<PAGE>
FILED PURSUANT TO RULE 424(B)(2)
REGISTRATION NO. 333-79215
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 7, 1999)
$240,163,000
[LOGO]
NORTHWEST AIRLINES
1999-3 PASS THROUGH TRUSTS
PASS THROUGH CERTIFICATES, SERIES 1999-3
-----------------
NORTHWEST AIRLINES, INC. IS ISSUING, THROUGH THREE SEPARATE TRUSTS, CLASS G,
CLASS B AND CLASS C CERTIFICATES, SERIES 1999-3. THE PROCEEDS FROM THE SALE OF
CERTIFICATES WILL BE USED TO FINANCE OR REFINANCE THE ACQUISITION OF 14 NEW
BRITISH AEROSPACE AVRO RJ85 AIRCRAFT DELIVERED OR SCHEDULED FOR DELIVERY FROM
APRIL 1999 THROUGH MAY 2000.
INTEREST ON THE CERTIFICATES WILL BE PAYABLE SEMIANNUALLY ON EACH APRIL 1 AND
OCTOBER 1, BEGINNING APRIL 1, 2000. PRINCIPAL PAYMENTS IN RESPECT OF THE
CERTIFICATES ARE SCHEDULED ON APRIL 1 OR OCTOBER 1, OR BOTH, IN CERTAIN YEARS,
BEGINNING ON APRIL 1, 2000.
THE CLASS G CERTIFICATES WILL RANK SENIOR IN RIGHT OF DISTRIBUTIONS TO THE OTHER
CERTIFICATES. THE CLASS B CERTIFICATES WILL RANK JUNIOR IN RIGHT OF
DISTRIBUTIONS TO THE CLASS G CERTIFICATES AND WILL RANK SENIOR IN RIGHT OF
DISTRIBUTIONS TO THE CLASS C CERTIFICATES. THE CLASS C CERTIFICATES WILL RANK
JUNIOR IN RIGHT OF DISTRIBUTIONS TO THE OTHER CERTIFICATES.
MORGAN STANLEY CAPITAL SERVICES, INC. WILL PROVIDE A LIQUIDITY FACILITY FOR EACH
CLASS OF CERTIFICATES, IN EACH CASE IN AN AMOUNT SUFFICIENT TO MAKE THREE
SEMIANNUAL INTEREST PAYMENTS.
MBIA INSURANCE CORPORATION WILL ISSUE A FINANCIAL GUARANTY INSURANCE POLICY TO
SUPPORT THE PAYMENT OF INTEREST ON THE CLASS G CERTIFICATES WHEN DUE AND THE
PAYMENT OF THE OUTSTANDING BALANCE ON THE CLASS G CERTIFICATES ON THE FINAL
LEGAL DISTRIBUTION DATE FOR SUCH CERTIFICATES AND UNDER CERTAIN OTHER
CIRCUMSTANCES AS DESCRIBED HEREIN.
[LOGO]
THE CERTIFICATES REPRESENT INTERESTS IN THE ASSETS OF THE PASS THROUGH TRUSTS
FORMED TO FINANCE OR REFINANCE THE ACQUISITION OF THE AIRCRAFT AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF NORTHWEST AIRLINES, INC. OR ANY OF ITS
AFFILIATES.
-------------------
INVESTING IN THE CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE S-22.
-------------------
<TABLE>
<CAPTION>
PRINCIPAL FINAL EXPECTED PRICE TO
PASS THROUGH CERTIFICATES AMOUNT INTEREST RATE DISTRIBUTION DATE PUBLIC(1)
- ------------------------- --------- ------------- ----------------- ---------
<S> <C> <C> <C> <C>
1999--3G..................... $150,203,000 7.935% APRIL 1, 2019 100%
1999--3B..................... 58,013,000 9.485 APRIL 1, 2015 100
1999--3C..................... 31,947,000 9.152 APRIL 1, 2010 100
</TABLE>
- ---------
(1) PLUS ACCRUED INTEREST, IF ANY, FROM DECEMBER 9, 1999.
------------------------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE UNDERWRITERS WILL PURCHASE ALL OF THE CLASS G, B AND C CERTIFICATES, IF ANY
ARE PURCHASED, SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS. THE AGGREGATE
PROCEEDS FROM THE SALE OF THE CLASS G, B AND C CERTIFICATES WILL BE
$240,163,000. NORTHWEST AIRLINES, INC. WILL PAY THE UNDERWRITERS A COMMISSION OF
$2,091,385. MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE
CERTIFICATES TO PURCHASERS ON DECEMBER 9, 1999. THE CERTIFICATES WILL NOT BE
LISTED ON ANY NATIONAL SECURITIES EXCHANGE.
------------------------
MORGAN STANLEY DEAN WITTER
CHASE SECURITIES INC.
SALOMON SMITH BARNEY
U.S. BANCORP PIPER JAFFRAY
DECEMBER 2, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
<S> <C>
PAGE
-----
Presentation of Information............ S-3
Summary of Terms....................... S-4
The Offering........................... S-9
Risk Factors........................... S-22
Description of the Policy Provider..... S-30
The Company............................ S-32
Use of Proceeds........................ S-36
Description of the Certificates........ S-37
Description of the Deposit
Agreements........................... S-54
Description of the Escrow Agreements... S-56
Description of the Liquidity
Facilities........................... S-57
Description of the Policy and the
Policy Provider Agreement............ S-62
Description of the Intercreditor
Agreement............................ S-66
Description of the Aircraft and the
Appraisals........................... S-74
Description of the Equipment Notes..... S-75
Certain U.S. Federal Income Tax
Consequences......................... S-93
Certain Connecticut Taxes.............. S-96
ERISA Considerations................... S-96
Underwriting........................... S-100
Legal Matters.......................... S-101
Experts................................ S-101
Index of Certain Defined Terms....... Appendix I
Summary of Aircraft Appraisals...... Appendix II
<CAPTION>
PROSPECTUS
PAGE
<S> <C>
-----
About the Prospectus................... 2
Incorporation of Certain Documents by
Reference............................ 3
Disclosure Regarding Forward-Looking
Statements........................... 3
The Company............................ 4
General Outline of Trust Structure..... 4
Use of Proceeds........................ 6
Ratio of Earnings to Fixed Charges..... 6
Description of the Certificates........ 7
Description of the Equipment Notes..... 20
United States Federal Income Tax
Consequences......................... 25
ERISA Considerations................... 29
Plan of Distribution................... 30
Legal Opinions......................... 31
Experts................................ 31
</TABLE>
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference. We have not authorized anyone to provide you with
information different from that contained or incorporated by reference in this
prospectus supplement and the accompanying prospectus. Northwest Airlines, Inc.
is offering to sell the certificates and seeking offers to buy the certificates,
only in jurisdictions where offers and sales are permitted. The information
contained in or incorporated by reference in this prospectus supplement and the
accompanying prospectus is accurate only as of the date of this prospectus
supplement, regardless of the time of delivery of this prospectus supplement and
the accompanying prospectus or of any sales of the certificates.
S-2
<PAGE>
PRESENTATION OF INFORMATION
These offering materials consist of two documents: (a) this prospectus
supplement, which describes the terms of the certificates that Northwest
Airlines, Inc. is currently offering, and (b) the accompanying prospectus, which
provides general information about Northwest Airlines, Inc. pass through
certificates, some of which may not apply to the certificates that Northwest
Airlines, Inc. is currently offering. THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT REPLACES ANY INCONSISTENT INFORMATION INCLUDED IN THE ACCOMPANYING
PROSPECTUS.
We have given certain capitalized terms specific meanings for purposes of
this prospectus supplement. The "Index of Certain Defined Terms" attached as
Appendix I to this prospectus supplement lists the page in this prospectus
supplement on which we have defined each such term.
At varying places in this prospectus supplement and the prospectus, we refer
you to other sections of such documents for additional information by indicating
the caption heading of such other sections. The page on which each principal
caption included in this prospectus supplement and the prospectus can be found
is listed in the Table of Contents above. All such cross references in the
prospectus supplement are to captions contained in this prospectus supplement
and not in the accompanying prospectus, unless otherwise stated.
S-3
<PAGE>
SUMMARY OF TERMS
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT
IS IMPORTANT TO YOU. FOR MORE COMPLETE INFORMATION ABOUT NORTHWEST AIRLINES
CORPORATION ("NWA CORP.", AND TOGETHER WITH ITS SUBSIDIARIES, THE "COMPANY" OR
"WE") AND NORTHWEST AIRLINES, INC. ("NORTHWEST"), YOU SHOULD READ THIS ENTIRE
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, AS WELL AS THE MATERIALS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION THAT ARE CONSIDERED TO BE PART
OF SUCH PROSPECTUS. SEE "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" IN THE
PROSPECTUS.
SUMMARY OF TERMS OF CERTIFICATES
<TABLE>
<CAPTION>
CLASS G CLASS B CLASS C
CERTIFICATES CERTIFICATES CERTIFICATES
----------------- ----------------- -----------------
<S> <C> <C> <C>
Aggregate Face Amount.................. $150,203,000 $58,013,000 $31,947,000
Ratings:
Moody's.............................. Aaa Baa2 Baa3
Standard & Poor's.................... AAA BBB BBB-
Initial Loan to Aircraft Value
(cumulative)(1)...................... 44.1% 61.4% 69.1%
Expected Principal Distribution Window
(in years)........................... 0.3-19.3 0.8-15.3 0.3-10.3
Initial Average Life from Issuance Date
(in years)........................... 12.6 9.4 5.0
Regular Distribution Dates............. April 1 and April 1 and April 1 and
October 1 October 1 October 1
Final Expected Regular Distribution
Date................................. April 1, 2019 April 1, 2015 April 1, 2010
Final Legal Distribution Date.......... October 1, 2020 October 1, 2016 October 1, 2011
Minimum Denomination................... $1,000 $1,000 $1,000
Section 1110 Protection................ Yes Yes Yes
Liquidity Facility Coverage............ 3 semiannual 3 semiannual 3 semiannual
interest payments interest payments interest payments
Policy Coverage (2).................... Yes No No
</TABLE>
- ------------------------
(1) These percentages are calculated as of October 1, 2000, the first Regular
Distribution Date after all Aircraft are scheduled to have been delivered.
In making such calculations, we have assumed that all Aircraft are delivered
prior to such date, that the maximum principal amount of the Equipment Notes
is issued and that the aggregate appraised Aircraft base value is
$334,822,800 as of such date. The appraised base value is only an estimate
and reflects certain assumptions, which assumptions may not reflect current
market conditions. See "Description of the Aircraft and the
Appraisals--Appraisals."
(2) The Policy will support the payment of interest on the Class G Certificates
(when due and after taking into account the application of any amount
received by the Escrow Agent in respect of accrued interest on the Class G
Deposits and the prior use of any available funds under the Liquidity
Facility or the Cash Collateral Account for the Class G Certificates) and
the payment of the outstanding balance of the Class G Certificates on the
Final Legal Distribution Date for the Class G Certificates and in certain
other circumstances as described herein.
S-4
<PAGE>
EQUIPMENT NOTES AND THE AIRCRAFT
Set forth below is certain information about the Equipment Notes expected to
be held in the trusts and the aircraft expected to secure such equipment notes
(the "AIRCRAFT"):
<TABLE>
<CAPTION>
MAXIMUM
ACTUAL/EXPECTED ACTUAL/EXPECTED MONTH DELIVERED OR PRINCIPAL AMOUNT
REGISTRATION MANUFACTURER'S SCHEDULED APPRAISED OF EQUIPMENT
AIRCRAFT TYPE NUMBER(1) SERIAL NUMBER(1) DELIVERY MONTH(2) BASE VALUE(3) NOTES(4)
- ------------- --------------- ---------------- ------------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
BAe Avro RJ85 N523XJ E2348 April 1999 $23,410,000 $16,902,020
BAe Avro RJ85 N524XJ E2349 April 1999 23,410,000 16,902,020
BAe Avro RJ85 N525XJ E2350 May 1999 23,540,000 16,995,880
BAe Avro RJ85 N526XJ E2351 May 1999 23,540,000 16,995,880
BAe Avro RJ85 N527XJ E2352 June 1999 23,670,000 17,089,740
BAe Avro RJ85 N528XJ E2353 June 1999 23,670,000 17,089,740
BAe Avro RJ85 N529XJ E2363 December 1999 24,310,000 17,551,820
BAe Avro RJ85 N530XJ E2364 January 2000 24,610,000 17,768,420
BAe Avro RJ85 N531XJ E2365 January 2000 24,610,000 17,768,420
BAe Avro RJ85 N532XJ TBD March 2000 24,770,000 17,883,940
BAe Avro RJ85 N533XJ TBD March 2000 24,770,000 17,883,940
BAe Avro RJ85 N534XJ TBD April 2000 24,900,000 17,977,800
BAe Avro RJ85 N535XJ TBD April 2000 24,900,000 17,977,800
BAe Avro RJ85 N536XJ TBD May 2000 24,950,000 18,013,900
</TABLE>
- ------------------------
(1) Actual Registration Numbers and Manufacturer's Serial Numbers for each
Aircraft delivered through November 1999 are indicated above. Expected
Registration Numbers and Manufacturer's Serial Numbers are provided for each
Aircraft to be delivered after November 1999.
(2) This information is based upon Northwest's purchase agreement with the
manufacturer. The delivery months for the first six Aircraft are set forth
on the table. The actual delivery date for any other Aircraft may be subject
to delay. The delivery deadline for purposes of this offering will be no
later than July 31, 2000 (the "DELIVERY PERIOD TERMINATION DATE"). See
"Description of the Aircraft and the Appraisals--Deliveries of Aircraft."
(3) The appraised base value of each Aircraft set forth above is based upon the
lesser of the average and median values of such Aircraft, projected as of
the scheduled delivery month of the related Aircraft, as appraised by the
following three independent appraisal and consulting firms:
<TABLE>
<CAPTION>
APPRAISER DATE OF APPRAISAL
- --------- -----------------
<S> <C>
Aircraft Information Services, Inc....................... November 5, 1999
AvSOLUTIONS, Inc......................................... November 5, 1999
Morton Beyer and Agnew, Inc.............................. August 20, 1999
</TABLE>
Such appraisals are based on varying assumptions and methodologies which may
not reflect current conditions. An appraisal is only an estimate of value
and you should not rely upon it as a measure of realizable value. See "Risk
Factors--Factors Relating to the Certificates and the Offering--Appraisals
and Realizable Value of the Aircraft."
(4) The actual principal amount issued for any aircraft may be less than the
amounts set forth in this table depending upon the circumstances of the
financing of such aircraft. The aggregate principal amount of all of the
equipment notes of each series will not exceed the aggregate face amount of
Certificates of the corresponding class.
S-5
<PAGE>
LOAN TO AIRCRAFT VALUE RATIOS
The following table sets forth loan to Aircraft value ratios ("LTVS") for
each Class of Certificates as of October 1, 2000 (the first Regular Distribution
Date that occurs after all Aircraft are scheduled to have been delivered) and
each April Regular Distribution Date thereafter assuming that Equipment Notes of
each Series in the maximum principal amount for all of the Aircraft are acquired
by the Trusts prior to the Delivery Period Termination Date. The LTVs for any
Class of Certificates as of dates prior to October 1, 2000 are not meaningful,
since the property of the Trusts will not include during such period all of the
Equipment Notes expected to be acquired by the Trusts and the related Aircraft
will not be included in the calculation. The table should not be considered a
forecast or prediction of expected or likely LTVs but simply a mathematical
calculation based upon one set of assumptions. See "Risk Factors--Risk Factors
Relating to the Certificates and the Offering--Appraisals and Realizable Value
of the Aircraft."
The following table was compiled on an aggregate basis. However, the
Equipment Notes for an Aircraft will not have a security interest in any other
Aircraft. This means that any excess proceeds realized from the sale of an
Aircraft or other exercise of remedies will not be available to cover any
shortfalls on the Equipment Notes relating to any other Aircraft. See
"Description of the Equipment Notes--Loan to Value Ratios of Equipment Notes"
for examples of LTVs for the Equipment Notes issued in respect of individual
Aircraft, which may be more relevant in a default situation than the aggregate
values shown below.
<TABLE>
<CAPTION>
ASSUMED CLASS G CLASS B CLASS C
AGGREGATE CERTIFICATES CLASS G CERTIFICATES CLASS B CERTIFICATES
AIRCRAFT POOL CERTIFICATES POOL CERTIFICATES POOL
DATE VALUE(1) BALANCE(2) LTV(3) BALANCE(2) LTV(3) BALANCE(2)
- ---- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
October 1, 2000................. $334,822,800 $147,655,248 44.1% $57,987,803 61.4% $25,740,784
April 1, 2001................... 324,651,000 143,820,393 44.3 57,987,803 62.2 22,601,586
April 1, 2002................... 314,479,200 139,314,286 44.3 56,641,358 62.3 22,437,521
April 1, 2003................... 304,307,400 134,808,178 44.3 52,511,011 61.6 21,439,115
April 1, 2004................... 294,135,600 130,302,071 44.3 47,781,083 60.5 19,389,831
April 1, 2005................... 283,963,800 125,795,963 44.3 43,761,622 59.7 16,419,538
April 1, 2006................... 273,792,000 121,289,856 44.3 40,699,002 59.2 11,563,722
April 1, 2007................... 263,620,200 116,783,749 44.3 37,606,023 58.6 6,305,528
April 1, 2008................... 253,448,400 110,934,768 43.8 35,213,000 57.7 1,645,302
April 1, 2009................... 243,276,600 105,274,548 43.3 33,171,667 56.9 1,055,288
April 1, 2010................... 231,692,400 98,344,235 42.4 28,673,262 54.8 0
April 1, 2011................... 218,130,000 91,860,001 42.1 22,534,292 52.4 0
April 1, 2012................... 204,567,600 84,835,413 41.5 14,182,386 48.4 0
April 1, 2013................... 191,005,200 78,351,176 41.0 8,732,931 45.6 0
April 1, 2014................... 177,442,800 71,326,587 40.2 6,199,519 43.7 0
April 1, 2015................... 162,468,000 64,842,353 39.9 0 NA 0
April 1, 2016................... 145,515,000 57,817,764 39.7 0 NA 0
April 1, 2017................... 128,562,000 45,131,745 35.1 0 NA 0
April 1, 2018................... 111,609,000 28,251,728 25.3 0 NA 0
April 1, 2019................... 0 0 NA 0 NA 0
<CAPTION>
CLASS C
CERTIFICATES
DATE LTV(3)
- ---- ------------
<S> <C>
October 1, 2000................. 69.1%
April 1, 2001................... 69.1
April 1, 2002................... 69.4
April 1, 2003................... 68.6
April 1, 2004................... 67.1
April 1, 2005................... 65.5
April 1, 2006................... 63.4
April 1, 2007................... 61.0
April 1, 2008................... 58.3
April 1, 2009................... 57.3
April 1, 2010................... NA
April 1, 2011................... NA
April 1, 2012................... NA
April 1, 2013................... NA
April 1, 2014................... NA
April 1, 2015................... NA
April 1, 2016................... NA
April 1, 2017................... NA
April 1, 2018................... NA
April 1, 2019................... NA
</TABLE>
- ------------------------------
(1) We have assumed (the "DEPRECIATION ASSUMPTION") the initial appraised value
of each Aircraft, determined as described under "--Equipment Notes and the
Aircraft," declines by 3% per year for the first ten years after the year of
delivery of such Aircraft, by 4% per year for the next five years and by 5%
per year thereafter. Other depreciation assumptions would result in
important differences in the LTVs.
S-6
<PAGE>
(2) In calculating the outstanding balances, we have assumed that the Trusts
will acquire the maximum principal amount of Equipment Notes for all
Aircraft. See "Description of the Deposit Agreements--Unused Deposits."
(3) The LTVs for each Class of Certificates were obtained for each Regular
Distribution Date by dividing (i) the expected outstanding balance of such
Class together with the expected outstanding balance of all other Classes
senior in right of payment to such Class after giving effect to the
distributions expected to be made on such date, by (ii) the assumed value of
all of the Aircraft on such date based on the assumptions described above.
The outstanding balances and LTVs may change if, among other things, the
aggregate principal amount of the Equipment Notes acquired by the Trusts is
less than the maximum permitted under the terms of this offering or the
amortization of the Equipment Notes differs from the assumed amortization
schedule calculated for purposes of this prospectus supplement.
S-7
<PAGE>
CASH FLOW STRUCTURE
Set forth below is a diagram illustrating the structure for the offering of
the Certificates and certain cash flows.
[LOGO]
- ------------------------
(1) Each Aircraft leased to Northwest will be subject to a separate Lease and a
related Indenture; each Aircraft owned by Northwest will be subject to a
separate Indenture; Northwest will have the ability to enter into a
sale/leaseback transaction involving an Aircraft it initially owns.
(2) Liquidity Facilities are available with respect to the Class G, B and C
Certificates for up to three semiannual interest payments.
(3) The proceeds of the offering of each Class of Certificates will initially be
held in escrow and deposited with the Depositary. The Depositary will hold
such funds as interest-bearing Deposits. Each Trust will withdraw funds from
the Deposits relating to such Trust to purchase Equipment Notes from time to
time as each Aircraft is financed. The scheduled payments of interest on the
Equipment Notes and on the Deposits relating to a Trust, taken together,
will be sufficient to pay accrued interest on the outstanding Certificates
of such Trust. The Liquidity Facilities will not cover interest on the
Deposits. If any funds remain as Deposits with respect to any Trust at the
Delivery Period Termination Date, such funds will be withdrawn by the Escrow
Agent and distributed to the holders of the Certificates issued by such
Trust, together with accrued and unpaid interest thereon, and, in certain
circumstances, a Deposit Make-Whole Premium payable by Northwest.
(4) The Policy covers payment of interest on and the outstanding balance of the
Class G Certificates only in the circumstances described herein. The Policy
does not cover any amounts payable in respect of the Class B Certificates or
the Class C Certificates.
S-8
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Trusts.......................................... The Class G Trust, the Class B Trust and the Class
C Trust will each be formed pursuant to a separate
Pass Through Trust Agreement among NWA Corp.,
Northwest and State Street Bank and Trust Company
of Connecticut, National Association, as trustee
under each Trust.
Certificates Offered............................ - Class G Certificates
- Class B Certificates
- Class C Certificates
Each Class of Certificates will represent a
fractional undivided interest in a related Trust.
Use of Proceeds................................. The proceeds from the sale of the Certificates of
each Trust will be used to acquire Equipment Notes
issued to finance or refinance the acquisition by
Northwest, or an Owner Trustee, of 14 new British
Aerospace Avro RJ85 aircraft delivered or scheduled
for delivery from April 1999 through May 2000.
Northwest currently intends to lease the Owned
Aircraft and sublease the Leased Aircraft to Mesaba
Aviation, Inc. ("MESABA"), which is a regional
Northwest Airlink carrier.
Subordination Agent, Paying Agent and Loan
Trustee....................................... State Street Bank and Trust Company
Trustee......................................... State Street Bank and Trust Company of Connecticut,
National Association
Initial Liquidity Provider...................... Morgan Stanley Capital Services, Inc. The
obligations of Morgan Stanley Capital Services,
Inc. under the liquidity facilities will be fully
and unconditionally guaranteed by its parent
company, Morgan Stanley Dean Witter & Co., ("MSDW")
which is also the parent company of Morgan Stanley
& Co. Incorporated. There will be a separate
liquidity facility for each Class of Certificates.
Policy Provider................................. MBIA Insurance Corporation
Escrow Agent.................................... First Security Bank, National Association
Depositary...................................... ABN AMRO Bank N.V., acting through a United States
branch.
Trust Property.................................. The property of each Trust will include:
- Equipment Notes acquired by such Trust;
- All rights of the Trust under an intercreditor
agreement (including all monies receivable pursuant
to such rights);
- All rights of the Trust to acquire Equipment
Notes under the Note Purchase Agreement;
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
- All rights of the Trust under the related Escrow
and Paying Agent Agreement;
- All monies receivable under the liquidity
facility for such Trust;
- With respect to the Class G Trust, all monies
received under the Policy; and
- Funds from time to time deposited with the
Trustee in accounts relating to such Trust.
Guaranty........................................ NWA Corp. will unconditionally guarantee the
payments of Northwest under each lease of an
Aircraft entered into by Northwest and each
Equipment Note issued or assumed by Northwest.
Regular Distribution Dates...................... April 1 and October 1, commencing on April 1, 2000.
Record Dates.................................... The fifteenth day preceding the related
Distribution Date.
Distributions................................... The Trustee and the Paying Agent, as applicable,
will distribute all payments of principal, premium
(if any) and interest received on the Equipment
Notes held in each Trust and all payments of
interest and Deposit Make-Whole Premium (if any) on
the Deposits relating to each Trust to the holders
of the Certificates of such Trust, subject, in the
case of payments on the Equipment Notes, to the
subordination provisions applicable to the
Certificates.
Subject to the subordination provisions applicable
to the Certificates, scheduled payments of
principal and interest made on the Equipment Notes
will be distributed on the applicable Regular
Distribution Dates.
Subject to the subordination provisions applicable
to the Certificates, payments of principal, premium
(if any) and interest made on the Equipment Notes
resulting from any early redemption or purchase of
such Equipment Notes will be distributed on a
special distribution date after not less than 15
days' notice to holders of the related
Certificates.
Possible Issuance of Series D Equipment Notes... Northwest may elect to issue Series D Equipment
Notes in connection with the financing of Owned
Aircraft. Series D Equipment Notes will not be
purchased by any of the Trusts, will be funded from
sources other than this offering and will be
subordinated to the Series G Equipment Notes,
Series B Equipment Notes and Series C Equipment
Notes issued with respect to the same Owned
Aircraft.
Subordination................................... The Trusts, the Liquidity Provider, the Policy
Provider and the Subordination Agent will enter
into an intercreditor
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
agreement. Distributions on the Certificates will
be made in the following order:
- First, to holders of the Class G Certificates;
- Second, to the holders of the Class B
Certificates; and
- Third, to the holders of the Class C
Certificates.
Certain payments to the Liquidity Provider and to
the Policy Provider will be made prior to payments
on all or some of the Certificates as discussed
under "Description of the Intercreditor
Agreement--Distributions.
If Northwest is in bankruptcy or certain other
specified events have occurred and, in either case,
Northwest is continuing to meet certain of its
obligations, the subordination provisions
applicable to the Certificates permit distributions
to be made to junior Certificates prior to making
distributions in full on the senior Certificates.
Control of Loan Trustee......................... The holders of at least a majority of the
outstanding principal amount of Equipment Notes
issued under each Indenture will be entitled to
direct the Loan Trustee under such Indenture in
taking action as long as no Indenture Default is
continuing thereunder. If an Indenture Default is
continuing, subject to certain conditions, the
Controlling Party will direct the Loan Trustees
(including in exercising remedies, such as
accelerating such Equipment Notes or foreclosing
the lien on the Aircraft securing such Equipment
Notes).
The "CONTROLLING PARTY" will be:
- The Policy Provider until payment of the final
distributions to the holders of Class G
Certificates and no obligations owing to the
Policy Provider remain outstanding, or if a
Policy Provider Default has occurred and is
continuing, the Class G Trustee until payment of
final distributions to holders of Class G
Certificates; and thereafter,
- The Class B Trustee until payment of final
distributions to holders of Class B Certificates;
and thereafter,
- The Class C Trustee; and
- Under certain circumstances, the Liquidity
Provider. If there is more than one Liquidity
Provider, the Liquidity Provider which is owed
the greatest amount of obligations shall have
such right (unless the Policy Provider amends its
Policy to cover all drawings and interest thereon
owing to the Liquidity Provider under the
Liquidity Facilities and certain other conditions
are met or the Policy Provider pays to the
Liquidity Provider all outstanding drawings and
interest thereon owing to
</TABLE>
S-11
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<S> <C>
the Liquidity Provider under the Liquidity
Facilities, in which case, the Policy Provider
(so long as no Policy Provider Default has
occurred and is continuing)).
Limitation on Sale of Aircraft.................. In exercising remedies during the nine months after
the earlier of (a) the acceleration of the
Equipment Notes issued pursuant to any Indenture or
(b) the bankruptcy of Northwest, the Controlling
Party may not sell such Equipment Notes or the
Aircraft subject to the lien of such Indenture for
less than certain specified minimums or modify
lease rental payments for such Aircraft below a
specified threshold.
Right to Buy Other Classes of Certificates...... If Northwest is in bankruptcy or certain other
specified events have occurred, the
Certificateholders may have the right to buy
certain other Classes of Certificates on the
following basis:
- The Class B Certificateholders will have the
right to purchase all, but not less than all, of
the Class G Certificates.
- The Class C Certificateholders will have the
right to purchase all, but not less than all, of
the Class B Certificates and Class G
Certificates.
- Whether or not the above rights are exercised,
the Policy Provider will have the right to purchase
all, but not less than all, of the Class G
Certificates.
The purchase price in each case described above
will be the outstanding balance of the applicable
Class of Certificates plus accrued and unpaid
interest.
Liquidity Facilities............................ Under the Liquidity Facility for each Trust, the
Liquidity Provider will, if necessary, make
advances in an aggregate amount sufficient to pay
interest on the applicable Class of Certificates on
up to three successive semiannual Regular
Distribution Dates at the applicable Stated
Interest Rate for such Certificates. The Liquidity
Facilities cannot be used to pay any other amount
in respect of the Certificates and will not cover
amounts held in escrow as Deposits with a
Depositary.
Notwithstanding the subordination provisions
applicable to the Certificates, the holders of the
Certificates to be issued by each Trust will be
entitled to receive and retain the proceeds of
drawings under the Liquidity Facility for such
Trust.
Upon each drawing under any Liquidity Facility to
pay interest on the Certificates, the Subordination
Agent will reimburse the applicable Liquidity
Provider for the amount of such drawing. Such
reimbursement obligation and all interest, fees and
other amounts owing to the
</TABLE>
S-12
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<TABLE>
<S> <C>
applicable Liquidity Provider under each Liquidity
Facility and certain other agreements will rank
equally with comparable obligations relating to the
other Liquidity Facilities and will rank senior to
the Certificates in right of payment.
Policy Coverage................................. Under the Policy, the Policy Provider will honor
drawings to cover
- any shortfall (after the application of available
funds, including funds available to the Escrow
Agent in respect of accrued interest on the Class
G Deposits, drawings under the Class G Liquidity
Facility and withdrawals from the Class G Cash
Collateral Account (collectively, "PRIOR FUNDS"))
on any Regular Distribution Date in interest on
the Class G Certificates and
- any shortfall (after giving effect to the
application of Prior Funds) on the Final Legal
Distribution Date in the Final Distribution
(other than any unpaid premium) on the Class G
Certificates.
Further, upon a default in the payment of principal
on a Series G Equipment Note or if a Series G
Equipment Note is accelerated (each, a "DEFAULTED
SERIES G EQUIPMENT NOTE") then,
- on the first Business Day which is 18 months
after the last Regular Distribution Date on which
full payment was made on that Defaulted Series G
Equipment Note prior to such default or
acceleration, the Policy Provider will pay the
outstanding amount of principal and accrued
interest on that Defaulted Series G Equipment
Note or
- if on any date prior to the expiration of such 18
month period the Defaulted Series G Equipment Note
(or any underlying collateral) is disposed of in
connection with the exercise of remedies (a
"DISPOSITION"), the Policy Provider will pay,
after giving effect to the application of Prior
Funds and Disposition proceeds, the amount, if
any, required to reduce the Pool Balance of the
Class G Certificates to the level equal to the
Pool Balance of the Class G Certificates
outstanding immediately prior to the date of such
payment minus the outstanding principal amount of
such Defaulted Series G Equipment Note plus
accrued and unpaid interest on the amount of such
reduction.
Assuming there is no Disposition, instead of paying
the full amount of principal and accrued interest
on a Defaulted Series G Equipment Note at the end
of the 18-month period referred to above, the
Policy Provider may elect instead to pay
</TABLE>
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<TABLE>
<S> <C>
- an amount equal to the scheduled principal and
interest payable but not paid on the Defaulted
Series G Equipment Note (without regard to the
acceleration thereof) during the 18-month period
(after giving effect to the application of funds
received from the Class G Liquidity Facility and
the Class G Cash Collateral Account attributable
to such interest) and
- thereafter, on each Regular Distribution Date, an
amount equal to the scheduled principal and
interest otherwise payable on the Defaulted
Series G Equipment Note (without regard to any
acceleration thereof) until paid in full.
Notwithstanding an election by the Policy Provider
to pay scheduled payments instead of accelerated
payments as discussed above, the Policy Provider
may, on any Business Day (which shall be a Special
Distribution Date) elected by the Policy Provider
upon 20 days' notice, cause the Subordination Agent
to make a drawing under the Policy for an amount
equal to the then outstanding principal balance of
and accrued interest on the Defaulted Series G
Equipment Note from the immediately preceding
Regular Distribution Date, less any policy drawings
previously paid by the Policy Provider in respect
of principal on such Equipment Note. Further,
notwithstanding an election by the Policy Provider
to pay scheduled payments instead of accelerated
payments as discussed above, upon
- the occurrence of a Policy Provider Default, or
- the Disposition of a Defaulted Series G Equipment
Note (or its underlying collateral)
the Subordination Agent shall, on any Business Day
elected by the Subordination Agent upon 20 days'
notice, make a drawing under the Policy for an
amount equal to the then outstanding principal
balance of and accrued interest on the Series G
Equipment Note from the immediately preceding
Regular Distribution Date, less any policy drawings
previously paid by the Policy Provider in respect
of principal on such Equipment Note.
At the end of the 18-month period referred to
above, the Policy will, if not already amended to
so provide, be amended to provide for the payment
to the Liquidity Provider of interest accruing on
outstanding drawings under the Class G, Class B and
Class C Liquidity Facilities from and after the end
of such 18-month period as and when such interest
becomes due in accordance with the Liquidity
Facilities.
Accrued interest payable by the Policy Provider on
account of the Defaulted Series G Equipment Notes
will be
</TABLE>
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<S> <C>
calculated at the Stated Interest Rate for the
Class G Certificates.
The Policy will cover only the Class G
Certificates, and the proceeds of any policy
drawing will be applied only to the outstanding
balance of, and interest on, the Class G
Certificates. The reimbursement of drawings under
the Policy ranks junior to further distributions on
the Class G Certificates but senior to
distributions on the Class B Certificates and the
Class C Certificates, except that the reimbursement
of all drawings on account of interest on the
Defaulted Series G Equipment Notes made after the
18-month period referred to above will be
subordinated to distributions on the Class B
Certificates and the Class C Certificates.
Escrowed Funds.................................. Funds paid to the Escrow Agent by the Underwriters
will be deposited with the applicable Depositary
and held as Deposits pursuant to separate Deposit
Agreements for each Trust. Funds may be withdrawn
by the Escrow Agent at the direction of the
applicable Trustee from time to time to purchase
Equipment Notes prior to the Delivery Period
Termination Date. On each Regular Distribution
Date, the applicable Depositary will pay to the
Paying Agent interest accrued on the Deposits
relating to each Trust at a rate per annum equal to
the interest rate applicable to the Certificates
issued by such Trust. The Paying Agent, on behalf
of the Escrow Agent, will pay such interest to the
applicable Receiptholders. The Deposits relating to
a Trust and interest paid thereon will not be
subject to the subordination provisions applicable
to the Certificates. The Deposits cannot be used to
pay any other amount in respect of the
Certificates.
Unused Escrowed Funds........................... Less than all of the Deposits held in escrow may be
used to purchase Equipment Notes by the Delivery
Period Termination Date. This may occur because of
delays in the delivery of Aircraft or other
reasons. If any funds remain as Deposits with
respect to any Trust after the Delivery Period
Termination Date, they will be withdrawn by the
Escrow Agent for such Trust and distributed, with
accrued and unpaid interest, to the holders of
Escrow Receipts relating to the respective Trust
after at least 15 days' prior written notice. In
addition, in the case of Deposits relating to the
Class G and Class B Certificates, such distribution
will include a premium payable by Northwest equal
to the Deposit Make-Whole Premium with respect to
such Trust's remaining Deposits, provided that no
premium will be paid with respect to unused
Deposits attributable to the failure of an Aircraft
to be delivered prior to the Delivery Period
Termination Date due to any reason not occasioned
by Northwest's fault or negligence. In the case of
Deposits relating to the Class C Certificates, any
distribution of any
</TABLE>
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<S> <C>
unused amounts will include a premium payable by
Northwest equal to the Deposit Make-Whole Premium
to the extent (i) such distribution relates to the
non-delivery of an Aircraft due to Northwest's
fault or negligence or (ii) the aggregate amount of
all such distributions relating to Class C
Certificates (other than the amounts relating to
the non-delivery of an Aircraft) exceeds $5.0
million. See "Description of the Deposit
Agreements--Unused Deposits."
Obligation to Purchase Equipment Notes.......... The Class G, Class B and Class C Trustees will be
obligated to purchase the Series G, Series B and
Series C Equipment Notes issued with respect to
each Aircraft pursuant to the Note Purchase
Agreement. Northwest may enter into a leveraged
lease financing or a secured debt financing with
respect to each Aircraft pursuant to forms of
financing agreements attached to the Note Purchase
Agreement. Northwest may elect to convert an Owned
Aircraft to a Leased Aircraft at any time by
entering into a sale/leaseback transaction. In the
case of a Leased Aircraft, the terms of the
financing agreements entered into may differ from
the forms of such agreements described in this
prospectus supplement because a third party--the
Owner Participant--will provide a portion of the
financing of the Aircraft and may request changes.
However, under the Note Purchase Agreement, the
terms of such financing agreements must (a) contain
the mandatory document terms set forth in the Note
Purchase Agreement and (b) not vary the mandatory
economic terms set forth in the Note Purchase
Agreement. In addition, Northwest must (a) certify
to the Trustees and the Policy Provider that any
such modifications do not materially and adversely
affect the Certificateholders or the Policy
Provider or (b) if such agreements are modified in
any material respect, obtain written confirmation
from each Rating Agency that the use of versions of
such agreements modified in any material respect
will not result in a withdrawal, suspension or
downgrading of the rating of any Class of
Certificates and the prior written consent of the
Policy Provider. The Trustees will not be obligated
to purchase Equipment Notes if, at the time of
issuance, Northwest is in bankruptcy or certain
other specified events have occurred. See
"Description of the Certificates--Obligation to
Purchase Equipment Notes."
PTC Events of Default........................... PTC Events of Default under each Pass Through Trust
Agreement are the failure to pay within 10 business
days after it is due:
- the outstanding balance of any Class of
Certificates on the Final Legal Distribution Date;
or
- interest due on any Class of Certificates.
</TABLE>
S-16
<PAGE>
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<S> <C>
Equipment Notes
(a) Issuer...................................... LEASED AIRCRAFT. If Northwest leases an Aircraft,
the Aircraft will be owned by an Owner Trust
created by the related Owner Participant and the
Equipment Notes for such Aircraft will be issued by
the applicable Owner Trustee. The Equipment Notes
will represent obligations of the Owner Trust.
Payments made by Northwest under the lease will be
sufficient to pay scheduled payments on the
Equipment Notes. The obligations of Northwest under
the lease will be guaranteed by NWA Corp.
OWNED AIRCRAFT. If Northwest purchases an
Aircraft, the Equipment Notes will be issued by
Northwest and guaranteed by NWA Corp.
(b) Interest.................................... The Equipment Notes held in each Trust will accrue
interest at the rate per annum for the Certificates
issued by such Trust set forth on the cover page of
this Prospectus Supplement. Interest will be
payable on April 1 and October 1 of each year,
commencing on the first such date after issuance of
such Equipment Notes. Interest is calculated on the
basis of a 360-day year consisting of twelve 30-day
months.
(c) Principal................................... Principal payments on the Series G, Series B and
Series C Equipment Notes are scheduled on April 1
or October 1, or both, in certain years, commencing
no later than October 1, 2000. See "Description of
the Certificates--Pool Factors."
(d) Redemption and Purchase..................... AIRCRAFT EVENT OF LOSS. If an Event of Loss occurs
with respect to an Aircraft, all of the Equipment
Notes issued with respect to such Aircraft will be
redeemed, unless such Aircraft is replaced by
Northwest under the related lease or financing
agreements. The redemption price in such case will
be the unpaid principal amount of such Equipment
Notes, together with accrued interest, but without
any premium.
OPTIONAL REDEMPTION. The issuer of the Equipment
Notes with respect to an Aircraft may elect to
redeem them prior to maturity. The redemption price
in such case will be the unpaid principal amount of
such Equipment Notes, together with accrued
interest plus a make-whole premium. See
"Description of the Equipment Notes--Redemption."
PURCHASE BY OWNER. If an event of default under a
lease relating to an Aircraft (a "LEASE") is
continuing, the applicable Owner Trustee or Owner
Participant may elect to purchase all of the
Equipment Notes with respect to such Aircraft,
subject to the terms of the applicable Indenture.
The purchase price in such case will be the
</TABLE>
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<S> <C>
unpaid principal amount of such Equipment Notes,
together with accrued interest, but without any
premium (PROVIDED that a make-whole premium will be
payable under certain circumstances specified in
the applicable Indenture).
(e) Security.................................... The Equipment Notes issued with respect to each
Aircraft will be secured by a security interest in
such Aircraft and, in the case of Leased Aircraft,
in the related Owner Trustee's rights under the
Lease with respect to such Aircraft (with certain
limited exceptions).
The Equipment Notes issued in respect of an
Aircraft will not be secured by any other Aircraft
or Leases. This means that any excess proceeds from
the sale of an Aircraft or other exercise of
remedies with respect to such Aircraft will not be
available to cover any shortfall with respect to
any other Aircraft.
By virtue of the Intercreditor Agreement, the
Equipment Notes are cross-subordinated. This means
that payments received on a junior class of
Equipment Notes issued in respect of one Aircraft
may be applied in accordance with the priority of
payment provisions set forth in the Intercreditor
Agreement to make payments in respect of a more
senior Class of Certificates.
There will not be cross-default provisions in the
Indentures or in the Leases. This means that if the
Equipment Notes issued with respect to one or more
Aircraft are in default and the Equipment Notes
issued with respect to the remaining Aircraft are
not in default, no remedies will be exercisable
with respect to the remaining Aircraft.
(f) Section 1110 Protection..................... Northwest's special counsel will provide to the
Trustees its opinion that the benefits of Section
1110 of Title 11 of the United States Code (the
"BANKRUPTCY CODE") will be available with respect
to the Equipment Notes.
Certain U.S. Federal Income Tax Consequences.... Each Trust will not be subject to U.S. federal
income taxation. Each beneficial owner of a
Certificate who is a U.S. Certificateholder (as
defined herein) generally will be required to
report on its federal income tax return its pro
rata share of income from the relevant Deposits at
the related Certificate interest rate, income from
the Equipment Notes at the interest rate thereon
(including amounts paid by the Liquidity Provider
or the Policy Provider) and income on other
property held by the related Trust and will be
permitted to deduct, subject to applicable
limitations, its share of the deductions and losses
of the related Trust. See "Certain U.S. Federal
Income Tax Consequences."
</TABLE>
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<S> <C>
ERISA Considerations............................ Each person who acquires a Certificate will be
deemed to have represented that either: (a) no
employee benefit plan assets have been used to
purchase such Certificate or (b) the purchase and
holding of such Certificate are exempt from the
prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 and the
Internal Revenue Code of 1986 pursuant to one or
more prohibited transaction exemptions. See "ERISA
Considerations."
Rating of the Certificates...................... It is a condition to the issuance of the
Certificates that the Certificates be rated by
Moody's and Standard & Poor's not less than the
ratings set forth below:
</TABLE>
<TABLE>
<CAPTION>
STANDARD &
CERTIFICATES MOODY'S POOR'S
------------ -------- --------------
<S> <C> <C> <C>
Class G.. Aaa AAA
Class B Baa2 BBB
Class C.. Baa3 BBB-
</TABLE>
<TABLE>
<S> <C>
A rating is not a recommendation to purchase, hold
or sell Certificates, since such rating does not
address market price or suitability for a
particular investor. There can be no assurance that
such ratings will not be lowered or withdrawn by a
Rating Agency.
Standard & Poor's has indicated that its rating
applies to a unit consisting of Certificates
representing the Trust Property and Escrow Receipts
initially representing undivided interests in
certain rights to the Deposits. Amounts deposited
under the Escrow Agreement are not entitled to the
benefits of Section 1110 of the Bankruptcy Code.
Counsel for Northwest will opine to the
underwriters that, subject to the assumptions and
qualifications contained therein, amounts deposited
under the Escrow Agreements are not property of
Northwest. Neither the Certificates nor the Escrow
Receipts may be separately assigned or transferred.
</TABLE>
<TABLE>
<CAPTION>
STANDARD &
MOODY'S POOR'S
-------- --------------
<S> <C> <C> <C>
Short
Rating of the Depositary........................ Term...... P-1 A-1+
Threshold Rating Short Term for the Liquidity
Provider...................................... Short Term P-1 A-1
</TABLE>
<TABLE>
<S> <C>
Rating of the Liquidity Provider (as
guaranteed)................................... Morgan Stanley Dean Witter & Co., as guarantor of
the obligations of Morgan Stanley Capital Services,
Inc. under the initial Liquidity Facilities, meets
the applicable threshold rating requirements for
each Class of Certificates.
</TABLE>
<TABLE>
<CAPTION>
STANDARD &
MOODY'S POOR'S
-------- ---------------------
<S> <C> <C> <C>
Rating of the Policy Provider................... Claims-Paying Ability Aaa AAA
</TABLE>
S-19
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents summary consolidated financial data and
operating statistics of NWA Corp. The annual historical financial data were
derived from NWA Corp.'s audited consolidated financial statements and the notes
thereto, and the interim periods ended September 30, 1999 and 1998 were derived
from NWA Corp.'s unaudited consolidated financial statements, all of which are
incorporated by reference in the prospectus accompanying this prospectus
supplement. The interim historical data may not be indicative of results for the
year as a whole. See "Incorporation of Certain Documents by Reference" in the
accompanying prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (IN MILLIONS,
EXCEPT PER SHARE DATA):
Operating revenues
Passenger.................................. $ 6,557 $ 5,783 $ 7,607 $ 8,822 $ 8,598
Cargo...................................... 504 447 634 789 746
Other...................................... 660 603 804 615 537
------- ------- ------- ------- -------
7,721 6,833 9,045 10,226 9,881
------- ------- ------- ------- -------
Operating expenses (1)....................... 7,101 6,832 9,236 9,069 8,827
------- ------- ------- ------- -------
Operating income (loss)...................... 620 1 (191) 1,157 1,054
------- ------- ------- ------- -------
Amounts before 1997 extraordinary item (2):
Income (loss) (3).......................... $ 271 $ (104) $ (285) $ 606 $ 536
======= ======= ======= ======= =======
Earnings (loss) per common share:
Basic.................................... $ 3.34 $ (1.25) $ (3.48) $ 5.89 $ 5.05
Diluted.................................. $ 2.95 $ (1.25) (3.48) 5.29 4.52
OTHER DATA:
Ratio of earnings to fixed charges........... 1.83x (4) (4) 3.05x 2.74x
OPERATING STATISTICS (5):
Scheduled Service:
Available seat miles (millions) (6)........ 75,070 67,731 91,311 96,964 93,914
Revenue passenger miles (millions) (7)..... 56,385 50,250 66,738 72,031 68,639
Passenger load factor (%) (8).............. 75.1 74.2 73.1 74.3 73.1
Revenue passengers (millions).............. 42.3 37.5 50.5 54.7 52.7
Revenue yield per passenger mile (cents)
(9)...................................... 11.49 11.37 11.26 12.11 12.53
Passenger revenue per scheduled ASM
(cents).................................. 8.63 8.43 8.23 9.00 9.16
Operating revenue per total ASM (cents)
(10)....................................... 9.43 9.31 9.12 9.76 9.85
Operating expense per total ASM (cents)
(10)....................................... 8.60 9.25 9.21 8.63 8.78
Cargo ton miles (millions) (11).............. 1,657 1,379 1,954 2,283 2,216
Cargo revenue per ton mile (cents)........... 30.40 32.37 32.39 34.54 33.66
Fuel gallons consumed (millions)............. 1,535 1,389 1,877 1,996 1,945
Average fuel cost per gallon (cents)......... 50.55 54.82 53.60 64.86 67.21
Number of operating aircraft at end of
period..................................... 417 413 409 405 399
Full-time equivalent employees at end of
period..................................... 51,186 50,669 50,565 48,984 47,536
</TABLE>
(Table continues and footnotes appear on following page.)
S-20
<PAGE>
<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
BALANCE SHEET DATA (IN MILLIONS):
Cash, cash equivalents and unrestricted short-term
investments............................................. $ 735 $ 480
Total assets.............................................. 11,116 10,281
Long-term debt, including current portion................. 3,880 4,001
Mandatorily redeemable preferred security of subsidiary... 595 564
Redeemable preferred stock................................ 246 261
Common stockholders' equity (deficit)..................... (78) (477)
</TABLE>
- ------------------------
(1) The Company recorded a fleet disposition charge of $66 million ($42 million
after tax or $.51 per share) related to its seven oldest Boeing 747 aircraft
in the fourth quarter of 1998. The Company has made provisions for out-of
period charges related to both collective bargaining agreements that were
ratified in 1998 and estimated provisions for the Company's remaining
amendable collective bargaining agreements of $151 million ($95 million
after tax or $1.16 per share) for the year ended December 31, 1998. The
Company recorded a net non-recurring credit of $27 million ($17 million
after tax or $.18 per share) in the second quarter of 1999.
(2) The 1997 extraordinary loss was $9 million ($.10 per basic share and $.08
per diluted share).
(3) In February 1999, the Company sold a portion of its interest in Equant N.V.
and recorded a gain of $28 million ($18 million after taxes or $.19 per
share) related to this transaction. Excludes the effects of the 1996
preferred stock transaction ($.75 per basic share and $.68 per diluted
share).
(4) Earnings did not cover fixed charges by $452 million for the year ended
December 31, 1998 and $174 million for the nine months ended September 30,
1998.
(5) All statistics exclude Express Airlines I, Inc.
(6) "Available seat miles" ("ASMS") represents the number of seats available for
passengers multiplied by the number of scheduled miles the seats are flown.
(7) "Revenue passenger miles" ("RPMS") represents the number of miles flown by
revenue passengers in scheduled service.
(8) "Passenger load factor" is calculated by dividing revenue passenger miles by
available seat miles, and represents the percentage of aircraft seating
capacity utilized.
(9) "Revenue yield per passenger mile" represents the average revenue received
from each mile a passenger is flown in scheduled service.
(10) Excludes the estimated revenues and expenses associated with the operation
of Northwest's fleet of 747 freighter aircraft, MLT Inc. and gain/loss on
disposition of assets.
(11) "Cargo ton miles" represents the tonnage of freight and mail carried
multiplied by the number of miles flown.
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<PAGE>
RISK FACTORS
YOU SHOULD READ CAREFULLY THIS ENTIRE PROSPECTUS SUPPLEMENT, THE
ACCOMPANYING PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS BEFORE INVESTING IN THE CERTIFICATES.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS INCLUDE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE EXCHANGE ACT OF 1934. ALL STATEMENTS OTHER
THAN STATEMENTS OF HISTORICAL FACTS INCLUDED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, INCLUDING STATEMENTS
REGARDING OUR FUTURE FINANCIAL POSITION, ARE FORWARD-LOOKING STATEMENTS.
ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE, WE CANNOT ASSURE YOU THAT SUCH EXPECTATIONS WILL BE
CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM SUCH EXPECTATIONS ARE DISCLOSED BELOW AND ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
RISK FACTORS RELATING TO NORTHWEST AND NWA CORP.
INDEBTEDNESS
The Company has substantial levels of indebtedness. As of September 30,
1999, we had long-term debt and capital lease obligations of $4.49 billion. Of
this indebtedness, 40% bears interest at floating rates. The amount of our
long-term debt that matures for the remainder of 1999 is $21 million.
Additionally, $312 million matures in 2000, $350 million matures in 2001 and
$452 million matures in 2002. As of September 30, 1999, future minimum lease
payments under capital leases were $18 million for the remainder of 1999,
$60 million for 2000, $62 million for 2001 and $231 million for 2002. These
levels of indebtedness do not include our mandatory obligations to redeem
$246 million of our preferred stock in 2003 and non-recourse mandatorily
redeemable preferred securities of one of NWA Corp.'s subsidiaries of
$595 million.
In addition, Northwest operates in a capital intensive industry.
Periodically, Northwest is required to make significant capital expenditures for
new aircraft and related equipment. There can be no assurance that sufficient
financing will be available for all aircraft and other capital expenditures not
covered by commercial financing.
LABOR AGREEMENTS
Unions represent approximately 90% of our employees. Consequently, labor
wage rates and costs are subject to collective bargaining. The current status of
Northwest's principal labor agreements is as follows:
PILOTS. In September 1998, our pilots ratified a four-year agreement that
becomes amendable in September 2002. Ratification followed a strike by our
pilots which resulted in an 18-day cessation of flight operations.
METEOROLOGISTS, TECHNICAL WRITERS, AND DISPATCHERS. These employees ratified
new five-year and six-year agreements during the fourth quarter of 1998.
FLIGHT ATTENDANTS. The agreement with our flight attendants became amendable
in August 1996. In June 1999, Northwest and the International Brotherhood of
Teamsters ("IBT") reached a tentative agreement, which was not ratified by the
union membership. Contract negotiations are scheduled to reconvene with the IBT
under the direction of the National Mediation Board in December 1999.
MECHANICS AND RELATED EMPLOYEES, CUSTOMER SERVICE AGENTS, EQUIPMENT SERVICE
EMPLOYEES, CLERKS, RESERVATION AGENTS AND STOCK CLERKS. Our agreement with our
ground employees became amendable in October 1996. Negotiations began at that
time with the International Association of Machinists and Aerospace Workers
("IAM"), who represented our ground employees. In June 1998, we reached a
tentative agreement with the IAM, which was not ratified by the union
membership. In November 1998,
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<PAGE>
the mechanics and related employees authorized the Aircraft Mechanics Fraternal
Association ("AMFA") to be their collective-bargaining representative. The
National Mediation Board certified the results of the representative election on
June 1, 1999. Contract negotiations commenced with AMFA in late September. The
remaining ground employees continue to be represented by the IAM. The IAM
membership ratified a new four-year agreement in February 1999.
We estimate the increased costs under the six ratified agreements will be
approximately $145 million for 1999 based on current levels of employment.
Because the terms of the new labor agreements are determined by collective
bargaining, we cannot predict the outcome of the remaining negotiations at this
time. We believe that our labor costs will remain competitive in comparison to
other large U.S. airlines.
RISKS REGARDING NORTHWEST/JUSTICE DEPARTMENT LITIGATION
In November 1998, Northwest and Continental Airlines, Inc. ("CONTINENTAL")
began implementing their long-term global alliance involving extensive
code-sharing, frequent flyer program reciprocity and other cooperative
activities. In a related transaction, the Company acquired from Continental's
principal shareholder and certain other parties securities representing 12.4% of
Continental's equity as of September 30, 1999 and, together with additional
Continental shares for which NWA Corp. holds a limited voting proxy, 52.4% of
the fully-diluted voting power of Continental. On October 23, 1998, the U.S.
Department of Justice commenced a civil antitrust action against us and
Continental challenging our acquisition of the Continental securities. The
Justice Department is seeking to have us divest the Continental securities we
acquired or to impose additional terms and restrictions on us with respect to
the Continental securities acquired. Although we cannot predict the outcome of
litigation, we intend to defend the lawsuit vigorously. The lawsuit did not
challenge the alliance between Northwest and Continental, although the Justice
Department has indicated that it will continue to monitor the alliance.
ASIA ECONOMIC ISSUES
Our results of operations are affected by the level of economic activity in
the United States and foreign markets that we serve. The general economic
environment in Asia adversely impacted our Pacific revenues in 1998. In response
to the continued weak economic environment and lower demand in the Pacific,
Northwest reduced its capacity in the region. Northwest cannot predict the
extent and the length of the weakened Asian economy and the degree to which it
will continue to adversely impact its Pacific revenues.
RISKS REGARDING ALLIANCES
Northwest is currently a party to numerous alliances with other airlines,
and may enter into additional alliances in the future. Northwest's ability to
grow its route network by entering into alliances depends upon the availability
of suitable alliance candidates and the ability of Northwest and its alliance
partners to meet business objectives and to perform their obligations under the
alliance agreements. Northwest's ability to successfully achieve the anticipated
benefits of its alliances depends upon many factors including:
- Disapproval or delay by regulatory authorities or adverse regulatory
developments;
- Competitive pressures;
- Customer acceptance of the alliance; and
- Northwest and its alliance partners' ability to modify certain contracts
that may restrict certain aspects of the alliance.
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We cannot predict the extent to which we will benefit from Northwest's
alliances.
YEAR 2000
Computerized systems are essential to our operations. Many computer programs
in use around the world use only two digits to identify the applicable year and
do not take account of the change in century that will occur in the year 2000.
If this problem is not corrected, computer applications could fail or create
mistakes. As a result, we implemented a Year 2000 project to modify our computer
systems to function properly in 2000 and in the years after that. Our Year 2000
project has been completed, and we believe that the Year 2000 issue will not
pose significant operational problems for our computer systems.
We have also contacted our significant suppliers, vendors and other airlines
with whom our systems interface or upon whom our business depends. We are
working with these parties to minimize the extent to which our business will be
vulnerable to their failure to remedy their Year 2000 issues. Our business also
depends upon foreign governments and agencies and certain United States
governmental agencies, such as the Federal Aviation Administration ("FAA"), that
provide essential services to the aviation industry. We cannot predict whether
the systems of such third parties that our business relies on will be modified
on a timely basis.
Our business, financial condition and results of operations could be
materially adversely affected if our systems, or those operated by other parties
on which our business depends, fail to operate properly beyond 1999.
FOREIGN CURRENCY EXPOSURE
Northwest conducts a significant portion of its operations in foreign
locations. As a result, Northwest has operating revenues and, to a lesser
extent, operating expenses, as well as assets and liabilities, denominated in
foreign currencies. Fluctuations in such foreign currencies, especially the
Japanese yen, can significantly affect Northwest's operating performance. From
time to time, Northwest uses financial instruments to hedge its exposure to the
Japanese yen. Currently, Northwest has hedged approximately 30% of its
anticipated yen-denominated sales for the remainder of 1999 and throughout 2000.
POSSIBLE LIMITATION ON NET OPERATING LOSS CARRYFORWARDS
We used net operating loss carryforwards ("NOLS") of approximately
$1.20 billion from 1994 through 1996 and alternative minimum tax net operating
loss carryforwards ("AMTNOLS") of approximately $588 million from 1993 through
1996. The Internal Revenue Code of 1986, as amended (the "CODE"), and Treasury
regulations limit the amounts of NOLs and AMTNOLs that can be used to offset
taxable income (or used as a credit) in any single tax year if the corporation
has more than a 50% ownership change (as defined in the Code) over a three-year
testing period ending on the testing date. In general, if an "ownership change"
occurs, Sections 382 and 383 limit the amount of NOLs, AMTNOLs and credits that
can be carried forward and used in any one year after the ownership change
occurs to an amount equal to the product of the value of the corporation's stock
for tax purposes immediately before the change multiplied by the "long-term
tax-exempt rate" as determined by the Internal Revenue Service (the "IRS") for
the month of the change. 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 before that time. If an ownership
change did occur as a result of that offering, management believes that, even as
limited by the Code, the Company would use the NOLs, AMTNOLs and credits
significantly earlier than their expiration and the annual limitations would not
adversely impact the Company. However, if the IRS were to successfully assert
that an ownership change had occurred on any date prior to November 1995
(including August 1, 1993 when the Company entered into labor agreements that
provided stock for labor cost savings) our ability to use our NOLs, AMTNOLs and
credits would be significantly impaired because the value of Old NWA Corp.'s
stock on certain prior testing dates was relatively low. Such value would
adversely affect the annual limitation described above.
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NEGATIVE NET WORTH
As of September 30, 1999, our common stockholders' deficit was $78 million.
Certain investors and lenders will not invest in or lend to, or will limit their
investments in or loans to a company with a stockholders' deficit. As a result,
our ability to obtain additional financing may be adversely affected.
RISK FACTORS RELATED TO THE AIRLINE INDUSTRY
INDUSTRY CONDITIONS AND COMPETITION
The airline industry is highly competitive. Airline profit levels are highly
sensitive to adverse changes in fuel costs, average fare levels and passenger
demand. Passenger demand and fare levels have historically been influenced by,
among other things, the general state of the economy, international events,
airline capacity and pricing actions taken by other airlines. For example, from
1990 to 1993, the weak U.S. economy, turbulent international events and
extensive price discounting by carriers resulted in unprecedented losses for
U.S. airlines, including us. Since then, the U.S. economy has improved and
broadly available, deep price discounting has ceased. We cannot predict the
extent to which these industry conditions will continue.
Northwest's competitors include all the other major domestic airlines, as
well as foreign, national, regional and new entrant airlines, some of which have
more financial resources or lower cost structures than Northwest. Northwest uses
yield inventory management systems to vary the number of discount seats offered
on each flight in an effort to maximize revenues while remaining price
competitive with lower-cost carriers. These competitors' low-cost fares could
affect our operating results.
In recent years, the major U.S. airlines have formed marketing alliances
with other U.S. and foreign airlines. Such alliances generally provide for
"code-sharing", frequent flyer program reciprocity, coordinated scheduling of
flights to permit convenient connections and other joint marketing activities.
Such arrangements permit an airline to market flights operated by other alliance
members as its own. This increases the destinations, connections and frequencies
offered by the airline, which provide an opportunity to increase traffic on that
airline's segment of flights connecting with alliance partners. Other major U.S.
airlines have alliances or planned alliances that may be more extensive than
Northwest's alliances. We cannot predict the extent to which we will be
disadvantaged by competing alliances.
AIRCRAFT FUEL
Because fuel costs are a significant portion of our operating costs (11.9%
for 1999), significant changes in fuel costs would materially affect our
operating results. Fuel prices continue to be susceptible to, among other
factors, political events, and we cannot control near or longer-term fuel
prices. We may experience higher fuel prices or have to curtail scheduled
services due to a fuel supply shortage that may result from a disruption of oil
imports or other events. A one cent change in the cost of a gallon of fuel
(based on 1998 consumption) would impact our operating expenses by approximately
$1.6 million per month. Changes in fuel prices may have a greater impact on
Northwest than some of its competitors because of the composition of its fleet.
REGULATORY MATTERS
Airlines are subject to extensive regulatory requirements. In the last
several years, the FAA has issued a number of maintenance directives and other
regulations. These requirements impose substantial costs on airlines. We expect
to continue to incur expenditures to comply with the FAA's noise and aging
aircraft regulations.
Additional laws, regulations, taxes and airport rates and charges have been
proposed from time to time that could significantly increase the cost of airline
operations or reduce revenues. Congress and the Department of Transportation
("DOT") have also proposed the regulation of airlines' actions taken in
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response to their competitors' activities. Restrictions on the ownership and
transfer of airline routes and takeoff and landing slots have also been
proposed. The ability of U.S. carriers to operate international routes is
subject to change because the applicable arrangements between the United States
and foreign governments may be amended from time to time, or because appropriate
slots or facilities may not be available. We cannot assure you that laws or
regulations enacted in the future will not adversely affect us.
RISK FACTORS RELATING TO THE CERTIFICATES AND THE OFFERING
APPRAISALS AND REALIZABLE VALUE OF AIRCRAFT
Three independent appraisal and consulting firms have prepared appraisals of
the Aircraft. Letters summarizing such appraisals are annexed to this prospectus
supplement as Appendix II. Such appraisals, which are based upon the base value
of the Aircraft, rely on certain varying assumptions and methodologies, which
differ among the appraisers, and were prepared without physical inspection of
the Aircraft and may not reflect current market conditions that could affect the
value of the Aircraft. Appraisals that are based on other assumptions and
methodologies may result in valuations that are materially different from those
contained in such appraisals. See "Description of the Aircraft and the
Appraisals--The Appraisals."
An appraisal is only an estimate of value. It does not indicate the price at
which an Aircraft may be purchased from the Aircraft manufacturer. Nor should an
appraisal be relied upon as a measure of realizable value. The proceeds realized
upon a sale of any Aircraft may be less than its appraised value. In particular,
the appraisals of the Aircraft are estimates of values as of future delivery
dates. The value of an Aircraft if remedies are exercised under the applicable
Indenture will depend on various factors, including:
- market and economic conditions;
- the availability of similar aircraft;
- the availability of buyers;
- the condition of the Aircraft; and
- whether the Aircraft are sold separately or as a block.
There can be no assurance that the proceeds realized upon any such exercise
of remedies would be sufficient to satisfy in full payments due on the
Certificates. The Equipment Notes are not cross-collateralized and,
consequently, liquidation proceeds from the sale of an Aircraft in excess of the
principal amount of the Equipment Notes related to such Aircraft will not be
available to cover losses, if any, on any other Equipment Notes.
MAINTENANCE
To the extent described in the Leases and the Owned Aircraft Indentures,
Northwest will be responsible for the maintenance, service, repair and overhaul
of the Aircraft. If Northwest fails to adequately perform these
responsibilities, the value of the Aircraft may be reduced. In addition, the
value of the Aircraft may deteriorate even if Northwest fulfills its maintenance
responsibilities. As a result, it is possible that upon a liquidation, there
will be less proceeds than anticipated to repay the holders of Equipment Notes.
See "Description of Equipment Notes--The Leases and Certain Provisions of the
Owned Aircraft Indentures."
INSURANCE
To the extent described in the Leases and the Owned Aircraft Indentures,
Northwest must maintain public liability, property damage and all-risk aircraft
hull insurance on the Aircraft. If Northwest fails to maintain adequate levels
of insurance, the proceeds which could be obtained upon an event of loss may be
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insufficient to repay the holders of Equipment Notes. See "Description of the
Equipment Notes--The Leases and Certain Provisions of the Owned Aircraft
Indentures--Insurance."
REPOSSESSION
There are no general geographic restrictions on Northwest's ability to
operate the Aircraft. Although it does not currently intend to do so, Northwest
is permitted to register the Aircraft in foreign jurisdictions. In addition,
Northwest is permitted to and currently intends to lease the Owned Aircraft and
sublease the Leased Aircraft to Mesaba. It may be difficult, time-consuming and
expensive for the Loan Trustee to exercise its repossession rights if the
Aircraft is located outside the United States, is registered in a foreign
location or is subleased to a foreign operator. Additional difficulties may
exist when a permitted sublessee, in the case of a Leased Aircraft, or lessee,
in the case of an Owned Aircraft is the subject of a bankruptcy, insolvency or
similar event.
In addition, certain jurisdictions may allow for certain other liens or
other third party rights to have priority over the security interest in the
Aircraft. As a result, the benefits of the security interest created in the
Equipment Notes could be limited.
PRIORITY OF DISTRIBUTIONS; SUBORDINATION
According to the intercreditor agreement among the Trusts, the Liquidity
Provider, the Policy Provider and the Subordination Agent (the "INTERCREDITOR
AGREEMENT"), the Liquidity Provider receives payment of all amounts owed to it
before the holders of any Class of Certificates receive any funds and the Policy
Provider receives payment of Provider Obligations owed to it before the holders
of the Class B and Class C Certificates receive any funds. In addition, in
certain default situations the Subordination Agent and the Trustees will receive
certain payments before the holders of any Class of Certificates. See
"Description of the Intercreditor Agreement--Priority of Distributions." Certain
Classes of Certificates are subordinated to other Classes in rights to
distributions. See "Description of the Intercreditor Agreement--Priority of
Distributions." Consequently, a payment default under any Equipment Note or a
Triggering Event may cause the distribution to more senior Classes of
Certificates of payments received from payment on one or more junior series of
Equipment Notes. If this should occur, the interest accruing on the remaining
Equipment Notes would be less than the interest accruing on the remaining
Certificates. This is because the remaining Certificates of the junior Classes
accrue interest at a higher rate than the remaining Equipment Notes, which
include series applicable to the senior Classes bearing interest at a lower
rate. As a result of this possible interest shortfall, the holders of one or
more junior Classes of Certificates may not receive the full amount due to them
after a payment default under any Equipment Note even if all Equipment Notes are
eventually paid in full.
CONTROL OVER COLLATERAL; SALE OF COLLATERAL
If an Indenture Default is continuing the Loan Trustee under each Indenture
will be directed by the Controlling Party in the exercise of remedies under such
Indenture, including accelerating the applicable Equipment Notes or foreclosing
the lien on the Aircraft securing such Equipment Notes. See "Description of the
Certificates--Indenture Defaults and Certain Rights Upon an Indenture Default."
The Controlling Party will be:
- The Policy Provider until payment of final distributions to the holders of
the Class G Certificates and no obligations owing to the Policy Provider
remain outstanding or, if a Policy Provider Default has occurred and is
continuing, the Class G Trustee until payment of final distributions to
the holders of the Class G Certificates; and thereafter,
- The Class B Trustee until payment of final distributions to the holders of
Class B Certificates; and thereafter,
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- The Class C Trustee; and
- Under certain circumstances, the Liquidity Provider, if the obligations
owed to it have not been paid in full. If there is more than one Liquidity
Provider, the Liquidity Provider which is owed the greatest amount of
obligations shall have such right. If the Policy Provider amends its
Policy to cover all drawings and interest thereon owing to the Liquidity
Provider under the Liquidity Facilities and certain other conditions are
met, or if the Policy Provider pays to the Liquidity Provider all
outstanding drawings and interest thereon owing to the Liquidity Provider
under the Liquidity Facilities, then, in either case, so long as no Policy
Provider Default has occurred and is continuing, the Policy Provider will
have the right to become (or remain) the Controlling Party.
During the continuation of any Indenture Default, the Controlling Party may
accelerate and sell the Equipment Notes issued under such Indenture, subject to
certain limitations. See "Description of the Intercreditor
Agreement--Intercreditor Rights--Sale of Equipment Notes or Aircraft." The
market for Equipment Notes during any Indenture Default may be very limited, and
we cannot assure you as to the price at which they could be sold. If the
Controlling Party sells any Equipment Notes for less than their outstanding
principal amount, certain holders of Certificates will receive a smaller amount
of principal distributions than anticipated and will not have any claim for the
shortfall against Northwest, any Owner Trustee, any Owner Participant, any
Trustee or the Policy Provider (except, with respect to the holders of the
Class G Certificates, as described in "Description of the Policy and the Policy
Provider Agreement--the Policy").
REVISIONS TO AGREEMENTS
The Owner Participants have not yet been identified. In connection with the
negotiation of definitive documents for a leased Aircraft the Owner Participant
may request revisions to the Participation Agreement, Lease, Trust Agreement and
Indenture applicable to the Owner Trust related to such Aircraft. As a result,
the terms of such documents applicable to such Aircraft may differ from the
descriptions of them contained in this prospectus supplement. However, these
documents must still contain certain economic terms and document terms. See
"Description of the Certificates--Obligation to Purchase Equipment Notes."
Each Owner Participant will have the right to sell, assign or otherwise
transfer its interest as Owner Participant in any Leased Aircraft transaction,
subject to the terms and conditions of the relevant Participant Agreement and
related documents.
UNUSED ESCROWED FUNDS
Under certain circumstances, less than all of the funds held in escrow as
Deposits may be used to purchase Equipment Notes by the Delivery Period
Termination Date. See "Description of the Deposit Agreements--Unused Deposits."
If any funds remain as Deposits with respect to any Trust after the Delivery
Period Termination Date, they will be withdrawn by the Escrow Agent for that
Trust and distributed, with accrued and unpaid interest, to the
Certificateholders of such Trust. In addition, if the remaining Deposits relate
to the Class G and Class B Trusts, such distribution will include a premium
payable by Northwest equal to the Deposit Make-Whole Premium with respect to
such remaining Deposits. However, no premium will be paid with respect to unused
Deposits attributable to the failure of an Aircraft to be delivered prior to the
Delivery Period Termination Date due to any reason not occasioned by Northwest's
fault or negligence. In the case of Deposits relating to the Class C
Certificates, any distribution of any unused amounts will include a premium
payable by Northwest equal to the Deposit Make-Whole Premium to the extent
(i) such distribution relates to the non-delivery of an Aircraft due to
Northwest's fault or negligence or (ii) the aggregate amount of all such
distributions relating to Class C Certificates (other than the amounts relating
to the non-delivery of an Aircraft) exceeds $5.0 million. See "Description of
the Deposit Agreements--Unused Deposits."
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RATINGS OF THE CERTIFICATES
It is a condition to the issuance of the Certificates that the Class G
Certificates be rated not lower than Aaa by Moody's Investors Service, Inc.
("MOODY'S") and AAA by Standard & Poor's Ratings Services, a Division of the
McGrawHill Companies, Inc. ("STANDARD & POOR'S"), the Class B Certificates be
rated not lower than Baa2 by Moody's and BBB by Standard & Poor's and the
Class C Certificates be rated not lower than Baa3 by Moody's and BBB- by
Standard & Poor's. A rating is not a recommendation to purchase, hold or sell
Certificates, since such rating does not address market price or suitability for
a particular investor. A rating may not remain for any given period of time and
may be lowered or withdrawn entirely by a Rating Agency if, in its judgment,
circumstances in the future (including the downgrading of Northwest, any
Depositary, the Policy Provider (in the case of the Class G Certificates) or the
Liquidity Provider) so warrant. The rating of the Certificates is based
primarily on the default risk of the Equipment Notes, the Policy Provider (in
the case of the Class G Certificates) and the applicable Depositary, the
availability of the Liquidity Facility for the benefit of holders of the
Certificates, the Policy for the benefit of holders of the Class G Certificates,
the collateral value provided by the Aircraft and the subordination provisions
applicable to the Certificates. The foregoing ratings address the likelihood of
timely payment of interest (at the Stated Interest Rate and without any premium)
when due on the Certificates and the ultimate payment of principal of the
Certificates by the Final Legal Distribution Date. Such ratings do not address
the possibility of certain defaults or other circumstances (such as a loss
event) which could result in the payment of the outstanding principal amount of
the Certificates prior to the Final Expected Distribution Date. See "Description
of the Certificates." Standard & Poor's has indicated that its rating applies to
a unit consisting of Certificates representing the Trust Property and Escrow
Receipts initially representing undivided interests in certain rights to
$240,163,000 of Deposits. Amounts deposited under the Escrow Agreements are not
entitled to the benefits of Section 1110 of the Bankruptcy Code. Counsel for
Northwest will opine to the underwriters that, subject to the assumptions and
qualifications contained therein, amounts deposited under the Escrow Agreements
are not property of Northwest. Neither the Certificates nor the Escrow Receipts
may be separately assigned or transferred.
The reduction, suspension or withdrawal of the ratings of the Certificates
will not, by itself, constitute an Event of Default.
LIMITED ABILITY TO RESELL THE CERTIFICATES
Prior to this offering, there has been no public market for the
Certificates. None of Northwest, NWA Corp. or any Trust intends to apply for
listing of the Certificates on any securities exchange or for quotation on the
Nasdaq National Market. The underwriters may assist in resales of the
Certificates, but they are not required to do so. A secondary market for the
Certificates may not develop. If a secondary market does develop, it might not
continue or it might not be sufficiently liquid to allow you to resell any of
your Certificates. If an active public market does not develop, the market price
and liquidity of the Certificates may be adversely affected.
RISK FACTORS RELATING TO THE POLICY PROVIDER
THE IMPACT OF ANY DECLINE IN THE FINANCIAL CONDITION OF THE POLICY PROVIDER
The "AAA" rating by S&P and the "Aaa" rating by Moody's of the Class G
Certificates are based, primarily, on the existence of the Policy insuring the
complete and timely payment of interest accrued and payable on the Class G
Certificates on each Regular Distribution Date and the payment of principal on
or (under certain circumstances) before the Final Legal Distribution Date. Any
decline in the financial condition of the Policy Provider or the insolvency of
the Policy Provider may result in the downgrade of the foregoing ratings of the
Class G Certificates and may impair the ability of the Policy Provider to make
payments to the holders of the Class G Certificates pursuant to the Policy. In
addition, in the event of the insolvency of the Policy Provider under insurance
insolvency proceedings it is possible that the
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Subordination Agent would be unable to recover the full amount due under the
Class G Certificates on its unsecured claim against the Policy Provider. For
information on the financial information generally available with respect to the
Policy Provider, see "Description of the Policy Provider" and "Description of
the Policy and the Policy Provider Agreement--The Policy."
THE LIMITED NATURE OF THE POLICY
The Policy's support of interest payments and principal payments will be
limited to the Class G Certificates and, as a result, the Policy will only run
to the benefit of the holders of the Class G Certificates. Although drawings
under the Policy for interest payments may be made when interest is due,
drawings for principal payments may not, except in certain circumstances, be
made until the Final Legal Distribution Date for the Class G Certificates. The
Policy provides no coverage for the Class B Certificates, the Class C
Certificates or, if issued, the Class D Certificates.
THE POLICY PROVIDER AS A CONTROLLING PARTY
Unless a Policy Provider Default has occurred, the Policy Provider will
operate as the Controlling Party unless the Liquidity Provider has the right to
become the Controlling Party. As the Controlling Party, the Policy Provider will
have the ability, subject to certain limitations, to direct the Subordination
Agent in the exercise of all remedies, including the ability to direct the
Subordination Agent to sell any or all of the Equipment Notes or to instruct the
Loan Trustee under the applicable Indenture to accelerate the Equipment Notes
issued under such Indenture and to foreclose upon the lien created thereunder.
As the Controlling Party, the Policy Provider will be in a position to take
actions that are beneficial to the Policy Provider and the holders of the
Class G Certificates but detrimental to the holders of the Class B Certificates,
the Class C Certificates or, if issued, the Class D Certificates.
DESCRIPTION OF THE POLICY PROVIDER
GENERAL
The information set forth in this section, including any financial
statements incorporated by reference herein, has been provided by MBIA Insurance
Corporation ("MBIA" or the "POLICY PROVIDER") for inclusion in this prospectus
supplement, and such information has not been independently verified by
Northwest, the Underwriters, the Trusts, the Depositary or the Liquidity
Provider. Accordingly, notwithstanding anything to the contrary herein, none of
Northwest, the Underwriters, the Trusts, the Depositary or the Liquidity
Provider assumes any responsibility for the accuracy, completeness or
applicability of such information.
MBIA is the principal operating subsidiary of MBIA Inc., a New York Stock
Exchange listed company (the "PARENT COMPANY"). The Parent Company is not
obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the
State of New York and licensed to do business in and subject to regulation under
the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of
the United States and the Territory of Guam. MBIA has two European branches, one
in the Republic of France and the other in the Kingdom of Spain. New York has
laws prescribing minimum capital requirements, limiting classes and
concentrations of investments and requiring the approval of policy rates and
forms. State laws also regulate the amount of both the aggregate and individual
risks that may be insured, the payment of dividends by MBIA, changes in control
and transactions among affiliates. Additionally, MBIA is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.
MBIA does not accept any responsibility for the accuracy or completeness of
this prospectus supplement or any information or disclosure contained herein, or
omitted herefrom, other than with respect to the accuracy of the information
regarding the Policy Provider set forth under the heading "Description of the
Policy Provider," including the financial statements incorporated by reference
herein.
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Additionally, MBIA makes no representation regarding the Certificates or the
advisability of investing in the Certificates.
The Policies are not covered by the Property/Casualty Insurance Security
Fund specified in Article 76 of the New York Insurance Law.
MBIA FINANCIAL INFORMATION
The consolidated financial statements of MBIA, a wholly owned subsidiary of
the Parent Company, and its subsidiaries as of December 31, 1998 and
December 31, 1997 and for each of the three years in the period ended
December 31, 1998, prepared in accordance with generally accepted accounting
principles, included in the Annual Report on Form 10-K of the Parent Company for
the year ended December 31, 1998 and the consolidated financial statements of
MBIA and its subsidiaries as of September 30, 1999 and for the nine month
periods ended September 30, 1999 and September 30, 1998 included in the
Quarterly Report on Form 10-Q of the Parent Company for the period ended
September 30, 1999, are hereby incorporated by reference into this prospectus
supplement and shall be deemed to be a part hereof. Any statement contained in a
document incorporated by reference herein shall be modified or superseded for
purposes of this prospectus supplement to the extent that a statement contained
herein or in any other subsequently filed document which also is incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this prospectus supplement.
All financial statements of MBIA and its subsidiaries included in documents
filed by the Parent Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, subsequent to the date of this
prospectus supplement and prior to the termination of the offering of the
Certificates shall be deemed to be incorporated by reference into this
prospectus supplement and to be a part hereof from the respective dates of
filing such documents.
The tables below present selected financial information of MBIA determined
in accordance with statutory accounting practices prescribed or permitted by
insurance regulatory authorities ("SAP") and generally accepted accounting
principles ("GAAP"):
<TABLE>
<CAPTION>
SAP
--------------------------------------
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Admitted Assets............................................. $6,521 $6,930
Liabilities................................................. 4,231 4,571
Capital and Surplus......................................... 2,290 2,359
</TABLE>
<TABLE>
<CAPTION>
GAAP
--------------------------------------
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Assets...................................................... $7,488 $7,422
Liabilities................................................. 3,211 3,234
Shareholder's Equity........................................ 4,277 4,188
</TABLE>
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION ABOUT MBIA
Copies of the financial statements of MBIA incorporated by reference herein
and copies of MBIA's 1998 year-end audited financial statements prepared in
accordance with statutory accounting practices are available, without charge,
from MBIA. The address of MBIA is 113 King Street, Armonk, New York 10504. The
telephone number of MBIA is (914) 273-4545.
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YEAR 2000 READINESS DISCLOSURE
The Parent Company is actively managing a high-priority Year 2000 program
addressing the issue of whether its computer systems can correctly distinguish
between the years 1900 and 2000. The Parent Company has established an
independent Year 2000 testing laboratory in its Armonk office, with a committee
of business unit managers overseeing the project. The Parent Company has a
budget of $1.13 million for its 1998-2000 Year 2000 efforts. As of
September 30, 1999, the Parent Company has spent $949,000 on the project. A
recent review of efforts at certain subsidiaries has indicated the need to spend
an additional $1.03 million this year on remediation. As of September 30, 1999,
the Parent Company has spent $568,000 of this additional amount. However, this
increase will not have a material effect on the Parent Company's financial
results.
The Parent Company has initiated a comprehensive Year 2000 plan which
includes the following phases: assessment--completed in the second quarter of
1998; remediation--completed in the fourth quarter of 1998; testing--completed
in the second quarter of 1999; and contingency planning--completed in the third
quarter of 1999, subject to final approval by senior management and any need for
revision that might arise in the future. This plan covers "mission-critical"
internally developed systems, vendor software, hardware and certain third-party
entities through which the Parent Company conducts its business. Testing to date
indicates that functions critical to the financial guarantee business, both
domestic and international, were Year 2000-ready as of December 31, 1998.
Additional testing is being carried out throughout 1999.
CLAIMS PAYING ABILITY RATINGS OF MBIA
Moody's Investors Service, Inc. rates the claims paying ability of MBIA
"Aaa."
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. rates the claims paying ability of MBIA "AAA."
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates the
claims paying ability of MBIA "AAA."
Each rating of MBIA should be evaluated independently. The ratings reflect
the respective rating agency's current assessment of the creditworthiness of
MBIA and its ability to pay claims on its policies of insurance. Any further
explanation as to the significance of the above ratings may be obtained only
from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Certificates, and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the
Certificates. MBIA does not guaranty the market price of the Certificates nor
does it guaranty that the ratings on the Certificates will not be revised or
withdrawn.
THE COMPANY
NWA Corp. is the indirect parent corporation of Northwest. Northwest
operates the world's fourth largest airline (as measured by strike adjusted 1998
RPMs) and is engaged in the business of transporting passengers and cargo.
Northwest's business focuses on the development of a global airline network
through its strategic assets that include:
- domestic hubs at Detroit, Minneapolis/St. Paul and Memphis;
- an extensive Pacific route system with hubs at Tokyo and Osaka;
- a trans-Atlantic alliance with KLM Royal Dutch Airlines ("KLM"), which
operates through a hub in Amsterdam and, subject to regulatory approvals,
with Alitalia which operates through hubs in Rome and Milan; and
- a global alliance with Continental.
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RECENT ALLIANCE DEVELOPMENTS
During 1998, Northwest and Continental entered into a thirteen-year global
strategic commercial alliance that connects the two carriers' networks and
includes extensive code-sharing, frequent flyer program reciprocity and other
cooperative activities. The airlines will continue operating their two networks
under separate identities. The combined network will result in a domestic
presence comparable to that of either United Air Lines ("UNITED") or American
Airlines (based on 1998 ASMs), provide Northwest access to Latin America and
increase its Pacific presence.
In December 1998, Northwest and Continental began implementing their
alliance. Since then, they have initiated code-sharing to several points in
Asia, Canada, Central America and the Caribbean and to many domestic cities.
Northwest anticipates that it will continue to add additional code-sharing with
Continental; however, further international code-sharing is subject to certain
regulatory approvals. Through increased domestic and international connections,
Northwest has increased its market share and enhanced its revenue. Other joint
activities underway include airport facility coordination, joint purchasing and
certain coordinated sales programs. Continental is expected to be included in
the trans-Atlantic joint venture alliance with KLM. Through combined purchasing
power and increased efficiencies in airport operations, Northwest is
experiencing reduced operating costs.
In November 1998, KLM and Alitalia announced a strategic commercial alliance
and began code-sharing. KLM and Alitalia are developing a European multi-hub
network based in Amsterdam, Rome and Milan. Continental and Alitalia currently
code-share between the U.S. and Italy. In May 1999, Northwest, KLM and Alitalia
announced that Alitalia will join the Northwest/KLM trans-Atlantic joint venture
alliance. As part of this alliance, the three airlines have jointly applied to
the DOT for immunity from the U.S. antitrust laws. If consummated, the addition
of Alitalia and Continental to the Northwest/ KLM trans-Atlantic joint venture
alliance would create a combination comparable in scale and scope to other
global alliances, resulting in over a 15% trans-Atlantic share (based on 1998
ASMs) with service to 48 countries.
OPERATIONS AND ROUTE NETWORK
Northwest operates substantial domestic and international route networks and
directly serves more than 150 cities in 21 countries in North America, Asia and
Europe. Northwest had more than 50.5 million enplanements and flew over
66.7 billion RPMs in 1998. Northwest began operations in 1926.
Northwest has expanded its network and provides greater service to its
customers through the use of domestic and international alliances and code-share
agreements with other airlines. Code-sharing is an agreement under which an
airline's flights can be marketed under the two-letter designator code of
another airline. By coordinating flight schedules, product development and
marketing, Northwest and its alliance partners provide a global network to 90
countries and over 500 cities in the U.S., Canada, Asia, India, the South
Pacific, Mexico and the Caribbean, Europe, the Middle East, Africa and Latin
America.
DOMESTIC SYSTEM
Northwest's domestic route system serves 47 states in the U.S., the District
of Columbia, Mexico, Canada and the Caribbean. Northwest operates its domestic
system through its hubs at Detroit, Minneapolis/St. Paul and Memphis. The hub
system gathers passengers from the hub and cities surrounding the hub and
provides more frequent local and connecting service than if each route were
served on a nonstop point-to-point basis. As part of its alliance with
Continental, Northwest's passengers are able to connect through Continental's
hubs in Newark, Houston and Cleveland to additional cities not previously served
by Northwest.
Northwest's hubs provide connections to feed traffic into its nine gateway
cities for international service. Northwest operates international flights from
its Detroit and Minneapolis/St. Paul hubs as well as from Anchorage, Boston,
Honolulu, Las Vegas, Los Angeles, New York, San Francisco, Seattle and
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Washington D.C. In addition, KLM operates flights to Amsterdam from Memphis,
Atlanta, Chicago and Houston.
Northwest has exclusive marketing agreements with two regional carriers:
Mesaba and Express Airlines I, Inc. ("EXPRESS"), a wholly-owned indirect
subsidiary of NWA Corp. Under these agreements, these regional carriers operate
their flights under the Northwest "NW" code and are identified as Northwest
Airlink carriers. The primary purpose of these marketing agreements is to
provide more frequent service to smaller cities, which increases connecting
traffic at our hubs. Currently these carriers exclusively serve 78 airports.
DETROIT. Northwest and Mesaba together serve over 130 cities from Detroit.
For the 12 months ended June 30, 1998, Northwest and Mesaba enplaned 66% of
originating passengers from this hub, while the next largest competitor enplaned
5%. Detroit, which is the sixth largest origination/destination hub in the U.S.,
is Northwest's largest international gateway from the continental U.S., offering
nonstop flights to 18 foreign cities, including 19 nonstop flights to Japan per
week.
MINNEAPOLIS/ST. PAUL. Northwest and Mesaba together serve over 140 cities
from Minneapolis/St. Paul. For the 12 months ended June 30, 1998, Northwest and
Mesaba enplaned 73% of originating passengers from this hub, while the next
largest competitor enplaned 5%. Minneapolis/St. Paul is the eleventh largest
origination/destination hub in the U.S.
MEMPHIS. Northwest, Express and Mesaba together serve over 80 cities from
Memphis. For the 12 months ended June 30, 1998, Northwest enplaned 56% of
originating jet passengers from this hub, while the next largest competitor
enplaned 23%.
Northwest has additional marketing agreements with Alaska Airlines, Horizon
Air, Trans States Airlines, Inc., America West Airlines, Inc., and Big Sky
Airlines for code-sharing on some of these carriers' routes in the western U.S.
The primary purpose of the arrangements with these airlines is to provide
increased connections between Northwest's route network and their route networks
to generate increased traffic into Northwest's domestic system and international
gateways to the Pacific.
Northwest and Mesaba together serve seven cities in Mexico, 12 cities in
Canada and five cities in the Caribbean. Through its alliance with Continental,
Northwest has begun code-sharing on flights to Canada, Central America and the
Caribbean and, subject to foreign governmental approval, plans to implement
code-sharing to Mexico. Continental serves more destinations to Mexico and
Central America than any other U.S. airline.
INTERNATIONAL SYSTEM
Northwest has a comprehensive route network to the Pacific, providing
extensive service to Japan and China, and also serves destinations to Europe and
India. The Company has joint marketing alliances and code-share agreements with
other foreign carriers that allow it to expand its service and enter additional
markets with minimal capital outlay.
PACIFIC. Northwest has served the Pacific market since 1947 and has one of
the world's largest Pacific route networks, with over 470 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 has also developed a hub at Osaka's Kansai
airport, where it holds 108 takeoff and landing slots. Northwest currently
operates 39 weekly departures from Osaka, which includes service between four
U.S. gateways and three Asian destinations.
Northwest provides passenger service between various points in the U.S. and
Japan and operates flights between Japan and Korea, Taiwan, the Philippines,
Thailand, Singapore, Northern Mariana Islands, and China, including Hong Kong.
Northwest's Japan presence results from the 1952 U.S.-Japan bilateral
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aviation agreement, as amended, which establishes rights to carry traffic
between Japan and the U.S. and extensive "fifth freedom" rights between Japan
and India, the South Pacific and other Asian destinations. "Fifth freedom"
rights allow Northwest to operate service from any gateway in Japan to points
beyond Japan and carry Japanese originating passengers. Northwest and United are
the only U.S. passenger carriers that have "fifth freedom" rights from Japan. On
March 14, 1998, the U.S. and Japan expanded their aviation agreement. Primary
benefits of the new agreement for Northwest included unlimited rights and
frequencies to operate between any point in the U.S. and Japan and the ability
to code-share with Japanese carriers. The agreement confirmed and expanded
Northwest's "fifth freedom" rights and the U.S. received assurances that
Northwest will retain all its weekly takeoff and landing slots at Tokyo and
Osaka and will have access to new slots as they become available. In 1998, the
Company added nonstop service between Detroit and Nagoya, Las Vegas and Tokyo,
Anchorage and Tokyo, and Nagoya and Manila. In 1999, Northwest began nonstop
service between Kaohsiung, Taiwan and Osaka and Kuala Lumpur, Malaysia and
Osaka.
Northwest continues to expand its Pacific presence through additional
alliances. Northwest is currently implementing an alliance with Japan Air
System, which has approximately 25% of Japan's domestic traffic. The alliance
includes coordinated flight connections, traffic servicing, reciprocal frequent
flyer programs, code-sharing and other cooperative activities. Northwest also
has code-sharing and marketing agreements with Hawaiian Airlines and Pacific
Island Aviation.
In October 1998, the Company began code-sharing with Air China as part of a
minimum four-year alliance entered into in May 1998. The alliance connects the
two carriers' networks and also includes frequent flyer program reciprocity and
joint marketing. Northwest and Air China currently provide 18 flights each week
between the U.S. and China, including four Northwest nonstop flights between
Detroit and Beijing. This is the only regularly scheduled nonstop service
between the U.S. and China's capital operated by a U.S. carrier. Under the new
U.S.-China aviation agreement Northwest was awarded four additional flights
beginning in October 1999 and two in April 2000. Northwest recently increased
the current Detroit-Shanghai one-stop service from two to four flights weekly
and inaugurated two all-cargo freighter service flights between the U.S. and
Shanghai via Tokyo. In April 2000, Northwest will inaugurate the first nonstop
service between Detroit and Shanghai with two weekly flights. Northwest alliance
partners, Alaska Airlines, America West Airlines and Continental, have entered
into alliance agreements with Air China. Northwest and its partners collectively
provide the most nonstop and one-stop service between the U.S. and China.
In September 1999, the Company and Malaysia Airlines agreed to an
operational and marketing alliance, which will include coordinated flight
connections, code-sharing, frequent flyer program reciprocity and other
cooperative activities. Code-sharing is expected to begin in January 2000.
ATLANTIC. Northwest provides passenger service from six U.S. gateway cities
to Amsterdam, Paris, Frankfurt and London (Gatwick) with 77 weekly nonstop
flights. Northwest also provides service to Mumbai and Delhi, India from
Amsterdam. Daily nonstop service from Minneapolis/St. Paul to Amsterdam began in
April 1999.
Northwest and KLM operate their trans-Atlantic flights pursuant to a
commercial and operational joint venture alliance. Northwest and KLM have
expanded their trans-Atlantic presence by operating joint service between 12
U.S. cities and Amsterdam, KLM's hub airport. Code-sharing between Northwest and
KLM has been implemented on flights to 61 European, eight Middle Eastern, seven
African, three Asian and over 185 U.S. cities. The Northwest/KLM joint venture
alliance benefits from antitrust immunity that facilitates coordinated pricing,
scheduling, product development and marketing.
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In September 1997, Northwest and KLM expanded their joint venture alliance
for a minimum term of 13 years and expanded their 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 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 joint venture alliance.
To further enhance Northwest's service in Europe, India, and Southeast Asia,
Northwest also has marketing agreements with Cyprus Airways, Air Alps Aviation,
Air Engiadina of Switzerland, Eurowings, Braathens, KLM uk, KLM exel, Jet
Airways Private Ltd., Kenya Airways and Martinair. KLM has similar agreements
with CSA Czech and Regionale Air of France. Northwest expects to enter into
similar agreements with these airlines. Northwest has a marketing agreement with
Business Express Airlines for code-sharing in the Boston area to feed its
trans-Atlantic and domestic route network.
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
Department of Transportation for joint immunity from the U.S. antitrust laws
and, under conditions imposed by the Department of Transportation, were granted
such immunity in January 1993. Northwest and KLM re-submitted their alliance
agreement to the Department of Transportation in January 1998. The European
Commission ("EC") has commenced a review of all trans-Atlantic airline
alliances, including Northwest/KLM. The EC is considering imposing certain
regulatory conditions that may restrict the areas of permissible cooperation.
LATIN AMERICA. Through Northwest's alliance with Continental, Northwest
expects to increase its presence in South America. Subject to foreign
governmental approval, Northwest and Continental will begin code-sharing to
South America. Continental flies to eight cities in South America and offers
additional connecting service through alliances with foreign carriers.
CARGO
In 1998, cargo accounted for 7% of the Company's operating revenues, with
the majority of its cargo revenues originating in or destined for Asia. Through
its Tokyo and Anchorage cargo hubs, Northwest serves most major air freight
markets between the U.S. and the Pacific with nine Boeing 747 freighter
aircraft. Northwest is one of only two U.S. passenger airlines to operate a
dedicated all-cargo freighter fleet. A tenth freighter was acquired in November
and is anticipated to begin scheduled service in early 2000.
HOLDING COMPANY REORGANIZATION
On November 20, 1998 NWA Corp. effected a holding company reorganization. As
a result, Northwest Airlines Holding Corporation (formerly known as Northwest
Airlines Corporation and, prior to the reorganization, the publicly traded
holding company, "OLD NWA CORP.") became a direct wholly owned subsidiary of NWA
Corp. NWA Corp. is now the publicly traded holding company, which owns directly
Old NWA Corp. and indirectly the holding and operating subsidiaries of Old NWA
Corp. References in this prospectus supplement to NWA Corp. for time periods
prior to November 20, 1998 refer to Old NWA Corp.
USE OF PROCEEDS
The proceeds from the sale of the Certificates of a Trust (collectively, the
"CERTIFICATES") will be used during the Delivery Period to purchase Equipment
Notes issued, at Northwest's election, either (i) by each Owner Trustee to
finance or refinance a portion of the purchase price of the Leased Aircraft or
(ii) by Northwest to finance or refinance a portion of the purchase price of the
Owned Aircraft. Proceeds to be used to purchase Equipment Notes to finance or
refinance future aircraft deliveries will be initially deposited with the
applicable Depositary on behalf of the applicable Escrow Agent of such Trusts.
Upon
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the request of the Trustees, the Escrow Agent will withdraw the applicable
Deposits and deliver such proceeds to the Trustees. All of the proceeds from the
sale of the Certificates will be used by the Trustee to purchase at par all of
the Equipment Notes subject to the circumstances described under "Description of
the Deposit Agreement--Unused Deposits."
DESCRIPTION OF THE CERTIFICATES
The Certificates offered hereby will be issued pursuant to three separate
Trust Supplements (each a "TRUST SUPPLEMENT") to be entered into among
Northwest, NWA Corp. and the Trustee pursuant to the terms of a pass through
trust agreement among NWA Corp., Northwest and the Trustee, dated as of June 3,
1999 (the "BASIC AGREEMENT"). The following summary of the particular terms of
the Certificates offered hereby supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and provisions of the
Certificates set forth in the accompanying Prospectus under the caption
"Description of the Certificates." The statements under this caption are a
summary and do not purport to be complete. The summary makes use of terms
defined in and is qualified in its entirety by reference to all of the
provisions of the Basic Agreement, a form of which has been filed as an exhibit
to the Registration Statement of which the accompanying Prospectus is a part,
and to all of the provisions of the Trust Supplements which, together with the
forms of the related Participation Agreements, Indentures, Leases and Trust
Agreements and the Liquidity Facilities, Note Purchase Agreement, Escrow
Agreements, Deposit Agreements, Intercreditor Agreement and Policy, will be
filed by NWA Corp. with the Commission as exhibits to a Current Report on
Form 8-K, a Quarterly Report on Form 10-Q or an Annual Report on Form 10-K.
Except as otherwise indicated, the following summary relates to each of the
Trusts and the Certificates issued by each Trust. The terms and conditions
governing each of the Trusts will be substantially the same, except as described
under "Description of the Intercreditor Agreement--Priority of Distributions"
below and except that the principal amount, the interest rate, scheduled
repayments of principal and maturity date applicable to the Equipment Notes held
by each Trust and the final expected distribution date (the "FINAL EXPECTED
DISTRIBUTION DATE") applicable to each Trust will differ. Citations to the
relevant sections of the Basic Agreement appear below in parentheses unless
otherwise indicated.
GENERAL
The Certificates of each Trust will be issued in fully registered form only
and will be subject to the provisions described below under "--Book Entry;
Delivery and Form." Each Certificate will represent a fractional undivided
interest in one of three Northwest Airlines 1999-3 Pass Through Trust (the
"CLASS G TRUST," the "CLASS B TRUST," and the "CLASS C TRUST," and,
collectively, the "TRUSTS"). The Trusts will be formed pursuant to the Basic
Agreement, and the Trust Supplements (together with the Basic Agreement,
collectively, the "PASS THROUGH TRUST AGREEMENTS"). The Certificates are
referred to herein as the "CLASS G CERTIFICATES," the "CLASS B CERTIFICATES,"
and the "CLASS C CERTIFICATES." Each Certificate will represent a fractional
undivided interest in the Trust created by the Basic Agreement and the
applicable Trust Supplement pursuant to which such Certificate is issued.
The property of each Trust (the "TRUST PROPERTY") will consist of:
- Subject to the Intercreditor Agreement, Equipment Notes acquired under the
Note Purchase Agreement and issued, at Northwest's election, either
(a) on a nonrecourse basis by the trustees (each, an "OWNER TRUSTEE") of
separate owner trusts in each separate leveraged lease transaction with
respect to each Leased Aircraft to finance or refinance a portion of the
purchase price of such Leased Aircraft by the Owner Trustee, in which case
the applicable Leased Aircraft will be leased to Northwest, or (b) on a
recourse basis by Northwest in connection with each separate secured loan
transaction with respect to each Owned Aircraft to finance or refinance a
portion of the purchase price of such Owned Aircraft by Northwest.
- The rights of such Trust to acquire Equipment Notes under the Note
Purchase Agreement.
- The rights of such Trust under the applicable Escrow Agreement to request
the Escrow Agent to withdraw from the applicable Depositary funds
sufficient to enable each such Trust to purchase Equipment Notes during
the Delivery Period.
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- The rights of such Trust under the Intercreditor Agreement (including all
monies receivable in respect of such rights).
- Monies receivable under the Liquidity Facility for such Trust.
- With respect to the Class G Trust, all monies receivable under the Policy.
- Funds from time to time deposited with the Trustee in accounts relating to
such Trust.
Certificates will be issued only in minimum denominations of $1,000 or
integral multiples thereof, except that one Certificate of each Trust may be
issued in a different denomination. (Section 3.01) (UNLESS OTHERWISE SPECIFIED,
"SECTION" REFERENCES REFER TO SECTIONS OF THE BASIC AGREEMENT.)
The Certificates represent interests in the respective Trusts and all
payments and distributions thereon will be made only from the Trust Property.
(Section 3.08) The Certificates do not represent an interest in or obligation of
Northwest, NWA Corp., the Trustee, any of the Loan Trustees or Owner Trustees in
their individual capacities, any Owner Participant or any affiliate of any
thereof.
Pursuant to the Escrow Agreement applicable to each Trust, the holders of
the Certificates of each Trust (the "CERTIFICATEHOLDERS") as holders of the
Escrow Receipts affixed to each Certificate will be entitled to certain rights
with respect to payments and withdrawals that are required to be made by the
applicable Depositary under the applicable Deposit Agreement. Accordingly, any
transfer of a Certificate will have the effect of transferring the corresponding
rights with respect to such payments, and rights with respect to payments and
withdrawals to be made under the applicable Deposit Agreement may not be
separately transferred by holders of the Certificates. Rights with respect to
the Deposits, payments and withdrawals to be made under the applicable Deposit
Agreement and the Escrow Agreement relating to a Trust, except for the right to
request withdrawals for the purchase of Equipment Notes, will not constitute
Trust Property of such Trust.
PAYMENTS AND DISTRIBUTIONS
The following description of distributions on the Certificates should be
read in conjunction with the description of the Intercreditor Agreement which
may have the consequence of altering the effect of the following provisions in a
default situation. See "Description of the Intercreditor Agreement--Priority of
Distributions." Interest with respect to the Equipment Notes held in each Trust
will accrue at the applicable rate per annum for Certificates to be issued by
such Trust set forth on the cover page of this Prospectus Supplement, payable on
April 1 and October 1 of each year, commencing on April 1, 2000 (or, in the case
of Equipment Notes issued after such date, commencing with the first such date
to occur after initial issuance thereof). The non-default interest rate
applicable to each Class of Certificates is referred to as the "STATED INTEREST
RATE" for such Trust. All such interest payments will be distributed to
Certificateholders of such Trust on each such date until the final Distribution
Date for such Trust, subject to the Intercreditor Agreement. Interest is
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Interest will accrue on the Deposits relating to each Trust at a rate equal
to the interest rate applicable to the Certificates issued by such Trust. The
Deposits relating to a Trust and interest paid thereon will not be subject to
the subordination provisions applicable to the Certificates.
Payments of interest on the Deposits with respect to each Trust will be made
by the applicable Depositary to the Paying Agent for distribution to the holders
of Escrow Receipts as described below. Payments of principal, premium (if any)
and interest on the Equipment Notes or with respect to other Trust Property held
in each Trust will be distributed by the Trustee to Certificateholders of such
Trust on the date receipt of such payment is confirmed, except in the case of
certain types of Special Payments.
Payments of interest applicable to the Certificates to be issued by each of
the Trusts will be supported by a separate Liquidity Facility to be provided by
the Liquidity Provider for the benefit of the holders of such Certificates in an
aggregate amount sufficient to pay interest thereon at the Stated Interest Rate
for such Trust on the next three successive Regular Distribution Dates (without
regard to any future payments of principal on such Certificates).
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The Liquidity Facility with respect to each Trust does not cover interest
payable by the applicable Depositary on the Deposits relating to such Trust.
Furthermore, the Liquidity Facility does not provide for drawings thereunder to
pay for principal of or premium on such Certificates, any interest on such
Certificates in excess of the Stated Interest Rates, or, notwithstanding the
subordination provisions of the Intercreditor Agreement, principal of or
interest or premium on the Certificates of any other Class. Therefore, only the
holders of the Certificates to be issued by a particular Trust are entitled to
receive and retain the proceeds of drawings under the Liquidity Facility for
such Trust. See "Description of the Liquidity Facilities."
After use of any available funds under the Liquidity Facility or the Cash
Collateral Account for the Class G Certificates, the payment of interest on the
Class G Certificates will be supported by the Policy provided by the Policy
Provider. See "Description of the Policy and the Policy Provider Agreement--The
Policy."
Payments of principal of the Equipment Notes are scheduled to be received by
the Trustee on April 1 and October 1 in certain years depending upon the terms
of the Equipment Notes held in such Trust.
Scheduled payments of interest on the Deposits and of interest or principal
on the Equipment Notes are herein referred to as "SCHEDULED PAYMENTS", and
April 1 and October 1 of each year are herein referred to as "REGULAR
DISTRIBUTION DATES." See "Description of the Equipment Notes--Principal and
Interest Payments." The "FINAL LEGAL DISTRIBUTION DATE" for the Class G
Certificates is October 1, 2020, for the Class B Certificates is October 1,
2016, and for the Class C Certificates is October 1, 2011.
Payment of principal of the Class G Certificates on the Final Legal
Distribution Date and, in certain limited circumstances earlier, will be
supported by the Policy provided by the Policy Provider. See "Description of the
Policy and the Policy Provider Agreement--The Policy."
The Paying Agent with respect to each Escrow Agreement will distribute on
each Regular Distribution Date to the Certificateholders of the Trust to which
such Escrow Agreement relates all Scheduled Payments received in respect of the
related Deposits, the receipt of which is confirmed by the Paying Agent on such
Regular Distribution Date. The Trustee of each Trust will distribute, subject to
the Intercreditor Agreement, on each Regular Distribution Date to the
Certificateholders of such Trust all Scheduled Payments received in respect of
Equipment Notes held on behalf of such Trust, the receipt of which is confirmed
by the Trustee on such Regular Distribution Date. Each Certificateholder of each
Trust will be entitled to receive its proportionate share, based upon its
fractional interest in such Trust, of any distribution in respect of Scheduled
Payments of interest on the Deposits relating to such Trust and, subject to the
Intercreditor Agreement, of principal or interest on Equipment Notes held by the
Subordination Agent on behalf of such Trust. Each such distribution of Scheduled
Payments will be made by the applicable Paying Agent or Trustee to the
Certificateholders of record of the relevant Trust on the record date applicable
to such Scheduled Payment subject to certain exceptions. (Sections 4.01 and
4.02; Escrow Agreement, Section 2.03) If a Scheduled Payment is not received by
the applicable Paying Agent or Trustee on a Regular Distribution Date but is
received within five days thereafter, it will be distributed on the date
received to such holders of record. If it is received after such five-day
period, it will be treated as a Special Payment (as defined below) and
distributed as described below.
Any payment in respect of, or any proceeds of, any Equipment Note, Trust
Indenture Estate under (and as defined in) any Leased Aircraft Indenture or
Collateral under (and as defined in) any Owned Aircraft Indenture other than a
Scheduled Payment (each, a "SPECIAL PAYMENT") will be distributed on, in the
case of an early redemption or a purchase of any Equipment Note, the date of
such early redemption or purchase (which is a Business Day), and otherwise on
the Business Day specified for distribution of such Special Payment pursuant to
a notice delivered by each Trustee as soon as practicable after the Trustee has
received funds for such Special Payment (each a "SPECIAL DISTRIBUTION DATE",
each Special Distribution Date and Regular Distribution Date, a "DISTRIBUTION
DATE"). Any such distribution will be subject to the Intercreditor Agreement.
Any unused Deposits to be distributed after the Delivery Period Termination
Date or the occurrence of a Triggering Event, together with accrued and unpaid
interest thereon (each, also a "SPECIAL PAYMENT"),
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will be distributed on a date 15 days after the Paying Agent has received notice
of the event requiring such distribution (also a "SPECIAL DISTRIBUTION DATE").
However, if such date is within ten days before or after a Regular Distribution
Date, such Special Payment will be made on such Regular Distribution Date.
Payments made on or with respect to a Deposit are not subject to the
Intercreditor Agreement.
Each Paying Agent, in the case of the Deposits, and each Trustee, in the
case of Trust Property, will mail a notice to the Certificateholders of the
applicable Trust stating the scheduled Special Distribution Date, the related
record date, the amount of the Special Payment and the reason for the Special
Payment. In the case of a redemption or purchase of the Equipment Notes held in
the related Trust or any distribution of unused Deposits after the Delivery
Period Termination Date or the occurrence of a Triggering Event, such notice
will be mailed not less than 15 days prior to the date such Special Payment is
scheduled to be distributed, and in the case of any other Special Payment, such
notice will be mailed as soon as practicable after the Trustee has confirmed
that it has received funds for such Special Payment. (Section 4.02(c); Trust
Supplements, Section 6.01; Escrow Agreement, Sections 2.03 and 2.06) Each
distribution of a Special Payment, other than a final distribution, on a Special
Distribution Date for any Trust will be made by the Paying Agent or the Trustee,
as applicable, to the Certificateholders of record of such Trust on the record
date applicable to such Special Payment. (Section 4.02(b)) See "--Indenture
Defaults and Certain Rights upon an Indenture Default" and "Description of the
Equipment Notes--Redemption."
In the case of the distribution of proceeds from any "No Proceeds Drawing"
or "Avoidance Drawing" as described in "Description of the Policy and the Policy
Provider Agreement--The Policy", the Class G Trustee will mail a notice to the
Certificateholders of the Class G Trust stating the scheduled Special
Distribution Date, the related Record Date, the amount of such distribution and
the reason for such distribution. Such notice will be mailed not less than
20 days prior to the date such proceeds are scheduled to be distributed. Each
such distribution shall be made by the Class G Trustee to the Certificateholders
of record of the Class G Trust on the Record Date applicable to such
distribution. (Section 4.02(c))
Each Pass Through Trust Agreement will require that the Trustee establish
and maintain, for the related Trust and for the benefit of the
Certificateholders of such Trust, one or more non-interest bearing accounts (the
"CERTIFICATE ACCOUNT") for the deposit of payments representing Scheduled
Payments received by such Trustee. Each Pass Through Trust Agreement will
require that the Trustee establish and maintain, for the related Trust and for
the benefit of the Certificateholders of such Trust, one or more accounts (the
"SPECIAL PAYMENTS ACCOUNT") for the deposit of payments representing Special
Payments received by such Trustee, which are to be non-interest bearing except
in certain circumstances where the Trustee may invest amounts in such account in
certain permitted investments. Pursuant to the terms of each Pass Through Trust
Agreement, the Trustee will be required to deposit any Scheduled Payments
relating to the applicable Trust received by it in the Certificate Account of
such Trust and to deposit any Special Payments so received by it in the Special
Payments Account of such Trust. (Section 4.01; Trust Supplements, Section 3.01)
All amounts so deposited will be distributed by the Trustee on a Regular
Distribution Date or a Special Distribution Date, as appropriate.
(Section 4.02; Trust Supplements, Section 6.01)
Each Escrow Agreement requires that the Paying Agent establish and maintain,
for the benefit of the Receiptholders, one or more accounts (the "PAYING AGENT
ACCOUNT"), which are to be non-interest bearing. Pursuant to the terms of the
Escrow Agreement, the Paying Agent is required to deposit interest on Deposits
relating to such Trust and any unused Deposits withdrawn by the Escrow Agent in
the Paying Agent Account. All amounts so deposited will be distributed by the
Paying Agent on a Regular Distribution Date or Special Distribution Date, as
appropriate.
The final distribution for each Trust will be made only upon presentation
and surrender of the Certificates for such Trust at the office or agency of the
Trustee specified in the notice given by the Trustee of such final distribution.
The Trustee will mail such notice of the final distribution to the
Certificateholders of such Trust, specifying the date set for such final
distribution and the amount of such
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distribution. (Section 11.01) See "--Termination of the Trusts" below.
Distributions in respect of Certificates issued in global form will be made as
described in "--Book-Entry; Delivery and Form" below.
If any Distribution Date is a Saturday, Sunday or other day on which
commercial banks are authorized or required to close in New York, New York,
Minneapolis, Minnesota, Chicago, Illinois, Boston, Massachusetts or Salt Lake
City, Utah (any other day being a "BUSINESS DAY"), distributions scheduled to be
made on such Regular Distribution Date or Special Distribution Date will be made
on the next succeeding Business Day with the same force and effect as if made on
such scheduled date and without additional interest.
POOL FACTORS
The "POOL BALANCE" for each Trust or for the Certificates issued by any
Trust indicates, as of any date, the original aggregate face amount of the
Certificates of such Trust less the aggregate amount of all payments made in
respect of the Certificates of such Trust or in respect of Deposits relating to
such trust other than payments made in respect of interest or Make-Whole Premium
thereon or reimbursement of any costs and expenses in connection therewith. The
Pool Balance for each Trust as of any Regular Distribution Date or Special
Distribution Date shall be computed after giving effect to any Special
Distribution with respect to unused Deposits, the payment of principal if any on
the Equipment Notes or other Trust Property held in such Trust and the
distribution thereof to be made on that date and with respect to the Class G
Trust, payments under the Policy made for the benefit of the Class G
Certificateholders (other than in respect of the Liquidity Facilities and
interest on the Class G Certificates).
The "POOL FACTOR" for each Trust as of any Regular Distribution Date or
Special Distribution Date is the quotient (rounded to the seventh decimal place)
computed by dividing (i) the Pool Balance by (ii) the original aggregate face
amount of the Certificates of such Trust. The Pool Factor for each Trust as of
any Regular Distribution Date or Special Distribution Date shall be computed
after giving effect to any Special Distribution with respect to unused Deposits,
the payment of principal if any on the Equipment Notes or other Trust Property
held in such Trust and the distribution thereof to be made on that date.
Assuming that no early redemption or purchase, or default, in respect of any
Equipment Notes shall have occurred, the Pool Factor for each Trust will be
1.0000000 on the date of issuance of the Certificates; thereafter, the Pool
Factor for each Trust will decline as described herein to reflect reductions in
the Pool Balance of such Trust. The amount of a Certificateholder's pro rata
share of the Pool Balance of a Trust can be determined by multiplying the par
value of the holder's Certificate of such Trust by the Pool Factor for such
Trust as of the applicable Regular Distribution Date or Special Distribution
Date. Notice of the Pool Factor and the Pool Balance for each Trust will be
mailed to Certificateholders of such Trust on each Regular Distribution Date and
Special Distribution Date.
The following table sets forth an illustrative aggregate principal
amortization schedule for the Equipment Notes held in each Trust (the "ASSUMED
AMORTIZATION SCHEDULE") and resulting Pool Factors with respect to such Trust.
The actual aggregate principal amortization schedule applicable to a Trust and
the resulting Pool Factors with respect to such Trust may differ from those set
forth below, since the amortization schedule for the Equipment Notes issued with
respect to an Aircraft may vary from such illustrative amortization schedule so
long as it complies with the Mandatory Economic Terms. The scheduled
distribution of principal payments for any Trust will be affected if any
Equipment Notes held in such Trust are redeemed or purchased or if a default in
payment on such Equipment Notes occurred. Accordingly, the aggregate principal
amortization schedule applicable to a Trust and the resulting Pool Factors may
differ from those set forth in the following table.
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<PAGE>
<TABLE>
<CAPTION>
CLASS G CLASS B CLASS C
------------------------------- ------------------------------- ------------------------------
SCHEDULED EXPECTED SCHEDULED EXPECTED SCHEDULED EXPECTED
PRINCIPAL POOL PRINCIPAL POOL PRINCIPAL POOL
DATES PAYMENTS FACTOR PAYMENTS FACTOR PAYMENTS FACTOR
- ----- -------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 1, 2000......... $ 1,877,080 0.9875030 $ 0 1.0000000 $ 2,811,252 0.9120026
October 1, 2000....... 670,672 0.9830379 25,197 0.9995657 3,394,963 0.8057340
April 1, 2001......... 3,834,855 0.9575068 0 0.9995657 3,139,199 0.7074713
October 1, 2001....... 110,888 0.9567685 1,346,446 0.9763563 0 0.7074713
April 1, 2002......... 4,395,219 0.9275067 0 0.9763563 164,065 0.7023358
October 1, 2002....... 0 0.9275067 4,130,347 0.9051594 0 0.7023358
April 1, 2003......... 4,506,107 0.8975066 0 0.9051594 998,406 0.6710838
October 1, 2003....... 0 0.8975066 4,729,928 0.8236272 79,280 0.6686022
April 1, 2004......... 4,506,107 0.8675064 0 0.8236272 1,970,004 0.6069375
October 1, 2004....... 0 0.8675064 4,019,460 0.7543417 0 0.6069375
April 1, 2005......... 4,506,107 0.8375063 0 0.7543417 2,970,293 0.5139618
October 1, 2005....... 1,667,306 0.8264060 3,062,620 0.7015497 0 0.5139618
April 1, 2006......... 2,838,801 0.8075062 0 0.7015497 4,855,816 0.3619658
October 1, 2006....... 2,593,787 0.7902377 3,092,979 0.6482344 0 0.3619658
April 1, 2007......... 1,912,320 0.7775061 0 0.6482344 5,258,194 0.1973747
October 1, 2007....... 4,930,689 0.7446793 2,393,023 0.6069846 0 0.1973747
April 1, 2008......... 918,291 0.7385656 0 0.6069846 4,660,226 0.0515010
October 1, 2008....... 5,565,945 0.7015094 2,041,333 0.5717971 0 0.0515010
April 1, 2009......... 94,275 0.7008818 0 0.5717971 590,014 0.0330325
October 1, 2009....... 6,930,313 0.6547422 2,211,444 0.5336773 920,250 0.0042270
April 1, 2010......... 0 0.6547422 2,286,960 0.4942558 135,039 0.0000000
October 1, 2010....... 6,484,234 0.6115723 1,190,988 0.4737261 0 0.0000000
April 1, 2011......... 0 0.6115723 4,947,981 0.3884352 0 0.0000000
October 1, 2011....... 7,024,588 0.5648050 1,290,238 0.3661947 0 0.0000000
April 1, 2012......... 0 0.5648050 7,061,669 0.2444691 0 0.0000000
October 1, 2012....... 6,484,236 0.5216352 444,619 0.2368050 0 0.0000000
April 1, 2013......... 0 0.5216352 5,004,836 0.1505340 0 0.0000000
October 1, 2013....... 7,024,589 0.4748679 158,557 0.1478009 0 0.0000000
April 1, 2014......... 0 0.4748679 2,374,855 0.1068643 0 0.0000000
October 1, 2014....... 6,484,235 0.4316981 6,033,714 0.0028581 0 0.0000000
April 1, 2015......... 0 0.4316981 165,805 0.0000000 0 0.0000000
October 1, 2015....... 7,024,588 0.3849308 0 0.0000000 0 0.0000000
April 1, 2016......... 0 0.3849308 0 0.0000000 0 0.0000000
October 1, 2016....... 10,274,207 0.3165287 0 0.0000000 0 0.0000000
April 1, 2017......... 2,411,812 0.3004717 0 0.0000000 0 0.0000000
October 1, 2017....... 16,880,017 0.1880903 0 0.0000000 0 0.0000000
April 1, 2018......... 0 0.1880903 0 0.0000000 0 0.0000000
October 1, 2018....... 26,140,607 0.0140551 0 0.0000000 0 0.0000000
April 1, 2019......... 2,111,121 0.0000000 0 0.0000000 0 0.0000000
</TABLE>
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<PAGE>
The final schedule of principal payments and the resulting schedule of Pool
Balances and Pool Factors may change from that set forth above as a result of
any reoptimization negotiated with an Owner Participant. In addition, the Pool
Factor and Pool Balance of each Trust will be recomputed if there has been an
early redemption, purchase, or a default in the payment of principal or interest
in respect of one or more issues of the Equipment Notes held in a Trust, as
described in "--Indenture Defaults and Certain Rights Upon an Indenture Default
and "Description of the Equipment Notes--Redemption," or a special distribution
attributable to unused Deposits after the Delivery Period Termination Date or
the occurrence of a Triggering Event. In the event of (i) any such redemption,
purchase or default or (ii) any other change in the schedule of repayments from
the Assumed Amortization Schedule, the Pool Factors and the Pool Balances of
each Trust so affected will be recomputed after giving effect thereto and notice
thereof will be mailed to the Certificateholders of such Trust promptly after
the Delivery Period Termination Date in the case of clause (ii) and promptly
after the occurrence of any event described in clause (i).
REPORTS TO CERTIFICATEHOLDERS
On each Regular Distribution Date and Special Distribution Date, the
applicable Paying Agent and Trustee, as the case may be, will include with each
distribution of a Scheduled Payment or Special Payment, respectively, to
Certificateholders of the related Trust a statement, giving effect to such
distribution to be made on such Regular Distribution Date or Special
Distribution Date, setting forth the following information (per $1,000 aggregate
principal amount of Certificate for such Trust, as to (ii), (iii), (iv) and
(v) below):
(i) the aggregate amount of funds distributed on such Distribution Date
under the Pass Through Trust Agreement and under the Escrow Agreement,
indicating the amount allocable to each source including any portion
thereof paid by the Liquidity Provider and/or the Policy Provider;
(ii) the amount of such distribution under the Pass Through Trust Agreement
allocable to principal and the amount allocable to Make-Whole Premium (if
any);
(iii) the amount of such distribution under the Pass Through Trust Agreement
allocable to interest;
(iv) the amount of such distribution under the Escrow Agreement allocable to
interest;
(v) the amount of such distribution under the Escrow Agreement allocable to
unused Deposits, if any; and
(vi) the Pool Balance and the Pool Factor for such Trust. (Section 4.03)
With respect to the Certificates registered in the name of Cede, as nominee
for DTC, on the record date prior to each Distribution Date, the applicable
Trustee will request from DTC a Securities Position Listing setting forth the
names of all DTC Participants reflected on DTC's books as holding interests in
the Certificates on such record date. On each Distribution Date, the applicable
Trustee will mail to each such DTC Participant the statement described above and
will make available additional copies as requested by such DTC Participant for
forwarding to holders of Certificates.
In addition, after the end of each calendar year, the applicable Paying
Agent and Trustee, as the case may be, will prepare for each Certificateholder
of each Trust at any time during the preceding calendar year a report containing
the sum of the amounts determined pursuant to clauses (i), (ii), (iii),
(iv) and (v) above with respect to the Trust for such calendar year or, in the
event such person was a Certificateholder during only a portion of such calendar
year, for the applicable portion of such calendar year, and such other items as
are readily available to such Trustee and which a Certificateholder shall
reasonably request as necessary for the purpose of such Certificateholder's
preparation of its U.S. federal income tax returns. (Section 4.03) Such report
and such other items shall be prepared on the basis of information supplied to
the applicable Paying Agent and Trustee, as the case may be, by the DTC
Participants and shall be delivered by such Trustee to such DTC Participants to
be available for forwarding
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<PAGE>
by such DTC Participants to Certificate Owners in the manner described above.
See "--Book-Entry; Delivery and Form."
With respect to the Certificates issued in definitive form, the applicable
Trustee will prepare and deliver the information described above to each
Certificateholder of record of each Trust as the name of such Certificateholder
appears on the records of the registrar of the Certificates.
INDENTURE DEFAULTS AND CERTAIN RIGHTS UPON AN INDENTURE DEFAULT.
An event of default under an Indenture (an "INDENTURE DEFAULT") will, with
respect to the Leased Aircraft Indentures, include an event of default under the
related Lease (a "LEASE EVENT OF DEFAULT"). Since the Equipment Notes issued
under an Indenture will be held in more than one Trust, a continuing Indenture
Default under such Indenture would affect the Equipment Notes held by each such
Trust. There are no cross-default provisions in the Indentures or Leases.
Consequently, events resulting in an Indenture Default under any particular
Indenture may or may not result in an Indenture Default under any other
Indenture and events resulting in a Lease Event of Default under one Lease may
or may not result in a Lease Event of Default under any other Lease. If an
Indenture Default occurs in fewer than all of the Indentures, notwithstanding
the treatment of Equipment Notes issued under any Indenture under which an
Indenture Default has occurred, payments of principal and interest on all of the
Equipment Notes issued pursuant to Indentures with respect to which an Indenture
Default has not occurred will continue to be distributed to the holders of the
Certificates as originally scheduled, subject to the Intercreditor Agreement.
See "Description of the Intercreditor Agreement--Priority of Distributions."
With respect to each Leased Aircraft, the applicable Owner Trustee and Owner
Participant will, under the related Indenture, have the right under certain
circumstances to cure Indenture Defaults that result from the occurrence of a
Lease Event of Default under the related Lease. If the Owner Trustee or the
Owner Participant exercises any such cure right, the Indenture Default will be
deemed to have been cured.
In the event that the same institution acts as Trustee of multiple Trusts,
in the absence of instructions from the Certificateholders of any such Trust,
such Trustee could be faced with a potential conflict of interest upon an
Indenture Default. In such event, the Trustee has indicated that it would resign
as Trustee of one or all such Trusts, and a successor trustee would be appointed
in accordance with the terms of the applicable Pass Through Trust Agreement.
State Street Bank and Trust Company of Connecticut, National Association will be
the initial Trustee under each Trust.
Upon the occurrence and continuation of any Indenture Default under any
Indenture, the Controlling Party will direct the Loan Trustee thereunder in the
exercise of remedies and may accelerate and sell all (but not less than all) of
the Equipment Notes issued under such Indenture to any person, subject to
certain limitations. The proceeds of such sale will be distributed pursuant to
the provisions of the Intercreditor Agreement. Any proceeds received by the
applicable Trustee upon any such sale shall be deposited in the applicable
Special Payments Account and shall be distributed to the Certificateholders of
such Trust on a Special Distribution Date. (Sections 4.01 and 4.02) The market
for Equipment Notes at the time of the existence of any Indenture Default may be
very limited, and there can be no assurance as to the price at which they could
be sold. If such Trustee sells any such Equipment Notes for less than their
outstanding principal amount, certain Certificateholders will receive a smaller
amount of principal distributions than anticipated and will not have any claim
for the shortfall against Northwest, NWA Corp., any Owner Trustee, any Owner
Participant, any Liquidity Provider, the Policy Provider (except in the case of
the Class G Certificates) or any Trustee.
Any amount, other than Scheduled Payments received on a Regular Distribution
Date or within five days thereafter, distributed to the Trustee of any Trust by
the Subordination Agent on account of the Equipment Notes or other Trust
Property held in such Trust following an Indenture Default under any Indenture
shall be deposited in the Special Payments Account for such Trust and shall be
distributed to the Certificateholders of such Trust on a Special Distribution
Date. (Section 4.02) In addition, if, following an
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Indenture Default under any Leased Aircraft Indenture, the applicable Owner
Participant or Owner Trustee exercises its option to redeem or purchase the
outstanding Equipment Notes issued under such Leased Aircraft Indenture, the
price paid by such Owner Trustee for the Equipment Notes issued under such
Indenture and distributed to such Trust by the Subordination Agent shall be
deposited in the Special Payments Account for such Trust and shall be
distributed to the Certificateholders of such Trust on a Special Distribution
Date. (Section 4.02)
Any funds representing payments received with respect to any defaulted
Equipment Notes held in a Trust, or the proceeds from the sale of any Equipment
Notes, held by such Trustee in the Special Payments Account for such Trust
shall, to the extent practicable, be invested and reinvested by such Trustee in
Permitted Investments pending the distribution of such funds on a Special
Distribution Date. (Section 4.04) "PERMITTED INVESTMENTS" are defined as
obligations of the United States or agencies or instrumentalities thereof the
payment of which is backed by the full faith and credit of the United States and
which mature in not more than 60 days or such lesser time as is required for the
distribution of any such funds on a Special Distribution Date. (Section 1.01)
Each Pass Through Trust Agreement provides that the Trustee of the related
Trust shall, within 90 days after the occurrence of any default, give to the
Certificateholders of such Trust notice, transmitted by mail, of all uncured or
unwaived defaults with respect to such Trust known to it, provided that, except
in the case of default in the payment of principal, Make-Whole Premium, if any,
or interest on any of the Equipment Notes or other Trust Property held in such
Trust, the applicable Trustee shall be protected in withholding such notice if
it in good faith determines that the withholding of such notice is in the
interests of such Certificateholders. (Section 7.01). The term "default" as used
in this paragraph only with respect to any Trust means the occurrence of an
Indenture Default under any Indenture pursuant to which Equipment Notes held by
such Trust were issued, as described above, except that in determining whether
any such Indenture Default has occurred, any grace period or notice in
connection therewith will be disregarded.
Each Pass Through Trust Agreement contains a provision entitling the Trustee
of the related Trust, subject to the duty of such Trustee during a default to
act with the required standard of care, to be offered reasonable security or
indemnity by the holders of the Certificates of such Trust before proceeding to
exercise any right or power under such Pass Through Trust Agreement at the
request of such Certificateholders. (Section 7.02(e))
In certain cases, the holders of the Certificates of a Trust evidencing
fractional undivided interests aggregating not less than a majority in interest
of such Trust may on behalf of the holders of all the Certificates of such Trust
waive any past "event of default" and its consequences under the related Pass
Through Trust Agreement or, if the Trustee of such Trust is the Controlling
Party, may direct the Trustee to instruct the applicable Loan Trustee to waive
any past Indenture Default with respect to such Trust and thereby annul any
direction to such Loan Trustee with respect thereto, PROVIDED, HOWEVER, the
consent of each holder of a Certificate of a Trust is required to waive (i) a
default in the deposit of any Scheduled Payment or Special Payment or in the
distribution thereof, (ii) a default in payment of the principal, Make-Whole
Premium, if any, or interest with respect to any of the Equipment Notes held in
such Trust and (iii) a default in respect of any covenant or provision of the
related Pass Through Trust Agreement that cannot be modified or amended without
the consent of each Certificateholder of such Trust affected thereby.
(Section 6.05) Each Indenture will provide that, with certain exceptions, the
holders of the majority in aggregate unpaid principal amount of the Equipment
Notes issued thereunder may on behalf of all such holders waive any past default
or Indenture Default thereunder. Notwithstanding the foregoing provisions of
this paragraph, however, pursuant to the Intercreditor Agreement, only the
Controlling Party will be entitled to waive any such past default or Indenture
Default.
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<PAGE>
PURCHASE RIGHTS OF CERTIFICATEHOLDERS
Upon the occurrence and during the continuation of a Triggering Event, with
ten days' written notice to the Trustee and each other Certificateholder of the
same Class,
- the Class B Certificateholders shall have the right to purchase all, but
not less than all, of the Class G Certificates;
- the Class C Certificateholders shall have the right to purchase all, but
not less than all, of the Class B Certificates and Class G Certificates;
- if Class D Certificates have been issued, the Class D Certificateholders
shall have the right to purchase all, but not less than all, of the
Class B Certificates, Class C Certificates and Class G Certificates; and
- whether or not the above rights are exercised the Policy Provider shall
have the right to purchase all, but not less than all, of the Class G
Certificates; and
in each case at a purchase price equal to the Pool Balance of the relevant Class
or Classes of Certificates plus accrued and unpaid interest thereon to the date
of purchase without Make-Whole Premium but including any other amounts due to
the Certificateholders of such Class or Classes. In each case, if prior to the
end of the ten-day period, any other Certificateholder of the same Class
notifies the purchasing Certificateholder that the other Certificateholder wants
to participate in such purchase, then such other Certificateholder may join with
the purchasing Certificateholder to purchase the Certificates pro rata based on
the interest in the Trust held by each Certificateholder.
PTC EVENT OF DEFAULT
A "PTC EVENT OF DEFAULT" is defined under each Pass Through Trust Agreement
as the failure to pay within 10 Business Days of the due date thereof either
- the outstanding Pool Balance of the applicable Class of Certificates on
the Final Legal Distribution Date for such Class (unless, in the case of
the Class G Certificates, the Subordination Agent shall have made a
drawing under the Policy in an aggregate amount sufficient to pay such
outstanding Pool Balance and shall have distributed such amount to the
Class G Trustee) or
- interest due on the applicable Class of Certificates on any Distribution
Date (unless the Subordination Agent shall have made an Interest Drawing,
or a withdrawal from the Cash Collateral Account for such class of
Certificates, or a drawing under the Policy, with respect thereto in an
aggregate amount sufficient to pay such interest and shall have
distributed such amount to the Trustee entitled thereto).
Any failure to make expected principal distributions on any Class of
Certificates on any Regular Distribution Date (other than the Final Legal
Distribution Date) will not constitute a PTC Event of Default with respect to
such Certificates. A PTC Event of Default with respect to the most senior Class
of Certificates resulting from an Indenture Default under all Indentures will
constitute a "TRIGGERING EVENT". The Final Legal Distribution Date is
October 1, 2020 for the Class G Certificates, October 1, 2016 for the Class B
Certificates and October 1, 2011 for the Class C Certificates. For a discussion
of the consequences of a Triggering Event, see "Description of the Intercreditor
Agreement--Priority of Distributions."
OBLIGATION TO PURCHASE EQUIPMENT NOTES
Each Trustee will be obligated to purchase the Equipment Notes issued with
respect to the Aircraft during the Delivery Period, subject to the terms and
conditions of a note purchase agreement (the "NOTE PURCHASE AGREEMENT") and the
applicable Participation Agreement. Under the Note Purchase Agreement, Northwest
agrees to finance each Aircraft in the manner provided therein. Northwest will
have the option
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<PAGE>
of entering into a leveraged lease financing or a secured debt financing with
respect to each Aircraft and will have the ability to convert an Owned Aircraft
to a Leased Aircraft and at the time of such conversion, if prior to the
Delivery Period Termination Date, to have the applicable Owner Trustee issue
reoptimized Leased Aircraft Notes to each Trustee (subject to the Mandatory
Economic Terms and written confirmation from each Rating Agency that such
conversion and/or such reoptimization will not result in a withdrawal,
suspension or downgrading of the ratings of any Class of Certificates (without
regard to the Policy)) in replacement for the Owned Aircraft Notes previously
issued to each Trustee.
- If Northwest chooses to enter into a leveraged lease financing with
respect to an Aircraft (such Aircraft, a "LEASED AIRCRAFT"), the Note
Purchase Agreement provides for the relevant parties to enter into a
participation agreement (each, a "LEASED PARTICIPATION AGREEMENT"), a
Lease and an indenture (each, a "LEASED AIRCRAFT INDENTURE") relating to
the financing of such Leased Aircraft.
- If Northwest chooses to enter into a secured debt financing with respect
to an Aircraft (such Aircraft, an "OWNED AIRCRAFT"), the Note Purchase
Agreement provides for the relevant parties to enter into a participation
agreement (each, an "OWNED PARTICIPATION AGREEMENT", and together with the
other Owned Participation Agreements and the Leased Participation
Agreements, the "PARTICIPATION AGREEMENTS") and an indenture (each, an
"OWNED AIRCRAFT INDENTURE," and together with the other Owned Aircraft
Indentures and the Leased Aircraft Indentures, the "INDENTURES") relating
to the financing of such Owned Aircraft.
The description of such agreements in this Prospectus Supplement is based on
the forms of such agreements to be utilized pursuant to the Note Purchase
Agreement. In the case of a Leased Aircraft, the terms of the agreements
actually entered into may differ from the forms of such agreements and,
consequently, may differ from the description of such agreements contained in
this Prospectus Supplement. See "Description of the Equipment Notes." However,
under the Note Purchase Agreement, the terms of such agreements are required to
(a) contain the Mandatory Document Terms (as such Mandatory Document Terms are
permitted to vary in accordance with the terms of the Note Purchase Agreement)
and (b) not vary the Mandatory Economic Terms except as expressly provided
therein. In addition, Northwest is obligated (a) to certify to the Trustees and
the Policy Provider that any such modifications do not materially and adversely
affect the Certificateholders or the Policy Provider or (b) if such agreements
are modified in any material respect, to obtain written consent of the Policy
Provider and written confirmation from each Rating Agency that the use of such
agreements will not result in a withdrawal, suspension or downgrading of the
rating of any Class of Certificates. Under the Note Purchase Agreement, it is a
condition precedent to the obligation of each Trustee to purchase the Equipment
Notes related to the financing of an Aircraft that no Triggering Event has
occurred. The Trustees have no right or obligation to purchase Equipment Notes
after the Delivery Period Termination Date.
The "MANDATORY ECONOMIC TERMS," as defined in the Note Purchase Agreement,
will require, among other things, that:
- The maximum principal amount of all the Equipment Notes issued with
respect to an Aircraft shall not exceed the maximum principal amount of
Equipment Notes indicated for each such Aircraft as set forth in
"Prospectus Supplement Summary--Equipment Notes and the Aircraft" under
the column "Maximum Principal Amount of Equipment Notes."
- The loan to aircraft value ratio with respect to each Aircraft at the time
of issuance of the related Equipment Notes and on any Regular Distribution
Date thereafter not to exceed 44.3% in the case of the Series G Equipment
Notes, 64.1% in the case of the Series B Equipment Notes and 72.2% in the
case of the Series C Equipment Notes, in each case computed on the basis
of an assumed value of such Aircraft no greater than the value for such
Aircraft set forth under "Summary of Terms--Equipment Notes and the
Aircraft" under the column, "Appraised Value" and the Depreciation
Assumption defined under "Summary of Terms--Loan to Aircraft Value
Ratios."
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<PAGE>
- The initial average life of the Series G Equipment Notes, the Series B
Equipment Notes and the Series C Equipment Notes on any Aircraft will not
be more than 13.0 years, 10.5 years and 5.5 years, respectively, in each
case from the Issuance Date.
- As of the first Regular Distribution Date following the Delivery Period
Termination Date the average life of the Class G Certificates will not be
less than 10.0 years or more than 12.7 years, and, the average life of the
Class B Certificates and the Class C Certificates will not be more than
10.0 years and 5.0 years, respectively, from the Issuance Date (computed
without regard to the acceleration of any Equipment Notes and after giving
effect to any special distribution on the Certificates thereafter required
in respect of unused Deposits).
- The final maturity date of the Series G Equipment Notes, the Series B
Equipment Notes and the Series C Equipment Notes will not extend beyond
April 1, 2019, April 1, 2015 and April 1, 2010, respectively.
- At the earlier of the date on which all Aircraft have been delivered and
all Equipment Notes issued and the Delivery Period Termination Date, the
aggregate principal amount of each Series of Equipment Notes shall equal
the original aggregate face amount of the related Class of Certificates
without giving effect to any scheduled principal payments on such
Equipment Notes but after giving effect to any reductions to the Pool
Balance for such Class of Certificates from Deposits not used to purchase
Equipment Notes on or before such date.
- The interest rate applicable to each Series of Equipment Notes must be
equal to the rate applicable to the Certificates issued by the
corresponding Trust.
- The payment dates for the Equipment Notes and basic rent under the Leases
must be April 1 and October 1.
- Basic rent (and supplemental rent), stipulated loss values and termination
values under the Leases must be sufficient to pay amounts due with respect
to the related Equipment Notes.
- The amounts payable under the all-risk aircraft hull insurance maintained
with respect to each Aircraft must be sufficient to pay the applicable
stipulated loss value or, in the case of Owned Aircraft, unpaid principal
amount of the related Equipment Notes, subject to certain rights of
self-insurance.
- (a) The past due rate in the Indentures and the Leases, (b) the Make-Whole
Premium payable under the Indentures, (c) the provisions relating to the
redemption and purchase of Equipment Notes in the Indentures, (d) the
minimum liability insurance amount on Aircraft in the Leases and (e) the
indemnification of the Loan Trustees, Subordination Agent, Liquidity
Provider, the Policy Provider, Trustees, Escrow Agents and registered
holders of the Equipment Notes (in such capacity, the "NOTE HOLDERS") with
respect to certain taxes and expenses, in each case must be no less
favorable to the Loan Trustees, Subordination Agent, the Liquidity
Provider, the Policy Provider, the Trustees, the Escrow Agents and the
Note Holders than as set forth in the form of Participation Agreements,
Lease and Indentures (collectively, the "AIRCRAFT OPERATIVE AGREEMENTS").
The "MANDATORY DOCUMENT TERMS" prohibit modifications in any material
adverse respect to certain specified provisions of the Aircraft Operative
Agreements annexed to the Note Purchase Agreement, as follows:
- In the case of the Indentures, the following modifications are prohibited:
(i) modifications to the Granting Clause of the Indentures so as to
deprive the Note Holders of a first priority security interest in
the Aircraft and, in the case of a Leased Aircraft, the Lease or to
eliminate the obligations intended to be secured thereby.
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(ii) modifications to certain provisions relating to the issuance,
redemption, purchase, payments, and ranking of the Equipment Notes
(including the obligation to pay the Make-Whole Premium in certain
circumstances).
(iii) modifications to certain provisions regarding Indenture Defaults,
remedies relating thereto and rights of the Owner Trustee and Owner
Participant in such circumstances.
(iv) modifications to certain provisions relating to any replaced
airframe or engines with respect to an Aircraft.
(v) modifications to the provision that New York law will govern the
Indentures.
- In the case of the Lease, the following modifications are prohibited:
(i) modifications to certain provisions regarding the unconditional
obligation of Northwest to pay basic rent, stipulated loss value and
termination value to the Leased Aircraft Trustee.
(ii) modification of the obligations of Northwest to record the Leased
Aircraft Indenture with the Federal Aviation Administration and to
maintain such Indenture as a first-priority perfected mortgage on
the related Aircraft.
(iii) modification of the obligations of Northwest to furnish certain
opinions with respect to a replacement airframe.
(iv) modification of the obligations of Northwest to consent to the
assignment of the Lease by the Owner Trustee as collateral under
the Leased Aircraft Indenture, as well as modifications which would
either alter the provision that New York law will govern the Lease
or would deprive the Loan Trustee of rights expressly granted to it
under the Leases.
- In the case of the Participation Agreement, the following modifications
are prohibited:
(i) modifications to certain conditions to the obligations of the
Trustees to purchase the Equipment Notes issued with respect to an
Aircraft involving obtaining a certificate of airworthiness with
respect to such Aircraft, delivery of an opinion of outside counsel
with respect to the entitlement to the benefits of Section 1110 with
respect to such Aircraft and filings of certain documents with the
Federal Aviation Administration.
(ii) modifications to the provisions restricting the Note Holder's
ability to transfer such Equipment Notes.
(iii) modifications to certain provisions requiring the delivery of legal
opinions.
(iv) modifications to the provision that New York law will govern the
Participation Agreement.
- In the case of all of the Aircraft Operative Agreements, modifications are
prohibited in any material adverse respect as regards the interest of the
Note Holders, the Subordination Agent, the Liquidity Provider, the Policy
Provider or the Loan Trustee in the definition of "Make-Whole Premium."
Notwithstanding the foregoing, any such Mandatory Document Term may be
modified to correct or supplement any such provision which may be defective or
to cure any ambiguity or correct any mistake, provided that any such action does
not materially adversely affect the interests of the Note Holders, the
Subordination Agent, the Liquidity Provider, Policy Provider, Loan Trustees or
the Certificateholders.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
Northwest will be prohibited from consolidating with or merging into any
other corporation or transferring substantially all of its assets as an entirety
to any other corporation unless
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- the surviving successor or transferee corporation shall
(i) be a "citizen of the United States" as defined in
Section 40102(a)(15) of Title 49 of the United States Code, as
amended, relating to aviation (the "AVIATION ACT");
(ii) be a United States certificated air carrier; and
(iii) expressly assume all of the obligations of Northwest contained in
the Pass Through Trust Agreements, the Indentures, the
Participation Agreements and the Leases, and any other operative
documents;
- immediately after giving effect to such transaction, no Lease Event of
Default, in the case of a Leased Aircraft, or an Indenture Default, in the
case of an Owned Aircraft shall have occurred and be continuing; and
- Northwest shall have delivered a certificate and an opinion or opinions of
counsel indicating that such transaction complies with such conditions.
(Section 5.02)
The Pass Through Trust Agreements and the Indentures will not contain any
covenants or provisions which may afford the applicable Trustee or
Certificateholders protection in the event of a highly leveraged transaction,
including transactions effected by management or affiliates, which may or may
not result in a change in control of Northwest or NWA Corp.
MODIFICATIONS OF THE PASS THROUGH TRUST AGREEMENTS AND CERTAIN OTHER AGREEMENTS
Each Pass Through Trust Agreement will contain provisions permitting, at the
request of the Company, the execution of amendments or supplements to such Pass
Through Trust Agreement or, if applicable, to the Deposit Agreements, the Escrow
Agreements, the Intercreditor Agreement, the Note Purchase Agreement, any
Liquidity Facility or, with respect to the Pass Through Agreement for the
Class G Trust, the Policy and the Policy Provider Agreement without the consent
of the holders of any of the Certificates of such Trust:
- To provide for the formation of a Trust, to issue an additional series of
Certificates and to enter into Trust Supplements setting forth the terms
of any series of Certificates.
- To evidence the succession of another corporation to Northwest or NWA
Corp. and the assumption by such corporation of Northwest's or NWA
Corp.'s, as the case may be, obligations under such Pass Through Trust
Agreement, the Note Purchase Agreement, any Liquidity Facility or the
Policy Provider Agreement.
- To add to the covenants of Northwest or NWA Corp. for the benefit of
holders of such Certificates or to surrender any right or power conferred
upon Northwest or NWA Corp. in such Pass Through Trust Agreement, the
Intercreditor Agreement, the Note Purchase Agreement, any Liquidity
Facility, the Policy or the Policy Provider Agreement.
- Except where Certificateholder consent is required by the Trust Supplement
(Sections 9.02(1)-9.02(6)) and as described below, to correct or
supplement any provision of such Pass Through Trust Agreement, the Deposit
Agreements, the Escrow Agreements, the Intercreditor Agreement, the Note
Purchase Agreement, any Liquidity Facility, the Policy or the Policy
Provider Agreement which may be defective or inconsistent with any other
provision in such Pass Through Trust Agreement, the Intercreditor
Agreement, the Note Purchase Agreement, any Liquidity Facility, the Policy
or the Policy Provider Agreement, as applicable, or to cure any ambiguity
or to modify any other provision with respect to matters or questions
arising under such Pass Through Trust Agreement, the Deposit Agreements,
the Escrow Agreements, the Intercreditor Agreement, the Note Purchase
Agreement, any Liquidity Facility, the Policy or the Policy Provider
Agreement, provided that such action will not materially adversely affect
the interests of the holders of such
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Certificates; to correct any mistake in such Pass Through Trust Agreement,
the Intercreditor Agreement, the Note Purchase Agreement, the Policy, the
Policy Provider Agreement or any Liquidity Facility; or, as provided in
the Intercreditor Agreement, to give effect to or provide for a
Replacement Facility.
- To comply with any requirement of the Commission, any applicable law,
rules or regulations of any exchange or quotation system on which the
Certificates are listed, or any regulatory body.
- To modify, eliminate or add to the provisions of such Pass Through Trust
Agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement, the Policy, the
Policy Provider Agreement or any Liquidity Facility to such extent as is
necessary to continue the qualification of such Pass Through Trust
Agreement (including any supplemental agreement) under the Trust Indenture
Act of 1939, as amended (the "TRUST INDENTURE ACT"), or any similar
federal statute enacted after the execution of such Pass Through Trust
Agreement, and to add to such Pass Through Trust Agreement, the Deposit
Agreements, the Escrow Agreements, the Intercreditor Agreement, the Note
Purchase Agreement, the Policy, the Policy Provider Agreement or any
Liquidity Facility such other provisions as may be expressly permitted by
the Trust Indenture Act.
- To evidence and provide for the acceptance of appointment under such Pass
Through Trust Agreement, the Deposit Agreements, the Escrow Agreements,
the Intercreditor Agreement, the Note Purchase Agreement, the Policy, the
Policy Provider Agreement or any Liquidity Facility by a successor Trustee
and to add to or change any of the provisions of such Pass Through Trust
Agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement, the Policy, the
Policy Provider Agreement or any Liquidity Facility as is necessary to
provide for or facilitate the administration of the Trusts under the Basic
Agreement by more than one Trustee.
In each case, such modification or supplement may not adversely affect the
status of the Trust as either a grantor trust under Subpart E, Part I of
Subchapter J of Chapter 1 of Subtitle A of the Code, or, a partnership for U.S.
federal income tax purposes. (Trust Supplements, Section 5.01)
Each Pass Through Trust Agreement also contains provisions permitting the
execution, with the consent of the holders of the Certificates of the related
Trust evidencing fractional undivided interests aggregating not less than a
majority in interest of such Trust of supplemental trust agreements adding any
provisions to or changing or eliminating any of the provisions of such Pass
Through Trust Agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement, any Liquidity Facility or,
with respect to the Pass Through Agreement for the Class G Trust, the Policy or
the Policy Provider Agreement to the extent applicable to such
Certificateholders or of modifying the rights and obligations of such
Certificateholders under such Pass Through Trust Agreement, the Deposit
Agreements, the Escrow Agreements, the Intercreditor Agreement, the Note
Purchase Agreement, any Liquidity Facility, the Policy or Policy Provider
Agreement. No such amendment or supplement may, without the consent of the
holder of each Certificate so affected thereby:
- reduce in any manner the amount of, or delay the timing of, any receipt by
the Trustee of payments on the Equipment Notes or other Trust Property
held in such Trust or distributions in respect of any Certificate related
to such Trust, or change the date or place of any payment in respect of
any Certificate, or make distributions payable in coin or currency other
than that provided for in such Certificates, or impair the right of any
Certificateholder of such Trust to institute suit for the enforcement of
any such payment when due;
- permit the disposition of any Equipment Note held in such Trust, except as
provided in such Pass Through Trust Agreement, or otherwise deprive any
Certificateholder of the benefit of the ownership of the applicable
Equipment Notes;
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- alter the priority of distributions specified in the Intercreditor
Agreement;
- reduce the percentage of the aggregate fractional undivided interests of
the Trust provided for in such Pass Through Trust Agreement, the consent
of the holders of which is required for any such supplemental trust
agreement or for any waiver provided for in such Pass Through Trust
Agreement;
- modify any of the provisions relating to the rights of the
Certificateholders in respect of the waiver of Events of Default or
receipt of payment (Section 9.01); or
- terminate or modify the Policy, other than amendments already contemplated
or required by Section 3.06 of the Policy Provider Agreement and/or
Section 2.6(c) or 3.7(c) of the Intercreditor Agreement.
In the event that a Trustee, as holder (or beneficial owner through the
Subordination Agent) of any Equipment Note in trust for the benefit of the
Certificateholders of the relevant Trust or as Controlling Party under the
Intercreditor Agreement, receives (directly or indirectly through the
Subordination Agent) a request for a consent to any amendment, modification,
waiver or supplement under any Indenture, any Participation Agreement, any
Lease, any Equipment Note or any other related document, the Trustee will
forthwith send a notice of such proposed amendment, modification, waiver or
supplement to each Certificateholder of the relevant Trust registered on the
register of such Trust as of the date of such notice. The Trustee will request
from the Certificateholders a direction as to:
- Whether or not to take or refrain from taking (or direct the Subordination
Agent to take or refrain from taking) any action which a holder of such
Equipment Note or the Controlling Party has the option to direct.
- Whether or not to give or execute (or direct the Subordination Agent to
give or execute) any waivers, consents, amendments, modifications or
supplements as a holder of such Equipment Note or as Controlling Party.
- How to vote (or direct the Subordination Agent to vote) any Equipment Note
if a vote has been called for with respect thereto.
Provided such a request for Certificateholder direction has been made, in
directing any action or casting any vote or giving any consent as the holder of
any Equipment Note (or in directing the Subordination Agent in any of the
foregoing):
- Other than as Controlling Party, the Trustee will vote for or give consent
to any such action with respect to such Equipment Note in the same
proportion as that of (x) the aggregate face amount of all Certificates
actually voted in favor of or for giving consent to such action by such
direction of Certificateholders to (y) the aggregate face amount of all
outstanding Certificates of the relevant Trust.
- As the Controlling Party, the Trustee will vote as directed in such
Certificateholder direction by the Certificateholders evidencing
fractional undivided interests aggregating not less than a majority in
interest in the relevant Trust.
For purposes of the second preceding sentence, a Certificate is deemed
"actually voted" if the Certificateholder has delivered to the Trustee an
instrument evidencing such Certificateholder's consent to such direction prior
to one Business Day before the Trustee directs such action or casts such vote or
gives such consent. Notwithstanding the foregoing, but subject to certain rights
of the Certificateholders under the relevant Pass Through Trust Agreement and
subject to the Intercreditor Agreement, the Trustee may, in its own discretion
and at its own direction, consent and notify the relevant Loan Trustee of such
consent (or direct the Subordination Agent to consent and notify the relevant
Loan Trustee of such consent) to any amendment, modification, waiver or
supplement under the relevant Indenture, Participation Agreement or Lease, any
relevant Equipment Note or any other related document, if an Indenture Default
under any Indenture has occurred and is continuing, or if such amendment,
modification, waiver or supplement does not materially adversely affect the
interests of the Certificateholders. (Section 10.01)
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POSSIBLE ISSUANCE OF CLASS D CERTIFICATES
Series D Equipment Notes may be issued in connection with the financing of
Owned Aircraft or Leased Aircraft, which will be funded from sources other than
this offering. The sale of the Series D Equipment Notes may be funded through
the sale of Class D Certificates. No Series D Equipment Notes will be issued at
any time prior to the consummation of this offering. The Note Purchase Agreement
provides the ability to issue any Series D Equipment Notes is contingent upon
obtaining written confirmation from each Rating Agency that the issuance of such
Series D Equipment Notes will not result in a withdrawal or downgrading of the
rating of any Class of Certificates (without regard to the Policy). If the
Class D Certificates are issued, the Trustee with respect to such Certificates
will become a party to the Intercreditor Agreement. See "Description of the
Intercreditor Agreement." If Series D Equipment Notes are issued to other than
the Class D Trust, such Series D Equipment Notes will nevertheless be subject to
provisions of the Intercreditor Agreement that allow the Controlling Party,
during the continuance of an Indenture Default, to direct the Loan Trustee in
taking action under the applicable Indenture and payments on the Series D
Equipment Notes will be subordinated to the Series G Equipment Notes, Series B
Equipment Notes, Series C Equipment Notes and drawings under the Liquidity
Facilities and the Policy.
TERMINATION OF THE TRUSTS
The obligations of Northwest, if any, and the Trustee with respect to a
Trust will terminate upon the distribution to Certificateholders of such Trust
of all amounts required to be distributed to them pursuant to the applicable
Pass Through Trust Agreement and the disposition of all property held in such
Trust. The Trustee will send to each Certificateholder of record of such Trust
notice of the termination of such Trust, the amount of the proposed final
payment and the proposed date for the distribution of such final payment for
such Trust. The final distribution to any Certificateholder of such Trust will
be made only upon surrender of such Certificateholder's Certificates at the
office or agency of the applicable Trustee specified in such notice of
termination. (Section 11.01)
THE TRUSTEE
The Trustee for each Trust will be State Street Bank and Trust Company of
Connecticut, National Association. With certain exceptions, the Trustee makes no
representations as to the validity or sufficiency of the Basic Agreement, the
Trust Supplements, the Certificates, the Equipment Notes, the Indentures, the
Leases or other related documents. (Sections 7.03 and 7.14) The Trustee of any
Trust shall not be liable, with respect to the Certificates of such Trust, for
any action taken or omitted to be taken by it in good faith in accordance with
the direction of the holders of a majority in principal amount of outstanding
Certificates of such Trust. Subject to certain provisions, the Trustee shall be
under no obligation to exercise any of its rights or powers under any Pass
Through Trust Agreement at the request of any holders of Certificates issued
thereunder unless there shall have been offered to the Trustee reasonable
indemnity. (Section 7.02(e)) Each Pass Through Trust Agreement provides that the
Trustee in their individual or any other capacity may acquire and hold
Certificates issued thereunder and, subject to certain conditions, may otherwise
deal with Northwest, NWA Corp. and with any Owner Trustee with the same rights
they would have if they were not the Trustee. (Section 7.04)
BOOK-ENTRY; DELIVERY AND FORM
Upon issuance, each Class of Certificates will be represented by one or more
fully registered global certificates. Each global certificate will be deposited
with, or on behalf of, The Depository Trust Company ("DTC") and registered in
the name of Cede & Co. ("CEDE"), or its nominee. No person acquiring an interest
in such Certificates ("CERTIFICATE OWNER") will be entitled to receive a
certificate representing such person's interest in such Certificates, except as
set forth in the Prospectus under "Book Entry Registration--Definitive
Certificates." Unless and until definitive certificates ("DEFINITIVE
CERTIFICATES") are
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issued under the limited circumstances described herein, all references to
actions by Certificateholders shall refer to actions taken by DTC upon
instructions from DTC Participants, and all references herein to distributions,
notices, reports and statements to Certificateholders shall refer, as the case
may be, to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of such Certificates, or to DTC Participants for distribution
to Certificate Owners in accordance with DTC procedures. "DTC PARTICIPANTS"
refers to the participants in DTC who clear and settle securities transactions
through DTC's electronic book-entry system.
None of Northwest, NWA Corp. or the Trustee will have any liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Certificates held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DESCRIPTION OF THE DEPOSIT AGREEMENTS
The following is a description of the particular terms of the Deposit
Agreements. The statements under this caption are summaries and do not purport
to be complete and are qualified in their entirety by reference to all of the
provisions of the Deposit Agreements, each of which will be filed as an exhibit
to an Annual Report on Form 10-K, a Quarterly Report on Form 10-Q, or to a
Current Report on Form 8-K to be filed by NWA Corp. with the Commission. The
provisions of the Deposit Agreements are substantially identical except as
otherwise indicated.
GENERAL
Pursuant to the Escrow Agreements, the Escrow Agent with respect to each
Trust will enter into a separate Deposit Agreement with the applicable
Depositary. Pursuant to the deposit agreements between the Escrow Agent and the
applicable Depositary (the "DEPOSIT AGREEMENTS"), the Depositaries will
establish separate accounts in the name of the Escrow Agent (each such account,
a "DEPOSIT ACCOUNT"). On the Issuance Date, the proceeds of this offering will
be deposited (each, a "DEPOSIT") into the Deposit Accounts by the Underwriters
on behalf of such Escrow Agent.
On each Regular Distribution Date the applicable Depositary will pay to the
Paying Agent on behalf of the applicable Escrow Agent, for distribution to the
holders of Escrow Receipts relating to the applicable Trust, an amount equal to
interest accrued on the Deposits relating to such Trust during the relevant
interest period at a rate per annum equal to the interest rate applicable to the
Certificates issued by such Trust.
In connection with the financing of each delivered Aircraft during the
Delivery Period, the Trustee for each of the Trusts will request that the Escrow
Agent relating to the applicable Trust withdraw from the Deposits relating to
the applicable Trust funds sufficient to enable the Trustee of such Trust to
purchase the Equipment Note of the series applicable to such Trust issued with
respect to such Aircraft. Accrued but unpaid interest on all such Deposits
withdrawn will be paid on the next Regular Distribution Date. Any portion of any
Deposit withdrawn which is not used to purchase such Equipment Note will be
re-deposited by each Trustee into an account relating to the applicable Trust.
The Deposits relating to the Trusts and interest paid thereon will not be
subject to the subordination provisions of the Intercreditor Agreement and will
not be available to pay any other amount in respect of the Certificates.
UNUSED DEPOSITS
The Trustees' obligations to purchase the Equipment Notes issued with
respect to each Aircraft are subject to satisfaction of certain conditions at
the time of delivery, as set forth in the Note Purchase Agreement and the
Participation Agreements. See "Description of the Certificates--Obligation to
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Purchase Equipment Notes." Since the Aircraft are scheduled for delivery from
time to time during the Delivery Period, no assurance can be given that all such
conditions will be satisfied at the time of delivery for each Aircraft.
Moreover, since the Aircraft will be newly manufactured, their delivery as
scheduled is subject to delays in the manufacturing process and to the Aircraft
manufacturer's right to postpone deliveries under the purchase agreement with
Northwest. See "Description of the Aircraft and Appraisals--Deliveries of
Aircraft." Depending on the circumstances of the financing of each Aircraft, the
maximum aggregate principal amount of Equipment Notes may not be issued.
If any funds remain as Deposits with respect to any Trust at the end of the
Delivery Period or, if earlier, upon the acquisition by such Trusts of the
Equipment Notes with respect to all of the Aircraft, such funds will be
withdrawn by the Escrow Agent and distributed, with accrued and unpaid interest
thereon to the holders of Escrow Receipts relating to the respective Trust after
at least 15 days' prior written notice. Such distribution will include, in the
case of Deposits relating to the Class G and Class B Certificates, a premium
payable by Northwest equal to the Deposit Make-Whole Premium with respect to the
remaining Deposits applicable to each such Trust, provided that no Deposit
Make-Whole Premium will be payable with respect to unused Deposits attributable
to the failure of an Aircraft to be delivered prior to the Delivery Period
Termination Date due to any reason not occasioned by Northwest's fault or
negligence. In the case of Deposits relating to the Class C Certificates, any
distribution of any unused amounts will include a premium payable by Northwest
equal to the Deposit Make-Whole Premium to the extent (i) such distribution
relates to the non-delivery of an Aircraft due to Northwest's fault or
negligence or (ii) the aggregate amount of all such distributions relating to
Class C Certificates (other than the amounts relating to the non-delivery of an
Aircraft due to any reason not occasioned by Northwest's fault or negligence)
exceeds $5.0 million.
"DEPOSIT MAKE-WHOLE PREMIUM" means, with respect to the distribution of
unused Deposits to holders of any Class of Certificates, as of any date of
determination, an amount equal to the excess, if any, of (a) the present value
of the excess of (i) the scheduled payment of principal and interest to maturity
of the related Series of Equipment Notes, in a principal amount equal to the
maximum principal amount thereof (the "MAXIMUM AMOUNT") minus the sum of
(1) the amount of Deposits relating to any Aircraft not delivered due to any
reason not occasioned by Northwest's fault or negligence and (2) in the case of
Class C Certificates, $5.0 million, on each remaining Regular Distribution Date
for such Class under the Assumed Amortization Schedule over (ii) the scheduled
payment of principal and interest to maturity of the Equipment Notes actually
acquired by the Trustee for such Class on each such Regular Distribution Date,
such present value computed by discounting such excess on a semiannual basis on
each Regular Distribution Date (assuming a 360-day year of twelve 30-day months)
using a discount rate equal to the Treasury Yield plus 170 basis points in the
case of the Class G Certificates, 325 basis points in the case of the Class B
Certificates and 300 basis points in the case of the Class C Certificates over
(b) the amount of such unused Deposits to be distributed to the holders of such
Certificates minus the sum of (1) the amount of Deposits relating to any
Aircraft not delivered due to any reason not occasioned by Northwest's fault or
negligence and (2) in the case of Class C Certificates, $5.0 million, plus
accrued and unpaid interest on such net amount to but excluding the date of
determination from and including the preceding Regular Distribution Date (or if
such date of determination precedes the first Regular Distribution Date, the
date of issuance of the Certificates).
DISTRIBUTION UPON OCCURRENCE OF A TRIGGERING EVENT
If a Triggering Event occurs prior to the Delivery Period Termination Date,
the Escrow Agent for the Trusts will withdraw any funds then held as Deposits
with respect to such Trusts and cause such funds, with accrued and unpaid
interest thereon but without any premium, to be distributed to the holders of
Escrow Receipts relating to such Trusts by the Paying Agent on behalf of the
Escrow Agent, after at least 15 days' prior written notice. Accordingly, if a
Triggering Event occurs prior to the Delivery Period Termination
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Date, the Trusts will not acquire Equipment Notes issued with respect to
Aircraft delivered after the occurrence of such Triggering Event.
DEPOSITARY
ABN AMRO Bank N.V., acting through a United States Branch, will act as
"Depositary" for each of the Class G, Class B and Class C Certificates.
ABN AMRO Bank N.V. is a direct subsidiary of ABN AMRO Holding N.V., an
international multi-bank holding company. At December 31, 1998, ABN AMRO Holding
N.V. reported consolidated assets amounting to approximately $504 billion (based
on the exchange rate at such date of U.S. $1.00 to NGL 1.8892). The accounting
principles applied in the preparation of the financial statements of ABN AMRO
Bank N.V. may not conform to U.S. GAAP.
ABN AMRO Bank N.V. has long-term unsecured debt ratings of Aa2 from Moody's
and AA from Standard & Poor's and short-term unsecured debt ratings of P-1 from
Moody's and A-1+ from Standard & Poor's.
DESCRIPTION OF THE ESCROW AGREEMENTS
The following is a description of the particular terms of the escrow and
paying agent agreements (the "ESCROW AGREEMENTS"). The statements under this
caption are summaries only and do not purport to be complete and are qualified
in their entirety by reference to all of the provisions of the Escrow
Agreements, each of which will be filed as an exhibit to an Annual Report on
Form 10-K, a Quarterly Report on Form 10-Q, or to a Current Report on Form 8-K
to be filed by NWA Corp. with the Commission. The provisions of the Escrow
Agreements are substantially identical except as otherwise indicated.
First Security Bank, National Association, as escrow agent in respect of the
Trusts (the "ESCROW AGENT"), State Street Bank and Trust Company, as paying
agent on behalf of the Escrow Agent in respect of each such Trust (the "PAYING
AGENT"), the Trustee of each of the Trusts and the Underwriters will enter into
a separate Escrow Agreement for the benefit of the Certificateholders of each
such Trust as holders of the Escrow Receipts affixed thereto (in such capacity,
a "RECEIPTHOLDER"). The proceeds of the offering of Certificates of each Trust
will be deposited by the Underwriters on behalf of the Escrow Agent (for the
benefit of Receiptholders) with the applicable Depositary as Deposits relating
to such Trusts.
Each Escrow Agent will permit the Trustee of the related Trust to cause
funds to be withdrawn from such Deposits on or prior to the Delivery Period
Termination Date for such Trustee to purchase the related Equipment Notes
pursuant to the Note Purchase Agreement. In addition, the Escrow Agent will
direct the applicable Depositary to pay interest on the Deposits accrued in
accordance with the Deposit Agreement to the Paying Agent for distribution to
the Receiptholders.
Each Escrow Agreement requires that the Paying Agent establish and maintain,
for the benefit of the related Receiptholders, one or more Paying Agent
Account(s), which are non-interest-bearing. The Paying Agent will deposit
interest on Deposits and any unused Deposits withdrawn by the Escrow Agent in
the related Paying Agent Account. The Paying Agent will distribute these amounts
on a Regular Distribution Date or Special Distribution Date, as appropriate.
Upon receipt by the applicable Depositary of a portion of the cash proceeds
from this Offering, the Escrow Agent will issue one or more escrow receipts
("ESCROW RECEIPTS") which will be affixed by the relevant Trustee to each
Certificate. Each Escrow Receipt evidences a fractional undivided interest in
amounts from time to time deposited into the Paying Agent Account and is limited
in recourse to amounts deposited into such account. An Escrow Receipt may not be
assigned or transferred except in connection with the assignment or transfer of
the Certificate to which it is affixed. Each Escrow Receipt will be registered
by the Escrow Agent in the same name and manner as the Certificate to which it
is affixed.
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DESCRIPTION OF THE LIQUIDITY FACILITIES
The following summary describes certain terms of the Liquidity Facilities
and certain provisions of the Intercreditor Agreement relating to the Liquidity
Facilities. The summary does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Liquidity Facilities and such
provisions of the Intercreditor Agreement, each of which will be filed as an
exhibit to an Annual Report on Form 10-K, a Quarterly Report on Form 10-Q, or a
Current Report on Form 8-K to be filed by NWA Corp. with the Commission. The
provisions of the Liquidity Facilities are substantially identical except as
otherwise indicated.
GENERAL
The Liquidity Provider will enter into a separate revolving credit agreement
with the Subordination Agent (each, a "LIQUIDITY FACILITY") with respect to the
Certificates of each Trust pursuant to which the Liquidity Provider will make
one or more advances to the Subordination Agent that will be used solely to pay
interest on such Certificates when due, subject to certain limitations. The
Liquidity Facility for each Trust is intended to enhance the likelihood of
timely receipt by the Certificateholders of the interest payable on the
Certificates of that Trust at their Stated Interest Rate on up to three
consecutive semiannual Regular Distribution Dates. If interest payment defaults
occur which exceed the amount covered by or available under the Liquidity
Facility for a Trust, the Certificateholders of that Trust will bear their
allocable share of the deficiencies to the extent that there are no other
sources of funds (including, in the case of the Class G Trust, funds from the
Policy). Although Morgan Stanley Capital Services, Inc. ("MSCS") is the initial
Liquidity Provider for each Trust, MSCS may be replaced by one or more other
entities with respect to the Trusts under certain circumstances. Therefore, the
liquidity providers may differ. The obligations of MSCS to make advances under
the initial Liquidity Facilities will be fully and unconditionally guaranteed by
MSDW.
DRAWINGS
The aggregate amount available under the Liquidity Facilities for each Trust
at October 1, 2000, the first Regular Distribution Date after the scheduled
Delivery Period Termination Date, assuming that Equipment Notes in the maximum
principal amount with respect to all Aircraft are acquired by the Trusts and
that all interest and principal due on or prior to October 1, 2000, is paid,
will be $17,574,666, $8,250,215, and $3,533,695, respectively.
Except as otherwise provided below, the Liquidity Facility for each Trust
will enable the Subordination Agent to make interest drawings ("INTEREST
DRAWINGS") thereunder on any Regular Distribution Date to pay interest then due
and payable on the Certificates of such Trust at the Stated Interest Rate for
such Trust to the extent that the amount, if any, available to the Subordination
Agent on such Regular Distribution Date is not sufficient to pay such interest.
The maximum amount available to be drawn under a Liquidity Facility with respect
to any Trust on any Regular Distribution Date to fund any shortfall of interest
on Certificates of such Trust will not exceed the then Maximum Available
Commitment under such Liquidity Facility.
"MAXIMUM AVAILABLE COMMITMENT" at any time under each Liquidity Facility is
an amount equal to the then Required Amount of such Liquidity Facility less the
aggregate amount of each Interest Drawing outstanding under such Liquidity
Facility at such time, provided that following a Downgrade Drawing, a Final
Drawing or a Non-Extension Drawing under a Liquidity Facility, the Maximum
Available Commitment under such Liquidity Facility will be zero.
"REQUIRED AMOUNT" means, for any day and with respect to any Trust, the sum
of the aggregate amount of interest, calculated at the Stated Interest Rate
applicable to the Certificates issued by such Trust, that would be payable on
such Certificates on each of the three successive semiannual Regular
Distribution Dates immediately following such day or, if such day is a Regular
Distribution Date, on such day and the succeeding two Regular Distribution
Dates, in each case calculated based on the Pool Balance for such
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Class on such day and without regard to expected future payments of principal on
such Certificates. The Pool Balance for purposes of the definition of Required
Amount with respect to the Class G Liquidity Facility shall, in the event of any
Policy Provider Election, be deemed to be reduced by an amount (if positive) by
which (a) the outstanding principal balance of the Series G Equipment Note in
respect of which such Policy Provider Election has been made shall exceed
(b) the amount of any policy drawings previously paid by the Policy Provider in
respect of principal of such Series G Equipment Note.
The Liquidity Facility for any Class of Certificates will not provide for
drawings thereunder to pay for principal of or premium on the Certificates of
such Class or any interest on the Certificates of such Class in excess of the
Stated Interest Rate for such Class or more than three semiannual installments
of interest thereon or principal of or interest or premium on the Certificates
of any other Class. (Liquidity Facilities, Section 2.02; Intercreditor
Agreement, Section 3.6) In addition, the Liquidity Facility with respect to each
Trust will not provide for drawings thereunder to pay any amounts payable with
respect to the Deposits relating to such Trust.
Each payment by the Liquidity Provider will reduce by the same amount the
Maximum Available Commitment under such Liquidity Facility, subject to
reinstatement as hereinafter described. With respect to any Interest Drawings
under a Liquidity Facility, upon reimbursement of the Liquidity Provider in full
for the amount of such Interest Drawings plus interest thereon, the Maximum
Available Commitment under such Liquidity Facility will be reinstated to an
amount not to exceed the then Required Amount of such Liquidity Facility;
provided, however, that such Liquidity Facility will not be so reinstated at any
time if (i) a Liquidity Event of Default has occurred and is continuing and
(ii) less than 65% of the then aggregate outstanding principal amount of all
Equipment Notes are Performing Equipment Notes. With respect to any other
drawings under such Liquidity Facility, amounts available to be drawn thereunder
are not subject to reinstatement. Following the reduction of the Pool Balance
for the applicable Trust, the Maximum Commitment of the Liquidity Facility for
such Trust will be automatically reduced from time to time to an amount equal to
the Required Amount for such Trust. (Liquidity Facilities, Section 2.04(a))
"PERFORMING EQUIPMENT NOTE" means an Equipment Note issued pursuant to an
Indenture with respect to which no payment default has occurred and is
continuing (without giving effect to any acceleration); provided that if a
bankruptcy proceeding is commenced involving Northwest under the Bankruptcy
Code, (a) any payment default existing during the 60-day period under
Section 1110(a)(1)(A) of the Bankruptcy Code (or such longer period as may apply
under Section 1110(b) of the Bankruptcy Code) (the "SECTION 1110 PERIOD") will
not be taken into consideration, unless during the Section 1110 Period the
trustee in such proceeding or Northwest refuses to assume or agree to perform
its obligations under the Lease related to such Equipment Note (in the case of a
Leased Aircraft) or under the Owned Aircraft Indenture related to such Equipment
Note (in the case of an Owned Aircraft), and (b) any payment default occurring
after the date of the order of relief in such proceeding will not be taken into
consideration if such payment default is cured under Section 1110(a)(1)(B) of
the Bankruptcy Code before the later of 30 days after the date of such default
or the expiration of the Section 1110 Period. (Intercreditor Agreement,
Section 1.1)
REPLACEMENT OF LIQUIDITY FACILITIES
If at any time (i) the short-term unsecured debt rating of the Liquidity
Provider for any Trust or, if applicable, of any guarantor of the obligations of
such Liquidity Provider then issued by either Rating Agency is lower than the
Threshold Rating applicable to such Trust or (ii) any guarantee of a Liquidity
Provider's obligations under the relevant Liquidity Facilities ceases to be in
full force and effect or becomes invalid or unenforceable or such guarantor
denies its liability thereunder, the Liquidity Facility provided by such
Liquidity Provider may be replaced by a Replacement Facility. If such Liquidity
Facility is not replaced with a Replacement Facility within 30 days after notice
of the downgrading or any event relating to such guarantee or guarantor
described in clause (ii) above occurs and as otherwise provided in the
Intercreditor Agreement, the Subordination Agent will draw the then Maximum
Available
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Commitment under such Liquidity Facility (the "DOWNGRADE DRAWING"). The
Subordination Agent will deposit the proceeds of any Downgrade Drawing in a cash
collateral account (the "CASH COLLATERAL ACCOUNT") for such Class of
Certificates and will use these proceeds for the same purposes and under the
same circumstances and subject to the same conditions as cash payments of
Interest Drawings under such Liquidity Facility would be used. (Liquidity
Facilities, Section 2.02(c); Intercreditor Agreement, Section 3.6(c))
A "REPLACEMENT LIQUIDITY FACILITY" for any Liquidity Facility means an
irrevocable liquidity facility (or liquidity facilities) in substantially the
form of the replaced Liquidity Facility, including reinstatement provisions, or
in such other form (which may include a letter of credit) as will permit
Standard & Poor's and Moody's (the "RATING AGENCIES") to confirm in writing
their respective ratings then in effect for the Certificates (before downgrading
of such ratings, if any, as a result of (i) the downgrading of the applicable
Liquidity Provider or, if applicable, any guarantor of its obligations or
(ii) any guarantee of such Liquidity Provider's obligations ceasing to be in
full force and effect or becoming invalid or unenforceable or such guarantor
denying its liability thereunder, but, in each case, without regard to the
Policy) and in the case of the Class G Liquidity Facility only, be consented to
by the Policy Provider, which consent shall not be unreasonably withheld or
delayed in a face amount (or in an aggregate face amount) equal to the amount of
interest payable on the Certificates of such Trust (at the Stated Interest Rate
for such Trust, and without regard to expected future principal payments) on the
three Regular Distribution Dates following the date of replacement of such
Liquidity Facility and issued by a person (or persons) having unsecured
short-term debt ratings issued by both Rating Agencies that are equal to or
higher than the Threshold Rating for the relevant Class. (Intercreditor
Agreement, Section 1.1) The provider of any Replacement Facility will have the
same rights (including, without limitation, priority distribution rights and
rights as "Controlling Party") under the Intercreditor Agreement as the replaced
initial Liquidity Provider.
"THRESHOLD RATING" means the short-term unsecured debt rating of P-1 by
Moody's and A-1 by Standard & Poor's, in the case of the Liquidity Provider for
each Trust.
The Liquidity Facility for each Trust will provide that the relevant
Liquidity Provider's obligations thereunder will expire on the earliest of:
- 364 days after the initial issuance date of the Certificates ("ISSUANCE
DATE").
- The date on which the Subordination Agent delivers to such Liquidity
Provider a certification that all of the Certificates of such Trust have
been paid in full.
- The date on which the Subordination Agent delivers to such Liquidity
Provider a certification that a Replacement Liquidity Facility has been
substituted for such Liquidity Facility.
- The fifth Business Day following receipt by the Subordination Agent of a
Termination Notice from such Liquidity Provider (see "--Liquidity Events
of Default").
- The date on which no amount is or may (by reason of reinstatement) become
available for drawing under such Liquidity Facility.
- The date on which the Liquidity Provider honors a Downgrade Drawing, a
Non-Extension Drawing or a Final Drawing. (Liquidity Facilities, Sections
1.01 and 2.04(b))
Each Liquidity Facility provides that the scheduled expiration date thereof
may be extended for additional 364-day periods by mutual agreement.
The Intercreditor Agreement will provide for the replacement of any
Liquidity Facility for any Trust if it is scheduled to expire earlier than
15 days after the Final Legal Distribution Date for the Certificates of such
Trust if such Liquidity Facility is not extended at least 25 days prior to its
then scheduled expiration date. If such Liquidity Facility is not so extended or
replaced by the 25th day prior to its then scheduled expiration date, the
Subordination Agent will draw its then Maximum Available Commitment (the
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"NON-EXTENSION DRAWING"). The Subordination Agent will deposit the proceeds of
the Non-Extension Drawing in the Cash Collateral Account for the related Class
of Certificates as cash collateral to be used for the same purposes and under
the same circumstances, and subject to the same conditions, as cash payments of
Interest Drawings under such Liquidity Facility would be used. (Liquidity
Facilities, Section 2.02(b); Intercreditor Agreement, Section 3.6(d))
Subject to certain limitations, Northwest may, at its option, arrange for a
Replacement Liquidity Facility at any time to replace any Liquidity Facility for
any Trust (including without limitation any Replacement Liquidity Facility
described in the following sentence). In addition, any Liquidity Provider may,
at its option, arrange for a Replacement Liquidity Facility to replace a
non-extended Liquidity Facility during the period no earlier than 40 days and no
later than 25 days prior to the then scheduled expiration date of such Liquidity
Facility. (Intercreditor Agreement, Section 3.6(c) and (e)) If any Replacement
Liquidity Facility is provided at any time after a Downgrade Drawing or a
Non-Extension Drawing under any Liquidity Facility, the funds with respect to
such Liquidity Facility on deposit in the Cash Collateral Account for such Trust
will be returned to the Liquidity Provider being replaced. (Intercreditor
Agreement, Section 3.6(f))
Upon receipt by the Subordination Agent of a Termination Notice with respect
to any Liquidity Facility from the applicable Liquidity Provider, the
Subordination Agent will request a final drawing ("FINAL DRAWING") under such
Liquidity Facility in an amount equal to the then Maximum Available Commitment
thereunder. The Subordination Agent will hold the proceeds of such Final Drawing
in the Cash Collateral Account for the related Trust as cash collateral to be
used for the same purposes and under the same circumstances, and subject to the
same conditions, as cash payments of Interest Drawings under such Liquidity
Facility would be used. (Liquidity Facilities, Section 2.02(d); Intercreditor
Agreement, Section 3.6(i))
REIMBURSEMENT OF DRAWINGS
The Subordination Agent must reimburse amounts drawn under any Liquidity
Facility by reason of an Interest Drawing, Final Drawing, Downgrade Drawing or
Non-Extension Drawing and interest thereon, but only to the extent that the
Subordination Agent has funds available therefor.
INTEREST DRAWINGS AND FINAL DRAWINGS
Amounts drawn by reason of an Interest Drawing or Final Drawing will be
immediately due and payable, together with interest on the amount of such
drawing. From the date of each such drawing to (but excluding) the third
business day thereafter, interest will accrue at the Base Rate plus 2.00% per
annum. Thereafter, interest will accrue at LIBOR for the applicable interest
period plus 2.00% per annum. In the case of the Final Drawing, however, the
Subordination Agent may (x) convert the Final Drawing into a drawing bearing
interest at the Base Rate plus 2.00% per annum on the last day of an Interest
Period for such Drawing or (y) elect to maintain the Final Drawing as a drawing
bearing interest at LIBOR for the applicable Interest Period plus 2.00% per
annum.
"BASE RATE" means a fluctuating interest rate per annum in effect from time
to time, which rate per annum is at all times equal to (a) the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a business day, for the next preceding business day) by the
Federal Reserve Bank of New York, or if such rate is not so published for any
day that is a business day, the average of the quotations for such day for such
transactions received by the applicable Liquidity Provider from three Federal
funds brokers of recognized standing selected by it, plus (b) one quarter of one
percent (0.25%) per annum.
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"LIBOR" means, with respect to any interest period, (i) the rate per annum
appearing on display page 3750 (British Bankers Association--LIBOR) of the Dow
Jones Markets Service (or any successor or substitute therefor) at approximately
11:00 A.M. (London time) two business days before the first day of such interest
period, as the rate for dollar deposits with a maturity comparable to such
interest period, or (ii) if the rate calculated pursuant to clause (i) above is
not available, the average (rounded upwards, if necessary, to the next 1/16 of
1%) of the rates per annum at which deposits in dollars are offered for the
relevant interest period by three banks of recognized standing selected by the
applicable Liquidity Provider in the London interbank market at approximately
11:00 A.M. (London time) two business days before the first day of such interest
period in an amount approximately equal to the principal amount of the advance
to which such interest period is to apply and for a period comparable to such
interest period.
DOWNGRADE DRAWINGS AND NON-EXTENSION DRAWINGS
The amount drawn under any Liquidity Facility by reason of a Downgrade
Drawing or a Non-Extension Drawing will be treated as follows:
- Such amount will be released on any Distribution Date to the applicable
Liquidity Provider to the extent that such amount exceeds the Required
Amount.
- Any portion of such amount withdrawn from the Cash Collateral Account for
such Certificates to pay interest on such Certificates will be treated in
the same way as Interest Drawings.
- The balance of such amount will be invested in Eligible Investments.
Any Downgrade Drawing or Non-Extension Drawing under any of the Liquidity
Facilities, other than any portion thereof applied to the payment of interest on
the Certificates will bear interest with respect to the period from the date of
borrowing to (but excluding) the third Business Day following the Liquidity
Provider's receipt of the notice of such Downgrade Drawing or Non-Extension
Drawing, at the Base Rate plus 0.35% per annum, and thereafter at LIBOR for the
applicable interest period plus 0.35% per annum.
LIQUIDITY EVENTS OF DEFAULT
Events of Default under each Liquidity Facility (each, a "LIQUIDITY EVENT OF
DEFAULT") will consist of:
- The acceleration of all the Equipment Notes (provided, that if such
acceleration occurs during the Delivery Period, the aggregate principal
amount thereof exceeds $110 million).
- Certain bankruptcy or similar events involving Northwest. (Liquidity
Facilities, Section 1.01)
If any Liquidity Event of Default under any Liquidity Facility has occurred
and is continuing and less than 65% of the aggregate outstanding principal
amount of all Equipment Notes are Performing Equipment Notes, the applicable
Liquidity Provider may, in its discretion, give a notice of termination of such
Liquidity Facility (a "TERMINATION NOTICE"). The Termination Notice will have
the following consequences:
- The related Liquidity Facility will expire on the fifth Business Day after
the date on which such Termination Notice is received by the Subordination
Agent.
- The Subordination Agent will promptly request, and the applicable
Liquidity Provider will make, a Final Drawing thereunder in an amount
equal to the then Maximum Available Commitment thereunder.
- Any Drawing remaining unreimbursed as of the date of termination will be
automatically converted into a Final Drawing under such Liquidity
Facility.
- All amounts owing to the applicable Liquidity Provider automatically will
be accelerated.
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Notwithstanding the foregoing, the Subordination Agent will be obligated to
pay amounts owing to the applicable Liquidity Provider only to the extent of
funds available therefor after giving effect to the payments in accordance with
the provisions set forth under "Description of the Intercreditor Agreement--
Priority of Distributions." (Liquidity Facilities, Section 6.01) Upon the
circumstances described below under "Description of the Intercreditor
Agreement--Intercreditor Rights--Controlling Party," a Liquidity Provider may
become the Controlling Party with respect to the exercise of remedies under the
Indentures. (Intercreditor Agreement, Section 2.6(c))
LIQUIDITY PROVIDER
The initial liquidity provider for the Class G Trust, the Class B Trust and
the Class C Trust will be MSCS (including any replacement therefor, the
"LIQUIDITY PROVIDER"). MSCS, a subsidiary of MSDW, commenced operations in
August 1985 and was established to conduct, primarily as principal, an interest
rate, currency and equity derivatives products business. MSCS also engages in a
variety of other related transactions.
MSDW, the guarantor of MSCS's obligations under its Liquidity Facilities, is
a global financial services firm. MSDW has long-term unsecured debt ratings of
Aa3 from Moody's and A+ from Standard & Poor's and short-term unsecured debt
ratings of P-1 from Moody's and A-1 from Standard & Poor's. MSDW files reports,
proxy statements and other information with the Commission pursuant to the
information requirements of the Exchange Act. Such information can be inspected
and copied at the public reference facilities of the Commission, or
electronically accessed through the Internet, as described in the prospectus
accompanying this prospectus supplement under "Available Information."
The description of MSCS and MSDW above has been provided by MSCS and MSDW.
Neither MSCS or MSDW, however, has been involved in the preparation of or
accepts responsibility for this prospectus supplement. Morgan Stanley & Co.
Incorporated, a subsidiary of MSDW and an affiliate of MSCS, will act as an
Underwriter of the Certificates.
DESCRIPTION OF THE POLICY AND
THE POLICY PROVIDER AGREEMENT
The following summary describes certain terms of the Policy and certain
provisions of the Policy Provider Agreement. The summary does not purport to be
complete and is qualified in its entirety by reference to the provisions of the
Policy which will be filed by NWA Corp. with the Commission as an exhibit to an
Annual Report on Form 10-K, a Quarterly Report on Form 10-Q, or a Current Report
on Form 8-K.
THE POLICY
The Policy Provider will issue its financial guarantee insurance policy (the
"POLICY") in favor of the Subordination Agent for the benefit of the Class G
Trustee and holders of the Class G Certificates. The Intercreditor Agreement
directs the Subordination Agent to make a drawing under the Policy under the
following five circumstances:
INTEREST DRAWINGS
If on any Regular Distribution Date (other than the Final Legal Distribution
Date), after giving effect to
- the application of funds in accordance with the priorities set forth under
"Description of the Intercreditor Agreement--Priority of Distributions,"
- the application of any amounts available to the Escrow Agent in the
Class G Paying Agent Account in respect of accrued interest on the
Class G Deposits,
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- any drawings under the Class G Liquidity Facility in respect of accrued
interest on the Class G Certificates, and
- any withdrawal of funds from the Class G Cash Collateral Account in
respect of such interest,
the Subordination Agent does not then have sufficient funds available for the
payment of all amounts due and owing in respect of accrued interest on the
Class G Certificates at the Stated Interest Rate for the Class G Certificates,
the Subordination Agent is to request a policy drawing under the Policy in an
amount sufficient to enable the Subordination Agent to pay such interest.
PROCEEDS DEFICIENCY DRAWING
If, except as provided under "--No Proceeds Drawing" below, the
Subordination Agent receives a Special Payment consisting of proceeds of the
disposition of any Defaulted Series G Equipment Note or the related Trust
Indenture Estate or Collateral, as the case may be, the Policy Provider will
pay, after giving effect to the application of any Prior Funds and Disposition
proceeds, the amount, if any, required to reduce the Pool Balance of the
Class G Certificates to the level equal to the Pool Balance of the Class G
Certificates outstanding immediately prior to the date of such payment minus the
outstanding principal amount of such Defaulted Series G Equipment Note plus
accrued and unpaid interest on the amount of such reduction.
NO PROCEEDS DRAWING
On the first Business Day (which shall be a Special Distribution Date) that
is 18 months after the last date on which full payment was made on a Series G
Equipment Note as to which there has subsequently been a failure to pay
principal or that has been accelerated, if there has not previously been a
Proceeds Deficiency Drawing as described in the preceding paragraph, then on
that Special Distribution Date the Subordination Agent will request a drawing
under the Policy in an amount equal to the then outstanding principal amount of
such Defaulted Series G Equipment Note plus accrued interest thereon. The
Subordination Agent is to give prompt notice to each Trustee, the Liquidity
Provider and the Policy Provider establishing the Special Distribution Date,
which notice is to be given not less than 25 days prior to such Special
Distribution Date. After the payment by the Policy Provider in full of the
requested drawing, the Subordination Agent will have no right to make any
further drawing under the Policy in respect of the Defaulted Series G Equipment
Note except for an Avoidance Drawing as described below.
Notwithstanding the foregoing, at the end of any such 18-month period the
Policy Provider may, so long as no Policy Provider Default shall have occurred
and be continuing, elect (the "POLICY PROVIDER ELECTION") instead to pay
- on such Special Distribution Date an amount equal to the scheduled
principal and interest payable but not paid on the Defaulted Series G
Equipment Note (without regard to the acceleration thereof) during such
18-month period (after giving effect to the application of funds received
from the Class G Liquidity Facility and the Class G Cash Collateral
Account attributable to such interest) and
- thereafter, on each Regular Distribution Date, an amount equal to the
scheduled principal and interest payable on the Defaulted Series G
Equipment Note on the related payment date (without regard to any
acceleration thereof) until the establishment of an Election Distribution
Date.
Following a Policy Provider Election, on any Business Day (each specified
Business Day, an "ELECTION DISTRIBUTION DATE," which shall be a Special
Distribution Date) elected by the Policy Provider upon 20 days' notice, the
Policy Provider may notwithstanding the Policy Provider Election request the
Subordination Agent to, and the Subordination Agent shall make a drawing under
the Policy for an amount equal to the then outstanding principal balance of the
Defaulted Series G Equipment Note (less any drawings previously paid by the
Policy Provider in respect of principal on such Equipment Note) and accrued
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interest thereon at the Stated Interest Rate for the Class G Certificates from
the immediately preceding Regular Distribution Date to such Election
Distribution Date.
Further, after a Policy Provider Election, following either
- the occurrence and continuation of a Policy Provider Default or
- the sale or other disposition of the Defaulted Series G Equipment Note or
its underlying collateral,
the Subordination Agent shall be required, in each case, on a date specified by
the Subordination Agent upon 20 days' notice, to make a drawing under the Policy
for an amount equal to the then outstanding principal balance of the Defaulted
Series G Equipment Note (less any drawings previously paid by the Policy
Provider in respect of principal on such Equipment Note) and accrued interest
thereon at the Stated Interest Rate for the Class G Certificates from the
immediately preceding Regular Distribution Date to such Election Distribution
Date.
Regardless of whether or not the Policy Provider makes a Policy Provider
Election, the Policy Provider shall, at the end of the 18-month period, amend
the Policy (if not already amended to so provide) to provide for the payment to
the Liquidity Provider of interest accruing on the outstanding drawings of the
Class G, Class B and Class C Liquidity Facilities from and after the end of such
18-month period as and when such interest becomes due in accordance with such
Liquidity Facilities.
FINAL POLICY DRAWING
If on the Final Legal Distribution Date of the Class G Certificates after
giving effect to the application of any Prior Funds, the Subordination Agent
does not then have sufficient funds available for the payment in full of the
Final Distribution (calculated as at such date but excluding any accrued and
unpaid premium) on the Class G Certificates, the Subordination Agent shall
request a drawing under the Policy in an amount sufficient to enable the
Subordination Agent to pay the Final Distribution (calculated as at such date
but excluding any accrued and unpaid premium) on the Class G Certificates.
AVOIDANCE DRAWING
If at any time the Subordination Agent has actual knowledge of the issuance
of any Order prior to the expiration of the Policy, the Subordination Agent is
to give prompt notice to each Trustee, each Liquidity Provider and the Policy
Provider of such Order and establishing as a Special Distribution Date the date
that is the earlier of the third Business Day that immediately precedes the
expiration of the Policy and the Business Day that immediately follows the 25th
day after that notice. With respect to that Special Distribution Date, the
Subordination Agent is to request a policy drawing for the relevant Preference
Amount and to deliver to the Policy Provider a copy of the documentation
required by the Policy with respect to such Order.
GENERAL
All requests by the Subordination Agent for a policy drawing are to be made
by it no later than 1:00 p.m. (New York City time) on (or, in the case of any
Preference Amount, at least three days prior to) the applicable Distribution
Date and in the form required by the Policy and delivered to the Policy Provider
in accordance with the Policy. All proceeds of any policy drawing are to be
deposited by the Subordination Agent in the Policy Account and from there paid
to the Class G Trustee for distribution to the holders of the Class G
Certificates without regard to the subordination provisions of the Intercreditor
Agreement. In the case of any Preference Amounts, however, all or part of the
policy drawing will be paid directly to the bankruptcy receiver,
debtor-in-possession or trustee to the extent such amounts have not been paid by
the Certificateholders. If any request for a policy drawing is rejected because
it does not satisfy the requirements of the Policy, the Subordination Agent will
resubmit the request so as to satisfy those requirements.
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The Policy provides that if such a request for a policy drawing is properly
submitted or resubmitted it will pay to the Subordination Agent for deposit in
the Policy Account the applicable payment under the Policy no later than
3:00 p.m. on the later of the relevant Distribution Date and the date the
request is received by the Policy Provider (if a request received by 1:00 p.m.
on such date) or on the next Policy Business Day (if the request is received
after that time).
The Policy Provider will be subrogated to all of the rights of the holders
of the Class G Certificates to payment on the Class G Certificates to the extent
of the payments made under the Policy. Once any payment made under the Policy is
paid to the Subordination Agent, the Policy Provider will have no further
obligation in respect of those payments. THE POLICY PROVIDER SHALL NOT BE
REQUIRED TO MAKE ANY PAYMENT EXCEPT AT THE TIMES AND IN THE AMOUNTS EXPRESSLY
SET FORTH IN THE POLICY.
The Policy does not cover (i) shortfalls, if any, attributable to the
liability of the Class G Trust, the Class G Trustee or the Subordination Agent
for withholding taxes, if any (including interest and penalties in respect of
that liability), (ii) any premium, prepayment penalty or other accelerated
payment, which at any time may become due on or with respect to any Class G
Certificate, nor (iii) any failure of the Escrow Agent, Subordination Agent or
the Class G Trustee to make any payment due to the holders of the Class G
Certificates.
The Policy Provider's obligation under the Policy will be discharged to the
extent that funds are received by the Subordination Agent for distribution to
the Class G Trustee and the holders of Class G Certificates, whether or not the
funds are properly distributed by the Subordination Agent or the Class G
Trustee.
The Policy is noncancellable. The Policy expires and terminates without any
action on the part of the Policy Provider or any other person on the date that
is one year and one day following the date on which the Class G Certificates
have been paid in full. No portion of the premium under the Policy is refundable
for any reason including payment, or provision being made for payment.
The Policy is issued under and pursuant to and shall be construed under, the
laws of the State of New York, without giving effect to the conflict of laws
principles that might invoke the substantive laws of other jurisdictions.
DEFINITIONS
"ORDER" means the order referred to in the definition of the term
"Preference Amount."
"POLICY BUSINESS DAY", for the purposes of this "Description of the Policy
and the Policy Provider Agreement", means any day that is not a Saturday, a
Sunday or other day on which insurance companies in New York, New York or
commercial banking institutions in the cities in which the Corporate Trust
Office of the Subordination Agent, State Street Bank and Trust Company, N.A. (as
fiscal agent) or the Policy Provider are located are authorized or obligated by
law or executive order to close.
"PREFERENCE AMOUNT" means any payment of principal or interest at the Stated
Interest Rate on the Series G Equipment Notes made to the Trustee or the
Subordination Agent or (without duplication) any payment of the Pool Balance of
or interest at the Stated Interest Rate on the Class G Certificates or any
payment of the proceeds of any drawing under the Class G Liquidity Facility made
to a holder which has become recoverable or been recovered from the Trustee, the
Subordination Agent or the holders of the Class G Certificates (as the case may
be) as a result of such payment being determined or deemed a preferential
transfer pursuant to the Bankruptcy Code or otherwise rescinded or required to
be returned in accordance with a final, nonappealable order of a court of
competent jurisdiction.
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THE POLICY PROVIDER AGREEMENT
The Subordination Agent and the Policy Provider will enter into an insurance
and indemnity agreement (the "POLICY PROVIDER AGREEMENT") to be dated as of the
date of the issuance of the Certificates. Under the Policy Provider Agreement,
the Subordination Agent will agree to reimburse the Policy Provider for drawings
paid under the Policy. These rights to reimbursement from the Subordination
Agent are limited, pursuant to the terms of the Policy Provider Agreement and
the Intercreditor Agreement, to certain collateral. Pursuant to a policy fee
letter (the "POLICY-FEE LETTER"), Northwest will agree to pay the Policy
Provider a premium for the Policy based on the Pool Balance of the Class G
Certificates and a fee in connection with any prepayment of the Certificates
(including by reason of an acceleration of the underlying Equipment Notes, but
excluding a prepayment associated with an event of loss of an Aircraft) and to
reimburse the Policy Provider for certain expenses.
DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following summary describes certain provisions of the Intercreditor
Agreement. The summary does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Intercreditor Agreement which
will be filed as an exhibit to an Annual Report on Form 10-K, a Quarterly Report
on Form 10-Q, or to a Current Report on Form 8-K to be filed by NWA Corp. with
the Commission.
INTERCREDITOR RIGHTS
CONTROLLING PARTY
With respect to any Indenture at any given time, the Trustee, the Policy
Provider and the Liquidity Provider will agree that the Loan Trustee under such
Indenture will be directed in taking, or refraining from taking, any action
under such Indenture or with respect to the Equipment Notes issued under such
Indenture, by the holders of at least a majority of the outstanding principal
amount of the Equipment Notes issued under such Indenture, so long as no
Indenture Default (which, with respect to Leased Aircraft, has not been cured by
the applicable Owner Trustee or Owner Participant) has occurred and is
continuing under such Indenture. For so long as the Subordination Agent is the
registered holder of the Equipment Notes, the Subordination Agent will act with
respect to the preceding sentence in accordance with the directions of the
Trustees for whom the Equipment Notes issued under such Indenture are held as
Trust Property, to the extent constituting, in the aggregate, directions with
respect to the required principal amount of Equipment Notes. (Intercreditor
Agreement, Section 2.6(a))
At any time an Indenture Default has occurred and is continuing under an
Indenture (which, with respect to Leased Aircraft, has not been cured by the
applicable Owner Trustee or Owner Participant), the Loan Trustee under such
Indenture will be directed in taking, or refraining from taking, any action
thereunder or with respect to the Equipment Notes issued under the related
Indenture, including acceleration of such Equipment Notes or foreclosing the
lien on the related Aircraft, by the Controlling Party, subject to the
limitations described below. (Intercreditor Agreement, Section 2.6(a))
Notwithstanding the foregoing, no amendment, modification, consent or waiver
will, without the consent of each Liquidity Provider, reduce the amount of rent,
supplemental rent or termination values payable by Northwest under any Lease or
reduce the amount of principal or interest payable by Northwest under any
Equipment Note issued under any Owned Aircraft Indenture. (Intercreditor
Agreement, Section 9.1(b)) See "Description of the Certificates--Indenture
Defaults and Certain Rights Upon an Indenture Default" for a description of the
rights of the Certificateholders of each Trust to direct the respective
Trustees.
The Controlling Party will be:
- The Policy Provider until payment of final distributions to the holders of
Class G Certificates and no obligations owing to the Policy Provider
remain outstanding or, if a Policy Provider Default has
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occurred and is continuing, the Class G Trustee until payment of final
distributions to holders of Class G Certificates; and thereafter,
- The Class B Trustee until payment of Final Distributions to the holders of
Class B Certificates; and thereafter,
- The Class C Trustee; and
- Under certain circumstances, and notwithstanding the foregoing, the
Liquidity Providers holding a majority in interest of unreimbursed
Liquidity Obligations or the Policy Provider, in each case as discussed in
the next paragraph. (Intercreditor Agreement, Section 2.6(c))
At any time after 18 months from the earliest to occur of (x) the date on
which the entire available amount under any Liquidity Facility has been drawn
(for any reason other than a Downgrade Drawing or a Non-Extension Drawing) and
any amount remains unreimbursed, (y) the date on which the entire amount of any
Downgrade Drawing or Non-Extension Drawing has been withdrawn from the relevant
Cash Collateral Account to pay interest on the relevant Class of Certificates
and remains unreimbursed and (z) the date on which all Equipment Notes have been
accelerated (provided that if such acceleration occurs prior to the Delivery
Period Termination Date, the aggregate principal amount thereof exceeds
$110 million), the Liquidity Provider with the highest outstanding amount of
unreimbursed Liquidity Obligations (so long as such Liquidity Provider has not
defaulted in its obligation to make any advance under any Liquidity Facility)
will have the right to become the Controlling Party with respect to any
Indenture, provided that if (a) the Policy Provider amends the Policy to cover
payments of all drawings and interest thereon owing to the Liquidity Provider
under the Liquidity Facilities (determined without regard to the availability of
funds for the payment thereof by the Subordination Agent) and certain other
conditions are met, including the Rating Agencies confirming that they will not
withdraw, suspend or downgrade their ratings on any class of Certificates, or
(b) the Policy Provider pays to the Liquidity Provider all outstanding drawings
and interest thereon owing to the Liquidity Provider under the Liquidity
Facilities (as so determined), the Policy Provider shall remain the Controlling
Party so long as no Policy Provider Default has occurred and is continuing (in
which case the Liquidity Provider, if it so elects and if Liquidity Obligations
owing to it remain outstanding, or if it does not so elect or if no such
Liquidity Obligations remain outstanding, the Class G Trustee, shall become the
Controlling Party). (Intercreditor Agreement, Section 2.6(c))
For purposes of giving effect to the rights of the Controlling Party, the
Trustees (other than the Controlling Party) will irrevocably agree, and the
Certificateholders (other than the Certificateholders represented by the
Controlling Party) will be deemed to agree by virtue of their purchase of
Certificates, that the Subordination Agent, as record holder of the Equipment
Notes, will exercise its voting rights in respect of the Equipment Notes as
directed by the Controlling Party. (Intercreditor Agreement, Section 2.6(b)) For
a description of certain limitations on the Controlling Party's rights to
exercise remedies, see "Description of the Equipment Notes--Remedies."
"POLICY PROVIDER DEFAULT" shall mean the occurrence of any of the following
events (a) the Policy Provider fails to make a payment required under the Policy
in accordance with its terms and such failure remains unremedied for 2 business
days following the delivery of written notice of such failure to the Policy
Provider or (b) the Policy Provider (i) files any petition or commences any case
or proceeding under any provisions of any federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization,
(ii) makes a general assignment for the benefit of its creditors or (iii) has an
order for relief entered against it under any federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization that is
final and nonappealable, or (c) a court of competent jurisdiction, the New York
Insurance Department or another competent regulatory authority enters a final
and nonappealable order, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Policy Provider or for all or any material portion of
its property or (ii) authorizing the taking of possession
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by a custodian, trustee, agent or receiver of the Policy Provider (or taking of
possession of all or any material portion of the Policy Provider's property).
"FINAL DISTRIBUTIONS" means, with respect to the Certificates of any Trust
on any Distribution Date, the sum of (x) the aggregate amount of all accrued and
unpaid interest on such Certificates (excluding interest payable, if any, on the
Deposits relating to such Trust) and (y) the Pool Balance of such Certificates
as of the immediately preceding Distribution Date (less the amount of the
Deposits for such Class of Certificates as of such preceding Distribution Date
other than any portion of such Deposits thereafter used to acquire Equipment
Notes pursuant to the Note Purchase Agreement). For purposes of calculating
Final Distributions with respect to the Certificates of any Trust, any premium
paid on the Equipment Notes held in such Trust that has not been distributed to
the Certificateholders of such Trust (other than such premium or a portion
thereof applied to the payment of interest on the Certificates of such Trust or
the reduction of the Pool Balance of such Trust) will be added to the amount of
such Final Distributions. (Intercreditor Agreement, Section 1.1)
SALE OF EQUIPMENT NOTES OR AIRCRAFT
Upon the occurrence and during the continuation of any Indenture Default
under any Indenture, the Controlling Party will be entitled to accelerate and,
subject to the provisions of the immediately following sentence, sell all (but
not less than all) of the Equipment Notes issued under such Indenture to any
person. So long as any Certificates are outstanding, during nine months after
the earlier of (x) the acceleration of the Equipment Notes under any Indenture
or (y) the bankruptcy or insolvency of Northwest, without the consent of each
Trustee, no Aircraft subject to the lien of such Indenture or such Equipment
Notes may be sold, if the net proceeds from such sale would be less than the
Minimum Sale Price for such Aircraft or such Equipment Notes. In addition, with
respect to any Leased Aircraft, the amount and payment dates of rentals payable
by Northwest under the Lease for such Leased Aircraft may not be adjusted, if,
as a result of such adjustment, the discounted present value of all such rentals
would be less than 75% of the discounted present value of the rentals payable by
Northwest under such Lease before giving effect to such adjustment.
"MINIMUM SALE PRICE" means, with respect to any Aircraft or the Equipment
Notes issued in respect of such Aircraft, at any time, the lesser of (x) 75% of
the Appraised Current Market Value of such Aircraft and (y) the aggregate
outstanding principal amount of such Equipment Notes, plus accrued and unpaid
interest thereon.
PRIORITY OF DISTRIBUTIONS
BEFORE A TRIGGERING EVENT
So long as no Triggering Event has occurred, the payments in respect of the
Equipment Notes and certain other payments received on any Distribution Date
will be promptly distributed by the Subordination Agent on such Distribution
Date in the following order of priority:
- to the Liquidity Provider to the extent required to pay the Liquidity
Expenses and to the Policy Provider to the extent required to pay the
Policy Expenses;
- to the Liquidity Provider to the extent required to pay interest accrued
on the Liquidity Obligations (as determined after giving effect to
payments made by the Policy Provider to the Liquidity Provider in respect
of interest on drawings under the Liquidity Facilities) and to the Policy
Provider to the extent required to pay interest accrued on certain Policy
Provider Obligations (as provided in the definition thereof) and, if the
Policy Provider has elected to pay to the Liquidity Provider all
outstanding drawings and interest thereon owing to the Liquidity Provider
under the Liquidity Facilities, to reimburse the Policy Provider for the
amount of such payment made to the Liquidity Provider attributable to
interest accrued on such drawings, pro rata;
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- (i) subject to the provisions of clause (ii), to the Liquidity Provider to
the extent required to pay or reimburse the Liquidity Provider for the
Liquidity Obligations (other than amounts payable pursuant to the two
preceding clauses and as determined after giving effect to payments made
by the Policy Provider to the Liquidity Provider in respect of principal
of drawings under the Liquidity Facilities) and, if the Policy Provider
has elected to pay to the Liquidity Provider all outstanding drawings and
interest thereon owing to the Liquidity Provider under the Liquidity
Facilities, to the Policy Provider to the extent required to reimburse the
Policy Provider for any payment made to the Liquidity Provider in respect
of principal of drawings under the Liquidity Facilities and/or, (ii) if
applicable, to replenish each Cash Collateral Account up to the Required
Amount;
- to the Class G Trustee to the extent required to pay Expected
Distributions on the Class G Certificates;
- to the Policy Provider to the extent required to pay Policy Provider
Obligations (other than amounts payable pursuant to the clauses above and
any Excess Reimbursement Obligations);
- to the Class B Trustee to the extent required to pay Expected
Distributions on the Class B Certificates;
- to the Class C Trustee to the extent required to pay Expected
Distributions on the Class C Certificates;
- to the Policy Provider to the extent required to pay Excess Reimbursement
Obligations;
- if Class D Certificates have been issued, to the Class D Trustee to the
extent required to pay "Expected Distributions" (to be defined in a manner
equivalent to the definition below for other Classes of Certificates) on
the Class D Certificates; and
- to the Subordination Agent and each Trustee for the payment of certain
fees and expenses.
"LIQUIDITY EXPENSES" means all amounts owing to the Liquidity Providers
under the Liquidity Facilities or certain other agreements other than any
interest accrued thereon or the principal amount of any drawing under the
Liquidity Facilities.
"POLICY EXPENSES" means all amounts (including amounts in respect of
expenses) owing to the Policy Provider under the Policy Provider Agreement or
certain other agreements other than the amount of any Excess Reimbursement
Obligations, any Policy Drawing and any interest accrued thereon, reimbursement
of and interest on the Liquidity Obligations in respect of the Liquidity
Facilities paid by the Policy Provider to the Liquidity Provider and any
indemnity payments owed to the Policy Provider.
"LIQUIDITY OBLIGATIONS" means all principal, interest, fees and other
amounts owing to the Liquidity Providers under the Liquidity Facilities or
certain other agreements.
"POLICY PROVIDER OBLIGATIONS" means all reimbursement and other amounts,
including fees and indemnities, due to the Policy Provider under the Policy
Provider Agreement but shall not include any interest on Policy Drawings except,
if the Liquidity Provider has failed to honor its obligation to make a payment
on any Interest Drawing with respect to the Class G Certificates, interest on
the portion of any Policy Drawing made to cover the shortfall attributable to
such failure by the Liquidity Provider in an amount equal to the amount of
interest that would have accrued on such Interest Drawing if such Interest
Drawing had been made at the interest rate applicable to such Interest Drawing
until such Policy Drawing has been repaid in full, up to a maximum of three such
Policy Drawings. For the avoidance of doubt and subject to the effect of the
payment priorities with respect to Excess Reimbursement Obligations, Policy
Provider Obligations include reimbursement of and interest on the Liquidity
Obligations in respect of the Liquidity Facilities paid by the Policy Provider
to the Liquidity Provider.
"POLICY DRAWING" means any payment of a claim under the Policy.
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"EXCESS REIMBURSEMENT OBLIGATIONS" means, (a) in the event of any Policy
Provider Election, the portion of the Policy Provider Obligations that
represents interest on the Series G Equipment Note in respect of which the
Policy Provider Election has been made in excess of 18 months of interest at the
interest rate applicable to such Equipment Note and (b) any interest on the
Liquidity Obligations in respect of the Liquidity Facilities paid by the Policy
Provider to the Liquidity Provider from and after the end of the 18-month period
referred to under the caption "Description of the Policy and the Policy Provider
Agreement--The Policy--NO PROCEEDS DRAWING."
"EXPECTED DISTRIBUTIONS" means, with respect to the Certificates of any
Trust on any Distribution Date (the "CURRENT DISTRIBUTION DATE"), the sum of
(1) accrued and unpaid interest on such Certificates (excluding interest, if
any, payable with respect to the Deposits relating to such Trust) and (2) the
difference between:
(A) the Pool Balance of such Certificates as of the immediately
preceding Distribution Date (or, if the Current Distribution Date is the
first Distribution Date, the original aggregate face amount of the
Certificates of such Trust); and
(B) the Pool Balance of such Certificates as of the Current Distribution
Date calculated on the basis that (i) the principal of the Equipment Notes
held in such Trust has been paid when due (whether at stated maturity, upon
redemption, prepayment, purchase, acceleration or otherwise) and such
payments have been distributed to the holders of such Certificates and
(ii) the principal of any Equipment Notes formerly held in such Trust that
have been sold has been paid in full and such payments have been distributed
to the holders of such Certificates, but without giving effect to any
reduction in the Pool Balance as a result of any distribution attributable
to Deposits occurring after the immediately preceding Distribution Date (or,
if the Current Distribution Date is the first Distribution Date, occurring
after the initial issuance of the Certificates of such Trust).
(Intercreditor Agreement, Section 1.1)
For purposes of calculating Expected Distributions with respect to the
Certificates of any Trust, any premium paid on the Equipment Notes held in such
Trust that has not been distributed to the Certificateholders of such Trust
(other than such premium or a portion thereof applied to the payment of interest
on the Certificates of such Trust or the reduction of the Pool Balance of such
Trust) shall be added to the amount of such Expected Distributions.
AFTER A TRIGGERING EVENT
Subject to the terms of the Intercreditor Agreement, upon the occurrence of
a Triggering Event and at all times thereafter, all funds received by the
Subordination Agent in respect of the Equipment Notes and certain other payments
will be promptly distributed by the Subordination Agent in the following order
of priority:
- to the Subordination Agent, any Trustee, any Certificateholder, the Policy
Provider and the Liquidity Provider to the extent required to pay certain
out-of-pocket costs and expenses actually incurred by the Subordination
Agent or any Trustee or to reimburse any Certificateholder, the Policy
Provider or the Liquidity Provider in respect of payments made to the
Subordination Agent or any Trustee in connection with the protection or
realization of the value of the Equipment Notes or any Trust Indenture
Estate (collectively, the "ADMINISTRATION EXPENSES");
- to the Liquidity Provider to the extent required to pay the Liquidity
Expenses and to the Policy Provider to the extent required to pay the
Policy Expenses;
- to the Liquidity Provider to the extent required to pay interest accrued
on the Liquidity Obligations (as determined after giving effect to
payments made by the Policy Provider to the Liquidity Provider in respect
of interest on drawings under the Liquidity Facilities) and to the Policy
Provider to the extent required to pay interest accrued on certain Policy
Provider Obligations (as provided in the
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definition thereof) and, if the Policy Provider has elected to pay to the
Liquidity Provider all outstanding drawings and interest thereon owing to
the Liquidity Provider under the Liquidity Facilities, to reimburse the
Policy Provider for the amount of such payment made to the Liquidity
Provider, attributable to interest accrued on such drawings, pro rata;
- (i) subject to the provisions of clause (ii), to the Liquidity Provider to
the extent required to pay the outstanding amount of all Liquidity
Obligations (as determined after giving effect to payments made by the
Policy Provider to the Liquidity Provider in respect of principal of
drawings under the Liquidity Facilities) and, if the Policy Provider has
elected to pay to the Liquidity Provider all outstanding drawings and
interest thereon owing to the Liquidity Provider under the Liquidity
Facilities, to the Policy Provider to the extent required to reimburse the
Policy Provider for any payment made to the Liquidity Provider in respect
of principal of drawings under the Liquidity Facilities and/or, (ii) if
applicable with respect to any particular Liquidity Facility, to replenish
the Cash Collateral Account with respect to such Liquidity Facility up to
the Required Amount for the related Class of Certificates (less the amount
of any repayments of Interest Drawings under such Liquidity Facility while
sub-clause (x) of this clause is applicable) unless, in the case of this
clause (ii), (x) less than 65% of the aggregate outstanding principal
amount of all Equipment Notes are Performing Equipment Notes and a
Liquidity Event of Default has occurred and is continuing under such
Liquidity Facility or (y) a Final Drawing has occurred under such
Liquidity Facility;
- to the Subordination Agent, any Trustee or any Certificateholder to the
extent required to pay certain fees, taxes, charges and other amounts
payable;
- to the Class G Trustee to the extent required to pay Adjusted Expected
Distributions on the Class G Certificates;
- to the Policy Provider in payment of the Policy Provider Obligations
(other than amounts payable pursuant to the first three clauses above and
any Excess Reimbursement Obligations);
- to the Class B Trustee to the extent required to pay Adjusted Expected
Distributions on the Class B Certificates;
- to the Class C Trustee to the extent required to pay Adjusted Expected
Distributions on the Class C Certificates;
- to pay any Excess Reimbursement Obligations to the Policy Provider; and
- if Class D Certificates have been issued, to the Class D Trustee to the
extent required to pay "Adjusted Expected Distributions" (to be defined in
a manner equivalent to the definition below for other Classes of
Certificates) on the Class D Certificates.
"ADJUSTED EXPECTED DISTRIBUTIONS" means, with respect to the Certificates of
any Trust on any Current Distribution Date, the sum of (1) accrued and unpaid
interest on such Certificates (excluding interest, if any, payable with respect
to the Deposits relating to such Trust) and (2) the greater of:
(A) the difference between (x) the Pool Balance of such Certificates as
of the immediately preceding Distribution Date (or, if the Current
Distribution Date is the first Distribution Date, the original aggregate
face amount of the Certificates of such Trust) and (y) the Pool Balance of
such Certificates as of the Current Distribution Date calculated on the
basis that (i) the principal of the Non-Performing Equipment Notes held in
such Trust has been paid in full and such payments have been distributed to
the holders of such Certificates, (ii) the principal of the Performing
Equipment Notes held in such Trust has been paid when due (but without
giving effect to any acceleration of Performing Equipment Notes except to
the extent monies are received as a result of such acceleration) and such
payments have been distributed to the holders of such Certificates and
(iii) the principal of any Equipment Notes formerly held in such Trust that
have been sold has been paid in full and such payments have been distributed
to the holders of such Certificates, but without giving effect
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to any reduction in the Pool Balance as a result of any distribution
attributable to Deposits occurring after the immediately preceding
Distribution Date (or, if the Current Distribution Date is the first
Distribution Date, occurring after the initial issuance of the Certificates
of such Trust), and
(B) the amount of the excess, if any, of (i) the Pool Balance of such
Class of Certificates as of the immediately preceding Distribution Date (or,
if the Current Distribution Date is the first Distribution Date, the
original aggregate face amount of the Certificates of such Trust), less the
amount of the Deposits for such Class of Certificates as of such preceding
Distribution Date (or, if the Current Distribution Date is the first
Distribution Date, the original aggregate amount of the Deposits for such
Class of Certificates) other than any portion of such Deposits thereafter
used to acquire Equipment Notes pursuant to the Note Purchase Agreement,
over (ii) the Aggregate LTV Collateral Amount for such Class of Certificates
for the Current Distribution Date;
provided that, until the date of the initial LTV Appraisals, clause (B) will not
apply.
For purposes of calculating Expected Distributions or Adjusted Expected
Distributions with respect to the Certificates of any Trust, any premium paid on
the Equipment Notes held in such Trust that has not been distributed to the
Certificateholders of such Trust (other than such premium or a portion thereof
applied to the payment of interest on the Certificates of such Trust or the
reduction of the Pool Balance of such Trust) will be added to the amount of
Expected Distributions or Adjusted Expected Distributions.
"AGGREGATE LTV COLLATERAL AMOUNT" for any Class of Certificates for any
Distribution Date means (i) the sum of the applicable LTV Collateral Amounts for
each Aircraft, minus (ii) the Pool Balance for each Class of Certificates, if
any, senior to such Class, after giving effect to any distribution of principal
on such Distribution Date with respect to such senior Class or Classes.
"LTV COLLATERAL AMOUNT" of any Aircraft for any Class of Certificates means,
as of any Distribution Date, the lesser of (i) the LTV Ratio for such Class of
Certificates multiplied by the Appraised Current Market Value of such Aircraft
(or with respect to any such Aircraft which has suffered an Event of Loss under
and as defined in the relevant Lease, in the case of a Leased Aircraft, or
relevant Indenture, in the case of an Owned Aircraft, the amount of the
insurance proceeds paid to the related Loan Trustee in respect thereof to the
extent then held by such Loan Trustee (and/or on deposit in the Special Payments
Account) or payable to such Loan Trustee in respect thereof) and (ii) the
outstanding principal amount of the Equipment Notes secured by such Aircraft
after giving effect to any principal payments of such Equipment Notes on or
before such Distribution Date.
"LTV RATIO" means for the Class G Certificates 44.3%, for the Class B
Certificates 64.1% and for the Class C Certificates 72.2%. (Intercreditor
Agreement, Section 1.1)
"APPRAISED CURRENT MARKET VALUE" of any Aircraft means the lower of the
average and the median of the most recent three LTV Appraisals of such Aircraft.
After a Triggering Event occurs and any Equipment Note becomes a
Non-Performing Equipment Note, the Subordination Agent will obtain LTV
Appraisals of the Aircraft securing such Equipment Note as soon as practicable
and additional LTV Appraisals on or prior to each anniversary of the date of
such initial LTV Appraisals; provided that if the Controlling Party reasonably
objects to the appraised value of the Aircraft shown in such LTV Appraisals, the
Controlling Party has the right to obtain or cause to be obtained substitute LTV
Appraisals (including LTV Appraisals based upon physical inspection of such
Aircraft).
"LTV APPRAISAL" means a current fair market value appraisal (which may be a
"desk-top" appraisal) performed by any Appraiser or any other nationally
recognized appraiser on the basis of an arm's-length transaction between an
informed and willing purchaser under no compulsion to buy and an informed and
willing seller under no compulsion to sell and both having knowledge of all
relevant facts.
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"NON-PERFORMING EQUIPMENT NOTE" means an Equipment Note that is not a
Performing Equipment Note.
Interest Drawings under the Liquidity Facility and withdrawals from the Cash
Collateral Account, in each case in respect of interest on the Certificates of
any Trust will be distributed to the Trustee for such Trust and drawings under
the Policy will be distributed to the Trustee of the Class G Trust,
notwithstanding the priority of distributions set forth in the Intercreditor
Agreement and otherwise described herein. All amounts on deposit in the Cash
Collateral Account for any Trust which are in excess of the Required Amount for
such Trust and all investment earnings on such amounts on deposit in the Cash
Collateral Account will be paid to the Liquidity Provider.
VOTING OF EQUIPMENT NOTES
In the event that the Subordination Agent, as the registered holder of any
Equipment Note, receives a request for its consent to any amendment,
modification or waiver under such Equipment Note or other related document, if
no Indenture Default with respect thereto shall have occurred and be continuing,
the Subordination Agent shall request instructions for each Series of Equipment
Notes from the Trustee of the Trust which holds such Series of Equipment Notes,
except that so long as the Final Distribution on the Class G Certificates has
not been made or any Policy Provider Obligations remain outstanding and no
Policy Provider Default shall have occurred and be continuing, the Subordination
Agent shall request directions from the Policy Provider rather than the Class G
Trustee with respect to the Equipment Notes held in the Class G Trust. The
Trustee in turn will request directions from Certificateholders of such Trust.
The Trustee is not required to request directions if such consent will not
adversely affect the Certificateholders or an Event of Default shall have
occurred and be continuing under the Pass Through Agreement of such Trust. If
any Indenture Default shall have occurred and be continuing with respect to such
Indenture, the Subordination Agent will exercise its voting rights as directed
by the Controlling Party. (Intercreditor Agreement, Section 9.1(b))
ADDITION OF TRUSTEE FOR CLASS D CERTIFICATES
If the Class D Certificates are issued, the Class D Trustee will be a party
to the Intercreditor Agreement.
THE SUBORDINATION AGENT
State Street Bank and Trust Company, a Massachusetts trust company, will be
the Subordination Agent under the Intercreditor Agreement. Northwest and its
affiliates may from time to time enter into banking and trustee relationships
with the Subordination Agent and its affiliates. The Subordination Agent's
address is 2 International Place, 4(th) Floor, Boston, Massachusetts 02110,
Attention: Corporate Trust Department.
The Subordination Agent may resign at any time, in which event a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. Either the Controlling Party or the Liquidity Provider may remove the
Subordination Agent for cause as provided in the Intercreditor Agreement. In
such circumstances, a successor Subordination Agent will be appointed as
provided in the Intercreditor Agreement. Any resignation or removal of the
Subordination Agent and appointment of a successor Subordination Agent does not
become effective until acceptance of the appointment by the successor
Subordination Agent.
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DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The Aircraft are comprised of 14 new British Aerospace Avro RJ85 aircraft of
which 6 were delivered prior to November 1999 and 8 are scheduled for delivery
from December 1999 through May 2000, all of which are equipped with the
AlliedSignal LF507-1F engines. (The period beginning on the date of original
issuance of the Certificates and ending on July 31, 2000 is referred to herein
as the "DELIVERY PERIOD"). The Aircraft are designed to be in compliance with
Stage III noise level standards, which constitute the most restrictive
regulatory standards currently in effect in the United States for aircraft noise
abatement. The table below sets forth certain additional information concerning
the Aircraft. See Summary of Aircraft Appraisals attached in Appendix II for a
description of the Avro RJ85 aircraft.
<TABLE>
<CAPTION>
ACTUAL/EXPECTED ACTUAL/EXPECTED
FAA ALLIED- MANUFAC- MONTH DELIVERED OR APPRAISED BASE VALUE
REGISTRATION AIRCRAFT SIGNAL TURER'S SCHEDULED DELIVERY ---------------------------------------
NUMBER(1) TYPE ENGINE SERIAL NO.(1) MONTH(2) AISI AVS MBA
- --------------------- ------------- --------- --------------- ------------------ ----------- ----------- -----------
<C> <S> <C> <C> <C> <C> <C> <C>
N523XJ BAe Avro RJ85 LF507-1F E2348 April 1999 $24,360,000 $23,410,000 $23,400,000
N524XJ BAe Avro RJ85 LF507-1F E2349 April 1999 24,400,000 23,410,000 23,400,000
N525XJ BAe Avro RJ85 LF507-1F E2350 May 1999 24,420,000 23,410,000 23,540,000
N526XJ BAe Avro RJ85 LF507-1F E2351 May 1999 24,440,000 23,410,000 23,540,000
N527XJ BAe Avro RJ85 LF507-1F E2352 June 1999 24,460,000 23,410,000 23,670,000
N528XJ BAe Avro RJ85 LF507-1F E2353 June 1999 24,480,000 23,410,000 23,670,000
N529XJ BAe Avro RJ85 LF507-1F E2363 December 1999 24,580,000 23,870,000 24,480,000
N530XJ BAe Avro RJ85 LF507-1F E2364 January 2000 25,290,000 24,120,000 24,610,000
N531XJ BAe Avro RJ85 LF507-1F E2365 January 2000 25,290,000 24,120,000 24,610,000
N532XJ BAe Avro RJ85 LF507-1F TBD March 2000 25,290,000 24,120,000 24,900,000
N533XJ BAe Avro RJ85 LF507-1F TBD March 2000 25,290,000 24,120,000 24,900,000
N534XJ BAe Avro RJ85 LF507-1F TBD April 2000 25,290,000 24,370,000 25,040,000
N535XJ BAe Avro RJ85 LF507-1F TBD April 2000 25,290,000 24,370,000 25,040,000
N536XJ BAe Avro RJ85 LF507-1F TBD May 2000 25,290,000 24,370,000 25,190,000
</TABLE>
- ------------------------------
(1) Actual Registration Numbers and Manufacturer's Serial Numbers for each
Aircraft delivered through November 1999 are indicated above. Expected
Registration Numbers and Manufacturer's Serial Numbers are provided for each
Aircraft to be delivered after November 1999.
(2) Future dates reflect the scheduled delivery month under Northwest's purchase
agreement with the manufacturer. The actual delivery date for any
undelivered Aircraft may be subject to delay.
APPRAISED VALUE
The appraised base values set forth in the foregoing chart were determined
by Aircraft Information Services, Inc. ("AISI") as of November 5, 1999,
AvSOLUTIONS, Inc. ("AVS") as of November 5, 1999 and Morton Beyer and
Agnew, Inc. ("MBA", and together with AISI and AVS, the "APPRAISERS") as of
August 20, 1999. All three Appraisers were asked to provide their respective
opinion as to the appraised base value of each Aircraft projected as of the
scheduled delivery month of each such Aircraft. Each Appraiser performed a
"desk-top" appraisal without any physical inspection of the Aircraft. The
Appraisals are based on various assumptions and methodologies, which vary among
the Appraisals. The Appraisers have delivered letters summarizing their
respective Appraisals, copies of which are annexed to this Prospectus Supplement
as Appendix II. For a discussion of the assumptions and methodologies used in
preparing each of the Appraisals, reference is hereby made to such summaries.
An appraisal is only an estimate of value and should not be relied upon as a
measure of realizable value. The proceeds realized upon the sale of any Aircraft
may be less than the appraised value thereof. In addition, the value of the
Aircraft in the event of the exercise of remedies under the applicable Indenture
will depend on market and economic conditions at the time, the availability of
buyers, the condition of the Aircraft, whether the Aircraft are sold separately
or as a block and other factors. Accordingly, there can be
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no assurance that the proceeds realized upon any such exercise with respect to
the Equipment Notes and the Aircraft pursuant to the applicable Indenture would
be as appraised or sufficient to satisfy in full payments due on the Equipment
Notes issued thereunder or the Certificates.
DELIVERIES OF AIRCRAFT
The Aircraft have been delivered or are scheduled for delivery from
April 1999 through May 2000 under a purchase agreement between Northwest and the
manufacturer. See the table under "--The Aircraft" for the scheduled month of
delivery of each Aircraft. Under such purchase agreement, delivery of an
Aircraft may be delayed due to "Excusable Delay," which is defined to include
delays in delivery or failure to deliver or perform due to causes reasonably
beyond manufacturer's or any associated contractor's control or not occasioned
by the manufacturer's or any associated contractor's fault, misconduct or
negligence. Northwest cannot predict whether adjustments in such schedule will
be required.
If delivery of any Aircraft is delayed beyond the Delivery Period
Termination Date there will be unused Deposits that will be distributed to
Certificateholders together with accrued and unpaid interest thereon and, in
certain circumstances, a Deposit Make-Whole Premium. See "Description of the
Deposit Agreements--Unused Deposits."
If delivery of any Aircraft is delayed by more than 30 days after the month
scheduled for delivery, Northwest has the right to replace such Aircraft with a
Substitute Aircraft, subject to certain conditions. See "Substitute Aircraft."
If delivery of any Aircraft is delayed beyond the Delivery Period Termination
Date and Northwest does not exercise its right to replace such Aircraft with a
Substitute Aircraft, there will be unused Deposits that will be distributed to
Certificateholders together with accrued and unpaid interest thereon but without
a premium. See "Description of the Deposit Agreements--Unused Deposits."
SUBSTITUTE AIRCRAFT
If the delivery date for any Aircraft is delayed more than 30 days after the
month scheduled for delivery, Northwest may identify for delivery a substitute
aircraft (each, together with the substitute aircraft referred to below, a
"SUBSTITUTE AIRCRAFT") therefor meeting the following conditions:
- A Substitute Aircraft must be the same model as the Aircraft for which
delivery was delayed and manufactured after the Issuance Date.
- After giving effect to the substitution the maximum principal amount of
Equipment Notes of each Series issued in respect of the Substitute
Aircraft under the Mandatory Economic Terms would not exceed the maximum
principal amount of the Equipment Notes of each Series that could have
been issued under the Mandatory Economic Terms in respect of the replaced
Aircraft.
- Northwest will be obligated to obtain written confirmation from each
Rating Agency that substituting such Substitute Aircraft for the replaced
Aircraft will not result in a withdrawal, suspension or downgrading of the
ratings of any Class of Certificates (without regard to the Policy).
DESCRIPTION OF THE EQUIPMENT NOTES
The following description of the terms of the Equipment Notes supplements
(and, to the extent inconsistent therewith, replaces) the description of the
general terms and provisions relating to the Equipment Notes, the Indentures,
the Leases, the Participation Agreements, the trust agreements under which the
Owner Trustees act on behalf of the Owner Participants (the "TRUST AGREEMENT")
and the Note Purchase Agreement set forth in the Prospectus. The summaries make
use of terms defined in and are qualified in their entirety by reference to all
of the provisions of the Equipment Notes, the Indentures, the Leases, the
Participation Agreements, the Trust Agreements and the Note Purchase Agreement,
which will
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<PAGE>
be filed as exhibits to an Annual Report on Form 10-K, a Quarterly Report on
Form 10-Q, or a Current Report on Form 8-K to be filed by NWA Corp. with the
Commission. Except as otherwise indicated, the following summaries relate to the
Equipment Notes, the Indenture, the Lease, the Participation Agreement and the
Trust Agreement that may be applicable to each Aircraft.
GENERAL
The Equipment Notes will be issued in three series: the "SERIES G EQUIPMENT
NOTES," the "SERIES B EQUIPMENT NOTES" and the "SERIES C EQUIPMENT NOTES,"
(together the "EQUIPMENT NOTES") with respect to each Aircraft. The Equipment
Notes with respect to each Leased Aircraft (the "LEASED AIRCRAFT NOTES") will be
issued under a separate Leased Aircraft Indenture between First Security Bank,
National Association, as Owner Trustee of a trust for the benefit of the owner
participant that will be the beneficial owner of such Aircraft (the "OWNER
PARTICIPANT"), and State Street Bank and Trust Company, as Leased Aircraft
Trustee. The Equipment Notes with respect to each Owned Aircraft (the "OWNED
AIRCRAFT NOTES") will be issued under a separate Owned Aircraft Indenture
between Northwest and State Street Bank and Trust Company, as Owned Aircraft
Trustee. The Indentures will not provide for defeasance, or discharge upon
deposit of cash or certain obligations of the United States, notwithstanding the
description of defeasance in the Prospectus.
The related Owner Trustee will lease each Leased Aircraft to Northwest
pursuant to a separate Lease between such Owner Trustee and Northwest with
respect to such Leased Aircraft. Under each Lease, Northwest will be obligated
to make or cause to be made rental and other payments to the related Leased
Aircraft Trustee on behalf of the related Owner Trustee, which rental and other
payments will be at least sufficient to pay in full when due all payments
required to be made on the Equipment Notes issued with respect to such Leased
Aircraft. The Equipment Notes issued with respect to the Leased Aircraft are
not, however, obligations of, or guaranteed by, Northwest. Northwest's rental
obligations under each Lease and obligations under the Equipment Notes issued
with respect to each Owned Aircraft will be general obligations of Northwest.
SUBORDINATION
Series B Equipment Notes issued in respect of an Aircraft will be
subordinated in right of payment to Series G Equipment Notes issued in respect
of such Aircraft; Series C Equipment Notes issued in respect of such Aircraft
will be subordinated in right of payment to such Series B Equipment Notes.
(Indentures, Section 2.15) On each Equipment Note payment date, (i) payments of
interest and principal due on Series G Equipment Notes issued in respect of an
Aircraft will be made prior to payments of interest and principal due on
Series B Equipment Notes issued in respect of such Aircraft; and (ii) payments
of interest and principal due on Series B Equipment Notes issued in respect of
an Aircraft will be made prior to payments of interest and principal due on
Series C Equipment Notes issued in respect of such Aircraft. (Indentures,
Article III)
PRINCIPAL AND INTEREST PAYMENTS
Subject to the provisions of the Intercreditor Agreement, interest paid on
the Equipment Notes held in each Trust will be passed through to the
Certificateholders of each such Trust on the dates and at the rate per annum set
forth on the cover page of this Prospectus Supplement until the final expected
Regular Distribution Date for such Trust. Subject to the provisions of the
Intercreditor Agreement, principal paid on the Equipment Notes held in each
Trust will be passed through to the Certificateholders of such Trust in
scheduled amounts until the final expected Regular Distribution Date for such
Trust.
Interest will be payable on the unpaid principal amount of each Equipment
Note at the rate applicable to such Equipment Note on April 1 and October 1 of
each year, commencing April 1, 2000. Such interest will be computed on the basis
of a 360-day year of twelve 30-day months. Overdue amounts of principal,
Make-Whole Premium and interest on such Series of Equipment Notes will bear
interest at a rate equal to at least 1.00% per annum over the applicable rate on
such Series of Equipment Notes.
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Scheduled principal payments on the Equipment Notes will be made on April 1
and October 1 in certain years, commencing no later than October 1, 2000. See
"Description of the Certificates--Pool Factors" for a discussion of the
scheduled payments of principal of the Equipment Notes and possible revisions
thereto.
The final payment made under each Equipment Note will be in an amount
sufficient to discharge in full the unpaid principal amount, Make-Whole Premium
(if any) and to the extent permitted by law, interest and any other amounts
payable but unpaid.
If any date scheduled for a payment of principal, premium (if any) or
interest with respect to the Equipment Notes is not a Business Day, such payment
will be made on the next succeeding Business Day with the same force and effect
as if made on such scheduled payment date and without any additional interest.
REDEMPTION
If an Event of Loss occurs with respect to an Aircraft and such Aircraft is
not replaced by Northwest under the related Lease (in the case of a Leased
Aircraft) or under the related Owned Aircraft Indenture (in the case of an Owned
Aircraft), the Equipment Notes issued with respect to such Aircraft will be
redeemed, in whole, in each case at a price equal to the aggregate unpaid
principal amount thereof, together with accrued interest thereon, to the date of
redemption and other amounts payable to the holders of the Equipment Notes under
the applicable Indenture and Participation Agreement, but without premium, on a
Special Distribution Date. (Indentures, Section 2.10(a))
If Northwest exercises its right to terminate a Lease under its voluntary
termination or early buyout options under such Lease, the Equipment Notes
relating to the applicable Leased Aircraft will be redeemed (unless Northwest
elects to assume the Equipment Notes on a full recourse basis), in whole, on a
Special Distribution Date at a price equal to the aggregate unpaid principal
amount thereof, together with accrued interest thereon to, but not including,
the date of redemption, plus a Make-Whole Premium PROVIDED that in lieu of
redeeming the Leased Aircraft Notes in connection with any such purchase of an
Aircraft, Northwest may elect to assume all of the obligations of the relevant
Owner Trustee under the related Leased Aircraft Indenture pursuant to
Section 2.13 of the Leased Aircraft Indenture and Section 8(x) of the relevant
Leased Aircraft Participation Agreement. In connection with any such assumption
of the Owner Trustee's obligations in respect of the Leased Aircraft Notes, the
Leased Aircraft Indenture will be amended and restated to be substantially the
same as an Owned Aircraft Indenture. In addition, as conditions to any such
assumption, NWA Corp. shall deliver a guaranty of the Leased Aircraft Notes
substantially in the form of the Guaranty and Northwest shall deliver an opinion
of counsel that (i) such assumption has been duly and validly effected and
(ii) holders of such Equipment Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such assumption and will be subject
to federal income tax on the same amount and in the same manner and at the same
time as would have been the case if such assumption had not occurred. Upon the
effectiveness of such assumption, the Owner Trustee and the Owner Participant
will be released from further obligations under the related Leased Aircraft
Indenture and the related Leased Aircraft Participation Agreement. (Leased
Aircraft Indentures, Sections 2.10(b) and 2.13; Leased Aircraft Participation
Agreements, Section 8(x); Leases, Sections 19(d)) See "--The Leases and Certain
Provisions of the Owned Aircraft Indentures--Renewal and Purchase Options."
All, but not less than all, of the Equipment Notes issued with respect to a
Leased Aircraft may be redeemed prior to maturity as part of a refunding or
refinancing thereof under Section 17 of the applicable Participation Agreement
or otherwise with the consent of Northwest, and all of the Equipment Notes
issued with respect to the Owned Aircraft may be redeemed in whole prior to
maturity at any time at the option of Northwest, in each case at a price equal
to 100% of the unpaid principal thereof, together with accrued interest thereon
to, but not including, the date of redemption, plus, a Make-Whole Premium.
(Indentures, Section 2.11) If notice of such a redemption is given in connection
with a refinancing of
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Equipment Notes with respect to a Leased Aircraft or in connection with the
redemption of Equipment Notes with respect to an Owned Aircraft, such notice may
be revoked not later than three days prior to the proposed redemption date.
(Indentures, Section 2.12)
If, with respect to a Leased Aircraft, (i) one or more Lease Events of
Default have occurred and are continuing or (ii) the Equipment Notes with
respect to such Aircraft have been accelerated or the Leased Aircraft Trustee
with respect to such Equipment Notes takes action or notifies the applicable
Owner Trustee that it intends to take action to foreclose the lien of the
related Leased Aircraft Indenture or otherwise commence the exercise of any
significant remedy under such Indenture or the related Lease, then in each case
all, but not less than all, of the Equipment Notes issued with respect to such
Leased Aircraft may be purchased by the related Owner Trustee or Owner
Participant on the applicable purchase date at a price equal to the aggregate
unpaid principal thereof, together with accrued and unpaid interest thereon to,
but not including, the date of purchase, but without any premium (provided that
a Make-Whole Premium is payable if such Equipment Notes are to be purchased
pursuant to clause (i) when a Lease Event of Default has occurred and has been
continuing for less than 180 days). (Leased Aircraft Indentures, Section 2.14)
Northwest, as owner of the Owned Aircraft, has no comparable right under the
Owned Aircraft Indentures to purchase the Equipment Notes under such
circumstances.
"MAKE-WHOLE PREMIUM" means, with respect to any Equipment Note, the amount
(as determined by an independent investment banker selected by Northwest and
reasonably acceptable to the relevant Loan Trustees and, in the case of a Leased
Aircraft Indenture, related Owner Participants) by which (a) the present value
of the remaining scheduled payments of principal and interest from the
redemption date to maturity of such Equipment Note computed by discounting each
payment on a semiannual basis from each payment date under the applicable
Indenture (assuming a 360-day year of twelve 30-day months) using a discount
rate equal to the Treasury Yield exceeds (b) the outstanding principal amount of
such Equipment Note plus accrued interest to the date of determination.
For purposes of determining the Make-Whole Premium, "TREASURY YIELD" means,
at the time of determination with respect to any Equipment Note, the interest
rate (expressed as a semiannual equivalent and as a decimal and, in the case of
United States Treasury bills, converted to a bond equivalent yield) determined
to be the per annum rate equal to the semiannual yield to maturity for United
States Treasury securities maturing on the Average Life Date of such Equipment
Note and trading in the public securities markets either as determined by
interpolation between the most recent weekly average yield to maturity for two
series of United States Treasury securities trading in the public securities
markets, (A) one maturing as close as possible to, but earlier than, the Average
Life Date of such Equipment Note and (B) the other maturing as close as possible
to, but later than, the Average Life Date of such Equipment Note, in each case
as published in the most recent H.15(519) or, if a weekly average yield to
maturity for United States Treasury securities maturing on the Average Life Date
of such Equipment Note is reported in the most recent H.15(519), such weekly
average yield to maturity as published in such H.15(519). "H.15(519)" means the
weekly statistical release designated as such, or any successor publication,
published by the Board of Governors of the Federal Reserve System. The date of
determination of a Make-Whole Premium will be the third Business Day prior to
the applicable payment or redemption date and the "MOST RECENT H.15(519)" means
the H.15(519) published prior to the close of business on the third Business Day
prior to the applicable payment or redemption date.
"AVERAGE LIFE DATE" for any Equipment Note to be redeemed means the date
which follows the redemption date by a period equal to the Remaining Weighted
Average Life at the redemption date of such Equipment Note. "REMAINING WEIGHTED
AVERAGE LIFE" of an Equipment Note, at the redemption date of such Equipment
Note, means the number of days equal to the quotient obtained by dividing
(a) the sum of the products obtained by multiplying (i) the amount of each then
remaining installment of principal of such Equipment Note, including the payment
due on the maturity date of such Equipment Note, by (ii) the number of days from
and including the redemption date to but excluding the scheduled payment date of
such principal installment, by (b) the then unpaid principal amount of such
Equipment Note.
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SECURITY
The Equipment Notes issued with respect to each Aircraft will be secured by
a first priority security interest in the Aircraft, the related Lease and all
rent thereunder (with respect to Leased Aircraft), as well as all rents, profits
and other income of such Aircraft, certain rights under the aircraft purchase
agreement between Northwest and the Aircraft manufacturer, all requisition
proceeds with respect to such Aircraft, all insurance proceeds with respect to
the Aircraft (other than proceeds under third party liability policies and under
policies maintained by the Owner Participant), all monies and securities
deposited with the related Loan Trustee, and all proceeds of the foregoing.
(Indentures, Granting Clause) Unless an Indenture Default with respect to an
Aircraft has occurred and is continuing, the related Loan Trustee may not
exercise the Owner Trustee's rights under the related Lease except such Owner
Trustee's right to receive rent. The assignment by the Owner Trustee to the Loan
Trustee of its rights under the related Lease excludes the rights of the Owner
Trustee and the Owner Participant relating to the indemnification by Northwest
for certain matters, certain insurance proceeds payable to the Owner Trustee in
its individual and trust capacities and to the Owner Participant under liability
insurance maintained by Northwest under the Lease or by the Owner Trustee or
such Owner Participant, and certain reimbursement payments made by Northwest to
the Owner Trustee and the Owner Participant. (Leased Aircraft Indentures,
Granting Clause)
The Equipment Notes will not be cross-collateralized and, consequently, the
Equipment Notes issued in respect of any one Aircraft will not be secured by any
of the other Aircraft or the Leases related thereto. There will not be any
cross-default provisions in the Indentures or Leases and, consequently, events
resulting in an event of default under any particular Indenture or Lease may or
may not result in an event of default occurring under any other Indenture or
Lease. If the Equipment Notes issued with respect to one or more Aircraft are in
default and the Equipment Notes issued with respect to the remaining Aircraft
are not in default, no remedies will be exercisable under the Indentures with
respect to such remaining Aircraft.
Although the Leased Aircraft Notes are not obligations of, or guaranteed by,
Northwest, the amounts unconditionally payable by Northwest for lease of the
Aircraft will be sufficient to pay in full when due all amounts required to be
paid on the Equipment Notes. See "Description of the Equipment Notes--General."
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
The following tables set forth illustrative loan to Aircraft value ratios
for the Equipment Notes issued in respect of Leased Aircraft as of the
October 1 Regular Distribution Dates that occur after the scheduled date of
original issuance of such Equipment Notes, assuming that the Equipment Notes in
the maximum principal amount are issued in respect of each such Aircraft. This
example was utilized by Northwest in preparing the Assumed Amortization
Schedule, although the amortization schedule for the Equipment Notes issued with
respect to an Aircraft may vary from such assumed schedule so long as it
complies with the Mandatory Economic Terms. Accordingly, the schedules set forth
below may not be applicable in the case of any particular Aircraft. See
"Description of the Certificates--Pool Factors." The LTV was obtained by
dividing (i) the outstanding balance (assuming no payment default) of such
Equipment Notes determined immediately after giving effect to the payments
scheduled to be made on each such Regular Distribution Date by (ii) the assumed
value (the "ASSUMED AIRCRAFT VALUE") of the Aircraft securing such Equipment
Notes. The table assumes that (i) no prepayments of interest or principal on the
Equipment Notes will occur and (ii) no payment defaults shall have occurred and
be continuing with respect to the Equipment Notes.
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The following table is based on the Depreciation Assumption that the value
of the Aircraft set forth opposite the initial Regular Distribution Date
included in the table depreciates by 3% of the initial appraised value per year
for the first ten years after the year of delivery of such Aircraft and by 4% of
the initial appraised value per year for the next five years and by 5% per year
thereafter. Other rates or methods of depreciation would result in materially
different loan to Aircraft value ratios, and no assurance can be given (i) that
the depreciation rates and method assumed for the purposes of the tables are the
ones most likely to occur or (ii) as to the actual future value of any Aircraft.
Thus the table should not be considered a forecast or prediction of expected or
likely loan to Aircraft value ratios, but simply a mathematical calculation
based on one set of assumptions.
BRITISH AEROSPACE AVRO RJ85
<TABLE>
<CAPTION>
LOAN TO
EQUIPMENT NOTE ASSUMED VALUE
DATE OUTSTANDING BALANCE AIRCRAFT VALUE RATIO
- ---- ------------------- -------------- --------
(MILLIONS) (MILLIONS)
<S> <C> <C> <C>
October 1, 2000........................................ $17.25 $24.77 69.6%
April 1, 2001.......................................... 16.37 24.03 68.1
April 1, 2002.......................................... 15.86 23.28 68.1
April 1, 2003.......................................... 15.15 22.54 67.2
April 1, 2004.......................................... 14.31 21.80 65.7
April 1, 2005.......................................... 13.46 21.05 63.9
April 1, 2006.......................................... 12.56 20.31 61.8
April 1, 2007.......................................... 11.80 19.57 60.3
April 1, 2008.......................................... 11.04 18.83 58.7
April 1, 2009.......................................... 10.42 18.08 57.6
April 1, 2010.......................................... 9.45 17.34 54.5
April 1, 2011.......................................... 8.82 16.35 54.0
April 1, 2012.......................................... 8.15 15.36 53.1
April 1, 2013.......................................... 7.18 14.37 50.0
April 1, 2014.......................................... 6.67 13.38 49.9
April 1, 2015.......................................... 4.74 12.39 38.2
April 1, 2016.......................................... 4.22 11.15 37.9
April 1, 2017.......................................... 3.71 9.91 37.5
April 1, 2018.......................................... 3.24 8.67 37.3
April 1, 2019.......................................... 0.00 0.00 NA
</TABLE>
LIMITATION OF LIABILITY
The Equipment Notes issued with respect to the Leased Aircraft are not
obligations of, or guaranteed by, Northwest, any Owner Participant or the Leased
Aircraft Trustees or the Owner Trustees in their individual capacities. None of
the Owner Trustees, the Owner Participants or the Leased Aircraft Trustees, or
any affiliates thereof, will be personally liable to any holder of an Equipment
Note or, in the case of the Owner Trustees and the Owner Participants, to the
Leased Aircraft Trustees for any amounts payable under the Equipment Notes or,
except as provided in each Leased Aircraft Indenture, for any liability under
such Leased Aircraft Indenture. All payments of principal of, premium, if any,
and interest on the Equipment Notes issued with respect to any Leased Aircraft
(other than payments made in connection with an optional redemption or purchase
of Equipment Notes issued with respect to a Leased Aircraft by the related Owner
Trustee or the related Owner Participant) will be made only from the assets
subject to the lien of the Indenture with respect to such Leased Aircraft or the
income and proceeds received by the related Leased Aircraft Trustee therefrom
(including rent payable by Northwest under the Lease with respect to such Leased
Aircraft).
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The Equipment Notes issued with respect to any Owned Aircraft will be direct
obligations of Northwest.
Except as otherwise provided in the Indentures, no Owner Trustee or Loan
Trustee, in its individual capacity, will be answerable or accountable under the
Indentures or under the Equipment Notes under any circumstances except, among
other things, for its own willful misconduct or gross negligence. None of the
Owner Participants will have any duty or responsibility under any of the Leased
Aircraft Indentures or the Equipment Notes to the Leased Aircraft Trustees or to
any holder of any Equipment Note.
INDENTURE DEFAULTS, NOTICE AND WAIVER
Indenture Defaults under each Indenture include: (a) in the case of a Leased
Aircraft Indenture, the occurrence of any Lease Event of Default under the
related Lease (other than the failure to make certain indemnity payments and
other payments to the related Owner Trustee or Owner Participant unless a notice
is given by such Owner Trustee to the Leased Aircraft Trustee that such failure
will constitute an Indenture Default), (b) the failure by the related Owner
Trustee (other than as a result of a Lease Default or Lease Event of Default) in
the case of a Leased Aircraft Indenture, or Northwest, in the case of an Owned
Aircraft Indenture, to pay any interest or principal or premium, if any, when
due, under such Indenture or under any Equipment Note issued thereunder that
continues for more than 10 Business Days, in the case of principal, interest or
Make-Whole Premium, and, in all other cases, 10 Business Days after the relevant
Owner Trustee or Owner Participant, or Northwest, in the case of an Owned
Aircraft, receives written demand from the related Loan Trustee or holder of an
Equipment Note, (c) the failure by the related Owner Participant or the related
Owner Trustee (in its individual capacity), in the case of a Leased Aircraft, or
Northwest, in the case of an Owned Aircraft, to discharge certain liens that
continue after notice and specified cure periods, (d) any representation or
warranty made by the related Owner Trustee or Owner Participant (in the case of
a Leased Aircraft) or by Northwest (in the case of an Owned Aircraft) in such
Indenture, the related Participation Agreement, or certain related documents
furnished to the Loan Trustee or any holder of an Equipment Note pursuant
thereto being false or incorrect when made in any material respect that
continues to be material and adverse to the interests of the Loan Trustee or
Note Holders and remains unremedied after notice and specified cure periods,
(e) failure by the related Owner Trustee or Owner Participant (in the case of
Leased Aircraft) to perform or observe, or, in the case of an Owned Aircraft,
failure by Northwest to perform or observe in any material respect, any covenant
or obligation for the benefit of the Loan Trustee or holders of Equipment Notes
under such Indenture or certain related documents that continues after notice
and specified cure periods, (f) the registration of the related Aircraft ceasing
to be effective as a result of the Owner Participant (in the case of a Leased
Aircraft) not being a citizen of the United States, as defined in Title 49 of
the United States Code relating to aviation (subject to a cure period), or
(g) the occurrence of certain events of bankruptcy, reorganization or insolvency
of the related Owner Trustee or Owner Participant (in the case of a Leased
Aircraft) or Northwest (in the case of the Owned Aircraft). (Leased Aircraft
Indentures, Section 4.02; Owned Aircraft Indentures, Section 4.01) There will
not be any cross-default provisions in the Indentures or in the Leases.
Consequently, events resulting in an Indenture Default under any particular
Indenture may or may not result in an Indenture Default occurring under any
other Indenture, and a Lease Event of Default under any particular Lease may or
may not constitute a Lease Event of Default under any other Lease.
If Northwest fails to make any semiannual basic rental payment due under any
Lease, within a specified period after such failure the applicable Owner Trustee
may furnish to the Leased Aircraft Trustee the amount due on the Equipment Notes
issued with respect to the related Leased Aircraft, together with any interest
thereon on account of the delayed payment thereof, in which event the Leased
Aircraft Trustee and the holders of outstanding Equipment Notes issued under
such Indenture may not exercise any remedies otherwise available under such
Indenture or such Lease as the result of such failure to make such rental
payment, unless such Owner Trustee has previously cured each of the three
immediately preceding semiannual basic rental payment defaults or the Owner
Trustee has cured an aggregate of six
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previous semiannual basic rental payment defaults. The applicable Owner Trustee
also may cure any other default by Northwest in the performance of its
obligations under any Lease that can be cured by the payment of money. (Leased
Aircraft Indentures, Section 4.03)
The holders of a majority in aggregate unpaid principal amount of the
Equipment Notes outstanding on such date issued with respect to any Aircraft, by
notice to the Loan Trustee, may on behalf of all the holders waive, together
under certain circumstances with the applicable Owner Trustee and applicable
Owner Participant, any existing default and its consequences under the Indenture
with respect to such Aircraft, except a default in the payment of the principal
of, or premium or interest on any such Equipment Notes or a default in respect
of any covenant or provision of such Indenture that cannot be modified or
amended without the consent of each holder of Equipment Notes. (Leased Aircraft
Indentures, Section 4.08; Owned Aircraft Indentures, Section 4.06)
REMEDIES
Each Indenture provides that if an Indenture Default occurs and is
continuing, the related Loan Trustee may, and upon receipt of written demand
from the holders of a majority in principal amount of the Equipment Notes
outstanding under such Indenture will, subject to the applicable Owner
Participant's or Owner Trustee's right to cure in the case of Leased Aircraft
Indentures, as discussed above, declare the principal of all such Equipment
Notes issued thereunder immediately due and payable, together with all accrued
but unpaid interest thereon (without the Make-Whole Premium). The holders of a
majority in principal amount of Equipment Notes outstanding under such Indenture
may rescind any such declaration at any time before the judgment or decree for
the payment of the money so due is entered if (i) there has been paid to the
related Loan Trustee an amount sufficient to pay all principal and interest on
any such Equipment Notes, to the extent such amounts have become due otherwise
than by such declaration of acceleration and (ii) all other Indenture Defaults
and events which with the giving of notice or lapse of time or both would become
Indenture Defaults under such Indenture have been cured or waived. (Leased
Aircraft Indentures, Section 4.04(b); Owned Aircraft Indentures,
Section 4.02(b))
Each Indenture provides that if an Indenture Default under such Indenture
has occurred and is continuing, the related Loan Trustee may exercise certain
rights or remedies available to it under such Indenture or under applicable law,
including (if, in the case of a Leased Aircraft, the corresponding Lease has
been declared in default) one or more of the remedies under such Indenture or
such Lease with respect to the Aircraft subject to such Lease. If an Event of
Default has occurred and is continuing under the corresponding Lease in the case
of Leased Aircraft Indentures, the related Loan Trustee's right to exercise
remedies under such Indenture is subject, with certain exceptions, to its having
proceeded to exercise one or more of the remedies under the Lease to terminate
the Lease or take possession of and/or sell the Aircraft; provided that the
requirement to exercise such remedies under such Lease does not apply in
circumstances where such exercise has been involuntarily stayed or prohibited by
applicable law or court order for a continuous period in excess of the
Section 1110 Period (plus an additional period, if any, resulting from
(i) Northwest or its trustee in such proceeding assuming, or agreeing to perform
its obligations under, such Lease with the approval of the applicable court,
(ii) such Loan Trustee's consent to an extension of such Section 1110 Period,
(iii) Lessee's assumption of the Lease during the Section 1110 Period with the
approval of the applicable court, or (iv) such Loan Trustee's failure to give
any requisite notice). See "--The Leases and Certain Provisions of the Owned
Aircraft Indentures--Events of Default under the Leases." Such remedies may be
exercised by the related Loan Trustee to the exclusion of the related Owner
Trustee, subject to certain conditions specified in such Indenture, and
Northwest, subject to the terms of such Lease. Any Aircraft sold in the exercise
of such remedies will be free and clear of any rights of those parties,
including, if a Lease Event of Default has occurred and is continuing, the
rights of Northwest under the Lease with respect to such Aircraft. No exercise
of any remedies by the related Loan Trustee may affect the rights of Northwest
under any Lease unless a Lease Event of Default has occurred and is continuing.
The Owned Aircraft Indenture will not contain such limitations on the Loan
Trustee's
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ability to exercise remedies upon an Indenture Default under an Owned Aircraft
Indenture. (Leased Aircraft Indentures, Section 4.04; Leases, Section 15)
If the Equipment Notes issued in respect of one Aircraft are in default, the
Equipment Notes issued in respect of the other Aircraft may not be in default,
and, if not, no remedies will be exercisable under the applicable Indentures
with respect to such other Aircraft.
Section 1110 of the Bankruptcy Code provides that the right of lessors,
conditional vendors and holders of security interests with respect to
"equipment" (as defined in Section 1110 of the Bankruptcy Code) to take
possession of such equipment in compliance with the provisions of a lease,
conditional sale contract or security agreement, as the case may be, is not
affected after 60 days after the filing of petition under Chapter 11 of the
Bankruptcy Code by (a) the automatic stay provision of the Bankruptcy Code,
which provision enjoins creditors' remedies except with the court's approval,
(b) the provision of the Bankruptcy Code allowing the trustee in reorganization
to use property of the debtor during the reorganization period,
(c) Section 1129 of the Bankruptcy Code (which governs the confirmation of plans
of reorganization in Chapter 11 cases) and (d) any power of the bankruptcy court
to enjoin a repossession. Section 1110 provides that the right to take
possession of an aircraft may not be exercised for 60 days following the date of
commencement of the reorganization proceedings and may not be exercised at all
after such 60-day period (or such longer period consented to by the lessor,
conditional vendor or holder of a security interest), if the trustee in
reorganization agrees to perform the debtor's obligations that become due on or
after such date and cures all existing defaults (other than defaults resulting
solely from the financial condition, bankruptcy, insolvency or reorganization of
the debtor, the appointment of a trustee or custodian or the failure to satisfy
any penalty rate or provision relating to a default arising from any failure by
the debtor to perform nonmonetary obligations under the applicable agreement).
"EQUIPMENT" is defined in Section 1110 of the Bankruptcy Code, in part, as "an
aircraft, aircraft engine, propeller, appliance, or spare part (as defined in
section 40102 of title 49) that is subject to a security interest granted by,
leased to, or conditionally sold to a debtor that is a citizen of the United
States (as defined in section 40102 of title 49) holding an air carrier
operating certificate issued by the Secretary of Transportation pursuant to
chapter 447 of title 49 for aircraft capable of carrying 10 or more individuals
or 6,000 pounds or more of cargo."
Cadwalader, Wickersham & Taft, special counsel to Northwest, has advised the
Loan Trustees that, if Northwest were to become a debtor under Chapter 11 of the
Bankruptcy Code, (x) if such Aircraft is a Leased Aircraft, the Owner Trustee,
as lessor under each of the Leases, and the Loan Trustee, as assignee of such
Owner Trustee's rights under each of the Leases pursuant to each of the related
Indentures, would be entitled to the benefits of Section 1110 of the Bankruptcy
Code with respect to the airframe and engines comprising the related Aircraft,
or (y) if such Aircraft is an Owned Aircraft, the Loan Trustee would be entitled
to the benefits of Section 1110 of the Bankruptcy Code with respect to the
airframe and engines comprising the related Aircraft, but in each case may not
be entitled to such benefits with respect to any replacement of an Aircraft
after an Event of Loss in the future. The replacement of any Aircraft is
conditioned upon the contemporaneous delivery of an opinion of counsel to the
effect that the related Loan Trustee's entitlement to benefits of Section 1110
of the Bankruptcy Code would not be diminished as a result of such replacement.
This opinion is subject to certain qualifications and assumptions, including the
assumptions that Northwest is and will continue to be a citizen of the United
States holding an air carrier operating certificate issued by the Secretary of
Transportation pursuant to chapter 447 of title 49 of the U.S. Code for aircraft
capable of carrying 10 or more individuals or 6,000 pounds or more of cargo. See
"--The Leases and Certain Provisions of the Owned Aircraft Indentures--Events of
Loss." The opinion of Cadwalader, Wickersham & Taft, does not address the
availability of Section 1110 with respect to the bankruptcy proceedings of any
possible sublessee of a Leased Aircraft, or any possible lessee of Owned
Aircraft, if it is leased by Northwest. For a description of certain limitations
on the Loan Trustee's exercise of rights contained in the Indenture, see
"--Indenture Defaults, Notice and Waiver."
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During 1998, opinions issued by the U.S. District Court for the District of
Colorado in the case of WESTERN PACIFIC AIRLINES, INC. V. GATX CAPITAL (IN RE
WESTERN PACIFIC AIRLINES, INC.), 219 B.R. 305, ON REHEARING, 221 B.R. 1 (D.
Colo. 1998), APPEAL DISMISSED AS MOOT SUB NOM., BOUILLIOUN AIRCRAFT HOLDING
CO., INC. V. SMITH MANAGEMENT, Nos. 98-1018, 98-1214, 1999 WL 459469 (10th Cir.
July 7, 1999), ruled that Section 1110 of the Bankruptcy Code does not apply in
a case after the trustee timely makes the agreement specified in
Section 1110(a)(1)(A) of the Bankruptcy Code and timely cures defaults
outstanding as of the date of the Chapter 11 petition or that occur during the
first sixty days of the case, with the result, among others, that the ability of
a lessor to exercise remedies based on a default that occurs after the first
60 days of the Chapter 11 case would be subject to the automatic stay. Northwest
has been advised by its counsel, Cadwalader, Wickersham & Taft to the effect
that, and accordingly believes that, this decision construes Section 1110 of the
Bankruptcy Code in a manner that is inconsistent with both the language of
Section 1110 of the Bankruptcy Code and the legislative history explaining the
purpose and operation of Section 1110 of the Bankruptcy Code and accordingly
believes that the decision is an incorrect interpretation of Section 1110 of the
Bankruptcy Code.
In the event of bankruptcy, insolvency, receivership or like proceedings
involving an Owner Participant, it is possible that, notwithstanding that the
applicable Aircraft is owned by the related Owner Trustee in trust, such
Aircraft and the related Lease and Equipment Notes might become part of such
proceeding. In such event, payments under such Lease or on such Equipment Notes
may be interrupted and the ability of the related Loan Trustee to exercise its
remedies under the related Indenture might be restricted, though such Loan
Trustee would retain its status as a secured creditor in respect of the related
Lease and the related Aircraft.
MODIFICATION OF INDENTURES AND LEASES
Without the consent of holders of a majority in principal amount of the
Equipment Notes outstanding under any Indenture, the provisions of such
Indenture and the Lease, the Participation Agreement and the Trust Agreement
corresponding thereto may not be amended or modified, except to the extent
indicated below.
Certain provisions of any Indenture, and of the Lease, the Participation
Agreement, and the Trust Agreement related thereto, may be amended or modified
by the parties thereto without the consent of the relevant Loan Trustee or any
holders of the Equipment Notes outstanding under such Indenture, subject to
certain conditions. In the case of each Lease, such provisions include, among
others, provisions relating to (i) the return to the related Owner Trustee of
the related Aircraft at the end of the term of such Lease, (ii) the voluntary
early termination of such Lease by Northwest, and (iii) the renewal of such
Lease and the option of Northwest at the end of the term of such Lease to
purchase the related Aircraft. (Leased Aircraft Indentures, Section 9.01) In
addition, any Indenture may be amended without the consent of the holders of
Equipment Notes to, among other things, cure any defect or inconsistency in such
Indenture or the Equipment Notes issued thereunder, provided that such change
does not adversely affect the interests of any such holder. (Leased Aircraft
Indentures, Section 9.01(c); Owned Aircraft Indentures, Section 10.01(b))
Without the consent of the holder of each Equipment Note outstanding under
any Indenture affected thereby, no amendment of or supplement to such Indenture
may among other things (a) reduce the principal amount of, or Make-Whole
Premium, if any, or interest payable on, any Equipment Notes issued under such
Indenture or change the date on which any principal or Make-Whole Premium, if
any, or interest is due and payable, (b) create any security interest with
respect to the property subject to the lien of such Indenture, except as
provided in such Indenture, or deprive any holder of an Equipment Note issued
under such Indenture of the benefit of the lien of such Indenture upon the
property subject thereto or (c) reduce the percentage in principal amount of
outstanding Equipment Notes issued under such Indenture necessary to modify or
amend any provision of such Indenture or to waive compliance therewith. (Leased
Aircraft Indentures, Section 9.01(b); Owned Aircraft Indentures,
Section 10.01(a))
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INDEMNIFICATION
Northwest will be required to indemnify each Loan Trustee, each Owner
Participant, each Owner Trustee, each Liquidity Provider, the Policy Provider,
the Subordination Agent, the Escrow Agent, the Paying Agent and each Trustee,
but not the holders of Certificates (unless otherwise expressly agreed to by
Northwest), for certain losses, claims and other matters. Northwest will be
required under certain circumstances to indemnify each Owner Participant against
the loss of depreciation deductions and certain other benefits allowable for
certain income tax purposes with respect to the related Leased Aircraft. Each
Owner Trustee will indemnify the Loan Trustee to the extent not reimbursed by
Northwest. Prior to seeking indemnification from the Indenture Estate, the Loan
Trustee will demand and take necessary action to pursue indemnification under
the Participation Agreement. If necessary, the Loan Trustee will be entitled to
indemnification from the Indenture Estate for any liability, obligation, loss,
damage, penalty, claim or action to the extent not reimbursed by Northwest. The
Loan Trustee will not be indemnified, however, for actions arising from its
gross negligence, willful misconduct or, in the case of handling funds,
negligence, or for the inaccuracy of any representation or warranty made in its
individual capacity under the Indenture.
Each Owner Participant will be required to indemnify the related Loan
Trustee and the holders of the Equipment Notes issued with respect to the
Aircraft in which such Owner Participant has an interest for certain losses that
may be suffered as a result of the failure of such Owner Participant to
discharge certain liens or claims on or against the assets subject to the lien
of the related Indenture. The Loan Trustee will not be under any obligation to
take any action, risk liability or expend its own funds under the Indenture if
it has reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk is not reasonably assured to it.
THE GUARANTY
NWA Corp. will irrevocably, fully and unconditionally guarantee the payment
and performance of all obligations of Northwest as lessee under the relevant
Lease in the case of a Leased Aircraft and as obligor under the relevant
Equipment Notes in the case of an Owned Aircraft. If Northwest fails to make a
payment or perform a nonfinancial obligation when due for any reason, including
liquidation, bankruptcy or reorganization, NWA Corp. will make the payment and
perform the nonfinancial obligations. Each Guaranty will be an absolute, present
and continuing guaranty of performance and payment rather than collectibility,
and will not be contingent upon any attempt to collect payment from or file suit
against Northwest.
THE LEASES AND CERTAIN PROVISIONS OF THE OWNED AIRCRAFT INDENTURES
Each Leased Aircraft will be leased by the relevant Owner Trustee to
Northwest under the relevant Lease. Each Owned Aircraft will be owned by
Northwest.
LEASE TERMS AND RENTALS
Each Leased Aircraft will be leased separately by the relevant Owner Trustee
to Northwest for a term commencing on the date of the delivery of such Aircraft
to such Owner Trustee and expiring not earlier than the latest maturity date of
the relevant Equipment Notes issued pursuant to the related Indenture. Basic
Rent payments for each Leased Aircraft will be payable semiannually on each
April 1 and October 1 (or, if such date is not a business day, on the next
business day). Such payments will be assigned by the Owner Trustee to the Loan
Trustee under the corresponding Leased Aircraft Indenture to provide the funds
necessary to make scheduled payments of principal and interest due or expected
to be due from the Owner Trustee on the Equipment Notes to be issued under such
Indenture. In certain cases, the Basic Rent payments under the Leases may be
adjusted, but each Lease will provide that under no circumstances will rent
payments by Northwest be less than the scheduled payments on the related
Equipment Notes. (Leases, Section 3) The balance of any such semiannual Basic
Rent payment and such other payments, after payment of amounts due or expected
to be due on the related Equipment Notes and certain other amounts, including
certain amounts owing to the Liquidity Provider, will be paid over to the
related Owner Trustee. (Leased Aircraft Indentures, Section 3.01)
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NET LEASE
Under the terms of each Lease, Northwest's obligations in respect of each
Leased Aircraft will be those of a lessee under a "net lease." Accordingly,
Northwest will be obligated under each Lease, among other things and at its
expense, to cause the Aircraft to be duly registered in the name of the relevant
Owner Trustee (or Northwest in connection with the re-registration of the
Aircraft in certain jurisdictions), to pay all costs of operating the Aircraft
and, to the extent set forth in such Lease, to maintain, service, repair and
overhaul the Aircraft (or cause the Aircraft to be maintained, serviced,
repaired and overhauled) so as to keep the Aircraft in as good an operating
condition as delivered to Northwest under the Lease, ordinary wear and tear
excepted, and in such condition as may be necessary to enable the airworthiness
certification of such Aircraft to be maintained in good standing at all times
(a) under the Federal Aviation Act except, subject to certain limitations, when
all aircraft of the same model and type powered by engines of the same type and
registered in the United States have been grounded by the FAA, or (b) subject to
certain limitations, under the applicable laws of any other jurisdiction in
which the Aircraft may be registered. Notwithstanding anything to the contrary
set forth above, Northwest will also be required to cause the Aircraft then
subject to such Leases to be maintained in accordance with maintenance standards
approved by, or substantially equivalent to those required by, the FAA or the
central civil aviation authority of Canada, France, Germany, Japan, the
Netherlands or the United Kingdom. In all cases Northwest will utilize, except
when a sublease is in effect, the same manner and standards of maintenance,
service, repair or overhaul used by Northwest with respect to similar aircraft
operated by Northwest in similar circumstances and, during any period that a
sublease is in effect, cause the Sublessee thereunder to agree to utilize the
same manner and standards of maintenance, service, repair or overhaul used by
such Sublessee with respect to similar aircraft operated by such Sublessee in
similar circumstances. (Leases, Section 7(a)) The Owned Aircraft Indentures
contain comparable provisions with respect to the Owned Aircraft. (Owned
Aircraft Indentures, Section 7.02(a))
Northwest will not (and will not permit any Sublessee to) maintain, use,
service, repair, overhaul or operate any Aircraft in violation of any law or any
rule, regulation, order or certificate of any government having jurisdiction
over such Aircraft, or in violation of any airworthiness certificate, license or
registration relating to such Aircraft, except to the extent Northwest (or any
Sublessee) is in good faith contesting the validity or application of any such
requirements, in any reasonable manner which, among other things specified in
each Lease, does not materially adversely affect the Owner Trustee. (Leases,
Section 7(a)) The Owned Aircraft Indentures contain comparable provisions with
respect to the Owned Aircraft. (Owned Aircraft Indentures, Section 7.02(a))
Northwest must make (or cause to be made) all alterations, modifications and
additions to each Airframe and Engine necessary to meet the applicable standards
of the FAA or any other applicable governmental authority of another
jurisdiction in which the Aircraft may be registered; PROVIDED, HOWEVER, that
Northwest (or any Sublessee) may in good faith contest the validity or
application of any such standards in any reasonable manner which, among other
things specified in each Lease, does not adversely affect the Owner Trustee or
the relevant Loan Trustee. Northwest (or any Sublessee) may add further parts
and make other alterations, modifications and additions to any Airframe or any
Engine as Northwest (or any Sublessee) may deem desirable in the proper conduct
of its business, including removal of parts determined by Northwest (or any
Sublessee) in its reasonable judgment to be obsolete or no longer suitable or
appropriate for use, so long as such alterations, modifications or additions, do
not, among other things specified in each Lease, (x) materially diminish the
value, utility or remaining useful life of such Airframe or Engine, below the
value, utility or remaining useful life thereof immediately prior to such
alteration, modification, addition or removal (assuming such Airframe or Engine
was maintained in accordance with the Lease), except that the value (but not the
utility or remaining useful life) of any Airframe or Engine may be reduced from
time to time by the value of the obsolete parts which are removed so long as the
aggregate value of such obsolete parts removed and not replaced shall not exceed
$250,000. Title to parts incorporated or installed in or added to such Airframe
or Engine as a result of such
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alterations, modifications or additions vest in the Owner Trustee subject to
certain exceptions. In certain circumstances, Northwest (or any Sublessee) is
permitted to remove parts which were added by Northwest (or any Sublessee)
(without replacement) from an Airframe or Engine so long as certain conditions
are met and any such removal does not, among other things specified in each
Lease, diminish or impair the value, utility, or remaining useful life which
such Airframe or Engine would have had at such time had such addition,
alteration or modification not occurred. (Leases, Section 8) The Owned Aircraft
Indentures contain comparable provisions with respect to the Owned Aircraft.
(Owned Aircraft Indentures, Section 7.03)
Except as set forth above, Northwest will be obligated to replace or cause
to be replaced all parts (other than severable parts added at the option of
Northwest or unsuitable parts that Northwest is permitted to remove to the
extent described above) that are incorporated or installed in or attached to any
Airframe or any Engine and become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use. Any
such replacement parts become subject to the related Lease and the lien of the
related Indenture in lieu of the part replaced. (Leases, Section 8(a)) The Owned
Aircraft Indentures contain comparable provisions with respect to the Owned
Aircraft. (Owned Aircraft Indentures, Section 7.03(a))
REGISTRATION, SUBLEASING AND POSSESSION
Although Northwest has no current intention to do so, Northwest will be
permitted, under certain circumstances, to register an Aircraft in certain
jurisdictions outside the United States, subject to certain conditions specified
in the related Participation Agreement. These conditions include a requirement
that the lien of the related Indenture will continue as a first priority
security interest in the applicable Aircraft (Leases, Section 7(a); Leased
Aircraft Participation Agreements, Section 8(f)). The Owned Aircraft Indentures
contain comparable provisions with respect to the Owned Aircraft. (Owned
Aircraft Indentures, Section 7.02(a); Owned Aircraft Participation Agreements,
Section 8(f)) Northwest will also be permitted, subject to certain limitations,
to sublease any Aircraft to any United States certificated air carrier or to
certain foreign entities so long as the term of any such sublease does not
extend beyond the term of the Lease applicable to such Aircraft subject to
certain exceptions. Northwest currently intends to sublease the Leased Aircraft
to Mesaba, subject to the terms and limitations of the Leases. In addition,
subject to certain limitations, Northwest will be permitted to transfer
possession of any Airframe or any Engine other than by sublease, including
transfers of possession by Northwest or any Sublessee in connection with certain
interchange and pooling arrangements, transfers to the United States government
and any instrumentality or agency thereof, "wet leases" and transfers in
connection with maintenance or modifications. There are no general geographical
restrictions on Northwest's (or any Sublessee's) ability to operate the
Aircraft. The extent to which the relevant Loan Trustee's lien would be
recognized in an Aircraft if such Aircraft were located in certain countries is
uncertain. See "Description of the Equipment Notes--Remedies." In addition, any
exercise of the right to repossess an Aircraft may be difficult, expensive and
time-consuming, particularly when such Aircraft is located outside the United
States and has been registered in a foreign jurisdiction or subleased to a
foreign operator, and may be subject to the limitations and requirements of
applicable law, including the need to obtain consents or approvals for
deregistration or re-export of the Aircraft, which may be subject to delays and
political risk. When a defaulting Sublessee or other permitted transferee is the
subject of a bankruptcy, insolvency or similar event such as protective
administration, additional limitations may apply. (Leases, Section 7(b)) The
Owned Aircraft Indentures contain comparable provisions with respect to the
Owned Aircraft. Northwest currently intends to lease the Owned Aircraft to
Mesaba, subject to the terms and limitations of the Owned Aircraft Indentures.
(Owned Aircraft Indentures, Section 7.02(b))
In addition, at the time of obtaining repossession of the Aircraft under the
related Lease or foreclosing on the lien on the Aircraft under the related
Indenture, an Airframe subject to such Lease may not be equipped with Engines
subject to the same Lease and, in such case, Northwest will be required to
deliver engines attached to such Airframe which have not less than equivalent
value, utility and remaining
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useful life as the Engines subject to such Lease. Notwithstanding Northwest's
agreement in each Lease, in the event Northwest fails to transfer title to
engines not owned by the Owner Trustee that are attached on repossessed
Aircraft, it could be difficult, expensive and time-consuming to assemble an
Aircraft consisting of an Airframe and Engines subject to the Lease. See "Risk
Factors--Factors Relating to the Certificates and the Offering--Repossession."
LIENS
Northwest will be required to maintain each Aircraft free of any liens,
other than the respective rights of the applicable Owner Trustee as owner of the
Aircraft (in the case of a Leased Aircraft), and Northwest as provided in the
Lease (in the case of a Leased Aircraft) or as owner of the Aircraft (in the
case of an Owned Aircraft), the lien of the Indenture, and any other rights
existing pursuant to the operative documents related thereto, the rights of
others in possession of the Aircraft in accordance with the terms of the Lease
(in the case of a Leased Aircraft) or the Owned Aircraft Indenture (in the case
of an Owned Aircraft), and other than certain other customary liens permitted
under such documents, including liens for taxes either not yet due or being
contested in good faith by appropriate proceedings so long as such proceedings
do not, among other things as may be specified in each Lease, involve any
material danger of the sale, forfeiture or loss of or any interest therein;
materialmen's, mechanics' and other similar liens arising in the ordinary course
of business securing obligations that are not overdue for a period of more than
60 days, or are being contested in good faith by appropriate proceedings not
involving any material danger of the sale, forfeiture or loss of such Airframe
or Engines or any interest therein; judgment liens so long as such judgment is
discharged, vacated or reversed within 60 days or the execution of such judgment
is stayed pending appeal or discharged, vacated or reversed within 60 days after
the expiration of such stay; any other lien with respect to which Northwest (or
any Sublessee, in the case of a Leased Aircraft, or lessee, in the case of an
Owned Aircraft) has provided a bond or other security adequate in the reasonable
opinion of the relevant Owner Trustee (in the case of a Leased Aircraft) or the
Loan Trustee (in the case of the Owned Aircraft); and any lien approved in
writing by the Owner Trustee (in the case of a Leased Aircraft) or the Loan
Trustee (in the case of the Owned Aircraft). (Leases, Section 6; Owned Aircraft
Indentures, Section 7.01)
INSURANCE
Subject to certain exceptions, Northwest is obligated, at its or any
Sublessee's (in the case of a Leased Aircraft) or lessee's (in the case of an
Owned Aircraft) expense, to maintain or cause to be maintained on each Aircraft,
with insurers of recognized responsibility, public liability and property damage
insurance (exclusive of manufacturer's product liability insurance) and all-risk
aircraft hull insurance, in such amounts, covering such risks and in such form
as Northwest (or, in the case of a Leased Aircraft, if a sublease is then in
effect, as the Sublessee or, in the case of an Owned Aircraft, if a lease is
then in effect, as the lessee) customarily maintains with respect to other
aircraft owned or operated by Northwest (or, in the case of a Leased Aircraft,
if a sublease is then in effect, by the Sublessee or, in the case of an Owned
Aircraft, if a lease is then in effect, by the lessee), in each case similar to
such Aircraft; provided, however, that, except to the extent of any
self-insurance, the all-risk hull insurance shall be at least in an amount equal
to the stipulated loss value (in the case of a Leased Aircraft) or unpaid
principal amount of the related Equipment Notes (in the case of an Owned
Aircraft) and the public liability and property damage insurance shall be in an
amount of not less than $150,000,000 per occurrence. (Leases, Sections 11(a) and
11(b); Owned Aircraft Indentures, Sections 7.04(a) and 7.04(b))
Subject to certain exceptions, the policies covering loss of or damage to an
Aircraft shall be made payable, up to the stipulated loss value (in the case of
a Leased Aircraft) or unpaid principal amount of the related Equipment Notes
plus all accrued and unpaid interest thereon (in the case of an Owned Aircraft),
to the related Loan Trustee for any loss involving proceeds in excess of
$3,500,000 and the entire amount of any loss involving proceeds of $3,500,000 or
less shall be paid to Northwest so long as the related Owner Trustee or the
related Loan Trustee has not notified the insurers that a Lease Event of Default
(in the case
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of a Leased Aircraft) or Indenture Default (in the case of an Owned Aircraft)
exists. (Leases, Section 11(b) and 11(g); Owned Aircraft Indentures, Sections
7.04(b) and 7.04(g))
With respect to any insurance required, Northwest may self-insure by way of
deductible, premium adjustment or otherwise under a program applicable to all
aircraft in Northwest's fleet; provided that the aggregate amount of such
self-insurance during any policy year shall not be in excess of the lower of
(a) 50% of the largest replacement value of any single aircraft in Northwest's
fleet or (b) 1 1/2% of the average aggregate insurable value of all aircraft on
which Northwest carries insurance. In addition, Northwest (and any Sublessee)
may self-insure to the extent of any applicable minimum amount of hull or
liability insurance deductible imposed by the aircraft hull or liability
insurers. (Leases, Section 11(d); Owned Aircraft Indentures, Section 7.04(d))
In respect of each Aircraft, Northwest is required to cause the relevant
Owner Trustee (in the case of a Leased Aircraft) and Loan Trustee and certain
other persons to be included as additional insureds as their respective
interests may appear under all insurance policies required by the terms of the
Lease (in the case of a Leased Aircraft) or the Owned Aircraft Indenture (in the
case of an Owned Aircraft) with respect to such Aircraft. (Leases, Sections
11(a) and 11(b); Owned Aircraft Indentures, Sections 7.04(a) and 7.04(b))
Subject to certain customary exceptions, Northwest may not operate (or
permit any Sublessee to operate) any Aircraft in any area that is excluded from
coverage by any insurance policy in effect with respect to such Aircraft and
required by the Lease. (Leases, Section 7(a)), The Owned Aircraft Indentures
contain comparable provisions with respect to the Owned Aircraft. (Owned
Aircraft Indentures, Section 7.02(a))
Northwest's obligation to provide any required insurance shall be satisfied
if indemnification from, or insurance provided by, the United States government
or one of certain other permitted foreign governments or any agency or
instrumentality thereof, against the risks requiring such insurance under such
Lease or Owned Aircraft Indenture is at least equal, when added to the amount of
insurance against such risks otherwise maintained by Northwest (or, in the case
of a Leased Aircraft, any Sublessee or, in the case of an Owned Aircraft, any
lessee), to the amount of insurance against such risks otherwise required.
(Leases, Section 11(f); Owned Aircraft Indentures, Section 7.04(f))
LEASE TERMINATION
Northwest may terminate any Lease on any Lease Payment Date occurring on or
after the fifth anniversary of the lease commencement of the Aircraft subject to
such Lease if it determines that such Aircraft is obsolete or surplus to its
needs and subject to certain other limitations specified in such Lease. Upon
payment of termination value for such Aircraft, which will be in an amount at
least equal to the outstanding principal amount of the related Equipment Notes
and an amount equal to the Make-Whole Premium, if any, payable on such date of
payment, together with certain additional amounts and together with all accrued
and unpaid interest thereon, the lien of the relevant Indenture shall be
released, the relevant Lease shall terminate, and the obligation of Northwest
thereafter to make scheduled rent payments under such Lease shall cease.
(Leases, Section 9; Leased Aircraft Indentures, Sections 2.10(b) and 2.12) See
"--Description of the Equipment Notes--Redemption."
RENEWAL AND PURCHASE OPTIONS
At the end of the term of each Lease after final maturity of the related
Equipment Notes and subject to certain conditions, Northwest will have certain
options to renew such Lease for additional limited periods. In addition,
Northwest will have the right at the end of the term of each Lease to purchase
the Aircraft subject thereto for an amount to be calculated in accordance with
the terms of such Lease. (Leases, Section 19)
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Northwest may also have the right to purchase the Aircraft subject to each
Lease on certain Lease Payment Dates occurring in or after the year 2010. In the
event Northwest exercises a purchase option in respect of an Aircraft, the
purchase price therefor shall be calculated in accordance with the provisions of
the related Lease, but in any event shall be sufficient to pay all principal of,
Make-Whole Premium, if any, on and interest on the related Equipment Notes in
full and, upon payment thereof, Northwest shall acquire such Aircraft free of
the lien of the related Indenture, unless upon satisfaction of certain
conditions, Northwest chooses to assume on a full recourse basis all of such
Owner Trustee's obligations in respect of the related Equipment Notes and
acquires the Aircraft subject to the lien of the related Indenture. (Leases,
Section 19; Leased Aircraft Indentures, Sections 2.10(b) and 2.13; Participation
Agreements, Section 8(x)) See "--Description of the Equipment
Notes--Redemption."
EVENTS OF LOSS
If an Event of Loss occurs with respect to any Aircraft, Northwest will be
obligated either (i) to replace such Aircraft or (ii) to pay to the applicable
Owner Trustee the applicable stipulated loss value for such Aircraft (or, in the
case of an Owned Aircraft, pay to the applicable Loan Trustee the outstanding
principal amount of the Equipment Notes relating to such Aircraft plus accrued
and unpaid interest thereon), together with certain additional amounts, but, in
any case, without any Make-Whole Premium. If Northwest elects to replace such
Aircraft, it must do so no later than the Business Day next succeeding the 120th
day after the related Event of Loss, with an airframe or airframe and engines of
the same or improved make and model free and clear of all liens (other than
certain permitted liens) and having a value, utility and remaining useful life
(without regard to hours or cycles) at least equal to such Aircraft immediately
prior to the Event of Loss, assuming maintenance thereof in accordance with the
related Lease or Owned Aircraft Indenture, as the case may be. Northwest is also
required to provide to the relevant Loan Trustee and (in the case of a Leased
Aircraft) the relevant Owner Trustee and Owner Participant opinions of counsel
to the effect, among other things, that (i) certain specified documents have
been duly filed for recordation and (ii) such Owner Trustee (in the case of a
Leased Aircraft) and Loan Trustee (in the case of a Leased Aircraft, as assignee
of the Owner Trustee's rights and interests under the Lease), will be entitled
to receive the benefits of Section 1110 of the Bankruptcy Code with respect to
any such replacement airframe (unless, as a result of a change in law or court
interpretation, such benefits are not then available). If Northwest elects to
pay the stipulated loss value for such Aircraft (or, in the case of an Owned
Aircraft, pay to the applicable Loan Trustee the outstanding principal amount of
the Equipment Notes relating to such Aircraft plus accrued and unpaid interest
thereon) or elects to replace such Aircraft but fails to do so within the time
periods specified therefor, Northwest must make such payment not later than the
Business Day next succeeding 120 days after the related Event of Loss. Upon the
payment of the stipulated loss value for such Aircraft (in the case of a Leased
Aircraft) or the outstanding principal amount of the Equipment Notes issued with
respect to such Aircraft (in the case of an Owned Aircraft), together with all
other amounts then due and unpaid with respect to such Aircraft, which must be
at least sufficient to pay in full as of the date of payment the principal
amount of the related Equipment Notes and all accrued and unpaid interest due
thereon (but without any Make-Whole Premium), the lien of the Indenture and (in
the case of a Leased Aircraft) the Lease relating to such Aircraft will
terminate with respect to such Aircraft, the obligation of Northwest thereafter
to make the scheduled rent payments (in the case of a Leased Aircraft) or
interest and principal payments (in the case of an Owned Aircraft) with respect
to such Equipment Notes will cease and (in the case of a Leased Aircraft) the
related Owner Trustee will transfer all of its right, title and interest in and
to the related Aircraft to Northwest. The stipulated loss value and other
payments made under the Lease by Northwest will be deposited with the applicable
Loan Trustee. Amounts in excess of the amounts due and owing under the Equipment
Notes issued with respect to such Aircraft will be distributed by such Loan
Trustee to the applicable Owner Trustee or to Northwest, as the case may be.
(Leases, Sections 3(d)(v) and 10(a); Leased Aircraft Indentures, Sections 3.02
and 5.06; Owned Aircraft Indentures, Sections 3.02 and 7.06(a))
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If an Event of Loss occurs with respect to an Engine alone, Northwest will
be required to replace such Engine within 60 days from the date of such Event of
Loss with another engine, free and clear of all liens (other than certain
permitted liens), of the same or improved make and model (subject to certain
exceptions) and having a value, utility and remaining useful life (without
regard to hours or cycles) at least equal to the Engine being replaced (assuming
that such Engine had been maintained in accordance with the Lease). (Leases,
Section 10(b); Leased Aircraft Indentures, Section 5.06; Owned Aircraft
Indentures, Section 7.06(b))
An "EVENT OF LOSS" with respect to an Aircraft, Airframe or any Engine means
any of the following events with respect thereto:
(i) loss of such property or its use due to destruction or damage
rendering repair uneconomic or such property permanently unfit for normal
use;
(ii) any damage to such property which results in an insurance
settlement with respect to such property on the basis of a total loss or
constructive or compromised total loss;
(iii) the theft, disappearance, confiscation, condemnation or seizure
of, or requisition of title to or use of, such property (other than a
requisition for use by the United States government or certain other
specified governments of registry of the Aircraft or any agency or
instrumentality thereof), involving, in the case of any event referred to in
this clause (iii) (other than a requisition of title), loss of possession of
such property for a period of more than 180 consecutive days or, in the case
of a requisition of title, such requisition has not been reversed within
90 days;
(iv) as a result of any law, rule, regulation, order or other action by
the FAA, or any other governmental authority of the country of registry of
such property, the use of such property in the normal course of business of
air transportation shall have been prohibited for 180 consecutive days,
unless Northwest (or, in the case of a Leased Aircraft, any Sublessee or, in
the case of an Owned Aircraft, any lessee), prior to the expiration of such
180-day period, has undertaken and is diligently carrying forward all steps
necessary or desirable to permit normal use of such property, but in any
event (subject to certain limitations) if such prohibition has continued for
a period of three years;
(v) in the case of a Leased Aircraft the requisition for use by the
United States government or certain other specified governments of registry
of the Aircraft or any instrumentality or agency thereof that continues for
30 days beyond the term of the relevant Lease (unless the Owner Trustee has
elected not to treat such event as an Event of Loss); and
(vi) with respect to any Engine, any divestiture of title to or interest
in an Engine in connection with pooling or certain other arrangements or any
event with respect to an Engine that is deemed to be an Event of Loss will
be an Event of Loss with respect to such Engine.
An Event of Loss with respect to an Aircraft is deemed to have occurred if
an Event of Loss occurs with respect to the Airframe which is a part of such
Aircraft. (Leases, Section 1; Owned Aircraft Indentures, Annex A)
LEASE EVENTS OF DEFAULT
Lease Events of Default include: (i) failure by Northwest to pay any payment
of Basic Rent or stipulated loss value under such Lease within 10 Business Days
after the same shall have become due; (ii) failure by Northwest to pay
Supplemental Rent (other than stipulated loss value) within 10 Business Days
after Northwest's receipt of written demand therefor (provided that failure to
pay any amount that is excluded from the lien of the Indenture shall not
constitute a Lease Event of Default unless notice is given by the Owner
Participant); (iii) failure by Northwest to perform or observe in any material
respect any other covenant or agreement to be performed or observed by it under
such Lease or the related Participation Agreement or certain other related
operative documents (other than the related tax indemnity agreement between
Northwest and the Owner Participant), and such failure shall have
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continued unremedied for a period of 30 days after Northwest shall have received
written notice of such failure from the applicable Owner Trustee or the Loan
Trustee; PROVIDED, HOWEVER, that no such failure with respect to covenants in
such Lease pertaining to maintenance, service, repair, alteration, modification
and replacement of parts shall constitute a Lease Event of Default so long as
such failure is curable and Northwest is diligently proceeding to remedy such
failure, and such failure is remedied not later than 365 days after receipt of
such notice; (iv) any representation or warranty made by Northwest under such
Lease, the related Participation Agreement or any other document or certificate
furnished by Northwest in connection therewith (other than in the related tax
indemnity agreement between Northwest and the Owner Participant and other than
in the Underwriting Agreement, the Pass-Through Trust Agreements or the Note
Purchase Agreement), shall prove to have been incorrect in any material respect
when made and shall remain unremedied for a period of 30 days after notice to
Northwest of such incorrectness from the applicable Owner Trustee or the Loan
Trustee; (v) the occurrence of certain voluntary events of bankruptcy,
reorganization or insolvency of Northwest or the occurrence of involuntary
events of bankruptcy, reorganization or insolvency of Northwest which continues
undismissed, unvacated or unstayed for a period of ninety (90) days; and
(vi) failure by Northwest to carry and maintain (or cause to be carried and
maintained) insurance on or in respect of any Aircraft in accordance with the
provisions of such Lease, subject to certain exceptions. No event will
constitute a Lease Event of Default if such event is caused solely by reason of
an event that constitutes an Event of Loss and Northwest is complying with the
terms relating to an Event of Loss of the Aircraft set forth in such Lease.
(Leases, Section 14)
Indenture Events of Default under the Owned Aircraft Indenture are
comparable and are discussed above under "Indenture Defaults, Notice and
Waiver." (Owned Aircraft Indentures, Section 4.01)
If a Lease Event of Default has occurred and is continuing and the Lease has
been declared to be in default, the applicable Owner Trustee may (or, so long as
the Indenture is in effect, the applicable Loan Trustee may, subject to the
terms of the Indenture), subject to certain limitations relating to aircraft
subject to the Civil Reserve Air Fleet Program, exercise one or more of the
remedies provided in such Lease with respect to the related Aircraft. Such
remedies include the right to repossess and use or operate such Aircraft, to
rescind or terminate such Lease, to sell or re-lease such Aircraft free and
clear of Northwest's rights, except as provided in the Lease, and retain the
proceeds, and to require Northwest to pay as liquidated damages any accrued and
unpaid Basic Rent plus an amount equal to the excess of the stipulated loss
value of such Aircraft over either (i) the fair market sales value or fair
market rental value of such Aircraft (as determined by independent appraisal) or
(ii) if such Aircraft has been sold, the net sale proceeds thereof. (Leases,
Section 15)
CERTAIN DEFINED TERMS UNDER THE LEASES
"BASIC RENT" means, for any Aircraft, the scheduled rent payable
semiannually for the term for such Aircraft pursuant to the related Lease.
"CIVIL RESERVE AIR FLEET PROGRAM" means the Civil Reserve Air Fleet Program
currently administered by the United States Air Force Air Mobility Command
pursuant to Executive Order No. 11490, as amended, or any substantially similar
program of the United States government.
"LEASE DEFAULT" means a default under a Lease.
"LEASE PAYMENT DATES" means, with respect to each Lease, April 1 and
October 1 of each year, so long as Equipment Notes are outstanding under the
related Indenture, commencing April 1, 2000 or on the first Regular Distribution
Date to occur after such Aircraft is leased by the Company.
"SUBLESSEE" means any sublessee under a Lease from time to time.
"SUPPLEMENTAL RENT" means all amounts, liabilities and obligations (other
than Basic Rent) which are owed by Northwest under each Lease and the agreements
related thereto.
TRANSFER OF OWNER PARTICIPANT INTERESTS
Subject to certain restrictions, each Owner Participant may transfer its
interest in the related Leased Aircraft. (Leased Aircraft Participation
Agreements, Section 8(n))
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion represents the opinion of Cadwalader, Wickersham &
Taft as to the principal U.S. federal income tax consequences to
Certificateholders of the purchase, ownership and disposition of the
Certificates. Except as otherwise specified, the discussion is addressed to
beneficial owners of Certificates ("U.S. CERTIFICATEHOLDERS") that are citizens
or residents of the United States, corporations or partnerships (including
entities treated as such for U.S. federal income tax purposes) created or
organized in or under the laws of the United States, any State or the District
of Columbia, estates the income of which is subject to U.S. federal income
taxation regardless of its source or, generally, trusts if a court within the
United States is able to exercise primary supervision over the administration of
such trust, and one or more of the foregoing persons have the authority to
control all substantial decisions of such trust ("U.S. PERSONS") that will hold
the Certificates as capital assets. This discussion does not address the tax
treatment of U.S. Certificateholders that may be subject to special tax rules,
such as banks, insurance companies, dealers in securities or commodities,
tax-exempt entities, holders that will hold Certificates as part of a straddle
or holders that have a "functional currency" other than the U.S. dollar, nor
does it address the tax treatment of U.S. Certificateholders that do not acquire
Certificates as part of the initial offering. This discussion does not describe
any tax consequences arising under the laws of any State, locality or taxing
jurisdiction other than the United States.
This discussion is based upon the tax laws of the United States as in effect
on the date of this Prospectus Supplement, as well as judicial and
administrative interpretations thereof (in final or proposed form) available on
or before such date. All of the foregoing are subject to change or differing
interpretations, which could apply retroactively. Prospective investors should
note that no rulings have been or will be sought from the IRS with respect to
any of the U.S. federal income tax consequences discussed below, and no
assurance can be given that the IRS will not take contrary positions. This
discussions supplements the discussion in the Prospectus under the heading
"United States Federal Income Tax Consequences" and supersedes it to the extent
inconsistent therewith. Prospective investors should consult their own tax
advisors with respect to the federal, state, local and foreign tax consequences
of the purchase, ownership and disposition of the Certificates.
TAX STATUS OF THE TRUSTS
In the opinion of Cadwalader, Wickersham & Taft, special counsel to
Northwest, each Trust will not be classified as an association or a publicly
traded partnership taxable as a corporation for U.S. federal income tax purposes
and will not be subject to federal income tax. Each Trust will file federal
income tax returns and report to investors on the basis that it is a grantor
trust under Subpart E, Part I of Subchapter J of the Code. If a Trust were
treated as a partnership for U.S. federal income tax purposes rather than as a
grantor trust, in the opinion of Cadwalader, Wickersham & Taft, the consequences
to U.S. Certificateholders and, to the extent described below, Non-U.S.
Certificateholders, would not be materially different. The remainder of this
discussion describes the consequences of the treatment as a grantor trust.
Certificateholders who are not U.S. Persons should consult their own tax
advisors as to the suitability to them of an investment in the Certificates.
TAXATION OF CERTIFICATEHOLDERS GENERALLY
A U.S. Certificateholder will be treated as owning its pro rata undivided
interest in each of the Equipment Notes and any other property held by the
related Trust. Accordingly, each U.S. Certificateholder's share of interest paid
on the Equipment Notes will be taxable as ordinary income, as it is paid or
accrued, in accordance with such owner's method of accounting for U.S. federal
income tax purposes and a U.S. Certificateholder's share of Make-Whole Premium,
if any, paid on the Equipment Notes will be treated as capital gain. Each U.S.
Certificateholder's share of interest income on the
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Deposits will be taxable as it is paid or accrued, in accordance with such
holder's method of accounting for U.S. federal income tax purposes. In addition,
the Deposits may be subject to the original issue discount rules, with the
result that a U.S. Certificateholder may be required to include any such
original issue discount income from a Deposit using the accrual method of
accounting regardless of its normal method. A U.S. Certificateholder's share of
Deposit Make-Whole Premium, if any, paid with respect to the return of unused
Deposits may be treated as ordinary income. Any amounts received by a Trust from
Interest Drawings under the relevant Liquidity Facility or from the Policy will
be treated for U.S. federal income tax purposes as having the same
characteristics as the payments they replace.
Each U.S. Certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding Trust as provided in Section 162 or 212 of the Code.
Certain fees and expenses, including fees paid to the Trustee and the Liquidity
Provider, will be borne by parties other than the Certificateholders. It is
possible that such fees and expenses will be treated as constructively received
by the Trust, in which event a U.S. Certificateholder will be required to
include in income and will be entitled to deduct its pro rata share of such fees
and expenses. If a U.S. Certificateholder is an individual, estate or trust, the
deduction for such holder's share of such fees or expenses will be allowed only
to the extent that all of such holder's miscellaneous itemized deductions,
including such holder's share of such fees and expenses, exceed 2% of such
holder's adjusted gross income. In addition, in the case of U.S.
Certificateholders who are individuals, certain otherwise allowable itemized
deductions will be subject generally to additional limitations on itemized
deductions under the applicable provisions of the Code.
EFFECT OF SUBORDINATION OF SUBORDINATED CERTIFICATEHOLDERS
If either of the Class B Trust or the Class C Trust (such Trusts being the
"SUBORDINATED TRUSTS" and the related Certificates being the "SUBORDINATED
CERTIFICATES") receives less than the full amount of the receipts of principal
or interest paid with respect to the Equipment Notes held by it (any shortfall
in such receipts being the "SHORTFALL AMOUNTS") because of the subordination of
the Equipment Notes held by such Trust under the Intercreditor Agreement, the
corresponding owners of beneficial interests in the Subordinated Certificates
(the "SUBORDINATED CERTIFICATEHOLDERS") would probably be treated for federal
income tax purposes as if they had (1) received as distributions their full
share of such receipts, (2) paid over to the relevant senior class of
Certificateholders an amount equal to their share of such Shortfall Amount, and
(3) retained the right to reimbursement of such amounts to the extent of future
amounts payable to such Subordinated Certificateholders with respect to such
Shortfall Amount.
Under this analysis, (1) Subordinated Certificateholders incurring a
Shortfall Amount would be required to include as current income any interest or
other income of the corresponding Subordinated Trust that was a component of the
Shortfall Amount, even though such amount was in fact paid to the relevant
senior class of Certificateholders, (2) a loss would only be allowed to such
Subordinated Certificateholders when their right to receive reimbursement of
such Shortfall Amount became worthless (i.e., when it becomes clear that funds
will not be available from any source to reimburse such loss), and
(3) reimbursement of such Shortfall Amount prior to such a claim of
worthlessness would not be taxable income to Subordinated Certificateholders
because such amount was previously included in income. These results should not
significantly affect the inclusion of income for Subordinated Certificateholders
on the accrual method of accounting, but could accelerate inclusion of income to
Subordinated Certificateholders on the cash method of accounting by, in effect,
placing them on the accrual method.
ORIGINAL ISSUE DISCOUNT
It is anticipated that the Equipment Notes will not be issued with original
issue discount ("OID") for U.S. federal income tax purposes. Generally, a holder
of a debt instrument issued with OID that is not DE MINIMIS must include such
OID in income for federal income tax purposes as it accrues, in advance of the
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receipt of the cash attributable to such income, under a method that takes into
account the compounding of interest.
SALE OR OTHER DISPOSITION OF THE CERTIFICATES
Upon the sale, exchange or other disposition of a Certificate and the
related Deposit, a U.S. Certificateholder generally will recognize capital gain
or loss equal to the difference between the amount realized on the disposition
(other than any amount attributable to accrued interest which will be taxable as
ordinary income) allocable to the related Equipment Notes or other Trust
property and the related Deposit and the U.S. Certificateholder's adjusted tax
basis in the related Equipment Notes and any other assets held by the
corresponding Trust or in the related Deposit, respectively. A U.S.
Certificateholder's adjusted tax basis in the Certificate will equal the
holder's cost for its Certificate (other than the portion thereof allocated to
Deposits and not yet applied to the purchase of Equipment Notes or distributed)
less any payments of principal received and any previously recognized losses. A
U.S. Certificateholder's basis allocable to the related Deposit will be the
dollar amount thereof. Any gain or loss will be capital gain or loss if the
Certificate and the Deposit were held as a capital asset. Net long term capital
gains of individuals generally are taxed at a 20% maximum rate for property held
for more than one year compared to a 39.6% maximum rate for ordinary income and
short term capital gains.
FOREIGN CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of principal
and interest (including OID) on the Equipment Notes to, or on behalf of, any
beneficial owner of a Certificate that is not a U.S. Person (a "NON-U.S.
CERTIFICATEHOLDER") will not be subject to U.S. federal withholding tax;
PROVIDED, that (i) such Non-U.S. Certificateholder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of the stock of any Owner Participant (in the case of Leased Aircraft Notes) or
of Northwest (in the case of Owned Aircraft Notes), (ii) such Non-U.S.
Certificateholder is not (i) a bank receiving interest pursuant to a loan
agreement entered into in the ordinary course of its trade or business, or
(ii) a controlled foreign corporation for U.S. tax purposes that is related to
an Owner Participant (in the case of Leased Aircraft Notes) or of Northwest (in
the case of Owned Aircraft Notes), and (iii) either (A) the Non-U.S.
Certificateholder certifies, under penalties of perjury, that it is not a U.S.
Person and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Certificate certifies, under penalties of perjury,
that such statement has been received from the Non-U.S. Certificateholder by it
or by another financial institution and furnishes the payor with a copy thereof.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a Certificate or upon receipt of premium paid on an Equipment
Note by a Non-U.S. Certificateholder will not be subject to U.S. federal income
or withholding taxes if (i) such gain is not effectively connected with a U.S.
trade or business of the holder and (ii) in the case of an individual, such
holder is not present in the United States for 183 days or more in the taxable
year of the sale, exchange, retirement or other disposition or receipt.
Any interest or gain described in the two preceding paragraphs will be
subject to regular U.S. federal income tax at graduated rates if it is
effectively connected with the conduct of a U.S. trade or business by a Non-U.S.
Certificateholder.
BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments within the United States of principal, interest, OID and premium on the
Certificates, and to payments of the proceeds of certain sales of Certificates
made to U.S. Certificateholders other than certain exempt recipients (such as
corporations). A 31% "backup withholding" tax may apply to such payments if the
holder fails or has failed
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to provide an accurate taxpayer identification number or otherwise establish an
exemption or fails to report in full interest income. With respect to Non-U.S.
Certificateholders, payments made on a Certificate and proceeds from the sale of
a Certificate owned by a Non-U.S. Certificateholder will generally not be
subject to such information reporting requirements or backup withholding tax if
such Non-U.S. Certificateholder provides the applicable statement as to its
non-U.S. status or otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be allowed as a refund or credit against such
holder's U.S. federal income tax liability, if any, provided the required
information is furnished to the IRS.
The Treasury Department has issued final Treasury Regulations (the "FINAL
REGULATIONS") governing withholding, backup withholding and information
reporting requirements. The Final Regulations do not significantly alter the
substantive withholding and information reporting requirements discussed herein;
they unify current certification procedures and forms and clarify reliance
standards. The Final Regulations will generally become effective for payments
made after December 31, 2000.
CERTAIN CONNECTICUT TAXES
The Trustee is a national banking association with its chief executive
office in Hartford, Connecticut. In the opinion of Bingham Dana LLP, counsel to
the Trustee, under currently applicable law, assuming that, for federal tax
purposes, each Trust will not be treated as a corporation, but rather, will be
classified either as a grantor trust under subpart E, Part I of Subchapter J of
Chapter 1 of Subtitle A of the Internal Revenue Code or as a partnership,
(i) the Trusts will not be subject to any tax (including, without limitation,
net or gross income, tangible or intangible property, net worth, capital,
franchise or doing business tax), fee or other governmental charge under the
laws of the State of Connecticut or any political subdivision thereof and
(ii) Certificateholders that are not residents of or otherwise subject to tax in
Connecticut will not be subject to any tax (including, without limitation, net
or gross income, tangible or intangible property, net worth, capital, franchise
or doing business tax), fee or other governmental charge under the laws of the
State of Connecticut or any political subdivision of either thereof as a result
of purchasing, holding (including receiving payments with respect to) or selling
a Certificate.
ERISA CONSIDERATIONS
IN GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to Title I of
ERISA and on entities which are deemed to hold the assets of such plans ("ERISA
PLANS"), and on those persons who are fiduciaries with respect to ERISA Plans.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including, but not limited to, the requirement of investment
prudence and diversification and the requirement that an ERISA Plan's
investments be made in accordance with the documents governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of an ERISA Plan (or the assets of those plans
and entities that are not subject to ERISA but which are subject to
Section 4975 of the Code, such as individual retirement accounts (together with
ERISA Plans, "PLANS")) and certain persons (referred to as "parties in interest"
or "disqualified persons") having certain relationships to such Plans, unless a
statutory or administrative exemption is applicable to the transaction. A party
in interest or disqualified person who engages in a prohibited transaction may
be subject to excise taxes and other penalties and liabilities under ERISA and
the Code.
Any Plan fiduciary which proposes to cause a Plan to purchase Certificates
should consult with its counsel regarding the applicability of the fiduciary
responsibility and prohibited transaction provisions of
S-96
<PAGE>
ERISA and Section 4975 of the Code to such an investment, and to confirm that
such purchase and holding will not constitute or result in a non-exempt
prohibited transaction or any other violation of an applicable requirement of
ERISA.
Governmental plans and certain church plans, while not subject to the
fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of ERISA and Section 4975 of the Code, may nevertheless be subject to
state or other federal laws that are substantially similar to the foregoing
provisions of ERISA and the Code. Fiduciaries of any such plans should consult
with their counsel before purchasing Certificates.
PLAN ASSETS ISSUES
The Department of Labor has promulgated a regulation, 29 CFR
Section 2510.3-101 (the "PLAN ASSET REGULATION"), describing what constitutes
the assets of a Plan with respect to the Plan's investment in an entity for
purposes of ERISA and Section 4975 of the Code. Under the Plan Asset Regulation,
if a Plan invests (directly or indirectly) in a Certificate, the Plan's assets
will include both the Certificate and an undivided interest in each of the
underlying assets of the corresponding Trust, including the Equipment Notes held
by such Trust, unless it is established that equity participation in the Trust
by "benefit plan investors" is not "significant" within the meaning of the Plan
Asset Regulation. The extent to which there is equity participation in a
particular Trust by, or on behalf of, benefit plan investors will not be
monitored. If the assets of a Trust are deemed to constitute the assets of a
Plan, transactions involving the assets and operations of such Trust could be
subject to fiduciary responsibility and the prohibited transaction provisions of
ERISA and Section 4975 of the Code.
PROHIBITED TRANSACTION EXEMPTIONS
In addition, whether or not the assets of a Trust are deemed to be Plan
assets under the Plan Asset Regulation, the fiduciary of a Plan that proposes to
purchase and hold any Certificates should consider, among other things, whether
such purchase and holding may involve (i) the direct or indirect extension of
credit to a party in interest or a disqualified person, (ii) the sale or
exchange of any property between a Plan and a party in interest or a
disqualified person, or (iii) the transfer to, or use by or for the benefit of,
a party in interest or a disqualified person, of Plan assets. Such parties in
interest or disqualified persons could include, without limitation, Northwest
and its affiliates, the Owner Participants, the Underwriters, the Trustees, the
Escrow Agent, the Depositaries, the Owner Trustees, the Policy Provider and the
Liquidity Provider. Moreover, if Certificates are purchased by a Plan and
Certificates of a subordinate Class are held by a party in interest or a
disqualified person with respect to such Plan, the exercise by the holder of the
subordinate Class of Certificates of its right to purchase the senior Classes of
Certificates upon the occurrence and during the continuation of a Triggering
Event could be considered to constitute a prohibited transaction unless a
statutory or administrative exemption were applicable. Depending on the
satisfaction of certain conditions, which may include the identity of the Plan
fiduciary making the decision to acquire or hold Certificates on behalf of a
Plan, Prohibited Transaction Class Exemption ("PTCE") 91-38 (relating to
investments by bank collective investment funds), PTCE 84-14 (relating to
transactions effected by a "qualified professional asset manager"), PTCE 95-60
(relating to investments by an insurance company general account), PTCE 96-23
(relating to transactions directed by an in-house asset manager) or PTCE 90-1
(relating to investments by insurance company pooled separate accounts)
(collectively, the "CLASS EXEMPTIONS") could provide an exemption from the
prohibited transaction provisions of ERISA and Section 4975 of the Code.
However, there can be no assurance that any of these Class Exemptions or any
other exemption will be available with respect to any particular transaction
involving the Certificates.
Each person who acquires or accepts a Certificate or an interest therein
will be deemed by such acquisition or acceptance to have represented and
warranted that either: (i) no Plan assets have been used to acquire such
Certificate or an interest therein or (ii) the purchase and holding of such
Certificate or
S-97
<PAGE>
interest therein are exempt from the prohibited transaction restrictions of
ERISA and Section 4975 of the Code pursuant to one or more prohibited
transaction exemptions.
CLASS G CERTIFICATES--POSSIBLE APPLICATION OF UNDERWRITER EXEMPTION
In addition to the Class Exemptions referred to above, an individual
exemption may apply to the purchase, holding and secondary market sale of
Class G Certificates by Plans, provided that certain specified conditions are
met. In particular, the Department of Labor has issued individual administrative
exemptions to the Underwriters which are substantially the same as the
administrative exemption issued to Morgan Stanley & Co. Incorporated, Prohibited
Transaction Exemption 90-24 et al. (55 Fed. Reg. 20,548 (1990)), as amended by
Prohibited Transaction Exemption 97-34 et al. (62 Fed. Reg. 39,021 (1997)) (the
"UNDERWRITER EXEMPTION"). The Underwriter Exemption generally exempts from the
application of certain, but not all, of the prohibited transaction provisions of
Section 406 of ERISA and Section 4975 of the Code certain transactions relating
to the initial purchase, holding and subsequent secondary market sale of pass
through certificates which represent an interest in a trust that holds secured
credit instruments that bear interest or are purchased at a discount in
transactions by or between business entities (including equipment notes secured
by leases) and certain other assets, provided that certain conditions set forth
in the Underwriter Exemption are satisfied.
The Underwriter Exemption sets forth a number of general and specific
conditions which must be satisfied for a transaction involving the initial
purchase, holding or secondary market sale of certificates representing a
beneficial ownership interest in a trust to be eligible for exemptive relief
thereunder. In particular, the Underwriter Exemption requires that the
acquisition of certificates by a Plan be on terms that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an unrelated
party; the rights and interests evidenced by the certificates not be
subordinated to the rights and interests evidenced by other certificates of the
same trust estate; the certificates at the time of acquisition by the Plan be
rated in one of the three highest generic rating categories by Moody's,
Standard & Poor's, Duff & Phelps Inc. or Fitch Investors Service, Inc.; and the
investing Plan be an accredited investor as defined in Rule 501(a)(1) of
Regulation D of the Commission under the Securities Act.
In addition, the trust corpus generally must be invested in qualifying
receivables, such as the Equipment Notes, but may not in general include a
pre-funding account (except for a limited amount of pre-funding which is
invested in qualifying receivables within a limited period of time following the
closing not to exceed three months).
In reviewing the potential applicability of the Underwriter Exemption with
their legal advisors, Plans should note that an investment in a Certificate will
evidence both an interest in the respective Trust as well as an interest in the
Deposits held in escrow by an Escrow Agent for the benefit of the
Certificateholder. See "Description of the Deposit Agreements" and "Description
of the Escrow Agreements." Under the terms of the Escrow Agreement, the proceeds
from the offering of the Class G, Class B and Class C Certificates will be paid
over by the Underwriters to the applicable Depositary on behalf of the Escrow
Agent (for the benefit of such Certificateholders as the holders of the Escrow
Receipts) and will not constitute property of the Trusts. Under the terms of
each Escrow Agreement, the Escrow Agent will be irrevocably instructed to enter
into the Deposit Agreements with the applicable Depositary and to effect
withdrawals upon the receipt of appropriate notice from the relevant Trustee so
as to enable such Trustee to purchase the identified Equipment Notes on the
terms and conditions set forth in the Note Purchase Agreement.
There can be no assurance that the Department of Labor would agree that the
Underwriter Exemption will be applicable to Class G Certificates in these
circumstances. In particular, the Department of Labor might assert that the
escrow arrangement is tantamount to an impermissible pre-funding rendering the
Underwriter Exemption inapplicable. In addition, even if all of the conditions
of the Underwriter Exemption are satisfied with respect to the Class G
Certificates, no assurance can be given
S-98
<PAGE>
that the Underwriter Exemption would apply with respect to all transactions
involving the Class G Certificates or the assets of the Class G Trust. In
particular, the Underwriter Exemption may not apply to the purchase by Class B
Certificateholders or Class C Certificateholders of Class G Certificates in
connection with the exercise of their rights upon the occurrence and during the
continuance of a Triggering Event. See "Description of the
Certificates--Purchase Rights of Certificateholders." Therefore, the fiduciary
of a Plan considering the purchase of a Class G Certificate should consider the
availability of the exemptive relief provided by the Underwriter Exemption, as
well as the availability of any other Class Exemptions that may be applicable.
The Underwriter Exemption will not in any event apply to the Class B or Class C
Certificates.
EACH PLAN FIDUCIARY (AND EACH FIDUCIARY FOR A GOVERNMENTAL OR CHURCH PLAN
SUBJECT TO RULES SIMILAR TO THOSE IMPOSED ON PLANS UNDER ERISA) SHOULD CONSULT
WITH ITS LEGAL ADVISOR CONCERNING THE POTENTIAL CONSEQUENCES TO THE PLAN UNDER
ERISA, THE CODE OR SUCH SIMILAR LAWS OF AN INVESTMENT IN ANY OF THE
CERTIFICATES.
S-99
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
among NWA Corp., Northwest and the Underwriters listed below (the
"UNDERWRITERS") relating to the Certificates, Northwest has agreed to cause each
Trust to sell to each of the Underwriters, and each of such Underwriters has
severally agreed to purchase the respective aggregate amounts of Certificates
set forth opposite their names below. The Underwriting Agreement provides that
the obligations of the Underwriters are subject to certain conditions precedent
and that the Underwriters will be obligated to purchase all of the Certificates
if any Certificates are purchased thereunder.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF
CLASS G CLASS B CLASS C
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES
- ----------- ------------ ------------ ------------
<S> <C> <C> <C>
Morgan Stanley & Co. Incorporated.................... $ 37,553,000 $14,504,000 $ 7,989,000
Chase Securities Inc................................. 37,550,000 14,503,000 7,986,000
Salomon Smith Barney Inc............................. 37,550,000 14,503,000 7,986,000
U.S. Bancorp Piper Jaffray Inc....................... 37,550,000 14,503,000 7,986,000
------------ ----------- -----------
Total.............................................. $150,203,000 $58,013,000 $31,947,000
============ =========== ===========
</TABLE>
The Underwriters have advised Northwest that the Underwriters propose
initially to offer the Certificates of each Class to the public at the public
offering price for such Class set forth on the cover page of this prospectus
supplement, and to certain dealers at such price less a concession not in excess
of the amounts for each respective Class set forth below. The Underwriters may
allow, and such dealers may reallow, a concession to certain other dealers not
in excess of the amounts for the respective Class set forth below. After the
initial public offering, the public offering prices and such concessions may be
changed.
<TABLE>
<CAPTION>
PASS THROUGH CONCESSION REALLOWANCE
CERTIFICATE DESIGNATION TO DEALERS CONCESSION
----------------------- ---------- -----------
<S> <C> <C>
1999-3G................................................ 0.50% 0.25%
1999-3B................................................ 0.60% 0.25%
1999-3C................................................ 0.60% 0.25%
</TABLE>
Northwest does not intend to apply for the listing of the Certificates on a
national securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Certificates, as permitted by
applicable laws and regulations. No Underwriter is obligated, however, to make a
market in the Certificates, and any such market-making may be discontinued at
any time, at the sole discretion of such Underwriter. Accordingly, no assurance
can be given as to the liquidity of, or trading markets for, the Certificates.
NWA Corp. and Northwest have agreed to reimburse the Underwriters for
certain expenses and have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
It is expected that delivery of the Certificates will be made against
payment therefor on or about the date specified in the last paragraph of the
cover page of this Prospectus Supplement, which will be the fifth business day
following the date of pricing of the Certificates (such settlement cycle being
herein referred to as "T+5"). Pursuant to Rule 15c6-1 under the Securities
Exchange Act of 1934, as amended, trades in the secondary market generally are
required to settle in three business days, unless the parties to any such trade
expressly agree otherwise. Accordingly, purchasers who wish to trade
Certificates on the date of pricing or the next succeeding business day will be
required, by virtue of the fact that the Certificates initially will settle in
T+5, to specify an alternate settlement cycle at the time of any such trade to
prevent a
S-100
<PAGE>
failed settlement. Purchasers of Certificates who wish to trade Certificates on
the date of pricing or the next succeeding business day should consult their own
advisor.
In order to facilitate the offering of the Certificates, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Certificates. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Certificates for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Certificates, the Underwriters may bid for, and purchase,
Certificates in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing
Certificates in the Offering, if the syndicate repurchases previously
distributed Certificates in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Certificates above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
Each of the Underwriters, or one of its affiliates, is a lender under one or
more of the Company's credit facilities. MSCS, an affiliate of Morgan
Stanley & Co. Incorporated, will act as the initial Liquidity Provider for the
Class G, B and C Certificates. The obligations of MSCS under the Liquidity
Facilities will be fully and unconditionally guaranteed by its parent company,
Morgan Stanley Dean Witter & Co., which is also the parent company of Morgan
Stanley & Co. Incorporated.
LEGAL MATTERS
The validity of the Certificates offered hereby will be passed upon for NWA
Corp. and Northwest by Simpson Thacher & Bartlett, New York, New York, and for
the Underwriters by Shearman & Sterling, New York, New York. Certain federal
income tax matters with respect to the Trust and Certificateholders will be
passed upon by Cadwalader, Wickersham & Taft, special tax counsel to Northwest.
The respective counsel for Northwest and the Underwriters may rely upon Bingham
Dana LLP, Hartford, Connecticut, counsel to State Street Bank and Trust Company
of Connecticut, National Association, as to certain matters relating to the
authorization, execution and delivery of the Basic Agreement, each Trust
Supplement and the issuance of the Certificates. Shearman & Sterling has also
acted on behalf of MSCS as Liquidity Provider.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in NWA Corp.'s Annual Report on
Form 10-K for the year ended December 31, 1998, as set forth in their report,
which is incorporated by reference in the prospectus accompanying this
prospectus supplement. NWA Corp.'s consolidated financial statements and
schedule are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
The consolidated balance sheets of MBIA Insurance Corporation and
Subsidiaries as of December 31, 1998 and December 31, 1997 and the related
consolidated statements of income, changes in shareholder's equity and cash
flows for each of the three years in the period ended December 31, 1998,
incorporated by reference in this Prospectus Supplement, have been incorporated
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The references to AISI, AVS, MBA, and to their respective appraisal reports,
dated as of November 5, 1999 in the case of AISI, November 5, 1999 in the case
of AVS and August 20, 1999 in the case of MBA, are included herein in reliance
upon the authority of each such firm as an expert with respect to the matters
contained in its appraisal report.
S-101
<PAGE>
APPENDIX I--INDEX OF CERTAIN DEFINED TERMS
The following is an index showing the page in this Prospectus Supplement
where certain defined terms appear.
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ --------
<S> <C>
Adjusted Expected Distributions...... S-71
Administration Expenses.............. S-70
Aggregate LTV Collateral Amount...... S-72
Aircraft............................. S-5
Aircraft Operative Agreements........ S-48
AISI................................. S-74
AMFA................................. S-23
AMTNOLs.............................. S-24
Appraised Current Market Value....... S-72
Appraisers........................... S-74
ASMs................................. S-21
Assumed Aircraft Value............... S-79
Assumed Amortization Schedule........ S-41
Average Life Date.................... S-78
Aviation Act......................... S-50
AVS.................................. S-74
Bankruptcy Code...................... S-18
Base Rate............................ S-60
Basic Agreement...................... S-37
Basic Rent........................... S-92
Business Day......................... S-41
Cash Collateral Account.............. S-59
Cede................................. S-53
Certificate Account.................. S-40
Certificate Owner.................... S-53
Certificateholders................... S-38
Certificates......................... S-36
Civil Reserve Air Fleet Program...... S-92
Class B Certificates................. S-37
Class B Trust........................ S-37
Class C Certificates................. S-37
Class C Trust........................ S-37
Class Exemptions..................... S-97
Class G Certificates................. S-37
Class G Trust........................ S-37
Code................................. S-24
Company.............................. S-4
Continental.......................... S-23
Controlling Party.................... S-11
Current Distribution Date............ S-70
Defaulted Series G Equipment Note.... S-13
Definitive Certificates.............. S-53
Delivery Period...................... S-74
Delivery Period Termination Date..... S-5
Deposit.............................. S-54
</TABLE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ --------
<S> <C>
Deposit Account...................... S-54
Deposit Agreements................... S-54
Deposit Make-Whole Premium........... S-55
Depositary........................... S-56
Depreciation Assumption.............. S-6
Disposition.......................... S-13
Distribution Date.................... S-39
DOT.................................. S-25
Downgrade Drawing.................... S-59
DTC.................................. S-53
DTC Participants..................... S-54
EC................................... S-36
Election Distribution Date........... S-63
Equipment............................ S-83
Equipment Notes...................... S-76
ERISA................................ S-96
ERISA Plans.......................... S-96
Escrow Agent......................... S-56
Escrow Agreements.................... S-56
Escrow Receipts...................... S-56
Event of Loss........................ S-91
Excess Reimbursement Obligations..... S-70
Expected Distributions............... S-70
Express.............................. S-34
FAA.................................. S-24
Final Distributions.................. S-68
Final Drawing........................ S-60
Final Expected Distribution Date..... S-37
Final Legal Distribution Date........ S-39
Final Regulations.................... S-96
GAAP................................. S-31
H.15(519)............................ S-78
IAM.................................. S-22
IBT.................................. S-22
Indenture Default.................... S-44
Indentures........................... S-47
Intercreditor Agreement.............. S-27
Interest Drawings.................... S-57
IRS.................................. S-24
Issuance Date........................ S-59
KLM.................................. S-32
Lease................................ S-17
Lease Default........................ S-92
Lease Event of Default............... S-44
Lease Payment Dates.................. S-92
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ --------
<S> <C>
Leased Aircraft...................... S-47
Leased Aircraft Indenture............ S-47
Leased Aircraft Notes................ S-76
Leased Participation Agreement....... S-47
LIBOR................................ S-61
Liquidity Event of Default........... S-61
Liquidity Expenses................... S-69
Liquidity Facility................... S-57
Liquidity Obligations................ S-69
Liquidity Provider................... S-62
Loan Trustee......................... S-9
LTV.................................. S-6
LTV Appraisal........................ S-72
LTV Collateral Amount................ S-72
LTV Ratio............................ S-72
Make-Whole Premium................... S-78
Mandatory Document Terms............. S-48
Mandatory Economic Terms............. S-47
Maximum Amount....................... S-55
Maximum Available Commitment......... S-57
MBA.................................. S-74
MBIA................................. S-30
Mesaba............................... S-9
Minimum Sale Price................... S-68
Moody's.............................. S-29
MSCS................................. S-57
most recent H.15(519)................ S-78
MSDW................................. S-9
NOLs................................. S-24
Non-Extension Drawing................ S-60
Non-Performing Equipment Note........ S-73
Non-U.S. Certificateholder........... S-94
Northwest............................ S-4
Note Holders......................... S-48
Note Purchase Agreement.............. S-46
NWA Corp............................. S-4
OID.................................. S-94
Old NWA Corp. ....................... S-36
Order................................ S-65
Owned Aircraft....................... S-47
Owned Aircraft Indenture............. S-47
Owned Aircraft Notes................. S-76
Owned Participation Agreement........ S-47
Owner Participant.................... S-76
Owner Trustee........................ S-37
Parent Company....................... S-30
Participation Agreement.............. S-47
Pass Through Trust Agreements........ S-37
Paying Agent......................... S-56
Paying Agent Account................. S-40
</TABLE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ --------
<S> <C>
Performing Equipment Note............ S-58
Permitted Investments................ S-45
Plan Asset Regulation................ S-97
Plans................................ S-96
Policy............................... S-62
Policy Business Day.................. S-65
Policy Drawing....................... S-69
Policy Expenses...................... S-69
Policy Provider...................... S-30
Policy Provider Agreement............ S-66
Policy Provider Default.............. S-67
Policy Provider Election............. S-63
Policy Provider Obligations.......... S-69
Policy-Fee Letter.................... S-66
Pool Balance......................... S-41
Pool Factor.......................... S-41
Preference Amount.................... S-65
Prior Funds.......................... S-13
PTC Event of Default................. S-46
PTCE................................. S-97
Rating Agencies...................... S-59
Receiptholder........................ S-56
Regular Distribution Dates........... S-39
Remaining Weighted Average Life...... S-78
Replacement Liquidity Facility....... S-59
Required Amount...................... S-57
RPMs................................. S-21
SAP.................................. S-31
Scheduled Payments................... S-39
Section 1110 Period.................. S-58
Series B Equipment Notes............. S-76
Series C Equipment Notes............. S-76
Series G Equipment Notes............. S-76
Shortfall Amounts.................... S-94
Special Distribution Date............ S-39
Special Payment...................... S-39
Special Payments Account............. S-40
Standard & Poor's.................... S-29
Stated Interest Rate................. S-38
Sublessee............................ S-92
Subordinated Certificateholders...... S-94
Subordinated Certificates............ S-94
Subordinated Trusts.................. S-94
Subordination Agent.................. S-9
Substitute Aircraft.................. S-75
Supplemental Rent.................... S-92
T+5.................................. S-100
Termination Notice................... S-61
Threshold Rating..................... S-59
Treasury Yield....................... S-78
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ --------
<S> <C>
Triggering Event..................... S-46
Trust Agreement...................... S-75
Trust Indenture Act.................. S-51
Trust Property....................... S-37
Trust Supplement..................... S-37
Trustee.............................. S-9
</TABLE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ --------
<S> <C>
Trusts............................... S-37
U.S. Certificateholders.............. S-93
U.S. Persons......................... S-93
Underwriter Exemption................ S-98
Underwriters......................... S-100
United............................... S-33
</TABLE>
I-3
<PAGE>
APPENDIX II--SUMMARY OF AIRCRAFT APPRAISALS
<PAGE>
[Letterhead of Aircraft Information Services, Inc.]
15 August 1999
Rev A - 05 November 1999
Mr. Keith Bush
Manager - Corporate Finance
Northwest Airlines
2700 Lone Oak Parkway
Eagan, MN 55121
Subject: AISI Report No. A9S023B85 Rev A
Sight Unseen Base Value Appraisal 14 Avro RJ85 Aircraft
Reference: (a) Morgan Stanley Dean Witter Memorandum, 11 August 1999
Dear Mr. Bush:
In response to your request, Aircraft Information Services, Inc. (AISI) is
pleased to offer Northwest Airlines our opinion of the sight unseen base value
of 14 Avro RJ85 aircraft delivered or to be delivered from the manufacturer to
Northwest Airlines between February 1999 and May 2000 as listed and defined in
reference (a) above and Table I herein.
Revision A to this report removed three aircraft from the original list of
aircraft and changed the delivery dates of three others.
1. Methodology and Definitions
The standard terms of reference for commercial aircraft value are 'half-life
base market value' and 'half-life current market value' of an 'average'
aircraft. Base value is a theoretical value that assumes a balanced market while
current market value is the value in the real market; both assume a hypothetical
average aircraft condition. AISI value definitions are consistent with the
current definitions of the International Society of Transport Aircraft Trading
(ISTAT), those of 01 January 1994. AISI is a member of that organization and
employs an ISTAT Certified and Senior Certified Aircraft Appraiser.
AISI defines a 'base value' as that of a transaction between equally willing and
informed buyer and seller, neither under compulsion to buy or sell, for a single
unit cash transaction with no hidden value or liability, and with supply and
demand of the sale item roughly in balance. Base values are typically given for
aircraft in 'new' condition, 'average half-life' condition, or in a specifically
described condition unique to a single aircraft at a specific time. An 'average'
aircraft is an operable airworthy aircraft in average physical condition and
with average accumulated flight hours and cycles, with clear title and standard
unrestricted certificate of
<PAGE>
[LOGO]
15 August 1999
Rev A - 05 November 1999
AISI Report No. A9S023B85 Rev A
Page - 2 -
airworthiness, and registered in an authority which does not represent a penalty
to aircraft value or liquidity, with no damage history and with inventory
configuration and level of modification which is normal for its intended use and
age. AISI assumes average condition unless otherwise specified in this report.
'Half-life' condition assumes that every component or maintenance service which
has a prescribed interval that determines its service life, overhaul interval or
interval between maintenance services, is at a condition which is one-half of
the total interval. It should be noted that AISI and ISTAT value definitions
apply to a transaction involving a single aircraft, and that transactions
involving more than one aircraft are often executed at considerable and highly
variable discounts to a single aircraft price, for a variety of reasons relating
to an individual buyer or seller.
AISI defines a 'current market value', which is synonymous with the older term
'fair market value' as that value which reflects the real market conditions,
whether at, above or below the base value conditions. Assumption of a single
unit sale and definitions of aircraft condition, buyer/seller qualifications and
type of transaction remain unchanged from that of base value. Current market
value takes into consideration the status of the economy in which the aircraft
is used, the status of supply and demand for the particular aircraft type, the
value of recent transactions and the opinions of informed buyers and sellers.
Current market value assumes that there is no short term time constraint to buy
or sell.
AISI encourages the use of base values to consider historical trends, to
establish a consistent baseline for long term value comparisons and future value
considerations, or to consider how actual market values vary from theoretical
base values. Base values are less volatile than current market values and tend
to diminish regularly with time. Base values are normally inappropriate to
determine near term values. AISI encourages the use of current market values to
consider the probable near term value of an aircraft.
AISI determines an 'adjusted market value' by determining the value of known
deviations from half-life condition, which may be better or worse than half-life
condition, and to account for better or worse than average physical condition,
and the inclusion of additional equipment, or absence of standard equipment.
2. Valuation
AISI's opinion of base market value for the subject aircraft on their respective
actual or scheduled delivery dates is presented in Table I subject to
assumptions, definitions and disclaimers herein, in year 1999 US Dollars for
year 1999 delivered aircraft, and in year 2000 US Dollars for year 2000
delivered aircraft, assuming an annual inflation rate of 3%.
<PAGE>
[LOGO]
15 August 1999
Rev A - 05 November 1999
AISI Report No. A9S023B85 Rev A
Page - 3 -
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft.
AISI has no past, present, or anticipated future interest in the subject
aircraft. The conclusions and opinions expressed in this report are based on
published information, information provided by others, reasonable
interpretations and calculations thereof and are given in good faith. Such
conclusions and opinions are judgments that reflect conditions and values which
are current at the time of this report. The values and conditions reported upon
are subject to any subsequent change. AISI shall not be liable to any party for
damages arising out of reliance or alleged reliance on this report, or for any
parties action or failure to act as a result of reliance or alleged reliance on
this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
/s/ Fred E. Bearden
Fred E. Bearden
President
FB/JDM/jm
<PAGE>
[LOGO]
Table 1
Northwest Airlines Fleet
A9S023B85 Rev A
15 August 1999 - Revised 05 November 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Adjusted
Registration Serial Delivery Base Value
No. Type Number Number Engines MTOW, lb. Date Then USD
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Bae Avro RJ-85 N523XJ E2348 LF-507-1F 93,000 1-Apr-99 $24,360,000
- -------------------------------------------------------------------------------------------------
2 Bae Avro RJ-85 N524XJ E2349 LF-507-1F 93,000 29-Apr-99 $24,400,000
- -------------------------------------------------------------------------------------------------
3 Bae Avro RJ-85 N525XJ E2350 LF-507-1F 93,000 11-May-99 $24,420,000
- -------------------------------------------------------------------------------------------------
4 Bae Avro RJ-85 N526XJ E2351 LF-507-1F 93,000 27-May-99 $24,440,000
- -------------------------------------------------------------------------------------------------
5 Bae Avro RJ-85 N527XJ E2352 LF-507-1F 93,000 10-Jun-99 $24,460,000
- -------------------------------------------------------------------------------------------------
6 Bae Avro RJ-85 N528XJ E2353 LF-507-1F 93,000 29-Jun-99 $24,480,000
- -------------------------------------------------------------------------------------------------
7 Bae Avro RJ-85 N529XJ TBD LF-507-1F 93,000 Dec-99 $24,580,000
- -------------------------------------------------------------------------------------------------
8 Bae Avro RJ-85 N53OXJ TBD LF-507-1F 93,000 Jan-00 $25,290,000
- -------------------------------------------------------------------------------------------------
9 Bae Avro RJ-85 N531XJ TBD LF-507-1F 93,000 Jan-00 $25,290,000
- -------------------------------------------------------------------------------------------------
10 Bae Avro RJ-85 N532XJ TBD LF-507-1F 93,000 Mar-00 $25,290,000
- -------------------------------------------------------------------------------------------------
11 Bae Avro RJ-85 N533XJ TBD LF-507-1F 93,000 Mar-00 $25,290,000
- -------------------------------------------------------------------------------------------------
12 Bae Avro RJ-85 N534XJ TBD LF-507-1F 93,000 Apr-00 $25,290,000
- -------------------------------------------------------------------------------------------------
13 Bae Avro RJ-85 N535XJ TBD LF-507-1F 93,000 Apr-00 $25,290,000
- -------------------------------------------------------------------------------------------------
14 Bae Avro RJ-85 N536XJ TBD LF-507-1F 93,000 May-00 $25,290,000
- -------------------------------------------------------------------------------------------------
</TABLE>
Note: Future deliveries assume 3.0% annual inflation.
<PAGE>
[Letterhead of AvSolutions, Inc.]
November 5, 1999
Mr. Keith Bush
Manager - Corporate Finance
Northwest Airlines
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Dear Mr. Bush:
AvSOLUTIONS is pleased to provide this opinion on the base value, as of
November 1999, of fourteen British Aerospace Avro RJ85 aircraft (the aircraft).
The Avro RJ85 aircraft are powered by Allied Signal LF507-1F engines. The total
of fourteen aircraft either have already been delivered or will be delivered new
to Northwest Airlines between the second quarter of 1999 and the second quarter
of 2000. A listing of the Avro RJ85 aircraft is provided as attachment 1 of this
document.
Set forth below is a summary of the methodology, considerations and
assumptions utilized in this appraisal.
BASE VALUE
Base value is the appraiser's opinion of the underlying economic value of
an aircraft in an open, unrestricted, stable market environment with a
reasonable balance of supply and demand, and assumes full consideration of its
"highest and best use". An aircraft's base value is founded in the historical
trend of values and in the projection of future value trends and presumes an
arm's length, cash transaction between willing, able and knowledgeable parties,
acting prudently, with an absence of duress and with a reasonable period of time
available for marketing.
CURRENT FAIR MARKET VALUE
According to the International Society of Transport Aircraft Trading's
(ISTAT) definition of Fair Market Value (FMV), to which AvSOLUTIONS subscribes,
the quoted FMV is the appraiser's opinion of the most likely trading price that
may be generated for an aircraft under the market circumstances that are
perceived to exist at the time in question. The fair market value assumes that
the aircraft is valued for its highest and best use, that the parties to the
hypothetical sales transaction are willing, able, prudent and knowledgeable, and
under no unusual pressure for a prompt sale, and that the transaction would be
negotiated in an open and unrestricted market on an arm's length basis, for cash
equivalent consideration, and given an adequate amount of time for effective
market exposure to prospective buyers, which AvSOLUTIONS considers to be ten to
twenty months.
<PAGE>
AvSOLUTIONS
- --------------------------------------------------------------------------------
Page 2
Northwest Airlines
APPRAISAL METHODOLOGY
The method employed by AvSOLUTIONS to appraise the current and future
values of aircraft and the associated equipment addresses the factors that
influence the market value of an aircraft, such as its age, condition,
configuration, the population of similar aircraft, similar aircraft on the
market, operating costs, cost to acquire a new aircraft, and the state of demand
for transportation services.
To achieve this objective, cross-sectional data concerning the values of
aircraft in each of several general categories is collected and analyzed.
Cross-sectional data is then postulated and compared with reported market values
at a specified point in time. Such data reflects the effect of deterioration in
aircraft performance due to usage and exposure to the elements, as well as the
effect of obsolescence due to the evolutionary development and implementation of
new designs and materials.
The product of the analysis identifies the relationship between the value
of each aircraft and its characteristics, such as age, model designation,
service configuration and engine type. Once the relationship is identified, one
can then postulate the effects of the difference between the economic
circumstances at the time when the cross-sectional data were collected and the
current situation. Therefore, if one can determine the current value of an
aircraft in one category, it is possible to estimate the current values of all
aircraft in that category.
The manufacturer and size of the aircraft usually determine the specific
category to which it is assigned. Segregating the world airplane fleet in this
manner accommodates the potential effects of different size and different design
philosophies.
The variability of the data used by AvSOLUTIONS to determine the current
and future market values implies that the actual value realized will fall within
a range of values. Therefore, if a contemplated value falls within the specified
confidence range, AvSOLUTIONS cannot reject the hypothesis that it is a
reasonable representation of the current market situation.
LIMITING CONDITIONS AND ASSUMPTIONS
In order to conduct this valuation, AvSOLUTIONS is solely relying on
information as supplied by Northwest Airlines or Morgan Stanley Dean Witter, and
from data within AvSOLUTIONS' own database. In determining the base value of the
subject Avro RJ85 aircraft, the following assumptions have been researched and
determined:
<PAGE>
AvSOLUTIONS
- --------------------------------------------------------------------------------
Page 3
Northwest Airlines
1. AvSOLUTIONS has not inspected these aircraft or their maintenance records;
accordingly, AvSOLUTIONS cannot attest to their specific location or condition.
2. The aircraft either have already been delivered or will be delivered new to
Northwest Airlines between the second quarter of 1999 and the second quarter of
2000.
3. The aircraft will be certified, maintained and operated under United States
Federal Aviation Regulation (FAR) part 121.
4. All mandatory inspections and Airworthiness Directives have been complied
with.
5. The aircraft have no damage history.
6. The aircraft are in good condition.
7. AvSOLUTIONS considers the economic useful life of these aircraft to be at
least 25 years.
Based upon the above methodology, considerations and assumptions, it is
AvSOLUTIONS' opinion that the base values of each aircraft are as listed in
attachment 1.
<PAGE>
AvSOLUTIONS
- --------------------------------------------------------------------------------
Page 4
Northwest Airlines
STATEMENT OF INDEPENDENCE
This appraisal report represents the opinion of AvSOLUTIONS, and is
intended to be advisory in nature. Therefore, AvSOLUTIONS assumes no
responsibility or legal liability for actions taken or not taken by the Client
or any other party with regard to the subject aircraft. By accepting this
report, the Client agrees that AvSOLUTIONS shall bear no responsibility or legal
liability regarding this report. Further, this report is prepared for the
exclusive use of the Client and shall not be provided to other parties without
the Client's express consent.
Aviation Solutions Inc. (AvSOLUTIONS) hereby states that this valuation
report has been independently prepared and fairly represents the subject
aircraft and AvSOLUTIONS' opinion of their values. Aviation Solutions Inc.
(AvSOLUTIONS) further states that it has no present or contemplated future
interest or association with the subject aircraft.
Signed,
/s/ Bryant Lynch
Bryant Lynch
Manager, Commercial Appraisals
<PAGE>
AvSOLUTIONS
- --------------------------------------------------------------------------------
ATTACHMENT 1
EETC COLLATERAL SUMMARY
<TABLE>
<CAPTION>
========================================================================================================
Aircraft Tail Delivery Serial MTOW
Number Aircraft Number Mo/Yr Engines Number (pounds) Base Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 BAe Avro RJ85 N523XJ Apr-99 ASE LF507-IF E2348 93,000 $23,410,000
- --------------------------------------------------------------------------------------------------------
2 BAe Avro RJ85 N524XJ Apr-99 ASE LF507-IF E2349 93,000 $23,410,000
- --------------------------------------------------------------------------------------------------------
3 BAe Avro RJ85 N525XJ Mar-99 ASE LF507-IF E2350 93,000 $23,410,000
- --------------------------------------------------------------------------------------------------------
4 BAe Avro RJ85 N526XJ Mar-99 ASE LF507-1F E2351 93,000 $23,410,000
- --------------------------------------------------------------------------------------------------------
5 BAe Avro RJ85 N527XJ Jun-99 ASE LF507-IF E2352 93,000 $23,410,000
- --------------------------------------------------------------------------------------------------------
6 BAe Avro RJ85 N528XJ Jun-99 ASE LF507-lF E2353 93,000 $23,410,000
- --------------------------------------------------------------------------------------------------------
7 BAe Avro RJ85 N529XJ Dec-99 ASE LF507-IF TBD 93,000 $23,870,000
- --------------------------------------------------------------------------------------------------------
8 BAe Avro RJ85 N53OXJ Jan-00 ASE LF507-IF TBD 93,000 $24,120,000
- --------------------------------------------------------------------------------------------------------
9 BAe Avro RJ85 N531XJ Jan-00 ASE LF507-1F TBD 93,000 $24,120,000
- --------------------------------------------------------------------------------------------------------
10 BAe Avro RJ85 N532XJ Mar-00 ASE LF507-1F TBD 93,000 $24,120,000
- --------------------------------------------------------------------------------------------------------
11 BAe Avro RJ85 N533XJ Mar-00 ASE LF507-IF TBD 93,000 $24,120,000
- --------------------------------------------------------------------------------------------------------
12 BAe Avro RJ85 N534XJ Apr-00 ASE LF507-IF TBD 93,000 $24,370,000
- --------------------------------------------------------------------------------------------------------
13 BAe Avro RJ85 N535XJ Apr-00 ASE LF507-IF TBD 91,000 $24,370,000
- --------------------------------------------------------------------------------------------------------
14 BAe Avro RJ85 N536XJ Mar-00 ASE LF507-IF TBD 93,000 $24,370,000
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
I. INTRODUCTION AND EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
MORTEN BEYER & AGNEW, INC. (MBA), has been retained by Northwest Airlines to
determine the Current Base Value of 14 British Aerospace AVRO RJ-85 aircraft
delivered new as passenger aircraft. The aircraft is further identified in
Section II of this report.
In performing this valuation, MBA did not inspect the aircraft or their
historical maintenance documentation, and we relied solely on information
provided to us by Northwest Airlines. Based on the information set forth further
in this report, it is our opinion that the Current Base Value of this portfolio
as of August 20, 1999 is $339,990,000 as noted in Section IV.
MBA uses the definition of certain terms, such as Current Market Value and Base
Value, as promulgated by the Appraisal Program of International Society of
Transport Aircraft Trading (ISTAT), a non-profit association of management
personnel from banks, leasing companies, airlines, manufacturers, brokers, and
others who have a vested interest in the commercial aviation industry and who
have established a technical and ethical certification program for expert
appraisers.
ISTAT defines Current Market Value (CMV) as the appraiser's opinion of the most
likely trading price that may be generated for an aircraft under market
conditions that are perceived to exist at the time in question. Current Market
Value assumes that the aircraft is valued for its highest, best use; that the
parties to the hypothetical sale transaction are willing, able, prudent and
knowledgeable and under no unusual pressure for a prompt sale; and that the
transaction would be negotiated in an open and unrestricted market on an
arm's-length basis, for cash or equivalent consideration, and given an adequate
amount of time for effective exposure to prospective buyers.
The ISTAT definition of Base Value (BV) has, essentially, the same elements of
Market Value except that the market circumstances are assumed to be in a
reasonable state of equilibrium. Thus, Base Value pertains to an idealized
aircraft and market combination, but will not necessarily reflect the actual
Current Market Value of the aircraft in question. BV is founded in the
historical trend of values and is generally used to analyze historical values or
to project future values.
[LOGO] MBA 1 8/20/99
<PAGE>
- --------------------------------------------------------------------------------
II. AIRCRAFT
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------
BAe AVRO RJ-85 Tail Number MSN Month of Delivery
- -----------------------------------------------------------------------
Allied Signal N523XJ E2348 4/99
LF-507-1F -----------------------------------------------
N524XJ E2349 4/99
-----------------------------------------------
N525XJ E2350 5/99
-----------------------------------------------
N526XJ E2351 5/99
-----------------------------------------------
N527XJ E2352 6/99
-----------------------------------------------
N528XJ E2353 6/99
-----------------------------------------------
N529XJ TBD 12/99
-----------------------------------------------
N53OXJ TBD 1/00
-----------------------------------------------
N531XJ TBD 1/00
-----------------------------------------------
N532XJ TBD 3/00
-----------------------------------------------
N533XJ TBD 3/00
-----------------------------------------------
N534XJ TBD 4/00
-----------------------------------------------
N535XJ TBD 4/00
-----------------------------------------------
N536XJ TBD 5/00
- -----------------------------------------------------------------------
[PHOTO]
AVRO RJ-85
[LOGO] MBA 2 8/20/99
<PAGE>
- --------------------------------------------------------------------------------
III. CURRENT MARKET CONDITIONS
- --------------------------------------------------------------------------------
--------------
[PHOTO] BAe AVRO RJ-85
--------------
The market for the four engined British Aerospace 146/RJ series is controlled by
BAe's own British Aerospace Asset Management Company which provides the
underlying financing for owners and lessors of most of these regional jets.
There has been a sharp increase in aircraft available in the old BAe family as
Ansett and other major operators have placed a total of 9 on the market. Up to
now BAe has done an excellent job of placing its aircraft as they come off
lease. The advent of the Bombardier, Embraer and Dornier larger RJ's on the
lower side of the market, and the B-717 and Airbus 318 on the top side
represents future competition for the marketability of the BAe 146/RJs who still
offer excellent STOL airport performance and quietness.
It is important to note, however, that operators of the AVRO RJ-85 who choose to
participate in the service program offered by the engine manufacturer will
retain a higher residual base value due to the status of the engines. This
service program is a value-added feature that could also potentially increase
current base values as well.
[LOGO] MBA 3 8/20/99
<PAGE>
- --------------------------------------------------------------------------------
IV. VALUATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BAe AVRO RJ-85 Tail Number MSN Month of Delivery Current
Base Value*
- --------------------------------------------------------------------------------
Allied Signal N523XJ E2348 4/99 23.40
LF-507-1F ----------------------------------------------------------
N524XJ E2349 4/99 23.40
----------------------------------------------------------
N525XJ E2350 5/99 23.54
----------------------------------------------------------
N526XJ E2351 5/99 23.54
----------------------------------------------------------
N527XJ E2352 6/99 23.67
----------------------------------------------------------
N528XJ E2353 6/99 23.67
----------------------------------------------------------
N529XJ TBD 12/99 24.48
----------------------------------------------------------
N53OXJ TBD 1/00 24.61
----------------------------------------------------------
N531XJ TBD 1/00 24.61
----------------------------------------------------------
N532XJ TBD 3/00 24.90
----------------------------------------------------------
N533XJ TBD 3/00 24.90
----------------------------------------------------------
N534XJ TBD 4/00 25.04
----------------------------------------------------------
N535XJ TBD 4/00 25.04
----------------------------------------------------------
N536XJ TBD 5/00 25.19
- --------------------------------------------------------------------------------
* Base values ($000,000)
In developing the Current Base Value of these aircraft, MBA did not inspect the
aircraft nor their historical maintenance documentation, but relied on partial
information supplied by the Client. Therefore, we used certain assumptions that
are generally accepted industry practice to calculate the value of aircraft when
more detailed information is not available. The principal assumptions are as
follows for each aircraft:
1. The aircraft is delivered new.
2. The specifications of the aircraft are those most common for an
aircraft of its type and vintage.
3. The aircraft is in a standard airline configuration.
4. Its modification status is comparable to that most common for an
aircraft of its type and vintage.
5. No accounting is made for lease obligations or terms of ownership.
[LOGO] MBA 4 8/20/99
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This report has been prepared for the exclusive use of Northwest Airlines and
shall not be provided to other parties by MBA without the express consent of
Northwest Airlines.
MBA certifies that this report has been independently prepared and that it fully
and accurately reflects MBA's opinion as to the Current Base Value. MBA further
certifies that it does not have, and does not expect to have, any financial or
other interest in the subject or similar aircraft.
This report represents the opinion of MBA as to the Current Base Value of the
subject aircraft and is intended to be advisory only in nature. Therefore, MBA
assumes no responsibility or legal liability for any actions taken or not taken
by Northwest Airlines or any other party with regard to the subject aircraft. By
accepting this report, all parties agree that MBA shall bear no such
responsibility or legal liability.
PREPARED BY:
/s/ Bryson P. Monteleone
Bryson P. Monteleone
Director of Operations
REVIEWED BY:
/s/ Morten S. Beyer
Morten S. Beyer, Appraiser Fellow
Chairman and CEO
ISTAT Certified Senior Appraiser
November 22, 1999
Ref#: 99284
[LOGO] MBA 5 8/20/99
<PAGE>
PROSPECTUS
$1,500,000,000
NORTHWEST AIRLINES, INC.
PASS THROUGH CERTIFICATES
------------------
Applicable Underlying Payments Fully and Unconditionally
Guaranteed by
NORTHWEST AIRLINES CORPORATION
---------------
Northwest Airlines, Inc. may from time to time offer pass through
certificates. Pass through certificates may be issued in one or more series in
amounts, at prices and on terms to be determined at the time of the offering.
The pass through certificates will represent interests in the assets of the
pass through trusts formed to finance the acquisition of specified aircraft. The
assets of the pass through trusts will include equipment notes issued
(a) on a nonrecourse basis by one or more owner trustees pursuant to
separate leveraged lease transactions to finance or refinance a portion of
the cost of aircraft which have been or will be leased to Northwest
Airlines, Inc., or
(b) with recourse to Northwest Airlines, Inc. to finance all or a
portion of the cost of, or to purchase all or a portion of the outstanding
debt with respect to, aircraft which have been or will be purchased and
owned by Northwest Airlines, Inc.
The pass through certificates will not represent interests in or obligations
of Northwest Airlines, Inc. or any of its affiliates. Northwest Airlines
Corporation will fully and unconditionally guarantee the lease and recourse
obligations of Northwest Airlines, Inc. referred to above.
When we decide to sell a particular series of pass through certificates, we
will provide the specific terms thereof in a prospectus supplement. You should
read this prospectus and any prospectus supplement carefully before you invest.
This prospectus may not be used to consummate sales of pass through certificates
unless accompanied by a prospectus supplement.
The pass through certificates may be sold to or through underwriters,
through dealers or agents or directly to purchasers. The prospectus supplement
will set forth the names of any underwriters, dealers or agents involved in the
sale of the pass through certificates in respect of which this prospectus is
being delivered, the proposed amounts, if any, to be purchased by underwriters
and the compensation, if any, of such underwriters or agents.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
------------------------
The date of this prospectus is June 7, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
About This Prospectus....................................... 2
Incorporation of Certain Documents by Reference............. 3
Disclosure Regarding Forward-looking Statements............. 3
The Company................................................. 4
General Outline of Trust Structure.......................... 4
Use of Proceeds............................................. 6
Ratio of Earnings to Fixed Charges.......................... 6
Description of the Certificates............................. 7
Description of the Equipment Notes.......................... 20
United States Federal Income Tax Consequences............... 25
ERISA Considerations........................................ 29
Plan of Distribution........................................ 30
Legal Opinions.............................................. 31
Experts..................................................... 31
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED IN THIS PROSPECTUS AND ANY
PROSPECTUS SUPPLEMENT, INCLUDING THE INFORMATION INCORPORATED BY REFERENCE. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. NORTHWEST
AIRLINES, INC. WILL OFFER TO SELL THE SECURITIES AND SEEK OFFERS TO BUY THE
SECURITIES, ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS OR OF ANY SALES OF THE SECURITIES.
ABOUT THIS PROSPECTUS
This prospectus is part of registration statements that we filed with the
Securities and Exchange utilizing a "shelf" registration process. Under this
shelf process, we may sell pass through certificates described in this
prospectus in one or more offerings up to a total dollar amount of
$1,500,000,000 or the equivalent of this amount in foreign currencies or foreign
currency units.
This prospectus provides you with a general description of the pass through
certificates we may offer. Each time we offer pass through certificates, we will
provide you with a prospectus supplement that will describe the specific
amounts, prices and terms of the offered securities. The prospectus supplement
may also add, update or change information contained in this prospectus. You
should read both this prospectus and any prospectus supplement together with
additional information described below under "Incorporation of Certain Documents
by Reference."
This prospectus does not contain all of the information in the registration
statements. Statements we make in this prospectus about the contents of any
contract, agreement or other document are not necessarily complete. If that
contract, agreement or other document has been filed as an exhibit to the
registration statements, we refer you to the exhibit for a more complete
description. The information in this prospectus is accurate only as of the date
of this prospectus, regardless of the time of delivery of this prospectus or any
sale of the securities.
In this prospectus, "Northwest" refers to Northwest Airlines, Inc., "NWA
Corp." to Northwest Airlines Corporation and the "Company," "we," "us" or "our"
to NWA Corp. and its consolidated subsidiaries.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
NWA Corp. files annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
over the internet at the SEC's web site at http://www.sec.gov. Northwest is not
required to file separate reports, proxy and information statements or other
information with the SEC pursuant to the Securities Exchange Act of 1934.
Instead, we have provided information with respect to Northwest, to the extent
required, in filings made by NWA Corp.
The SEC allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until we complete our offering of the securities:
- Annual Report on Form 10-K for the year ended December 31, 1998;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 1999; and
- Current Reports on Form 8-K filed on January 24, 1999, February 24, 1999
and April 19, 1999.
You may request a copy of these filings (other than exhibits to them) at no
cost, by writing or telephoning us at the following address:
Secretary's Office
Northwest Airlines Corporation
5101 Northwest Drive, Dept. A1180
St. Paul, Minnesota 55111-3034
Telephone: (612) 726-2111
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are subject to a number
of risks and uncertainties, all of which are difficult to predict and many of
which are beyond the Company's control. Forward-looking statements are typically
identified by the words "may," "will," "believe," "expect," "anticipate,"
"intend," "estimate" and similar expressions. Actual results could differ
materially from those contemplated by these forward-looking statements as a
result of a number of factors. 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.
In light of these risks and uncertainties, there can be no assurance that
the results and events contemplated by the forward-looking statements contained
in this prospectus will in fact be realize. Potential investors are cautioned
not to place undue reliance on these forward-looking statements. The Company
does not undertake any obligation to update or revise any forward-looking
statements. All subsequent written or oral forward-looking statements
attributable to the Company or persons acting on behalf of the Company are
expressly qualified in their entirety by the factors described above.
3
<PAGE>
THE COMPANY
Northwest, the principal wholly-owned subsidiary of NWA Corp., operates the
world's fourth largest airline (as measured by 1997 revenue passenger miles
("RPMs")) and is engaged in the business of transporting passengers and cargo.
Northwest's business focuses on the development of a global airline network
through its strategic assets that include:
- domestic hubs at Detroit, Minneapolis/St. Paul and Memphis;
- an extensive Pacific route system with hubs at Tokyo and Osaka;
- a transatlantic alliance with KLM Royal Dutch Airlines, which operates
through a hub in Amsterdam and, subject to regulatory approvals, with
Alitalia which operates through hubs in Rome and Milan; and
- a global alliance with Continental Airlines, Inc.
Northwest operates substantial domestic and international route networks and
directly serves more than 150 cities in 21 countries in North America, Asia and
Europe. Northwest had more than 50.5 million enplanements and flew over
66.7 billion RPMs in 1998.
On November 20, 1998 NWA Corp. effected a holding company reorganization. As
a result, Northwest Airlines Holding Corporation (formerly known as Northwest
Airlines Corporation and, prior to the reorganization, the publicly traded
holding company, "Old NWA Corp.") became a direct wholly-owned subsidiary of NWA
Corp. NWA Corp. is now the publicly traded holding company, which owns directly
Old NWA Corp. and indirectly the holding and operating subsidiaries of Old NWA
Corp. References in this prospectus to NWA Corp. for time periods prior to
November 20, 1998 refer to Old NWA Corp.
Our principal executive offices are located at 2700 Lone Oak Parkway, Eagan,
Minnesota 55121; our mailing address is 5101 Northwest Drive, St. Paul,
Minnesota 55111-3034 and our telephone number is (612) 726-2111.
GENERAL OUTLINE OF TRUST STRUCTURE
A separate Northwest Airlines Pass Through Trust (each, a "Trust") will be
formed for each series or class of pass through certificates ("Certificates").
Each Trust will be formed pursuant to the Pass Through Trust Agreement (each, a
"Basic Agreement") and a supplement thereto (a "Trust Supplement") to be entered
into among Northwest, NWA Corp. and State Street Bank and Trust Company of
Connecticut, National Association (the "Trustee"), as trustee under the Trust.
Each Certificate in a series or class will represent a fractional undivided
interest in the related Trust and will have no rights, benefits or interests in
respect of any other Trust. The property of the Trusts (the "Trust Property")
will consist of
- equipment notes issued (a) on a nonrecourse basis by one or more owner
trustees pursuant to separate leveraged lease transactions (the "Leased
Aircraft Notes") to finance or refinance a portion of the equipment cost
of aircraft, including engines (each, a "Leased Aircraft" and,
collectively, the "Leased Aircraft"), which have been or will be leased to
Northwest pursuant to a separate lease agreement (each such lease
agreement, a "Lease") for each Leased Aircraft, or (b) with recourse to
Northwest (the "Owned Aircraft Notes" and, together with any Leased
Aircraft Notes, the "Equipment Notes") to finance all or a portion of the
equipment cost of, or to purchase all or a portion of the outstanding debt
with respect to, aircraft, including engines (each, an "Owned Aircraft"
and, collectively, the "Owned Aircraft"; together with Leased Aircraft,
the "Aircraft"), which have been or will be purchased and owned by
Northwest;
4
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- the rights of such trust to acquire Equipment Notes under the related
note purchase or refunding agreements;
- in the case of a delayed purchase of aircraft, the rights of such Trust in
respect of certain escrowed funds;
- if so specified in the related prospectus supplement, the rights of such
Trust under an intercreditor agreement (the "Intercreditor Agreement")
with respect to cross-subordination or other intercreditor matters;
- if so specified in the related prospectus supplement, monies receivable
under any liquidity facility arrangements for such Trust; and
- funds from time to time deposited with the related Trustee.
Concurrently with the execution and delivery of each Trust Supplement, the
Trustee will enter into one or more note purchase or refunding agreements (each
such agreement being herein referred to as a "Note Purchase Agreement") pursuant
to which it will purchase one or more Equipment Notes relating to one or more of
the Aircraft described in the applicable prospectus supplement. Pursuant to the
applicable Note Purchase Agreements, the Trustee will purchase one or more
Equipment Notes. The Equipment Notes that constitute the property of each Trust
will have identical interest rates (in each case equal to the rate applicable to
the Certificates issued by such Trust). The maturity dates of the Equipment
Notes acquired by each Trust will occur on or before the final distribution date
applicable to the Certificates issued by such Trust. The Trustee will distribute
the amount of payments of principal, premium, if any, and interest received by
it as holder of the Equipment Notes to the Certificateholders of the Trust in
which such Equipment Notes are held. See "Description of the Certificates" and
"Description of the Equipment Notes."
Interest paid on the Equipment Notes held in each Trust will be passed
through to the holders of the Certificates relating to such Trust on the dates
and at the rate per annum set forth in the prospectus supplement relating to
such Certificates until the final distribution date for such Trust. Principal
paid on the Equipment Notes held in each Trust will be passed through to the
holders of the Certificates relating to such Trust in scheduled amounts on the
dates set forth in the prospectus supplement relating to such Certificates until
the final distribution date for such Trust. The Equipment Notes issued with
respect to any Aircraft will be secured by a security interest in such Aircraft
and, in the case of the Leased Aircraft, by a security interest in the related
Lease, including the right to receive rentals payable in respect of such Leased
Aircraft by Northwest.
The Leased Aircraft Notes will be issued under separate trust indentures
(the "Leased Aircraft Indentures") between a bank, trust company or other
institution specified in the related prospectus supplement, as trustee
thereunder (in such capacity, herein referred to as the "Loan Trustee"), and an
institution specified in the related prospectus supplement acting, not in its
individual capacity, but solely as owner trustee (an "Owner Trustee") of a
separate trust for the benefit of one or more institutional investors (each, an
"Owner Participant"). With respect to each Leased Aircraft, the related Owner
Participant will have provided or will provide from sources other than the
Leased Aircraft Notes a portion of the equipment cost of the related Leased
Aircraft. No Owner Participant, however, will be personally liable for any
amount payable under the related Leased Aircraft Indenture or the Leased
Aircraft Notes issued thereunder. Simultaneously with the acquisition of each
Leased Aircraft, the related Owner Trustee leased or will lease such Aircraft to
Northwest pursuant to a separate Lease. The Owned Aircraft Notes will be issued
under separate trust indentures (the "Owned Aircraft Indentures" and, together
with any Leased Aircraft Indentures, the "Indentures") between the applicable
Loan Trustee and Northwest.
Although neither the Certificates nor the Leased Aircraft Notes will be
direct obligations of, or guaranteed by, Northwest, the amounts unconditionally
payable by Northwest for lease of Leased
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Aircraft will be sufficient to pay in full when due all payments required to be
made on the corresponding Leased Aircraft Notes.
NWA Corp. will fully and unconditionally guarantee (the "Parent Guaranty")
to the holders from time to time of Certificates (i) with respect to related
Owned Aircraft Notes, the full and prompt payment of principal, premium, if any,
and interest thereon when and as the same shall become due and payable, whether
at maturity, upon redemption or otherwise and (ii) with respect to related
Leased Aircraft Notes, the full and prompt payment of all amounts payable by
Northwest under the related Lease when and as the same shall become due and
payable. The Parent Guaranty will be enforceable without any need first to
enforce the obligations of Northwest against Northwest.
With respect to Equipment Notes of differing payment priorities issued in
respect of one or more Aircraft, the rights of the holders of the related
Certificates will be subject to an intercreditor agreement (the "Intercreditor
Agreeement").
USE OF PROCEEDS
Except as set forth in a prospectus supplement for a specific offering of
Certificates, the proceeds from the sale of the Certificates will be used by the
Trustee on behalf of the applicable Trust or Trusts to purchase either (a)
Leased Aircraft Notes or (b) Owned Aircraft Notes.
Any portion of the proceeds from the sale of Certificates not used by the
Trustee to purchase Equipment Notes on or prior to the date specified therefor
in the applicable prospectus supplement will be distributed on a Special
Distribution Date (as defined below) to the applicable Certificateholders,
together with interest, but without premium. See "Description of Certificates--
Special Distribution Upon Unavailability of Aircraft."
RATIO OF EARNINGS TO FIXED CHARGES
We have set forth below the ratio of earnings to fixed charges for NWA Corp.
and its consolidated subsidiaries for the periods indicated. The ratio of
earnings to fixed charges represents the number of times that fixed charges were
covered by earnings. In computing the ratio, earnings represent consolidated
earnings (loss) before income taxes, cumulative effect of accounting change and
fixed charges (excluding capitalized interest). Fixed charges consist of
interest expense (including capitalized interest), one-third of rental expense,
which is considered representative of the interest factor, and amortization of
debt discount and expense.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
- ----------------------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
- --------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1.88 1.90 2.74 3.05 (a) 2.01 (b)
</TABLE>
- ------------------------
(a) Earnings were inadequate to cover fixed charges by $452 million for the year
ended December 31, 1998.
(b) Earnings were inadequate to cover fixed charges by $69 million for three
months ended March 31, 1999.
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DESCRIPTION OF THE CERTIFICATES
The following description of the Certificates summarizes certain general
terms and provisions of the Certificates to which any prospectus supplement may
relate. This summary relates to the Basic Agreement (the form of which has been
filed as an exhibit to the registration statement of which this prospectus is a
part) and each of the Trust Supplements, the Trusts to be formed thereby and the
Certificates to be issued by each Trust except to the extent, if any, described
in the applicable prospectus supplement. The prospectus supplement that
accompanies this prospectus contains a glossary of the material terms used with
respect to the specific series or class of Certificates being offered thereby.
The Trust Supplement relating to each series or class of Certificates and the
forms of the material operative agreements relating thereto (including, if
applicable, Note Purchase Agreement, Indenture, Lease, Trust Agreement,
participation agreement, Intercreditor Agreement and liquidity arrangement) will
be filed as exhibits to a post-effective amendment to the Registration Statement
of which this prospectus is a part, a Current Report on Form 8-K, a Quarterly
Report on Form 10-Q or an Annual Report on Form 10-K, as applicable, filed by
NWA Corp. with the SEC.
The Certificates offered pursuant to this prospectus will be limited to
$1,500,000,000 aggregate public offering price (or its equivalent (based on the
applicable exchange rate at the time of sale) in one or more foreign currencies
or currency units).
TO THE EXTENT THAT ANY PROVISION IN ANY PROSPECTUS SUPPLEMENT IS
INCONSISTENT WITH ANY PROVISION IN THIS SUMMARY, THE PROVISION OF SUCH
PROSPECTUS SUPPLEMENT WILL CONTROL.
GENERAL
Each Certificate will represent a fractional undivided interest in the Trust
created by the Trust Supplement pursuant to which such Certificate was issued.
All payments and distributions on account of the Certificates will be made only
from the related Trust Property. Each Certificate will represent a pro rata
share of the outstanding principal amount of the Equipment Notes held in the
related Trust. Unless otherwise specified in the applicable prospectus
supplement, each Certificate will be issued in minimum denominations of $1,000
or any integral multiple thereof (except that one Certificate of each Trust may
be issued in an odd amount, due to the fact that the aggregate amount offered by
such Trust may not represent an integral multiple of $1,000).
The Certificates will not represent an interest in or obligation of
Northwest, NWA Corp., the Trustee, any of the Loan Trustees or Owner Trustees in
their individual capacities, any Owner Participant, or any affiliate of any
thereof. Each Certificateholder by its acceptance of a Certificate agrees to
look solely to the income and proceeds from the Trust Property as provided in
the Basic Agreement and the applicable Trust Supplement and to its rights under
the Parent Guaranty.
The Equipment Notes issued under an Indenture may be held in more than one
Trust and one Trust may hold Equipment Notes issued under more than one
Indenture (each Indenture the Equipment Notes of which are held in a Trust, a
"Related Indenture"). Unless otherwise provided in a prospectus supplement, only
Equipment Notes having the same priority of payment (the Equipment Notes of any
such priority, a "class" or "series") may be held in the same Trust.
Interest will be passed through to Certificateholders of each Trust at the
rate per annum payable on the Equipment Notes held in such Trust, as set forth
for such Trust on the cover page of the applicable prospectus supplement.
Reference is made to the prospectus supplement that accompanies this
prospectus for a description of the specific series or class of Certificates
being offered thereby, including:
- the specific designation and title of such Certificates;
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<PAGE>
- the Regular Distribution Dates (as defined below) and Special Distribution
Dates (as defined below) applicable to such Certificates;
- the currency or currencies (including currency units) in which such
Certificates may be denominated;
- the specific form of such Certificates, including whether or not such
Certificates are to be issued in accordance with a book-entry system;
- a description of the Equipment Notes to be purchased by such Trust,
including (a) the period or periods within which, the price or prices at
which, and the terms and conditions upon which such Equipment Notes may or
must be redeemed or defeased in whole or in part, by Northwest or, with
respect to Leased Aircraft Notes, the Owner Trustee, (b) the payment
priority of such Equipment Notes in relation to any other Equipment Notes
issued with respect to the related Aircraft, (c) any additional security
or liquidity enhancements therefor and (d) any intercreditor or other
rights or limitations between or among the holders of Equipment Notes of
different priorities issued by the same Owner Trustee;
- a description of the related Aircraft, including whether such Aircraft is
a Leased Aircraft or an Owned Aircraft;
- a description of the related Note Purchase Agreement and Related
Indentures, including a description of the events of default under the
Related Indentures, the remedies exercisable upon the occurrence of such
events of default and any limitations on the exercise of such remedies
with respect to such Equipment Notes;
- if such Certificates relate to Leased Aircraft, a description of the
related Lease, trust agreement and participation agreement, including (a)
the names of the related Owner Trustees, (b) a description of the events
of default under the related Leases, the remedies exercisable upon the
occurrence of such events of default and any limitations on the exercise
of such remedies with respect to such Leased Aircraft Notes, and (c) the
rights of the related Owner Trustee, if any, and/or Owner Participant, if
any, to cure failures of Northwest to pay rent under the related Lease;
- the extent, if any, to which the provisions of the operative documents
applicable to such Equipment Notes may be amended by the parties thereto
without the consent of the holders of, or only upon the consent of the
holders of a specified percentage of aggregate principal amount of, such
Equipment Notes;
- cross-default or cross-collateralization provisions in the Related
Indentures;
- subordination provisions among the holders of Certificates, including any
cross-subordination provisions among the holders of Certificates in
separate Trusts; and
- any other special terms pertaining to such Certificates.
If any Certificates are denominated in one or more foreign currencies or
currency units, the restrictions, certain United States federal income tax
considerations, specific terms and other information with respect to such
Certificates and such foreign currency or currency units will be set forth in
the applicable prospectus supplement.
BOOK-ENTRY REGISTRATION
GENERAL
If specified in the applicable prospectus supplement, the Certificates will
be subject to the provisions described below and under the caption "--Definitive
Certificates." Upon issuance, each
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<PAGE>
series or class of Certificates will be represented by one fully registered
global certificate. Each global certificate will be deposited with, or on behalf
of, The Depository Trust Company ("DTC") and registered in the name of Cede &
Co. ("Cede"), or its nominee. No person acquiring an interest in such
Certificates ("Certificate Owner") will be entitled to receive a certificate
representing such person's interest in such Certificates, except as set forth
below under "--Definitive Certificates." Unless and until Definitive
Certificates are issued under the limited circumstances described herein, all
references to actions by Certificateholders shall refer to actions taken by DTC
upon instructions from DTC Participants (as defined below), and all references
herein to distributions, notices, reports and statements to Certificateholders
shall refer, as the case may be, to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of such Certificates, or to
DTC Participants for distribution to Certificate Owners in accordance with DTC
procedures.
Northwest has been advised that DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and "clearing agency" registered pursuant to
section 17A of the Exchange Act. DTC was created to hold securities for its
participants ("DTC Participants") and to facilitate the clearance and settlement
of securities transactions between DTC Participants through electronic
book-entries, thereby eliminating the need for physical transfer of
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a DTC Participant
either directly or indirectly ("Indirect Participants").
Certificate Owners that are not DTC Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Certificates may do so only through DTC Participants and
Indirect Participants. In addition, Certificate Owners will receive all
distributions of principal and interest from the Trustee through DTC
Participants or Indirect Participants, as the case may be. Under a book-entry
format, Certificate Owners may experience some delay in their receipt of
payments, because such payments will be forwarded by the Trustee to Cede, as
nominee for DTC. DTC will forward such payments in same-day funds to DTC
Participants who are credited with ownership of the Certificates in amounts
proportionate to the principal amount of each such DTC Participant's respective
holdings of beneficial interests in the Certificates. DTC Participants will
thereafter forward payments to Indirect Participants or Certificate Owners, as
the case may be, in accordance with customary industry practices. The forwarding
of such distributions to the Certificate Owners will be the responsibility of
such DTC Participants. Unless and until the Definitive Certificates are issued
under the limited circumstances described herein, the only "Certificateholder"
will be Cede, as nominee of DTC. Certificate Owners will not be recognized by
the Trustee as Certificateholders, as such term is used in the Basic Agreement,
and Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and DTC Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
the Certificates among DTC Participants on whose behalf it acts with respect to
the Certificates and to receive and transmit distributions of principal,
premium, if any, and interest with respect to the Certificates. DTC Participants
and Indirect Participants with which Certificate Owners have accounts with
respect to the Certificates similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective customers.
Accordingly, although Certificate Owners will not possess the Certificates, the
Rules provide a mechanism by which Certificate Owners will receive payments and
will be able to transfer their interests.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect Participants, the ability of a Certificate Owner to pledge
the Certificates to persons or entities that do
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<PAGE>
not participate in the DTC system, or to otherwise act with respect to such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
DTC has advised Northwest that it will take any action permitted to be taken
by a Certificateholder under the Basic Agreement only at the direction of one or
more DTC Participants to whose accounts with DTC the Certificates are credited.
Additionally, DTC has advised Northwest that in the event any action requires
approval by Certificateholders of a certain percentage of beneficial interest in
each Trust, DTC will take such action only at the direction of and on behalf of
DTC Participants whose holders include undivided interests that satisfy any such
percentage. DTC may take conflicting actions with respect to other undivided
interests to the extent that such actions are taken on behalf of DTC
Participants whose holders include such undivided interests.
Neither Northwest, NWA Corp. nor the Trustee will have any liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Certificates held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The applicable prospectus supplement will specify any additional book-entry
registration procedures applicable to Certificates denominated in a currency
other than United States dollars.
SAME-DAY SETTLEMENT AND PAYMENT
So long as the Certificates are registered in the name of Cede, as nominee
for DTC, all payments made by Northwest to the Loan Trustee under any Lease or
any Owned Aircraft Indentures will be in immediately available funds. Such
payments, including the final distribution of principal with respect to the
Certificates of any Trust, will be passed through to DTC in immediately
available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, secondary
trading in pass through certificates is generally settled in immediately
available or same-day funds. Any Certificates registered in the name of Cede, as
nominee for DTC, will trade in DTC's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the Certificates will
therefore be required by DTC to settle in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in same-day funds
on trading activity in the Certificates.
DEFINITIVE CERTIFICATES
Unless the applicable prospectus supplement specifies otherwise, if DTC is
at any time unwilling or unable to continue as Depositary and a successor
Depositary is not appointed by Northwest within ninety days, Northwest will
issue those Certificates in definitive certificated form in exchange for that
Registered Global Security. In addition, Northwest may at any time and in its
sole discretion determine not to have any of the Certificates of a series or
class represented by one or more Registered Global Securities and, in that
event, will issue Certificates of that series or class in definitive
certificated form in exchange for all of the Registered Global Securities
representing those Certificates. Further, if Northwest so specifies with respect
to the Certificates of a series or class, an owner of a beneficial interest in a
Registered Global Security representing Certificates of that series or
class may, on terms acceptable to Northwest and DTC, receive Certificates of
that series or class in definitive form registered in the name of that
beneficial owner or its designee.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Certificate Owners through
DTC Participants of the availability of Definitive Certificates. Upon surrender
by DTC of the certificates representing the Certificates and receipt of
instructions for re-registration, the Trustee will reissue the Certificates as
Definitive Certificates to Certificate Owners.
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<PAGE>
Distributions of principal, premium, if any, and interest with respect to
Certificates will thereafter be made by the Trustee directly in accordance with
the procedures set forth in the Basic Agreement and the applicable Trust
Supplements, to holders in whose names the Definitive Certificates were
registered at the close of business on the applicable record date. Such
distributions will be made by check mailed to the address of such holder as it
appears on the register maintained by the Trustee. The final payment on any
Certificate, however, will be made only upon presentation and surrender of such
Certificate at the office or agency specified in the notice of final
distribution to Certificateholders.
Definitive Certificates will be freely transferable and exchangeable at the
office of the Trustee upon compliance with the requirements set forth in the
Basic Agreement and the applicable Trust Supplements. No service charge will be
imposed for any registration of transfer or exchange, but payment of a sum
sufficient to cover any tax or other governmental charge shall be required.
PAYMENTS AND DISTRIBUTIONS
Payments of principal, premium, if any, and interest with respect to the
Equipment Notes held in each Trust will be distributed by the Trustee, upon
receipt, to Certificateholders of such Trust on the dates and in the currency
specified in the applicable prospectus supplement, except
- in certain cases when some or all of such Equipment Notes are in default
as described in the applicable prospectus supplement and
- that such payments are subject to the effect of any cross-subordination or
other intercreditor provisions set forth in the prospectus supplement for
a series or class of Certificates.
Payments of principal of, and interest on, the unpaid principal amount of
the Equipment Notes held in each Trust will be scheduled to be received by the
Trustee on the dates specified in the applicable prospectus supplement (such
scheduled payments of interest and principal on the Equipment Notes to the
Trustee are herein referred to as "Scheduled Payments," and the dates specified
in the applicable prospectus supplement for distribution of Scheduled Payments
to the Trustee are herein referred to as "Regular Distribution Dates"). See
"Description of the Equipment Notes General." Subject to the effect of any
cross-subordination or other intercreditor provisions set forth in the
prospectus supplement for a series or class of Certificates, each
Certificateholder of each Trust will be entitled to receive a pro rata share of
any distribution in respect of Scheduled Payments of principal and interest made
on the Equipment Notes held in the Trust.
Payments of principal, premium, if any, and interest received by the Trustee
on account of the early redemption, if any, of the Equipment Notes relating to
one or more Aircraft held in a Trust, and payments, other than Scheduled
Payments received on a Regular Distribution Date, received by the Trustee
following default in respect of Equipment Notes held in a Trust relating to one
or more Aircraft ("Special Payments") will be distributed on the date determined
pursuant to the applicable prospectus supplement (a "Special Distribution Date")
except that, unless otherwise specified in the applicable prospectus supplement,
payments received by the Trustee following default in respect of the Equipment
Notes on a Regular Distribution Date as a result of a drawing under any
liquidity facility arrangement specified in the applicable prospectus supplement
(each, a "Liquidity Facility") provided for the benefit of the
Certificateholders shall be distributed on such Regular Distribution Date. The
Trustee will mail notice to the Certificateholders of record of the applicable
Trust not less than 20 days prior to the Special Distribution Date on which any
Special Payment is scheduled to be distributed by the Trustee stating such
anticipated Special Distribution Date.
11
<PAGE>
POOL FACTORS
The Pool Factor (as defined below) for the Trusts will decline in proportion
to the scheduled repayments of principal on the Equipment Notes held in such
Trust as described in the applicable prospectus supplement unless there has been
- an early redemption,
- a purchase of an issue of Equipment Notes by the related Owner Trustee
after an Indenture Default (as defined below),
- a default in the payment of principal in respect of one or more issues of
the Equipment Notes held in a Trust or
- certain actions have been taken following a default thereon, as described
in the applicable prospectus supplement,
in which event the Pool Factor and the Pool Balance (as defined below) of
each Trust so affected will be recomputed after giving effect thereto and notice
thereof will be mailed to the Certificateholders of such Trust. Each Trust will
have a separate Pool Factor.
Unless otherwise described in the applicable prospectus supplement, the
"Pool Balance" for each Trust or for the Certificates issued by any Trust
indicates, as of any date, the original aggregate face amount of the
Certificates of such Trust less the aggregate amount of all payments made in
respect of the Certificates of such Trust other than payments made in respect of
interest or premium thereon or reimbursement of any costs and expenses in
connection therewith. The Pool Balance for each Trust as of any Regular
Distribution Date or Special Distribution Date shall be computed after giving
effect to the payment of principal, if any, on the Equipment Notes or other
Trust Property held in such Trust and the distribution thereof to be made on
that date.
Unless otherwise described in the applicable prospectus supplement, the
"Pool Factor" for each Trust as of any Regular Distribution Date or Special
Distribution Date is the quotient (rounded to the seventh decimal place)
computed by dividing (i) the Pool Balance by (ii) the aggregate original
principal amount of the Equipment Notes held in such Trust. The Pool Factor for
each Trust as of any Regular Distribution Date or Special Distribution Date
shall be computed after giving effect to the payment of principal, if any, on
the Equipment Notes held in such Trust and distribution thereof to be made on
that date. The Pool Factor for each Trust will initially be 1.0000000;
thereafter, the Pool Factor for each Trust will decline as described above to
reflect reductions in the Pool Balance of such Trust. The amount of a
Certificateholder's pro rata share of the Pool Balance of a Trust can be
determined by multiplying the original denomination of the holder's Certificate
of such Trust by the Pool Factor for such Trust as of the applicable Regular
Distribution Date or Special Distribution Date. The Pool Factor and the Pool
Balance for each Trust will be mailed to Certificateholders of such Trust on
each Regular Distribution Date and Special Distribution Date.
REPORTS TO CERTIFICATEHOLDERS
On each Regular Distribution Date and Special Distribution Date, the Trustee
will include with each distribution of a Scheduled Payment or Special Payment to
Certificateholders of the related Trust a statement, giving effect to such
distribution to be made on such Regular Distribution Date or Special
Distribution Date, setting forth the following information (per $1,000 aggregate
principal amount of Certificate for such Trust, as to (i) and (ii) below):
(i) the amount of such distribution allocable to principal and the amount
allocable to premium, if any;
(ii) the amount of such distribution allocable to interest; and
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<PAGE>
(iii) the Pool Balance and the Pool Factor for such Trust.
If so specified in the related prospectus supplement, the Trustee for a
series or class of Certificates may include in such statement additional
information, such as (i) the aggregate amount of funds distributed on such
payment date and the source of such funds and (ii) in the case of a delayed
purchase, certain information regarding the escrowed funds.
So long as the Certificates are registered in the name of Cede, as nominee
for DTC, on the record date prior to each Regular Distribution Date and Special
Distribution Date, the Trustee will request from DTC a Securities Position
Listing setting forth the names of all DTC Participants reflected on DTC's books
as holding interests in the Certificates on such record date. On each Regular
Distribution Date and Special Distribution Date, the Trustee will mail to each
such DTC Participant the statement described above and will make available
additional copies as requested by such DTC Participant for forwarding to
Certificate Owners.
In addition, after the end of each calendar year, the Trustee will prepare
for each Certificateholder of each Trust at any time during the preceding
calendar year a report containing the sum of the amounts determined pursuant to
clauses (i) and (ii) above with respect to the Trust for such calendar year or,
in the event such person was a Certificateholder during only a portion of such
calendar year, for the applicable portion of such calendar year, and such other
items as are readily available to the Trustee and which a Certificateholder
shall reasonably request as necessary for the purpose of such
Certificateholder's preparation of its federal income tax returns. Such report
and such other items shall be prepared on the basis of information supplied to
the Trustee by the DTC Participants and shall be delivered by the Trustee to
such DTC Participants to be available for forwarding by such DTC Participants to
Certificate Owners in the manner described above.
At such time, if any, as the Certificates are issued in the form of
Definitive Certificates, the Trustee will prepare and deliver the information
described above to each Certificateholder of record of each Trust as the name
and period of beneficial ownership of such Certificateholder appears on the
records of the registrar of the Certificates.
VOTING OF EQUIPMENT NOTES
Subject to the effect of any cross-subordination provisions set forth in the
related prospectus supplement, the Trustee, as holder of the Equipment Notes
held in each Trust, has the right to vote and give consents and waivers with
respect to such Equipment Notes under the Related Indentures. The Basic
Agreement and related Trust Supplement set forth
(i) the circumstances in which the Trustee may direct any action or cast any
vote as the holder of the Equipment Notes held in the applicable Trust
at its own discretion,
(ii) the circumstances in which the Trustee shall seek instructions from the
Certificateholders of such Trust, and
(iii) the percentage of Certificateholders required to direct the Trustee to
take any such action.
If specified in the related prospectus supplement, the right of a Trustee to
vote and give consents and waivers with respect to the Equipment Notes held in
the related Trust may, in the circumstances set forth in an intercreditor
agreement to be executed by such Trustee, be exercisable by another person
specified in such prospectus supplement.
EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
The prospectus supplement related to a series or class of Certificates will
specify the events of default under the Basic Agreement (an "Event of Default")
and the Related Indentures (an "Indenture Default"). With respect to Leased
Aircraft Notes, the Indenture Defaults will include events of default
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under the related Leases (a "Lease Event of Default"). With respect to any
Equipment Notes which are supported by a Liquidity Facility the Indenture
Defaults may include events of default under such Liquidity Facility. Unless
otherwise provided in a prospectus supplement, all of the Equipment Notes issued
under the same Indenture will relate to one or more specific Aircraft and there
will be no cross-collateralization or cross-default provisions in the
Indentures. Events resulting in an Indenture Default under any particular
Indenture will not necessarily result in an Indenture Default occurring under
any other Indenture.
As described below under "--Cross-Subordination Issues," a prospectus
supplement may provide the terms of any cross-subordination provisions among
Certificateholders of separate Trusts. If such provisions are so provided,
payments made pursuant to a Related Indenture under which an Indenture Default
(and as to which payments continue to be made as scheduled) has not occurred may
be distributed first to the holders of the Certificates issued under the Trust
which holds the most senior Equipment Notes issued under all Related Indentures.
With respect to Leased Aircraft Notes, the ability of the Owner Trustee or
Owner Participant under the Related Indenture to cure Indenture Defaults,
including Indenture Defaults that result from the occurrence of a Lease Event of
Default under the related Lease, will be described in the prospectus supplement.
Unless otherwise provided in a prospectus supplement, with respect to any
Certificates or Equipment Notes entitled to the benefits of a Liquidity
Facility, a drawing under any such Liquidity Facility for the purpose of making
a payment of interest as a result of the failure by Northwest to have made a
corresponding payment will not cure an Indenture Default related to such failure
by Northwest.
The prospectus supplement related to a series or class of Certificates will
set forth the percentage of Certificateholders of such Trust entitled to direct
the Trustee to take any action with respect to the related Equipment Notes and,
if applicable, Equipment Notes issued under any other Related Indenture. If the
Equipment Notes outstanding under an Indenture are held by more than one Trust,
then the ability of the Certificateholders issued with respect to any one Trust
to cause the Loan Trustee with respect to any Equipment Notes held in such Trust
to accelerate the Equipment Notes under the Related Indenture or to direct the
exercise of remedies by the Loan Trustee under the Related Indenture will
depend, in part, upon the proportion between the aggregate principal amount of
the Equipment Notes outstanding under such Indenture and held in such Trust and
the aggregate principal amount of all Equipment Notes outstanding under such
Indenture. In addition, if cross-subordination provisions are applicable to any
series or class of Certificates, then the ability of the Certificateholders of
any one Trust holding Equipment Notes issued under Related Indentures to cause
the Loan Trustee with respect to any Equipment Notes held in such Trust to
accelerate the Equipment Notes under the Related Indenture or to direct the
exercise of remedies by the Loan Trustee under the Related Indenture will
depend, in part, upon the class or series of Notes held in such Trust. If the
Equipment Notes outstanding under an Indenture are held by more than one Trust,
then each Trust will hold Equipment Notes with different terms from the
Equipment Notes held in the other Trusts and therefore the Certificateholders of
a Trust may have divergent or conflicting interests from those of the
Certificateholders of the other Trusts holding Equipment Notes relating to the
same Indenture. In addition, so long as the same institution acts as Trustee of
each Trust, in the absence of instructions from the Certificateholders of any
such Trust, the Trustee for such Trust could for the same reason be faced with a
potential conflict of interest upon an Indenture Default. In such event, the
Trustee has indicated that it would resign as Trustee of one or all such Trusts,
and a successor trustee would be appointed in accordance with the terms of the
Basic Agreement.
The prospectus supplement for a series or class of Certificates will specify
whether and under what circumstances the Trustee may or shall sell for cash to
any person all or part of the related Equipment Notes. Any proceeds received by
the Trustee upon any such sale shall be deposited in an account established by
the Trustee for the benefit of the Certificateholders of such Trust (the
"Special Payments
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Account"). The market for Equipment Notes in default may be very limited, and
there can be no assurance that they could be sold for a reasonable price.
Furthermore, so long as the same institution acts as Trustee of multiple Trusts,
it may be faced with a conflict in deciding from which Trust to sell Equipment
Notes to available buyers. If the Trustee sells any such Equipment Notes with
respect to which an Indenture Default exists for less than their outstanding
principal amount, the Certificateholders of such Trust will receive a smaller
amount of principal distributions than anticipated and will not have any claim
for the shortfall against Northwest, any Owner Trustee, Owner Participant, the
Trustee or (except for the Parent Guaranty) their affiliates. Furthermore,
neither the Trustee nor the Certificateholders of such Trust could take any
action with respect to any remaining Equipment Notes held in such Trust so long
as no Indenture Defaults exist with respect thereto.
With respect to any Trust, the following amounts shall be deposited into the
Special Payments Account and distributed to the related Certificateholders of
such Trust on a Special Payments Date:
- Any amount, other than Scheduled Payments received on a Regular
Distribution Date, distributed to the Trustee of such Trust by the Loan
Trustee under any Indenture on account of the Equipment Notes held in such
Trust following an Indenture Default under such Indenture.
- If a prospectus supplement provides that the applicable Owner Trustee may,
under circumstances specified therein, redeem or purchase the outstanding
Equipment Notes issued under the Related Indenture, the price paid by such
Owner Trustee to the Trustee of such Trust for the Equipment Notes issued
under such Indenture and held in such Trust.
Any funds representing payments received with respect to any Equipment Notes
held in such Trust in default, or the proceeds from the sale by the Trustee of
any such Equipment Notes, held by the Trustee in the Special Payments Account
for such Trust shall, to the extent practicable, be invested and reinvested by
the Trustee in Permitted Investments pending the distribution of such funds on a
Special Distribution Date. "Permitted Investments" will be specified in the
related prospectus supplement.
The Basic Agreement provides that the Trustee of each Trust shall, within
90 days after the occurrence of a default in respect of such Trust, give to the
Certificateholders of such Trust notice, transmitted by mail, of all uncured or
unwaived defaults with respect to such Trust known to it, provided that, except
in the case of default in the payment of principal, premium, if any, or interest
on any of the Equipment Notes held in such Trust, the Trustee shall be protected
in withholding such notice if it in good faith determines that the withholding
of such notice is in the interests of such Certificateholders. The term
"default" as used in this paragraph only means the occurrence of an Event of
Default with respect to a Trust as described above, except that in determining
whether any such Event of Default has occurred, any grace period or notice in
connection therewith shall be disregarded.
The Basic Agreement contains a provision entitling the Trustee of each
Trust, subject to the duty of the Trustee during a default to act with the
required standard of care, to be offered reasonable security or indemnity by the
Certificateholders of such Trust before proceeding to exercise any right or
power under the Basic Agreement at the request of such Certificateholders.
The prospectus supplement for a series or class of Certificates will specify
the percentage of Certificateholders entitled to waive, or to instruct the
Trustee to waive, any past Event of Default with respect to such Trust and
thereby annul any direction given with respect thereto. The prospectus
supplement for a series or class of Certificates will also specify the
percentage of Certificateholders (and whether of such Trust or of any other
Trust holding Equipment Notes issued under Related Indentures) entitled to
waive, or to instruct the Trustee or the Loan Trustee to waive, any past
Indenture Default with respect to the Equipment Notes held in such Trust and
thereby annul any direction given with respect thereto.
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MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
Northwest will be prohibited from consolidating with or merging into any
other corporation or transferring substantially all of its assets as an entirety
to any other corporation unless
- (i) the surviving successor or transferee corporation shall (a) be a
"citizen of the United States" (as defined in Section 40102(a)(15) of
Title 49 of the United States Code) holding a carrier operating
certificate issued by the Secretary of Transportation pursuant to Chapter
447 of Title 49, United States Code, for aircraft capable of carrying 10
or more individuals or 6,000 pounds or more of cargo and with respect to
which there is in force an air carrier operating certificate issued
pursuant to Part 121 of the regulations under the sections of Title 49,
United States Code, relating to aviation and (b) expressly assume all of
the obligations of Northwest contained in the Basic Agreement and any
Trust Supplement, the Note Purchase Agreements and the Indentures and,
with respect to the Leased Aircraft Notes, the Participation Agreements
and the Leases, and any other operative documents;
- (ii) immediately after giving effect to such transaction, no Indenture
Default (with respect to the Owned Aircraft Notes) or Lease Event of
Default (with respect to the Leased Aircraft Notes) shall have occurred
and be continuing; and
- (iii) Northwest shall have delivered a certificate and an opinion or
opinions of counsel indicating that such transaction, in effect, complies
with such conditions.
MODIFICATIONS OF THE BASIC AGREEMENT
The Basic Agreement contains provisions permitting Northwest, NWA Corp. and
the Trustee of each Trust to enter into a supplemental trust agreement, without
the consent of the holders of any of the Certificates of such Trust,
- to provide for the formation of such Trust and the issuance of a
series or class of Certificates,
- to evidence the succession of another corporation to Northwest or NWA
Corp. and the assumption by such corporation of Northwest's or NWA Corp.'s
obligations under the Basic Agreement and the applicable Trust Supplement,
- to add to the covenants of Northwest or NWA Corp. for the benefit of
holders of such Certificates, or to surrender any right or power in the
Basic Agreement conferred upon Northwest or NWA Corp.,
- to cure any ambiguity or correct or supplement any defective or
inconsistent provision of the Basic Agreement or the applicable Trust
Supplement or to make any other provisions with respect to matters or
questions arising thereunder, provided such action shall not adversely
affect the interests of the holders of such Certificates, or to cure any
ambiguity or correct any mistake,
- to modify, eliminate or add to the provisions of the Basic Agreement to
the extent necessary to continue the qualification of the Basic Agreement
(including any supplemental agreement) under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act") and to add to the Basic
Agreement such other provisions as may be expressly permitted by the Trust
Indenture Act,
- to provide for a successor Trustee or to add to or change any provision of
the Basic Agreement as necessary to facilitate the administration of the
Trusts thereunder by more than one Trustee,
- to add, eliminate or change any provisions under such Basic Agreement that
will not adversely affect the Certificateholders in any material respect,
provided that in each case, such modification does not cause the
corresponding Trust to become taxable as an "association"
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within the meaning of Treasury Regulation Section 301.7701-2 or a
"publicly traded partnership" within the meaning of Section 7704 of the
Code taxable as a corporation and
- to make any other amendments or modifications to the Basic Agreement,
provided such amendments or modifications shall only apply to Certificates
issued thereafter.
The Basic Agreement also contains provisions permitting Northwest, NWA Corp.
and the Trustee of each Trust, with the consent of the Certificateholders of
such Trust evidencing fractional undivided interests aggregating not less than a
majority in interest of such Trust, and, with respect to any Leased Aircraft,
with the consent of the applicable Owner Trustee (such consent not to be
unreasonably withheld), to execute supplemental trust agreements adding any
provisions to or changing or eliminating any of the provisions of the Basic
Agreement, to the extent relating to such Trust, and the applicable Trust
Supplement, or modifying the rights of the Certificateholders, except that no
such supplemental trust agreement may, without the consent of each
Certificateholder so affected thereby,
- reduce in any manner the amount of, or delay the timing of, any receipt by
the Trustee of payments on the Equipment Notes held in such Trust or
distributions in respect of any Certificate related to such Trust, or
change the date or place of any payment in respect of any Certificate, or
make distributions payable in coin or currency other than that provided
for in such Certificates, or impair the right of any Certificateholder of
such Trust to institute suit for the enforcement of any such payment when
due,
- permit the disposition of any Equipment Note held in such Trust, except as
provided in the Basic Agreement or the applicable Trust Supplement, or
otherwise deprive any Certificateholder of the benefit of the ownership of
the applicable Equipment Notes,
- reduce the percentage of the aggregate fractional undivided interests of
the Trust provided for in the Basic Agreement or the applicable Trust
Supplement, the consent of the holders of which is required for any such
supplemental trust agreement or for any waiver provided for in the Basic
Agreement or such Trust Supplement,
- modify any of the provisions relating to the rights of the
Certificateholders in respect of the waiver of events of default or
receipt of payment or
- cause the Trust to become taxable as an "association" within the meaning
of Treasury Regulation Section 301.7701-2 or a "publicly traded
partnership" within the meaning of Section 7704 of the Code taxable as a
corporation.
MODIFICATION OF INDENTURE AND RELATED AGREEMENTS
The prospectus supplement will specify the Trustee's obligations in the
event that the Trustee, as the holder of any Equipment Notes held in a Trust,
receives a request for its consent to any amendment, modification or waiver
under the Indenture or other documents relating to such Equipment Notes
(including any Lease with respect to Leased Aircraft Notes or any Liquidity
Facility).
CROSS-SUBORDINATION ISSUES
The Equipment Notes issued under an Indenture may be held in more than one
Trust and one Trust may hold Equipment Notes issued under more than one Related
Indenture. Unless otherwise provided in a prospectus supplement, only Equipment
Notes of the same class or series may be held in the same Trust. In such event,
payments made on account of a subordinate class or series of Equipment Notes
issued under a Related Indenture may, under circumstances described in the
related prospectus supplement, be subordinated to the prior payment of all
amounts owing to Certificateholders of a Trust which holds senior Equipment
Notes issued under all Related Indentures. The prospectus supplement related to
an issuance of Certificates will describe any such "cross-subordination"
provisions and any
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related terms, including the percentage of Certificateholders under any Trust
which are permitted to (i) grant waivers of defaults under any Related
Indenture, (ii) consent to the amendment or modification of any Related
Indentures or (iii) direct the exercise of remedial actions under any Related
Indentures.
TERMINATION OF THE TRUSTS
The obligations of Northwest, NWA Corp. and the Trustee with respect to a
Trust will terminate upon the distribution to Certificateholders of such Trust
of all amounts required to be distributed to them pursuant to the Basic
Agreement and the applicable Trust Supplement and the disposition of all
property held in such Trust. The Trustee will send to each Certificateholder of
record of such Trust notice of the termination of such Trust, the amount of the
proposed final payment and the proposed date for the distribution of such final
payment for such Trust. The final distribution to any Certificateholder of such
Trust will be made only upon surrender of such Certificateholder's Certificates
at the office or agency of the Trustee specified in such notice of termination.
DELAYED PURCHASE
In the event that, on the delivery date of any Certificates, all of the
proceeds from the sale of such Certificates are not used to purchase the
Equipment Notes contemplated to be held in the related Trust, such Equipment
Notes may be purchased by the Trustee at any time on or prior to a subsequent
date specified in the applicable prospectus supplement. In such event, the
proceeds from the sale of such Certificates not used to purchase Equipment Notes
will be held under an arrangement described in the applicable prospectus
supplement pending the purchase of the Equipment Notes not so purchased. If any
such proceeds are not subsequently used to purchase Equipment Notes by the date
specified in the prospectus supplement, such proceeds will be returned to the
holders of such Certificates.
THE PARENT GUARANTY
NWA Corp. will unconditionally guarantee (i) with respect to related Owned
Aircraft Notes, the full and prompt payment of principal, premium, if any, and
interest thereon when and as the same shall become due and payable, whether at
maturity, upon redemption or otherwise, and (ii) with respect to related Leased
Aircraft Notes, the full and prompt payment of all amounts payable by Northwest
under the related Lease when and as the same shall become due and payable.
The Parent Guaranty will be enforceable without any need first to enforce
any Owned Aircraft Note or Lease against Northwest. The Parent Guaranty will be
an unsecured obligation of NWA Corp.
LIQUIDITY FACILITY
The related prospectus supplement may provide that one or more payments of
interest on the Certificates of one or more series or classes will be supported
by a Liquidity Facility issued by an institution identified in the related
prospectus supplement. The provider of such Liquidity Facility will have a claim
senior to the Certificateholders' as specified in the related prospectus
supplement.
THE TRUSTEE
The Trustee for each series or class of Certificates will be identified in
the prospectus supplement. With certain exceptions, the Trustee will make no
representations as to the validity or sufficiency of the Basic Agreement, the
Trust Supplements, the Certificates, the Equipment Notes, the Indentures, the
Leases or other related documents. With respect to any series or class of
Certificates, the Trustee shall not be liable for any action taken or omitted to
be taken by it in good faith in accordance with the direction of the holders of
a majority in principal amount of outstanding Certificates of such series or
class. Subject to such provisions, such Trustee shall be under no obligation to
exercise any of its rights
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or powers under the Basic Agreement at the request of any holders of
Certificates issued thereunder unless they shall have offered to the Trustee
indemnity satisfactory to it. The Basic Agreement provides that the Indenture
Trustee in its individual or any other capacity may acquire and hold
Certificates issued thereunder and, subject to certain conditions, may otherwise
deal with Northwest, NWA Corp. and, with respect to the Leased Aircraft, with
any Owner Trustee and Owner Participant with the same rights it would have if it
were not the Trustee.
The Trustee may resign with respect to any or all of the Trusts at any time,
in which event Northwest will be obligated to appoint a successor trustee. If
the Trustee
- ceases to be eligible to continue as Trustee with respect to a Trust or
- becomes incapable of acting as Trustee or
- becomes insolvent,
Northwest may remove such Trustee, or any Certificateholder of such Trust
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of such
Trustee and the appointment of a successor trustee. Any resignation or removal
of the Trustee with respect to a Trust and appointment of a successor trustee
for such Trust will not become effective until acceptance of the appointment by
the successor trustee. Pursuant to such resignation and successor trustee
provisions, it is possible that a different trustee could be appointed to act as
the successor trustee with respect to each Trust. All references in this
prospectus to the Trustee should be read to take into account the possibility
that the Trusts could have different successor trustees in the event of such a
resignation or removal.
The Basic Agreement provides that Northwest will pay the Trustee's fees and
expenses and indemnify the Trustee against certain liabilities.
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DESCRIPTION OF THE EQUIPMENT NOTES
The statements made under this caption are summaries and reference is made
to the entire prospectus and detailed information appearing in the applicable
prospectus supplement. Where no distinction is made between the Leased Aircraft
Notes and the Owned Aircraft Notes or between their respective Indentures, such
statements refer to any Equipment Notes and any Indenture.
TO THE EXTENT THAT ANY PROVISION IN ANY PROSPECTUS SUPPLEMENT IS
INCONSISTENT WITH ANY PROVISION IN THIS SUMMARY, THE PROVISION OF SUCH
PROSPECTUS SUPPLEMENT WILL CONTROL.
GENERAL
All Equipment Notes will be issued under a separate Indenture either (a)
between the related Owner Trustee of a trust for the benefit of the Owner
Participant who is the beneficial owner of the related Aircraft, and the related
Loan Trustee, or (b) between Northwest and the related Loan Trustee. The
Equipment Notes issued pursuant to clause (a) of the preceding sentence will be
nonrecourse obligations of the applicable Owner Trust. Each Equipment Note will
be authenticated under an Indenture by the Loan Trustee. All Equipment Notes
issued under the same Indenture will relate to, and be secured by, one or more
Aircraft identified and described in the related prospectus supplement and
which, in the case of Equipment Notes issued as described in such clause (a),
are leased to Northwest pursuant to a Lease between the Owner Trustee under the
applicable Owner Trust and Northwest or, in the case of Equipment Notes issued
as described in clause (b), owned by Northwest.
With respect to each Leased Aircraft, the related Owner Trustee has acquired
or will acquire such Aircraft from Northwest or the manufacturer of such
Aircraft, as the case may be, has granted or will grant a security interest in
such Aircraft to the related Loan Trustee as security for the payments of the
related Leased Aircraft Notes, and has leased or will lease such Aircraft to
Northwest pursuant to the related Lease which has been or will be assigned to
the related Loan Trustee. Pursuant to each such Lease, Northwest will be
obligated to make or cause to be made rental and other payments to the related
Loan Trustee on behalf of the related Owner Trustee in amounts that will be
sufficient to make payments of the principal, interest and premium, if any,
required to be made in respect of such Leased Aircraft Notes when and as due and
payable.
The rental obligations of Northwest under each Lease and the obligations of
Northwest under each Owned Aircraft Indenture and under the Owned Aircraft Notes
will be general obligations of Northwest. Except in certain circumstances
involving Northwest's purchase of a Leased Aircraft and the assumption of the
Leased Aircraft Notes related thereto, the Leased Aircraft Notes are not
obligations of, or guaranteed by, Northwest.
PRINCIPAL AND INTEREST PAYMENTS
Interest received by the Trustee on the Equipment Notes held in each Trust
will be passed through to the Certificateholders of such Trust on the dates and
at the rate per annum set forth in the applicable prospectus supplement until
the final distribution for such Trust. Principal received by the Trustee on the
Equipment Notes held in each Trust will be passed through to the
Certificateholders of such Trust in scheduled amounts on the dates set forth in
the applicable prospectus supplement until the final distribution date for such
Trust.
If any date scheduled for any payment of principal, premium, if any, or
interest with respect to the Equipment Notes is not a Business Day, such payment
will be made on the next succeeding Business Day without any additional
interest.
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REDEMPTION
The applicable prospectus supplement will describe the circumstances,
whether voluntary or involuntary, under which the Equipment Notes may be
redeemed or purchased prior to the stated maturity date thereof, in whole or in
part, the premium, if any, applicable upon certain redemptions or purchases and
other terms applying to the redemptions or purchases of such Equipment Notes.
SECURITY
The Leased Aircraft Notes will be secured by
- an assignment by the related Owner Trustee to the related Loan Trustee of
such Owner Trustee's rights (except for certain rights, including those
described below) under the Lease or Leases with respect to the related
Aircraft, including the right to receive payments of rent thereunder,
- a mortgage granted to such Loan Trustee in such Aircraft, subject to the
rights of Northwest under such Lease or Leases, and
- an assignment to such Loan Trustee of certain of such Owner Trustee's
rights with respect to such Aircraft under the purchase agreement between
Northwest and the related manufacturer.
Under the terms of each Lease, Northwest's obligations in respect of each
Leased Aircraft will be those of a lessee under a "net lease." Accordingly,
Northwest will be obligated, among other things and at its expense, to cause
each Leased Aircraft to be duly registered, to pay all costs of operating such
Aircraft and to maintain, service, repair and overhaul (or cause to be
maintained, serviced, repaired and overhauled) such Aircraft. With respect to
the Leased Aircraft, the assignment by the related Owner Trustee to the related
Loan Trustee of its rights under the related Lease will exclude, among other
things, rights of such Owner Trustee and the related Owner Participant relating
to indemnification by Northwest for certain matters, insurance proceeds payable
to such Owner Trustee in its individual capacity and to such Owner Participant
under liability insurance maintained by Northwest pursuant to such Lease or by
such Owner Trustee or such Owner Participant, insurance proceeds payable to such
Owner Trustee in its individual capacity or to such Owner Participant under
certain casualty insurance maintained by such Owner Trustee or such Owner
Participant pursuant to such Lease and any rights of such Owner Participant or
such Owner Trustee to enforce payment of the foregoing amounts and their
respective rights to the proceeds of the foregoing.
The Owned Aircraft Notes will be secured by
- a mortgage granted to the related Loan Trustee of all of Northwest's
right, title and interest in and to such Owned Aircraft, and
- if so provided in the related prospectus supplement, an assignment to such
Loan Trustee of certain of Northwest's rights with respect to such
Aircraft under the purchase agreement between Northwest and the related
manufacturer.
Under the terms of each Owned Aircraft Indenture, Northwest will be
obligated, among other things and at its expense, to cause each Owned Aircraft
to be duly registered, to pay all costs of operating such Aircraft and to
maintain, service, repair and overhaul (or cause to be maintained, serviced,
repaired and overhauled) such Aircraft.
The prospectus supplement will specify the required insurance coverage with
respect to the Aircraft.
Northwest will be required, except under certain circumstances, to keep each
Aircraft registered under the Federal Aviation Act of 1958, as amended (the
"Federal Aviation Act"), and to record the Indenture and the Lease, if
applicable, among other documents, with respect to each Aircraft under the
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Federal Aviation Act. Such recordation of the Indenture, the Lease, if
applicable, and other documents with respect to each Aircraft will give the
related Loan Trustee a perfected security interest in the related Aircraft
whenever it is located in the United States or any of its territories and
possessions; the Convention on the International Recognition of Rights in
Aircraft (the "Convention") provides that such security will also be recognized,
with certain limited exceptions, in those jurisdictions that have ratified or
adhere to the Convention. Northwest will have the right, subject to certain
conditions, at its own expense to register each Aircraft in countries other than
the United States. Each Aircraft may also be operated by Northwest or under
lease, sublease or interchange arrangements in countries that are not parties to
the Convention. The extent to which the related Loan Trustee's security interest
would be recognized in an Aircraft located in a country that is not a party to
the Convention, and the extent to which such security interest would be
recognized in a jurisdiction adhering to the Convention if the Aircraft is
registered in a jurisdiction not a party to the Convention, is uncertain.
Moreover, in the case of an Indenture Default, the ability of the related Loan
Trustee to realize upon its security interest in an Aircraft could be adversely
affected as a legal or practical matter if such Aircraft were registered or
located outside the United States.
Unless otherwise specified in the applicable prospectus supplement, the
Equipment Notes will not be cross-collateralized and consequently the Equipment
Notes issued in respect of any one Aircraft will not be secured by any other
Aircraft or, in the case of Leased Aircraft Notes, the Lease related thereto.
Unless and until an Indenture Default with respect to a Leased Aircraft has
occurred and is continuing, the related Loan Trustee may exercise only limited
rights of the related Owner Trustee under the related Lease.
Funds, if any, held from time to time by the Loan Trustee with respect to
any Aircraft, prior to the distribution thereof, will be invested and reinvested
by such Loan Trustee. Such investment and reinvestment will be at the direction
of Northwest (except, with respect to a Leased Aircraft, in the case of a Lease
Event of Default under the applicable Lease or, with respect to an Owned
Aircraft, in the case of an Indenture Default under the applicable Indenture),
in certain investments described in the Related Indenture. The net amount of any
loss resulting from any such investments will be paid by Northwest.
Section 1110 of the Bankruptcy Code provides that the right of lessors,
conditional vendors and holders of security interests with respect to
"equipment" (as defined in Section 1110 of the Bankruptcy Code) to take
possession of such equipment in compliance with the provisions of a lease,
conditional sale contract or security agreement, as the case may be, is not
affected after 60 days after the filing of a petition under Chapter 11 of the
Bankruptcy Code by (a) the automatic stay provision of the Bankruptcy Code,
which provision enjoins creditors' remedies except with the court's approval,
(b) the provision of the Bankruptcy Code allowing the trustee in reorganization
to use property of the debtor during the reorganization period, (c)
Section 1129 of the Bankruptcy Code (which governs the confirmation of plans of
reorganization in Chapter 11 cases) and (d) any power of the bankruptcy court to
enjoin a repossession. Section 1110 provides that the right to take possession
of an aircraft may not be exercised for 60 days following the date of
commencement of the reorganization proceedings and may not be exercised at all
after such 60-day period (or such longer period consented to by the lessor,
conditional vendor or holder of a security interest), if the trustee in
reorganization agrees to perform the debtor's obligations that become due on or
after such date and cures all existing defaults (other than defaults resulting
solely from the financial condition, bankruptcy, insolvency or reorganization of
the debtor, the appointment of a trustee or custodian or the failure to satisfy
any penalty rate or provision relating to a default arising from any failure by
the debtor to perform nonmonetary obligations under the applicable agreement).
"Equipment" is defined in Section 1110 of the Bankruptcy Code, in part, as "an
aircraft, aircraft engine, propeller, appliance, or spare part (as defined in
section 40102 of title 49) that is subject to a security interest granted by,
leased to or conditionally sold to a debtor that is a citizen of the United
States (as defined in section 40102 of title 49) holding an air
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carrier operating certificate issued by the Secretary of Transportation pursuant
to chapter 47 of title 49 for aircraft capable of carrying 10 or more
individuals or 6,000 pounds or more of cargo."
Section 1110 does not prevent the trustee or debtor-in-possession from
rejecting a lease (including any Lease) or demanding a renegotiation of such
lease as a condition to not rejecting such lease. In addition, if more than one
aircraft are leased pursuant to a master lease and accompanying lease
supplement, the applicability of Section 1110 would be determined on an
aircraft-by-aircraft basis. Assuming Section 1110 is applicable to all aircraft
subject to a master lease, Section 1110 does not prevent the trustee or
debtor-in-possession from complying with the provisions of Section 1110 with
respect to some lease supplements, and thereby retaining possession of the
related aircraft, and not complying with the provisions of Section 1110 with
respect to other lease supplements, and thereby enabling a repossession of other
aircraft.
In connection with any issuance of Certificates under this prospectus and
the applicable prospectus supplement, Northwest shall have received an opinion
from its counsel to the effect that (i) with respect to any Leased Aircraft, the
related Owner Trustee, as lessor under the related Lease, and the related Loan
Trustee, as assignee of such Owner Trustee's rights under such Lease pursuant to
the Related Indenture, would be entitled to the benefits of Section 1110 of the
Bankruptcy Code with respect to the Aircraft initially delivered under such
Lease and subjected to the Related Indenture or (ii) with respect to any Owned
Aircraft, the related Loan Trustee under the Related Indenture would be entitled
to the benefits of Section 1110 of the Bankruptcy Code with respect to the
Aircraft initially subjected to the Related Indenture. Such opinions will not
address the possible replacement of an Aircraft after an Event of Loss (as
defined in the Indenture) in the future.
RANKING OF EQUIPMENT NOTES
Some of the Equipment Notes related to one or more Aircraft, as described in
the related prospectus supplement, may be subordinated and junior in right of
payment to other Equipment Notes related to the same Aircraft. The terms of such
subordination, if any, will be described in the related prospectus supplement.
PAYMENTS AND LIMITATION OF LIABILITY
Each Leased Aircraft will be leased by the related Owner Trustee to
Northwest for a term commencing on the delivery date thereof to such Owner
Trustee and expiring on a date not earlier than the latest maturity date of the
related Leased Aircraft Notes, unless previously terminated as permitted by the
terms of the related Lease. The basic rent and other payments under each such
Lease will be payable by Northwest in accordance with the terms specified in the
applicable prospectus supplement, and will be assigned by the related Owner
Trustee under the Related Indenture to the Loan Trustee to provide the funds
necessary to pay principal of, premium, if any, and interest due from such Owner
Trustee on the Leased Aircraft Notes issued under such Indenture. In certain
cases, the basic rent payments under a Lease may be adjusted, but each Lease
will provide that under no circumstances will rent payments by Northwest be less
than the scheduled payments on the related Leased Aircraft Notes. The balance of
any basic rent payment under each Lease, after payment of amounts due on the
Leased Aircraft Notes issued under the Indenture corresponding to such Lease,
will be paid over to the applicable Owner Participant. Northwest's obligation to
pay rent and to cause other payments to be made under each Lease will be general
obligations of Northwest.
With respect to the Leased Aircraft Notes, except in certain circumstances
involving Northwest's purchase of a Leased Aircraft and the assumption of the
Leased Aircraft Notes related thereto, the Leased Aircraft Notes will not be
obligations of, or guaranteed by, Northwest or any of its affiliates. With
respect to the Leased Aircraft Notes, none of the Owner Trustees, the Owner
Participants or the Loan Trustees shall be personally liable to any holder of
such Leased Aircraft Notes for amounts
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payable under such Leased Aircraft Notes, or, except as provided in the
Indentures relating thereto in the case of the Owner Trustees and the Loan
Trustees, for any liability under such Indentures. Except in the circumstances
referred to above, all amounts payable under any Leased Aircraft Notes (other
than payments made in connection with an optional redemption or purchase by the
related Owner Trustee or the related Owner Participant) will be made only from
(i) the assets subject to the lien of the Related Indenture with respect to such
Aircraft or the income and proceeds received by the related Loan Trustee
therefrom (including rent payable by Northwest under the related Lease) or (ii)
if so provided in the related prospectus supplement, the applicable Liquidity
Facility.
With respect to the Leased Aircraft Notes, except as otherwise provided in
the Related Indentures, no Owner Trustee shall be personally liable for any
amount payable or for any statements, representations, warranties, agreements or
obligations under such Indentures or under such Leased Aircraft Notes except for
its own willful misconduct or gross negligence. None of the Owner Participants
shall have any duty or responsibility under the Leased Aircraft Indentures or
under such Leased Aircraft Notes to the related Loan Trustee or to any holder of
any such Leased Aircraft Note.
Northwest's obligations under each Owned Aircraft Indenture and under the
Owned Aircraft Notes will be general obligations of Northwest.
DEFEASANCE OF THE INDENTURES AND THE EQUIPMENT NOTES IN CERTAIN CIRCUMSTANCES
Unless otherwise specified in the applicable prospectus supplement, the
applicable Indenture provides that the obligations of the related Loan Trustee
and, with respect to any Leased Aircraft Notes, the related Owner Trustee or,
with respect to any Owned Aircraft Notes, Northwest under the applicable
Indenture shall be deemed to have been discharged and paid in full (except for
certain obligations, including the obligations to register the transfer or
exchange of Equipment Notes, to replace stolen, lost, destroyed or mutilated
Equipment Notes and to maintain paying agencies and hold money for payment in
trust) on the 91st day after the date of irrevocable deposit with the related
Loan Trustee of money or certain obligations of the United States or any agency
or instrumentality thereof the payment of which is backed by the full faith and
credit of the United States which, through the payment of principal and interest
in respect thereof in accordance with their terms, will provide money in an
aggregate amount sufficient to pay when due (including as a consequence of
redemption in respect of which notice is given on or prior to the date of such
deposit) principal of, premium, if any, and interest on all Equipment Notes
issued thereunder in accordance with the terms of such Indenture. Such discharge
may occur only if, among other things, there has been published by the Internal
Revenue Service a ruling to the effect that holders of such Equipment Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit, defeasance and discharge and will be subject to federal income
tax on the same amount and in the same manner and at the same time as would have
been the case if such deposit, defeasance and discharge had not occurred.
Upon such defeasance, or upon payment in full of the principal of, premium,
if any, and interest on all Equipment Notes issued under any Indenture on the
maturity date therefor or deposit with the applicable Loan Trustee of money
sufficient therefor no earlier than one year prior to the date of such maturity,
the holders of such Equipment Notes will have no beneficial interest in or other
rights with respect to the related Aircraft or other assets subject to the lien
of such Indenture and such lien shall terminate.
ASSUMPTION OF LEASE OBLIGATIONS BY NORTHWEST
Unless otherwise specified in the applicable prospectus supplement with
respect to Leased Aircraft, upon the exercise by Northwest of any purchase
options it may have under the related Lease prior to the end of the term of such
Lease, Northwest may assume on a full recourse basis all of the obligations of
the Owner Trustee (other than its obligations in its individual capacity) under
the
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Indenture with respect to such Aircraft, including the obligations to make
payments in respect of the related Leased Aircraft Notes. In such event, certain
relevant provisions of the related Lease, including (among others) provisions
relating to maintenance, possession and use of the related Aircraft, liens,
insurance and events of default will be incorporated into such Indenture, and
the Leased Aircraft Notes issued under such Indenture will not be redeemed and
will continue to be secured by such Aircraft.
LIQUIDITY FACILITY
The related prospectus supplement may provide that one or more payments of
interest on the related Equipment Notes of one or more series or classes or
distributions made by the Trustee of the related Trust will be supported by a
Liquidity Facility issued by an institution identified in the related prospectus
supplement. Unless otherwise provided in the related prospectus supplement, the
provider of the Liquidity Facility will have a senior claim upon the assets
securing the Equipment Notes.
INTERCREDITOR ISSUES
Equipment Notes may be issued in different classes or series, which means
that the Equipment Notes may have different payment priorities even though they
are issued by the same Owner Trustee and relate to the same Aircraft. In such
event, the related prospectus supplement will describe the priority of
distributions among such Equipment Notes (and any Liquidity Facilities
therefor), the ability of any class or series to exercise and/or enforce any or
all remedies with respect to the related Aircraft (and, if the Equipment Notes
are Leased Aircraft Notes, the Lease related thereto) and certain other
intercreditor terms and provisions.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion represents the opinion of Cadwalader, Wickersham &
Taft as to the principal U.S. federal income tax consequences to
Certificateholders of the purchase, ownership and disposition of the
Certificates. Except as otherwise specified, the discussion is addressed to
beneficial owners of Certificates ("U.S. Certificateholders") that are citizens
or residents of the United States, corporations, partnerships or other entities
created or organized in or under the laws of the United States or any State,
estates the income of which is subject to U.S. federal income taxation
regardless of its source or, generally, trusts if a court within the United
States is able to exercise primary supervision over the administration of such
trust, and one or more of the foregoing persons have the authority to control
all substantial decisions of such trust ("U.S. Persons") that will hold the
Certificates as capital assets. This discussion does not address the tax
treatment of U.S. Certificateholders that may be subject to special tax rules,
such as banks, insurance companies, dealers in securities or commodities,
tax-exempt entities, holders that will hold Certificates as part of a straddle
or holders that have a "functional currency" other than the U.S. Dollar, nor
does it address the tax treatment of U.S. Certificateholders that do not acquire
Certificates as part of the initial offering. This discussion does not describe
any tax consequences arising under the laws of any State, locality or taxing
jurisdiction other than the United States.
This discussion is based upon the tax laws of the United States as in effect
on the date of this prospectus, as well as judicial and administrative
interpretations thereof (in final or proposed form) available on or before such
date. All of the foregoing are subject to change or differing interpretations,
which could apply retroactively. Prospective investors should note that no
rulings have been or will be sought from the Internal Revenue Service (the
"IRS") with respect to any of the federal income tax consequences discussed
below, and no assurance can be given the IRS will not take contrary positions.
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PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE CERTIFICATES.
TAX STATUS OF THE TRUSTS
In the opinion of Cadwalader, Wickersham & Taft, special counsel to
Northwest, each Trust will not be classified as an association or a publicly
traded partnership taxable as a corporation for U.S. federal income tax purposes
and will not be subject to federal income tax. Each Trust will file federal
income tax returns and report to investors on the basis that it is a grantor
trust under Subpart E, Part I of Subchapter J of the Code. If a Trust were
treated as a partnership for U.S. federal income tax purposes rather than as a
grantor trust, in the opinion of Cadwalader, Wickersham & Taft, the consequences
to U.S. Certificateholders and, to the extent described below, Non-U.S.
Certificateholders, would not be materially different. The remainder of this
discussion describes the consequences of the treatment as a grantor trust.
Certificateholders who are not U.S. Persons should consult their own tax
advisors as to the suitability to them of an investment in the Certificates.
TAXATION OF CERTIFICATEHOLDERS GENERALLY
A U.S. Certificateholder will be treated as owning its pro rata undivided
interest in each of the Equipment Notes and any other property held by the
related Trust. Accordingly, each U.S. Certificateholder's share of interest paid
on the Equipment Notes will be taxable as ordinary income, as it is paid or
accrued, in accordance with such owner's method of accounting for U.S. federal
income tax purposes and a U.S. Certificateholder's share of premium, if any,
paid on the Equipment Notes will be treated as capital gain. Any amounts
received by a Trust from Interest Drawings under the relevant Liquidity Facility
will be treated for U.S. federal income tax purposes as having the same
characteristics as the payments they replace.
Each U.S. Certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding Trust as provided in Section 162 or 212 of the Code.
Certain fees and expenses, including fees paid to the Trustee and the Liquidity
Provider, will be borne by parties other than the Certificateholders. It is
possible that such fees and expenses will be treated as constructively received
by the Trust, in which event a U.S. Certificateholder will be required to
include in income and will be entitled to deduct its pro rata share of such fees
and expenses. If a U.S. Certificateholder is an individual, estate or trust, the
deduction for such holder's share of such fees or expenses will be allowed only
to the extent that all of such holder's miscellaneous itemized deductions,
including such holder's share of such fees and expenses, exceed 2% of such
holder's adjusted gross income. In addition, in the case of U.S.
Certificateholders who are individuals, certain otherwise allowable itemized
deductions will be subject generally to additional limitations on itemized
deductions under the applicable provisions of the Code.
EFFECT OF SUBORDINATION OF SUBORDINATED CERTIFICATEHOLDERS
If any Trust with respect to a series or class are subordinated with respect
to other Trusts of the same series or class (such Trusts being the "Subordinated
Trusts" and the related Certificates being the "Subordinated Certificates")
receives less than the full amount of the receipts of principal or interest paid
with respect to the Equipment Notes held by it (any shortfall in such receipts
being the "Shortfall Amounts") because of the subordination of the Equipment
Notes held by such Trust under the Intercreditor Agreement, the corresponding
owners of beneficial interests in the Subordinated Certificates (the
"Subordinated Certificateholders") would probably be treated for federal income
tax purposes as if they had (1) received as distributions their full share of
such receipts, (2) paid over to the relevant preferred class of
Certificateholders an amount equal to their share of such Shortfall Amount, and
(3) retained the right to reimbursement of such amounts to the extent of future
amounts payable to such Subordinated Certificateholders with respect to such
Shortfall Amount.
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Under this analysis, (1) Subordinated Certificateholders incurring a
Shortfall Amount would be required to include as current income any interest or
other income of the corresponding Subordinated Trust that was a component of the
Shortfall Amount, even though such amount was in fact paid to the relevant
preferred class of Certificateholders, (2) a loss would only be allowed to such
Subordinated Certificateholders when their right to receive reimbursement of
such Shortfall Amount became worthless (i.e., when it becomes clear that funds
will not be available from any source to reimburse such loss), and (3)
reimbursement of such Shortfall Amount prior to such a claim of worthlessness
would not be taxable income to Subordinated Certificateholders because such
amount was previously included in income. These results should not significantly
affect the inclusion of income for Subordinated Certificateholders on the
accrual method of accounting, but could accelerate inclusion of income to
Subordinated Certificateholders on the cash method of accounting by, in effect,
placing them on the accrual method.
ORIGINAL ISSUE DISCOUNT
The Equipment Notes may be issued with original issue discount ("OID"),
which may require U.S. Certificateholders to include such OID in gross income in
advance of the receipt or accrual of the stated interest on such Equipment
Notes. The prospectus supplement will state whether any Equipment Notes to be
held by the related Trust will be issued with OID. Generally, a holder of a debt
instrument issued with original issue discount that is not DE MINIMIS must
include such original issue discount in income for federal income tax purposes
as it accrues, in advance of the receipt of the cash attributable to such
income, under a method that takes into account the compounding of interest.
MARKET DISCOUNT
Generally, the term "market discount" means the excess of the remaining
principal amount of a Certificate over the holder's tax basis in such
Certificate immediately after its acquisition, subject to a DE MINIMIS
exception.
A holder who acquires a Certificate at a market discount will be required to
treat any gain realized on the disposition of such Certificate, except in
certain nonrecognition transactions, as ordinary income to the extent of the
market discount that accrued during the period that such holder held such
Certificate. Further, a disposition of a Certificate by gift (and in certain
other circumstances) could result in the recognition of market discount income,
computed as if such Certificate had been sold for its fair market value.
In the case of a partial principal payment on indebtedness subject to the
market discount rules, Section 1276 of the Code requires that such payment be
included in gross income as ordinary income to the extent such payment does not
exceed the market discount that has accrued during the period such indebtedness
was held. The amount of any accrued market discount later required to be
included in income upon a disposition, or subsequent partial principal payment,
will be reduced by the amount of accrued market discount previously included in
income.
Until Treasury regulations are issued, the explanatory Conference Committee
Report to the Tax Reform Act of 1986 (the "Conference Report") indicates that
holders of installment obligations (such as the Equipment Notes) with market
discount may elect to accrue market discount either (i) on the basis of a
constant interest rate or (ii) in the ratio to the total amount of remaining
market discount that the amount of stated interest paid in the accrual period
bears to the total amount of stated interest remaining to be paid on the
installment obligation as of the beginning of such period. Under Section 1277 of
the Code, if in any taxable year interest paid or accrued on indebtedness
incurred or continued to purchase or carry indebtedness subject to the market
discount rules exceeds the interest currently includable in income with respect
to such indebtedness, deduction of the excess interest must be deferred to the
extent of the market discount allocable to the taxable year. The deferred
portion of
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any interest expense will generally be deductible when such market discount is
included in income upon the sale or other disposition (including repayment) of
the indebtedness.
A holder of a Certificate acquired at a market discount may elect under
Section 1278 of the Code, in the manner provided by Revenue Procedure 92-67,
1992-34 I.R.B. 6, to include such discount in income as it accrues. The current
inclusion election applies to all market discount obligations acquired on or
after the first day to which the election applies, and may not be revoked
without the consent of the IRS. If a holder of a Certificate elects to include
market discount in income as it accrues, the foregoing rules of Section 1276 and
1277 of the Code with respect to the recognition of ordinary income on a sale or
other disposition of such Certificate and the deferral of interest deductions on
indebtedness related to such Certificate would not apply.
The IRS is authorized to issue regulations to implement the market discount
provisions of the Code. No such regulations have been issued or proposed. It is
impossible to anticipate what effect, if any, such regulations could have on the
Certificateholders.
AMORTIZABLE BOND PREMIUM
A U.S. Certificateholder should generally be considered to have acquired an
interest in an Equipment Note at a premium to the extent the purchaser's tax
basis allocable to such interest exceeds the remaining principal amount of the
Equipment Note allocable to such interest. In that event, a U.S.
Certificateholder who holds a Certificate as a capital asset may elect to
amortize that premium as an offset to interest income under Section 171 of the
Code with corresponding reductions in the U.S. Certificateholder's tax basis in
its Certificate. In the case of installment obligations (such as the Equipment
Notes), the Conference Report indicates a Congressional intent that amortization
will be in accordance with the same rules that will apply to the accrual of
market discount on installment obligations (see discussion above).
Under certain circumstances, amortizable bond premium may be determined by
reference to any early call date. It is unclear how the amortizable bond premium
rules apply where, as in the case with the Equipment Notes, the amount of
redemption premium payable on an early call date is unknown. In addition, the
treatment of any unamortized bond premium remaining at the time of an early call
is unclear. The U.S. Certificateholders are urged to consult their own tax
advisors as to the treatment of any amortizable bond premiums.
SALE OR OTHER DISPOSITION OF THE CERTIFICATES
Upon the sale, exchange or other disposition of a Certificate, a U.S.
Certificateholder generally will recognize capital gain or loss equal to the
difference between the amount realized on the disposition (other than any amount
attributable to accrued interest which will be taxable as ordinary income) and
the U.S. Certificateholder's adjusted tax basis in the related Equipment Notes
and any other assets held by the corresponding Trust. A U.S. Certificateholder's
adjusted tax basis will equal the holder's cost for its Certificate, plus any
accrued OID or market discount previously included in income or less any
amortized bond premium or any previously recognized losses or prior principal
payments. Any gain or loss generally will be capital gain or loss (other than
accrued market discount not previously included in income) if the Certificate
was held as a capital asset.
FOREIGN CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of principal
and interest (including OID) on the Equipment Notes to, or on behalf of, any
beneficial owner of a Certificate that is not a U.S. Person (a "Non-U.S.
Certificateholder") will not be subject to U.S. federal withholding tax;
PROVIDED, in the case of interest, that (i) such Non-U.S. Certificateholder does
not actually or constructively own 10% or more of the total combined voting
power of all classes of the stock of any
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Owner Participant (in the case of Leased Aircraft Notes) or of Northwest (in the
case of Owned Aircraft Notes), (ii) such Non-U.S. Certificateholder is not a
controlled foreign corporation for U.S. tax purposes that is related to an Owner
Participant (in the case of Leased Aircraft Notes) or of Northwest (in the case
of Owned Aircraft Notes), and (iii) either (A) the Non-U.S. Certificateholder
certifies, under penalties of perjury, that it is not a U.S. Person and provides
its name and address or (B) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "financial institution") and holds the Certificate
certifies, under penalties of perjury, that such statement has been received
from the Non-U.S. Certificateholder by it or by another financial institution
and furnishes the payor with a copy thereof.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a Certificate or upon receipt of premium paid on an Equipment
Note by a Non-U.S. Certificateholder will not be subject to U.S. federal income
or withholding taxes if (i) such gain is not effectively connected with a U.S.
trade or business of the holder and (ii) in the case of an individual, such
holder is not present in the United States for 183 days or more in the taxable
year of the sale, exchange, retirement or other disposition or receipt.
Any interest or gain described in the two preceding paragraphs will be
subject to regular U.S. federal income tax at graduated rates if it is
effectively connected with the conduct of a U.S. trade or business by a non-U.S.
Certificateholder.
BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments within the United States of principal, interest, OID and premium on the
Certificates, and to payments of the proceeds of certain sales of Certificates
made to U.S. Certificateholders other than certain exempt recipients (such as
corporations). A 31% "backup withholding" tax may apply to such payments if the
holder fails or has failed to provide an accurate taxpayer identification number
or otherwise establish an exemption or fails to report in full interest income.
With respect to Non-U.S. Certificateholders, payments made on a Certificate and
proceeds from the sale of a Certificate owned by a Non-U.S. Certificateholder
will generally not be subject to such information reporting requirements or
backup withholding tax if such Non-U.S. Certificateholder provides the
applicable statement as to its non-U.S. status or otherwise establishes an
exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be allowed as a refund or credit against such
holder's U.S. federal income tax liability, if any, provided the required
information is furnished to the IRS.
The Treasury Department recently issued final Treasury Regulations (the
"FINAL REGULATIONS") governing withholding, backup withholding and information
reporting requirements. The Final Regulations do not significantly alter the
substantive withholding and information reporting requirements discussed herein;
they unify current certification procedures and forms and clarify reliance
standards. The Final Regulations will generally become effective for payments
made after December 31, 2000.
ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable prospectus supplement, the
Certificates may, subject to certain legal restrictions, be purchased and held
by an employee benefit plan (a "Plan") subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or an individual
retirement account or an employee benefit plan subject to section 4975 of the
Code. A fiduciary of a Plan must determine that the purchase and holding of a
Certificate is consistent with its fiduciary duties under ERISA and does not
result in a non-exempt prohibited transaction as defined in section 406 of ERISA
or section 4975 of the Code. Employee benefit plans which are governmental
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plans (as defined in section 3(32) of ERISA) and certain church plans (as
defined in section 3(33) of ERISA) are not subject to Title I of ERISA or
section 4975 of the Code. The Certificates may, subject to certain legal
restrictions, be purchased and held by such plans.
PLAN OF DISTRIBUTION
Northwest may sell Securities (a) through underwriters, (b) directly to
investors or other persons or (c) through dealers or agents. The applicable
prospectus supplement will name any underwriter, dealer or agent involved in the
offer and sale of the Certificates.
The Certificates may be sold (a) at a fixed price or prices, which may be
changed, (b) from time to time at market prices prevailing at the time of sale,
(c) at prices related to those market prices, or (d) at negotiated prices.
Dealer trading may take place in certain of the Certificates, including
Certificates not listed on any securities exchange.
Northwest may, from time to time, authorize underwriters acting as
Northwest's agents to offer and sell the Certificates upon the terms and
conditions set forth in any prospectus supplement. In connection with the sale
of Certificates, underwriters may be deemed to have received compensation from
Northwest in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of Certificates for whom they may act as
agent. Underwriters may sell Certificates to or through dealers, and those
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions, which may be changed from
time to time, from the purchasers for whom they may act as agent.
If Northwest directly uses a dealer in the sale of Certificates, Northwest
will sell the Certificates to the dealer, as principal. The dealer may then
resell the Certificates to the public at varying prices to be determined by the
dealer at the time of resale. The applicable prospectus supplement will name any
dealer and set forth the terms of any of those sales.
Northwest may offer and sell Certificates through agents designated by
Northwest from time to time. The applicable prospectus supplement will name any
agent involved in the offer or sale of the Certificates and set forth any
commissions payable by Northwest to that agent. Unless the applicable prospectus
indicates otherwise, the agent will be acting on a best efforts basis for the
period of its appointment.
Northwest may directly solicit offers to purchase Certificates and sell them
directly to institutional investors or others who may be deemed to be
underwriters within the meaning of the Securities Act of 1933 with respect to
any resale of the Certificates. The applicable prospectus supplement will
describe the terms of any of those sales. Except as set forth in the applicable
prospectus supplement, no director, officer or employee of Northwest or NWA
Corp. will solicit or receive a commission in connection with direct sales by
Northwest of the Certificates, although these persons may respond to inquiries
by potential purchasers and perform ministerial and clerical work in connection
with any of these direct sales.
The applicable prospectus supplement will set forth any underwriting
compensation paid by Northwest to underwriters, dealers or agents in connection
with the offering of Certificates, and any discounts, concessions or commissions
allowed by underwriters to participating dealers. Underwriters, dealers and
agents participating in the distribution of the Certificates may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the Certificates may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933.
Underwriters, dealers and agents may be entitled, under agreements with
Northwest and NWA Corp., to indemnification against and contribution toward
certain civil liabilities, including liabilities
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under the Securities Act of 1933, and to reimbursement by Northwest and NWA
Corp. for certain expenses.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, NWA Corp., Northwest and NWA Corp.'s other subsidiaries in the
ordinary course of business.
If the applicable prospectus supplement so indicates, subject to existing
market conditions, Northwest will authorize dealers acting as Northwest's agents
to solicit offers by certain institutions to purchase Certificates from
Northwest at the public offering price set forth in the applicable prospectus
supplement pursuant to Delayed Delivery Contracts ("Contracts") that provide for
payment and delivery on the date or dates stated in the applicable prospectus
supplement. Each Contract will be for an amount not less than, and the aggregate
principal amount of Certificates sold pursuant to Contracts shall not be less
nor more than, the respective amounts stated in the applicable prospectus
supplement. Institutions with whom Contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and other institutions, but will in all
cases be subject to the approval of Northwest. Contracts will not be subject to
any conditions, except the purchase by an institution of the Certificates
covered by its Contracts will not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which the institution is
subject. The applicable prospectus supplement will indicate the commission that
will be granted to underwriters and agents soliciting purchases of Certificates
pursuant to Contracts accepted by Northwest. Agents and underwriters will have
no responsibility in respect of the delivery or performance of Contracts.
The Certificates may or may not be listed on a national securities exchange
or a foreign securities exchange. If Northwest uses an underwriter or
underwriters in the sale of any Certificates, the applicable prospectus
supplement will contain a statement as to the underwriters' intention, if any,
at the date of the prospectus supplement to make a market in the Certificates.
No assurances can be given that there will be a market for the Certificates.
The applicable prospectus supplement will set forth the place and time of
delivery for the Certificates. Northwest will issue the Debt Securities that are
issuable upon exercise of Warrants upon payment of the exercise and otherwise in
accordance with the relevant terms applicable to the Warrants and described in
the applicable prospectus supplement.
LEGAL OPINIONS
Unless the applicable prospectus supplement indicates otherwise, the
validity of the Certificates and the Parent Guaranty will be passed upon for
Northwest by Simpson Thacher & Bartlett, New York, New York. Unless the
applicable prospectus supplement indicates otherwise, Simpson Thacher & Bartlett
will rely on the opinion of counsel for the Trustee as to certain matters
relating to the authorization, execution and delivery of such Certificates by,
and the valid and binding effect thereof on, such Trustee. Certain federal
income tax matters will be passed upon by Cadwalader, Wickersham & Taft, New
York, New York, special tax counsel to Northwest.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedule of NWA Corp. included in NWA Corp.'s Annual
Report on Form 10-K for the year ended December 31, 1998, as set forth in their
report on the consolidated financial statements and schedule incorporated in by
reference in this prospectus. Such consolidated financial statements and
schedule are incorporated in this prospectus by reference in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
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