 4.13 to NWA Corp.'s and Northwest's Registration
Statement on Form S-4, File No. 33-87250, and incorporated herein by reference).
10.15 Amendment dated as of October 3, 1994 to Stockholders' Agreement (filed as Exhibit
4.12 to the 10-K and incorporated herein by reference).
10.16 Amendment dated as of December 14, 1994 to the Stockholders' Agreement (filed as
Exhibit 4.22 to the 10-K and incorporated herein by reference).
10.17 Amendment dated as of January 25, 1995 to the Stockholders' Agreement (filed as
Exhibit 4.23 to the 10-K and incorporated herein by reference).
10.18 Amendment dated as of November 1, 1995 to the Stockholders' Agreement (filed as
Exhibit 4.12 to the S-3 and incorporated herein by reference).
10.19 First Amended and Restated Common Stock Registration Rights Agreement among NWA
Corp., the holders of the Series C Preferred Stock and the Original Investors named
therein (filed as Exhibit 4.18 to the 10-K and incorporated herein by reference).
10.20 Registration Participation Agreement dated as of October 20, 1995 among the Unions
named therein, holders of Series C Preferred Stock and NWA Corp. (filed as Exhibit
10.14 to NWA Corp.'s Annual Report on Form 10-K for the year ended December 31, 1995
and incorporated herein by reference).
10.21 Special Facilities Lease between Charter County of Wayne, Michigan and Republic
Airlines, Inc. dated December 1, 1985 and Guarantee by and between Northwest (as
successor to Republic) and Manufacturers National Bank of Detroit (filed as Exhibit
10.6 to the S-1 and incorporated herein by reference).
10.22 Indenture of Lease Agreement dated October 5, 1961 and related amendments, between
the Board of County Road Commissioner of the County of Wayne, Michigan and
Northwest, as successor to North Central Airlines, Inc. (filed as Exhibit 10.7 to
the S-1 and incorporated herein by reference).
</TABLE>
59
<PAGE>
<TABLE>
<C> <S>
10.23 Amendatory Agreement between The Charter County of Wayne, Michigan and Northwest
dated as of October 8, 1996 (filed as Exhibit 10.1 to NWA Corp.'s Form 10-Q for the
quarter ended September 30, 1996 (the "10-Q") and incorporated herein by reference).
10.24 First Amended and Restated Airport Agreement between The Charter County of Wayne,
Michigan and Northwest dated as of October 10, 1996 (filed as Exhibit 10.2 to the
10-Q and incorporated herein by reference).
10.25 Second Amended and Restated Airport Agreement between The Charter County of Wayne,
Michigan and Northwest dated as of October 10, 1996 (filed as Exhibit 10.3 to the
10-Q incorporated herein by reference).
10.26 Airport Terminal Building Lease for Minneapolis-St. Paul International Airport dated
as of June 18, 1964 and related amendments entered into by and between The
Minneapolis-St. Paul Metropolitan Airports Commission and Northwest, as successor to
Northwest Orient Airlines, Inc. (filed as Exhibit 10.8 to the S-1 and incorporated
herein by reference).
10.27 Master Financing Agreement dated as of March 29, 1992 among NWA Corp., Northwest and
the State of Minnesota (filed as Exhibit 10.9 to the S-1 and incorporated herein by
reference).
10.28 Facilities and Equipment Lease Agreement dated March 27, 1992 between Metropolitan
Airports Commission as Lessor and Northwest Aerospace Training Corporation, as
Lessee (filed as Exhibit 10.10 to the S-1 and incorporated herein by reference).
10.29 Facilities and Equipment Lease Agreement dated as of March 27, 1992 between
Metropolitan Airports Commission as Lessor and NWA Inc. (filed as Exhibit 10.11 to
the S-1 and incorporated herein by reference).
10.30 Facilities and Equipment Lease Agreement dated as of March 27, 1992 between
Metropolitan Airports Commission as Lessor and Northwest (filed as Exhibit 10.12 to
the S-1 and incorporated herein by reference).
10.31 Equity Letter Agreement dated as of August 1, 1993 between Northwest and The Air
Line Pilots Association International (filed as Exhibit 10.13 to the S-1 and
incorporated herein by reference).
10.32 Equity Letter Agreement dated as of August 1, 1993 between Northwest and The
International Association of Machinists and Aerospace Workers (filed as Exhibit
10.14 to the S-1 and incorporated herein by reference).
10.33 Equity Letter Agreement dated as of August 1, 1993 between Northwest and The
International Brotherhood of Teamsters (filed as Exhibit 10.15 to the S-1 and
incorporated herein by reference).
10.34 Equity Letter Agreement dated as of August 1, 1993 between Northwest and The
Transport Workers Union of America (filed as Exhibit 10.16 to the S-1 and
incorporated herein by reference).
10.35 Equity Letter Agreement dated as of August 1, 1993 between Northwest and the Airline
Technical Support Association (filed as Exhibit 10.17 to the S-1 and incorporated
herein by reference).
10.36 Equity Letter Agreement dated as of August 1, 1993 between Northwest and The
Northwest Airlines Meteorologists Association (filed as Exhibit 10.18 to the S-1 and
incorporated herein by reference).
10.37 Amendment dated as of December 14, 1994 to the Equity Letter Agreements listed as
Exhibits 10.26 through 10.31 (filed as Exhibit 10.19 to the 10-K and incorporated
herein by reference).
</TABLE>
60
<PAGE>
<TABLE>
<C> <S>
10.38 Labor Cost Savings Agreement dated as of July 30, 1993 between Northwest and The Air
Line Pilots Association International (filed as Exhibit 10.19 to the S-1 and
incorporated herein by reference).
10.39 Labor Cost Savings Agreement dated as of August 4, 1993 between Northwest and The
International Association of Machinists and Aerospace Workers (filed as Exhibit
10.20 to the S-1 and incorporated herein by reference).
10.40 Labor Cost Savings Agreement dated as of July 30, 1993 between Northwest and The
International Brotherhood of Teamsters (filed as Exhibit 10.21 to the S-1 and
incorporated herein by reference).
10.41 Labor Cost Savings Agreement dated as of July 30, 1993 between Northwest and The
Transport Workers Union of America (filed as Exhibit 10.22 to the S-1 and
incorporated herein by reference).
10.42 Labor Cost Savings Agreement dated as of July 29, 1993 between Northwest and The
Airline Technical Support Association (filed as Exhibit 10.23 to the S-1 and
incorporated herein by reference).
10.43 Labor Cost Savings Agreement dated as of July 28, 1993 between Northwest and The
Northwest Airlines Meteorologists Association (filed as Exhibit 10.24 to the S-1 and
incorporated herein by reference).
10.44 Purchase Agreement No. 1630 between Northwest and The Boeing Company ("Boeing")
dated December 1, 1989 and related letter agreements relating to the purchase of
747-400 aircraft (filed as Exhibit 10.34 to the S-1 and incorporated herein by
reference).
10.45 Supplemental Agreement No. 4 to Purchase Agreement No. 1630, dated as of February 3,
1995, and related letter agreements between Boeing and Northwest (filed as Exhibit
10.34 to the 10-K and incorporated herein by reference; the Commission has granted
confidential treatment for certain portions of this document).
10.46 Purchase Agreement No. 1631 between Northwest and Boeing and related letter
agreements relating to the acquisition of 757 aircraft (filed as Exhibit 10.35 to
the S-1 and incorporated herein by reference).
10.47 Supplemental Agreement No. 4 to Purchase Agreement No. 1631, dated as of February 3,
1995, and related letter agreements between Boeing and Northwest. (filed as Exhibit
10.36 to the 10-K and incorporated herein by reference; the Commission has granted
confidential treatment for certain portions of this document).
10.48 Supplemental Agreement No. 5 to Purchase Agreement No. 1631, dated as of February
17, 1995, and related letter agreements between Boeing and Northwest. (filed as
Exhibit 10.37 to the 10-K and incorporated herein by reference; the Commission has
granted confidential treatment for certain portions of this document).
10.49 Airbus A330 Purchase Agreement dated February 10, 1989 and related letter agreements
between AVSA S.A.R.L. and Northwest Aircraft Inc. (filed as Exhibit 10.36 to the S-1
and incorporated herein by reference).
10.50 Amendment No. 5 to A330 Purchase Agreement among AVSA, S.A.R.L. and Northwest
Aircraft Inc. (filed as Exhibit 10.4 to the 10-Q and incorporated herein by
reference; the Commission has granted confidential treatment for certain portions of
this document).
10.51 A319-100 Purchase Agreement dated as of September 19, 1997 between AVSA, S.A.R.L.
and Northwest Airlines, Inc. (NWA Corp. has applied to the Commission for
confidential treatment of certain portions of this exhibit.)
</TABLE>
61
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<TABLE>
<C> <S>
*10.52 Employment Agreement with Michael E. Levine dated as of September 1, 1996 (filed as
Exhibit 10.49 to NWA Corp.'s Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
*10.53 Employment Agreement with Christopher E. Clouser dated as of September 1, 1996
(filed as Exhibit 10.50 to NWA Corp.'s Form 10-K for the year ended December 31,
1996 and incorporated herein by reference).
*10.54 Employment Agreement with Douglas M. Steenland dated as of September 1, 1996 (filed
as Exhibit 10.51 to NWA Corp.'s Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
*10.55 Employment Agreement with James A. Lawrence dated as of September 1, 1996.
*10.56 Northwest Retirement Plan for Management Employees (filed as Exhibit 10.41 to the
S-1 and incorporated herein by reference).
*10.57 Key Employee Annual Cash Incentive Program (filed as Exhibit 10.42 to the S-1 and
incorporated herein by reference).
*10.58 Northwest Officers Excess Benefit Plan (filed as Exhibit 10.43 to the S-1 and
incorporated herein by reference).
*10.59 1990 Stock Option Plan for Key Employees of the Company (filed as Exhibit 10.44 to
the S-1 and incorporated herein by reference).
*10.60 1994 NWA Corp. Stock Incentive Plan, as amended (filed as Exhibit 10.5 to the 10-Q
and incorporated herein by reference).
*10.61 1996 NWA Corp. Retention and Long-Term Incentive Compensation Plan (filed as Exhibit
10.53 to the Company's Annual Report on Form 10-K for the year ended December 31,
1995 and incorporated herein by reference).
*10.62 First Amendement to 1996 NWA Corp. Retention and Long-Term Incentive Compensation
Plan.
*10.63 Unit Award Agreement with John H. Dasburg dates as of January 26, 1996 (filed as
Exhibit 10.54 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference).
*10.64 Northwest Airlines, Inc. Supplemental Executive Retirement Plan (1995 Statement)
(filed as Exhibit 10.61 to NWA Corp.'s Form 10-K for the year ended December 31,
1996 and incorporated herein by reference).
*10.65 Letter agreements dated December 20, 1997 and March 14, 1997 with John H. Dasburg
with respect to participation in the Northwest Airlines, Inc. Supplemental Executive
Retirement Program (filed as Exhibit 10.62 to NWA Corp.'s Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference).
*10.66 Letter Agreement dated October 10, 1997 with Michael E. Levine with respect to
participation in the Northwest Airlines, Inc. Supplement Executive Retirement
Program.
*10.67 Form of Non-Qualified Stock Option Agreement and form of Amendment thereto for
executive officers under the 1994 NWA Corp. Stock Incentive Plan, as amended (filed
as Exhibit 10.63 to NWA Corp.'s Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
12.1 Computation of Ratio of Earnings to Fixed Charges.
12.2 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Requirements.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule for the year ended December 31, 1997.
27.2 Financial Data Schedules for the year ended December 31, 1996 and the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996.
27.3 Financial Data Schedules for the quarters ended March 31, 1997, June 30, 1997 and
December 31, 1997.
</TABLE>
- ------------------------
* Compensatory plans in which the directors and executive officers of NWA Corp.
participate.
(B) REPORTS ON FORM 8-K:
NWA Corp.'s Current Report on Form 8-K dated November 25, 1997.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 31st day of March,
1998.
<TABLE>
<S> <C> <C>
NORTHWEST AIRLINES CORPORATION
By: /s/ ROLF S. ANDRESEN
------------------------------------------
Rolf S. Andresen
VICE PRESIDENT-FINANCE AND
CHIEF ACCOUNTING OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 31st day of March, 1998 by the following
persons on behalf of the registrant and in the capacities indicated.
<TABLE>
<S> <C>
/s/ JOHN H. DASBURG
- ----------------------------------------
John H. Dasburg
PRESIDENT, CHIEF EXECUTIVE OFFICER &
DIRECTOR (PRINCIPAL EXECUTIVE OFFICER)
/s/ JAMES A. LAWRENCE
- ----------------------------------------
James A. Lawrence
EXECUTIVE VICE PRESIDENT & CHIEF
FINANCIAL OFFICER (PRINCIPAL FINANCIAL
OFFICER)
/s/ ROLF S. ANDRESEN
- ----------------------------------------
Rolf S. Andresen
VICE PRESIDENT-FINANCE & CHIEF
ACCOUNTING OFFICER (PRINCIPAL ACCOUNTING
OFFICER)
/s/ GARY L. WILSON
- ----------------------------------------
Gary L. Wilson
CHAIRMAN OF THE BOARD
- ----------------------------------------
Richard C. Blum
DIRECTOR
/s/ ALFRED A. CHECCHI
- ----------------------------------------
Alfred A. Checchi
DIRECTOR
/s/ DORIS KEARNS GOODWIN
- ----------------------------------------
Doris Kearns Goodwin
DIRECTOR
/s/ MARVIN L. GRISWOLD
- ----------------------------------------
Marvin L. Griswold
DIRECTOR
- ----------------------------------------
Dennis F. Hightower
DIRECTOR
/s/ THOMAS L. KEMPNER
- ----------------------------------------
Thomas L. Kempner
DIRECTOR
/s/ GEORGE J. KOURPIAS
- ----------------------------------------
George J. Kourpias
DIRECTOR
/s/ FREDERIC V. MALEK
- ----------------------------------------
Frederic V. Malek
DIRECTOR
/s/ WALTER F. MONDALE
- ----------------------------------------
Walter F. Mondale
DIRECTOR
</TABLE>
63
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<TABLE>
<S> <C>
/s/ V.A. RAVINDRAN
- ----------------------------------------
V.A. Ravindran
DIRECTOR
- ----------------------------------------
Leo M. van Wijk
DIRECTOR
/s/ GEORGE J. VOJTA
- ----------------------------------------
George J. Vojta
DIRECTOR
/s/ DUANE E. WOERTH
- ----------------------------------------
Duane E. Woerth
DIRECTOR
</TABLE>
64
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NORTHWEST AIRLINES CORPORATION
SCHEDULE II--VALUATION OF QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
<TABLE>
<CAPTION>
COL. C
----------------------------
ADDITIONS
COL. B ---------------------------- COL. E
----------- CHARGED TO COL. D -----------
COL. A BALANCE AT CHARGED TO OTHER ------------- BALANCE AT
- ---------------------------------------------------- BEGINNING COSTS AND ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES --DESCRIBE --DESCRIBE PERIOD
- ---------------------------------------------------- ----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Allowances deducted from asset accounts:
Allowance for doubtful accounts................. $ 19.7 $ 11.6 $ -- $ 10.1(1) $ 21.2
Accumulated allowance for depreciation of flight
equipment spare parts......................... 127.3 26.1 5.0(2) 9.5(3) 148.9
YEAR ENDED DECEMBER 31, 1996
Allowances deducted from asset accounts:
Allowance for doubtful accounts................. 21.5 6.1 -- 7.9(1) 19.7
Accumulated allowance for depreciation of flight
equipment spare parts......................... 111.8 21.9 2.7(2) 9.1(3) 127.3
YEAR ENDED DECEMBER 31, 1995
Allowances deducted from asset accounts:
Allowance for doubtful accounts................. 19.5 10.6 -- 8.6(1) 21.5
Accumulated allowance for depreciation of flight
equipment spare parts......................... 86.2 20.3 12.7(2) 7.4(2) 111.8
</TABLE>
- ------------------------
(1) Uncollectible accounts written off, net of recoveries
(2) Interaccount transfers
(3) Dispositions and write-offs
S-1
<PAGE>
ASSIGNMENT AGREEMENT
THIS Assignment Agreement made and entered into effective as of February
27, 1998 among Northwest Airlines Corporation, a Delaware corporation
("Parent"), Newbridge Parent Corporation, a Delaware corporation and, as of
the date of this Agreement, a wholly owned subsidiary of Parent ("Holdco
Sub"), Air Partners, L.P., a Texas limited partnership (the "Partnership"),
the partners of the Partnership (collectively, the "Partners"), Bonderman
Family Limited Partnership, a Texas limited partnership ("Transferor I"), Air
Saipan, Inc., a CNMI corporation ("Transferor III"), 1992 Air, Inc., a Texas
corporation ("Assignor") and Coulco, Inc., a Texas corporation ("Assignee").
W I T N E S S E T H:
WHEREAS, Parent, Holdco Sub, the Partnership, the Partners, Transferor
I, Assignor and Transferor III are parties to an Investment Agreement dated
as of January 25, 1998 (as amended from time to time, the "Investment
Agreement"):
WHEREAS, Assignor desires to assign to Assignee certain rights under the
Investment Agreement, and the other parties to the Investment Agreement are
willing to consent in writing to such assignment;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
Section 1. ASSIGNMENT. (a) Assignor hereby irrevocably assigns to
Assignee, and relinquishes, all rights, (i) to designate an individual to be
elected or appointed to the Board of Directors of Holdco Sub pursuant to
Section 4.1(b)(i) of the Investment Agreement, and (ii) to designate one
person for election to the Board of Directors of Holdco Sub and to fill any
vacancy resulting from such person's cessation to serve as a director
pursuant to Section 4.1(b)(ii) of the Investment Agreement.
(b) As consideration for such assignment, Assignee agrees (i)
promptly to cause its designee to resign from the Holdco Sub Board of
Directors at the time and under the circumstances described under Section
4.1(b)(iii) of the Investment Agreement, (ii) to comply with Section
4.1(b)(iv) of the Investment Agreement and (iii) to be bound by the provisions
of Section 4.1(b) of the Investment Agreement as though it were Transferor
II (as defined in the Investment Agreement).
(c) Parent and Holdco Sub agree (i) that James G. Coulter and
William S. Price have been deemed to be acceptable by the Board of Directors
of Holdco Sub for purposes of Sections 4.1(b)(i) and 4.1(b)(ii) of the
Investment Agreement, (ii) that the person designated from time to time by
Assignee (who shall be reasonably acceptable to the Holdco Sub Board of
Directors) (the "Assignee Designee") shall be the "Transferor II Designee"
for purposes of Section 4.1 of the Investment Agreement and (iii) that for
all purposes of Section 4.1(b) of the Investment Agreement, all references
to "Transferor II" and the "Transferor II Designee" shall mean and refer to
Assignee and the Assignee Designee.
<PAGE>
Section 2. ASSUMPTION. Assignee hereby assumes all of Assignor's
obligations under Section 4.1(b) of the Investment Agreement.
Section 3. CONSENT. Pursuant to Section 7.7 of the Investment
Agreement, each of Parent, Holdco Sub, the Partnership, the Partners,
Transferor I, Transferor III and Assignor consent to the assignment effected
by Section 1 hereof.
Section 4. GOVERNING LAW. This Assignment Agreement shall be governed
by and construed in accordance with the laws of the State of New York as
applied to contracts entered into and to be performed in New York without
regard to the application of principles of conflict of laws.
IN WITNESS WHEREOF, the parties have executed, delivered and entered into
this Agreement as of the date and year first written above.
NORTHWEST AIRLINES CORPORATION
By: /s/ Douglas M. Steenland
---------------------------------
Name:
Title:
NEWBRIDGE PARENT CORPORATION
By: /s/ Douglas M. Steenland
---------------------------------
Name:
Title:
AIR PARTNERS, L.P.
1992 AIR GP, a Texas general partnership
By: 1992 Air, Inc., a Texas corporation
managing partner
By: /s/ James J. O'Brien
--------------------------
Name: James J. O'Brien
Title: Vice President
2
<PAGE>
THE PARTNERS:
GENERAL PARTNERS
1992 AIR GP, a Texas general partnership
By: 1992 Air, Inc., a Texas corporation,
general partner
By: /s/ James J. O'Brien
--------------------------
Name: James J. O'Brien
Title: Vice President
AIR II GENERAL, INC., a Texas corporation
By: /s/ James J. O'Brien
--------------------------
Name: James J. O'Brien
Title: Vice President
3
<PAGE>
LIMITED PARTNERS
DAVID BONDERMAN
BONDERMAN FAMILY LIMITED
PARTNERSHIP
ESTATE OF LARRY LEE HILLBLOM
By: Russel K. Snow, Jr.
Managing Executor
Bank of Saipan, Executor
DHL MANAGEMENT SERVICES, INC.
LECTAIR PARTNERS
By: Planden Corp., G.P.
SUNAMERICA INC. (Formerly Broad, Inc.)
ELI BROAD
AMERICAN GENERAL CORPORATION
DONALD STURM
CONAIR LIMITED PARTNERS, L.P.
BONDO AIR LIMITED PARTNERSHIP
By: 1992 Air, Inc.
By: 1992 AIR GP, as attorney-in-
fact for the foregoing
By: 1992 Air, Inc., a Texas
corporation, general
partner
By: /s/ James J. O'Brien
--------------------------
Name: James J. O'Brien
Title: Vice President
AIR SAIPAN, INC., a CNMI corporation
By: /s/ James J. O'Brien
--------------------------
Name: James J. O'Brien
Title: Agent and Attorney-in-Fact
4
<PAGE>
BONDERMAN FAMILY LIMITED
PARTNERSHIP
By: /s/ James J. O'Brien
--------------------------
Name: James J. O'Brien
Title: Agent and Attorney-in-Fact
1992 AIR, INC., a Texas corporation
By: /s/ James J. O'Brien
--------------------------
Name: James J. O'Brien
Title: Vice President
ASSIGNEE:
COULCO, INC., a Texas corporation
By: /s/ James J. O'Brien
--------------------------
Name: James J. O'Brien
Title: Vice President
5
<PAGE>
CERTIFICATE OF ELIMINATION
OF
SERIES A PREFERRED STOCK OF
NORTHWEST AIRLINES CORPORATION
Pursuant to Section 151(g)
under the Delaware General Corporation Law
Northwest Airlines Corporation, a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"CORPORATION"),
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the
Corporation, resolutions were duly adopted setting forth the proposed
elimination of the Series A Preferred Stock, par value $.01 per share (the
"SERIES A PREFERRED STOCK"), of the Corporation (for which a Certificate of
Designation was originally filed with the Secretary of State of the State of
Delaware on July 20, 1989) as set forth herein:
RESOLVED, that no authorized shares of the Series A Preferred Stock of
the Corporation are outstanding and none will be issued;
RESOLVED, that a Certificate of Elimination be prepared, which shall
have the effect when filed with the Secretary of State of the State of
Delaware of eliminating from the Second Amended and Restated Certificate of
Incorporation of the Corporation all matters set forth in the Certificate
of Designations previously filed with respect to the Series A Preferred
Stock of the Corporation, and that the appropriate officers of the
Corporation be, and they hereby are, authorized to execute and file on
behalf of the Corporation such Certificate of Elimination with the
Secretary of State of the State of Delaware.
SECOND: That none of the authorized shares of the Series A Preferred
Stock of the Corporation are outstanding and none will be issued.
<PAGE>
2
THIRD: That in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Second Amended and
Restated Certificate of Incorporation of the Corporation is hereby amended to
eliminate all matters set forth in the Certificate of Designations previously
filed with respect to the Series A Preferred Stock of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Douglas M. Steenland, its Secretary, on this 31st day of January,
1998.
NORTHWEST AIRLINES CORPORATION
By: /s/ Douglas M. Steenland
--------------------------------
Name: Douglas M. Steenland
Title: Secretary
<PAGE>
CERTIFICATE OF ELIMINATION
OF
SERIES B PREFERRED STOCK OF
NORTHWEST AIRLINES CORPORATION
Pursuant to Section 151(g)
under the Delaware General Corporation Law
Northwest Airlines Corporation, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the
"CORPORATION"),
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth the proposed elimination of the
Series B Preferred Stock, par value $.01 per share (the "SERIES B PREFERRED
STOCK"), of the Corporation (for which a Certificate of Designation was
originally filed with the Secretary of State of the State of Delaware on July
20, 1989) as set forth herein:
RESOLVED, that no authorized shares of the Series B Preferred Stock of
the Corporation are outstanding and none will be issued;
RESOLVED, that a Certificate of Elimination be prepared, which shall
have the effect when filed with the Secretary of State of the State of
Delaware of eliminating from the Second Amended and Restated Certificate of
Incorporation of the Corporation all matters set forth in the Certificate
of Designations previously filed with respect to the Series B Preferred
Stock of the Corporation, and that the appropriate officers of the
Corporation be, and they hereby are, authorized to execute and file on
behalf of the Corporation such Certificate of Elimination with the
Secretary of State of the State of Delaware.
SECOND: That none of the authorized shares of the Series B Preferred
Stock of the Corporation are outstanding and none will be issued.
<PAGE>
2
THIRD: That in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Second Amended and
Restated Certificate of Incorporation of the Corporation is hereby amended to
eliminate all matters set forth in the Certificate of Designations previously
filed with respect to the Series B Preferred Stock of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Douglas M. Steenland, its Secretary, on this 31st day of January,
1998.
NORTHWEST AIRLINES CORPORATION
By: /s/ Douglas M. Steenland
--------------------------------
Name: Douglas M. Steenland
Title: Secretary
<PAGE>
AMENDED AND RESTATED AGREEMENT
AMENDED AND RESTATED AGREEMENT, dated as of October 29, 1997 (this
"AGREEMENT"), among Northwest Airlines Corporation, a Delaware corporation
(the "COMPANY"), on the one hand, and Alfred A. Checchi ("Checchi"); Gary L.
Wilson ("WILSON"); Frederic V. Malek, Frederic W. Malek, and Michelle A.
Malek (together the "MALEK FAMILY"); Frederic V. Malek as trustee of a trust
for the benefit of Frederic W. Malek; and Frederic V. Malek as trustee of a
trust for the benefit of Michelle A. Malek, on the other hand.
WITNESSETH:
WHEREAS, under Section 17 of the Second Amended and Restated
Investor Stockholders' Agreement, dated as of December 23, 1993 (as such
agreement has been amended, supplemented or otherwise modified from time to
time prior to the date hereof, the "STOCKHOLDERS' AGREEMENT"), among the
Company; Checchi, the A Trust created pursuant to a trust agreement dated May
23, 1984 with Wilson as trustee, the K Trust created pursuant to a trust
agreement dated May 23, 1984 with Wilson as trustee, and the Trust created
pursuant to a trust agreement dated September 1, 1985 with Wilson as trustee
(each such trust collectively known as the "CHECCHI FAMILY TRUSTS"; the
Checchi Family Trusts and Checchi together known as the "CHECCHI FAMILY");
Wilson, Derek M. Wilson, and Christopher D. Wilson (together the "WILSON
FAMILY"); the Malek Family; Bankers Trust New York Corporation ("BTNY");
Koninklijke Luchtvaart Maatschappij N.V. ("KLM"); and Richard C. Blum &
Associates - NWA Partners, L.P., formerly known as Wings Associates, L.P.
("BLUM"), KLM was granted an option to purchase shares of Common Stock (the
"KLM OPTION") from each of the Checchi Family, the Wilson Family, the Malek
Family, Blum, BTNY, and Bright Star Investments Limited and its affiliate
Paracor Finance Inc., the permitted transferees of Wings Acquisition Investor
Limited (collectively, "BRIGHT STAR"), upon the terms and subject to the
conditions set forth therein;
WHEREAS, KLM has previously exercised the KLM Option granted to KLM
by Bright Star in connection with a purchase of Bright Star's shares of
Common Stock;
WHEREAS, the Company has been advised that (i) as among the members
of the Checchi Family, only shares owned by Checchi are subject to the KLM
Option; (ii) as among the members of the Wilson Family, only shares owned by
Wilson are subject to the KLM Option; and (iii) as among members of the Malek
Family, an equal number of shares of each member are subject to the KLM
Option;
WHEREAS, in connection with entering into the Common Stock
Repurchase Agreement, dated as of September 29, 1997 (the "COMMON STOCK
AGREEMENT"), between the Company and KLM, KLM and the Company have agreed that
the KLM Option granted to KLM by each of Checchi, Wilson and the Malek Family
under Section 17 of the Stockholders' Agreement would be cancelled;
<PAGE>
2
WHEREAS, Checchi, Wilson and the Malek Family have agreed to pay to
the Company the following amounts in satisfaction of the obligations
undertaken by the Company in connection with the cancellation of the KLM
Options: (i) $14,042,540.35 with respect to Checchi (the "CHECCHI AMOUNT"),
(ii) $14,042,540.35 with respect to Wilson (the "WILSON AMOUNT"), and (iii)
$809,027.52 with respect to the Malek Family (the "MALEK AMOUNT");
WHEREAS, the parties hereto wish to amend and restate their
original agreement with respect to such reimbursements as herein provided;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:
1. OBLIGATION TO PAY THE CHECCHI AMOUNT, THE WILSON AMOUNT AND
THE MALEK AMOUNT. In consideration for the Company's agreement with KLM in
respect of the cancellation of the KLM Options, as described above, Checchi,
Wilson and the Malek Family hereby agree, respectively, as follows:
a. OBLIGATION TO PAY THE CHECCHI AMOUNT. Checchi hereby
unconditionally promises to pay to the order of the Company, in lawful
money of the United States of America in immediately available funds, no
later than 12:00 noon, New York City time, on the date hereof, the
principal sum of $14,042,540.35, without interest.
b. OBLIGATION TO PAY THE WILSON AMOUNT. Wilson hereby
unconditionally promises to pay to the order of the Company, in lawful
money of the United States of America in immediately available funds, no
later than 12:00 noon, New York City time, on January 28, 1998 (i) the
principal sum of $14,042,540.35 and (ii) interest on such principal amount
from the date hereof until January 28, 1998 at a rate per annum equal to
6%.
c. OBLIGATION TO PAY THE MALEK AMOUNT. (i) Each of Frederic V.
Malek, Frederic V. Malek as trustee of a trust for the benefit of Frederic
W. Malek and Frederic V. Malek as trustee of a trust for the benefit of
Michelle A. Malek hereby unconditionally promises either (x) subject to
prior approval (the "APPROVAL") of the Board of Directors of the Company,
to transfer, assign and deliver, as promptly as practicable after the
Approval, a certificate or certificates representing 17,684 shares (the
"SHARES") of the Company's Class A Common Stock, par value $.01 per share,
valued at a per share price equal to $45.75, which is the closing price of
the Shares on the National Association of Securities Dealers Automated
Quotations system on the date hereof, or (y) if and only if the Approval
is not granted by December 1, 1997, to pay to the order of the Company, in
lawful money of the United States of America in immediately available
funds, as promptly as practicable after December 1, 1997, (1) the principal
sum of $809,027.52 and (2) interest on such principal amount from the date
hereof until the date of such payment at a rate per annum equal to 6%. It
is understood and agreed by the Company and the Malek Family that (i) the
transfer,
<PAGE>
3
assignment and delivery of the Shares or (ii) the payment in immediately
available funds, as the case may be, by each of Frederic V. Malek, Frederic
V. Malek as trustee of a trust for the benefit of Frederic W. Malek and
Frederic V. Malek as trustee of a trust for the benefit of Michelle A.
Malek as provided in the preceding sentence shall satisfy in full the
amount owed by the Malek Family in respect of the Malek Amount. If the
Approval is granted, the certificate or certificates representing the
Shares shall be duly endorsed in blank or accompanied by stock powers duly
executed in blank, with all necessary stock transfer stamps affixed.
(ii) The Company hereby agrees to pay to Frederic V. Malek,
Frederic V. Malek as trustee of a trust for the benefit of Frederic W.
Malek and Frederic V. Malek as trustee of a trust for the benefit of
Michelle A. Malek any amount owing in respect of fractional shares.
2. WAIVER. Each of Checchi, Wilson and the Malek Family hereby
waives presentment, demand, protest or notice of any kind in connection with
this Agreement.
3. DEFINITIONS. Capitalized terms used but not otherwise defined
herein are used herein as defined in the Stockholders' Agreement.
4. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN. THE PARTIES TO THIS
AGREEMENT HEREBY AGREE TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT.
5. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, and by different parties on separate counterparts, each of
which shall be deemed an original, but all of which shall constitute one and
the same instrument.
6. REPRESENTATIONS AND WARRANTIES. If and only if the Approval is
granted, each of Frederic V. Malek, Frederic V. Malek as trustee of a trust
for the benefit of Frederic W. Malek and Frederic V. Malek as trustee of a
trust for the benefit of Michelle A. Malek represents and warrants to the
Company as of the date that such parties transfer, assign and deliver the
Shares, as follows:
a. OWNERSHIP OF THE SHARES. Each of Frederic V. Malek, Frederic
V. Malek as trustee of a trust for the benefit of Frederic W. Malek and
Frederic V. Malek as trustee of a trust for the benefit of Michelle A.
Malek has good and valid title to the Shares free and clear of all liens,
claims, equities, charges and encumbrances whatsoever, other than
restrictions imposed by Federal or State securities law.
b. POWER; AUTHORITY. Each of Frederic V. Malek, Frederic V. Malek
as trustee of a trust for the benefit of Frederic W. Malek and Frederic V.
Malek as trustee of a trust for the benefit of Michelle A. Malek has the
full and unrestricted
<PAGE>
4
power and right to enter into this Agreement and has the full and
unrestricted power and right to sell to the Company the Shares.
[Rest of page intentionally left blank.]
<PAGE>
5
IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be duly executed on its behalf as of the date first written
above.
NORTHWEST AIRLINES CORPORATION
By: /s/ Douglas M. Steenland
------------------------------------
Douglas M. Steenland
Senior Vice President,
General Counsel & Secretary
/s/ Alfred A. Checchi
---------------------------------------
Alfred A. Checchi
/s/ Gary L. Wilson
---------------------------------------
Gary L. Wilson
/s/ Frederic V. Malek
---------------------------------------
Frederic V. Malek
/s/ Frederic V. Malek
---------------------------------------
Frederic V. Malek as trustee of a trust
for the benefit of Frederic W. Malek
/s/ Frederic V. Malek
---------------------------------------
Frederic V. Malek as trustee of a trust
for the benefit of Michelle A. Malek
/s/ Frederic W. Malek
---------------------------------------
Frederic W. Malek
/s/ Michelle A. Malek
---------------------------------------
Michelle A. Malek
<PAGE>
AIRBUS 319-100 PURCHASE AGREEMENT
Dated as of September 19, 1997
between
AVSA, S.A.R.L.,
and
NORTHWEST AIRLINES, INC.
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
CLAUSES TITLE PAGE
------- ----- ----
<C> <S> <C>
0 PURCHASE AGREEMENT 0
1 DEFINITIONS 1
2 SALE AND PURCHASE 6
3 CHANGES 7
4 PRICE 9
5 PRICE REVISION 13
6 PAYMENT TERMS 14
7 PLANT REPRESENTATIVES - INSPECTION 16
8 NORTHWEST'S ACCEPTANCE 19
9 DELIVERY 23
10 EXCUSABLE DELAY 26
11 INEXCUSABLE DELAY 30
12 WARRANTIES AND SERVICE LIFE POLICY 32
13 PATENT INDEMNITY 56
14 TECHNICAL PUBLICATIONS 60
15 FIELD ASSISTANCE 61
16 TRAINING AND TRAINING AIDS 62
17 VENDORS' PRODUCT SUPPORT 63
18 BUYER FURNISHED EQUIPMENT AND DATA 64
</TABLE>
-ii-
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
CLAUSES TITLE PAGE
------- ----- ----
<C> <S> <C>
19 ASSIGNMENT 67
20 DATA RETRIEVAL 69
21 TERMINATION FOR CERTAIN EVENTS 70
22 MISCELLANEOUS PROVISIONS 72
</TABLE>
-iii-
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
EXHIBIT A SPECIFICATION
EXHIBIT B CHANGE ORDERS TO STANDARD SPECIFICATION (SCNs)
EXHIBIT C SCN FORM
EXHIBIT D AIRFRAME PRICE REVISION FORMULA
EXHIBIT E POWERPLANTS PRICE REVISION FORMULA
EXHIBIT F CERTIFICATE OF ACCEPTANCE
EXHIBIT G SELLER SERVICE LIFE POLICY AND VENDOR SERVICE
LIFE POLICY
</TABLE>
-iv-
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
LETTER AGREEMENTS
- -----------------
<S> <C>
LETTER AGREEMENT NO. 1 PURCHASE INCENTIVES
LETTER AGREEMENT NO. 2 FLEXIBILITY
LETTER AGREEMENT NO. 3 PREDELIVERY PAYMENTS
LETTER AGREEMENT NO. 4 AIRCRAFT CUSTOMIZATION
LETTER AGREEMENT NO. 5 RELIABILITY MATTERS
LETTER AGREEMENT NO. 6 A319-100 GUARANTEES
LETTER AGREEMENT NO. 7 OTHER MATTERS
LETTER AGREEMENT NO. 8 A319 AIRCRAFT FINANCING
LETTER AGREEMENT NO. 9 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT}
LETTER AGREEMENT NO. 10 SPECIAL APPLICATION
LETTER AGREEMENT NO. 11 MISCELLANEOUS MATTERS
</TABLE>
-v-
<PAGE>
P U R C H A S E A G R E E M E N T
This agreement is made this 19th day of September, 1997
between
AVSA, a societe a responsabilite limitee organized and existing under
the laws of the Republic of France, having its registered office
located at
2, rond-point Maurice Bellonte
31700 BLAGNAC
FRANCE
(hereinafter referred to as "AVSA")
and
Northwest Airlines, Inc., a corporation organized and existing under
the laws of the State of Minnesota, United States of America, having
its principal corporate offices located at
2700 Lone Oak Parkway
Eagan, Minnesota 55121, USA
(hereinafter referred to as "Northwest")
WHEREAS,
a) Northwest wishes to purchase, and AVSA is willing to sell, fifty (50) firm
Airbus Industrie A319-100 model aircraft, upon the terms and conditions
herein provided;
b) AVSA is willing to grant Northwest options to purchase fifty (50) option
and fifty (50) roll-over option Airbus A319-100 / A320-200 model aircraft,
upon the terms and conditions herein provided; and
c) AVSA is a sales subsidiary of Airbus Industrie, G.I.E., and will purchase
the Aircraft from Airbus Industrie, G.I.E., for resale to Northwest.
NOW THEREFORE IT IS AGREED AS FOLLOWS:
<PAGE>
1 - DEFINITIONS
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the following terms
will have the following meanings:
A319 PRODUCT SUPPORT AGREEMENT - the Airbus A319 Product Support
Agreement dated as of even date herewith among Northwest, ASCO and
AVSA, together with all exhibits, appendixes and letter agreements
thereto. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
AFFILIATE - with respect to any person or entity, any other person or
entity directly or indirectly controlling, controlled by or under
common control with such person or entity, not including any of the
Associated Contractors. For purposes of the preceding sentence,
"control" of a corporation shall mean the direct or indirect ownership
of voting securities having the power to direct or cause the direction
of the management and policies of such corporation.
AGREEMENT - this Airbus A319-100 Purchase Agreement, including all
exhibits, appendixes and letter agreements attached hereto, as the
same may be amended or modified and in effect from time to time.
AIRCRAFT - any or all of the (i) Firm Aircraft, (ii) Option Aircraft
that have been converted to a firm order, or (iii) Roll-Over Option
Aircraft that have been converted to a firm order, to be purchased by
AVSA and sold to Northwest pursuant to this Agreement, together with
all components, equipment, parts and accessories installed in or on
such aircraft and the Propulsion Systems installed thereon upon
delivery.
AIRFRAME - any Aircraft, excluding the Propulsion Systems therefor.
ASCO - Airbus Service Company, Inc., a corporation organized and
existing under the laws of Delaware, having its registered office
located at 198 Van Buren Street, Suite 300, Herndon, VA 20170, or any
successor thereto.
ASSOCIATED CONTRACTORS - collectively, the members and, for certain
purposes, subcontractors of the Manufacturer from time to time, which
members presently are:
(1) AEROSPATIALE, SOCIETE NATIONALE INDUSTRIELLE, whose principal
office is at
37, Boulevard de Montmorency
75016 Paris
France
1
<PAGE>
(2) BRITISH AEROSPACE (OPERATIONS) LTD, whose principal office is at
Warwick House
PO Box 87
Farnborough Aerospace Centre
Farnborough
Hants GU14 6YU
England
(3) CONSTRUCCIONES AERONAUTICAS, S.A., whose principal office is at
404 Avenida de Aragon
28022 Madrid
Spain
(4) DAIMLER-BENZ AEROSPACE AIRBUS, GmbH ("Daimler-Benz"), whose
principal office is at
Kreetslag 10
Postfach 95 01 09
21111 Hamburg
Germany
ATA SPECIFICATION 100 - the specification issued by the Air Transport
Association of America relating to manufacturers' technical data.
ATA SPECIFICATION 101 - the specification issued by the Air Transport
Association of America relating to ground equipment technical data.
ATA SPECIFICATION 102 - the specification issued by the Air Transport
Association of America relating to software programs.
ATA SPECIFICATION 200 - the specification issued by the Air Transport
Association of America relating to integrated data processing.
ATA SPECIFICATION 300 - the specification issued by the Air Transport
Association of America relating to the packaging of spare parts
shipments.
ATA SPECIFICATION 2000 - the specification issued by the Air Transport
Association of America relating to an industry-wide communication
system linking suppliers and users for the purposes of spares
provisioning, purchasing, order administration, invoicing and
information or data exchange.
ATA SPECIFICATION 2100 - the specification issued by the Air Transport
Association of America relating to the standards for the presentation
of technical information prepared as
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digital media (magnetic tape or CD ROM).
AVSA-SUPPLIED BUYER FURNISHED EQUIPMENT - as referred to in Subclause
18.7 of this Agreement.
BASE PRICE - for any Aircraft, Airframe or Propulsion Systems, as
defined in Subclause 4.1 of this Agreement.
BUYER FURNISHED EQUIPMENT - for any Aircraft, all the items of
equipment that will be furnished by Northwest and installed in the
Aircraft by AVSA, as defined in the Specification.
DEVELOPMENT CHANGES - as defined in Subclause 3.2 of this Agreement.
EXCUSABLE DELAY - as defined in Subclause 10.1 of this Agreement.
FAA - the U.S. Federal Aviation Administration, or any successor
agency thereto.
FAILURE - as defined in Subclause 12.2.1.2 of this Agreement.
FINAL CONTRACT PRICE - as defined in Subclause 4.2 of this Agreement.
FIRM AIRCRAFT - any or all of the fifty (50) Airbus Industrie A319-100
model aircraft to be purchased by AVSA and sold to Northwest pursuant
to this Agreement, together with all components, equipment, parts and
accessories installed in or on such aircraft and the Propulsion
Systems installed thereon upon delivery.
IN-HOUSE WARRANTY - as defined in Subclause 12.1.7 (i) of this
Agreement.
IN-HOUSE WARRANTY LABOR RATE - as defined in Subclause 12.1.7(v) of
this Agreement.
INTERFACE PROBLEM - as defined in Subclause 12.4.1 of this Agreement.
ITEM - as defined in Subclause 12.2.1.1 of this Agreement.
LBA - Luftfahrt-Bundesamt of Germany or any successor agency thereto.
LIBOR - for each stated interest period, the rate determined on the
basis of the offered rates for deposits in US dollars, which appear on
the Reuters Screen LIBO Page as of 11:00 a.m., London time, on the day
that is two (2) days (other than a Saturday, Sunday or a day that is a
legal holiday or a day on which banking institutions are authorized to
close in the City of New York, New York, London, England, or Paris,
France) before the first day of an interest period. If at least two
(2) such offered rates appear on the Reuters
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<PAGE>
Screen LIBO Page, the rate for that interest period will be the
arithmetic mean of such offered rates (rounded upwards, if
necessary, to the nearest one hundred thousandth of a percentage
point). If only one (1) offered rate appears, the rate for that
interest period will be the average (rounded upwards, if necessary,
to the nearest one hundred thousandth of a percentage point) of the
respective rates notified to AVSA by four (4) major banks in the
London interbank market selected by AVSA as the rate at which such
bank is offered deposits in US dollars at or about 11:00 a.m.,
London time, on the date that is two (2) days (other than a
Saturday, Sunday or a day that is a legal holiday or a day on which
banking institutions are authorized to close in the City of New
York, New York, London, England, or Paris, France) prior to the
first day of such interest period in the interbank Eurodollar
market on such date for that interest period and in a principal
amount equal to an amount of not less than $1,000,000, provided,
however, that if the banks selected as aforesaid are not quoting as
set forth in this sentence, the rate in respect of such interest
period will be determined on the basis of LIBOR in effect for the
previous interest period. "Reuters Screen LIBO Page" means the
display designated as page "LIBO" on the Reuters Monitor Money
Rates Service (or any successor to such page or service).
MANUFACTURER - Airbus Industrie, a "Groupement d'Interet Economique"
established under "Ordonnance" No. 67-821 dated September 23, 1967, of
the Republic of France.
MATERIAL BREACH - as defined in Subclause 21.1 of this Agreement.
OPTION AIRCRAFT - any or all of the fifty (50) Airbus Industrie
A319/A320 model aircraft for which AVSA has granted Northwest an
option to purchase pursuant to the terms and conditions contained in
Letter Agreement No. 2 hereto (excluding the Roll-Over Option
Aircraft) together with all components, equipment, parts and
accessories installed in or on such aircraft and the Propulsion
Systems installed thereon upon delivery.
PREDELIVERY PAYMENT - any payment made against the Final Contract
Price of an Aircraft in accordance with Subclause 6.2 of this
Agreement.
PRIME RATE - the rate of interest per annum publicly announced from
time to time by Citibank, N.A. in New York, New York, as its prime or
base or equivalent lending rate.
PRODUCT SUPPORT AGREEMENTS - as referred to in Subclause 17.1.1 of
this Agreement.
PROPULSION SYSTEMS - the two (2) CFM56-5A4 powerplants to be installed
on an Aircraft at delivery, each composed of the powerplant (as such
term is defined in Chapters 70-80 of ATA Specification 100 (Revision
22), but limited to the equipment, components, parts and accessories
included in the powerplant, as so defined), that have been sold to the
Manufacturer by CFMI International, and a nacelle and thrust reverser
for each such powerplant.
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RFC - as defined in Subclause 3.3.1 of this Agreement.
ROLL-OVER OPTION AIRCRAFT - any or all of the fifty (50) Airbus
Industrie A319/A320 model aircraft which Northwest may obtain an
option to purchase pursuant to the terms and conditions contained in
Subclause 2.6 of Letter Agreement No. 2 hereto, together with all
components, equipment, parts and accessories installed in or on such
aircraft and the Propulsion Systems installed thereon upon delivery.
SCN - as defined in Subclause 3.1 of this Agreement.
SELLER FURNISHED EQUIPMENT - for any Aircraft, all of the items of
equipment that will be furnished by AVSA and installed in the Aircraft
by AVSA, as defined in the Specification.
SERVICE LIFE POLICY - as referred to in Subclause 12.2 of this
Agreement.
SPECIFICATION - as defined in Subclause 2.2 of this Agreement.
STANDARD SPECIFICATION - as defined in Subclause 2.2 of this
Agreement.
VENDOR - each manufacturer (other than the manufacturer of the
Propulsion Systems) and any successor thereof, of a component,
equipment, accessory or part installed in an Aircraft at its delivery
to Northwest under this Agreement, or any replacement therefor, other
than a Warranted Part, and listed in the Supplier Product Support
Agreements manual referred to in Subclause 12.3.1 of this Agreement.
VENDOR COMPONENT - as defined in Subclause 12.4.3 of this Agreement.
VENDOR PARTS - as defined in Subclause 12.3.1 of this Agreement.
WARRANTED PART - as defined in Subclause 12.1.1 of this Agreement.
WARRANTY CLAIM - as defined in Subclause 12.1.6(v) of this Agreement.
WORKING DAY - with respect to any action to be taken hereunder, a day
other than a Saturday, Sunday or other day designated as a holiday in
the jurisdiction in which such action is required to be taken.
The terms "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement, and not a particular Clause
thereof.
Technical and trade items not otherwise defined herein will have
the meanings assigned to them as generally accepted in the aircraft
manufacturing industry.
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2 - SALE AND PURCHASE
2.1 GENERAL
AVSA will cause to be manufactured and will sell and deliver, and
Northwest will buy and take delivery of, the Aircraft subject to the
terms and conditions contained in this Agreement.
2.2 SPECIFICATION DOCUMENTS
The Aircraft will be manufactured in accordance with the A319-100
Standard Specification, Document No. J.000.01000, Issue 3, dated March
29, 1995, including Temporary Revision 1, dated August 25, 1995. Such
Standard Specification, a copy of which is annexed hereto as Exhibit A
to this Agreement, as amended by the change orders set forth in
Exhibit B hereto, is hereinafter referred to as the "Specification."
The Specification may be further modified from time to time pursuant
to the provisions of Clause 3 below.
2.3 CERTIFICATION
Prior to the delivery of the first Aircraft, AVSA will obtain or cause
to be obtained a US FAA Type Certificate (transport category) for the
Aircraft pursuant to Part 21 and in compliance with the applicable
provisions of Part 25 of the US Federal Aviation Regulations.
Each Aircraft will be delivered to Northwest with the Certificate of
Airworthiness for Export issued by the LBA and in a condition enabling
Northwest (or a person eligible to obtain such certificate under then
applicable law) to obtain at the time of delivery a Standard
Airworthiness Certificate issued pursuant to Part 21 of the US Federal
Aviation Regulations permitting Northwest to operate the Aircraft
under Part 121 of the US Federal Aviation Regulations. AVSA will have
no obligation, whether before, at or after delivery of any Aircraft,
to make any alterations to such Aircraft to enable such Aircraft to
meet FAA requirements for non-standard operation on Northwest's
routes. Except as set forth in this Subclause 2.3, AVSA will not be
required to obtain any other certificate or approval with respect to
the Aircraft.
2.4 AVSA will deliver each Aircraft with provisions suitable for that
equipment required to be incorporated on such Aircraft to meet
those additional requirements of the US Federal Aviation
Regulations which (i) are generally applicable with respect to
transport category aircraft to be used in United States
certificated air carriage and (ii) are required to be complied with
on or before the date of delivery of such Aircraft, provided that
any required amendment to the Specification resulting from such
additional requirements will be set forth in an SCN which will be
effected as provided in Clause 3 hereof. Northwest will cooperate
with AVSA in complying with the foregoing requirements.
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<PAGE>
3 - CHANGES
3.1 SPECIFICATION CHANGE NOTICES
The Specification may be amended from time to time by a Specification
Change Notice (each such Specification Change Notice being herein
called an "SCN" and being in the form of Exhibit C hereto). Each SCN
will set forth in detail the particular changes to be made in the
Specification, any materials to be deleted from the Aircraft by AVSA
in connection with such SCN, and the effect, if any, of such changes
on design, performance, weight, balance, time of delivery, Buyer
Furnished Equipment and price of each Aircraft affected thereby and
interchangeability or replaceability of parts. SCNs will not be
binding on either party until signed by persons duly authorized in
writing by Northwest and AVSA, but upon being so signed will
constitute amendments to this Agreement.
3.2 DEVELOPMENT CHANGES
The Specification may also be revised by AVSA without an SCN or
Northwest's consent to incorporate Manufacturer-decided changes that
are deemed necessary or useful to correct defects, improve the
Aircraft or its process of manufacture, prevent delay, or ensure
compliance with this Agreement and that do not increase the price or
adversely affect the delivery, overall dimensions, guaranteed weight,
maintenance requirements or performance of the Aircraft or adversely
change the interchangeability or replaceability requirements of the
Specification (hereinafter called "Development Changes"). AVSA will
notify Northwest of all Development Changes prior to incorporation
therein.
3.3 REQUESTS AND APPROVALS
3.3.1 In the event that Northwest requests a change to the Specification,
AVSA will issue a Request for Change (RFC) and carry out a feasibility
study of such change. If AVSA determines that such RFC is feasible to
incorporate, AVSA will produce an SCN and submit such SCN to Northwest
for Northwest's approval. If such SCN is rejected by Northwest, such
RFC and proposed SCN will be canceled without charge to Northwest.
3.3.2 In the event that Northwest requests AVSA in writing to incorporate a
proposed change (excluding Development Changes) in an Aircraft and
AVSA agrees to such request but the change is not subsequently made
the subject of an SCN for any reason (other than AVSA's unreasonable
refusal to sign the SCN or otherwise acting in bad faith), Northwest
will pay AVSA the full cost of design and other work resulting from
such request and incurred by AVSA, provided that in the event AVSA's
reasonable estimate of the cost of developing such proposed change is
higher than US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}, AVSA shall have notified Northwest in writing
within {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
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SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Working Days after AVSA's receipt of
Northwest's request of such cost estimate and secured Northwest's
agreement prior to incurring any such costs.
In the event that Northwest requests AVSA in writing to proceed with a
proposed change before any requisite approval of the LBA and FAA has
been obtained and such LBA or FAA approval is not subsequently
obtained, any SCN executed in connection with such proposed change
will be {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
3.4 SPECIFICATION CHANGES BEFORE DELIVERY
If, pursuant to the promulgation of any applicable law or regulation,
any change in the Specification has to be made before delivery of any
Aircraft to enable Northwest to obtain a Standard Airworthiness
Certificate for such Aircraft referred to in Subclause 2.3, AVSA will
make or cause to be made the required change or modification to the
Aircraft. For each such change, the parties will sign an SCN
specifying the effect, if any, of such change on design, performance,
weight, balance, time of delivery, and Buyer Furnished Equipment of
each Aircraft affected thereby and interchangeability or
replaceability of parts. If AVSA anticipates that the scheduled
delivery of any Aircraft will be postponed by reason of such change,
the delivery date of such Aircraft as provided in Subclause 9.1 will
be extended to the extent of such postponement.
The effect on price of such a change will be borne {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
3.5 SPECIFICATION CHANGES AFTER DELIVERY
Subclause 3.4 will not require AVSA to make any changes or
modifications to or to make any payments or take any other action with
respect to any Aircraft delivered to Northwest prior to the time any
law or regulation referred to in Subclause 3.4 becomes effective. Any
such changes or modifications made to an Aircraft after its delivery
to Northwest will be at Northwest's expense.
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<PAGE>
4 - PRICE
4.1 BASE PRICE OF THE AIRCRAFT
The Base Price of each Aircraft is the sum of:
(i) the Base Price of the Airframe, and
(ii) the Base Price of the Propulsion Systems.
4.1.1 BASE PRICE OF THE AIRFRAME
4.1.1.1 The Base Price of the Airframe will be the sum of the Base Prices
set forth below in (i), (ii) and (iii):
(i) the Base Price of the Standard A319 Airframe, as defined in
the Standard Specification set forth in Exhibit A hereto
(excluding Buyer Furnished Equipment, Propulsion Systems and
SCNs), at delivery conditions prevailing in January 1998,
which is:
US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} and
(ii) the Base Price of any and all SCNs mutually agreed upon prior
to the signature of this Agreement and set forth in Exhibit
B, at delivery conditions prevailing in January 1998, which
is:
US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}, and
(iii) the Base Price of seats and galleys, at delivery conditions
prevailing in January 1998 in the amount of:
US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
4.1.1.2 The Base Price of the Airframe of each Aircraft will be revised to
the actual delivery date of such Aircraft in accordance with the
Airframe Price Revision Formula set forth in Subclause 5.1 hereto.
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<PAGE>
4.1.2 BASE PRICE OF THE PROPULSION SYSTEMS
4.1.2.1 The Base Price of the Propulsion Systems is the sum of (i) and (ii)
below:
(i) BASE PRICE OF THE POWERPLANTS
The Base Price of a set of Powerplants and additional
standard equipment at delivery conditions prevailing in
January 1998 (cpi 147.77), which is:
US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
Said Base Price has been calculated with reference to the
Reference Price indicated by CFM International of US$
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} in accordance with economic
conditions prevailing in September 1990 (cpi 126.54).
Said Reference Price is subject to adjustment to the date of
delivery of the Aircraft in accordance with the CFMI Price
Revision Formula set forth in Subclause 5.2 hereto.
(ii) BASE PRICE OF NACELLES AND THRUST REVERSERS
The Base Price of a set of two (2) nacelles and two (2)
thrust reversers for the Powerplants at delivery conditions
prevailing in January 1998, which is:
US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
Said Base Price is subject to adjustment to the date of
delivery of the Aircraft in accordance with the Airframe
Price Revision Formula set forth in Subclause 5.1 hereto.
4.2 FINAL CONTRACT PRICE
The Final Contract Price of an Aircraft will be the sum of:
(i) the Base Price of the Airframe constituting a part of such
Aircraft, as adjusted to the date of delivery of such
Aircraft in accordance with Subclause 5.1 of this Agreement;
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<PAGE>
(ii) the price (as of delivery conditions prevailing in January
1998), of any SCNs constituting a part of such Aircraft that
are entered into pursuant to Clause 3 (excluding Subclause
3.4) after the date of execution of this Agreement, as
adjusted to the date of delivery of such Aircraft in
accordance with Subclause 5.1 of this Agreement;
(iii) the Reference Price of the installed Propulsion Systems
constituting a part of such Aircraft, as adjusted to the date
of delivery of such Aircraft in accordance with Subclause 5.2
of this Agreement;
(iv) the Base Price of the nacelles and thrust reversers
constituting a part of such Aircraft, as adjusted to the date
of delivery of such Aircraft in accordance with Subclause 5.1
of this Agreement; and
(v) any other amount resulting from any other provisions of this
Agreement and/or any other written agreement between
Northwest and AVSA relating to the Aircraft and specifically
making reference to the Final Contract Price of an Aircraft.
4.3 TAXES, DUTIES AND IMPOSTS
4.3.1 AVSA will bear and pay the amount of any and all taxes, duties,
imposts or similar charges of any nature whatsoever {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} that are (i) imposed upon Northwest, (ii) imposed upon
AVSA with an obligation on Northwest to withhold or collect the
amount thereof from AVSA or (iii) imposed upon Northwest with an
obligation on AVSA to withhold or collect such amount from
Northwest, and that are levied, assessed, charged or collected for
or in connection with the fabrication, manufacture, modification,
assembly, sale, delivery, use of or payment under this Agreement
for any Aircraft, component, accessory, equipment or part delivered
or furnished hereunder, provided such taxes, duties, imposts or
similar charges have been levied, assessed, charged or collected
under laws promulgated and enforceable in Germany {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT}.
4.3.2 Northwest will bear and pay the amount of any and all taxes,
duties, imposts or similar charges of any nature whatsoever that
are (i) imposed upon AVSA, (ii) imposed upon Northwest with an
obligation on AVSA to collect the amount thereof for Northwest or
(iii) imposed upon AVSA with an obligation for Northwest to
withhold such amount from AVSA, and that are levied, assessed,
charged or collected for or in connection with the fabrication,
manufacture, modification, assembly, sale, delivery or use of or
payment under this Agreement for any Aircraft, component,
accessory, equipment or part
11
<PAGE>
delivered or furnished hereunder, provided such taxes, duties,
imposts or similar charges have been levied, assessed, charged or
collected under laws promulgated and enforceable in countries other
than Germany {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT}. If Northwest is compelled by law to
pay such taxes, duties, imposts or similar charges as a deduction
or withholding, then Northwest will ensure that the sums received
by AVSA under this Agreement will be equal to the full amounts
expressed to be due AVSA hereunder, without deduction or
withholding on account of and free from any and all taxes, levies,
imposts, duties or charges of whatever nature, and Northwest will
pay such additional amounts as may be necessary so that the net
amount received by AVSA after such deduction or withholding will
equal the amounts that would have been received in the absence of
such deduction or withholding.
4.3.3 AVSA will in its own name do all things necessary with respect to
the export of the Aircraft from Germany and will pay any customs
duties, taxes and fees required to be paid with respect to such
export of the Aircraft which are imposed under laws promulgated and
enforceable in Germany {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT}.
4.3.4 It is expressly understood and agreed that AVSA's undertaking in
Subclause 4.3.1 will not apply to taxes, duties, imposts or similar
charges of any nature whatsoever, relating to the use of or payment
for any Aircraft (excluding income, franchise, and doing business
taxes imposed on AVSA), component, accessory, equipment or part
delivered or furnished under this Agreement in the United States of
America.
4.3.5 It is expressly understood and agreed that Northwest's undertaking
in Subclause 4.3.2 will not apply to taxes imposed on AVSA that are
based on or measured by gross or net income or receipts or that are
based on or measured by AVSA's doing business, capital or net
worth, or other taxes, however denominated, in the nature of such
taxes.
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<PAGE>
5 - PRICE REVISION
5.1 AIRFRAME PRICE REVISION FORMULA
The Base Price of each Airframe and the Base Price of a set of two
(2) nacelles and two (2) thrust reversers for each Aircraft will be
revised to the actual delivery date of such Aircraft in accordance
with the revision formula set forth in the Airframe Price Revision
Formula attached hereto in Exhibit D.
5.2 POWERPLANTS PRICE REVISION FORMULA
The Reference Price of the Powerplants Systems will be revised to
the actual delivery date of the Aircraft on which such Propulsion
Systems are installed in accordance with the revision formula set
forth in Exhibit E hereto.
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<PAGE>
6 - PAYMENT TERMS
6.1 Northwest will pay all sums due hereunder in immediately available
funds in United States dollars by credit to Credit Lyonnais, New
York Branch, for transfer by Credit Lyonnais to AVSA's account
with Credit Lyonnais at 1, Esplanade Compans Caffarelli, 31000
Toulouse, France, or to such other account at any New York Clearing
House Member Bank as AVSA will designate by notice to Northwest.
6.2 PREDELIVERY PAYMENTS
Predelivery Payments will be paid by Northwest to AVSA for each
Aircraft in accordance with the provisions of Letter Agreement No.
3 to this Agreement.
6.3 PAYMENT OF FINAL CONTRACT PRICE
Concurrently with the delivery of each Aircraft, Northwest will pay
to AVSA the Final Contract Price therefor, less the total amount of
the Predelivery Payments theretofore received by AVSA for such
Aircraft under Subclause 6.2 above. AVSA's receipt of the full
amount of such payments will be a condition precedent to AVSA's
obligation to deliver such Aircraft.
6.4 PAYMENT OF OTHER AMOUNTS
6.4.1 Unless otherwise expressly provided for herein, any payments due
hereunder or in respect of an Aircraft in addition to those
referred to in Subclauses 6.2 and 6.3 above will be paid by
Northwest concurrently with the delivery of the corresponding
Aircraft or, if invoiced after delivery of such Aircraft, within
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} after the invoice date. AVSA and Northwest
agree that with respect to payments to be made under this Subclause
6.4.1, and for the purposes of Clause 21, Northwest will not be
deemed to be in default unless such payment is not made within
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} after invoice date.
6.4.2 Notwithstanding any other rights AVSA may have at contract or at
law, Northwest and AVSA hereby agree that should any amount under
this Agreement become due and payable by Northwest, and not be
paid in full in immediately available funds on the date due (unless
contested by Northwest in good faith), then AVSA will have the
right to debit and apply, in whole or in part, the unused amount of
any credit made available by AVSA to Northwest against such unpaid
amount. AVSA will promptly notify Northwest in writing after such
debiting and application.
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<PAGE>
6.5 OVERDUE PAYMENTS
If any payment due AVSA is not received by AVSA on the date or
dates as agreed upon between Northwest and AVSA, AVSA will have the
right to claim from Northwest, and Northwest will promptly pay to
AVSA, upon receipt of such claim, interest (on the basis of a 365
day year) at a rate per annum equal to the sum of {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} on the amount of such overdue payment, to be calculated
from and including the due date of such payment to (but excluding)
the date such payment is received by AVSA. AVSA's right to receive
such interest will be in addition to any other rights of AVSA
hereunder or at law.
6.6 REFUND OF PREDELIVERY PAYMENTS
Northwest will have no right to any refund of any deposit or
Predelivery Payment received by AVSA, except as provided under
Clauses 10, 11, and {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT}.
6.7 PROPRIETARY INTEREST
Northwest will not, by virtue of anything contained in this
Agreement (including, without limitation, any Predelivery Payments
hereunder, or any designation or identification by AVSA of a
particular Aircraft as an Aircraft to which any of the provisions
of this Agreement refer), and notwithstanding any provision of law
to the contrary, acquire any proprietary, insurable or other
interest whatsoever in any Aircraft prior to delivery of and
payment in full for such Aircraft as provided in this Agreement.
6.8 TENDER OF DELIVERY
In addition to any other rights and remedies available to AVSA,
AVSA will not be obligated to tender delivery of any Aircraft to
Northwest and will have no further liability to Northwest with
respect thereto, if Northwest fails to make any Predelivery Payment
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} or if AVSA has terminated this Agreement
pursuant to Clause 21.
6.9 PAYMENT IN FULL
Except as provided for herein, Northwest's obligation to make
payments to AVSA hereunder will not be affected by and will be
determined without regard to any set off, counterclaim, recoupment,
defense or other right that Northwest may have against AVSA or any
other person and all such payments will be made without deduction
or withholding of any kind.
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<PAGE>
7 - PLANT REPRESENTATIVES - INSPECTION
7.1 INSPECTION PROCEDURES
7.1.1 All work to be carried out on the Aircraft and all materials and
parts thereof will at all reasonable times during business hours be
open to inspection by duly authorized representatives of Northwest
or its designee at the respective works of the Associated
Contractors and, if possible, at the works of their respective
subcontractors, and such representatives will, to carry out the
aforesaid inspection, have access to such relevant technical data
as is reasonably necessary for this purpose (except that, if access
to any part of the respective works where construction is in
progress or materials or parts are stored is restricted for
security reasons, the Associated Contractors will be allowed a
reasonable time to make the items available for inspection
elsewhere). The procedures for such inspections will be agreed
upon between AVSA's and Northwest's representatives prior to any
inspection.
7.1.2 For the purposes of Subclause 7.1.1 above and commencing with the
date of this Agreement until the delivery of the last Aircraft,
AVSA will furnish free-of-charge adequate secretarial assistance
and suitable space, office equipment and facilities in or
conveniently located with respect to Daimler-Benz's works in
Hamburg, Germany, for the use of not more than four (4)
representatives of Northwest during the aforementioned period.
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
7.1.3 All inspections, examinations and discussions with AVSA's, the
Associated Contractors' or their respective subcontractors'
engineering or other personnel by Northwest and its said
representatives will be performed in such manner as not to delay or
hinder the work to be carried out on the Aircraft or the proper
performance of this Agreement. In no event will Northwest or its
representatives be permitted to inspect any aircraft other than the
Aircraft.
7.2 INDEMNITY
SELLER'S INDEMNITY
AVSA WILL INDEMNIFY AND HOLD HARMLESS NORTHWEST, ITS DIRECTORS,
OFFICERS, AGENTS AND EMPLOYEES FROM AND AGAINST ALL LIABILITIES,
DAMAGES, LOSSES, COSTS AND EXPENSES (I) FOR ALL INJURIES TO AND
DEATHS OF PERSONS (EXCEPTING INJURIES TO OR DEATH OF NORTHWEST'S
REPRESENTATIVES PARTICIPATING IN ANY TESTS, CHECKOUTS OR
INSPECTIONS UNDER THIS CLAUSE 7) CAUSED BY NORTHWEST OR ITS
REPRESENTATIVES, AND (II) FOR ANY LOSS OF OR DAMAGE TO PROPERTY
(EXCEPTING LOSS OF OR DAMAGE TO PROPERTY OF NORTHWEST'S SAID
REPRESENTATIVES) CAUSED BY NORTHWEST OR
16
<PAGE>
ITS REPRESENTATIVES, IN EITHER CASE WHEN ARISING OUT OF OR IN
CONNECTION WITH ANY SUCH TESTS, CHECKOUTS, OR INSPECTIONS UNDER THIS
CLAUSE 7. THIS INDEMNITY OF AVSA WILL NOT APPLY FOR ANY SUCH
LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISING OUT OF OR
CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF NORTHWEST'S
SAID REPRESENTATIVES.
NORTHWEST WILL INDEMNIFY AND HOLD HARMLESS AVSA, THE MANUFACTURER,
EACH OF THE ASSOCIATED CONTRACTORS AND THEIR RESPECTIVE
SUBCONTRACTORS AND THEIR RESPECTIVE OFFICERS, AGENTS AND EMPLOYEES
FROM AND AGAINST ALL LIABILITIES, DAMAGES, LOSSES, COSTS AND EXPENSES
(I) FOR INJURIES TO OR DEATHS OF NORTHWEST'S REPRESENTATIVES
PARTICIPATING IN ANY TESTS, CHECKOUTS, OR INSPECTIONS UNDER THIS
CLAUSE 7, (II) FOR LOSS OF OR DAMAGE TO PROPERTY OF NORTHWEST'S SAID
REPRESENTATIVES, AND (III) ARISING OUT OF OR CAUSED BY THE WILLFUL
MISCONDUCT OR GROSS NEGLIGENCE OF NORTHWEST'S SAID REPRESENTATIVES.
WITH RESPECT TO SUBCLAUSES (I) AND (II) OF THE PRECEDING SENTENCE,
NORTHWEST WILL NOT BE OBLIGATED TO INDEMNIFY OR HOLD HARMLESS AVSA
WHERE THE LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISE
FROM AVSA'S NEGLIGENCE OR WILLFUL MISCONDUCT.
IN THE EVENT ANY CLAIM IS MADE OR LAWSUIT IS BROUGHT AGAINST EITHER
PARTY (OR ITS RESPECTIVE DIRECTORS, OFFICERS, AGENTS OR EMPLOYEES)
FOR DAMAGES FOR DEATH OR INJURY, OR FOR PROPERTY DAMAGE, THE
LIABILITY FOR WHICH HAS BEEN ASSUMED BY THE OTHER PARTY PURSUANT TO
THIS SUBCLAUSE 7.2, THE FORMER (INDEMNITEE) WILL PROMPTLY GIVE NOTICE
TO THE OTHER PARTY (INDEMNITOR), AND THE INDEMNITOR WILL ASSUME AND
CONDUCT THE DEFENSE THEREOF, AND WILL HAVE THE RIGHT TO EFFECT ANY
SETTLEMENT WHICH IT, IN ITS OPINION, DEEMS PROPER AND WHICH IMPOSES
NO LIABILITY OR OTHER OBLIGATION ON THE INDEMNITEE.
IN THE EVENT THAT THE INDEMNITOR DOES NOT ASSUME AND CONDUCT THE
DEFENSE OF THE CLAIM OR LAWSUIT, THEN THE INDEMNITEE WILL HAVE THE
RIGHT TO PROCEED WITH DEFENSE OF THE CLAIM OR LAWSUIT AS IT DEEMS
APPROPRIATE AND WILL HAVE AN ACTION AGAINST THE INDEMNITOR FOR ANY
JUDGMENTS, SETTLEMENTS, COSTS OR EXPENSES INCURRED IN CONDUCTING SAID
DEFENSE. FOR THE PURPOSE OF THIS SUBCLAUSE 7.2, A CLAIM OR LAWSUIT
AGAINST THE MANUFACTURER OR ANY OF THE ASSOCIATED CONTRACTORS OR ANY
OF THEIR RESPECTIVE SUBCONTRACTORS OR ANY OF THEIR RESPECTIVE
DIRECTORS, OFFICERS, AGENTS OR EMPLOYEES WILL BE DEEMED TO BE A
LAWSUIT AGAINST AVSA.
17
<PAGE>
8 - NORTHWEST'S ACCEPTANCE
8.1 ACCEPTANCE PROCEDURES
8.1.1 AVSA or any Affiliate thereof acting as AVSA's designee will give to
Northwest not less than {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} days prior written notice of the
proposed time when acceptance tests of an Aircraft will be conducted,
and, in the event that Northwest elects to attend such tests,
Northwest will comply with the reasonable requirements of AVSA with
the intention of completing all tests within {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} Working
Days after commencement. The tests will take place at Daimler-Benz's
works in Hamburg, Germany (or at such other facilities of the
Associated Contractors or any Affiliates thereof as AVSA may specify
in its notice to Northwest pursuant to this Subclause 8.1.1) and will
be carried out by the personnel of the Manufacturer (accompanied, if
Northwest so wishes, by representatives of Northwest up to a total of
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} acting as observers, of whom not more than
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} will have access to the cockpit at any one
time). During flight tests, these representatives will comply with
the instructions of the Manufacturer's representatives. The
Manufacturer will not normally be required in the course of such
acceptance tests to fly any of the Aircraft for more than an
aggregate of {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} hours.
8.1.2 AVSA will offer to Northwest a briefing prior to acceptance of each
Aircraft and {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} hour simulator session for {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
pilots, prior to acceptance of the first Aircraft. This briefing
will provide specific information related to acceptance flights.
8.1.3 The acceptance tests must demonstrate the satisfactory functioning
of the Aircraft at the time of delivery in accordance with the
Specification (except for immaterial variances from the
Specification). In the event that Northwest, after having received
proper notice in accordance with Subclause 8.1.1, does not attend the
tests scheduled for an Aircraft or fails to so cooperate, AVSA may
complete them in the absence of Northwest, whereupon
18
<PAGE>
Northwest will be deemed to have accepted the tests, if such tests
demonstrate the satisfactory functioning of the Aircraft as aforesaid,
and AVSA will furnish such data with respect to such tests as
Northwest may reasonably request.
8.1.4 If the acceptance tests for an Aircraft are not successfully
completed or there is a defect, Northwest, within {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
Working Days after such tests, will give notice to AVSA specifying
such unsuccessful completion or defect. Thereafter AVSA will,
without hindrance from Northwest, carry out any necessary changes
and, as soon as practicable thereafter, resubmit the Aircraft for new
acceptance tests to demonstrate the elimination of the defect, such
tests to be held and carried out in accordance with Subclause 8.1,
provided, however, rather than accept a delay in delivery of any such
Aircraft, Northwest and AVSA may agree to deliver such Aircraft with
subsequent correction of the defect by Northwest {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT}.
8.2 USE OF AIRCRAFT
AVSA will be entitled to use any Aircraft prior to its delivery to
Northwest:
(i) without Northwest's prior consent, to the extent necessary to
carry out the normal manufacturing process of the Aircraft (but
in no event for more than {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} flight hours
in the case of each Aircraft),
(ii) without Northwest's prior consent, to obtain the certificates
required under Clause 2 hereof {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} or
(iii) with Northwest's prior consent (such consent not to be
unreasonably withheld), for the purposes of demonstration
flights to third parties (the "Demonstration Flights").
Such use will not affect either AVSA's obligation to deliver any
Aircraft hereunder or Northwest's obligation to accept delivery of
any Aircraft hereunder. Northwest will have the right, however, to
obtain a credit from AVSA for {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT} flight hours accumulated
during Demonstration Flights. {CONFIDENTIAL MATERIAL
19
<PAGE>
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} Such
credit will be equal to the product of (i) the number of flight hours
accumulated {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} for Demonstration Flights and (ii) US$
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}. Northwest will accept delivery of any
Aircraft used in accordance with this Subclause 8.2 without any
reduction in price for depreciation, or wear and tear resulting from
such use.
8.3 CERTIFICATE OF ACCEPTANCE
When the Aircraft is "ready for delivery" as defined below in
Subclause 9.2, Northwest will forthwith give to AVSA a signed
Certificate of Acceptance in the form attached as Exhibit F in
respect of the relevant Aircraft. Should Northwest fail to so
deliver the said Certificate, then Northwest will be deemed to be
in default as though it had without cause rejected delivery of such
Aircraft when duly tendered to it hereunder and will thereafter
bear all costs and expenses resulting from such delay in delivery.
8.4 FINALITY OF ACCEPTANCE
Northwest's acceptance of delivery of each Aircraft will constitute
waiver by Northwest of any right it may have under the Uniform
Commercial Code as adopted by the State of New York or otherwise to
revoke such acceptance for any reason, whether known or unknown to
Northwest at the time of acceptance.
8.5 INDEMNITY
8.5.1 SCOPE
IN CONNECTION WITH THE PROVISION OF SERVICES UNDER THIS CLAUSE 8,
AVSA AND NORTHWEST PROVIDE THE INDEMNITIES SET FORTH IN SUBCLAUSES
8.5.2 AND 8.5.3.
8.5.2 AVSA'S INDEMNITY
AVSA WILL INDEMNIFY AND HOLD HARMLESS NORTHWEST, ITS DIRECTORS,
OFFICERS, AGENTS AND EMPLOYEES FROM AND AGAINST ALL LIABILITIES,
DAMAGES, LOSSES, COSTS AND EXPENSES
(I) FOR ALL INJURIES TO AND DEATHS OF PERSONS (EXCEPTING INJURIES TO
AND DEATHS OF NORTHWEST'S REPRESENTATIVES PARTICIPATING IN ANY
GROUND OR FLIGHT TESTS UNDER THIS
20
<PAGE>
CLAUSE 8) CAUSED BY NORTHWEST OR ITS REPRESENTATIVES, AND
(II) FOR ANY LOSS OF OR DAMAGE TO PROPERTY (EXCEPTING LOSS OF OR
DAMAGE TO PROPERTY OF NORTHWEST'S SAID REPRESENTATIVES) CAUSED
BY NORTHWEST OR ITS REPRESENTATIVES,
IN EITHER CASE WHEN ARISING OUT OF OR IN CONNECTION WITH THE
OPERATION OF THE AIRCRAFT DURING ANY GROUND OR FLIGHT TESTS UNDER
THIS CLAUSE 8.
THIS INDEMNITY OF AVSA WILL NOT APPLY FOR ANY SUCH LIABILITIES,
DAMAGES, LOSSES, COSTS OR EXPENSES ARISING OUT OF OR CAUSED BY THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF NORTHWEST'S SAID
REPRESENTATIVES.
8.5.3 NORTHWEST'S INDEMNITY
NORTHWEST WILL INDEMNIFY AND HOLD HARMLESS AVSA, THE MANUFACTURER,
EACH OF THE ASSOCIATED CONTRACTORS AND THEIR RESPECTIVE
SUBCONTRACTORS AND EACH OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
AGENTS AND EMPLOYEES FROM AND AGAINST ALL LIABILITIES, DAMAGES,
LOSSES, COSTS AND EXPENSES
(I) FOR INJURIES TO OR DEATHS OF NORTHWEST'S SAID REPRESENTATIVES
PARTICIPATING IN ANY GROUND OR FLIGHT TESTS UNDER THIS CLAUSE 8,
(II) FOR LOSS OF OR DAMAGE TO PROPERTY OF NORTHWEST'S SAID
REPRESENTATIVES, AND
(III) ARISING OUT OF OR CAUSED BY THE WILLFUL MISCONDUCT OR GROSS
NEGLIGENCE OF NORTHWEST'S SAID REPRESENTATIVES.
WITH RESPECT TO SUBCLAUSES (I) AND (II) OF THE PRECEDING SENTENCE,
NORTHWEST WILL NOT BE OBLIGATED TO INDEMNIFY OR HOLD HARMLESS AVSA
WHERE THE LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISE FROM
AVSA'S NEGLIGENCE OR WILLFUL MISCONDUCT.
8.5.4 CLAIMS
IN THE EVENT ANY CLAIM IS MADE OR LAWSUIT IS BROUGHT AGAINST EITHER
PARTY (OR ITS RESPECTIVE DIRECTORS, OFFICERS, AGENTS OR EMPLOYEES)
FOR DAMAGES FOR DEATH OR INJURY OR FOR PROPERTY DAMAGE, THE
LIABILITY FOR WHICH HAS BEEN ASSUMED BY THE OTHER
21
<PAGE>
PARTY PURSUANT TO THIS SUBCLAUSE 8.5, THE FORMER (INDEMNITEE) WILL
PROMPTLY GIVE NOTICE TO THE OTHER PARTY (INDEMNITOR), AND THE
INDEMNITOR WILL ASSUME AND CONDUCT THE DEFENSE THEREOF, AND WILL
EFFECT ANY SETTLEMENT WHICH IT, IN ITS OPINION, DEEMS PROPER AND WHICH
DOES NOT IMPOSE ANY LIABILITY OR OTHER OBLIGATION ON THE INDEMNITEE.
IN THE EVENT THAT THE INDEMNITOR DOES NOT ASSUME AND CONDUCT THE
DEFENSE OF THE CLAIM OR SUIT, THEN THE INDEMNITEE WILL HAVE THE RIGHT
TO PROCEED WITH DEFENSE OF THE CLAIM OR LAWSUIT AS IT DEEMS
APPROPRIATE AND WILL HAVE AN ACTION AGAINST THE INDEMNITOR FOR ANY
JUDGMENTS, SETTLEMENTS, COSTS OR EXPENSES INCURRED IN CONDUCTING SAID
DEFENSE {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} FOR THE PURPOSE OF THIS SUBCLAUSE 8.5, A
CLAIM OR LAWSUIT AGAINST THE MANUFACTURER OR ANY OF THE ASSOCIATED
CONTRACTORS OR ANY OF THEIR RESPECTIVE SUBCONTRACTORS OR ANY OF THEIR
RESPECTIVE DIRECTORS, OFFICERS, AGENTS OR EMPLOYEES WILL BE DEEMED TO
BE A LAWSUIT AGAINST AVSA.
22
<PAGE>
9 - DELIVERY
9.1 DELIVERY SCHEDULE
Subject to the provisions of this Agreement, AVSA will have the
Firm Aircraft ready for delivery at Daimler-Benz's works in
Hamburg, Germany, and Northwest will accept the same, during the
months set forth below. {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT}.
*{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
<TABLE>
AIRCRAFT NO. MONTH/YEAR OF DELIVERY AIRCRAFT NO. MONTH/YEAR OF DELIVERY
<S> <C> <C> <C>
1 *1999 26 *2001
2 *1999 27 *2001
3 *1999 28 *2001
4 *1999 29 *2001
5 *1999 30 *2001
6 *1999 31 *2002
7 *1999 32 *2002
8 *1999 33 *2002
9 *1999 34 *2002
10 *1999 35 *2002
11 *2000 36 *2002
12 *2000 37 *2002
13 *2000 38 *2002
14 *2000 39 *2002
15 *2000 40 *2002
16 *2000 41 *2003
17 *2000 42 *2003
18 *2000 43 *2003
19 *2000 44 *2003
20 *2000 45 *2003
21 *2001 46 *2003
22 *2001 47 *2003
23 *2001 48 *2003
24 *2001 49 *2003
25 *2001 50 *2003
</TABLE>
23
<PAGE>
Not later than {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT} days prior to the date scheduled for
acceptance tests for a particular Aircraft, AVSA will give
Northwest notice of the anticipated date within the relevant month
set forth above on which such Aircraft will be ready for delivery.
Not later than {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT} days prior to such date notified to
Northwest, AVSA will (i) confirm to Northwest that such anticipated
delivery date is firm or (ii) in the event AVSA cannot confirm such
date as being firm, confirm a new date, which will be no more than
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Working Days in Germany before or after
the originally scheduled date.
9.2 CERTIFICATE OF AIRWORTHINESS
Each Aircraft will for the purpose of this Agreement be deemed to be
"ready for delivery" upon the satisfactory completion of its
acceptance tests in accordance with Clause 8 and the issuance of an
LBA Certificate of Airworthiness for Export in the "Transport
Category" with respect thereto and AVSA's compliance with the other
obligations to be performed by it under Clause 2 hereof.
9.3 TITLE
Title to and risk of loss of and damage to the Aircraft will pass
to Northwest upon delivery following execution of the Certificate
of Acceptance and upon payment of the Final Contract Price for such
Aircraft. AVSA will provide Northwest with such appropriate
documents of title or other documents as Northwest may reasonably
request.
9.4 OVERDUE PAYMENT OR FLYAWAY
In the event that:
(i) the delivery of and payment of the Final Contract Price for the
Aircraft is delayed more than {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} Working Days
after the firm delivery date established pursuant to Subclause
9.1 due to the fault of Northwest, or
(ii) within {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} days after delivery of the Aircraft
Northwest has failed to remove such Aircraft from the place of
delivery
24
<PAGE>
for whatever reason (except for reasons attributable to AVSA)
then Northwest will on demand reimburse AVSA for all reasonable
costs and expenses (including, without limitation, costs and
expenses attributable to storage, preservation and protection,
insurance and taxes) actually sustained by AVSA and resulting from
any such delay or failure. Such reimbursement will be in addition
to any other rights that AVSA may have as a result of any such
delay or failure.
9.5 FLYAWAY EXPENSES
Except for expenses to be borne by AVSA as provided in Subclause
4.4 of this Agreement, all expenses of, and in connection with,
fly-away from Daimler-Benz's works will be borne by Northwest
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
25
<PAGE>
10 - EXCUSABLE DELAY
10.1 SCOPE
Neither AVSA nor the Manufacturer will be responsible for or be deemed
to be in default on account of delays in delivery or failure to
deliver or otherwise in the performance of this Agreement or any part
hereof (i) due to causes reasonably beyond AVSA's, the Manufacturer's
or any Associated Contractor's control (unless such cause is beyond
such control due to AVSA's, the Manufacturer's or the Associated
Contractor's fault or negligence) or (ii) not occasioned by AVSA's,
the Manufacturer's or any Associated Contractor's fault or negligence
("Excusable Delay"), including, but not limited to: acts of God or
the public enemy, natural disasters, fires, floods, hail storms,
explosions or earthquakes; epidemics or quarantine restrictions;
serious accidents; actual total or constructive total loss; any law,
decision, regulation, directive or other act (whether or not having
the force of law) of any government or of the Council of the European
Community or the Commission of the European Community or of any
national, Federal, State, municipal or other governmental department,
commission, board, bureau, agency, court or instrumentality, domestic
or foreign; governmental priorities, regulations or orders affecting
allocation of materials, facilities or a completed Aircraft; war,
civil war or warlike operations, terrorism, insurrection or riots;
failure of transportation; strikes or labor troubles causing
cessation, slow down or interruption of work; delay in obtaining any
airworthiness certification for a previously uncertificated Aircraft
part, component or computer software after due and timely diligence to
procure such certification; inability after due and timely diligence
to procure materials, accessories, equipment or parts; general
hindrance in transportation; or failure of a subcontractor or Vendor
to furnish materials, components, accessories, equipment or parts.
It is expressly understood and agreed that each of (i) any delay
caused by Northwest's negligence or fault, and (ii) delay in delivery
or otherwise in the performance of this Agreement by AVSA due in whole
or in part to any delay in or failure of the delivery of, or any other
event or circumstance relating to, the Propulsion Systems or Buyer
Furnished Equipment, will constitute Excusable Delay for AVSA. AVSA
will as soon as practicable after becoming aware of any delay falling
within the provisions of this Subclause 10.1 (a) notify Northwest of
such delay and of the probable extent thereof and (b) subject to the
following provisions, as soon as practicable after the removal of the
cause or causes for delay, resume, {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT}, the performance of those
obligations affected under this Agreement.
AVSA and Northwest acknowledge that nothing in this Subclause 10.1
shall be deemed to obligate AVSA to undertake or forego any action
with respect to any strike or labor troubles which AVSA would not
otherwise undertake or forego in the exercise of sound business
judgement.
26
<PAGE>
10.2 UNANTICIPATED DELAY
In the event that the delivery of any Aircraft is delayed by reason
of an Excusable Delay for a period of more than {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
months after the end of the calendar month in which delivery is
otherwise required hereunder, Northwest will be entitled to terminate
this Agreement with respect only to the Aircraft so affected upon
written notice given to AVSA within {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} days after the
expiration of such {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} month period. In the event such delay
continues for an additional {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} month period after the expiration
of such {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} month period and Northwest has not theretofore
terminated this Agreement with respect to such Aircraft, either party
will have the option to terminate this Agreement with respect to the
Aircraft so affected upon written notice given to the other within
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} days after the end of such additional
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} month period. Such termination, as aforesaid,
will discharge all obligations and liabilities of the parties
hereunder with respect to such affected Aircraft, except that AVSA
will repay to Northwest all amounts required by {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} with
respect to such affected Aircraft, {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT}. Northwest will not be
entitled to receive such repayment nor to terminate this Agreement as
to any Aircraft under this Clause 10 by reason of an Excusable Delay
if such delay is caused solely by Northwest's negligence or
Northwest's fault.
10.3 ANTICIPATED DELAY
In respect of any Aircraft, AVSA may conclude, based on a reasonable
and good faith appraisal of the facts, that Excusable Delays will (i)
cause delay in delivery of such Aircraft for a period of more than
{CONFIDENTIAL MATERIAL OMITTED AND
27
<PAGE>
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} months after the
end of the calendar month in which delivery is otherwise required
or (ii) prevent delivery of such Aircraft. In such event, in good
faith and in accordance with its normal scheduling procedures, AVSA
will give written notice to Northwest of either (i) such delay and
its related rescheduling reflecting such delay(s) or (ii) such
nondelivery. Within {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT} days after Northwest's
receipt of such notice, Northwest (and, {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}, AVSA)
may terminate this Agreement as to such rescheduled or
nondeliverable Aircraft by giving written notice to the other
party. Such termination will discharge all obligations and
liabilities of the parties hereunder with respect to such affected
Aircraft, except that AVSA will repay to Northwest all amounts
required by {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT} with respect to such affected Aircraft
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}. Northwest will not be entitled to receive
such repayment nor to terminate this Agreement as to any Aircraft
under this Clause 10 by reason of an Excusable Delay if such delay
is caused solely by Northwest's negligence or Northwest's fault.
10.4 DELIVERY DATE
If, following notice of an anticipated delay under Subclause 10.3,
this Agreement is not terminated in accordance with the provisions of
such Subclause (with respect to the affected Aircraft), then the date
of delivery otherwise required hereunder will be extended by a period
equal to the delay specified in such notice.
10.5 LOST, DESTROYED OR DAMAGED AIRCRAFT
In the event that prior to delivery any Aircraft is lost, destroyed or
damaged beyond economic repair, AVSA will notify Northwest in writing
within {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} days after such event. Such notice will
specify the earliest date, consistent with AVSA's and the
Manufacturer's other contractual commitments and production
capabilities, by which AVSA would be able to deliver a replacement for
such Aircraft. This Agreement will terminate as to such Aircraft
unless Northwest gives AVSA written notice, within {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} days
after receipt by Northwest of the notice from AVSA of such loss,
destruction or damage, that
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<PAGE>
Northwest desires AVSA to deliver to Northwest a replacement for
such Aircraft. If Northwest gives such notice to AVSA, AVSA will
deliver to Northwest, at the earliest date consistent with AVSA's
and the Manufacturer's other contractual commitments and production
capabilities, an aircraft to replace the Aircraft lost, destroyed
or damaged beyond repair, and the parties will execute an amendment
to this Agreement to evidence the delivery date for such
replacement aircraft; provided, however, that nothing herein will
obligate AVSA to deliver such replacement aircraft if its
manufacture would require the reactivation of the Manufacturer's
production line for the model of aircraft purchased hereunder. The
terms and conditions of this Agreement applicable to the Aircraft
lost, destroyed or damaged beyond economic repair (including
without limitation, the price and price revision provisions in
Clauses 4 and 5 hereof) will apply to the replacement aircraft;
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}. In the event of termination of this
Agreement as to a particular Aircraft as a result of such loss,
destruction or damage the obligations and liabilities of the
parties hereunder with respect to such Aircraft will be discharged.
AVSA will repay to Northwest the amount required pursuant to
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} with respect to such lost, destroyed or
damaged Aircraft {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT}. Northwest will not be
entitled to receive repayment nor to terminate this Agreement as to
any Aircraft under this Subclause 10.5 if such loss, destruction or
damage is caused by Northwest's or its representatives' gross
negligence or willful misconduct.
10.6 REMEDIES
THIS CLAUSE 10 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} SET FORTH THE SOLE AND EXCLUSIVE REMEDY OF
NORTHWEST FOR EXCUSABLE DELAYS IN DELIVERY OR FAILURE TO DELIVER, AND
NORTHWEST HEREBY WAIVES ALL RIGHTS, INCLUDING WITHOUT LIMITATION ANY
RIGHTS TO DAMAGES OR SPECIFIC PERFORMANCE, TO WHICH IT WOULD OTHERWISE
BE ENTITLED IN RESPECT THEREOF. NORTHWEST WILL NOT BE ENTITLED TO
CLAIM THE REMEDIES AND RECEIVE THE BENEFITS PROVIDED IN THIS CLAUSE 10
TO THE EXTENT THE DELAY REFERRED TO IN THIS CLAUSE 10 IS CAUSED SOLELY
BY THE NEGLIGENCE OR FAULT OF NORTHWEST OR ITS REPRESENTATIVES.
In the event this Agreement is terminated with respect to an Aircraft
pursuant to the provisions of this Clause 10 {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
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11 - INEXCUSABLE DELAY
11.1 LIQUIDATED DAMAGES
Should an Aircraft not be ready for delivery to Northwest within
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} days after the month of delivery specified in
this Agreement (as such month may otherwise be changed pursuant to
this Agreement) for reasons other than as are covered by Clause 10,
Northwest will, in respect of any subsequent delay in delivery of such
Aircraft, have the right to claim and AVSA will in respect of any
subsequent delay pay to Northwest as liquidated damages for the delay
in delivery of such Aircraft US$ {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
11.2 TOTAL LIABILITY
Notwithstanding Subclause 11.1, the total liability of AVSA under this
Clause 11 with respect to any Aircraft will in no event exceed the
total sum of US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
11.3 WRITTEN CLAIM
Northwest's right to recover such damages in respect of an Aircraft is
conditional upon a claim therefor being submitted in writing to AVSA
by Northwest no later than {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} days after the date when such
Aircraft was scheduled to have been ready for delivery.
11.4 SIX-MONTH DELAY
In the event that such subsequent delay in delivery exceeds six (6)
months, Northwest will have the further right, exercisable by written
notice to AVSA given after such six (6) month period, to terminate
this Agreement in respect only of the Aircraft that is the subject of
such delay, whereupon AVSA will repay to Northwest hereunder all
amounts required by {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} in relation to such Aircraft
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
30
<PAGE>
11.5 TWELVE-MONTH DELAY
In the event that such subsequent delay in delivery exceeds twelve
(12) months, AVSA will have the right, exercisable by written notice
to Northwest given no more than {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT} after such twelve (12) month
period, to terminate this Agreement in respect only of the Aircraft
that is subject to such delay {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} AVSA will repay to Northwest all
amounts required by {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} in relation to such Aircraft
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
11.6 PRICE REVISION
Notwithstanding the provisions of Clause 5, {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
11.7 BUYER FURNISHED EQUIPMENT
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pursuant to the provisions of this Clause 11,
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} prior to exercising its rights under this
Subclause 11.7.
11.8 REMEDIES
THIS CLAUSE 11 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} SET FORTH THE SOLE REMEDY OF NORTHWEST FOR
DELAYS IN DELIVERY OR FAILURE TO DELIVER, OTHER THAN SUCH DELAYS AS
ARE COVERED BY CLAUSE 10, AND NORTHWEST HEREBY WAIVES ALL RIGHTS,
INCLUDING WITHOUT LIMITATION ANY RIGHTS TO INCIDENTAL AND
CONSEQUENTIAL DAMAGES OR SPECIFIC PERFORMANCE, TO WHICH IT WOULD
OTHERWISE
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<PAGE>
BE ENTITLED IN RESPECT THEREOF. NORTHWEST WILL NOT BE ENTITLED TO
CLAIM THE REMEDIES AND RECEIVE THE BENEFITS PROVIDED IN THIS CLAUSE
11 WHERE THE DELAY REFERRED TO IN THIS CLAUSE 11 IS CAUSED SOLELY
BY THE NEGLIGENCE OR FAULT OF NORTHWEST OR ITS REPRESENTATIVES.
32
<PAGE>
12 - WARRANTIES AND SERVICE LIFE POLICY
12.1 STANDARD WARRANTY
12.1.1 Nature of Warranty
12.1.2 Exceptions
12.1.3 Warranty Periods
12.1.4 Buyer's Remedy and Seller's Obligation
12.1.5 Warranty Claim Requirements
12.1.6 Warranty Administration
12.1.7 In-house Warranty
12.1.8 Standard Warranty Transferability
12.1.9 Warranty for Corrected, Replacement or Repaired
Warranted Parts
12.1.10 Good Airline Operation - Normal Wear and Tear
12.2 SELLER SERVICE LIFE POLICY
12.2.1 Definitions
12.2.2 Periods and Seller's Undertakings
12.2.3 Seller's Participation in the Cost
12.2.4 General Conditions and Limitations
12.2.5 Transferability
12.3 VENDOR WARRANTIES
12.3.1 Seller's Support
12.3.2 Vendor's Default
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12.4 INTERFACE COMMITMENT
12.4.1 Interface Problem
12.4.2 Seller's Responsibility
12.4.3 Vendor's Responsibility
12.4.4 Joint Responsibility
12.4.5 General
12.5 EXCLUSIVITY OF WARRANTIES AND GENERAL LIMITATIONS OF LIABILITY
12.6 DUPLICATE REMEDIES
12.7 NEGOTIATED AGREEMENT
34
<PAGE>
12 - WARRANTIES AND SERVICE LIFE POLICY
AVSA, in its capacity as "Buyer" under its arrangements with the
Manufacturer, has negotiated and obtained the following Standard
Warranty, Service Life Policy, Vendor Warranties and Interface
Commitment from the Manufacturer with respect to the Aircraft, subject
to the terms, conditions, limitations and restrictions (including, but
not limited to, the Exclusivity of Warranties and General Limitations
of Liability and Duplicate Remedies provisions) all as hereinafter set
out. AVSA hereby assigns to Northwest, and Northwest hereby accepts,
all of the rights and obligations of AVSA in its capacity as "Buyer"
as aforesaid under the said Standard Warranty, Service Life Policy,
Vendor Warranties and Interface Commitment, and AVSA subrogates
Northwest into all such rights and obligations in respect of the
Aircraft. AVSA hereby warrants to Northwest that it has all requisite
authority to make the foregoing assignment and effect the foregoing
subrogation to and in favor of Northwest and that it will not enter
into any amendment of the provisions so assigned without the prior
written consent of Northwest. Capitalized terms utilized in the
following quoted provisions have the meanings assigned thereto in this
Agreement, except that the term "Seller" refers to the Manufacturer
and the term "Buyer" refers to AVSA.
QUOTE
12.1 STANDARD WARRANTY
12.1.1 NATURE OF WARRANTY
Subject to the limitations and conditions as hereinafter provided, and
except as provided in Subclause 12.1.2, the Seller warrants to the
Buyer that each Aircraft and each Warranted Part will at the time of
delivery to the Buyer:
(i) be free from defects in material,
(ii) be free from defects in workmanship, including, without
limitation, processes of manufacture,
(iii) be free from defects in design (including, without limitation,
selection of materials) having regard to the state of the art
at the date of such design, and
(iv) be free from defects arising from failure to conform to the
Specification, except as to those portions of the
Specification relating to performance or where it is
expressly stated that such portions of the Specification are
estimates or approximations or design aims.
For the purposes of this Agreement, the term "Warranted Part" will
mean any Seller proprietary component, equipment, accessory or part
that is installed on an Aircraft at the time of delivery of such
Aircraft and that (a) is installed on such Aircraft, (b) is
manufactured to the detail design of the Seller or a subcontractor of
it and (c) bears a part number of the Seller at the time of such
delivery.
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<PAGE>
12.1.2 EXCEPTIONS
The warranties set forth in Subclause 12.1.1 will not apply to Buyer
Furnished Equipment, nor to the engine and its associated parts, nor
to any component, accessory, equipment or part purchased by the Buyer
that is not a Warranted Part, provided, however, that:
(i) any defect in the Seller's workmanship in respect of the
installation of such items in the Aircraft, including any failure
by the Seller to conform to the installation instructions of the
manufacturers of such items that invalidates any applicable
warranty from such manufacturers, will constitute a defect in
workmanship for the purpose of this Subclause 12.1 and be covered
by the warranty set forth in Subclause 12.1.1(ii), and
(ii) any defect inherent in the Seller's design of the installation,
in view of the state of the art at the date of such design, that
impairs the use of such items will constitute a defect in design
for the purposes of this Subclause 12.1 and be covered by the
warranty set forth in Subclause 12.1.1(iii).
12.1.3 WARRANTY PERIOD
The warranties described in Subclauses 12.1.1 and 12.1.2 hereinabove
will be limited to those defects that become apparent within
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} after delivery of the affected Aircraft.
12.1.4 BUYER'S REMEDY AND SELLER'S OBLIGATION
12.1.4.1 The Buyer's remedy and the Seller's obligation and liability under
Subclauses 12.1.1 and 12.1.2 hereinabove are limited to, at the
Seller's expense and option, the repair, replacement or correction of,
or the supply of modification kits rectifying the defect to, any
defective Warranted Part. Alternatively, the Seller may at its sole
option furnish a credit to the Buyer for the future purchase of
Material equal to the price at which the Buyer is then entitled to
acquire a replacement for the defective Warranted Part. Nothing herein
contained will obligate the Seller to correct any failure to conform
to the Specification with respect to components, equipment,
accessories or parts that the parties agree in writing at the time of
delivery of the affected Aircraft are acceptable deviations or have no
material adverse effect on the use, operation or performance of an
Aircraft.
12.1.4.2 In the event a defect covered by Subclause 12.1.1(iii) becomes
apparent within the applicable period set forth in Subclause
12.1.3(ii), and the Seller is obligated to correct such defect, the
Seller will also, if so requested by the Buyer in writing, make such
36
<PAGE>
correction in any Aircraft that has not already been delivered to the
Buyer. However, the Seller will not be responsible nor deemed to be
in default on account of any delay in delivery of any Aircraft or
otherwise, in respect of performance of this Agreement, due to the
Seller's undertaking to make such correction and, rather than accept a
delay in delivery of any such Aircraft, the Buyer and the Seller may
agree to deliver such Aircraft with subsequent correction of the
defect by the Buyer at the Seller's expense, or the Buyer may elect to
accept delivery and thereafter file a Warranty Claim as though the
defect had become apparent immediately after delivery of such
Aircraft.
12.1.5 WARRANTY CLAIM REQUIREMENTS
The Buyer's remedy and the Seller's obligation and liability under
this Subclause 12.1, with respect to each claimed defect, are subject
to the following conditions precedent:
(i) the existence of a defect covered by the provisions of this
Subclause 12.1,
(ii) the defect's having become apparent within the applicable
warranty period, as set forth in Subclause 12.1.3,
(iii) the Buyer's having submitted to the Seller proof reasonably
satisfactory to the Seller that the claimed defect is due to
a matter embraced within this Subclause 12.1, and that such
defect did not result from any act or omission of the Buyer,
including, but not limited to, any failure to operate and
maintain the affected Aircraft or part thereof in accordance
with the standards or any matter set forth or covered in
Subclause 12.1.10,
(iv) the Buyer's having returned as soon as reasonably practicable
the Warranted Part claimed to be defective to such repair
facilities as may be designated by the Seller, except where
the Buyer elects to repair a defective Warranted Part in
accordance with the provisions of Subclause 12.1.7, and
(v) the Seller's having received a Warranty Claim fulfilling the
conditions of and in accordance with the provisions of Subclause
12.1.6 below.
12.1.6 WARRANTY ADMINISTRATION
The warranties set forth in Subclause 12.1 will be administered as
hereinafter provided:
(i) CLAIM DETERMINATION
Warranty Claim determination by the Seller will be reasonably
based upon the claim details, reports from the Seller's regional
representative, historical data logs, inspections, tests,
findings during repair, defect analysis and other suitable
documents and information.
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<PAGE>
(ii) TRANSPORTATION {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT}
Transportation {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} for sending
a defective Warranted Part to the facilities designated by
the Seller will be borne by the Buyer {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
(iii) RETURN OF AN AIRCRAFT
In the event that the Buyer desires to return an Aircraft to
the Seller for consideration of a Warranty Claim, the Buyer
will notify the Seller of its intention to do so and the
Seller will, prior to such return, have the right to inspect
such Aircraft and thereafter, without prejudice to its rights
hereunder, to repair such Aircraft, at its sole option,
either at the Buyer's facilities or at another place
acceptable to the Seller. Return of any Aircraft by the
Buyer to the Seller {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
(iv) ON-AIRCRAFT WORK BY THE SELLER
In the event that a defect necessitates the dispatch by the
Seller of a working team to repair or correct such defect at
the Buyer's facilities, or in the event that the Seller
accepts the return of an Aircraft to perform or have
performed such repair or correction, then all related
expenses incurred in performing such repair or correction
will be borne {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
Any work performed by the Seller to rectify defects, which if
performed by the Buyer would not be eligible for a warranty
credit under the terms of Subclause 12.1.7(v), will be at
the Buyer's expense. {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
The Seller will perform on-Aircraft work, subject to either of
the following conditions being met:
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<PAGE>
(a) in the Seller's opinion, such work must require the
technical expertise of the Seller, or
(b) both of
(i) the downtime of each affected Aircraft would exceed
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT} days, not
including any scheduled maintenance downtime, and
(ii) the number of man hours quoted in the Seller's Service
Bulletin or batch of Service Bulletins for their
embodiment on any Aircraft would exceed {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}, it being
understood that for batches of Service Bulletins, the
Seller will only count individual Service Bulletins
with more than {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} hours
of elapsed time.
If the Seller is requested to perform the work, the Seller and
the Buyer will agree on a schedule and place for the work to be
performed.
(v) WARRANTY CLAIM SUBSTANTIATION
In connection with each claim by the Buyer under this Subclause
12.1, the Buyer will file a claim on the Buyer's form ("Warranty
Claim") within {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT} days after such defect
becomes apparent. Such form must contain at least the following
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}:
(a) description of defect and action taken, if any,
(b) date of incident and/or of removal,
(c) description of the defective part,
39
<PAGE>
(d) part number,
(e) serial number (if applicable),
(f) position on Aircraft, according to Catalog Sequence Number
(CSN) of the Illustrated Parts Catalog, Component
Maintenance Manual or Structural Repair Manual (as such
documents are defined in the A319 Product Support Agreement)
as applicable,
(g) total flying hours or calendar times, as applicable, at the
date of appearance of a defect,
(h) time since last shop visit at the date of defect appearance,
(i) Manufacturer's serial number of the Aircraft and/or its
registration number,
(j) Aircraft total flying hours and/or number of landings at the
date of defect appearance,
(k) claim number,
(l) date of claim, and
(m) date of delivery of an Aircraft or part to the Buyer.
and in the case of a Warranty Claim under Subclause 12.1.7, the
additional data required under Subclause 12.1.7(iv).
Claims are to be addressed as follows:
Warranty Administration
ASCO
198 Van Buren Street
Suite 300
Herndon, VA, 20170
or any other address of which the Seller provides three (3)
Working Days' notice to the Buyer.
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
40
<PAGE>
(vi) REPLACEMENTS
Replacements made pursuant to this Subclause 12.1 will be
made within the lead time defined in the Seller's Spare
Parts Price List. Replaced components, equipment,
accessories or parts will become the Seller's property.
Title to and risk of loss of any Aircraft, component,
accessory, equipment or part returned by the Buyer to the
Seller will at all times remain with the Buyer, except that
(i) when the Seller has possession of a returned Aircraft,
component, accessory, equipment or part to which the Buyer
has title, the Seller will have such responsibility therefor
as is chargeable by law to a bailee for hire, but the Seller
will not be liable for loss of use, and (ii) title to and
risk of loss of a returned component, accessory, equipment
or part will pass to the Seller upon shipment by the Seller
to the Buyer of any item furnished by the Seller to the
Buyer as a replacement therefor. Upon the Seller's shipment
to the Buyer of any replacement component, accessory,
equipment or part provided by the Seller pursuant to this
Subclause 12.1, title to and risk of loss of such component,
accessory, equipment or part will pass to the Buyer.
(vii) REJECTION
The Seller will provide reasonable written substantiation in
case of rejection of a claim. In such event the Buyer will
pay to the Seller reasonable inspection and test charges
incurred by the Seller in connection with the investigation
and processing of such claim. Transportation, insurance,
and any other costs associated with the return of any
Warranted Part or any other item, equipment, component or
part for which the Buyer's warranty claim is rejected by the
Seller will be borne by the Buyer.
(viii) INSPECTION
The Seller will have the right to inspect the affected
Aircraft and documents and other records relating thereto in
the event of any claim under this Subclause 12.1.
12.1.7 IN-HOUSE WARRANTY
(i) AUTHORIZATION
The Buyer is hereby authorized to perform the repair of
Warranted Parts, subject to the terms of this Subclause
12.1.7 ("In-house Warranty"). The Buyer will notify the
Seller's representative of its decision to perform any
in-house repairs before such repairs are commenced, unless
it is not practical to do so, in which case the Buyer will
notify the Seller of the in-house repair as soon as
reasonably practicable.
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(ii) CONDITIONS OF AUTHORIZATION
The Buyer will be entitled to the benefits under this
Subclause 12.1.7 for repair of Warranted Parts:
(a) only if adequate facilities and qualified personnel are
available to the Buyer,
(b) in accordance with the Seller's written instructions
set forth in documents such as the Aircraft Maintenance
Manual, Component Maintenance Manual (Manufacturer),
Component Maintenance Manual (Vendor) and Structural
Repair Manual, and
(c) only to the extent specified by the Seller, or, in the
absence of such specification, to the extent reasonably
necessary to correct the defect, in accordance with the
standards set forth in Subclause 12.1.10.
(iii) SELLER'S RIGHTS
The Seller will have the right {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} to have any Warranted Part, or any part removed
therefrom, which is claimed to be defective, returned to the
Seller, as set forth in Subclause 12.1.6(ii), if, in the
reasonable judgment of the Seller, the nature of the defect
requires technical investigation.
The Seller will further have the right {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} to have a representative present
during the disassembly, inspection and testing of any
Warranted Part claimed to be defective.
(iv) IN-HOUSE WARRANTY CLAIM SUBSTANTIATION
Claims for In-house Warranty credit will be filed within the
time period set forth in and will contain the same
information required in, Warranty Claims under Subclause
12.1.6(v) and in addition will include:
(a) a report of technical findings with respect to the
defect,
(b) for parts required to remedy the defect:
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<PAGE>
- part numbers,
- serial numbers (if applicable),
- description of the parts,
- quantity of parts,
- unit price of parts,
- total price of parts,
- related Seller's or third party's invoices (if
applicable),
(c) detailed number of labor hours,
(d) agreed In-house Warranty Labor Rate (defined below in
Subclause 12.1.7 (v) (a)), and
(e) total claim value.
(v) CREDIT
The Buyer's sole remedy, and the Seller's sole obligation
and liability, in respect of In-house Warranty claims, will
be a credit to the Buyer's account in U.S. Dollars. The
credit to the Buyer's account will be equal to the direct
labor cost expended in performing a repair and to the direct
cost of materials incorporated in the repair. Such costs
will be determined as set forth below.
(a) To determine direct labor costs, only man hours spent
on disassembly, inspection, repair, reassembly, and
final inspection and test (including flight tests if
flight tests prove necessary to complete a repair under
the In-house Warranty) of the Warranted Part alone will
be counted. Man hours required for maintenance work
concurrently being carried out on the Aircraft or
Warranted Part will not be included.
The man hours counted as set forth above will be
multiplied by an agreed labor rate representing
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT} of the Buyer's
composite average hourly labor rate (excluding all
fringe benefits, premium time allowances, social
security charges, business taxes and similar items)
paid to the Buyer's employees whose jobs are directly
related to the performance of the repair (the "In-house
Warranty Labor Rate").
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(b) Direct material costs are determined by the prices at
which the Buyer acquired such material, excluding any
parts and materials used for overhaul and furnished
free of charge by the Seller.
(vi) LIMITATION ON CREDIT
The Buyer will in no event be credited for repair costs
(including labor and material) for any Warranted Part
exceeding {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} of the
Seller's then current catalog price {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} for a replacement of such defective Warranted
Part.
Such cost will be substantiated in writing by the Seller
upon reasonable request by the Buyer.
(vii) SCRAPPED MATERIAL
The Buyer will retain any Warranted Part defective beyond
economic repair and any defective part removed from a
Warranted Part during repair until the earlier of
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} days after submission of a claim for
In-house Warranty credit relating thereto or the Seller's
written advice to the Buyer that such Warranted Part should
be scrapped. Such parts will be returned to the Seller
within {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} days of receipt of the
Seller's request to that effect.
Notwithstanding the foregoing, the Buyer may, with the
agreement of the Seller's Field Representative, scrap any
such defective parts that are beyond economic repair and not
required for technical evaluation.
Scrapped Warranted Parts will be evidenced by a record of
scrapped material certified by an authorized representative
of the Buyer, which will be kept in the Buyer's file for at
least the duration of the warranty periods set forth in this
Subclause 12.1.
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(viii) LIMITATIONS ON LIABILITY OF SELLER
THE SELLER WILL NOT BE LIABLE FOR ANY RIGHT, CLAIM OR
REMEDY, AND THE BUYER WILL INDEMNIFY THE SELLER AGAINST THE
CLAIMS OF ANY THIRD PARTIES FOR ANY DEFECT, NONCONFORMANCE
OR PROBLEM OF ANY KIND, ARISING OUT OF OR IN CONNECTION WITH
ANY REPAIR OF WARRANTED PARTS OR ANY OTHER ACTIONS
UNDERTAKEN BY THE BUYER UNDER THIS SUBCLAUSE 12.1.7 WHICH
WAS NOT IN COMPLIANCE WITH THE TERMS THEREOF, INCLUDING BUT
NOT LIMITED TO: (I) LIABILITY IN CONTRACT OR TORT, (II)
LIABILITY ARISING FROM THE BUYER'S ACTUAL OR IMPUTED
NEGLIGENCE, INTENTIONAL TORTS AND/OR STRICT LIABILITY,
AND/OR (III) LIABILITY TO ANY THIRD PARTIES.
12.1.8 STANDARD WARRANTY TRANSFERABILITY
The warranties provided for in this Subclause 12.1 for any
Warranted Part will accrue to the benefit of any airline in revenue
service other than the Buyer, if the Warranted Part enters into the
possession of any such airline as a result of a pooling or leasing
agreement between such airline and the Buyer or upon the Buyer's
sale of the Aircraft to any such airline in accordance with
Subclause 19.3, in accordance with the terms and subject to the
limitations and exclusions of the foregoing warranties and to
applicable laws or regulations.
12.1.9 WARRANTY FOR CORRECTED, REPLACEMENT OR REPAIRED WARRANTED PARTS
Whenever any Warranted Part that contains a defect for which the
Seller is liable under Subclause 12.1 has been corrected, repaired
or replaced pursuant to the terms of this Clause 12, the period of
the Seller's warranty with respect to such corrected, repaired or
replacement Warranted Part, whichever may be the case, will be the
remaining portion of the original warranty in respect of such
corrected, repaired or replacement Warranted Part. In the event
that a defect is attributable to a defective repair or replacement
by the Buyer, a Warranty Claim with respect to such defect will not
be allowable, notwithstanding any subsequent correction or repairs,
and will immediately terminate the remaining warranties under this
Subclause 12.1 in respect of the affected Warranted Part.
12.1.10 GOOD AIRLINE OPERATION - NORMAL WEAR AND TEAR
The Buyer's rights under this Subclause 12.1 are subject to the
Aircraft and each component, equipment, accessory and part thereof
being maintained, overhauled, repaired and operated in accordance
with good commercial airline practice and in general compliance
with all technical documentation and maintenance recommendations of
the Seller (if any), the Manufacturer, the Vendors or the
manufacturer of the Powerplants and its associated parts and all
applicable rules, regulations and directives of the FAA.
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The Seller's liability under this Subclause 12.1 will not extend to
normal wear and tear nor to:
(i) any Aircraft or component, equipment, accessory or part
thereof that has been repaired, altered or modified after
delivery by a party other than the Seller or in a manner
other than that set forth in Subclause 12.1.7 or otherwise
approved by the Seller;
(ii) any Aircraft or component, equipment, accessory or part
thereof that has been operated in a damaged state; or
(iii) any component, equipment, accessory or part from which the
trademark, trade name, part or serial number or other
identification marks have been removed.
This waiver of the Seller's liability by the Buyer will not apply
in the cases of Subclause 12.1.10 (i) and Subclause 12.1.10 (ii)
above if the Buyer submits reasonable evidence that the defect did
not arise from nor was contributed to by either of said cases.
12.2 SELLER SERVICE LIFE POLICY
In addition to the warranties set forth in Subclause 12.1 above,
the Seller further agrees that should a Failure occur in any Item,
then, subject to the general conditions and limitations set forth
in Subclause 12.2.4 below, the provisions of this Subclause 12.2
will apply.
12.2.1 Definitions
For the purposes of this Subclause 12.2, the following definitions
will apply:
12.2.1.1 "Item" means any of the Seller components, equipment, accessories
or parts listed in Exhibit G hereto which are installed on an
Aircraft at any time during the period of effectiveness of the
Service Life Policy as defined below in Subclause 12.2.2.
12.2.1.2 "Failure" means any breakage of, or defect in, an Item that has
occurred, that can reasonably be expected to occur on a repetitive
or fleetwide basis, and that materially impairs the utility or
safety of the Item, provided that any such breakage of, or defect
in, any Item did not result from any breakage or defect in any
other Aircraft part or component or from any other extrinsic force.
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12.2.2 PERIODS AND SELLER'S UNDERTAKING
Subject to the general conditions and limitations set forth in
Subclause 12.2.4 below, the Seller agrees that if a Failure occurs
in an Item within {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT} years after the delivery of
said Aircraft to the Buyer, the Seller will, at its own discretion,
as promptly as practicable and for a price that reflects the
Seller's financial participation in the cost as hereinafter
provided, either:
12.2.2.1 design and furnish to the Buyer a correction for such Item subject
to a Failure and provide any parts required for such correction
(including Seller designed standard parts but excluding industry
standard parts unless a part of an Item), or,
12.2.2.2 replace such Item.
12.2.3 SELLER'S PARTICIPATION IN THE COST
Any part or Item that the Seller is required to furnish to the
Buyer under this Service Life Policy in connection with the
correction or replacement of an Item will be furnished to the Buyer
at the Seller's current sales price therefor, less the Seller's
financial participation, which will be determined in accordance
with the following formula:
C (N - T)
P = ---------------------
N
where
P: financial participation of the Seller,
C: the Seller's then current sales price for the required Item or
required Seller designed parts,
T: total time in months, at time of Failure, since delivery of
the particular Aircraft in which the Item subject to such
Failure was originally installed,
N: {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} months.
12.2.4 GENERAL CONDITIONS AND LIMITATIONS
12.2.4.1 Notwithstanding Subclause 12.2.3, the undertakings given in this
Subclause 12.2 will not be valid during the period applicable to an
Item under Subclause 12.1.
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12.2.4.2 The Buyer's remedy and the Seller's obligation and liability under
this Service Life Policy are subject to compliance by the Buyer
with the following conditions precedent:
(i) The Buyer will maintain log books and other historical
records with respect to each Item adequate to enable
determination as to whether the alleged Failure is covered
by this Service Life Policy and, if so, to define the
portion of the cost to be borne by the Seller in accordance
with Subclause 12.2.3 above.
(ii) The Buyer will keep the Seller informed of any significant
incidents relating to an Aircraft, howsoever occurring or
recorded {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
(iii) The conditions of Subclause 12.1.10 will have been complied
with.
(iv) The Buyer will carry out specific structural inspection
programs for monitoring purposes as may be established from
time to time by the Seller. Such programs will be, to the
extent possible, compatible with the Buyer's operational
requirements and will be carried out at the Buyer's expense.
Reports relating thereto will be regularly furnished to the
Seller.
(v) In the case of any breakage or defect, the Buyer will report
the same in writing to the Seller within {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} days after any breakage or defect in
an Item becomes apparent, whether or not said breakage or
defect can reasonably be expected to occur in any other
Aircraft, and the Buyer will inform the Seller in sufficient
detail about the breakage or defect to enable the Seller to
determine whether said breakage or defect is subject to this
Service Life Policy.
12.2.4.3 Except as otherwise provided in this Subclause 12.2, any claim
under this Service Life Policy will be administered as provided in,
and will be subject to the terms and conditions of, Subclause
12.1.6.
12.2.4.4 In the event that the Seller will have issued a modification
applicable to an Aircraft, the purpose of which is to avoid a
Failure, the Seller may elect to offer to supply to the Buyer the
necessary modification kit free of charge {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}. If
such a kit is so offered to the Buyer, then, in respect of such
Failure and any Failures that could ensue therefrom, the validity
of the Seller's commitment under this Subclause 12.2 will be
subject to the Buyer's incorporating such modification in the
relevant Aircraft, within a reasonable time, as promulgated by the
Seller and in accordance with the Seller's instructions.
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12.2.4.5 THIS SERVICE LIFE POLICY IS NEITHER A WARRANTY, PERFORMANCE
GUARANTEE, NOR AN AGREEMENT TO MODIFY ANY AIRCRAFT OR AIRFRAME
COMPONENTS TO CONFORM TO NEW DEVELOPMENTS OCCURRING IN THE STATE OF
AIRFRAME DESIGN AND MANUFACTURING ART. THE SELLER'S OBLIGATION
UNDER THIS SUBCLAUSE 12.2 IS TO MAKE ONLY THOSE CORRECTIONS TO THE
ITEMS OR FURNISH REPLACEMENTS THEREFOR AS PROVIDED IN THIS
SUBCLAUSE 12.2. THE BUYER'S SOLE REMEDY AND RELIEF FOR THE
NONPERFORMANCE OF ANY OBLIGATION OR LIABILITY OF THE SELLER ARISING
UNDER OR BY VIRTUE OF THIS SERVICE LIFE POLICY WILL BE IN MONETARY
DAMAGES, LIMITED TO THE AMOUNT THE BUYER REASONABLY EXPENDS IN
PROCURING A CORRECTION OR REPLACEMENT FOR ANY ITEM THAT IS THE
SUBJECT OF A FAILURE COVERED BY THIS SERVICE LIFE POLICY AND TO
WHICH SUCH NONPERFORMANCE IS RELATED, LESS THE AMOUNT THAT THE
BUYER OTHERWISE WOULD HAVE BEEN REQUIRED TO PAY UNDER THIS
SUBCLAUSE 12.2 IN RESPECT OF SUCH CORRECTED OR REPLACEMENT ITEM.
WITHOUT LIMITING THE EXCLUSIVITY OF WARRANTIES AND GENERAL
LIMITATIONS OF LIABILITY PROVISIONS SET FORTH IN SUBCLAUSE 12.5,
THE BUYER HEREBY WAIVES, RELEASES AND RENOUNCES ALL CLAIMS TO ANY
FURTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS
OF PROFITS AND ALL OTHER RIGHTS, CLAIMS AND REMEDIES, ARISING UNDER
OR BY VIRTUE OF THIS SERVICE LIFE POLICY.
12.2.5 TRANSFERABILITY
Except as provided in Subclause 19.3, the Buyer's rights under this
Subclause 12.2 will not be assigned, sold, leased, transferred or
otherwise alienated by operation of law or otherwise, without the
Seller's prior written consent.
Any unauthorized assignment, sale, lease, transfer or other
alienation of the Buyer's rights under this Service Life Policy
will, as to the particular Aircraft involved, immediately void this
Service Life Policy in its entirety.
12.3 VENDOR WARRANTIES
12.3.1 SELLER'S SUPPORT
Prior to delivery of the first Aircraft under this Agreement, the
Seller will obtain from all Vendors listed in the Supplier Product
Support Agreements manual enforceable and transferable warranties
and indemnities against patent infringements for all of the
components, equipment, accessories and parts of the Vendors that
are installed in an Aircraft at the time of delivery thereof
("Vendor Parts," it being understood that such term will not
include the Propulsion Systems, Buyer Furnished Equipment or other
49
<PAGE>
equipment selected by the Buyer to be supplied by Vendors with whom
the Seller has no existing enforceable warranty agreements). The
Seller will also obtain enforceable and transferable Vendor service
life policies from landing gear Vendors for structural landing gear
elements. The Seller undertakes to supply to the Buyer such Vendor
warranties, Vendor service life policies and indemnities against
patent infringements substantially in the form summarized in the
Supplier Product Support Agreements manual.
12.3.2 VENDOR'S DEFAULT
12.3.2.1 In the event that any Vendor under any standard warranty or
indemnity against patent infringements obtained by the Seller
pursuant to Subclause 12.3.1 or Clause 13 hereof defaults in the
performance of any material obligation under such warranty or
indemnity against patent infringements with respect to a Vendor
Part, and the Buyer submits within a reasonable time to the Seller
reasonable proof that such default has occurred, then Subclause
12.1 or Clause 13 of this Agreement will apply to the extent the
same would have been applicable had such Vendor Part been a
Warranted Part except that, for obligations covered under Subclause
12.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
12.3.2.2 In the event that any Vendor under any Vendor service life policy
obtained by the Seller pursuant to Subclause 12.3.1 hereof defaults
in the performance of any material obligation with respect thereto,
and the Buyer submits within reasonable time to the Seller
reasonable proof that such default has occurred, then Subclause
12.2 of this Agreement will apply to the extent the same would have
been applicable had such component, equipment, accessory or part
been listed in Exhibit G hereto.
12.3.2.3 At the Seller's request, the Buyer will assign to the Seller, and
the Seller will be subrogated to, all of the Buyer's rights against
the relevant Vendor, with respect to and arising by reason of such
default and the Buyer will provide reasonable assistance to enable
the Seller to enforce the rights so assigned.
12.4 INTERFACE COMMITMENT
12.4.1 INTERFACE PROBLEM
If the Buyer experiences any technical problem in the operation of
an Aircraft or its systems due to a malfunction {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT}, the cause of which, after due and reasonable
investigation, is not readily identifiable by the Buyer, but which
the Buyer reasonably believes to be attributable to the design
characteristics of one or more components of the Aircraft (an
"Interface Problem"), the Seller will, if
50
<PAGE>
requested by the Buyer, and without additional charge to the Buyer,
except for transportation of the Seller's personnel to the Buyer's
facilities, promptly conduct or have conducted an investigation and
analysis of such problem to determine, if possible, the cause or
causes of the problem and to recommend such corrective action as
may be feasible, provided, however, that if the Seller determines,
after such due and reasonable investigation, that the Interface
Problem was due to or caused by any default by the Buyer in
performance of its obligations hereunder, the Buyer will pay to the
Seller all reasonable costs and expenses incurred by the Seller
during such investigation. The Buyer will furnish to the Seller all
data and information in the Buyer's possession relevant to the
Interface Problem and will cooperate with the Seller in the conduct
of the Seller's investigations and such tests as may be required.
At the conclusion of such investigation the Seller will promptly
advise the Buyer in writing of the Seller's opinion as to the cause
or causes of the Interface Problem and the Seller's recommendations
as to corrective action.
12.4.2 SELLER'S RESPONSIBILITY
If the Seller determines that the Interface Problem is primarily
attributable to the design of a Warranted Part, the Seller will, if
requested by the Buyer, correct the design of such Warranted Part,
pursuant to the terms and conditions of Subclause 12.1.
12.4.3 VENDOR'S RESPONSIBILITY
If the Seller determines that the Interface Problem is primarily
attributable to the design of a component, equipment, accessory or
part other than a Warranted Part ("Vendor Component"), the Seller
will, if requested by the Buyer, reasonably assist the Buyer in
processing any warranty claim the Buyer may have against the
manufacturer of such Vendor Component.
12.4.4 JOINT RESPONSIBILITY
If the Seller determines that the Interface Problem is attributable
partially to the design of a Warranted Part and partially to the
design of any Vendor Component, the Seller will, if requested by
the Buyer, seek a solution to the Interface Problem through
cooperative efforts of the Seller and any Vendor involved. The
Seller will promptly advise the Buyer of such corrective action as
may be proposed by the Seller and any such Vendor. Such proposal
will be consistent with any then existing obligations of the Seller
hereunder and of any such Vendor to the Buyer. Such corrective
action, when reasonably accepted by the Buyer, will constitute full
satisfaction of any claim the Buyer may have against either the
Seller or any such Vendor with respect to such Interface Problem.
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12.4.5 GENERAL
12.4.5.1 All requests under this Subclause 12.4 will be directed both to the
Seller and the affected Vendors.
12.4.5.2 Except as specifically set forth in this Subclause 12.4, this
Subclause 12.4 will not be deemed to impose on the Seller any
obligations not expressly set forth elsewhere in this Agreement.
12.4.5.3 All reports, recommendations, data and other documents furnished by
the Seller to the Buyer pursuant to this Subclause 12.4 will be deemed
to be delivered under this Agreement and will be subject to the terms,
covenants and conditions set forth in this Clause 12 and in Subclause
22.4.
12.5 EXCLUSIVITY OF WARRANTIES AND
GENERAL LIMITATIONS OF LIABILITY
THIS CLAUSE 12 (INCLUDING ITS SUBPROVISIONS) SETS FORTH THE EXCLUSIVE
WARRANTIES, EXCLUSIVE LIABILITIES AND EXCLUSIVE OBLIGATIONS OF THE
SELLER, AND THE EXCLUSIVE REMEDIES AVAILABLE TO THE BUYER, WHETHER
UNDER THIS AGREEMENT OR OTHERWISE, ARISING FROM ANY DEFECT OR
NONCONFORMITY OR PROBLEM OF ANY KIND IN ANY AIRCRAFT, COMPONENT,
EQUIPMENT, ACCESSORY, PART OR SERVICE DELIVERED UNDER THIS AGREEMENT.
THE BUYER RECOGNIZES THAT THE RIGHTS, WARRANTIES AND REMEDIES IN THIS
CLAUSE 12 ARE ADEQUATE AND SUFFICIENT TO PROTECT THE BUYER FROM ANY
DEFECT OR NONCONFORMITY OR PROBLEM OF ANY KIND IN THE GOODS AND
SERVICES SUPPLIED UNDER THIS AGREEMENT. THE BUYER HEREBY WAIVES,
RELEASES AND RENOUNCES ALL OTHER WARRANTIES, OBLIGATIONS, GUARANTEES
AND LIABILITIES OF THE SELLER AND ALL OTHER RIGHTS, CLAIMS AND
REMEDIES OF THE BUYER AGAINST THE SELLER, WHETHER EXPRESS OR IMPLIED
BY CONTRACT, TORT, OR STATUTORY LAW OR OTHERWISE, WITH RESPECT TO ANY
NONCONFORMITY OR DEFECT OR PROBLEM OF ANY KIND IN ANY AIRCRAFT,
COMPONENT, EQUIPMENT, ACCESSORY, PART OR SERVICE DELIVERED UNDER THIS
AGREEMENT, INCLUDING BUT NOT LIMITED TO:
(1) ANY IMPLIED WARRANTY OF MERCHANTABILITY AND/OR FITNESS FOR ANY
GENERAL OR PARTICULAR PURPOSE;
(2) ANY IMPLIED OR EXPRESS WARRANTY ARISING FROM COURSE OF
PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE;
52
<PAGE>
(3) ANY RIGHT, CLAIM OR REMEDY FOR BREACH OF CONTRACT;
(4) ANY RIGHT, CLAIM OR REMEDY FOR TORT, UNDER ANY THEORY OF
LIABILITY, HOWEVER ALLEGED, INCLUDING, BUT NOT LIMITED TO,
ACTIONS AND/OR CLAIMS FOR NEGLIGENCE, GROSS NEGLIGENCE,
INTENTIONAL ACTS, WILLFUL DISREGARD, IMPLIED WARRANTY, PRODUCT
LIABILITY, STRICT LIABILITY OR FAILURE TO WARN;
(5) ANY RIGHT, CLAIM OR REMEDY ARISING UNDER THE UNIFORM COMMERCIAL
CODE OR ANY OTHER STATE OR FEDERAL STATUTE;
(6) ANY RIGHT, CLAIM OR REMEDY ARISING UNDER ANY REGULATIONS OR
STANDARDS IMPOSED BY ANY INTERNATIONAL, NATIONAL, STATE OR LOCAL
STATUTE OR AGENCY;
(7) ANY RIGHT, CLAIM OR REMEDY TO RECOVER OR BE COMPENSATED FOR:
(a) LOSS OF USE OR REPLACEMENT OF ANY AIRCRAFT, COMPONENT,
EQUIPMENT, ACCESSORY OR PART PROVIDED UNDER THIS AGREEMENT;
(b) LOSS OF, OR DAMAGE OF ANY KIND TO, ANY AIRCRAFT, COMPONENT,
EQUIPMENT, ACCESSORY OR PART PROVIDED UNDER THIS AGREEMENT;
(c) LOSS OF PROFITS AND/OR REVENUES;
(d) ANY OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGE.
THE WARRANTIES AND SERVICE LIFE POLICY PROVIDED BY THIS AGREEMENT WILL
NOT BE EXTENDED, ALTERED OR VARIED EXCEPT BY A WRITTEN INSTRUMENT
SIGNED BY THE SELLER AND THE BUYER. IN THE EVENT THAT ANY PROVISION
OF THIS CLAUSE 12 SHOULD FOR ANY REASON BE HELD UNLAWFUL, OR OTHERWISE
UNENFORCEABLE, THE REMAINDER OF THIS CLAUSE 12 WILL REMAIN IN FULL
FORCE AND EFFECT.
12.6 DUPLICATE REMEDIES
The remedies provided to the Buyer under this Clause 12 as to any
defect in respect of the Aircraft or any part thereof are mutually
exclusive and not cumulative. The Buyer will be entitled to the
remedy that provides the maximum benefit to it, as the Buyer may
elect, pursuant to the terms and conditions of this Clause 12 for any
such particular defect for which remedies are provided under this
Clause 12; provided, however, that
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the Buyer will not be entitled to elect a remedy under one part of
this Clause 12 that constitutes a duplication of any remedy elected
by it under any other part hereof for the same defect. The Buyer's
rights and remedies herein for the nonperformance of any
obligations or liabilities of the Seller arising under these
warranties will be in monetary damages limited to the amount the
Buyer expends in procuring a correction or replacement for any
covered part subject to a defect or nonperformance covered by this
Clause 12, and the Buyer will not have any right to require
specific performance by the Seller {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
UNQUOTE
In consideration of the assignment and subrogation by AVSA under this
Clause 12 in favor of Northwest in respect of AVSA's rights against
and obligations to the Manufacturer under the provisions quoted above,
Northwest hereby accepts such assignment and subrogation and agrees to
be bound by all of the terms, conditions and limitations therein
contained, specifically including, without limitation, the following:
THIS CLAUSE 12 (INCLUDING ITS SUBCLAUSES) SETS FORTH THE EXCLUSIVE
WARRANTIES, EXCLUSIVE LIABILITIES AND EXCLUSIVE OBLIGATIONS OF AVSA,
AND THE EXCLUSIVE REMEDIES AVAILABLE TO NORTHWEST, WHETHER UNDER THIS
AGREEMENT OR OTHERWISE, ARISING FROM ANY DEFECT OR NONCONFORMITY OR
PROBLEM OF ANY KIND IN ANY AIRCRAFT, COMPONENT, EQUIPMENT, ACCESSORY,
PART OR SERVICE DELIVERED UNDER THIS AGREEMENT.
NORTHWEST RECOGNIZES THAT THE RIGHTS, WARRANTIES AND REMEDIES IN THIS
CLAUSE 12 ARE ADEQUATE AND SUFFICIENT TO PROTECT NORTHWEST FROM ANY
DEFECT OR NONCONFORMITY OR PROBLEM OF ANY KIND IN THE GOODS AND
SERVICES SUPPLIED UNDER THIS AGREEMENT. NORTHWEST HEREBY WAIVES,
RELEASES AND RENOUNCES ALL OTHER WARRANTIES, OBLIGATIONS, GUARANTEES
AND LIABILITIES OF AVSA AND ALL OTHER RIGHTS, CLAIMS AND REMEDIES OF
NORTHWEST AGAINST AVSA, WHETHER EXPRESS OR IMPLIED BY CONTRACT, TORT,
OR STATUTORY LAW OR OTHERWISE, WITH RESPECT TO ANY NONCONFORMITY OR
DEFECT OR PROBLEM OF ANY KIND IN ANY AIRCRAFT, COMPONENT, EQUIPMENT,
ACCESSORY, PART OR SERVICE DELIVERED UNDER THIS AGREEMENT, INCLUDING,
BUT NOT LIMITED TO:
(1) ANY IMPLIED WARRANTY OF MERCHANTABILITY AND/OR FITNESS FOR ANY
GENERAL OR PARTICULAR PURPOSE;
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(2) ANY IMPLIED OR EXPRESS WARRANTY ARISING FROM COURSE OF
PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE;
(3) ANY RIGHT, CLAIM OR REMEDY FOR BREACH OF CONTRACT;
(4) ANY RIGHT, CLAIM OR REMEDY FOR TORT, UNDER ANY THEORY OF
LIABILITY, HOWEVER ALLEGED, INCLUDING, BUT NOT LIMITED TO,
ACTIONS AND/OR CLAIMS FOR NEGLIGENCE, GROSS NEGLIGENCE,
INTENTIONAL ACTS, WILLFUL DISREGARD, IMPLIED WARRANTY, PRODUCT
LIABILITY, STRICT LIABILITY OR FAILURE TO WARN;
(5) ANY RIGHT, CLAIM OR REMEDY ARISING UNDER THE UNIFORM COMMERCIAL
CODE OR ANY OTHER STATE OR FEDERAL STATUTE;
(6) ANY RIGHT, CLAIM OR REMEDY ARISING UNDER ANY REGULATIONS OR
STANDARDS IMPOSED BY ANY INTERNATIONAL, NATIONAL, STATE OR LOCAL
STATUTE OR AGENCY;
(7) ANY RIGHT, CLAIM OR REMEDY TO RECOVER OR BE COMPENSATED FOR:
(a) LOSS OF USE OR REPLACEMENT OF ANY AIRCRAFT, COMPONENT,
EQUIPMENT, ACCESSORY OR PART PROVIDED UNDER THIS AGREEMENT;
(b) LOSS OF, OR DAMAGE OF ANY KIND TO, ANY AIRCRAFT, COMPONENT,
EQUIPMENT, ACCESSORY OR PART PROVIDED UNDER THIS AGREEMENT;
(c) LOSS OF PROFITS AND/OR REVENUES;
(d) ANY OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGE.
THE WARRANTIES AND SERVICE LIFE POLICY PROVIDED BY THIS AGREEMENT WILL
NOT BE EXTENDED, ALTERED OR VARIED EXCEPT BY A WRITTEN INSTRUMENT
SIGNED BY AVSA AND NORTHWEST. IN THE EVENT THAT ANY PROVISION OF THIS
CLAUSE 12 SHOULD FOR ANY REASON BE HELD UNLAWFUL, OR OTHERWISE
UNENFORCEABLE, THE REMAINDER OF THIS CLAUSE 12 WILL REMAIN IN FULL
FORCE AND EFFECT.
The remedies provided to Northwest under this Clause 12 as to any
defect in respect of the Aircraft or any part thereof are mutually
exclusive and not cumulative. Northwest will be entitled to the
remedy that provides the maximum benefit to it, as Northwest may
elect, pursuant to the terms and conditions of this Clause 12 for any
such particular
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defect for which remedies are provided under this Clause 12;
provided, however, that Northwest will not be entitled to elect a
remedy under one part of this Clause 12 that constitutes a
duplication of any remedy elected by it under any other part hereof
for the same defect. Northwest's rights and remedies herein for
the nonperformance of any obligations or liabilities of AVSA
arising under these warranties will be in monetary damages limited
to the amount Northwest expends in procuring a correction or
replacement for any covered part subject to a defect or
nonperformance covered by this Clause 12, and Northwest will not
have any right to require specific performance by AVSA
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
12.7 NEGOTIATED AGREEMENT
Northwest and AVSA agree that this Clause 12 has been the subject of
discussion and negotiation and is fully understood by the parties and
that the price of the Aircraft and the other mutual agreements of the
parties set forth in this Agreement were arrived at in consideration
of, INTER ALIA, the provisions of this Clause 12, specifically
including the Exclusivity of Warranties and General Limitations of
Liability provisions and the Duplicate Remedies provisions set forth
in Subclause 12.5 and following Subclause 12.6.
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13 - PATENT INDEMNITY
AVSA, in its capacity as "Buyer" under its arrangements with the
Manufacturer, has negotiated and obtained the following Patent
Indemnity from the Manufacturer with respect to the Aircraft, subject
to the terms, conditions, limitations and restrictions (including, but
not limited to, the waiver, release and renunciation provision) all as
hereinafter set out. AVSA hereby assigns to Northwest, and Northwest
hereby accepts, all of the rights and obligations of AVSA in its
capacity as "Buyer" as aforesaid under the said Patent Indemnity and
AVSA subrogates Northwest into all such rights and obligations in
respect of the Aircraft. AVSA hereby warrants to Northwest that it
has all requisite authority to make the foregoing assignment and
effect the foregoing subrogation to and in favor of Northwest and that
it will not enter into any amendment of the provisions so assigned
without the prior written consent of Northwest. Capitalized terms
utilized in the following quoted provisions have the meanings assigned
thereto in this Agreement, except that the term "Seller" refers to the
Manufacturer and the term "Buyer" refers to AVSA.
QUOTE
13.1 SCOPE
The Seller will indemnify the Buyer from and against any damages,
costs and expenses including reasonable legal costs (excluding
damages, costs, expenses, loss of profits and other liabilities in
respect of or resulting from loss of use of any Aircraft):
(1) to the extent of {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT} thereof in case of any
actual or alleged infringement by any Aircraft or any Warranted
Part or the use thereof of
(a) any British, French, German, Spanish or US patent, or
(b) any patent issued under the laws of any other country in
which Northwest may lawfully operate the Aircraft, provided
that:
(i) from the time of design of such Aircraft, accessory,
equipment or part and until infringement claims are
resolved, such country and the flag country of the
Aircraft is each a party to the Chicago Convention on
International Civil Aviation of December 7, 1944, and
is fully entitled to all benefits of Article 27
thereof,
or in the alternative,
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(ii) from such time of design and until infringement claims
are resolved, such country and the flag country of the
Aircraft is each a party to the International
Convention for the Protection of Industrial Property of
March 20, 1883 (known as the "Paris Convention").
(2) to the extent of {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT} thereof in case of any
actual or alleged infringement by any Aircraft or any Warranted
Part or the use thereof of any patent issued under the laws of
any country not covered by (1) above in which the Buyer is from
time to time lawfully operating the Aircraft.
The Seller's undertaking under this Clause 13 will not apply to
components, accessories, equipment or parts which are not Warranted
Parts.
13.2 SELLER'S ACTION
Should the Buyer be enjoined from using any part of an Aircraft by
reason of infringement of a patent covered by Subclause 13.1, the
Seller will, at its option and expense, either (i) procure for the
Buyer the right to use such part free of any liability for patent
infringement or (ii) as soon as possible replace such part with a
noninfringing substitute otherwise complying with the requirements of
this Agreement.
13.3 SELLER'S OBLIGATION
The Seller's obligation hereunder with respect to any actual or
alleged infringement is conditioned upon commencement of suit against
the Buyer for infringement or the Buyer's receipt of a written claim
alleging infringement, and upon written notice by the Buyer to the
Seller within {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} days after receipt by the Buyer of notice of
the institution of such suit or receipt of such claim, giving
particulars thereof. The Seller will have the option but not the
obligation at any time to conduct negotiations with the party or
parties charging infringement and may intervene in any suit commenced.
Whether or not the Seller intervenes in any such suit, it will be
entitled at any stage of the proceedings to assume, conduct or control
the defense thereof.
The Seller's obligation hereunder with respect to any actual or
alleged infringement is also conditioned upon (i) the Buyer's promptly
furnishing to the Seller all the data, papers, records and other
assistance within the control of the Buyer material to the resistance
of or defense against any such charge or suits for infringement, (ii)
the Buyer's use of diligent efforts in full cooperation with the
Seller to reduce royalties,
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damages, costs and expenses involved, (iii) the Seller's prior
approval of the Buyer's payment, assumption or admission of any
liabilities, expenses, costs or royalties for which the Seller is
asked to respond and (iv) the Buyer's not otherwise acting in a
manner prejudicial to its or the Seller's defense of the action.
13.4 WAIVER
THE INDEMNITY PROVIDED IN THIS CLAUSE 13 AND THE OBLIGATIONS AND
LIABILITIES OF THE SELLER UNDER THIS CLAUSE 13 ARE EXCLUSIVE AND IN
SUBSTITUTION FOR, AND THE BUYER HEREBY WAIVES, RELEASES AND RENOUNCES
ALL OTHER INDEMNITIES, WARRANTIES, OBLIGATIONS, GUARANTEES AND
LIABILITIES ON THE PART OF THE SELLER AND RIGHTS, CLAIMS AND REMEDIES
OF THE BUYER AGAINST THE SELLER, EXPRESS OR IMPLIED, ARISING BY LAW OR
OTHERWISE (INCLUDING WITHOUT LIMITATION ANY OBLIGATION, LIABILITY,
RIGHT, CLAIM OR REMEDY ARISING FROM OR WITH RESPECT TO LOSS OF USE OR
REVENUE OR CONSEQUENTIAL DAMAGES), WITH RESPECT TO ANY ACTUAL OR
ALLEGED PATENT INFRINGEMENT OR THE LIKE BY ANY AIRCRAFT, ACCESSORY,
EQUIPMENT OR PART, OR THE USE OR SALE THEREOF, PROVIDED THAT, IN THE
EVENT THAT ANY OF THE AFORESAID PROVISIONS SHOULD FOR ANY REASON BE
HELD UNLAWFUL OR OTHERWISE INEFFECTIVE, THE REMAINDER OF THIS
SUBCLAUSE 13.4 WILL REMAIN IN FULL FORCE AND EFFECT. THIS PATENT
INDEMNITY WILL NOT BE EXTENDED, ALTERED OR VARIED EXCEPT BY A WRITTEN
INSTRUMENT SIGNED BY THE SELLER AND THE BUYER.
UNQUOTE
In consideration of the assignment and subrogation by AVSA under this
Clause 13 in favor of Northwest in respect of AVSA's rights against
and obligations to the Manufacturer under the provisions quoted above,
Northwest hereby accepts such assignment and subrogation and agrees to
be bound by all of the terms, conditions and limitations therein
contained (specifically including, without limitation, the waiver,
release and renunciation provision).
THE INDEMNITY PROVIDED IN THIS CLAUSE 13 AND THE OBLIGATIONS AND
LIABILITIES OF AVSA UNDER THIS CLAUSE 13 ARE EXCLUSIVE AND IN
SUBSTITUTION FOR, AND NORTHWEST HEREBY WAIVES, RELEASES AND RENOUNCES
ALL OTHER INDEMNITIES, WARRANTIES, OBLIGATIONS, GUARANTEES AND
LIABILITIES ON THE PART OF AVSA AND RIGHTS, CLAIMS AND REMEDIES OF
NORTHWEST AGAINST AVSA, EXPRESS OR IMPLIED, ARISING BY LAW OR
OTHERWISE (INCLUDING WITHOUT LIMITATION ANY OBLIGATION, LIABILITY,
RIGHT, CLAIM OR REMEDY ARISING FROM OR WITH RESPECT TO LOSS OF USE OR
REVENUE OR CONSEQUENTIAL DAMAGES), WITH RESPECT TO ANY ACTUAL OR
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ALLEGED PATENT INFRINGEMENT OR THE LIKE BY ANY AIRCRAFT, ACCESSORY,
EQUIPMENT OR PART, OR THE USE OR SALE THEREOF, PROVIDED THAT, IN
THE EVENT THAT ANY OF THE AFORESAID PROVISIONS SHOULD FOR ANY
REASON BE HELD UNLAWFUL OR OTHERWISE INEFFECTIVE, THE REMAINDER OF
THIS CLAUSE WILL REMAIN IN FULL FORCE AND EFFECT. THIS PATENT
INDEMNITY WILL NOT BE EXTENDED, ALTERED OR VARIED EXCEPT BY A
WRITTEN INSTRUMENT SIGNED BY AVSA AND NORTHWEST.
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14 - TECHNICAL PUBLICATIONS
Technical publications will be supplied to Northwest pursuant to
Clause 2 of the A319 Product Support Agreement.
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15 - FIELD ASSISTANCE
Field services will be provided to Northwest pursuant to Clause 3 of
the A319 Product Support Agreement.
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16 - TRAINING
Training and training aids will be provided to Northwest pursuant to
Clause 4 of the A319 Product Support Agreement.
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17 - VENDORS' PRODUCT SUPPORT
17.1 VENDOR PRODUCT SUPPORT AGREEMENTS
17.1.1 AVSA has obtained product support agreements transferable to Northwest
from Vendors of Seller Furnished Equipment listed in the Specification
("Product Support Agreements").
17.1.2 These Product Support Agreements are based on the "World Airlines and
Suppliers Guide" and include Vendor commitments as contained in the
Supplier Product Support Agreements with respect to warranties and
guarantees (copies of which have been provided to Northwest).
17.2 VENDOR COMPLIANCE
AVSA will monitor Vendor compliance with support commitments defined
in the Product Support Agreements and will take remedial action
together with Northwest if requested by Northwest in writing.
17.3 VENDOR PART REPAIR STATIONS
17.3.1 The Manufacturer has developed with the Vendors a program aimed at
building a comprehensive network of repair stations in North America
for those Vendor Parts originating from outside this territory.
17.3.2 As a result of the above, most Vendor Parts are now repairable in
North America, and corresponding repair stations are listed in a
document, the AOG and Repair Guide, which is issued and regularly
updated by the Manufacturer.
Vendor Parts that have to be repaired outside North America will be
sent by Northwest to {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}. All such Vendor Parts will be
returned to Northwest with all applicable FAA tagging.
17.3.3 AVSA will support Northwest in cases where the agreed repair turn time
of an approved repair station is not met by causing free-of-charge
loans or exchanges (as specified in the relevant Supplier Product
Support Agreements manual) to be offered to Northwest.
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18 - BUYER FURNISHED EQUIPMENT AND DATA
18.1 INSTALLATION AND DELIVERY
18.1.1 Without additional charge, and in accordance with the Specification,
AVSA will cause the Manufacturer to provide for the installation of
the Buyer Furnished Equipment.
18.1.2 AVSA will cause the Manufacturer to advise Northwest of the dates by
which, in the planned release of engineering for an Aircraft, the
Manufacturer reasonably requires a written detailed description of the
dimensions and weight of Buyer Furnished Equipment for such Aircraft
and information necessary for the installation and operation thereof,
and Northwest will furnish such detailed description and information
by the dates so specified. Such dimensions and weights will not
thereafter be revised unless mutually agreed and set forth in an SCN.
18.1.3 AVSA will also cause the Manufacturer to furnish in sufficient time to
Northwest a schedule of dates by and locations to which Buyer
Furnished Equipment for such Aircraft must be delivered to the
Manufacturer to permit installation in and delivery of such Aircraft
in accordance with the delivery schedule referred to in Clause 9.
Northwest will furnish such equipment to the Manufacturer at such
locations by such dates. Northwest, at its own expense, will also
furnish or cause to be present at the works where such Buyer Furnished
Equipment is to be installed, when reasonably requested by the
Manufacturer, field service representatives to provide the
Manufacturer technical advice regarding the installation and
calibration of Buyer Furnished Equipment.
18.2 SPECIFICATION AND AIRWORTHINESS APPROVALS
Northwest warrants that all Buyer Furnished Equipment (other than
Buyer Furnished Equipment manufactured by the Manufacturer) will meet
the requirements of the Specification, will comply with applicable LBA
and FAA regulations and will be approved by the LBA and the FAA for
installation and use on an Aircraft at the time of delivery of such
Aircraft. AVSA will bear no expense in connection with adjusting and
calibrating Buyer Furnished Equipment to the extent necessary to
obtain LBA and FAA approval, unless such work is due to an Aircraft
Interface Problem, mishandling or excessive use on the part of AVSA or
the Manufacturer.
18.3 DELAY AND NONPERFORMANCE
Any delay or failure in complying with the warranty in the foregoing
Subclause 18.2, in providing the descriptive information and services
mentioned in Subclause 18.1 hereof, in furnishing the Buyer Furnished
Equipment or in obtaining any required approval of such equipment
under the LBA or FAA regulations will be the responsibility of
Northwest, to the extent that such delay or failure will in turn,
(i) delay the performance of any act to be performed by or on behalf
of AVSA or the Manufacturer, or
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(ii) cause the Final Contract Price of the Aircraft to be increased by
the amount of AVSA's additional reasonable and substantiated
costs, if any, attributable to such delay or failure by
Northwest, including, without limitation, storage, taxes,
insurance and costs of out-of-sequence installation,
and any resulting cost will be borne by Northwest.
Further, in any such event, AVSA shall give written notice to
Northwest and, unless Northwest has cured such noncompliance within
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Working Days after such notice, AVSA may elect
to take any of the actions set forth below in Subclauses 18.3.2,
18.3.3 or 18.3.4.
18.3.2 At Northwest's request, AVSA will be entitled to cause the
Manufacturer to purchase and install the Buyer Furnished Equipment
involved, in which event the Final Contract Price of the affected
Aircraft will be increased by the purchase price of such Buyer
Furnished Equipment plus reasonable costs and expenses incurred by the
Manufacturer for handling charges, transportation, insurance,
packaging and, if so required and not already provided for in the
Final Contract Price of such Aircraft, for adjustment and calibration.
18.3.3 If (i) delivery of the Buyer Furnished Equipment is delayed by more
than {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} days after the date specified by the
Manufacturer for the delivery of such Buyer Furnished Equipment or
(ii) the Buyer Furnished Equipment required to obtain certification of
the Aircraft in accordance with Subclause 2.3 hereof is not approved
by the LBA or the FAA within {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} days after the date specified by
the Manufacturer for the delivery of such Buyer Furnished Equipment,
then, notwithstanding the terms of Subclause 2.3, AVSA will be
entitled to deliver the affected Aircraft where it is then located
with no obligation to install such Buyer Furnished Equipment. Upon
such delivery AVSA will be relieved of all obligations to install such
Buyer Furnished Equipment.
18.3.4 If (i) the Buyer Furnished Equipment is delayed by more than
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} days after the date specified by the
Manufacturer for the delivery of such Buyer Furnished Equipment or
(ii) the Buyer Furnished Equipment is not required for certification
of the Aircraft and is not approved by the LBA or the FAA within
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} days after the
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date specified by the Manufacturer for the delivery of such Buyer
Furnished Equipment, then AVSA will be entitled to deliver the
Aircraft with no obligation to install such Buyer Furnished
Equipment. Northwest may also elect to have the Aircraft so
delivered, whereupon AVSA will be relieved of all obligations to
install such Buyer Furnished Equipment.
18.4 Any Buyer Furnished Equipment installed on an Aircraft and
subsequently removed due to the fault of Northwest will be removed at
Northwest's expense.
18.5 TAX-FREE ZONES
Northwest will cause all Buyer Furnished Equipment to be delivered at
its own expense to the following address, unless AVSA notifies
Northwest otherwise in writing.
For all Buyer Furnished Equipment
DAIMLER-BENZ AEROSPACE AIRBUS GmbH
Division Hamburger Flugzeugbau
Kreetslag 10
21129 HAMBURG
GERMANY
18.6 RISK OF LOSS
Title to and risk of loss of Buyer Furnished Equipment will at all
times remain with Northwest. When Buyer Furnished Equipment is in the
possession of AVSA, AVSA will have only such responsibility therefor
as is chargeable by law to a bailee for hire, but will not be liable
for loss of use. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
18.7 AVSA-SUPPLIED BUYER FURNISHED EQUIPMENT
If Northwest requests AVSA to cause the Manufacturer to supply
directly certain items that are considered Buyer Furnished Equipment
pursuant to the Specification, and if compliance with such request by
AVSA and the Manufacturer in their judgment will not affect the
delivery date of an Aircraft referred to in Clause 9, then AVSA will
order such items subject to the execution of an SCN reflecting the
effect on price and any other items and conditions of this Agreement.
In such a case, AVSA will be entitled to the payment of a reasonable
handling charge and will bear no liability in respect of product
support commitments assumed by the Vendor of such Buyer Furnished
Equipment. The provisions of Subclauses 18.2 and 18.3 will apply to
Buyer Furnished Equipment covered under this Subclause 18.7 except in
the event of any delay in approval or delivery of such Buyer Furnished
Equipment attributable to the action of AVSA, the Manufacturer or the
Associated Contractor.
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19 - ASSIGNMENT
19.1 SUCCESSORS AND ASSIGNS
Subject to the provisions of this Clause 19, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns
of the parties hereto. This Agreement and/or the rights of either
party hereunder will not be assigned or transferred in any manner
whatsoever, in whole or in part, by either party without the prior
written consent of the other party, such consent not to be
unreasonably withheld by AVSA in the case of any assignment by
Northwest of its rights hereunder to {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
Notwithstanding anything herein to the contrary, AVSA may at any time
without Northwest's consent, assign any of its rights to receive money
and any of its duties to effect the sale and delivery of any Aircraft
or any of its responsibilities, duties or obligations to perform any
other obligations hereunder to the Manufacturer, any of the Associated
Contractor, ASCO or to any Affiliate of the Seller, the Manufacturer
or any Associated Contractor {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
19.2 AVSA'S DESIGNATIONS
AVSA may at any time by notice to Northwest designate particular
facilities or particular personnel of the Manufacturer, ASCO, any of
the Associated Contractors or any Affiliate of the Manufacturer or any
Associated Contractor at which or by whom the services to be performed
under this Agreement will be performed. AVSA may also designate the
Manufacturer, any Associated Contractor or any Affiliate of the
Manufacturer or any Associated Contractor as the party responsible on
behalf of AVSA for providing to Northwest all or any of the services
described in this Agreement. {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
19.3 ASSIGNMENT IN CASE OF RESALE OR LEASE
In the event of the resale or lease of any Aircraft by Northwest
following delivery thereof to Northwest, and subject to the delivery
to AVSA of reasonable financial guarantees and protections and other
terms as AVSA may reasonably require, Northwest's rights with respect
to such Aircraft solely under Clauses 12, 13 and 17 and this Subclause
19.3 of this Agreement, will inure to the benefit of such purchaser
or lessee, as the case may be. Northwest will furnish to AVSA a true
copy of such agreement with such purchaser or lessor, clearly stating
that such purchaser or lessor acknowledges that it is bound by and
will comply with all applicable terms, conditions and limitations of
this Agreement. No assignment under this Subclause 19.3 shall be
deemed to increase AVSA's obligations.
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20 - DATA RETRIEVAL
On AVSA's reasonable request, Northwest will provide AVSA with all the
necessary data, as customarily compiled by Northwest and pertaining to
the operation of the Aircraft, to assist AVSA in making an efficient
and coordinated survey of all reliability, maintenance, operational
and cost data with a view to improving the safety, availability and
operational costs of the Aircraft.
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21 - TERMINATION FOR CERTAIN EVENTS
21.1 Any of the following will be considered a material breach of
Northwest's or AVSA's obligations under this Agreement ("Material
Breach"):
(1) AVSA, Northwest or any other party will commence any case,
proceeding or other action with respect to AVSA or Northwest in
any jurisdiction relating to bankruptcy, insolvency,
reorganization or relief from debtors or seeking a
reorganization, arrangement, winding-up, liquidation, dissolution
or other relief with respect to its debts and such case,
proceeding or action is not dismissed within {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT}.
(2) An action is commenced seeking the appointment of a receiver,
trustee, custodian or other similar official for AVSA or
Northwest for all or substantially all of its assets and such
action is not stayed or dismissed within {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}, or
AVSA or Northwest makes a general assignment for the benefit of
its creditors.
(3) An action is commenced against AVSA or Northwest seeking issuance
of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets and
such action is not dismissed within {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
(4) AVSA or Northwest is generally unable to pay its debts as they
come due.
(5) There is a liquidation, winding up or analogous event with
respect to Northwest or AVSA.
(6) Northwest fails to make any Predelivery Payment required to be
made pursuant to this Agreement when such payment comes due or
fails to make payment of all or part of the Final Contract Price
required to be made pursuant to Subclause 6.3 of this Agreement.
(7) Northwest defaults on any payment of principal or interest on any
indebtedness or in the payment of any guarantee obligation, to
AVSA or any of its Affiliates.
(8) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
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(9) Northwest defaults in its obligation to take delivery of an
Aircraft, or AVSA defaults in its obligation to deliver an
Aircraft as provided in this Agreement.
(10) Northwest or AVSA, or any of AVSA's affiliates, defaults in any
material respect in the observance or performance of any other
material covenant or undertaking contained in this Agreement, and
such default continues beyond the applicable grace period (if
any).
(11) AVSA or any of its Affiliates defaults in any material respect in
the observance or performance of any material covenant or
undertaking in the {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT}, and such default
continues beyond the applicable grace period (if any).
21.2 In the event of any Material Breach by either party, the other party
will at its option have the right to resort to any remedy under
applicable law, including, without limitation, the right by written
notice, effective immediately, to (i) suspend its performance under
the Agreement, (ii) in the case of AVSA, reschedule the delivery dates
for Aircraft or for other goods and services, (iii) terminate this
Agreement with respect to any or all Aircraft, services, data and
other items undelivered or unfurnished on the effective date of such
termination {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
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22 - MISCELLANEOUS PROVISIONS
22.1 NOTICES
All notices and requests required or authorized hereunder will be
given in writing either by personal delivery to a responsible officer
of the party to whom the same is given or by commercial courier,
certified air mail (return receipt requested), facsimile or other
electronic transmission at the addresses and numbers set forth below.
The date upon which any such notice or request is so personally
delivered, or if such notice or request is given by commercial
courier, certified air mail, facsimile or other electronic
transmission, the date upon which sent, will be deemed to be the
effective date of such notice or request.
AVSA will be addressed at:
2, rond-point Maurice Bellonte
31700 BLAGNAC FRANCE
Attention: Director - Contracts
Telephone: 33 561 30 40 12
Facsimile: 33 561 30 40 11
NORTHWEST WILL BE ADDRESSED AT:
Northwest Airlines, Inc.
5101 Northwest Drive
St. Paul, MN 55111
COURIER:
Northwest Airlines, Inc.
2700 Lone Oak Parkway
Eagan, MN 55121
Telephone: (612) 727-4882
Facsimile: (612) 726-0665
From time to time, the party receiving the notice or request may
designate another address or another person.
22.2 WAIVER
The failure of either party to enforce at any time any of the
provisions of this Agreement, to exercise any right herein provided or
to require at any time performance by the other party of any of the
provisions hereof will in no way be construed to be a present or
future waiver of such provisions nor in any way to affect the validity
of this Agreement or any part hereof or the right of the other party
thereafter to enforce each
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and every such provision. The express waiver by either party of any
provision, condition or requirement of this Agreement will not
constitute a waiver of any future obligation to comply with such
provision, condition or requirement.
22.3 INTERPRETATION AND LAW
THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED AND THE PERFORMANCE
THEREOF WILL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.
THE PARTIES HEREBY ALSO AGREE THAT THE UNITED NATIONS CONVENTION ON
CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS WILL NOT APPLY TO THIS
TRANSACTION.
22.4 CONFIDENTIALITY
Subject to any legal or governmental requirements of disclosure, the
parties (which for this purpose will include their employees, agents
and advisors) will maintain the terms and conditions of this Agreement
and any reports or other data furnished hereunder strictly
confidential. Without limiting the generality of the foregoing,
Northwest will use reasonable efforts to limit the disclosure of the
contents of this Agreement to the extent legally permissible in any
filing required to be made by Northwest with any governmental agency
and will make such applications as will be necessary to implement the
foregoing. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}. Northwest and AVSA will consult with each
other prior to the making of any public disclosure or filing,
permitted hereunder, of this Agreement or the terms and conditions
thereof. The provisions of this Subclause 22.4 will survive any
termination of this Agreement.
22.5 SEVERABILITY
In the event that any provision of this Agreement should for any
reason be held to be without effect, the remainder of this Agreement
will remain in full force and effect. To the extent permitted by
applicable law, each party hereto hereby waives any provision of law
which renders any provision of this Agreement prohibited or
unenforceable in any respect.
22.6 ALTERATIONS TO CONTRACT
This Agreement, including its Exhibits, Appendixes and Letter
Agreements, contains the entire agreement between the parties with
respect to the subject matter hereof and thereof and supersedes any
previous understanding, commitments or representations whatsoever,
whether oral or written (including, without limitation, that certain
Airbus A319 Memorandum of Understanding dated June 10, 1997 (Reference
AVSA 5192.10,
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between AVSA and Northwest). This Agreement will not be
varied except by an instrument in writing of even date herewith or
subsequent hereto executed by both parties or by their fully
authorized representatives.
22.7 INCONSISTENCIES
In the event of any inconsistency between the terms of this Agreement
and the terms contained in either (i) the Specification, or (ii) any
other Exhibit or Letter Agreement attached to this Agreement, in each
such case the terms of such Specification, Exhibit or Letter Agreement
will prevail over the terms of this Agreement. For the purpose of
this Subclause 22.7, the term Agreement will not include the
Specification or any other Exhibit or Letter Agreement hereto.
22.8 LANGUAGE
All correspondence, documents and any other written matters in
connection with this Agreement will be in English.
22.9 HEADINGS
All headings in this Agreement are for convenience of reference only
and do not constitute a part of this Agreement.
22.10 COUNTERPARTS
This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered will be an
original, but all such counterparts will together constitute but one
and the same instrument.
22.11 OPINION OF COUNSEL
Northwest will, concurrently with the execution of this Agreement,
deliver to AVSA an opinion of counsel for Northwest reasonably
satisfactory to AVSA and dated as of such date to the effect that (i)
the execution, delivery and performance of this Agreement and the A319
Product Support Agreement are within the corporate power of Northwest,
and (ii) this Agreement and the A319 Product Support Agreement have
been duly executed and delivered by and constitute legal, valid and
binding obligations of Northwest enforceable in accordance with their
terms.
74
<PAGE>
IN WITNESS WHEREOF, these presents were entered into as of the day and year
first above written.
AVSA, S.A.R.L.
By: /s/ M. Lascaux
---------------------------------------------
Title: Director Contracts
NORTHWEST AIRLINES, INC.
By: /s/ M. D. Powers
----------------------------------------------
Title: Vice President - Finance and Assistant Treasurer
75
<PAGE>
EXHIBIT A
The A319 Standard Specification is contained in a separate folder.
<PAGE>
EXHIBIT B
- -------------------------------------------------------------------------------
RFC DESCRIPTION OF CUSTOMER OPTIONS
- -------------------------------------------------------------------------------
{CONFIDENTIAL {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
MATERIAL SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
OMITTED AND CONFIDENTIAL TREATMENT}
FILED
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
PURSUANT TO A
REQUEST FOR
CONFIDENTIAL
TREATMENT}
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT B
- -------------------------------------------------------------------------------
RFC DESCRIPTION OF CUSTOMER OPTION
- -------------------------------------------------------------------------------
{CONFIDENTIAL {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
MATERIAL OMITTED THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
AND FILED REQUEST FOR CONFIDENTIAL TREATMENT}
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
PURSUANT TO A
REQUEST FOR
CONFIDENTIAL
TREATMENT}
- -------------------------------------------------------------------------------
Exh. B-2
<PAGE>
EXHIBIT B
- -------------------------------------------------------------------------------
RFC DESCRIPTION OF CUSTOMER OPTION
- -------------------------------------------------------------------------------
{CONFIDENTIAL {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
MATERIAL OMITTED THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
AND FILED REQUEST FOR CONFIDENTIAL TREATMENT}
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
PURSUANT TO A
REQUEST FOR
CONFIDENTIAL
TREATMENT}
- -------------------------------------------------------------------------------
Exh. B-3
<PAGE>
EXHIBIT B
- -------------------------------------------------------------------------------
RFC DESCRIPTION OF CUSTOMER OPTION
- -------------------------------------------------------------------------------
{CONFIDENTIAL {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
MATERIAL OMITTED THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
AND FILED REQUEST FOR CONFIDENTIAL TREATMENT}
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
PURSUANT TO A
REQUEST FOR
CONFIDENTIAL
TREATMENT}
- -------------------------------------------------------------------------------
Exh. B-4
<PAGE>
EXHIBIT C
SCN FORM
<PAGE>
EXHIBIT D
AIRFRAME PRICE REVISION FORMULA
l. BASE PRICE
The Base Price of the Airframe, and Nacelles and Thrust Reversers, is
as quoted in Paragraph 4 of this Agreement.
2. BASE PERIOD
The above Base Prices have been established in accordance with the
averaged economic conditions prevailing in December 1996/January
1997/February 1997 and corresponding to theoretical delivery
conditions prevailing in January 1998, as defined by ECIb and ICb
forecast index values indicated in Paragraph 4 of this Exhibit D.
The Base Price is subject to adjustment for changes in economic
conditions as measured by data obtained from the US Department of
Labor, Bureau of Labor Statistics, and in accordance with the
provisions of Paragraphs 4 and 5 of this Exhibit D.
ECIb and ICb index values indicated in Paragraph 4 of this Exhibit D
will not be subject to any revision of these indexes after execution
of the definitive documentation.
3. REFERENCE INDEXES
LABOR INDEX: "Aircraft Manufacturing," Standard Industrial
Classification 3721 (hereinafter referred to as "ECI-SIC-3721W"),
published quarterly by the US Department of Labor, Bureau of Labor
Statistics, in "News" (Table 6: WAGES AND SALARIES: Employment Cost
Index for wages and salaries only, private industry workers, by
industry and occupational group"). (Base month and year June 1989 =
100.)
MATERIAL INDEX: "Industrial Commodities" (hereinafter referred to as
"IC-Index"), published monthly by the US Department of Labor, Bureau
of Labor Statistics, in "PPI Detailed Report" (Table 6: Producer
price indexes and percentage change for commodity groupings and
individual items, not seasonally adjusted). (Base year 1982 = 100.)
<PAGE>
4. REVISION FORMULA
Pn = (Pb + F) (0.75 ECIn/ECIb + 0.25 ICn/ICb)
Where
Pn = Revised Base Price of the Airframe at delivery of the
Aircraft.
Pb = Base Price of the Airframe (including Nacelles and Thrust
Reversers, if applicable) at economic conditions December
1996/January 1997/February 1997 averaged (January 1998
delivery conditions).
F = (0.005 x N x Pb) Where N = The calendar year of delivery of
the Aircraft minus 1998.
ECIn = The arithmetic average of the latest published values
available at the date of A319 Aircraft delivery for
ECI-SIC-3721W for the 11th, 12th and 13th months prior to
the month of delivery of the Aircraft (1 decimal), where
the quarterly value for the third month of a quarter
(March, June, September and December) will be deemed
to apply for the two preceding months.
ECIb = ECI-SIC-3721W for December 1996/January 1997/February 1997
averaged (= 131.6).
ICn = The arithmetic average of the latest published values
available at the date of A319 Aircraft delivery for
the IC-Index for the 11th, 12th and 13th months prior
to the month of delivery of the Aircraft (l decimal).
ICb = IC-Index for December 1996/January 1997/February 1997
averaged (= 126.4).
In determining the Revised Base Price at delivery of the Aircraft,
each quotient shall be calculated to the nearest ten thousandth (4
decimals). If the next succeeding place is five (5) or more, the
preceding decimal place shall be raised to the next higher figure.
The final factor shall be rounded to the nearest ten thousandth (4
decimals).
After final computation, Pn shall be rounded to the next whole number
(0.5 or more rounded to l).
Exh. D-2
<PAGE>
5. GENERAL PROVISIONS
5.1 SUBSTITUTION OF INDEXES
In the event that:
(i) the US Department of Labor substantially revises the methodology
of calculation of any of the indexes referred to hereinabove, or
(ii) the US Department of Labor discontinues, either temporarily or
permanently, any of the indexes referred to hereinabove, or
(iii) the data samples used to calculate any of the indexes referred
to hereinabove are substantially changed,
the most nearly comparable index published by a recognized financial
institution, financial publication or university shall be used as a
substitute index.
Such substitute index will reflect as closely as possible the actual
variations of the wages or of the material costs, as the case may be,
used in the calculation of the original index.
As a result of this selection of a substitute index, the price
revision formula will be adjusted for the successive utilization of
the original index and of the substitute index.
5.2 FINAL INDEX VALUES
The Revised Base Price at the date of Aircraft delivery will be final
and will not be subject to further adjustments of any kind and for any
reason to the applicable indexes as published at the date of Aircraft
delivery.
Exh. D-3
<PAGE>
EXHIBIT E
POWERPLANTS PRICE REVISION FORMULA
l. REFERENCE PRICE
The Reference Price of a set of two (2) CFM International CFM 56-5A4
engines and additional equipment is as quoted in Subclause 4.1.2.1(i)
of this Agreement.
This Reference Price is subject to adjustment for changes in economic
conditions as measured by data obtained from the US Department of
Labor, Bureau of Labor Statistics, and in accordance with the
provisions of Paragraphs 4 and 5 of this Exhibit E.
2. REFERENCE PERIOD - REFERENCE COMPOSITE PRICE INDEX
The above Reference Price has been established in accordance with the
economic conditions prevailing in September 1990 (March 1991
theoretical delivery conditions), as defined, according to CFM
International, by the Reference Composite Price Index of 126.54.
3. REFERENCE INDEXES
LABOR INDEX: "Aircraft Engines and Engine Parts," Standard Industrial
Classification 3724--Average hourly earnings (hereinafter referred to
as "HE SIC 3724"), published by the US Department of Labor, Bureau of
Labor Statistics, in "Employment and Earnings," Establishment Data:
Hours and Earnings (Table B-15: Average hours and earnings of
production or nonsupervisory workers on private nonfarm payrolls by
detailed industry).
MATERIAL INDEX (I): "Industrial Commodities" (hereinafter referred to
as "IC-Index"), published by the US Department of Labor, Bureau of
Labor Statistics, in "PPI Detailed Report" (Table 6: Producer price
indexes and percentage change for commodity groupings and individual
items, not seasonally adjusted). (Base year 1982 = 100.)
MATERIAL INDEX (II): "Metals and Metal Products" Code l0 (hereinafter
referred to as "MMP-Index"), published by the US Department of Labor,
Bureau of Labor Statistics, in "PPI Detailed Report" (Table 6:
Producer price indexes and percentage change for commodity groupings
and individual items, not seasonally adjusted). (Base year 1982 =
100.)
<PAGE>
ENERGY INDEX: "Fuels and Related Products and Power" Code 5
(hereinafter referred to as "EP-Index"), published by the US
Department of Labor, Bureau of Labor Statistics, in "PPI Detailed
Report" (Table 6: Producer price indexes and percentage change for
commodity groupings and individual items, not seasonally adjusted).
(Base year 1982 = 100.)
4. REVISION FORMULA
Pn = Pb x CPIn
----
126.54
Where
Pn = Revised Reference Price of a set of two (2) engines at
delivery of the A319 Aircraft.
Pb = Reference Price as defined above.
CPIn = Composite Price Index for the sixth month prior to the
month of delivery of the A319 Aircraft.
Said Composite Price Index is composed as follows:
CPIn = 0.55 (HEN x 100) + 0.10 ICn + 0.25 MMPn + 0.10 EPn
---
(11.16)
Where
HEn = HE SIC 3724 for the sixth month prior to the month of
delivery of the A319 Aircraft; the quotient HEn/11.16
is rounded to the nearest third decimal place. The
product by 0.55 is rounded to the nearest second
decimal place.
ICn = IC-Index for the sixth month prior to the month of
delivery of the A319 Aircraft.
MMPn = MMP-Index for the sixth month prior to the month of
delivery of the A319 Aircraft. The product by 0.25 is
rounded to the nearest second decimal place.
EPn = EP-Index for the sixth month prior to the month of
delivery of the A319 Aircraft.
Exh. E-2
<PAGE>
The Composite Price Index shall be determined to the second decimal
place. If the next succeeding decimal place is five (5) or more, the
preceding decimal figure shall be raised to the next higher figure.
The final factor shall be rounded to the nearest thousandth (3
decimals).
5. GENERAL PROVISIONS
5.1 The Revised Reference Price at delivery of the A319 Aircraft shall be
the final price and will not be subject to further adjustments in the
indexes.
5.2 If no final index value is available for any of the applicable months,
the published preliminary figures will be the basis on which the
Revised Reference Price will be computed.
5.3 If the US Department of Labor substantially revises the methodology of
calculation of the indexes referred to in this Exhibit E or
discontinues any of these indexes, AVSA shall, in agreement with CFM
International, apply a substitute for the revised or discontinued
index, such substitute index to lead in application to the same
adjustment result, insofar as possible, as would have been achieved by
continuing the use of the original index as it may have fluctuated had
it not been revised or discontinued.
Appropriate revision of the formula shall be made to accomplish this
result.
5.4 Should the above escalation provisions become null and void by action
of the US Government, the Reference Price shall be adjusted to reflect
increases in the cost of labor, material and fuel which have occurred
from the period represented by the applicable Reference Price Indexes
to the sixth month prior to the scheduled delivery of the A319
Aircraft.
5.5 The Revised Reference Price at delivery of the A319 Aircraft in no
event shall be less than the Reference Price defined in Paragraph 1 of
this Exhibit E.
Exh. E-3
<PAGE>
EXHIBIT F
CERTIFICATE OF ACCEPTANCE
In accordance with the terms of that certain Airbus A319 Purchase Agreement
(the "Purchase Agreement") dated as of September 19, 1997 between AVSA,
S.A.R.L. ("AVSA") and NORTHWEST AIRLINES, INC. ("NWA"), the acceptance
inspection relating to the AIRBUS A319 aircraft (the "Aircraft"),
manufacturer's serial no.____, FAA Registration No.________, with two (2)
CFM56-5A4 series propulsion systems installed thereon, serial nos.____
(position #1) and________ (position #2) has taken place at Hamburg, Germany,
on the____ day of____,____.
In view of said inspection having been carried out with satisfactory results,
NWA hereby accepts delivery of the Aircraft as being in conformity with the
provisions of the Purchase Agreement.
This acceptance shall not impair the rights of NWA that derive from the
warranties relating to the Aircraft set forth in the Purchase Agreement.
NWA specifically recognizes that it has waived any right it may have at law or
otherwise to revoke this acceptance of the Aircraft.
RECEIPT AND ACCEPTANCE OF THE ABOVE-DESCRIBED
AIRCRAFT ACKNOWLEDGED
NORTHWEST AIRLINES, INC.
By:
------------------------------
Title:
-----------------------------
<PAGE>
EXHIBIT G
SELLER SERVICE LIFE POLICY
1. The Items covered by the Service Life Policy pursuant to Subclause
12.2 are those Seller Items of primary and auxiliary structure
described hereunder.
2. WINGS - CENTER AND OUTER WING BOX
2.1 SPARS
2.2 RIBS INSIDE THE WING BOX
2.3 UPPER AND LOWER PANELS OF THE WING BOX
2.4 FITTINGS
2.4.1 Attachment fittings for the flap structure
2.4.2 Attachment fittings for the engine pylons
2.4.3 Attachment fittings for the main landing gear
2.4.4 Attachment fittings for the center wing box
2.5 AUXILIARY SUPPORT STRUCTURE
2.5.1 FOR THE SLATS:
2.5.1.1 Ribs supporting the track rollers on wing box structure
2.5.1.2 Ribs supporting the actuators on wing box structure
2.5.2 FOR THE AILERONS:
2.5.2.1 Hinge brackets and ribs on wing box rear spar or shroud box
2.5.2.2 Actuator fittings on wing box rear spar or shroud box
<PAGE>
2.5.3 FOR AIRBRAKES, SPOILERS, LIFT DUMPERS:
2.5.3.1 Hinge brackets and ribs on wing box rear spar or shroud box
2.5.3.2 Actuator fittings on wing box rear spar or shroud box
3. FUSELAGE
3.1 FUSELAGE STRUCTURE
3.1.1 Fore and aft bulkheads
3.1.2 Pressurized floors and bulkheads surrounding the main and nose gear
wheel well and centre wing box
3.1.3 Skins with doublers, stringers and frames from the forward pressure
bulkheads to the frame supporting the rear attachment of horizontal
stabilizer
3.1.4 Window and windscreen attachment structure but excluding
transparencies
3.1.5 Passenger and cargo doors internal structure
3.1.6 Sills excluding scuff plates and upper beams surrounding passenger and
cargo door apertures
3.1.7 Cockpit floor structure and passenger cabin floor beams excluding
floor panels and seat rails
3.1.8 Keel beam structure
3.2 FITTINGS
3.2.1 Landing gear attachment fittings
3.2.2 Support structure and attachment fittings for the vertical and
horizontal stabilizers
Exh. G-2
<PAGE>
4. STABILIZERS
4.1 HORIZONTAL STABILIZER MAIN STRUCTURAL BOX
4.1.1 Spars
4.1.2 Ribs
4.1.3 Upper and lower skins and stringers
4.1.4 Attachment fittings to fuselage and trim screw actuator
4.1.5 Elevator support structure
4.1.5.1 Hinge bracket
4.1.5.2 Servocontrol attachment brackets
4.2 VERTICAL STABILIZER MAIN STRUCTURAL BOX
4.2.1 Spars
4.2.2 Ribs
4.2.3 Skins and stringers
4.2.4 Attachment fittings to fuselage
4.2.5 Rudder support structure
4.2.5.1 Hinge brackets
4.2.5.2 Servocontrol attachment brackets
5. Bearing and roller assemblies, bearing surfaces, bushings, bolts,
rivets, access and inspection doors, including manhole doors, latching
mechanisms, all system components, commercial interior parts,
insulation and related installation and connecting devices are
excluded from this Seller Service Life Policy.
Exh. G-3
<PAGE>
LETTER AGREEMENT NO. 1
As of September 19, 1997
Northwest Airlines, Inc.
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Re: PURCHASE INCENTIVES
Dear Ladies and Gentlemen:
Northwest Airlines, Inc. ("Northwest"), and AVSA, S.A.R.L. ("AVSA"),
have entered into an Airbus A319-100 Purchase Agreement, dated as of even
date herewith (the "Agreement"), which covers, among other things, the sale
by AVSA and the purchase by Northwest of certain Aircraft, under the terms
and conditions set forth in said Agreement. Northwest and AVSA have agreed
to set forth in this Letter Agreement No. 1 (the "Letter Agreement") certain
additional terms and conditions regarding the sale of the Aircraft.
Capitalized terms used herein and not otherwise defined in this Letter
Agreement will have the meanings assigned thereto in the Agreement. The
terms "herein," "hereof" and "hereunder" and words of similar import refer to
this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of said Agreement, that the provisions of said
Agreement are hereby incorporated herein by reference, and that this Letter
Agreement will be governed by the provisions of said Agreement, except that
if the Agreement and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
1. CREDIT MEMORANDA
1.1 AVSA will provide to Northwest upon delivery of each A319 Aircraft the
credit memoranda listed below in Subparagraphs 1.1(i) to 1.1(viii),
inclusive. Hereinafter, the {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}, inclusive. Hereinafter, the
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} are collectively referred to as the "AVSA
Credit Memoranda."
<PAGE>
(i) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
(ii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
(iii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
(iv) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
(v) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
(vi) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
(vii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
(viii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
1.2 The AVSA Credit Memoranda have been established in accordance with
January 1998 delivery conditions (dollars) and will be revised to the
actual delivery date of each Aircraft in accordance with the Airframe
Price Revision Formula set forth in Exhibit D to the Agreement.
1.3 Except as otherwise provided in Paragraph 2 of this Letter Agreement,
the AVSA Credit Memoranda will, in each case and at Northwest's
option, be
(i) applied by AVSA against the Final Contract Price of each
Aircraft {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}, the AVSA Credit
Memoranda (excluding any portion thereof applied pursuant to
Subparagraph 1.3
LA 1-2
<PAGE>
(ii) of this Letter Agreement) will be deemed to be applied
to the Final Contract Price of such Aircraft),
(ii) used by Northwest for the purposes specified
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}, or
(iii) used by Northwest for the purchase of goods and services
from AVSA or any of its Affiliates.
2. FLIGHT TRAINING SUPPORT
2.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2.2 ADDITIONAL FLIGHT TRAINING ARRANGEMENTS
2.2.1 Northwest or its Affiliate may purchase from AVSA or its Affiliates
additional flight training equipment and data package upgrades. A
list of such training equipment and services and associated prices is
included in Appendix 1 hereto.
2.2.2 In the event Northwest or its Affiliate order such flight training
equipment or data package upgrades from AVSA or its Affiliates, AVSA
agrees to the following payment by Northwest for such flight training
equipment and data package upgrades, up to a total value of
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} in flight training equipment and data package
upgrade value, in accordance with Appendix 1 hereto, Northwest will
(i) pay to AVSA or its Affiliates {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}, AND, in
addition,
(ii) provide AVSA or its Affiliates or cause to be provided
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2.2.3 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
LA 1-3
<PAGE>
2.2.4 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2.3 TRAINING SERVICE AGREEMENT
AVSA or its Affiliates and Northwest or its Affiliate will enter into
a separate training agreement covering the different training services
that Northwest or its Affiliate could provide to AVSA, the
Manufacturer, or any of their Affiliates. Under such agreement,
neither AVSA, nor the Manufacturer, nor any of their Affiliates will
be liable for any training provided to their customers by Northwest or
its Affiliate, and Northwest and AVSA, or their respective Affiliates,
will agree on appropriate provisions prior to execution of such
training agreement.
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
3. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
3.1 AVSA will provide, or cause to be provided, {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
3.2 AVSA will arrange for the delivery of the {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
4. CERTAIN AIRCRAFT EQUIPMENT SUPPORT
4.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
AVSA will provide, {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
LA 1-4
<PAGE>
CONFIDENTIAL TREATMENT}
Should Northwest elect to install {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
5. JOINT PROMOTION
5.1 For the promotion of the Aircraft in Northwest's fleet, AVSA will
provide to Northwest {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
5.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
6. ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement or of the
Agreement, this Letter Agreement and the rights and obligations of
Northwest hereunder will not be assigned or transferred in any manner
without the prior written consent of AVSA, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 6 will be void and of no force or effect.
LA 1-5
<PAGE>
If the foregoing correctly sets forth our understanding, please
execute the original and one (1) copy hereof in the space provided below and
return a copy to AVSA.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ M. Lascaux
Its: Director Contracts
Accepted and Agreed
NORTHWEST AIRLINES, INC.
By: /s/ M. D. Powers
Its: Vice President - Finance and Assistant Treasurer
LA 1-6
<PAGE>
APPENDIX 1
FLIGHT TRAINING EQUIPMENT / DATA PACKGE PRICES
The amounts in this table are quoted in US dollars in January 1997 delivery
conditions and will be multiplied by a factor of {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} to provide for a price revision from January
1997 to January 1998. Thereafter, the amounts will be revised annually in
January in accordance with the Airframe Price Revision Formula.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Total Amount
- -------------------------------------------------------------------------------
<S> <C>
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE {CONFIDENTIAL
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR MATERIAL OMITTED
CONFIDENTIAL TREATMENT} AND FILED
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
PURSUANT TO A
REQUEST FOR
CONFIDENTIAL
TREATMENT}
- -------------------------------------------------------------------------------
</TABLE>
LA 1 App. 1-1
<PAGE>
LETTER AGREEMENT NO. 2
As of September 19, 1997
Northwest Airlines, Inc.
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Re: OPTION AIRCRAFT AND ORDER FLEXIBILITY
Dear Ladies and Gentlemen:
Northwest Airlines, Inc. ("Northwest"), and AVSA, S.A.R.L. ("AVSA"),
have entered into an Airbus A319-100 Purchase Agreement, dated as of even date
herewith (the "Agreement"), which covers, among other things, the sale by AVSA
and the purchase by Northwest of certain Aircraft, under the terms and
conditions set forth in said Agreement. Northwest and AVSA have agreed to set
forth in this Letter Agreement No. 2 (the "Letter Agreement") certain additional
terms and conditions regarding the sale of the Aircraft. Capitalized terms used
herein and not otherwise defined in this Letter Agreement will have the meanings
assigned thereto in the Agreement. The terms "herein," "hereof" and "hereunder"
and words of similar import refer to this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of said Agreement, that the provisions of said
Agreement are hereby incorporated herein by reference, and that this Letter
Agreement will be governed by the provisions of said Agreement, except that if
the Agreement and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
1. ADDITIONAL DEFINITIONS
For the purpose of this Letter Agreement only, the term "Available
Delivery Position(s)" in the singular or plural shall mean any
delivery positions {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} it being understood that such Available
Delivery Positions will be subject to {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} Available Delivery
Positions pursuant to the provisions of this Letter Agreement.
Notwithstanding the foregoing, all Option Aircraft delivery dates
pursuant to Subparagraph 2.5, and all Roll-Over Option Aircraft
Delivery Dates, shall {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST
<PAGE>
FOR CONFIDENTIAL TREATMENT}
2. OPTION AIRCRAFT
2.1 OPTION TO FIRMLY ORDER
Northwest shall have the right to firmly order up to one hundred (100)
additional Airbus single-aisle aircraft together with all components,
equipment, parts and accessories installed in or on such aircraft and
the propulsion systems installed thereon upon delivery in accordance
with this Paragraph 2.
2.2 OPTION AIRCRAFT TYPE
2.2.1 Option Aircraft are designated either an Airbus Industrie A319-100
model aircraft (the "A319 Option Aircraft") or an Airbus Industrie
A320-200 model aircraft (the "A320 Option Aircraft") in accordance
with Subparagraph 2.5 below.
2.2.2 The airframe specification of the A319 Option Aircraft shall be as set
forth in Subclause 2.2 of the Agreement and the powerplants shall be
those defined in Clause 1 of the Agreement as Propulsion Systems.
2.2.3 The airframe specification of the A320 Option Aircraft shall be as set
forth in Subparagraph 2.7.1 herein and the powerplants shall be those
defined in Subparagraph 2.7.2 herein.
2.3 OPTION EXERCISE
The option to firmly order an Option Aircraft shall be exercised by
Northwest's written notice to AVSA given no later than {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} months
prior to the scheduled month of delivery of such Option Aircraft in
accordance with the Option Aircraft Delivery Schedule set out in
Subparagraph 2.5 below (the "Option Exercise"). Each Option Exercise
shall only become effective upon AVSA's receipt from Northwest of the
payments referenced in Subparagraph 2.4 below.
2.4 OPTION FEE AND PREDELIVERY PAYMENT
2.4.1 Upon each Option Exercise, Northwest will pay to AVSA a nonrefundable
option fee of US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} per Option Aircraft for which Northwest has
exercised its option to firmly order such Option Aircraft (the "Option
LA 2-2
<PAGE>
Fee"). {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2.4.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2.4.3 In the event that Northwest fails to (i) invoke an Option Exercise in
accordance with the provisions of Subparagraph 2.3 above and (ii) pay
to AVSA the corresponding Option Fee and (iii) {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT},
Northwest's right to purchase such Option Aircraft shall expire, and
AVSA will have no further obligation under this Letter Agreement or
the Agreement with respect to such Option Aircraft.
2.5 DELIVERY
The Option Aircraft for which Northwest has effected an Option
Exercise will be delivered in Hamburg, Germany (in the case of A319
Option Aircraft) or Toulouse, France (in the case of A320 Option
Aircraft) according to the following schedule (the "Option Aircraft
Delivery Schedule"):
<TABLE>
<CAPTION>
Option Aircraft Month/Year of Delivery Option Aircraft Month/Year of Delivery
No./Type No./Type
--------------- ---------------------- --------------- ----------------------
<S> <C> <C> <C>
{CONFIDENTIAL {CONFIDENTIAL MATERIAL {CONFIDENTIAL {CONFIDENTIAL MATERIAL
MATERIAL OMITTED OMITTED AND FILED MATERIAL OMITTED OMITTED AND FILED
AND FILED SEPARATELY WITH THE AND FILED SEPARATELY WITH THE
SEPARATELY WITH THE SECURITIES AND EXCHANGE SEPARATELY WITH THE SECURITIES AND EXCHANGE
SECURITIES AND COMMISSION PURSUANT TO A SECURITIES AND COMMISSION PURSUANT TO A
EXCHANGE COMMISSION REQUEST FOR CONFIDENTIAL EXCHANGE COMMISSION REQUEST FOR CONFIDENTIAL
PURSUANT TO A TREATMENT} PURSUANT TO A TREATMENT}
REQUEST FOR REQUEST FOR
CONFIDENTIAL CONFIDENTIAL
TREATMENT} TREATMENT}
</TABLE>
2.6 ROLL-OVER OPTIONS
2.6.1 Upon each Option Exercise with respect to an A319 Option Aircraft,
AVSA shall grant Northwest the option to purchase an additional Airbus
Industrie A319-100 model aircraft (the "A319 Roll-Over Option
Aircraft"). Further, upon each Option Exercise with respect to an
A320 Option Aircraft, AVSA shall grant Northwest the option to
purchase an additional Airbus Industrie A320-200 model aircraft (the
"A320 Roll-Over Option Aircraft"). The terms and conditions of this
Letter Agreement with respect to
LA 2-3
<PAGE>
the A319 Option Aircraft shall apply to the A319 Roll-Over Option
Aircraft, and the terms and conditions of this Letter Agreement
with respect to A320 Option Aircraft shall apply to the A320
Roll-Over Option Aircraft, unless otherwise specified herein,
including, but not limited to, the provisions of Subparagraphs 2.3
and 2.4 above. For the purposes of this Letter Agreement, the
terms A319 Roll-Over Option Aircraft and A320 Roll-Over Option
Aircraft are collectively referred to as the "Roll-Over Option
Aircraft."
2.6.2 Upon each Option Exercise, AVSA shall notify Northwest in writing of
the delivery date for the Roll-Over Option Aircraft (the "Roll-Over
Option Aircraft Delivery Date"). The Roll-Over Option Aircraft
Delivery Date shall be added to the end of the then-existing Option
Aircraft Delivery Schedule ({CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}, unless otherwise agreed between
AVSA and Northwest), and shall be deemed to amend the Option Aircraft
Delivery Schedule. {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
2.7 A320 OPTION AIRCRAFT MATTERS
The term "A320 Aircraft" shall be defined as any and all of the A320
Option Aircraft, the A320 Roll-Over Option Aircraft, and any A320
Aircraft converted from an A319 Aircraft under the terms of this
Letter Agreement.
2.7.1 AIRFRAME CONFIGURATION
The A320 Aircraft will be manufactured in accordance with the A320-200
Standard Specification, Document No. D.000.02000, Issue 4, dated March
30, 1995. A copy of such A320-200 Standard Specification is annexed
hereto as Appendix 1 to this Letter Agreement. Such A320-200 Standard
Specification will be amended by the SCNs set forth in Appendix 2
hereto.
2.7.2 POWERPLANTS
The A320 Aircraft will be delivered with two (2) CFM56-5A1 Powerplants
each composed of the powerplant (as such term is defined in Chapters
70-80 of ATA Specification 100 (Revision 22), but limited to the
equipment, components, parts and accessories included in the
powerplant, as so defined), that have been sold to the Manufacturer by
CFMI International, and a nacelle and thrust reverser for each such
powerplant (the "A320 Propulsion System").
2.7.3 A320 AIRCRAFT PRICE
The base prices and purchase incentives for the A320 Aircraft shall be
as set forth in Appendix 3 to this Letter Agreement.
LA 2-4
<PAGE>
3. APPLICABILITY OF PURCHASE AGREEMENT PROVISIONS
3.1 When firmly ordered, each A319 Option Aircraft and each A319 Roll-Over
Option Aircraft (and each A319 Aircraft converted from an A320 Option
Aircraft or from an A320 Roll-Over Option Aircraft) shall be an
Aircraft for the purposes of the provisions of Clauses 1 through 22 of
the Agreement and the provisions of Letter Agreements Nos. 1 (re:
Purchase Incentives), 3 (re: Predelivery Payments), 4 (re: Aircraft
Customization), 5 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} 6 (re: A319-100 Guarantees), and 11 (re:
Miscellaneous Matters) to the Agreement, except as provided for in
Subparagraph 3.2 hereof. {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
3.2 It is understood that with respect to A319 Aircraft, the Powerplant
prices cited in Subclause 4.1 of the Agreement and the price revision
formula referred to in Subclause 5.2 of the Agreement concerning the
Powerplants and related equipment have been confirmed by CFM
International for A319 Aircraft with deliveries on or prior to
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}. Thereafter, such prices and price revision
formula remain subject to modifications that might be communicated by
the Powerplant manufacturer to AVSA, the Manufacturer and/or
Northwest.
3.3 When firmly ordered, each A320 Aircraft shall be an Aircraft for the
purposes of the applicable provisions of {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} to the
Agreement shall apply to the A320 Aircraft. {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
4. FLEXIBILITY RIGHTS
4.1 FLEXIBILITY RIGHTS AND APPLICABILITY
In addition to its offer for Option Aircraft and Roll-Over Option
Aircraft, AVSA grants Northwest the following flexibility rights
(individually and collectively referred to as "Flexibility Right(s)":
(i) "CONVERSION RIGHT": Northwest shall have the right to convert
LA 2-5
<PAGE>
(a) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Firm Aircraft scheduled for delivery
commencing with {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}, and
(b) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Option Aircraft that has been
converted to an Aircraft pursuant to Paragraph 2 herein,
into Airbus A319 type aircraft, Airbus A320 type aircraft or
Airbus A321 type aircraft (the "Converted Aircraft") under the
terms and conditions of this Letter Agreement.
(ii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
(iii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
(iv) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4.2 IRREVOCABLE EXERCISE OF FLEXIBILITY RIGHTS
No Aircraft may be the subject of a successful exercise of a
Conversion Right, {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} more than once.
4.3 FLEXIBILITY LEADTIMES
4.3.1 Northwest may notify AVSA of its exercise of one of the Flexibility
Rights by written notice (the "Request Notice") delivered to AVSA on
or prior to the first day of the month that is {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
LA 2-6
<PAGE>
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} months prior to
the month of scheduled delivery of the Aircraft or Option Aircraft
that is subject to such Flexibility Right. {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
4.3.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4.4 FLEXIBILITY RIGHTS EXERCISE PROCEDURE
4.4.1 After receipt of Northwest's Request Notice, AVSA will offer within
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} business days Available Delivery Positions as
follows:
(i) with respect to {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT};
(ii) with respect to {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT};
(iii) with respect to {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT};
(iv) with respect {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT} Available Delivery Positions of the
nature referred to in the final sentence of Paragraph 1 of this
Letter Agreement.
4.4.2 Northwest may request from AVSA in writing (the "Reservation Notice")
within {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} business days after receipt of AVSA's offer of
the Available Delivery Positions {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
4.4.3 For the {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
LA 2-7
<PAGE>
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT} business days following the receipt by
AVSA of Northwest's Reservation Notice,
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
Should Northwest fail to enter into an amendment to this Agreement
reflecting the revised delivery schedule (the "Flexibility Amendment")
within {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} days after receipt by AVSA from Northwest of
the Reservation Notice, then Northwest's {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}. AVSA
agrees that it will promptly execute each Flexibility Amendment
executed by Northwest pursuant to this Paragraph 4 within such period.
5. AVSA'S RESCHEDULING RIGHTS
5.1 AVSA'S RIGHTS
Notwithstanding the provisions of Clause 9 of the Agreement, AVSA and
Northwest agree that AVSA shall have the right to request from
Northwest the rescheduling of {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} delivery dates in accordance with
the provisions of this Paragraph 5 ("AVSA's Rescheduling Request").
AVSA's Rescheduling Request will apply to each {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} (the
"Rescheduled Aircraft") and may be exercised only once with respect to
each Rescheduled Aircraft. {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
5.2 AVSA RESCHEDULING REQUEST PROCEDURE
The procedure for AVSA's Rescheduling Request shall be consistent with
the procedures described in Subparagraph 4.4 above {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
LA 2-8
<PAGE>
6. REVIEW OF DELIVERY POSITION AVAILABILITY
AVSA agrees to review with Northwest on a quarterly basis all
Available Delivery Positions {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
7. ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement or of the
Agreement, this Letter Agreement and the rights and obligations of
Northwest hereunder will not be assigned or transferred in any manner
without the prior written consent of AVSA, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 7 will be void and of no force or effect.
LA 2-9
<PAGE>
If the foregoing correctly sets forth our understanding, please
execute the original and one (1) copy hereof in the space provided below and
return a copy to AVSA.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ M. Lascaux
Its: Director Contracts
Accepted and Agreed
NORTHWEST AIRLINES, INC.
By: /s/ M. D. Powers
Its: Vice President - Finance and Assistant Treasurer
LA 2-10
<PAGE>
APPENDIX 1
The A320-200 Standard Specification, Document No. D.000.02000, Issue 4, dated
March 30, 1995, is contained in a separate folder.
LA 2/App. 1-1
<PAGE>
APPENDIX 2
LIST OF SCNs APPLICABLE TO THEA320 AIRCRAFT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
RFC DESCRIPTION OF CUSTOMER OPTIONS
- -------------------------------------------------------------------------------
<C> <S>
{CONFIDENTIAL {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
MATERIAL SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
OMITTED AND CONFIDENTIAL TREATMENT}
FILED
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
PURSUANT TO A
REQUEST FOR
CONFIDENTIAL
TREATMENT}
- -------------------------------------------------------------------------------
</TABLE>
LA 2/App. 2-1
<PAGE>
APPENDIX 2
LIST OF SCNs APPLICABLE TO THE A320 AIRCRAFT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
RFC DESCRIPTION OF CUSTOMER OPTION
- -------------------------------------------------------------------------------
<C> <S>
{CONFIDENTIAL {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
MATERIAL OMITTED THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
AND FILED REQUEST FOR CONFIDENTIAL TREATMENT}
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
PURSUANT TO A
REQUEST FOR
CONFIDENTIAL
TREATMENT}
- -------------------------------------------------------------------------------
</TABLE>
LA 2/App. 2-2
<PAGE>
APPENDIX 2
LIST OF SCNs APPLICABLE TO THE A320 AIRCRAFT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
RFC DESCRIPTION OF CUSTOMER OPTION
- -------------------------------------------------------------------------------
<C> <S>
{CONFIDENTIAL {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
MATERIAL OMITTED THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
AND FILED REQUEST FOR CONFIDENTIAL TREATMENT}
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
PURSUANT TO A
REQUEST FOR
CONFIDENTIAL
TREATMENT}
- -------------------------------------------------------------------------------
</TABLE>
LA 2/App. 2-3
<PAGE>
APPENDIX 2
LIST OF SCNs APPLICABLE TO THE A320 AIRCRAFT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
RFC DESCRIPTION OF CUSTOMER OPTION
- -------------------------------------------------------------------------------
<C> <S>
{CONFIDENTIAL {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
MATERIAL OMITTED THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
AND FILED REQUEST FOR CONFIDENTIAL TREATMENT}
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
PURSUANT TO A
REQUEST FOR
CONFIDENTIAL
TREATMENT}
- -------------------------------------------------------------------------------
</TABLE>
LA 2/App. 2-4
<PAGE>
APPENDIX 3
A320 AIRCRAFT PRICES
1. PRICES
The Base Price of each A320 Aircraft is the sum of:
(i) the Base Price of the Airframe as set out in Subparagraph 1.2
below, and
(ii) the Base Price of the A320 Propulsion Systems as set out in
Subparagraph 1.3 below.
1.2 BASE PRICE OF THE AIRFRAME
1.2.1 The Base Price of the Airframe will be the sum of the Base Prices set
forth below in (i), (ii) and (iii):
(i) the Base Price of the Standard A320 Airframe, as defined in the
A320-200 Standard Specification set forth in Appendix 1 to this
Letter Agreement (excluding Buyer Furnished Equipment, A320
Propulsion Systems and SCNs), at delivery conditions prevailing
in January 1998, which is:
US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT},
and
(ii) the Base Price of any and all SCNs mutually agreed upon prior to
the signature of the Agreement and set forth in Appendix 2 to
this Letter Agreement, at delivery conditions prevailing in
January 1998, which is:
US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT}, and
(iii) the Base Price of seats and galleys, at delivery conditions
prevailing in January 1998 in the amount of:
US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT}.
LA 2/App. 3-1
<PAGE>
1.2.2 The Base Price of the Airframe of each A320 Aircraft will be revised
to the actual delivery date of such A320 Aircraft in accordance with
the Airframe Price Revision Formula set forth in Subclause 5.1 to the
Agreement.
1.2.3 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
1.3 BASE PRICE OF THE A320 PROPULSION SYSTEMS
The Base Price of the A320 Propulsion Systems is the sum of (i) and
(ii) below:
(i) BASE PRICE OF THE A320 POWERPLANTS
The Base Price of a set of A320 Powerplants and additional
standard equipment at delivery conditions prevailing in January
1998, which is:
US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT}.
Said Base Price has been calculated with reference to the
Reference Price indicated by CFMI International of US$
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} in accordance with economic conditions
prevailing in October 1985 (cpi 108.66).
Said Reference Price is subject to adjustment to the date of
delivery of the A320 Aircraft in accordance with the Powerplants
Price Revision Formula set forth in Appendix 4 to this Letter
Agreement.
(ii) BASE PRICE OF NACELLES AND THRUST REVERSERS
The Base Price of a set of two (2) nacelles and two (2) thrust
reversers for the A320 Powerplants at delivery conditions
prevailing in January 1998, which is:
US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT}.
Said Base Price is subject to adjustment to the date of delivery
of the A320 Aircraft in accordance with the Airframe Price
Revision Formula set forth in Subclause 5.1 to the Agreement.
LA 2/App. 3-2
<PAGE>
1.4 VALIDITY OF PROPULSION SYSTEMS PRICES
It is understood that the prices cited above and the price revision
formula referred to in Subparagraph 1.3 concerning the A320
Powerplants and related equipment have been confirmed by CFM
International for A320 Aircraft with deliveries on or prior to
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}. Thereafter, such prices and price revision
formula remain subject to modifications that might be communicated by
the Powerplant manufacturer to AVSA, the Manufacturer and/or
Northwest.
2. PURCHASE INCENTIVES
2.1 AVSA will provide to Northwest upon delivery of each A320 Aircraft the
credit memoranda listed below in Subparagraphs {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT},
inclusive. Hereinafter, the {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} are collectively referred to as
the "AVSA A320 Credit Memoranda."
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2.2 The AVSA A320 Credit Memoranda have been established in accordance
with January 1998 delivery conditions (dollars) and will be revised to
the actual delivery date of each A320 Aircraft in accordance with the
Airframe Price Revision Formula set forth in Subclause 5.1 to the
Agreement.
2.3 The AVSA A320 Credit Memoranda will, in each case and at Northwest's
option, be
(i) applied by AVSA against the Final Contract Price of each A320
Aircraft {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT},
(ii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}, or
(iii) used by Northwest for the purchase of goods and services from
AVSA or any of its Affiliates.
LA 2/App. 3-3
<PAGE>
APPENDIX 4
POWERPLANTS PRICE REVISION FORMULA
l. REFERENCE PRICE
The Reference Price of a set of two (2) CFM International CFM
56-5A1 engines and additional equipment is as quoted in
Subparagraph 1.3(i) of Appendix 3 to this Letter Agreement.
This Reference Price is subject to adjustment for changes in
economic conditions as measured by data obtained from the US
Department of Labor, Bureau of Labor Statistics, and in accordance
with the provisions of Paragraphs 4 and 5 of this Appendix 4.
2. REFERENCE PERIOD - REFERENCE COMPOSITE PRICE INDEX
The above Reference Price has been established in accordance with
the economic conditions prevailing in October 1985 (April 1986
theoretical delivery conditions), as defined, according to CFM
International, by the Reference Composite Price Index of 108.66
3. REFERENCE INDEXES
LABOR INDEX: "Aircraft Engines and Engine Parts," Standard
Industrial Classification 3724--Average hourly earnings
(hereinafter referred to as "HE SIC 3724"), published by the US
Department of Labor, Bureau of Labor Statistics, in "Employment and
Earnings," Establishment Data: Hours and Earnings (Table B-15:
Average hours and earnings of production or nonsupervisory workers
on private nonfarm payrolls by detailed industry).
MATERIAL INDEX (I): "Industrial Commodities" (hereinafter referred
to as "IC-Index"), published by the US Department of Labor, Bureau
of Labor Statistics, in "PPI Detailed Report" (Table 6: Producer
price indexes and percentage change for commodity groupings and
individual items, not seasonally adjusted). (Base year 1982 = 100.)
MATERIAL INDEX (II): "Metals and Metal Products" Code l0
(hereinafter referred to as "MMP-Index"), published by the US
Department of Labor, Bureau of Labor Statistics, in "PPI Detailed
Report" (Table 6: Producer price indexes and percentage change for
commodity groupings and individual items, not seasonally adjusted).
(Base year 1982 = 100.)
ENERGY INDEX: "Fuels and Related Products and Power" Code 5
(hereinafter referred to as "EP-Index"), published by the US
Department of Labor, Bureau of Labor Statistics, in "PPI Detailed
Report" (Table 6: Producer price indexes and percentage change for
commodity groupings and individual items, not seasonally adjusted).
(Base year 1982 = 100.)
LA 2/App. 4-4
<PAGE>
4. REVISION FORMULA
CPIn
Pn = Pb x ------
108.66
Where
Pn = Revised Reference Price of a set of two (2) engines at
delivery of the A320 Aircraft.
Pb = Reference Price as defined above.
CPIn = Composite Price Index for the sixth month prior to the
month of delivery of the A320 Aircraft.
Said Composite Price Index is composed as follows:
CPIn = 0.55 (HEn x 100) + 0.10 ICn + 0.25 MMPn + 0.10 EPn
------
(11.16)
Where
HEn = HE SIC 3724 for the sixth month prior to the month
of delivery of the A320 Aircraft; the quotient
HEn/11.16 is rounded to the nearest third decimal
place. The product by 0.55 is rounded to the
nearest second decimal place.
ICn = IC-Index for the sixth month prior to the month of
delivery of the A320 Aircraft.
MMPn = MMP-Index for the sixth month prior to the month of
delivery of the A320 Aircraft. The product by 0.25
is rounded to the nearest second decimal place.
EPn = EP-Index for the sixth month prior to the month of
delivery of the A320 Aircraft.
The Composite Price Index shall be determined to the second decimal
place. If the next succeeding decimal place is five (5) or more,
the preceding decimal figure shall be raised to the next higher
figure.
The final factor shall be rounded to the nearest thousandth (3
decimals).
LA 2/App. 4-5
<PAGE>
5. GENERAL PROVISIONS
5.1 The Revised Reference Price at delivery of the A320 Aircraft shall
be the final price and will not be subject to further adjustments
in the indexes.
5.2 If no final index value is available for any of the applicable
months, the published preliminary figures will be the basis on
which the Revised Reference Price will be computed.
5.3 If the US Department of Labor substantially revises the methodology
of calculation of the indexes referred to in this Appendix 4 or
discontinues any of these indexes, AVSA shall, in agreement with
CFM International, apply a substitute for the revised or
discontinued index, such substitute index to lead in application to
the same adjustment result, insofar as possible, as would have been
achieved by continuing the use of the original index as it may have
fluctuated had it not been revised or discontinued.
Appropriate revision of the formula shall be made to accomplish
this result.
5.4 Should the above escalation provisions become null and void by
action of the US Government, the Reference Price shall be adjusted
to reflect increases in the cost of labor, material and fuel which
have occurred from the period represented by the applicable
Reference Price Indexes to the sixth month prior to the scheduled
delivery of the A320 Aircraft.
5.5 The Revised Reference Price at delivery of the A320 Aircraft in no
event shall be less than the Reference Price defined in Paragraph 1
of this Appendix 4.
LA 2/App. 4-6
<PAGE>
LETTER AGREEMENT NO. 3
As of September 19, 1997
Northwest Airlines, Inc.
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Re: PREDELIVERY PAYMENTS
Dear Ladies and Gentlemen:
Northwest Airlines, Inc. ("Northwest"), and AVSA, S.A.R.L.
("AVSA"), have entered into an Airbus A319-100 Purchase Agreement, dated as
of even date herewith (the "Agreement"), which covers, among other things,
the sale by AVSA and the purchase by Northwest of certain Aircraft, under the
terms and conditions set forth in said Agreement. Northwest and AVSA have
agreed to set forth in this Letter Agreement No. 3 (the "Letter Agreement")
certain additional terms and conditions regarding the sale of the Aircraft.
Capitalized terms used herein and not otherwise defined in this Letter
Agreement will have the meanings assigned thereto in the Agreement. The
terms "herein," "hereof" and "hereunder" and words of similar import refer to
this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of said Agreement, that the provisions of said
Agreement are hereby incorporated herein by reference, and that this Letter
Agreement will be governed by the provisions of said Agreement, except that
if the Agreement and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
1. PREDELIVERY PAYMENTS
AVSA hereby agrees to accept and Northwest agrees it will make
Predelivery Payments in the manner set forth in this Letter
Agreement.
<PAGE>
2. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}PREDELIVERY PAYMENTS
2.1 FIRM AIRCRAFT
Upon execution of the Agreement and this Letter Agreement,
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2.2 OPTION AIRCRAFT
2.2.1 In accordance with Subparagraph 2.4.1 of Letter Agreement No. 2 to
the Agreement, Northwest will pay to AVSA an Option Fee upon each
Option Exercise.
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2.2.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2.2.3 In the event that, {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT}.
2.3 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
2.3.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2.3.2 In the event that, {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT}.
2.4 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
LA 3-2
<PAGE>
3. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
3.1 In addition {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT} in accordance with Paragraph 2.2
hereof, {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
3.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
3.3 In respect of {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT}.
3.4 Northwest confirms to AVSA that, as of the date hereof, its senior
unsecured debt rating (as determined in accordance with the
methodology set forth in the definition of "Applicable Eurodollar
Margin" in the Credit Agreement dated as of December 15, 1995, as
amended and restated as of October 6, 1996, among Northwest and
various lending institutions (as attached hereto as Appendix 1) is
the following:
(i) BB - as quoted by S&P (the "S&P Base Rating"), and,
(ii) Ba2 as quoted by Moody's (the "Moody's Base Rating," and,
together with the S&P Base Rating, collectively referred to as
the "Base Ratings").
3.5 Northwest and AVSA agree that, in the event that prior to delivery
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
(i) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
(ii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
LA 3-3
<PAGE>
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} reasonably acceptable to AVSA.
Further, {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4. MISCELLANEOUS
4.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
(i) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}, or
(ii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4.2 AVSA and Northwest acknowledge that {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
5. ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement or of
the Agreement, this Letter Agreement and the rights and obligations
of Northwest hereunder will not be assigned or transferred in any
manner without the prior written consent of AVSA, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 5 will be void and of no force or effect.
LA 3-4
<PAGE>
If the foregoing correctly sets forth our understanding, please
execute the original and one (1) copy hereof in the space provided below and
return a copy to AVSA.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ M. Lascaux
Its: Director Contracts
Accepted and Agreed
NORTHWEST AIRLINES, INC.
By: /s/ M. D. Powers
Its: Vice President - Finance and Assistant Treasurer
LA 3-5
<PAGE>
APPENDIX 1
"Applicable Eurodollar Margin" and "Applicable Commitment Fee
Percentage" shall mean, as of any date of determination, the percentage set
forth below under the appropriate heading corresponding to the senior
unsecured debt rating of the Borrower {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Senior Unsecured Debt Rating of {CONFIDENTIAL MATERIAL OMITTED AND {CONFIDENTIAL MATERIAL OMITTED AND
the Borrower FILED SEPARATELY WITH THE FILED SEPARATELY WITH THE
Level (S&P/Moody's) SECURITIES AND EXCHANGE COMMISSION SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} CONFIDENTIAL TREATMENT}
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
1 A- or higher or A3 or higher
- ------------------------------------------------------------------------------------------------------------------------
2 BBB+ or Baa1
- ------------------------------------------------------------------------------------------------------------------------
3 BBB or Baa2
- ------------------------------------------------------------------------------------------------------------------------
4 BBB- or Baa3
- ------------------------------------------------------------------------------------------------------------------------
5 BB+ or Ba1
- ------------------------------------------------------------------------------------------------------------------------
6 BB or Ba2
- ------------------------------------------------------------------------------------------------------------------------
7 BB- or Ba3
- ------------------------------------------------------------------------------------------------------------------------
8 lower than BB- or lower than Ba3
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
In the event either Rating Agency ceases to rate the Borrower's
senior unsecured debt for any reason, then the rating of NWA by such Rating
Agency with respect to the senior unsecured debt of NWA {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT
LA 3/App. 1-LA 3-1
<PAGE>
TO A REQUEST FOR CONFIDENTIAL TREATMENT} shall be used for purposes of
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} as the
case may be.
Any necessary adjustment in the Applicable Eurodollar Margin or the
Applicable Commitment Fee Percentage, as the case may be, pursuant to the
terms hereof shall become effective immediately upon any change in a Rating.
LA 3/App. 1-LA 3-2
<PAGE>
LETTER AGREEMENT NO. 4
As of September 19, 1997
Northwest Airlines, Inc.
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Re: AIRCRAFT CUSTOMIZATION
Dear Ladies and Gentlemen:
Northwest Airlines, Inc. ("Northwest"), and AVSA, S.A.R.L.
("AVSA"), have entered into an Airbus A319-100 Purchase Agreement, dated as
of even date herewith (the "Agreement"), which covers, among other things,
the sale by AVSA and the purchase by Northwest of certain Aircraft, under the
terms and conditions set forth in said Agreement. Northwest and AVSA have
agreed to set forth in this Letter Agreement No. 4 (the "Letter Agreement")
certain additional terms and conditions regarding the sale of the Aircraft.
Capitalized terms used herein and not otherwise defined in this Letter
Agreement will have the meanings assigned thereto in the Agreement. The
terms "herein," "hereof" and "hereunder" and words of similar import refer to
this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of said Agreement, that the provisions of said
Agreement are hereby incorporated herein by reference, and that this Letter
Agreement will be governed by the provisions of said Agreement, except that
if the Agreement and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
1. AIRCRAFT WEIGHTS
AVSA will increase the maximum take-off weight ("MTOW") of each
Aircraft that is an A319 type Aircraft from 64 metric tonnes as
specified in Subclause 2.2 of the Agreement, to {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} metric tonnes, subject to the provisions of this
Paragraph 1.
<PAGE>
AVSA and Northwest will enter, as soon as feasible following
execution of the Agreement, into an SCN applicable to all Firm
Aircraft that are A319 type aircraft specifying such MTOW upgrade
from 64 metric tonnes to {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT} metric tonnes (the "MTOW
Upgrade SCN"). AVSA will make available the MTOW Upgrade SCN to
Northwest at identical terms as provided in Paragraph 1 of this
Letter Agreement for each Aircraft, other than Firm Aircraft, that
is an A319 Aircraft.
The price for the MTOW Upgrade SCN for each Aircraft that is an
A319 model Aircraft is US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT} in January 1998 delivery
conditions (dollars), subject to price revision in accordance with
the Airframe Price Revision Formula. {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
2. ENGINE CONVERSION
2.1 ENGINE CONVERSION PRIOR TO DELIVERY
Should Northwest wish to convert the CFM56-5A4 Powerplants into
CFM56-5A5 Powerplants, on any of the A319 type Aircraft not yet
delivered to Northwest, then AVSA will perform such conversion,
provided that Northwest executes the associated SCN at least
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} months prior to the month of delivery of
the corresponding A319 Aircraft. Such SCN will identify the price
difference of the Powerplants manufacturer's reference prices of
the CFM56-5A4 Powerplants and the CFM56-5A5 Powerplants.
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
Should Northwest request, on an exceptional basis, to convert the
Powerplants of the Aircraft within {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} prior to the
month of delivery of the corresponding A319 Aircraft, then AVSA
will provide a quote for such Powerplant change upon Northwest's
request.
LA 4-2
<PAGE>
2.2 ENGINE CONVERSION AFTER DELIVERY
Should Northwest wish to convert the CFM56-5A4 Powerplants into
CFM56-5A5 Powerplants, on A319 type Aircraft already delivered to
Northwest pursuant to the Agreement, then AVSA will provide, upon
receipt of Northwest's purchase order, the asscociated Service
Bulletin at a price of US$ {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT}, such price being quoted in
January 1998 delivery conditions and to be revised in accordance
with the Airframe Price Revision Formula. This Service Bulletin
will cover the Airframe related modifications only, including the
update of the applicable Aircraft Flight Manual as well as the
applicable Airframe data plates. However, any changes in the prices
of the Powerplants, and the Powerplant name plates are excluded
from this quotation.
3. CUSTOMIZATION
The Base Prices of SCNs and seats and galleys as listed in Exhibit
B to the Agreement are as stated in Subclauses 4.1.1.1(ii) and
(iii) of the Agreement. Such Base Prices are exclusive of Buyer
Furnished Equipment.
4. AVSA FURNISHED EQUIPMENT / BUYER FURNISHED EQUIPMENT
4.1 Exhibit B to the Agreement includes certain BFE that is converted
into SFE. Northwest and AVSA will, as soon as feasible after
execution of the Agreement, enter into applicable SCN's with
respect to those BFE to SFE conversions. {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
4.2 At Northwest's election and within the leadtimes quoted in Appendix
1 to this Letter Agreement, Northwest may specify that certain
Seller Furnished Equipment as listed in Appendix 1 hereto be
purchased by Northwest, thus changing such Seller Furnished
Equipment into Buyer Furnished Equipment. In the event that
Northwest elects to change Seller Furnished Equipment into Buyer
Furnished Equipment, AVSA and Northwest will execute an SCN
reflecting Northwest's request and specifying the applicable credit
amount listed in Appendix 1 hereto (the "SFE to BFE SCN"). Upon
execution of the SFE to BFE SCN, AVSA will provide Northwest with a
credit as stated in the SFE to BFE SCN for such change (the "SFE to
BFE Credit").
4.3 The SFE to BFE Credit has been established in accordance with
January 1998 delivery conditions (dollars) and will be revised to
the actual delivery date of each Aircraft in accordance with the
Airframe Price Revision Formula set forth in Exhibit D to the
Agreement.
LA 4-3
<PAGE>
4.4 Upon delivery of each Aircraft, the SFE to BFE Credit will be
applied by AVSA against the Final Contract Price of each Aircraft
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4.5 AVSA confirms {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT} for the provision, installation or
handling of Seller Furnished Equipment converted to Buyer Furnished
Equipment in accordance with this Paragraph 4.
4.6 Unless specified to the contrary herein, the terms of Clause 18 of
the Agreement will apply to Seller Furnished Equipment that is
converted to Buyer Furnished Equipment pursuant to this Paragraph 4.
4.7 The AVSA-Supplied Buyer Furnished Equipment in the Aircraft
Customization as set forth in Exhibit B to the Agreement and in
Appendix 3 to Letter Agreement No. 2 are {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
5. SPECIFICATION CHANGES
5.1 Pursuant to the terms contained in this Paragraph 5, Northwest may
chose to cancel certain SCNs listed in Exhibit B to the Agreement.
The SCNs that may be so cancelled and applicable leadtimes for
cancellation are listed in Appendix 2 hereto (the "Cancelable
SCN(s)").
5.2 In the event that Northwest chooses to cancel the Cancelable
SCN(s), Northwest will notify AVSA in writing of such request.
Northwest and AVSA will execute an SCN (i) reflecting Northwest's
request to eliminate the Cancelable SCN(s) from the Specification
and (ii) specifying the applicable credit amount listed in Appendix
2 hereto (the "Cancellation SCN"). Further, upon execution of each
Cancellation SCN, AVSA will provide Northwest with a credit for
such change as listed in Appendix 2 hereto (the "Cancellation SCN
Credit").
5.3 The Cancellation SCN Credit has been established in accordance with
January 1998 delivery conditions (dollars) and will be revised to
the actual delivery date of each Aircraft in accordance with the
Airframe Price Revision Formula set forth in Exhibit D to the
Agreement.
LA 4-4
<PAGE>
5.4 Upon delivery of each Aircraft, the Cancellation SCN Credit will be
applied by AVSA against the Final Contract Price of each Aircraft
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
6. CERTAIN REGULATORY CHANGES
Should AVSA be required pursuant to Subclause 3.4 of the Agreement
to incorporate a change in the Specification of the Aircraft before
delivery of an Aircraft to enable Northwest to obtain a Standard
Airworthiness Certificate for such Aircraft by reason of the
promulgation of any law or regulation applicable to the Aircraft
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
7. ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement or of
the Agreement, this Letter Agreement and the rights and obligations
of Northwest hereunder will not be assigned or transferred in any
manner without the prior written consent of AVSA, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 7 will be void and of no force or effect.
If the foregoing correctly sets forth our understanding, please
execute the original and one (1) copy hereof in the space provided below and
return a copy to AVSA.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ M. Lascaux
Its: Director Contracts
Accepted and Agreed
NORTHWEST AIRLINES, INC.
By: /s/ M. D. Powers
Its: Vice President - Finance and Assistant Treasurer
LA 4-5
<PAGE>
APPENDIX 1
SELLER FURNISHED EQUIPMENT TO BUYER FURNISHED EQUIPMENT CREDITS
Notification Leadtime: no later than {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT} months prior to delivery of the applicable
Aircraft.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
QUANTITY DESCRIPTION/ VENDOR/ CREDIT AMOUNT
PART NUMBER REMARKS (1/98 DC)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
{CONFIDENTIAL {CONFIDENTIAL {CONFIDENTIAL {CONFIDENTIAL
MATERIAL MATERIAL MATERIAL MATERIAL
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES SECURITIES SECURITIES SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
PURSUANT TO A PURSUANT TO A PURSUANT TO A PURSUANT TO A
REQUEST FOR REQUEST FOR REQUEST FOR REQUEST FOR
CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
TREATMENT} TREATMENT} TREATMENT} TREATMENT}
- -----------------------------------------------------------------------------
</TABLE>
LA 4/App. 1-1
<PAGE>
APPENDIX 2
CREDITS FOR ELIMINATION OF CUSTOMIZATION ITEMS
Notification Leadtime: no later than {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT} months prior to delivery of the applicable
Aircraft
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
CREDIT
RFC NO. TITLE (1/98 DC)
- ---------------------------------------------------------------
<S> <C> <C>
{CONFIDENTIAL {CONFIDENTIAL {CONFIDENTIAL
MATERIAL MATERIAL MATERIAL
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE
SECURITIES SECURITIES SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
PURSUANT TO A PURSUANT TO A PURSUANT TO A
REQUEST FOR REQUEST FOR REQUEST FOR
CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
TREATMENT} TREATMENT} TREATMENT}
- ---------------------------------------------------------------
</TABLE>
LA 4/App. 2-2
<PAGE>
LETTER AGREEMENT NO. 5
As of September 19, 1997
Northwest Airlines, Inc.
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Re: RELIABILITY GUARANTEES
Dear Ladies and Gentlemen:
Northwest Airlines, Inc. ("Northwest"), and AVSA, S.A.R.L. ("AVSA"),
have entered into an Airbus A319-100 Purchase Agreement, dated as of even date
herewith (the "Agreement"), which covers, among other matters, the sale by AVSA
and the purchase by Northwest of certain Aircraft, under the terms and
conditions set forth in said Agreement. Northwest and AVSA have agreed to set
forth in this Letter Agreement No. 5 (the "Letter Agreement") certain additional
terms and conditions regarding the sale of the Aircraft. Capitalized terms used
herein and not otherwise defined in this Letter Agreement will have the meanings
assigned thereto in the Agreement. The terms "herein," "hereof" and "hereunder"
and words of similar import refer to this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of said Agreement, that the provisions of said
Agreement are hereby incorporated herein by reference, and that this Letter
Agreement will be governed by the provisions of said Agreement, except that if
the Agreement and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
AVSA, under its arrangement with the Manufacturer, has negotiated and
obtained the following reliability guarantees from the Manufacturer with respect
to the Aircraft, subject to the terms, conditions, limitations and restrictions
all as hereinafter set out. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}. Capitalized terms used in the following quoted
provisions and not otherwise defined therein shall have the meanings assigned
thereto in the Agreement, except that the term "Seller" refers to the
Manufacturer and the term "Buyer" refers to AVSA.
1. SCOPE, COMMENCEMENT, DURATION
The reliability guarantees contained in this Letter Agreement (the
"Guarantees") extend to the fleet of Aircraft operated by the Buyer
(the "Guaranteed Aircraft"), shall commence with delivery of the first
Aircraft and {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION
<PAGE>
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
2. DEFINITION
2.1 SCHEDULED DEPARTURE
A "Scheduled Departure" is a departure of a Guaranteed Aircraft as set
forth in the Buyer's time table, and any scheduled charter flight of a
Guaranteed Aircraft.
2.2 CHARGEABLE EVENT
A "Chargeable Event" will be deemed to have occurred when a Guaranteed
Aircraft does not leave the gate within one (1) minute after its
scheduled departure time for the Northwest delay code reasons listed
below, as such delay codes are defined in Northwest Airlines' System
Delay Code Bulletin dated December 31, 1996 (the "Codes"). These Codes
may be changed during the Term, provided, however, that material
changes in the Codes will be mutually agreed between the Buyer and the
Seller.
Included Codes:
CIM - RESET / RECYCLE / EXERCISE COMPONENTS
DFM - DEFERRAL
EQM - EQUIPMENT CHANGE DUE TO MECHANICAL MALFUNCTION
IRM - IRREGULAR ROUTING - MAINTENANCE
LQM - LATE EQUIPMENT - MAINTENANCE
MPM - PLANNED MAINTENANCE ROUTING
MTM - MECHANICAL MALFUNCTION
NOM - MAINTENANCE - CHECKED OK
PAM - PASSENGER ACCOMMODATION - MAINTENANCE (provided that the
originating flight was an A319 aircraft)
PCM - LATE MAINTENANCE - PASSENGER
PRM - PART(S) ROBBED
RBM - RETURN TO GATE DUE TO MAINTENANCE
XOM - MAINTENANCE - CHECKED OK
XRM - PART(S) ROBBED
XTM - MECHANICAL MALFUNCTION
XQM - EQUIPMENT MAINTENANCE
2.3 EXCLUSIONS
The following will not be counted as Chargeable Events:
- repetitive delays or cancellations that occur as a result of
failure to apply correct trouble shooting procedures in
accordance with the Trouble Shooting Manual; and
- delays attributable to the Propulsion Systems.
LA 5-2
<PAGE>
2.4 COMPLETION FACTOR
The Completion Factor is the percentage of the completed scheduled
arrivals of Guaranteed Aircraft, based on the Codes in Subparagraph
2.2 hereof which start with "X".
2.5 ACHIEVED ON-TIME PERFORMANCE
"Achieved On-Time Performance," expressed as a percent, shall be
computed quarterly (a "Computation") for each calendar quarter (the
"Computation Period") as follows:
Total number of Scheduled Departures
Achieved without Chargeable Events during the
On-Time = Computation Period X 100
Performance -------------------------------------
Total number of Scheduled Departures
during the Computation Period
3. GUARANTEES
3.1 ACHIEVED ON-TIME PERFORMANCE GUARANTEE
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
3.2 COMPLETION FACTOR GUARANTEE
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
3.3 INCREASE OF GUARANTEE LEVELS
3.3.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
3.3.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
LA 5-3
<PAGE>
4. BUYER'S AND SELLER'S OBLIGATION
4.1 BUYER'S AND SELLER'S OBLIGATIONS
The Buyer's and Seller's specialists will meet, not later than three
(3) months before delivery of the first Guaranteed Aircraft, to
mutually agree on the details of the appropriate reporting
procedure(s) for the Guarantees.
4.2 BUYER'S OBLIGATIONS
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4.3 SELLER'S OBLIGATIONS
During the Term, the Seller will provide technical and operational
analyses of delays and cancellations and will develop corrections
intended to reduce delays and, in the event that the Achieved On-Time
Performance or the Completion Factor fall below the guaranteed levels
set forth in Paragraph 3 herein, the Seller shall, not later than six
(6) months (where practicable) after notification by the Buyer and at
no charge to the Buyer:
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
5. SUSPENSION AND ADJUSTMENT
5.1 SUSPENSION OF GUARANTEES
The provisions of the Guarantees will be suspended during any
Computation Period during which:
Rf < Ro - 0.5%
Where:
Ro is the dispatch reliability, expressed as a percentage, as computed
by the Manufacturer and published in the "Quarterly Service Report,"
of the fleet of aircraft of the same type as the Guaranteed Aircraft
operated by major airlines in the U.S., but excluding the Guaranteed
Aircraft, during a Computation Period.
Rf is the dispatch reliability, expressed as a percentage, as computed
by the Manufacturer and published in the "Quarterly Service Report,"
of the Guaranteed Aircraft fleet during the same Computation Period.
LA 5-4
<PAGE>
5.2 ADJUSTMENT OF GUARANTEES
Any significant certification, regulatory or Aircraft operation
changes implemented by the Buyer that have a material adverse effect
on the operational characteristics of the Guaranteed Aircraft shall be
cause for reevaluation or adjustment of the guaranteed levels set
forth in Paragraph 3 by mutual agreement between the Buyer and the
Seller.
6. REVIEW MEETINGS
6.1 SPECIALISTS' REVIEW MEETING
An Achieved On-Time Performance / Completion Factor review meeting
between the Seller's and the Buyer's representatives shall be
scheduled at the end of each six (6) month period during the Term, or
at more frequent intervals to be mutually agreed. Representatives of
the Buyer and the Seller shall participate in the meeting and will:
a) review current Achieved On-Time Performance and Completion
Factor,
b) review the correctness of Code and cancellation allocations,
c) review the Buyer's training levels set forth in Subparagraph 3.3,
d) consider corrective action, if required, and
e) review any issues arising out of the implementation of the
provisions of Paragraph 4 above.
6.2 RELIABILITY COUNCIL
In recognition of the mutual benefits accruing to the Buyer and the
Seller from Airbus aircraft reliability improvements, the Buyer and
the Seller hereby establish a reliability council (the "Reliability
Council") to improve the Achieved On-Time Performance and Completion
Factor (as defined in this Letter Agreement) of all Airbus aircraft in
the Buyer's fleet. The Reliability Council shall be comprised of
(i) for the Buyer, the Senior Vice President - Technical Operations
and Airport Affairs, the Vice President - Finance and Assistant
Treasurer and the Vice President - Line Maintenance Operations,
and
(ii) on behalf of the Seller, the President of ASCO, and the President
of Airbus Industrie of North America
and such other members as the Buyer and Seller may agree.
The Seller agrees to the Buyer's inviting the Propulsion Systems
manufacturer to participate in the Reliability Council, it being
understood that the participation of the
LA 5-5
<PAGE>
Propulsion Systems manufacturer shall not be deemed to extend the
Seller responsibilities under this Letter Agreement to Propulsion
Systems matters and issues.
During the Term, the Reliability Council shall meet quarterly to
review the Buyer's Achieved On-Time Performance and Completion Factor
and to devise strategies and programs to improve performance in these
areas. At the end of the Term, the Buyer and the Seller shall mutually
agree on further cooperation with respect to reliability matters.
The Buyer and the Seller shall commit such resources of their
respective organizations as are required to assure that the
Reliability Council will be an effective tool for the purposes set
forth above.
6.3 BUYER'S TARGET COMPLETION FACTOR
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
7. LIABILITY LIMITATION
The Seller's liability for failure to meet this Guarantee shall be
governed solely by the terms of this Guarantee.
UNQUOTE
8. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
8.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
8.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
8.3 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
8.4 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
LA 5-6
<PAGE>
8.5 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
9. ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement or of the
Agreement, this Letter Agreement and the rights and obligations of
Northwest hereunder shall not be assigned or transferred in any manner
without the prior written consent of AVSA, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 9 shall be void and of no force or effect.
LA 5-7
<PAGE>
If the foregoing correctly sets forth our understanding, please
execute the original and one (1) copy hereof in the space provided below and
return a copy to AVSA.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ M. Lascaux
Its: Director Contracts
Accepted and Agreed
NORTHWEST AIRLINES, INC.
By: /s/ M. D. Powers
Its: Vice President - Finance and Assistant Treasurer
LA 5-8
<PAGE>
LETTER AGREEMENT NO. 6
As of September 19, 1997
Northwest Airlines, Inc.
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Re: A319-100 GUARANTEES
Dear Ladies and Gentlemen:
Northwest Airlines, Inc. ("Northwest"), and AVSA, S.A.R.L. ("AVSA"),
have entered into an Airbus A319-100 Purchase Agreement, dated as of even date
herewith (the "Agreement"), which covers, among other things, the sale by AVSA
and the purchase by Northwest of certain Aircraft, under the terms and
conditions set forth in said Agreement. Northwest and AVSA have agreed to set
forth in this Letter Agreement No. 6 (the "Letter Agreement") certain additional
terms and conditions regarding the sale of the Aircraft. Capitalized terms used
herein and not otherwise defined in this Letter Agreement will have the meanings
assigned thereto in the Agreement. The terms "herein," "hereof" and "hereunder"
and words of similar import refer to this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of said Agreement, that the provisions of said
Agreement are hereby incorporated herein by reference, and that this Letter
Agreement will be governed by the provisions of said Agreement, except that if
the Agreement and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
PART A A319-100 PERFORMANCE GUARANTEES
AVSA, under its arrangement with the Manufacturer, has negotiated and
obtained the following performance guarantees from the Manufacturer with respect
to the Aircraft, subject to the terms, conditions, limitations and restrictions
all as hereinafter set out. AVSA hereby guarantees to Northwest the performance
by the Manufacturer of its obligations under these reliability guarantees and
hereby assigns to Northwest, and Northwest hereby accepts, all of AVSA's rights
and obligations as aforesaid under the said performance guarantees, and AVSA
subrogates Northwest into all such rights and obligations in respect of the
Aircraft. AVSA hereby warrants to Northwest that it has all requisite authority
to make the foregoing assignment and effect the foregoing subrogation to and in
favor of Northwest and that it will not enter into any amendment of the
provisions so assigned or subrogated without the prior written consent of
Northwest. Capitalized terms used in the following quoted provisions and not
otherwise defined therein shall have the meanings assigned thereto in the
Agreement, except that the term "Seller" refers to the Manufacturer and the term
"Buyer" refers to AVSA.
<PAGE>
QUOTE
PREAMBLE
A. Assumptions:
The guarantees defined below in this Part A are applicable at the
time of delivery to each A319-100 Aircraft as described in the
A319-100 Standard Specification Ref. J.000.01000, Issue 3,
dated March 29, 1995, including Temporary Revision 1, dated
August 25, 1995, on the basis of the following assumptions:
(i) Maximum Take Off Weight (MTOW) of {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT}.
(ii) fitting of either
(x) the CFM International CFM56-5A4 engines (22,000 lbs
thrust), or
(y) the CFM International CFM56-5A5 engines (23,500 lbs
thrust),
except where otherwise noted.
B. Definitions:
(i) For the purpose of this Part A of this Letter Agreement
only, the term "Aircraft" is defined as any and all of the
Airbus A319-100 model aircraft to be acquired by the Buyer
under the Agreement.
(ii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
1. GUARANTEED PERFORMANCE
1.1. SPEED
The level flight airspeed at an Aircraft gross weight of {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds at
a pressure altitude of 35,000 feet using maximum cruise thrust in ISA
conditions shall not be less than a true Mach number of {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
LA 6-2
<PAGE>
1.2 EN-ROUTE ONE ENGINE INOPERATIVE
Each Aircraft shall meet FAR 25 regulations minimum en-route climb
gradient (currently 1.1%) with one engine inoperative, the other
operating at the maximum continuous thrust available at the altitude
with air conditioning bleeds on, without anti-icing, at a gross weight
of {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pounds in the cruise configuration in ISA
conditions, at a geometric altitude of {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} feet.
1.3 TAKE-OFF DISTANCE
1.3.1 With respect only to Aircraft delivered with CFM56-5A4 engines, FAR
take-off length at an Aircraft gross weight of {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds at
a start of ground run at sea level pressure altitude at ISA conditions
shall not be more than {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} feet.
1.3.2 With respect only to Aircraft delivered with CFM56-5A5 engines, FAR
take-off length at an Aircraft gross weight of {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds at
a start of ground run at sea level pressure altitude at ISA conditions
shall not be more than {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} feet.
1.4 TAKE-OFF PERFORMANCE
1.4.1 With respect only to Aircraft delivered with CFM56-5A4 engines, FAR
permissible take-off weight shall not be less than {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds in
the following conditions (assumed representative of {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}):
LA 6-3
<PAGE>
Pressure altitude: {CONFIDENTIAL MATERIAL
OMITTED AND FILED
Runway length: SEPARATELY WITH THE
SECURITIES AND EXCHANGE
Slope: COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL
Obstacles: TREATMENT}
1.4.2 With respect only to Aircraft delivered with CFM56-5A5 engines, FAR
permissible take-off weight shall not be less than {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds in
the same conditions as set forth in Subparagraph 1.4.1 of Part A above
(assumed representative of {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}).
1.4.3 With respect only to Aircraft delivered with CFM56-5A4 engines, FAR
permissible take-off weight shall not be less than {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds in
the following conditions (assumed representative of {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}):
Pressure altitude: {CONFIDENTIAL MATERIAL
OMITTED AND FILED
Runway length: SEPARATELY WITH THE
SECURITIES AND EXCHANGE
Slope: COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL
Obstacles: TREATMENT}
1.4.4 With respect only to Aircraft delivered with CFM56-5A5 engines, FAR
permissible take-off weight shall not be less than {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds in
the same conditions as set forth in Subparagraph 1.4.3 of Part A above
(assumed representative of {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}).
LA 6-4
<PAGE>
1.5 SECOND SEGMENT CLIMB
Each Aircraft shall meet FAR 25 regulations for one engine inoperative
climb after take-off, undercarriage retracted, at a weight
corresponding to the stated weight at the start of the ground run, at
the altitude and temperature, and in the configuration of flap angle
and take-off safety speed, required to comply respectively with the
performance guaranteed in Subparagraph 1.3 and 1.4 of this Part A.
1.6 CLIMB PERFORMANCE
Each Aircraft shall be capable of climbing from 1,500 feet to pressure
altitude of 35,000 feet at an Aircraft gross weight of {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds in
ISA conditions using a climb profile of 250/280kt CAS/M.076 with a
minimum rate of climb of 300 feet per minute in {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} minutes.
1.7 LANDING DISTANCE
FAR certified landing field length at an Aircraft gross weight of
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pounds at sea level pressure altitude shall
not be greater than {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} feet.
1.8 EXTERNAL NOISE
Each Aircraft will comply with FAR Part 36 Amendment 9 and with ICAO
Annex 16 Chapter 3 with cumulative margins from flyover, sideline, and
approach of {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} EPNdB.
2. FUEL BURN GUARANTEE
2.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Aircraft Specific Range
LA 6-5
<PAGE>
The level flight specific range at an Aircraft gross weight of
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pounds at a pressure altitude of 35,000 feet
operating at M.78 at ISA conditions shall not be less than
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} nautical miles per pound of fuel for each
Aircraft (the "Guaranteed {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} Aircraft Specific Range").
2.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Specific Range
With respect to the {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}, the level flight specific range
at an Aircraft gross weight of {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds at a pressure altitude
of 35,000 feet operating at M.78 at ISA conditions shall not be less
than {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} nautical miles per pound of fuel {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} (the
"Guaranteed {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Specific Range").
3. MISSION PAYLOAD RANGE GUARANTEE
3.1 Mission No. 1 - {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
Each Aircraft shall be capable of carrying a guaranteed payload of not
less than
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pounds for Aircraft delivered with
CFM56-5A4 engines,
LA 6-6
<PAGE>
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pounds for Aircraft delivered with
CFM56-5A5 engines
over an equivalent still air stage distance of {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} nautical
miles (assumed representative of {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT} for a summer operation)
when operated under the conditions described below.
a) Available takeoff weight is assumed to be
(i) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pounds for Aircraft delivered with
CFM56-5A4 engines, and
(ii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pounds for Aircraft delivered with
CFM56-5A5 engines.
b) The destination airport conditions are such to allow the required
landing weight to be used without performance restrictions and
without exceeding the Maximum Landing Weight as defined in the
A319 Standard Specification referenced in the Preamble.
Profile assumes the following:
c) Allowance of 250 pounds for engine start and taxi out. Take-off
and initial climb to 1,500 feet above airfield elevation with
acceleration to climb speed in ISA conditions (two minutes time
and fuel allowance). No distance credit for takeoff climb to
1,500 feet. Climb from 1,500 feet above airfield elevation up to
a cruise altitude using maximum climb thrust and cruise at a
pressure altitude of 39,000 feet at a fixed Mach number of 0.78
and descent to 1,500 feet above airfield elevation are conducted
in ISA conditions. Climb speeds to be used should be
250kt/280kt/M76 and descent speeds should be M76/250kt to 1500
feet. An allowance of 300 pounds of fuel is assumed for approach
and landing at the destination and also includes an allowance for
maneuvering fuel. No distance credit for approach and landing
and maneuvering.
LA 6-7
<PAGE>
d) Stage distance is defined as the distance covered during climb,
cruise, and descent as described in c. above.
e) Trip fuel is defined as the fuel used during take-off and initial
climb, climb, cruise, descent, approach and landing and
maneuvering as described in c. above.
f) Total fuel required shall not exceed {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
pounds. Total fuel required is defined as taxi out allowance,
trip fuel, and fuel on landing as described in (g) below.
g) At the end of approach and landing {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds of fuel
shall remain in the tanks.
h) The mission payload guarantee is based on an Operating Weight
Empty (OWE) composed of the actual Manufacturer's Weight Empty
plus the following fixed allowances:
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pounds for customer changes
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pounds for operator items
3.2. Mission No. 2 -{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
Each Aircraft shall be capable of carrying a guaranteed payload of not
less than {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pounds over an equivalent still air stage
distance of {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} nautical miles (assumed representative of
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} for a winter operation) when operated under
the conditions described below.
LA 6-8
<PAGE>
a) Available takeoff weight is assumed to be {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
pounds.
b) The destination airport conditions are such to allow the required
landing weight to be used without performance restrictions and
without exceeding the Maximum Landing Weight as defined in the
A319 Standard Specification referenced in the Preamble.
Profile assumes the following:
c) Allowance of 250 pounds for engine start and taxi out. Take-off
and initial climb to 1,500 feet above airfield elevation with
acceleration to climb speed in ISA conditions (two minutes time
and fuel allowance). No distance credit for takeoff climb to
1,500 feet. Climb from 1,500 feet above airfield elevation up to
a cruise altitude using maximum climb thrust and cruise at a
pressure altitude of 35,000 feet stepping to 39,000 feet at a
fixed Mach number of 0.78 and descent to 1,500 feet above
airfield elevation are conducted in ISA conditions. Climb speeds
to be used should be 250kt/280kt/M76 and descent speeds should be
M76/250kt to 1500 feet. An allowance of 300 pounds of fuel is
assumed for approach and landing at the destination and also
includes an allowance for maneuvering fuel. No distance credit
for approach and landing and maneuvering.
d) Stage distance is defined as the distance covered during climb,
cruise, and descent as described in c. above.
e) Trip fuel is defined as the fuel used during take-off and initial
climb, climb, cruise, descent, approach and landing and
maneuvering as described in (c) above.
f) Total fuel required shall not exceed {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
pounds. Total fuel required is defined as taxi out allowance,
trip fuel, and fuel on landing as described in (g) below.
g) At the end of approach and landing {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds of fuel
shall remain in the tanks.
h) The mission payload guarantee is based on an Operating Weight
Empty (OWE) composed of the actual Manufacturer's Weight Empty
plus the following fixed allowances:
LA 6-9
<PAGE>
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pounds for customer changes
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pounds for operator items
4. WEIGHT GUARANTEES
4.1 MANUFACTURER'S WEIGHT EMPTY
The Seller guarantees that the Manufacturer's Weight Empty (as defined
in the A319-100 Standard Specification set forth in the Preamble) of
each Aircraft, which will be derived from the weighing of each
Aircraft, shall not be more than {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds for any individual
Aircraft and shall not be more than {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds for the {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
4.2 STRUCTURAL USABLE LOAD
The Seller guarantees that the excess of the Maximum Zero Fuel Weight
(as defined in the A319 Standard Specification set forth in the
Preamble) of each Aircraft over the Operating Weight Empty (as defined
below) of such Aircraft shall not be less than {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds
for any individual Aircraft and shall not be less than {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds
for the {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
Operating Weight Empty is the sum of the Manufacturer's Weight Empty
(as defined in the Type Specification set forth in the Preamble) plus
the following fixed allowances:
LA 6-10
<PAGE>
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pounds for customer changes
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} pounds for operator items
5. GENERAL GUARANTEE CONDITIONS
5.1. AIRCRAFT CONFIGURATION
Seller reserves the right to make reasonable and appropriate
adjustments to the guarantees set forth in this Part A for any
configuration change or deviation from the A319-100 Standard
Specification which is agreed between Buyer and Seller subsequent to
the date hereof, provided that any such adjustment is made
contemporaneously with such A319-100 Standard Specification change or
deviation.
5.2. PERFORMANCE DEFINITIONS
5.2.1. Performance and noise certification rules will be those required to
obtain FAR certification under the FAA Airworthiness Code as defined
in the Type Specification.
5.2.2. All performance data is based on the International Standard Atmosphere
and specified variations. Unless otherwise stated all altitudes are
pressure altitudes.
5.2.3. Unless otherwise stated, take-off and landing performance is based
upon a hard, smooth, dry and level runway surface with zero wind.
5.2.4. Take-off and landing performance is based on the brakes and tires as
specified in the aircraft configuration defined in the Preamble.
5.2.5. Devices such as flaps, landing gear, speed brakes, wheel brakes,
anti-skid and engines will be employed in the manner which provides
the best performance standard consistent with approved operations.
5.2.6. All guaranteed performance in this Part A is based upon no air bleed
from the engines for airframe or engine anti-icing.
5.2.7. For take-off and take-off climb performance, landing and landing climb
performance, no air will be bled from the engine for air conditioning.
5.2.8. For en route performance, engine bleeds consistent with normal
operation of the air conditioning system, including recirculation, are
assumed.
LA 6-11
<PAGE>
5.2.9. Normal electrical services will be in use consistent with the typical
load schedule given in the A319 Standard Specification.
5.2.10. All guaranteed performance in this Part A assumes the use of approved
fuel with a Lower Heating Value (the "LHV") of 18,590 BTU/lb. and with
a specific gravity of 6.7 pounds / gallon as such.
5.3. COMPLIANCE
5.3.1. The Seller shall provide to Buyer a guarantee compliance report
providing the compliance data for each Aircraft immediately prior to
acceptance of the Aircraft by the Buyer (the "Guarantee Compliance
Report") {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
5.3.2. Compliance with the en-route one engine inoperative, takeoff distance,
takeoff performance, second segment climb, landing distance, and
external noise guarantees will be demonstrated with reference to
performance data contained in the approved Flight Manual.
Compliance with climb performance and speed will be demonstrated with
reference to the IFP.
5.3.3. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
5.3.4. The actual {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Aircraft specific range, used for determining
compliance with the fuel burn and mission payload guarantees, will be
defined as the IFP performance level corrected by the Correction
Factor.
5.3.5. The actual {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} specific range, used for determining
compliance with the fuel burn guarantee, will be defined upon delivery
of each individual Aircraft as the {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
LA 6-12
<PAGE>
5.3.6. FUEL BURN GUARANTEE COMPLIANCE
Compliance with the fuel burn guarantees shall be determined as
follows:
(i) with respect to each Aircraft, if its actual {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} Aircraft specific range meets the guarantee level set
forth in Subparagraph 2.1 of this Part A.
(ii) with respect to the {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT}, if, upon delivery of
any Aircraft, the {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT} specific range meets the
guarantee level set forth in Subparagraph 2.2 of this Part A.
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
5.3.7 Compliance with the mission payload guarantees will be based on the
actual {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Aircraft specific range as defined in Section
5.3.4 of this Part A and the actual Manufacturer's Weight Empty of the
applicable Aircraft as determined pursuant to Subparagraph 5.3.8 of
this Part A.
5.3.8 Compliance with the weight guarantees shall be demonstrated with
reference to a weight compliance report.
6. ADJUSTMENT OF GUARANTEES
Should any change be made to any law, governmental regulation or
requirement or interpretation thereof ("Rule Change") by any
governmental agency subsequent to the date of the Agreement, and
should such Rule Change (i) affect the Aircraft configuration or
performance or both, and (ii) be required to obtain the Standard
Airworthiness Certificate, the guarantees set forth herein shall be
appropriately modified to reflect the effect(s) of any such Rule
Change(s).
7. EXCLUSIVE GUARANTEES
The guarantees set forth in this Part A supersede any similar
guarantees from AVSA that may be stated in the A319 Standard
Specification or any other document, except for the guarantees set
forth in Part B to this Letter Agreement.
LA 6-13
<PAGE>
8. REMEDIES
8.1 GENERAL
8.1.1 In the event that the Seller fails to demonstrate compliance by one or
more Aircraft {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}, with any of the guarantees set forth in this
Part A, the Seller shall
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
8.1.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
8.1.3 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
8.1.4 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
8.1.5 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
8.1.6 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
8.2 FUEL BURN
The Compensation for failure to comply with either the guarantee set
forth in Subparagraph 2.1 or Subparagraph 2.2 of Part A of this Letter
Agreement shall be {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
LA 6-14
<PAGE>
8.2.1 Deficiency of {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Aircraft
In the event that an {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} Aircraft fails to comply with the
guarantee set forth in Subparagraph 2.1 of this Part A, the amount of
Compensation {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
8.2.2 Deficiency of {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
In the event that the {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} fails to comply with the guarantee
set forth in Subparagraph 2.2 of this Part A, the amount of
Compensation {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
8.3 PAYLOAD
The Compensation for failure to comply with either the guarantees set
forth in Subparagraph 1.3, 1.4, Paragraph 3 or Subparagraph 4.2 of
Part A of this Letter Agreement shall be {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
8.3.1 MISSION PAYLOAD RANGE
In the event that any Aircraft fails to meet either of the mission
payload range guarantees in Paragraph 3 of this Part A, the amount of
Compensation {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
8.3.2 STANDARD USABLE LOAD
In the event that any Aircraft {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT} fail to meet the guarantee
levels specified in Subparagraph 4.2 of this Part A, the Compensation
shall be {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
LA 6-15
<PAGE>
8.3.3 TAKE-OFF
In the event that an Aircraft fails to meet the take-off guarantees
set forth in Subparagraph 1.3 or 1.4 of this Part A, the amount of
Compensation shall be {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}, provided that the Buyer
demonstrates to the Seller that such deficiency adversely impacts the
Buyer's operation of the affected Aircraft. With respect to
Subparagraph 1.4 of this Part A, the amount of Compensation hereunder
shall be {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
8.3.4 LANDING
In the event that an Aircraft fails to meet the landing guarantee set
forth in Subparagraph 1.7 of this Part A, the amount of Compensation
shall be {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}, provided that the Buyer demonstrates to the
Seller that such deficiency adversely impacts the Buyer's operation of
the affected Aircraft.
8.4 MANUFACTURER'S WEIGHT EMPTY
In the event that the Manufacturer's Weight Empty (MWE) of an
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Aircraft or of the {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} exceeds
the guarantee levels specified in Subparagraph 4.1 of this Part A, the
amount of Compensation shall be {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
8.5 LIMITATIONS AND CONDITIONS
(i) The Seller shall have the right to review and verify data
collected by the Buyer which is provided to Seller for
Seller to perform the calculations of Compensation due
hereunder.
(ii) If at any time following delivery of an Aircraft the Seller
restores the required performance level of an Aircraft
which has initially failed to meet the performance
guarantee requirements of Paragraphs 1, 2, 3, or 4 of this
Part A, and the Seller demonstrates compliance for such
specific Aircraft in accordance with the applicable
compliance provisions of this Part A, all payments of
Compensation required under this Part A with respect to
such initial failure shall cease and the Seller shall have
no further obligation to the Buyer under this Part A for
such initial failure in respect of such Aircraft. Seller
shall demonstrate compliance by {CONFIDENTIAL MATERIAL
OMITTED AND FILED
LA 6-16
<PAGE>
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT},
gathering data and producing a Guarantee Compliance Report
which demonstrates compliance for such specific Aircraft in
accordance with the applicable compliance provisions of
this Part A.
The compliance level achieved by such Aircraft shall be
taken into account for all {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} calculations for the purposes of this Part A.
(iii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
(iv) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT}.
(v) The Seller's maximum liability {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
(vi) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} as aforesaid shall be
deemed to settle any and all claims and remedies of the
Buyer against the Seller under this Part A ({CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}), but shall not settle or modify in
any respect any other claim or remedy of the Buyer against
the Seller.
UNQUOTE
LA 6-17
<PAGE>
PART B {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
AVSA, under its arrangement with the Manufacturer, has negotiated and
obtained the following performance guarantees from the Manufacturer
with respect to the Aircraft, subject to the terms, conditions,
limitations and restrictions all as hereinafter set out. AVSA hereby
guarantees to Northwest the performance by the Manufacturer of its
obligations under these reliability guarantees and hereby assigns to
Northwest, and Northwest hereby accepts, all of AVSA's rights and
obligations as aforesaid under the said performance guarantees, and
AVSA subrogates Northwest into all such rights and obligations in
respect of the Aircraft. AVSA hereby warrants to Northwest that it
has all requisite authority to make the foregoing assignment and
effect the foregoing subrogation to and in favor of Northwest and that
it will not enter into any amendment of the provisions so assigned or
subrogated without the prior written consent of Northwest.
Capitalized terms used in the following quoted provisions and not
otherwise defined therein shall have the meanings assigned thereto in
the Agreement, except that the term "Seller" refers to the
Manufacturer and the term "Buyer" refers to AVSA.
QUOTE
PREAMBLE
A. Assumptions:
The guarantees defined below in this Part B are applicable to
A319-100 Aircraft as described in the A319-100 Standard
Specification Ref. J.000.01000, Issue 3, dated March 29, 1995,
including Temporary Revision 1, dated August 25, 1995, on the
basis of the following assumptions:
(i) Maximum Take Off Weight (MTOW) of {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT}.
(ii) fitting of either
(x) the CFM International CFM56-5A4 engines (22,000 lbs
thrust), or
(y) the CFM International CFM56-5A5 engines (23,500 lbs
thrust),
except where otherwise noted.
LA 6-18
<PAGE>
B. Definitions:
(i) For the purpose of this Part B of this Letter Agreement
only, the term "Aircraft" is defined as any and all of the
Airbus A319-100 model aircraft to be acquired by the Buyer
under the Agreement.
(ii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
1. GENERAL PROVISIONS
1.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
1.2 The {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Guarantees in this Part B are contingent upon:
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
1.3. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2. FUEL BURN GUARANTEE
2.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} (expressed as a percentage) determined in
accordance with the In-Flight Performance Program (IFP) to be supplied
by the Seller.
2.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
The Seller guarantees to the Buyer that the {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} shall not
be worse than the IFP {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}:
LA 6-19
<PAGE>
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
3. MISSION PAYLOAD GUARANTEE
The {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} as stated in paragraph 2.2 of this part B
shall allow the carrying of a guaranteed payload of not less than:
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
over an equivalent still air stage distance of {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} nautical
miles (assumed representative of {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT} for a winter operation) when
operated under the conditions described below.
a) In case of the {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT} as stated in
Subparagraph 2.2 of this Part B is modified according to
Subparagraph 1.3 of this Part B, the above guaranteed payload
shall be modified accordingly, using the following relationship:
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
b) Available takeoff weight is assumed to be {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
pounds.
c) The destination airport conditions are such to allow the required
landing weight to be used without performance restrictions and
without exceeding the Maximum Landing Weight as defined in Type
Specification referenced in the Preamble.
LA 6-20
<PAGE>
Profile assumes the following:
d) Allowance of 250 pounds for engine start and taxi out. Take-off
and initial climb to 1,500 feet above airfield elevation with
acceleration to climb speed in ISA conditions (two minutes time
and fuel allowance). No distance credit for takeoff climb to
1,500 feet. Climb from 1,500 feet above airfield elevation up to
a cruise altitude using maximum climb thrust and cruise at a
pressure altitude of 35,000 feet stepping to 39,000 feet at a
fixed Mach number of 0.78 and descent to 1,500 feet above
airfield elevation are conducted in ISA conditions. Climb speeds
to be used should be 250kt/280kt/M76 and descent speeds should be
M76/250kt to 1500 feet. An allowance of 300 pounds of fuel is
assumed for approach and landing at the destination and also
includes an allowance for maneuvering fuel. No distance credit
for approach and landing and maneuvering.
e) Stage distance is defined as the distance covered during climb,
cruise, and descent as described in (d) above.
f) Trip fuel is defined as the fuel used during take-off and initial
climb, climb, cruise, descent, approach and landing and
maneuvering as described in (d) above.
g) Total fuel required shall not exceed {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
pounds. Total fuel required is defined as taxi out allowance,
trip fuel, and fuel on landing as described in (h) below.
h) At the end of approach and landing {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} pounds of fuel
shall remain in the tanks.
i) The mission payload guarantee is based on an Operating Weight
Empty (OWE) composed of the actual {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} Manufacturer's
Weight Empty (MWE) as demonstrated at delivery {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} (but in no event more than {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
pounds), plus the following fixed allowances:
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
LA 6-21
<PAGE>
4. GENERAL GUARANTEE CONDITIONS
4.1. AIRCRAFT CONFIGURATION
Seller reserves the right to make reasonable and appropriate
adjustments to the guarantees in this Part B for any configuration
change or deviation from the A319 Standard Specification which is
agreed between Buyer and Seller subsequent to the date hereof,
provided that any such adjustment is made contemporaneously with such
A319 Standard Specification change or deviation.
4.2. COMPLIANCE
4.2.1. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4.2.2. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4.2.3. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4.2.4. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4.2.5. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4.2.6. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4.2.7. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4.2.8 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
LA 6-22
<PAGE>
5. REMEDIES
5.1 GENERAL
5.1.1 In the event that the {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} exceeds the guaranteed levels set
forth in Subparagraph 2.2 of this Part B, then the Buyer and the
Seller,{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
5.1.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
5.1.3 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
5.1.4 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
5.2 FUEL BURN-{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
In the event that the {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} fails to comply with the guarantee
set forth in Subparagraph 2.2 of this Part B, {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
5.3 MISSION PAYLOAD RANGE
In the event that the {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} fails to meet the mission payload
range guarantee set forth in Paragraph 3 of this Part B, {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
LA 6-23
<PAGE>
5.4 LIMITATIONS AND CONDITIONS
(i) The Seller shall have the right to review and verify data
collected by the Buyer which is provided to Seller for Seller
to perform the calculations of compensation due hereunder.
(ii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
(iii) The Seller's maximum liability{CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
(iv) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
(v) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} shall be deemed to settle any and all
claims and remedies of the Buyer against the Seller under this
Part B, but shall not settle or modify in any respect any
other claim or remedy of the Buyer against the Seller.
(vi) The intent of Part B of this Letter Agreement is to provide
benefits to the Buyer as a result of the failure of the
Buyer's Aircraft ({CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}) to achieve
the performance level stipulated in the guarantees set forth
in this Part B. It is not the intent, however, to duplicate
benefits provided to the Buyer by the Seller under Part A of
this Letter Agreement as a result of the same failure.
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
(vii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
UNQUOTE
LA 6-24
<PAGE>
PART C GENERAL CONDITIONS
1. NORTHWEST ACCEPTANCE OF PERFORMANCE GUARANTEES
In consideration of the assignment and subrogation by AVSA under Part
A and Part B of this Letter Agreement in favor of Northwest in respect
of AVSA's rights against and obligations to the Manufacturer under the
provisions quoted above, Northwest hereby accepts such assignment and
subrogation and agrees to be bound by all of the terms, conditions and
limitations therein contained.
2. EXCLUSIVE LIABILITIES
SUBJECT TO SUBPARAGRAPH 8.5 (vi) OF PART A OF THIS LETTER AGREEMENT
AND SUBPARAGRAPH 5.4 (v) OF PART B OF THIS THIS LETTER AGREEMENT, THIS
LETTER AGREEMENT SETS FORTH THE EXCLUSIVE GUARANTEES, WARRANTIES,
EXCLUSIVE LIABILITIES AND EXCLUSIVE OBLIGATIONS OF AVSA, AND THE
EXCLUSIVE REMEDIES AVAILABLE TO NORTHWEST, ARISING FROM ANY FAILURE OF
ANY AIRCRAFT {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} TO DEMONSTRATE COMPLIANCE WITH ANY OF THE
GUARANTEES SET FORTH IN THIS LETTER AGREEMENT, INCLUDING BUT NOT
LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS, ANY
IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING
OR USAGE OF TRADE, ANY OBLIGATION OR LIABILITY OF AVSA OR ANY RIGHT,
CLAIM OR REMEDY OF NORTHWEST IN CONTRACT OR IN TORT, WHETHER OR NOT
ARISING FROM AVSA'S NEGLIGENCE, ACTUAL OR IMPUTED, INTENTIONAL ACT, OR
STRICT LIABILITY AND ANY OBLIGATION OR LIABILITY OF AVSA OR ANY RIGHT,
CLAIM OR REMEDY OF NORTHWEST FOR LOSS OF OR DAMAGE TO ANY AIRCRAFT,
COMPONENT, EQUIPMENT, ACCESSORY OR PART, FOR LOSS OF USE, REVENUE OR
PROFIT WITH RESPECT TO ANY AIRCRAFT, COMPONENT, EQUIPMENT, ACCESSORY
OR PART, OR FOR ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
PROVIDED THAT IN THE EVENT THAT ANY OF THE AFORESAID PROVISION SHOULD
FOR ANY REASON BE HELD UNLAWFUL OR OTHERWISE INEFFECTIVE THE REMAINDER
OF THIS PARAGRAPH C.2 SHALL REMAIN IN FULL FORCE AND EFFECT. THE
PERFORMANCE GUARANTEES SET FORTH IN THIS LETTER AGREEMENT NO. 6 SHALL
NOT BE EXTENDED, ALTERED OR VARIED EXCEPT BY A WRITTEN INSTRUMENT
SIGNED BY AVSA AND NORTHWEST.
LA 6-25
<PAGE>
4. ASSIGNMENT
Notwithstanding any other provisions hereof or of the Agreement, this
Letter Agreement and the rights and obligations of Northwest hereunder
shall not be assigned or transferred in any manner without the prior
written consent of AVSA and any attempted assignment or transfer in
contravention of the provisions of this sentence shall be void and of
no force and effect, PROVIDED however that the consent of AVSA shall
not be necessary for an assignment by Northwest of its rights
hereunder to any Affiliate of Northwest if prior to or concurrently
with such assignment (x) Northwest executes and delivers to AVSA an
instrument in writing confirming to AVSA that Northwest remains liable
for all obligations, liabilities and responsibilities of the "Buyer"
hereunder and (y) such Affiliate executes and delivers to AVSA an
instrument in writing confirming to AVSA that such Affiliate assumes
all obligations, liabilities and responsibilities of the "Buyer"
hereunder and agrees that it will remain an Affiliate of the "Buyer"
so long as any Aircraft subject to such assignment remains to be
delivered under the Agreement.
If the foregoing terms and conditions are satisfactory, please
indicate your acceptance thereof by signing in the place indicated below.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ M. Lascaux
Its: Director Contracts
Agreed and Accepted
NORTHWEST AIRLINES, INC.
By: /s/ M. D. Powers
Its: Vice President - Finance and Assistant Treasurer
LA 6-26
<PAGE>
APPENDIX 1
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
LA 6/App. 1-1
<PAGE>
APPENDIX 2
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
LA 6/App. 1-2
<PAGE>
APPENDIX 3
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
LA 6/App. 3-1
<PAGE>
LETTER AGREEMENT NO. 7
As of September 19, 1997
Northwest Airlines, Inc.
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Re: OTHER MATTERS
Dear Ladies and Gentlemen:
Northwest Airlines, Inc. ("Northwest"), and AVSA, S.A.R.L.
("AVSA"), have entered into an Airbus A319 Purchase Agreement, dated as of
even date herewith including all exhibits, appendixes and letter agreements
thereto (the "Agreement"), which covers, among other matters, the sale by
AVSA and the purchase by Northwest of certain Aircraft, under the terms and
conditions set forth in said Agreement. Northwest and AVSA have agreed to
set forth in this Letter Agreement No. 7 (the "Letter Agreement") certain
additional terms and conditions regarding the sale of the Aircraft.
Capitalized terms used herein and not otherwise defined in this Letter
Agreement will have the meanings assigned thereto in the Agreement. The
terms "herein," "hereof" and "hereunder" and words of similar import refer to
this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of said Agreement, that the provisions of said
Agreement are hereby incorporated herein by reference, and that this Letter
Agreement will be governed by the provisions of said Agreement, except that
if the Agreement and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
1. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
1.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
1.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
<PAGE>
2. ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement or of
the Agreement, this Letter Agreement and the rights and obligations
of Northwest hereunder will not be assigned or transferred in any
manner without the prior written consent of AVSA, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 2 will be void and of no force or effect.
If the foregoing correctly sets forth our understanding, please
execute the original and one (1) copy hereof in the space provided below and
return a copy to AVSA.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ M. Lascaux
Its: Director Contracts
Accepted and Agreed
NORTHWEST AIRLINES, INC.
By: /s/ M. D. Powers
Its: Vice President - Finance and Assistant Treasurer
LA 7-2
<PAGE>
LETTER AGREEMENT No. 8
As of September 19, 1997
Northwest Airlines, Inc.
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Re: A319-100 AIRCRAFT FINANCING {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}
Dear Ladies and Gentlemen:
Northwest Airlines, Inc. ("NWA") and AVSA, S.A.R.L. ("AVSA") have
entered into an Airbus A319-100 Purchase Agreement dated as of even date
herewith (the "Agreement") which covers, among other matters, the sale by
AVSA and the purchase by NWA of certain A319-100 aircraft (the "Aircraft") as
described in the specifications annexed to said Agreement. NWA and AVSA have
agreed to set forth in this Letter Agreement (this "Letter Agreement")
certain additional terms and conditions regarding the sale of the Aircraft
provided for in the Agreement. The terms "herein", "hereof" and "hereunder"
and words of similar import refer to this Letter Agreement. Capitalised terms
used herein and not otherwise defined in this Letter Agreement will have the
meanings assigned thereto in the Agreement. The term "Lender" shall mean
each of AVSA or an affiliate of AVSA (for which purposes Airbus Finance
Company Limited ("AFC") or any of its affiliates will be treated as an
affiliate).
This Letter Agreement shall not constitute part of the Agreement, but shall
be a separate and independent contract of financial accommodation.
A. Aircraft Financing
1 Availability
1.1 In determining the cost of financing for NWA at delivery of
each Aircraft, exposure under certain other financing
arrangements between NWA and Airbus Industrie and its
affiliates (for which purposes AFC or any of its affiliates
will be treated as an affiliate) {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} will be taken into account. It will be assumed, for
the purposes of calculating {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH
<PAGE>
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} under the facility outlined herein, at
time of delivery of each Aircraft that {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
(b) the unamortised principal balance at the time under the
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} (c) amounts of initial principal drawn
but not fully repaid under the financing support outlined in
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} drawn but not fully repaid in respect
of each Aircraft delivered and financed under the facility
described herein.
1.2 Further, for the purposes of determining {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} at time of delivery of each Aircraft will be
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} prior to such time. In the event that
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} is successful in restructuring in full
the {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT}, then the amount of exposure for
the purposes of calculating {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} under the
facility described herein will be {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
value per A320 aircraft.
1.3 For the purposes of determining {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
of the facility under Sub-paragraph 4.2 below, amortisation of
delivered and financed Aircraft under the facility will be
disregarded. {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A
LA 8-2
<PAGE>
REQUEST FOR CONFIDENTIAL TREATMENT} in respect
of any of the Aircraft will not be taken into account in
determining {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} under the
facility described herein. For the avoidance of doubt, Option
Aircraft or Roll-Over Option Aircraft subsequently converted
to Firm Aircraft (as defined in the Agreement) or Converted
Aircraft (as defined in the Agreement) will not be covered by
the facility described herein.
2.0 Election of Financing
Subject to the terms and conditions set forth herein, and, in
particular to the terms of Paragraph 1.0 above, NWA may elect, with
respect to any of the Aircraft or Converted Aircraft up to a
maximum of {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Aircraft from the initially firmly ordered
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}, by informing AVSA in writing at least
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} prior to delivery of such Aircraft to use
the facility offered by AVSA as set forth in this section A. NWA
may select either of the short or long term debt alternatives in
respect of any Aircraft by providing written notice to AVSA no less
than {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} prior to scheduled delivery of each such
Aircraft (the "Preliminary Notice Date"). NWA will be required to
provide final written irrevocable notice (the "Final Notice Date")
no less than {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT} prior to scheduled delivery of such
Aircraft. In the event that NWA fails to give notice of its
election to AVSA by the Preliminary Notice Date then AVSA will
automatically be obliged to provide {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} (as defined below)
in respect of such Aircraft (unless NWA elects at such time to
defer its decision to take {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT} accordance with the terms of
section {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} below) and to provide or arrange the
short-term debt alternative outlined below in Paragraph 5.0 in
respect of such Aircraft under the terms hereunder outlined.
Notwithstanding the
LA 8-3
<PAGE>
foregoing, and in order to facilitate administrative planning, AVSA
will be entitled to enquire of NWA from time to time and in advance
of the Preliminary Notice Date as to NWA's likely intentions with
regard to the financing of a relevant Aircraft. NWA hereby undertakes
to provide a good faith response to any such enquiry which will not
be binding on its ultimate intentions.
3.0 Powerplants Manufacturer
CFMI will be responsible for providing financing {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} in respect of every {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} Aircraft for
which NWA will have elected to have supported. AVSA will be
responsible for arranging financing {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} in respect of
every {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} Aircraft for which NWA will have elected to
have supported. For the avoidance of doubt, the order in which such
support is to be furnished by AVSA and CFMI will be the sequence in
which NWA takes delivery and requests such support rather than the
applicable delivery position number.
4.0 The Facility
4.1 Structure
If NWA gives AVSA timely notice of its election with respect
to any Aircraft, as provided in Paragraph 2.0 above, to use
the financing set forth in this Paragraph 4.0, then AVSA will
provide, or arrange for a Lender to provide, on the terms set
forth below, a secured long-term debt financing (each an "A319
Long-Term Credit") of such Aircraft to NWA. NWA will be the
borrower or lessee under the A319 Long-Term Credit. The amount
of debt to be arranged or provided in any transaction shall
not exceed {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} of such Aircraft. The A319
Long-Term Credit financing may, at NWA's option, take either
of the following forms, or a combination thereof:
LA 8-4
<PAGE>
(i) Senior secured financing pursuant to structures which
provide Section 1110 protection; {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL}; or
(ii) Structured as {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
4.2 Interest Rate
(i) The rate of interest applicable to each A319 Long-Term
Credit will be determined as set forth below:
The prevailing rate (expressed as {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} could borrow the same amount with the same tenor and
on comparable terms and security {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} will be the "AVSA Benchmark Rate" wise, the
prevailing rate (expressed as {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
at which NWA could borrow the same amount with the same tenor
and on comparable terms and security at the same time
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
The rate of interest applicable to a particular A319 Long-Term
Credit will be the {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
(ii) Interest will be payable {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}
in the case of an A319 Long-Term Credit pursuant to
Sub-paragraph 4.1 (i) hereof or {CONFIDENTIAL MATERIAL OMITTED
AND
LA 8-5
<PAGE>
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} in the case of
Sub-paragraph 4.1 (ii) hereof. Such interest payments will be
made on the same dates as installments of principal are payable.
4.3 Financing Term
NWA may elect that each A319 Long-Term Credit may extend for any
term up to a maximum of {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT} commencing upon delivery
of the relevant Aircraft. Amortisation of the principal balance
of each A319 Long-Term Credit will be on the basis of a
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}. An A319 Long-Term Credit pursuant to
Sub-paragraph 4.1 (ii) utilised in a {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
4.4 Transfer and Assignment
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}. NWA hereby agrees to cooperate with
each Lender to accommodate the efforts of the Lender to transfer,
resell, assign or securitise the Financing {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
Each Lender will reimburse NWA's reasonable and adequately
documented external legal and investment bank fees and expenses
in respect of any resale, assignment, transfer, or
securitisation.
(i) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
(ii) If an initial Lender desires to effect the resale,
transfer or securitisation transaction in a registered
public offering in the United States, NWA hereby agrees
to cooperate in the preparation and filing of such
registration statements and other documents and to take
such other actions as may reasonably be requested by the
Lender in order to assist in the prompt completion of
such public offering.
LA 8-6
<PAGE>
(iii) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}
(iv) In furtherance of any of the matters covered by this
Sub-paragraph 4.4, AVSA, each Lender and NWA shall
undertake in good faith to define a mutually beneficial
process by which the parties would coordinate each
Lender's efforts to transfer debt or debt securities
with NWA's plans and efforts to raise capital.
5.0 Short-Term Debt Financing
If NWA gives AVSA timely notice of its election with respect to any
Aircraft, as provided in Paragraph 1 above, to use the financing
alternative set forth in this Paragraph 5, then AVSA will provide,
or arrange, on the terms set forth below, a secured short-term debt
financing (an "A319 Short-Term Credit") of such Aircraft to NWA.
The amount of debt to be arranged or provided in any such A319
Short-Term Credit transaction shall not exceed {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT}. The term of an A319 Short-Term Credit will not exceed
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} from delivery of the relevant Aircraft.
Interest will accrue and be paid {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} by NWA at the
rate of {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}. Notwithstanding the foregoing, NWA may
select on a per Aircraft basis {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} as the interest
base for the term of the A319 Short-Term Credit at least
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}. The principal balance of such financing
will {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}. In consideration, the Lender will be
granted {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}. Terms and conditions of the financing
will conform to those applicable to {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH
LA 8-7
<PAGE>
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}, as appropriately modified in the definitive
documentation. The documentation will contain customary terms
regarding {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
6.0 Replacement Long-Term Debt Financing
In the event that in respect of any Aircraft NWA does not elect at
delivery to take an A319 Long-Term Credit then at any time, subject
to written notice from NWA to AVSA of at least {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} (the "A319 Replacement Long-Term Credit Notice Date"),
AVSA will provide a {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT} long-term debt financing (an
"A319 Replacement Long-Term Credit") to NWA in order to replace in
full an A319 Short-Term Credit or {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} in respect of
such Aircraft. Notwithstanding the foregoing, however, and in order
to facilitate administrative planning, AVSA will be entitled to
enquire of NWA from time to time and in advance of the A319
Replacement Long-Term Credit Notice Date as to NWA's likely
intentions with regard to the financing of a relevant Aircraft. NWA
hereby undertakes to provide a good faith response to any such
enquiry which will not be binding on its ultimate intentions. Such
A319 Replacement Long-Term Credit will be available to be drawn
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} and will be provided on substantially the
same terms as {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT} for such Aircraft except in the
following ways:
A) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT};
B) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}; and
C) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
LA 8-8
<PAGE>
7.0 Financing Arrangements
Each A319 Long-Term Credit, A319 Short-Term Credit or A319
Replacement Long-Term Credit (each a "Financing"), as appropriate,
shall be arranged on terms consistent with this Letter Agreement
and as subsequently negotiated among AVSA, NWA and the Lender. The
documentation will contain customary terms regarding {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT}. The documentation will also contain customary terms
regarding {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}, as appropriate.
7.1 Transaction Expenses and Conditions
NWA will pay the Lender's reasonable and adequately documented
external transaction expenses in relation to the Financing
which will be reimbursed by NWA at {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
In the event, however, that NWA selects {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} in
the context of the A319 Long-Term Credit, then the Lender
shall agree that {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} may be
treated as financed transaction expenses in such {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT}. In the event that NWA requests an A319 Long-Term
Credit in respect of an Aircraft at the Preliminary Notice
Date but decides at the Final Notice Date not to pursue this
option, NWA will reimburse all AVSA's reasonable external
legal expenses actually incurred and associated with the
establishment and negotiation of such A319 Long-Term Credit
for the period between the Preliminary Notice Date and the
Final Notice Date.
The Financing will reflect market terms and conditions. In the
event that AVSA and NWA have a disagreement as to market terms
and conditions, NWA and AVSA will consult {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} in order to resolve such disagreement.
LA 8-9
<PAGE>
Each Financing will contain appropriate conditions precedent
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} (in the case of an A319 Long-Term
Credit and an A319 Short-Term Credit) and/or, as appropriate,
(ii) draw down of an A319 Replacement Long-Term Credit
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
7.2 Quiet Enjoyment
(A) Each Lender will covenant to NWA that it shall not, through
its own actions or inactions, interfere with, or suffer to
exist with respect to the Aircraft any lien attributable to
the Lender which might interfere with, NWA's (or any
permitted sub-lessee's or lessee's) continued possession, use
and operation of, and quiet enjoyment (including, without
limitation, {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}) of, the
Aircraft during the term of the Financing in accordance with
the terms thereof so long as NWA shall not have been duly
declared, or deemed to be declared, in default pursuant to the
Financing.
(B) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
(C) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
7.3 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
LA 8-10
<PAGE>
8.0 Other Terms and Conditions
Terms and Conditions applicable to each Financing shall include the
following:
8.1 Insurance
NWA will provide insurance (including public liability,
property damage, war risk and hijacking insurance) with
respect to the Aircraft against risks customarily insured
against by NWA for similar aircraft, PROVIDED that public
liability and property damage insurance shall be in an amount
of at least {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} per
occurrence. NWA will also provide all-risk hull insurance in
an amount equal to the outstanding principal balance from time
to time (subject to self-insurance described below). NWA will
retain the right to insure the Aircraft for amounts in excess
of {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT}.
NWA may self insure by way of deductible, premium adjustment
or franchise provisions or otherwise, but in no case shall the
aggregate amount of self-insurance with respect to public
liability, property damage and all-risk hull insurance exceed
during any policy year, with respect to all of the aircraft in
NWA's fleet (including, without limitation, the
Aircraft), {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}
If at any time the Aircraft is not covered by insurance as
required by the preceding paragraph NWA may not operate the
Aircraft and must maintain ground insurance.
8.2 Maintenance
NWA will maintain the Aircraft in as good an operating
condition as when initially delivered to NWA under the
facility, ordinary wear and tear excepted, in compliance with
applicable laws and regulations and a maintenance programme
approved by the government of registry, and in such condition
as may be necessary to enable the Aircraft's airworthiness
certification to be maintained in good standing at all times
(with exceptions as to temporary periods of storage in
accordance with applicable regulations and as to the grounding
by the FAA of all Airbus A319 series aircraft powered by
engines of the same type as those with which the Aircraft
shall be equipped at the time of such grounding), utilising,
except during any period that a sublease (or lease in the case
where NWA is the
LA 8-11
<PAGE>
borrower) is in effect, the same manner of maintenance used by
NWA with respect to similar aircraft operated by NWA and
utilising, during any period that a sublease is in effect (or
lease in the case where NWA is the borrower), the same manner of
maintenance used by the sublessee (or lessee) with respect to
similar aircraft operated by the sublessee (or lessee). NWA will
have the right at any time during the term of any Financing to
substitute for any engine another compatible engine having a
value and utility (except for maintenance cycle condition) of
the engine being replaced.
8.3 Events of Default
Events of default for each Financing shall be as follows:
(i) failure to make any payment of principal or interest
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} for a period of
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} after due, and
failure to make any other payment for a period of
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT};
(ii) failure to maintain required insurance and any such
failure is not cured within {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT};
(iii) failure to perform in any material respect any other
covenants and such failure continues for a period
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT};
(iv) material failure of representations or warranties (other
than tax representations and warranties) to be true and
correct and the same remains uncured for a period of
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}, and
LA 8-12
<PAGE>
(v) customary bankruptcy and insolvency events of default.
8.4 Sublease or Lease
Provided an event of default shall not have occurred and be
continuing, NWA will have the right at any time to
sublease, {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}, the Aircraft (i) without
Lender consent to any air carrier holding {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT}, (ii) to any entity approved in writing by the
Lender, (iii) without Lender consent to any entity domiciled
in a country designated on Exhibit 1 hereto (it being
understood that the Lender will use reasonable efforts to
include {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT} on such list (for the
purposes of sublease or lease or reregistration, as
appropriate) to the extent that the inclusion of any such
countries is reasonably commercially available without
adversely affecting any of the other terms or provisions of
the transaction for the Lender, or (iv) without Lender consent
to {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT} in a country that would not
otherwise be restricted, in any event for a period or period
not to exceed the term of each A319 Long-Term Credit or A319
Replacement Long-Term Credit, as appropriate, and further
provided that, at any time whilst {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} or
any of their affiliates is a Lender, the number of
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT} (including {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT})
supported at such time by {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}, and
provided further that the number of {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
In addition to the rights to {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A
LA 8-13
<PAGE>
REQUEST FOR CONFIDENTIAL TREATMENT} do any of the following:
(i) subject the Aircraft or engines or arrangements; (ii)
deliver possession of the Aircraft or any engine to third
parties for testing, modification, maintenance, repair or
overhaul; (iii) install any engine on other airframes; and
(iv) subject the Aircraft or any engine to (a) the United States
Civil Reserve Air Fleet Program, (b) contracts with the United
States government or agency thereof, or (c) "wet" leases with
third parties.
8.5 Aircraft Registration
The Aircraft will initially be registered with the FAA. NWA
may at any time re-register the Aircraft in a foreign country
in accordance with the terms contained in Exhibit 2 hereto, it
being understood that there are no {CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.
It is also agreed that such terms should reflect terms
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
B. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
1.0 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2.0 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
2.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2.3 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
LA 8-14
<PAGE>
3.0 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
4.0 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
5.0 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
6.0 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
7.0 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
8.0 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
9.0 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
10.0 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
10.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
10.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
10.3 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
LA 8-15
<PAGE>
10.4 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
10.5 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
10.6 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
10.7 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
10.8 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
10.9 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
10.10 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
10.11 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
10.12 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
11.0 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
12.0 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
LA 8-16
<PAGE>
C. General
1.0 Termination
During the term of this Letter Agreement, each of the commitments of
AVSA set forth herein shall be subject to the non-occurrence of any of
the events described in this Paragraph C.1.0, and should any event
described in Sub-paragraphs (a), (b) or (c) to this occur, this
Letter Agreement and the commitments of AVSA hereunder shall
automatically terminate without notice of any kind and without
prejudice to any other rights or remedies that may be exercised by
AVSA.
(a) NWA shall have:
(1) made a general assignment for the benefit of creditors or
become insolvent;
(2) filed a voluntary petition in bankruptcy;
(3) petitioned for or acquiesced in the appointment of any
custodian, receiver, trustee or similar officer to
liquidate or conserve its business or any substantial part
of its assets;
(4) commenced under the laws of any competent jurisdiction any
proceedings involving its insolvency, bankruptcy,
reorganisation, readjustment of debt, dissolution or
liquidation or any other similar proceeding for the relief
of debtors;
(5) become the object of any proceeding or action of the type
described in (3) or (4) above that remains undismissed or
unstayed for a period of thirty (30) or more days; or
(6) admitted in writing and become unable generally to pay its
debts as they become due.
(b) The Agreement shall have terminated on account of a material
breach by NWA or for any other reason or if NWA shall be in
material default of any of its obligations thereunder.
(c) {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
LA 8-17
<PAGE>
2.0 Assignment
Notwithstanding any other provision of this Letter Agreement or of the
Agreement, this Letter Agreement and the rights and obligations of NWA
and AVSA hereunder (excluding, for the avoidance of doubt, for the
purposes of this Paragraph the rights and obligations under a
Financing {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}) will not be assigned or transferred or
mortgaged or pledged in any manner without the prior written consent
of either party hereunder, and any attempted assignment or transfer in
contravention of the provisions of this Paragraph will be void and of
no force and effect.
3.0 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
4.0 Miscellaneous Provisions
(a) NOTICES
All notices and requests required or authorised hereunder shall
be given in writing either by personal delivery to a responsible
officer of the party to whom the same is given or by commercial
courier or mail or by electronic transmission to the addresses
set forth below. The date upon which any such notice or request
is so personally delivered or delivered by commercial courier or
mail, or if such notice or request is given by electronic
transmission, the date upon which sent, shall be deemed to be the
effective date of such notice or request.
AVSA shall be addressed at:
2, rond-point Maurice Bellonte
31700 BLAGNAC, FRANCE
Attention: Director - Contracts
Telephone: (33) 5 61 30 40 12
Telex: AVSA 521155F
Fax: (33) 5 61 30 40 11
And NWA shall be addressed at:
2700 Lone Oak Parkway
Eagan, Minnesota 55121, USA
LA 8-18
<PAGE>
Attention: Senior Vice President and Treasurer
and Vice President of Northwest
Aircraft Inc.
Telephone: (1) 612 726 2274
Fax: (1) 612 726 2488
or at such other address or to such other address or to such other
person as the party receiving the notice or request may designate from
time to time.
(b) WAIVER
The failure of either party to enforce at any time any of the
provisions of this Letter Agreement, or to exercise any right herein
provided, or to require at any time performance by any other party of
any of the provisions hereof, will in no way be construed to be a
present or future waiver of such provisions nor in any way to affect
the validity of this Letter Agreement or any part hereof or the right
of the other party thereafter to enforce each and every provision. The
express waiver by either party of any provision, condition or
requirement of this Letter Agreement shall not constitute a waiver of
any future obligation to comply with such provision, condition or
requirement.
(c) INTERPRETATION AND LAW
THIS LETTER AGREEMENT AND ANY DOCUMENTS PERTAINING TO ANY OF THE
FINANCING PROVIDED HEREUNDER WILL BE GOVERNED BY AND CONSTRUED, AND
THE PERFORMANCE THEREOF WILL BE DETERMINED, IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE IN SUCH
STATE BY RESIDENTS THEREOF AND TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE; INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE. Each of AVSA and NWA (i) hereby irrevocably submits
itself to the non-exclusive jurisdiction of the courts of the State
of New York, New York County, of the United States, and to the
non-exclusive jurisdiction of the United States District Court for the
Southern District of New York, for the purposes of any suit, action or
other proceeding arising out of this Letter Agreement, the subject
matter hereof or any of the transactions contemplated hereby brought
by any party or parties hereto, and (ii) hereby waives, and agrees not
to assert, by way of motion, as a defence, or otherwise, in any such
suit, action or proceeding, to the extent permitted by applicable law,
any defence based on sovereign or other immunity or that any suit,
action or proceeding is brought in an inconvenient forum, that the
venue of such suit, action or proceeding is improper, or that this
Letter Agreement or the subject matter hereof or any of the
transactions contemplated hereby may not be enforced in or by such
courts.
(d) CONFIDENTIALITY
Subject to any legal or governmental requirements of disclosure, the
parties (which for this purpose shall include their employees, agents
and advisers) shall maintain the terms
LA 8-19
<PAGE>
and conditions of this Letter Agreement strictly confidential.
Without limiting the generality of the foregoing, NWA and AVSA will
limit the disclosure of the contents of this Letter Agreement, to
the extent legally permissible, in any filing required to be made
with any governmental agency and shall make such applications as
shall be necessary to implement the foregoing. NWA and AVSA shall
consult with each other prior to the making of any public
disclosure or filing, otherwise permitted hereunder, of this Letter
Agreement or the terms and conditions hereof. In the event that NWA
receives any other disclosure request from any government or any
branch, agency or instrumentality thereof or any government-related
entity, which NWA believes would be advisable to satisfy in whole
or in part, NWA and AVSA will consult and AVSA will not
unreasonably withhold its consent to such disclosure.
Notwithstanding anything in this Paragraph to the contrary, AVSA
may deliver a copy of this Letter Agreement to CFMI. The provisions
of this Paragraph shall survive any termination of this Letter
Agreement.
(e) SEVERABILITY
In the event that any provision of this Letter Agreement should for
any reason be held to be without effect, the remainder of this Letter
Agreement shall remain in full force and effect. To the extent
permitted by applicable law, each party hereto hereby waives any
provision of law which renders any provision of this Letter Agreement
prohibited or unenforceable in any respect.
(f) ALTERATIONS TO CONTRACT
This Letter Agreement contains the entire agreement between the
parties with respect to the subject matter hereof and supersedes any
previous understanding, commitments or representations whatsoever,
oral or written.
(g) LANGUAGE
All correspondence, documents and any other written matters in
connection with this Letter Agreement shall be in English.
(h) HEADINGS
All headings in this Letter Agreement are for convenience of reference
only and do not constitute a part of this Letter Agreement.
(i) COUNTERPARTS
This Letter Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
LA 8-20
<PAGE>
If the foregoing correctly sets forth our understanding, please execute the
original and one (1) copy hereof in the space provided below and return a
copy to AVSA.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ M. Lascaux
Its: Director Contracts
Accepted and Agreed
NORTHWEST AIRLINES, INC.
By: /s/ M. D. Powers
Its: Vice President - Finance and Assistant Treasurer
LA 8-21
<PAGE>
EXHIBIT 1
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
<PAGE>
EXHIBIT 2
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
<PAGE>
LETTER AGREEMENT NO. 9
As of September 19, 1997
Northwest Airlines, Inc.
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Re: {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
Dear Ladies and Gentlemen:
Northwest Airlines, Inc. ("Northwest"), and AVSA, S.A.R.L.
("AVSA"), have entered into an Airbus A319 Purchase Agreement, dated as of
even date herewith (the "Agreement"), which covers, among other matters, the
sale by AVSA and the purchase by Northwest of certain Aircraft, under the
terms and conditions set forth in said Agreement. Northwest and AVSA have
agreed to set forth in this Letter Agreement No. 9 (the "Letter Agreement")
certain additional terms and conditions regarding the sale of the Aircraft.
Capitalized terms used herein and not otherwise defined in this Letter
Agreement will have the meanings assigned thereto in the Agreement. The
terms "herein," "hereof" and "hereunder" and words of similar import refer to
this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of said Agreement, that the provisions of said
Agreement are hereby incorporated herein by reference, and that this Letter
Agreement will be governed by the provisions of said Agreement, except that
if the Agreement and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
1. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
1.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
1.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
<PAGE>
1.2.1 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
1.2.2 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
2. ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement or of
the Agreement, this Letter Agreement and the rights and obligations
of Northwest hereunder will not be assigned or transferred in any
manner without the prior written consent of AVSA, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 2 will be void and of no force or effect.
If the foregoing correctly sets forth our understanding, please
execute the original and one (1) copy hereof in the space provided below and
return a copy to AVSA.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ M. Lascaux
Its: Director Contracts
Accepted and Agreed
NORTHWEST AIRLINES, INC.
By: /s/ M. D. Powers
Its: Vice President - Finance and Assistant Treasurer
LA 9-2
<PAGE>
LETTER AGREEMENT NO. 10
As of September 19, 1997
Northwest Airlines, Inc.
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Re: A319-100 SPECIAL APPLICATION
Dear Ladies and Gentlemen:
Northwest Airlines, Inc. ("Northwest"), and AVSA, S.A.R.L.
("AVSA"), have entered into an Airbus A319-100 Purchase Agreement, dated as
of even date herewith (the "Agreement"), which covers, among other things,
the sale by AVSA and the purchase by Northwest of certain Aircraft, under the
terms and conditions set forth in said Agreement. Northwest and AVSA have
agreed to set forth in this Letter Agreement No. 10 (the "Letter Agreement")
certain additional terms and conditions regarding the sale of the Aircraft.
Capitalized terms used herein and not otherwise defined in this Letter
Agreement will have the meanings assigned thereto in the Agreement. The
terms "herein," "hereof" and "hereunder" and words of similar import refer to
this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of said Agreement, that the provisions of said
Agreement are hereby incorporated herein by reference, and that this Letter
Agreement will be governed by the provisions of said Agreement, except that
if the Agreement and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
1. Airbus Industrie Financial Services ("AIFS") and NWA have entered
into the Restated and Amended Loan Agreement (the "AIFS Term Loan")
dated as of 29 March 1996. AIFS is interested in {CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT} and NWA is interested in {CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT} before the stated
maturity of the AIFS Term Loan.
2. AVSA agrees to procure that AIFS, or its agent, will meet with NWA
within ninety (90) days of signature of the Agreement with a view
to discussing in good faith how the objectives identified above
might be met. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT}.
<PAGE>
3. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
4. ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement or of
the Agreement, this Letter Agreement and the rights and obligations
of Northwest hereunder will not be assigned or transferred in any
manner without the prior written consent of AVSA, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 4 will be void and of no force or effect.
If the foregoing correctly sets forth our understanding, please
execute the original and one (1) copy hereof in the space provided below and
return a copy to AVSA.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ M. Lascaux
Its: Director Contracts
Accepted and Agreed
NORTHWEST AIRLINES, INC.
By: /s/ M. D. Powers
Its: Vice President - Finance and Assistant Treasurer
LA 10-2
<PAGE>
LETTER AGREEMENT NO. 11
As of September 19, 1997
Northwest Airlines, Inc.
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Re: MISCELLANEOUS MATTERS
Dear Ladies and Gentlemen:
Northwest Airlines, Inc. ("Northwest"), and AVSA, S.A.R.L.
("AVSA"), have entered into an Airbus A319-100 Purchase Agreement, dated as
of even date herewith (the "Agreement"), which covers, among other things,
the sale by AVSA and the purchase by Northwest of certain Aircraft, under the
terms and conditions set forth in said Agreement. Northwest and AVSA have
agreed to set forth in this Letter Agreement No. 1 (the "Letter Agreement")
certain additional terms and conditions regarding the sale of the Aircraft.
Capitalized terms used herein and not otherwise defined in this Letter
Agreement will have the meanings assigned thereto in the Agreement. The
terms "herein," "hereof" and "hereunder" and words of similar import refer to
this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of said Agreement, that the provisions of said
Agreement are hereby incorporated herein by reference, and that this Letter
Agreement will be governed by the provisions of said Agreement, except that
if the Agreement and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
1. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
<PAGE>
2. INEXCUSABLE DELAY
2.1 AVSA hereby agrees to {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT}.
2.2 AVSA hereby agrees to {CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT}.
2.3 {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}.
3. ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement or of
the Agreement, this Letter Agreement and the rights and obligations
of Northwest hereunder will not be assigned or transferred in any
manner without the prior written consent of AVSA, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 3 will be void and of no force or effect.
If the foregoing correctly sets forth our understanding, please
execute the original and one (1) copy hereof in the space provided below and
return a copy to AVSA.
Very truly yours,
AVSA, S.A.R.L.
By: /s/ M. Lascaux
Its: Director Contracts
Accepted and Agreed
NORTHWEST AIRLINES, INC.
By: /s/ M. D. Powers
Its: Vice President - Finance and Assistant Treasurer
LA 11-2
<PAGE>
CHRISTOPHER E. CLOUSER
Senior Vice President Publisher, Northwest
Communications, Advertising "WorldTraveler" Magazine
and Employee Relations
Northwest Airlines, Inc. 612 727-6300
Department A1300 612 726-3139 Fax
5101 Northwest Drive
St. Paul MN 55111-3034
October 14, 1996
Mr. James A. Lawrence
19 Old Mill Road
Greenwich, CT 06830
Dear Jim:
On behalf of John Dasburg and the Board of Directors of Northwest Airlines,
Inc., I am pleased to confirm our offer to you for the position of Executive
Vice President and Chief Financial Officer of Northwest Airlines, Inc. (the
"Company"), based in Minneapolis/St. Paul. You shall also hold the title of
Executive Vice President and Chief Financial Officer of Northwest Airlines
Corporation ("NAC") and NWA Inc.
The terms and conditions of the offer are as follows:
1. You will receive a monthly salary of $33,333.33 which equates to $400,000
annually.
2. The starting date of your employment with the Company will be October 14,
1996. You shall devote substantially all your working time and efforts to
the business and affairs of the Company. You will be eligible to
participate in the Key Employee Annual Cash Incentive Program at the level
of your position in the Company as that incentive plan is adopted by the
Company's Board of Directors from time to time.
3. You will receive an option to purchase 500,000 shares of NAC's Class A
common stock pursuant to the 1994 Northwest Airlines Corporation Stock
Incentive Plan. The purchase price of the shares subject to this option
grant is $31.875 per share. Your right to purchase the stock option shares
is subject to a five year, 20% per year vesting schedule (with the first
20% installment vesting on October 14, 1997), and such shares shall vest as
long as you are an employee of the Company. This option grant shall be
governed by NAC's standard form Non-Qualified Stock Option
[LOGO]
<PAGE>
Mr. James A. Lawrence
October 14, 1996
Page 2
Agreement which has been provided to you by the Corporate Secretary.
Notwithstanding the five year vesting schedule set forth above, on October
15, 1999, all of your then outstanding and unvested stock options pursuant
to this 500,000 share grant shall immediately vest in the event that on or
before that date the following two events shall have occurred: (i) John
Dasburg is no longer serving as Chief Executive Officer of the Company and
(ii) you are not named his successor (collectively, the "Acceleration
Events"). In the event that the Acceleration Events occur after October 14,
1999, then on the date of such occurrence, all of your then outstanding and
unvested stock options pursuant to this 500,000 share grant shall
immediately vest. In addition, the Non-Qualified Stock Option Agreement
shall contain the Company's standard form "Change of Control" acceleration
provision.
4. You will receive an additional option to purchase 94,118 shares of NAC's
Class A common stock pursuant to the 1994 Northwest Airlines Stock
Incentive Plan. The purchase price of the shares subject to this option
grant is $31.875 per share. Your right to purchase the stock option shares
is subject to a five year, 20% per year vesting schedule (with the first
installment vesting on October 14, 1997), and such shares shall vest as
long as you are an employee of the Company. This option grant shall be
governed by NAC's standard form Non-Qualified Stock Option Agreement which
has been provided to you by the Corporate Secretary. Notwithstanding the
five year vesting schedule set forth above, on October 15, 1999, all of
your then outstanding and unvested stock options pursuant to this 94,118
share grant shall immediately vest in the event that on or before that date
the Acceleration Events shall have occurred. In the event that the
Acceleration Events occur after October 15, 1999, then on the date of such
occurrence, all of your then outstanding and unvested stock options
pursuant to this share grant shall immediately vest. The Non-Qualified
Stock Option Agreement shall contain the Company's standard form "Change of
Control" acceleration provision. In addition, all of your then outstanding
and unvested stock options pursuant to this 94,118 share grant shall
immediately vest in the event your employment is terminated by the Company
without Cause (as defined in paragraph 11 below) or by you for Good Reason
(as defined in paragraph 11 below). Should your employment terminate while
you still hold vested but unexercised stock options pursuant to the 94,118
share grant, you shall have two years from the date your employment
terminates to exercise such vested stock options.
In addition, this 94,118 share option grant (the "Stock Option Grant")
shall be subject to the following additional terms and conditions:
<PAGE>
Mr. James A. Lawrence
October 14, 1996
Page 3
a. During the 60 day period commencing October 18, 1996, you shall expend
$1,000,000 on the purchase of NAC's Class A common stock. You shall
retain ownership of all of the shares purchased during this period
(the "Purchased Common Stock") for so long as the Stock Option Grant
remains outstanding and unexercised. As you exercise all or portions
of the Stock Option Grant and acquire shares of Class A common stock,
you may dispose of the Purchased Common Stock on a pro rata basis
(e.g., if 50% of the common stock subject to the Stock Option Grant is
acquired by you, 50% of the Purchased Common Stock may be sold by
you).
b. For so long as the Stock Option Grant remains unexercised, you shall
pay to the Company $44,000 on December 31, 1997 and $9,167 on the last
day of each subsequent month commencing on January 31, 1998. As you
exercise the Stock Option Grant and acquire shares of Class A common
stock, each payment thereafter to be received by the Company from you
shall be reduced pro rata (e.g. if 50% of the common stock subject to
the Stock Option Grant is acquired by you, the Company shall be
entitled to receive and you shall be obligated to pay 50% of each
payment thereafter scheduled to be made by you).
c. You shall have the right to cancel the Stock Option Grant at any time.
Upon such cancellation, any restrictions on the Purchased Common Stock
contained in this letter shall immediately lapse and the Company's
right to receive payments from you pursuant to paragraph 4(b) above
shall immediately cease.
d. The restrictions and conditions set forth in paragraphs 4(a) and 4(b)
above shall remain in effect for so long as the Stock Option Grant is
outstanding and your right to purchase any shares of common stock
pursuant to that grant remains unexercised, irrespective of whether
you remain in the employment of the Company.
5. You will be eligible to participate in an unfunded supplemental retirement
program ("SERP") which shall provide benefits in excess of those permitted
to accrue or be paid from the Company's qualified defined benefit plan due
to the limitations imposed by Sections 401(a)(17) and 415 of the
Internal Revenue Code of 1986, as amended from time to time, and shall
include the following provisions:
a. You shall be granted additional service credits under the SERP for
purposes of determining your accrued benefits thereunder ("Additional
Accruals"), such service to be granted only during your employment
hereunder, in an amount equal to two additional years for each full
year of employment hereunder
<PAGE>
Mr. James A. Lawrence
October 14, 1996
Page 4
commencing on your start date of October 14, 1996; provided, however,
that in no event shall you be granted more than ten years of
Additional Accruals pursuant to this subparagraph (a).
b. The SERP also contains provisions with respect to (i) eligibility for
early retirement, (ii) forfeiture in the event of your employment by
other airlines, and (iii) calculation of final average earnings.
6. You will be eligible to participate in the Company's employee health and
benefit plans. In addition, while employed hereunder, you will be
reimbursed by the Company for all out-of-pocket medical and dental expenses
incurred by you, your spouse and eligible dependent children and not
otherwise paid or provided for under any medical plan maintained for your
benefit.
7. You will be eligible to participate in Northwest's Executive Life
Insurance. Under this plan, the Company will purchase for you a $1,000,000
executive life insurance policy. The policy will be structured such that
premium payments will be made by the Company over a 7-year vesting period
commencing on your start date and for so long as you are an employee of the
Company. Once all scheduled premium payments have been made, you will be
fully vested in this benefit.
8. You, your spouse and dependent children will be eligible to participate in
Northwest's employee travel program while employed full-time by the
Company.
9. During your relocation to the Minneapolis/St. Paul area, Northwest Airlines
will reimburse you for appropriate expenses pursuant to the Company's
relocation policy.
10. All payments provided for under this letter will be subject to all
applicable federal, state and local taxes.
11. The definition of the terms "Cause" and "Good Reason" is set forth in
Appendix A hereto. The terms and provisions of Appendix A are incorporated
herein and made a part hereof.
This offer is subject to compliance with the regulations of the Company and
state laws, including your providing proof of citizenship, as well as your
willingness to submit to drug testing, background investigations and any
requests for historical verifications, which the Company shall satisfy itself
by October 13, 1996.
<PAGE>
Mr. James A. Lawrence
October 14, 1996
Page 5
The Immigration Reform and Control Act of 1986 requires the Company to verify
the identity and employment authorization of all new employees. In order to
do this, please provide the following information:
Either
a.) A CERTIFIED COPY OF YOUR BIRTH CERTIFICATE.
--AND--
A UNITED STATES PASSPORT OR CERTIFICATE OF UNITED STATES CITIZENSHIP
OR CERTIFICATE OF NATURALIZATION OR UNEXPIRED FOREIGN PASSPORT WITH
ATTACHED EMPLOYMENT AUTHORIZATION OR ALIEN REGISTRATION CARD ("GREEN
CARD") WITH PHOTOGRAPH.
--OR--
b.) A DRIVER'S LICENSE OR U.S. MILITARY CARD ALONG WITH A SOCIAL SECURITY
CARD.
Your employment at Northwest shall be subject to the rules, code of conduct
and regulations of the Company as amended from time to time.
To indicate your understanding and acceptance of this offer, please sign as
indicated and return one copy of this letter to me.
Jim, we look forward to your joining Northwest Airlines. Please do not
hesitate to contact me should you have any questions regarding this offer of
employment.
Sincerely,
/s/ Christopher E. Clouser
Christopher E. Clouser
Accepted: /s/ James A. Lawrence Date:
----------------------- -------------------------
cc: John H. Dasburg
Douglas M. Steenland
<PAGE>
APPENDIX A
"CAUSE" shall mean with respect to termination of your employment hereunder (i)
an act or acts of personal dishonesty by you intended to result in
substantial personal enrichment of you at the expense of the Company, (ii) an
act or acts of personal dishonesty by you intended to cause substantial
injury to the Company, (iii) material breach (other than as a result of a
injury or illness) by you of your obligations under this Agreement which
action was (a) undertaken without a reasonable belief that the action was in
the best interest of the Company and (b) not remedied within a reasonable
period of time after receipt of written notice from the Company specifying
the alleged breach, or (iv) the conviction of you of a felony.
"GOOD REASON" shall mean, with respect to you, any one or more of the
following:
(a) any material change in your job responsibilities; provided that, so
long as you retain a substantial part of your then current oversight
responsibility, a transfer of a portion of your oversight responsibility
shall not in and of itself constitute a material change in your job
responsibilities;
(b) the relocation of the Company's or your principal executive office to a
location outside the Minneapolis-St. Paul Metropolitan Area;
(c) a failure by the Company to comply with any material provision of the
October 14, 1996 letter between you and the Company which has not been
cured within ten (10) days after the Company knows or has notice of such
noncompliance; or
(d) any reduction in your compensation or your benefits, provided that
either (i) such reduction is material or (ii) such reduction is not
material and other Executive Vice Presidents of the Company have not
received the same percentage reduction in compensation and/or benefits as
that received by you.
In order for the termination of your employment to be considered for Good
Reason, such termination must occur within one year after the event giving
rise to such Good Reason. Your continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder.
<PAGE>
DOUGLAS M. STEENLAND
Senior Vice President
General Counsel and Secretary
Northwest Airlines, Inc. 612 727-6500
Department A1180 612 726-7123 Fax
5101 Northwest Drive
St. Paul MN 55111-3034
October 14, 1996
Mr. James A Lawrence
19 Old Mill Road
Greenwich, CT 06830
Dear Jim:
We have offered you, and you have accepted, the position of Executive Vice
President and Chief Financial Officer of Northwest Airlines, Inc. (the
"Company") and certain of its affiliates pursuant to a letter to you from the
Company dated October 14, 1996 and pursuant to this letter which is
incorporated into and made a part of said October 14, 1996 letter. In this
letter, we wish to set forth the benefits to which you shall be entitled in
the event your employment with the Company is terminated by the Company other
than for Cause (as defined below), by you for Good Reason (as defined below),
by you in certain circumstances upon a Change of Control (as defined below)
or as a result of your death or Disability. In return for these termination
benefits, you have agreed to accept and be bound by the covenant not to
compete contained in this letter.
If your employment is terminated (i) by the Company other than for Cause,
(ii) by you for Good Reason, (iii) as a result of your death or Disability,
or (iv) by you for any reason during the six month period commencing on the
second anniversary of a Change in Control of Northwest Airlines Corporation
("Parent"):
(a) The Company shall pay you (i) your accrued and unpaid base salary
through the Date of Termination (as defined below), (ii) any unpaid bonus
under the Key Employee Cash Incentive Bonus Program, or any successor
annual bonus plan, (the "Incentive Bonus") for any calendar year ended
before the Date of Termination, (iii) a pro rata share (based on days
employed during the applicable year) of the Incentive Bonus you would
otherwise have received with respect to the year in
[LOGO]
<PAGE>
Mr. James A. Lawrence
October 14, 1996
Page 2
which the Date of Termination occurs, payable at the time the Incentive
Bonus would otherwise be payable to you; provided, however, that 100% of
the Incentive Bonus shall be determined solely with reference to the
financial performance of the Company for the year (based on the goals
previously established with respect thereto) (rather than a portion of the
Incentive Bonus determined on the basis of individual performance);
provided, further, in the event that the Company's performance exceeds 100%
of the financial performance target for the year, that portion of the
Incentive Bonus that would have, but for this provision, related to the
achievement of the individual performance target shall be equal to 100% and
(iv) any payments or other rights or benefits you may be otherwise entitled
to receive pursuant to the terms of any retirement, pension or other
employee benefit or compensation plan maintained by the Company at the time
or times provided therein.
(b) The Company shall pay you a lump sum amount equal to two times the sum
of (i) your annual base salary and (ii) your target Incentive Bonus with
respect to the year in which the Date of Termination occurs (or if no
target has been set for that year, the target Incentive Bonus for the
immediately preceding year).
(c) You shall not be required to mitigate the amount of any payment
provided for in this letter by seeking other employment or otherwise, and
no such payment shall be offset or reduced as a result of your obtaining
new employment.
(d) Notwithstanding anything else to the contrary in this letter, the
Company's obligation to make the payments provided for in paragraphs
(a)(iii) and (b) above is expressly conditioned upon the execution and
delivery of a release in the form attached hereto. Such release shall not
pertain to the Company's and Parent's indemnity obligations under charter,
by-laws, agreement or insurance.
(e) All payments provided for under this letter will be subject to all
applicable federal, state and local taxes.
Any termination of your employment shall be communicated by 30 days advance
written notice of termination by the terminating party to the other party
(the "Date of Termination").
In consideration for the benefits provided you under this letter, you hereby
acknowledge that your services are of special, unique and extraordinary
value to the Company. Accordingly, in the event you resign without Good
Reason or are terminated for Cause during the term hereof, you shall not at
any time prior to the first anniversary of the Date of Termination become
an employee, consultant, officer, partner or director of any air
<PAGE>
Mr. James A. Lawrence
October 14, 1996
Page 3
carrier which competes with the Company (or any of the Company's affiliates)
or have any significant interest (I.E., 10% or more of the voting stock) in
any such air carrier.
You agree that any breach of the terms of this covenant not to compete would
result in irreparable injury and damage for which there would be no adequate
remedy at law, and that, in the event of said breach or any threat of breach,
the Company shall be entitled to an immediate injunction and restraining
order to prevent such breach or threatened breach, without having to prove
damages, in addition to any other remedies to which the Company may be
entitled at law or in equity. You further agree that the provisions of the
covenant not to compete are reasonable. Should a court determine, however,
that any provision of the covenant not to compete is unreasonable, either in
period of time, geographical area, or otherwise, the parties hereto agree
that the covenant should be interpreted and enforced to the maximum extent
which such court deems reasonable. The provisions of this covenant not to
compete shall survive any termination of this letter and your term of
employment. The existence of any claim or cause of action or otherwise (other
than those which arise out of or are based upon a breach of the terms of this
letter or the October 14, 1996 offer letter), shall not constitute a defense
to the enforcement of this covenant not to compete.
For purposes of this letter, the following terms shall be defined as follows:
"CHANGE IN CONTROL" means any one of the following:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either
(i) the then outstanding shares of Common Stock of Parent (the "Outstanding
Parent Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of Parent entitled to vote generally in the
election of directors (the "Outstanding Parent Voting Securities")
provided, however, that this subsection (a) shall not apply to the
Investor Stockholders party to the Second Amended and Restated
Stockholders' Agreement dated as of December 23, 1993; or
(b) Individuals who, as of June 1, 1994, constitute the Board of
Directors of Parent (the "Incumbent Board") cease for any reason to
constitute at least a majority of such Board; provided, however, that any
individual becoming a director subsequent to June 1, 1994, whose election,
or nomination for election by Parent's stockholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or
<PAGE>
Mr. James A. Lawrence
October 14, 1996
Page 4
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board of Directors of Parent; or
(c) Approval by the stockholders of Parent of a reorganization, merger or
consolidation (a "Business Combination"), in each case, unless, following
such Business Combination, (i) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Parent Common Stock and Outstanding Parent Voting Securities
immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 50% of, respectively, the then outstanding shares
of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result
of such transaction owns Parent through one or more subsidiaries) in
substantially the same proportions as their ownership immediately prior to
such Business Combination of the Outstanding Parent Stock and Outstanding
Parent Voting Securities, as the case may be, and (ii) at least a majority
of the members of the board of directors of the corporation resulting from
such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement or of the action of such Board,
providing for such Business Combination; or
(d) Approval by the stockholders of Parent of (i) a complete liquidation or
dissolution of Parent or (ii) the sale or other disposition of all or
substantially all of the assets of Parent, other than to a corporation with
respect to which following such sale or other disposition, (X) more than
50% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners respectively, of the Outstanding Parent Common Stock and Outstanding
Parent Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership
immediately prior to such sale or other disposition of the Outstanding
Parent Common Stock and Outstanding Parent Voting Securities, as the case
may be, and (Y) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the action of such
Board, providing for such sale or other disposition of assets of Parent or
were elected, appointed or nominated by the Incumbent Board.
<PAGE>
Mr. James A. Lawrence
October 14, 1996
Page 5
"CAUSE" shall mean with respect to termination of your employment hereunder
(i) an act or acts of personal dishonesty by you intended to result in
substantial personal enrichment of you at the expense of the Company, (ii) an
act or acts of personal dishonesty by you intended to cause substantial
injury to the Company, (iii) material breach (other than as a result of a
injury or illness) by you of your obligations under this Agreement which
action was (a) undertaken without a reasonable belief that the action was in
the best interest of the Company and (b) not remedied within a reasonable
period of time after receipt of written notice from the Company specifying
the alleged breach, or (iv) the conviction of you of a felony.
"DISABILITY" shall mean your physical condition which prevents continued
performance of your duties hereunder if you establish by medical evidence
that such condition will be permanent and continuous during the remainder of
your life or is likely to be of at least three years' duration.
"GOOD REASON" shall mean, with respect to you, any one or more of the
following:
(a) any material change in your job responsibilities; provided that, so
long as you retain a substantial part of your then current oversight
responsibility, a transfer of a portion of your oversight responsibility
shall not in and of itself constitute a material change in your job
responsibilities;
(b) the relocation of the Company's or your principal executive office to a
location outside the Minneapolis-St. Paul Metropolitan Area;
(c) a failure by the Company to comply with any material provision of the
October 14, 1996 letter between you and the Company which has not been
cured within ten (10) days after the Company knows or has notice of such
noncompliance; or
(d) any reduction in your compensation or your benefits, provided that
either (i) such reduction is material or (ii) such reduction is not
material and other Executive Vice Presidents of the Company have not
received the same percentage reduction in compensation and/or benefits as
that received by you.
In order for the termination of your employment to be considered for Good
Reason, such termination must occur within one year after the event giving
rise to such Good Reason. Your continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder.
<PAGE>
Mr. James A. Lawrence
October 14, 1996
Page 6
To indicate your understanding and acceptance of the terms and conditions of
this letter, please sign where indicated below.
Sincerely yours,
/s/ Douglas M. Steenland
Douglas M. Steenland
Accepted: /s/ James A. Lawrence Date:
--------------------- ------------------
<PAGE>
APPENDIX
GENERAL RELEASE
WHEREAS, Mr. James A. Lawrence ("Executive") has been employed by
Northwest Airlines, Inc. ("Northwest"); and
WHEREAS, Executive's employment with Northwest has terminated; and
WHEREAS, Executive and Northwest have reached a full and final
compromise and settlement of all matters, disputes, causes of action, claims,
contentions and differences between them and Northwest's divisions, merged
entities and affiliates, subsidiaries, parents, branches, predecessors,
successors, assigns, officers, directors, trustees, employees, agents,
stockholders, administrators, representatives, attorneys, insurers or
fiduciaries, past, present or future (the "Released Parties"), including but
not limited to any and all claims arising from or derivative of Executive's
employment with Northwest and his termination from employment with Northwest;
WHEREAS, in return for Northwest performing its obligations as provided
for herein and as set forth in the two letter agreements by and between
Northwest and Executive dated as of October 14, 1996 and the two Option
Agreements defined below (collectively, the "Agreement"), Executive will
execute and comply fully with the terms of this General Release (the
"Release");
WHEREAS, Executive (i) understands that in executing the Release he is,
INTER ALIA, giving up rights and claims under the Age Discrimination in
Employment Act of 1967, as amended, 29 U.S.C. Section 621 ET SEQ. ("ADEA")
and (ii) has been given a period of not less than twenty-one (21) days within
which to consider this Release;
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, Executive and Northwest agree and covenant as follows:
1. By entering into this Release, the Released Parties do not admit,
and each specifically denies any liability, wrongdoing or violation of any
law, statute, regulations, agreement or policy.
2. Executive's employment with Northwest shall terminate
effective ____________.
3. In consideration of the obligations of Executive as set forth in
this Release and the Agreement, and in full settlement and final satisfaction
of any and all claims, contractual or otherwise, which Executive had, has or
may have against Northwest or the Released Parties with
-1-
<PAGE>
respect to his employment, termination from employment with Northwest, or
otherwise arising on or prior to the date of execution of this Release,
Northwest shall pay to Executive the payments and benefits to which Executive
is entitled under the Agreement upon termination of Executive's employment.
This Release shall not pertain to any claim alleging that Northwest has
failed to comply with any obligations created by the Release or that
Northwest has failed to pay to Executive the payments and benefits to which
Executive is entitled under the Agreement upon termination of Executive's
employment.
4. (a) Executive, for and in consideration of the payments as set
forth in the Agreement and for other good and valuable consideration, hereby
releases and forever discharges, and by this release does release and forever
discharge, the Released Parties of and from all debts, obligations, promises,
covenants, collective bargaining obligations, agreements, contracts,
endorsements, bonds, controversies, suits or causes of actions known or
unknown, suspected or unsuspected, of every kind and nature whatsoever, which
may heretofore have existed or which may now exist, including but not limited
to those arising under the ADEA, Title VII of the Civil Rights Act of 1964,
as amended, 42 U.S.C. Section 2000e ET SEQ., the Employee Retirement Income
Security Act of 1974, as amended, 29 U.S.C. Section 1001 ET SEQ., the
Americans With Disabilities Act, as amended, 42 U.S.C. Section 12101 ET SEQ.,
the Reconstruction Era Civil Rights Act, as amended, 42 U.S.C. Section 1981
ET SEQ., the Rehabilitation Act of 1973, as amended, 29 U.S.C. Section 701 ET
SEQ., the Family and Medical Leave Act of 1992, 29 U.S.C. Section 2601 ET
SEQ., the Minnesota Human Rights Act, Minn. Stat. Section 363.01 ET SEQ., and
any and all state or local laws regarding employment discrimination and/or
federal, state or local laws of any type or description regarding employment
as well as any claim for breach of contract, wrongful discharge, breach of
any express or implied promise, misrepresentation, fraud, retaliation,
violation of public policy, infliction of emotional distress, defamation,
promissory estoppel, invasion of privacy or any other theory or claim,
whether legal or equitable, including but not limited to any claims arising
from or derivative of Executive's employment with Northwest and
Executive's termination of employment with Northwest or otherwise. Executive
acknowledges that he has not been discriminated against on the basis of age,
sex, handicap, race, ethnicity religion or any other protected class status.
-2-
<PAGE>
(b) This Release shall not affect any present or future indemnification
obligations that Northwest and the Released Parties may have to Executive
pursuant to any charter, by-law, agreement or policy of insurance.
(c) Pursuant to the two Non-Qualified Stock Option Agreements between
Executive and Northwest Airlines Corporation each dated October 14, 1996
(the "Option Agreements"), Executive has a vested right to acquire [ ]
shares of the Class A Common Stock of Northwest (the "Vested Options"). This
Release shall not affect Executive's rights under the Option Agreements with
respect to such Vested Options or to any shares of stock previously
purchased pursuant to such Vested Options, which rights shall continue to be
governed by the Option Agreements.
5. Executive covenants and agrees not to sue nor authorize any other
party, either governmental or otherwise, to file any grievances, arbitration
or commence any other proceeding, administrative or judicial, against the
Released Parties in any court of law or equity, or before any administrative
agency, with respect to any matter relating to this Agreement or to matters
occurring during Executive's employment with Northwest.
6. The Released Parties and Executive understand and agree that the
terms of this Release and the Agreement are confidential.
7. Executive agrees not to make any untruthful or disparaging
statements, written or oral, about Northwest, the Released Parties or
Northwest's personnel policies and practices to any of Northwest's customers,
competitors, suppliers, employees, former employees, or the press or other
media. Except as herein contemplated, Executive also agrees that he will not
voluntarily participate in any proceeding of any kind brought against the
Released Parties relating to this Agreement or to matters occurring during
Executive's employment with Northwest.
8. (a) The parties agree that this Release should be construed in
accordance with the laws of the State of Minnesota, exclusive of Minnesota
choice of law provisions.
(b) The parties agree that any and all further legal proceedings
between Executive and the Released Parties, whether arising under statute,
constitutions, contract, common law or otherwise, including the issue of
arbitrability, will be submitted for resolution exclusively pursuant to
arbitration under the rules of the American Arbitration Association and that
such
-3-
<PAGE>
arbitration will take place in Minneapolis, Minnesota. The parties hereby
waive their right to a trial of any and all claims arising out of this
Release or breach of this Release.
(c) Should any provision of this Release be found to be in
violation of any law, or ineffective or barred for any reason whatsoever, the
remainder of this Release shall be in full force and effect to the maximum
extent permitted by law.
9. Northwest and Executive agree to execute such other documents and
to take such other actions as may be reasonably necessary to further the
purposes of this Release.
10. (a) Executive acknowledges and agrees that, in deciding to execute
this Release, he has had the opportunity to consult with legal, financial and
other personal advisors of his own choosing as he deems appropriate, in
assessing whether to execute this Release and that he has consulted with
legal counsel. Executive represents and acknowledges that no representations,
statement, promise, inducement, threat or suggestion has been made by
Northwest or the released Parties to influence him to sign this Release
except such statements as are expressly set forth herein. Executive agrees
that he has been given a minimum of twenty-one (21) days within which to
consider the terms and effects of this Release insofar as it relates to
settlement and release of potential claims under the ADEA, and to consult
with, and to ask any questions that he may have of anyone, including legal
counsel and other personal advisors of his own choosing, and that he has
executed this Release voluntarily and with full understanding of its terms
and effects.
(b) Executive has been informed of the right to rescind this release as
far as it extends to potential claims under Minn. Stat. Ch. 363 (prohibiting
discrimination in employment) by written notice to the Company within 15
calendar days following the execution of this Release. Executive has also
been informed of his right to revoke this Release as far as it extends to
potential claims under the Age Discrimination in Employment Act, 29 U.S.C.
Section 621 ET SEQ., by informing the Company of his intent to revoke this
Release within seven calendar days following the execution of this Release.
To be effective, notice of rescission or revocation must be in writing and
must be delivered either by hand or by mail to Douglas Steenland, Sr. Vice
President, General Counsel and Secretary, Northwest Airlines, Inc., Department
A1180, 5101 Northwest Drive, St. Paul, Minnesota, 55111-3034, within the 15-day
period. If a notice of rescission or revocation is delivered by mail, it must
be: (i) postmarked within the 15 or 7 day period, respectively, (ii) properly
addressed to Mr. Steenland as set forth above, and, (iii) sent
-4-
<PAGE>
by certified mail return receipt requested. This Release shall not become
effective or enforceable until the 15 or 7 day periods described above have
expired. No payments shall be due, owing or paid by Northwest unless and
until this Release becomes effective.
11. This Release may not be changed or modified, except by a written
instrument signed by Executive and Northwest.
-----------------------------------
(Employee's Name)
Address
Date
STATE OF ___________)
)ss
COUNTY OF___________)
On ___________, 1996, before me personally came ________________________
to me known and known to me to be the individual described in, and who
executed, the foregoing General Release, and duly acknowledged to me that he
executed same.
-----------------------------------
Notary Public
NORTHWEST AIRLINES, INC.
By
---------------------------------
Address
Date
-5-
<PAGE>
Northwest Airlines Corporation
1996 Retention and Long Term Incentive Compensation Plan
First Amendment to the
Northwest Airlines Corporation
1996 Retention and Long Term Incentive Compensation Plan ("First Amendment")
1. Reference is made to the Northwest Airlines Corporation 1996
Retention and Long Term Incentive Compensation Plan (the "Plan").
2. Section 1(a) of the Plan is hereby amended to read in its entirety
as follows:
"a. "Administrator" means the Compensation Administration Subcommittee of
the Compensation and Stock Option Committee of the Board, or, if the
Board elects to administer the Plan or there otherwise is no
Administrator, the Board."
3. References to the "Plan" in the Plan document shall mean the Plan
as amended by this First Amendment.
<PAGE>
DOUGLAS M. STEENLAND
Senior Vice President
General Counsel and Secretary
Northwest Airlines, Inc. 612 727-6500
Department A1180 612 726-7123 Fax
5101 Northwest Drive
St. Paul MN 55111-3034
October 10, 1997
Mr. Michael E. Levine
2675 E. Lake of the Isles Parkway
Minneapolis, MN 55408
Dear Mr. Levine:
Pursuant to a letter agreement dated September 1, 1996, you presently are a
participant in Northwest Airlines, Inc.'s Supplemental Executive Retirement
Program (the "SERP"). As provided for in Section 4.3 of the SERP, this letter
shall constitute an agreement requiring the SERP to recognize additional
years of benefit service with respect to your SERP benefit and shall be given
effect under the SERP as if fully set forth therein. We hereby agree as
follows:
1. The following rules shall apply to the determination of the benefit
payable to or with respect to you from the SERP.
a. On June 26, 1998, you shall be entitled to two (2) additional
years of Benefit Service in addition to the years which you are
entitled to under Section 4.1.1(a) and section 4.2.1(a) of
the SERP, provided that you remain an employee of the Company
from the date hereof to June 26, 1998.
b. On June 26, 1999, you shall be entitled to two (2) additional
years of Benefit Service in addition to the years which you are
entitled to under Section 4.1.1(a) and section 4.2.1(a) of
the SERP, provided that you remain an employee of the Company
from the date hereof to June 26, 1999.
<PAGE>
Mr. Michael E. Levine
October 10, 1997
Page 2
c. On June 26, 2000, you shall be entitled to two (2) additional
years of Benefit Service in addition to the years which you are
entitled to under Section 4.1.1(a) and section 4.2.1(a) of
the SERP, provided that you remain an employee of the Company
from the date hereof to June 26, 2000.
d. On June 26, 2001, you shall be entitled to two (2) additional
years of Benefit Service in addition to the years which you are
entitled to under Section 4.1.1(a) and section 4.2.1(a) of
the SERP, provided that you remain an employee of the Company
from the date hereof to June 26, 2001.
e. On June 26, 2002, you shall be entitled to two (2) additional
years of Benefit Service in addition to the years which you are
entitled to under Section 4.1.1(a) and section 4.2.1(a) of
the SERP, provided that you remain an employee of the Company
from the date hereof to June 26, 2002.
If this letter accurately reflects your agreement with the Company, please
sign where indicated.
Sincerely yours,
/s/ Douglas M. Steenland /s/ Christopher E. Clouser
-------------------------- --------------------------
Douglas M. Steenland Christopher E. Clouser
Accepted and Agreed:
/s/ Michael E. Levine
--------------------------
Michael E. Levine
<PAGE>
EXHIBIT 12.1
NORTHWEST AIRLINES CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Income (loss) before income taxes and 1997 and 1995
extraordinary items.................................... $ 984.6 $ 872.4 $ 543.5 $ 498.3 $ (123.2)
Less: Income (loss) from less than 50% owned investees... 19.4 15.7 (10.3) (4.8) --
Add: Rent expense representative of interest(1).......... 197.7 191.5 193.4 185.7 188.2
Interest expense net of capitalized interest........... 228.5 251.7 374.3 374.0 364.8
Interest of preferred security holder.................. 24.3 27.2 7.1 -- --
Amortization of debt discount and expense.............. 5.7 10.8 13.1 9.7 7.2
Amortization of interest capitalized................... 3.0 2.9 4.0 3.3 4.1
--------- --------- --------- --------- ---------
ADJUSTED EARNINGS.................................. $ 1,424.4 $ 1,340.8 $ 1,145.7 $ 1,075.8 $ 441.1
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
FIXED CHARGES:
Rent expense representative of interest(1)............... $ 197.7 $ 191.5 $ 193.4 $ 185.7 $ 188.2
Interest expense net of capitalized interest............. 228.5 251.7 374.3 374.0 364.8
Interest of preferred security holder.................... 24.3 27.2 7.1 -- --
Amortization of debt discount and expense................ 5.7 10.8 13.1 9.7 7.2
Capitalized interest..................................... 10.6 7.3 13.9 3.5 2.4
--------- --------- --------- --------- ---------
FIXED CHARGES...................................... $ 466.8 $ 488.5 $ 601.8 $ 572.9 $ 562.6
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIO OF EARNINGS TO FIXED CHARGES....................... 3.05 2.74 1.90 1.88 --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
COVERAGE DEFICIENCY...................................... $ 121.5
---------
---------
(2)
</TABLE>
- ------------------------
(1) Calculated as one-third of rentals, which is considered representative of
the interest factor.
(2) Excluding nonrecurring special charges of $94.3 million for the year ended
December 31, 1993, earnings were inadequate to cover fixed charges by $27.2
million.
<PAGE>
EXHIBIT 12.2
NORTHWEST AIRLINES CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK REQUIREMENTS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Income (loss) before income taxes and 1997 and 1995
extraordinary items.................................... $ 984.6 $ 872.4 $ 543.5 $ 498.3 $ (123.2)
Less:
Income (loss) from less than 50% owned investees....... 19.4 15.7 (10.3) (4.8) --
Add:
Rent expense representative of interest(1)............. 197.7 191.5 193.4 185.7 188.2
Interest expense net of capitalized interest........... 228.5 251.7 374.3 374.0 364.8
Interest of preferred security holder.................. 24.3 27.2 7.1 -- --
Amortization of debt discount and expense.............. 5.7 10.8 13.1 9.7 7.2
Amortization of interest capitalized................... 3.0 2.9 4.0 3.3 4.1
--------- --------- --------- --------- ---------
ADJUSTED EARNINGS.................................... $ 1,424.4 $ 1,340.8 $ 1,145.7 $ 1,075.8 $ 441.1
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
FIXED CHARGES AND PREFERRED STOCK REQUIREMENTS:
Rent expense representative of interest(1)............... $ 197.7 $ 191.5 $ 193.4 $ 185.7 $ 188.2
Interest expense net of capitalized interest............. 228.5 251.7 374.3 374.0 364.8
Preferred stock requirements............................. 21.9 61.0 91.8 100.0 92.2
Interest of preferred security holder.................... 24.3 27.2 7.1 -- --
Amortization of debt discount and expense................ 5.7 10.8 13.1 9.7 7.2
Capitalized interest..................................... 10.6 7.3 13.9 3.5 2.4
--------- --------- --------- --------- ---------
FIXED CHARGES AND PREFERRED STOCK REQUIREMENTS....... $ 488.7 $ 549.5 $ 693.6 $ 672.9 $ 654.8
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK
REQUIREMENTS........................................... 2.91 2.44 1.65 1.60 --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
COVERAGE DEFICIENCY...................................... $ 213.7(2)
---------
---------
</TABLE>
- ------------------------
(1) Calculated as one-third of rentals, which is considered representative of
the interest factor.
(2) Excluding nonrecurring special charges of $94.3 million for the year ended
December 31, 1993, earnings were inadequate to cover fixed charges by $119.4
million.
<PAGE>
EXHIBIT 21.1
NORTHWEST AIRLINES CORPORATION
NORTHWEST AIRLINES
CORPORATION
Delaware Corp.
NWA INC.
Delaware Corp.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
NORTHWEST NORTHWEST MLT INC. NORTHWEST NWA AIRCRAFT NORTHWEST CAPITAL NORTHWEST PARS
AIRCRAFT INC. AEROSPACE Minnesota Corp. AIRLINES, INC. FINANCE, INC. FUNDING CORP. HOLDINGS, INC.
Delaware Corp. TRAINING CORP. Minnesota Corp. Delaware Corp. Delaware Corp. Delaware Corp.
Delaware Corp.
<C>
EXPRESS AIRLINES I, INC.
Georgia Corp.
</TABLE>
99% LIMITED PARTNER
WINGS FINANCE WIN-WIN L.P.
COMPANY Delaware Limited
Japanese Corp. Partnership
* Each subsidiary is 100% wholly-owned unless otherwise noted.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the use of our report dated January 25, 1998 included in the
Annual Report (Form 10-K) of Northwest Airlines Corporation.
Our audit also included the financial statement schedule of Northwest
Airlines Corporation listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audit. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-41579) of Northwest Airlines Corporation and
Northwest Airlines, Inc. and in the related Prospectuses and in the
Registration Statements on Form S-8 (Nos. 33-85220, 333-2652, 333-14445,
333-12571 and 333-46045) of our reports dated January 25, 1998, with respect
to the consolidated financial statements and the financial statement schedule
included in this Annual Report (Form 10-K) of Northwest Airlines Corporation.
ERNST & YOUNG LLP
Minneapolis, Minnesota
March 25, 1998
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