<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 27, 1998)
$421,200,000
[LOGO]
NORTHWEST AIRLINES
1999-1 PASS THROUGH TRUSTS
PASS THROUGH CERTIFICATES, SERIES 1999-1
--------------
NORTHWEST AIRLINES, INC. IS ISSUING, THROUGH THREE SEPARATE TRUSTS, CLASS A,
CLASS B AND CLASS C CERTIFICATES,
SERIES 1999-1. THE PROCEEDS FROM THE SALE OF CERTIFICATES WILL BE USED TO
FINANCE THE ACQUISITION OF FOUR NEW BOEING 747-400 AIRCRAFT SCHEDULED FOR
DELIVERY FROM MARCH 1999 THROUGH OCTOBER 1999.
INTEREST ON THE CERTIFICATES WILL BE PAYABLE SEMIANNUALLY ON EACH FEBRUARY 1 AND
AUGUST 1, BEGINNING AUGUST 1, 1999. PRINCIPAL PAYMENTS IN RESPECT OF THE
CERTIFICATES ARE SCHEDULED ON FEBRUARY 1 AND AUGUST 1, OR BOTH, IN CERTAIN
YEARS, BEGINNING ON AUGUST 1, 1999.
THE CLASS A 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 A 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.
CITIBANK, N.A. WILL PROVIDE A LIQUIDITY FACILITY FOR EACH CLASS OF CERTIFICATES,
IN EACH CASE IN AN AMOUNT SUFFICIENT TO MAKE THREE SEMIANNUAL INTEREST PAYMENTS.
THE CERTIFICATES REPRESENT INTERESTS IN THE ASSETS OF THE PASS-THROUGH TRUSTS
FORMED TO FINANCE 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-17.
-------------------
<TABLE>
<CAPTION>
PASS THROUGH PRINCIPAL FINAL EXPECTED PRICE TO
CERTIFICATES AMOUNT INTEREST RATE DISTRIBUTION DATE PUBLIC (1)
- ------------------------ ------------------ ------------------ ------------------------ ------------------
<S> <C> <C> <C> <C>
1999--1A $ 235,505,000 6.81% FEBRUARY 1, 2020 100%
1999--1B 111,555,000 7.36 FEBRUARY 1, 2020 100
1999--1C 74,140,000 8.13 FEBRUARY 1, 2014 100
</TABLE>
- ---------
(1) PLUS ACCRUED INTEREST, IF ANY, FROM FEBRUARY 16, 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 A, B AND C CERTIFICATES, IF ANY
ARE PURCHASED, SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS. THE AGGREGATE
PROCEEDS FROM THE SALE OF THE CLASS A, B AND C CERTIFICATES WILL BE
$421,200,000. NORTHWEST AIRLINES, INC. WILL PAY THE UNDERWRITERS A COMMISSION OF
$3,580,200. MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE
CERTIFICATES TO PURCHASERS ON FEBRUARY 16, 1999. THE CERTIFICATES WILL NOT BE
LISTED ON ANY NATIONAL SECURITIES EXCHANGE.
-------------------
MORGAN STANLEY DEAN WITTER CREDIT SUISSE FIRST BOSTON
ABN AMRO INCORPORATED
CHASE SECURITIES INC.
SALOMON SMITH BARNEY
FEBRUARY 4, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
<S> <C>
PAGE
-----------
<CAPTION>
Presentation of Information..... S-3
<S> <C>
Summary of Terms................ S-4
The Offering.................... S-8
Risk Factors.................... S-17
The Company..................... S-25
Use of Proceeds................. S-30
Description of the
Certificates.................. S-30
Description of the Deposit
Agreements.................... S-47
Description of the Escrow
Agreements.................... S-49
Description of the Liquidity
Facilities.................... S-49
Description of the Intercreditor
Agreement..................... S-55
Description of the Aircraft and
the Appraisals................ S-61
Description of the Equipment
Notes......................... S-62
Certain U.S. Federal Income Tax
Consequences.................. S-80
Certain Massachusetts Taxes..... S-83
ERISA Considerations............ S-84
Underwriting.................... S-87
Legal Matters................... S-88
Experts......................... S-88
Index of Certain Defined
Terms......................... Appendix I
Summary of Aircraft
Appraisals.................... Appendix II
<CAPTION>
PROSPECTUS
PAGE
-----------
<S> <C>
Available Information........... 2
Incorporation of Certain
Documents by Reference........ 2
The Company..................... 3
General Outline of Trust
Structure..................... 3
Use of Proceeds................. 3
Ratio of Earnings to Fixed
Charges....................... 4
Description of the
Certificates.................. 5
Description of the Equipment
Notes......................... 17
United States Federal Income Tax
Consequences.................. 22
ERISA Considerations............ 26
Plan of Distribution............ 26
Legal Opinions.................. 27
Experts......................... 27
</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 A CLASS B CLASS C
CERTIFICATES CERTIFICATES CERTIFICATES
------------------- ------------------- -------------------
<S> <C> <C> <C>
Aggregate Face Amount.............................. $ 235,505,000 $ 111,555,000 $ 74,140,000
Ratings:
Moody's.......................................... Aa3 A2 Baa2
Standard & Poor's................................ AA A BBB+
Initial Loan to Aircraft Value (cumulative)(1)..... 37.4% 54.9% 66.1%
Expected Principal Distribution Window (in
years)........................................... 1.0-21.0 1.0-21.0 0.5-15.0
Initial Average Life from Issuance Date (in
years)........................................... 13.9 13.0 10.0
Regular Distribution Dates......................... February 1 and February 1 and February 1 and
August 1 August 1 August 1
Final Expected Regular Distribution Date........... February 1, 2020 February 1, 2020 February 1, 2014
Final Legal Distribution Date...................... August 1, 2021 August 1, 2021 August 1, 2015
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
</TABLE>
- ------------------------
(1) These percentages are calculated as of February 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
$619,750,000 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--The
Appraisals."
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>
EXPECTED EXPECTED SCHEDULED MAXIMUM
REGISTRATION MANUFACTURER'S AIRCRAFT APPRAISED PRINCIPAL AMOUNT
AIRCRAFT TYPE NUMBER SERIAL NUMBER DELIVERY MONTH(1) BASE VALUE(2) OF EQUIPMENT NOTES(3)
- ------------------------ ----------- --------------- ----------------- -------------- ----------------------
<S> <C> <C> <C> <C> <C>
Boeing 747-400.......... 671US 26477 March 1999 $ 154,750,000 $ 105,300,000
Boeing 747-400.......... 672US 26475 July 1999 155,000,000 105,300,000
Boeing 747-400.......... 673US 26476 August 1999 155,000,000 105,300,000
Boeing 747-400.......... 674US 26478 October 1999 155,000,000 105,300,000
</TABLE>
- ------------------------
(1) This information is based upon Northwest's purchase agreement with the
manufacturer. The actual delivery date for any Aircraft may be subject to
delay. The delivery deadline for purposes of this offering will be no later
than January 31, 2000. See "Description of the Aircraft and the Appraisals--
Deliveries of Aircraft."
(2) 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>
AVMARK, Inc......................................................................... January 7, 1999
BK Associates, Inc.................................................................. December 30, 1998
Morten Beyer and Agnew, Inc......................................................... December 31, 1998
</TABLE>
Such appraisals are based on varying assumptions and methodologies. 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."
(3) 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 February 1, 2000 (the first Regular
Distribution Date that occurs after all Aircraft are scheduled to have been
delivered) and each August 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 January 31, 2000. The LTVs for any
Class of Certificates as of dates prior to February 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 above.
<TABLE>
<CAPTION>
ASSUMED CLASS A CLASS B CLASS C
AGGREGATE CERTIFICATES CLASS A CERTIFICATES CLASS B CERTIFICATES
AIRCRAFT POOL CERTIFICATES POOL CERTIFICATES POOL
DATE VALUE(1) BALANCE(2) LTV(3) BALANCE(2) LTV(3) BALANCE(2)
- --------------------- ----------- -------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
February 1, 2000..... $619,750,000 $231,973,850 37.4% $107,981,878 54.9% $ 69,431,868
August 1, 2000....... 601,157,500 228,439,850 38.0 106,516,631 55.7 69,431,868
August 1, 2001....... 582,565,000 221,374,700 38.0 104,861,700 56.0 68,874,768
August 1, 2002....... 563,972,500 214,309,550 38.0 101,515,050 56.0 67,451,265
August 1, 2003....... 545,380,000 207,244,400 38.0 98,168,400 56.0 65,445,600
August 1, 2004....... 526,787,500 200,179,250 38.0 94,821,750 56.0 63,211,281
August 1, 2005....... 508,195,000 193,114,100 38.0 91,363,062 56.0 56,707,298
August 1, 2006....... 489,602,500 186,048,950 38.0 88,128,450 56.0 56,537,888
August 1, 2007....... 471,010,000 178,983,800 38.0 84,781,800 56.0 44,193,911
August 1, 2008....... 452,417,500 171,918,650 38.0 81,435,150 56.0 38,653,277
August 1, 2009....... 433,825,000 164,853,500 38.0 78,088,500 56.0 37,068,410
August 1, 2010....... 415,232,500 157,788,350 38.0 74,741,850 56.0 32,288,230
August 1, 2011....... 396,640,000 150,723,200 38.0 70,570,403 55.8 27,666,364
August 1, 2012....... 378,047,500 143,658,050 38.0 65,143,027 55.2 27,666,364
August 1, 2013....... 359,455,000 136,592,900 38.0 64,701,900 56.0 2,708,926
August 1, 2014....... 340,862,500 129,527,750 38.0 61,355,250 56.0 0
August 1, 2015....... 316,072,500 120,107,550 38.0 41,066,827 51.0 0
August 1, 2016....... 291,282,500 110,687,350 38.0 15,880,690 43.5 0
August 1, 2017....... 266,492,500 82,999,863 31.1 6,430,870 33.6 0
August 1, 2018....... 241,702,500 43,228,445 17.9 6,430,870 20.5 0
August 1, 2019....... 216,912,500 747,426 0.3 6,352,757 3.3 0
August 1, 2020....... 185,925,000 0 NA 0 NA 0
<CAPTION>
CLASS C
CERTIFICATES
DATE LTV(3)
- --------------------- ---------------
<S> <C>
February 1, 2000..... 66.1%
August 1, 2000....... 67.3
August 1, 2001....... 67.8
August 1, 2002....... 68.0
August 1, 2003....... 68.0
August 1, 2004....... 68.0
August 1, 2005....... 67.1
August 1, 2006....... 67.5
August 1, 2007....... 65.4
August 1, 2008....... 64.5
August 1, 2009....... 64.5
August 1, 2010....... 63.8
August 1, 2011....... 62.8
August 1, 2012....... 62.5
August 1, 2013....... 56.8
August 1, 2014....... NA
August 1, 2015....... NA
August 1, 2016....... NA
August 1, 2017....... NA
August 1, 2018....... NA
August 1, 2019....... NA
August 1, 2020....... NA
</TABLE>
- ------------------------
(1) We have assumed the initial appraised value of each Aircraft, determined as
described under "--Equipment Notes and the Aircraft," declines by 3% per
year for the first fifteen 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.
(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 Deposit Agreement-- 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-6
<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 A, B and C
Certificates for up to three successive 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.
S-7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Trusts....................... The Class A 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, as trustee under each Trust.
Certificates Offered......... - Class A 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 initially be held in escrow and deposited with the
Depositary. Each Trust will withdraw funds from the related
escrow to acquire Equipment Notes issued to finance the
acquisition by Northwest, or an Owner Trustee, of four new
Boeing 747-400 aircraft scheduled for delivery from March
1999 through October 1999. Such aircraft will be operated by
Northwest.
Subordination Agent, Trustee,
Paying Agent and Loan
Trustee.................... State Street Bank and Trust Company.
Initial Liquidity Provider... Citibank, N.A. There will be a separate liquidity facility
for each Class of Certificates.
Escrow Agent................. First Security Bank, National Association
Depositary................... ABN AMRO Bank, Chicago 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.
- All rights of the Trust under the related Escrow and
Paying Agent Agreement.
- All monies receivable under the liquidity facility for
such Trust.
- 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... February 1 and August 1, commencing on August 1, 1999.
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
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
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............ Series D Equipment Notes may be issued in connection with
the financing of Owned Aircraft or Leased Aircraft. Series D
Equipment Notes will not be purchased by any of the Trusts
and will be funded from sources other than this offering.
Subordination................ The Trusts, the Liquidity Provider and the Subordination
Agent will enter into an intercreditor agreement. After the
Liquidity Provider is reimbursed (if necessary),
distributions on the Certificates will be made in the
following order:
- First, to the holders of the Class A Certificates.
- Second, to the holders of the Class B Certificates.
- Third, to the holders of the Class C Certificates.
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 Class A Trustee until payment of final distributions
to the holders of Class A 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
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
- 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.
Limitation on Sale of In exercising remedies during the nine months after the
Aircraft................... 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 of the Class A Certificates.
- The Class C Certificateholders will have the right to
purchase all of the Class A and Class B 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 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.
Escrowed Funds............... Funds paid to the Escrow Agent by the Certificateholders
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
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
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
Certificateholders. 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 A 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 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 million. See
"Description of the Deposit Agreements--Unused Deposits."
Obligation to Purchase
Equipment Notes............ The Class A, Class B and Class C Trustees will be obligated
to purchase the Series A, 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 that
any such modifications do not materially and adversely
affect the Certificateholders or (b) if such agreements are
modified in
</TABLE>
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<TABLE>
<S> <C>
any material respect, obtain 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. 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.
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 scheduled to be made by Northwest under the
lease will be in amounts 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 February 1 and
August 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 A, Series B and Series C
Equipment Notes are scheduled on February 1 or August 1, or
both, in certain years, commencing on August 1, 1999. See
"Description of the Certificates--Pool Factors."
(d) Redemption and AIRCRAFT EVENT OF LOSS. If an Event of Loss occurs with
Purchase................... 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."
</TABLE>
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<TABLE>
<S> <C>
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 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).
(d) 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.
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.
(e) Section 1110 Northwest's special counsel will provide to the Trustees its
Protection................. 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) 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".
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 statutory or administrative exemptions. See
"ERISA Considerations."
</TABLE>
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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>
CERTIFICATES MOODY'S STANDARD & POOR'S
- ------------------------------------------------- ----------- ------------------
<S> <C> <C>
Class A.......................................... Aa3 AA
Class B.......................................... A2 A
Class C.......................................... Baa2 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 that, subject to the
assumptions and qualifications contained therein, amounts
deposited under the Escrow Agreement are not property of
Northwest. Neither the Certificates nor the Escrow Receipts
may be separately assigned or transferred.
</TABLE>
<TABLE>
<CAPTION>
MOODY'S STANDARD & POOR'S
------------- -------------------
<S> <C> <C> <C>
Rating of the Depositary............ Short Term............................. P-1 A-1+
Threshold Rating for the Liquidity Short Term
Provider..........................
Class A................................ P-1 A-1+
Class B................................ P-1 A-1
Class C................................ P-1 A-1
</TABLE>
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Liquidity Provider Rating.... Citibank, N.A. meets the Threshold Rating requirement for
the Class A, B and C Certificates.
</TABLE>
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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents summary consolidated financial data and
operating statistics of NWA Corp. The 1998 historical financial data were
derived from NWA Corp.'s Form 8-K dated January 22, 1999, and the 1997 and 1996
historical financial data were derived from Old NWA Corp.'s (as defined herein)
audited consolidated financial statements and the notes thereto, incorporated by
reference in the prospectus accompanying this prospectus supplement and should
be read in conjunction herewith. See "Incorporation of Certain Documents by
Reference" in the prospectus accompanying this prospectus supplement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
STATEMENT OF OPERATIONS DATA (IN MILLIONS, EXCEPT PER SHARE DATA):
Operating revenues
Passenger.............................................................. $ 7,606.5 $ 8,822.1 $ 8,598.3
Cargo.................................................................. 663.5 789.4 745.8
Other.................................................................. 804.8 614.3 536.4
---------- ---------- ----------
9,044.8 10,225.8 9,880.5
---------- ---------- ----------
Operating expenses(1).................................................... 9,236.2 9,086.6 8,826.7
---------- ---------- ----------
Operating income (loss).................................................. (191.4) 1,157.2 1,053.8
---------- ---------- ----------
Amounts before 1997 extraordinary item(2)(3):
Income (loss).......................................................... $ (285.5) $ 605.8 $ 536.1
---------- ---------- ----------
---------- ---------- ----------
Earnings (loss) per common share:
Basic.................................................................. $ (3.48) $ 5.89 $ 5.05
Diluted................................................................ (3.48) 5.29 4.52
OTHER DATA:
Ratio of earnings to fixed charges....................................... .17 (4) 3.05x 2.74x
OPERATING STATISTICS(5):
Scheduled Service:
Available seat miles (millions)(6)..................................... 91,310.7 96,963.6 93,913.7
Revenue passenger miles (millions)(7).................................. 66,738.3 72,031.3 68,639.1
Passenger load factor(%)(8)............................................ 73.1 74.3 73.1
Revenue passengers (millions).......................................... 50.5 54.7 52.7
Revenue yield per passenger mile(cents)(9)............................. 11.26 12.11 12.53
Passenger revenue per scheduled ASM (cents)............................ 8.23 9.00 9.16
Operating revenue per total ASM (cents)(10).............................. 9.12 9.76 9.85
Operating expense per total ASM (cents)(10).............................. 9.21 8.63 8.78
Cargo ton miles (millions)(11)........................................... 1,954.4 2,282.8 2,215.8
Cargo revenue per ton mile (cents)....................................... 32.39 34.5 33.7
Fuel gallons consumed (millions)......................................... 1,877.1 1,996.3 1,945.1
Average fuel cost per gallon (cents)..................................... 53.60 64.86 67.21
Number of operating aircraft at year-end................................. 409 405 399
Full-time equivalent employees at year-end............................... 50,565 48,984 47,536
</TABLE>
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<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA (IN MILLIONS):
Cash, cash equivalents and unrestricted short-term investments..................... $ 480.0 $ 1,039.9
Total assets....................................................................... 10,280.8 9,336.2
Long-term debt, including current portion.......................................... 4,000.7 2,069.3
Mandatorily redeemable preferred security of subsidiary............................ 564.1 486.3
Redeemable stock:
Preferred........................................................................ 260.7 306.2
Common........................................................................... -- 848.5
Common stockholders' equity (deficit).............................................. (476.7) (311.0)
</TABLE>
- ------------------------
(1) The Company recorded a fleet disposition charge of $65.9 million ($41.6
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 $150.7 million ($95.4 million
after tax or $1.16 per share) for year ended December 31, 1998.
(2) The 1997 extraordinary item was $(9.3) million ($.10 basic share and $.08
per diluted share).
(3) Excludes the effects of the 1996 preferred stock transaction ($.75 per basic
share and $.68 per diluted share).
(4) Earnings were inadequate to cover fixed charges by $452.3 million for the
year ended December 31, 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 eight 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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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 AND SECTION 21E OF THE EXCHANGE ACT. 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 December 31, 1998,
we had long-term debt, capital lease obligations and current maturities of $4.66
billion. 46% of this indebtedness bears interest at floating rates. The amount
of our long-term debt that matures in 1999 is $319.2 million. Additionally,
$168.0 million matures in 2000, $148.0 million matures in 2001 and $1.05 billion
matures in 2002. As of December 31, 1998, future minimum lease payments under
capital leases were $57.6 million for 1999. This amount is $59.7 million for
2000, $62.2 million for 2001 and $229.6 million for 2002. These levels of
indebtedness do not include our mandatory obligations to redeem $260.7 million
of our preferred stock in 2003 and non-recourse mandatorily redeemable preferred
securities of one of NWA Corp.'s subsidiaries of $564.1 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. The increased cost under these agreements will not have a material
financial impact on us.
FLIGHT ATTENDANTS. The agreement with our flight attendants became
amendable in August 1996. Contract negotiations began in 1996 and are currently
being mediated by the National Mediation Board.
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, at
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a representation election, a majority of the mechanics and related employees
elected the Aircraft Mechanics Fraternal Association to be their
collective-bargaining representative. The IAM is protesting the election and
certification of the vote is currently under review. The remaining ground
employees continue to be represented by the IAM. On January 23, 1999, Northwest
and the IAM reached a new four-year tentative agreement that will be submitted
to the union membership for a ratification vote. We cannot predict the outcome
of the ratification vote.
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 reciprocity and other cooperative activities. In a
related transaction, the Company acquired from Continental's principal
shareholder and certain other parties securities representing 13.5% of
Continental's equity as of December 31, 1998 and, together with additional
Continental shares for which NWA Corp. holds a limited voting proxy, 50.3% 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 the imposition of 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 they 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.
- Northwest and its alliance partners' ability to modify certain contracts
that may restrict certain aspects of the alliance.
We cannot predict the extent to which we will benefit from Northwest's
alliances.
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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 have 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 should be completed in early 1999, 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 (including those
of the FAA) 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. As of December 31, 1998, Northwest had entered into $405.8 million
(47.50 billion yen) in forward contracts to hedge a portion of its 1999
forecasted yen-denominated ticket sales.
POSSIBLE LIMITATION ON NET OPERATING LOSS CARRYFORWARDS
We used net operating loss carryforwards ("NOLS") that we carried forward
from earlier years 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
could 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 concessions)
our ability to use our NOLs and AMTNOLs and credits would be significantly
impaired because the value of Old NWA Corp.'s stock on
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certain prior testing dates was relatively low. Such value would adversely
affect the annual limitation described above.
OTHER TAX MATTERS
In November 1995, the IRS issued proposed adjustments to our tax returns for
the 1988 through 1991 tax years. Certain of these proposed adjustments result
from a disagreement between us and the IRS as to when approximately $385 million
of taxable income should be recognized. We disagree with the IRS proposals and
are vigorously contesting these proposed adjustments. If the IRS prevails, we
would recognize taxable income and use our NOLs sooner than scheduled. This
change would not require a material charge to our income tax expense.
NEGATIVE NET WORTH
As of December 31, 1998, our common stockholders' deficit was $476.7
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 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 1998), 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
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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 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, Northwest will be responsible for the
maintenance, service, repair and overhaul of the Aircraft. If Northwest fails to
adequately perform these responsibilities, the
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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."
INSURANCE
To the extent described in the Leases, 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 insufficient to repay the holders
of Equipment Notes. See "Description of the Equipment Notes--The
Leases--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 and to lease an
Owned Aircraft or sublease a Leased Aircraft, as the case may be. 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 for the
benefit of the Equipment Notes could be limited.
PRIORITY OF DISTRIBUTIONS; SUBORDINATION
According to the intercreditor agreement among the Trusts, the Liquidity
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. 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 Certificates--Subordination." 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, subject to certain conditions, the
Loan Trustee under such Indenture will be directed by the "Controlling Party" in
exercising 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."
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The "CONTROLLING PARTY" will be:
- The Class A Trustee until payment of final distributions to the holders of
Class A 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, the Liquidity Provider shall have the right
to become the Controlling Party 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 greater amount of obligations shall
have such right.
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 or any
Trustee.
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 A 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 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 A
Certificates be rated not lower than Aa3 by Moody's Investors Service, Inc.
("MOODY'S") and AA by Standard & Poor's Ratings Services, a division of
McGraw-Hill, Inc. ("STANDARD & POOR'S"), the Class B Certificates be rated not
lower than A2 by Moody's and A by Standard & Poor's and the Class C Certificates
be rated not lower than Baa2 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 or the Liquidity
Provider) so warrant. The rating of the Certificates is based primarily on the
default risk of the Equipment Notes and the applicable Depositary, the
availability of the Liquidity Facility for the benefit of holders of the
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 non-default rate)
when due on the Certificates and the ultimate payment of principal of the
Certificates by the final 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 legal distribution date. 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 that, subject to the
assumptions and qualifications contained therein, amounts deposited under the
Escrow Agreement 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.
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THE COMPANY
NWA Corp. is the indirect parent corporation of Northwest. Northwest
operates the world's fourth largest airline (as measured by 1997 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") that
operates through a hub in Amsterdam; and
- a global alliance with Continental.
RECENT ALLIANCE DEVELOPMENTS
On November 20, 1998, NWA Corp. issued 2.6 million shares of common stock
and paid $399.5 million in cash to acquire the beneficial ownership of 8.7
million shares of Class A Common Stock of Continental. These shares represent
13.5% of Continental's common stock and, together with additional Continental
shares for which NWA Corp. holds a limited voting proxy, 50.3% of its
fully-diluted voting power as of December 31, 1998. Under its agreements with
Continental, the Company's voting rights are limited for ten years.
In a related transaction, Northwest and Continental have entered into a
thirteen-year global strategic commercial alliance that connects the two
carriers' networks and includes extensive code-sharing, frequent flyer
reciprocity and other cooperative activities. The airlines will continue
operating their two networks, which overlap on only seven routes, under separate
identities. The combined network will result in a domestic presence comparable
to that of either United Air Lines, Inc. or American Airlines, Inc. (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
and to many domestic cities. Northwest anticipates that it will add additional
code-sharing with Continental in 1999; however, further international
code-sharing is subject to certain regulatory approvals. Through increased
domestic and international connections, Northwest anticipates increasing its
market share and enhancing its revenue. Other joint activities anticipated to be
implemented include airport facility coordination, joint purchasing, certain
coordinated sales programs, and the inclusion of Continental in Northwest's
trans-Atlantic joint venture alliance with KLM. Through combined purchasing
power and increased efficiencies in airport operations, Northwest also
anticipates reducing its operating costs.
In November 1998, KLM and Alitalia announced a strategic commercial alliance
and began code-sharing. KLM and Alitalia have stated that they expect to develop
a European multi-hub network based in Amsterdam, Rome and Milan. Continental and
Alitalia currently code-share between the U.S. and Italy and Northwest
anticipates that Alitalia will also join the Northwest/KLM trans-Atlantic joint
venture alliance, subject to regulatory approvals. 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.
1998 OPERATING RESULTS
The Company reported a net loss of $285.5 million and an operating loss of
$191.4 million for the year ended December 31, 1998, as compared to net income
of $596.5 million and operating income of $1.16 billion for the year ended
December 31, 1997. The 1998 operating results were negatively affected by
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labor-related disruptions. These included work actions, a 30-day cooling off
period, an 18-day cessation of flight operations due to the pilots' strike, a
seven-day gradual resumption of flight operations and a rebuilding of traffic
demand. The Company estimates the impact of the labor-related disruptions during
1998 to be approximately $1.0 billion on a pre-tax basis. For the quarter ended
December 31, 1998, the Company reported a net loss of $181.3 million and an
operating loss of $192.2 million, as compared to net income of $105.4 million
and operating income of $227.3 million for the quarter ended December 31, 1997.
In December 1998, the Company decided to accelerate the retirement of its
seven oldest Boeing 747 aircraft. As a result, the Company recorded in the
fourth quarter of 1998 a fleet disposition charge of $65.9 million ($41.7
million after tax). Four of the seven aircraft will be replaced with new Boeing
747-400 aircraft which are the subject of this Offering and are scheduled for
delivery in 1999. Pursuant to a January 1999 agreement between Northwest and The
Boeing Company, the delivery of three of these aircraft was accelerated. This
agreement accelerates the delivery of one aircraft that was originally scheduled
to enter Northwest's fleet in 2000 and two aircraft that were originally
scheduled for 2002.
On December 31, 1998, the Company had $1.0 billion available to be borrowed
under its secured revolving credit facilities along with $480.0 million of cash
and cash equivalents, for total liquidity of $1.48 billion.
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 19 alliance partners provide a global network to
over 550 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 46 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 will be 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 ten 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, Philadelphia, San Francisco, Seattle
and 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 Aviation, Inc. ("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 small cities, which increases
connecting traffic at our hubs. Currently these carriers exclusively serve 77
airports.
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DETROIT. Northwest and Mesaba together serve over 130 cities from Detroit.
For the 12 months ended March 31, 1998, Northwest and Mesaba enplaned 67% of
originating passengers from this hub, while the next largest competitor enplaned
5%. Detroit, which is the seventh largest origination/destination hub in the
U.S., is Northwest's largest international gateway from the continental U.S.,
offering nonstop flights to 17 foreign cities, including 20 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 March 31, 1998, Northwest and
Mesaba enplaned 74% 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 and Express together serve over 80 cities from Memphis.
For the 12 months ended March 31, 1998, Northwest enplaned 57% 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., and America West Airlines, Inc. 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, together with Mesaba, currently operates service to seven cities
in Mexico, 12 cities in Canada and five cities in the Caribbean. Through its
alliance with Continental, Northwest will be able to provide substantial
connecting service to Mexico and Central America, as Continental is one of the
leading airlines providing service to the region, serving more destinations
there 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. Northwest operates its international routes
under route certificates issued by the DOT. Substantial portions of Northwest's
Pacific route certificates are permanent and do not require renewal by the DOT.
Certain other international route certificates are temporary and subject to
periodic renewal by the DOT. Northwest requests extensions of these certificates
when and as appropriate. The DOT typically renews temporary authorities on
routes where the authorized carrier is providing a reasonable level of service.
PACIFIC. Northwest has served the Pacific market since 1947 and has one of
the world's largest Pacific route networks, with over 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 42 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 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.
Northwest and United Air Lines are the only U.S. passenger carriers that have
these "fifth
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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 Osaka and Kaohsiuing, Taiwan. Northwest plans to
initiate nonstop service between Osaka and Kuala Lumpur, Malaysia on February
26, 1999.
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 is
expected to include coordinated flight connections, code-sharing and other
cooperative activities. Reciprocal frequent flyer programs are already in place.
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 reciprocity and joint
marketing. At the end of 1998, Northwest and Air China provided 17 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.
Northwest alliance partners (Alaska Airlines, America West Airlines and
Continental) have entered into alliance agreements with Air China and Northwest
and its partners collectively provide the most nonstop and one-stop service
between the U.S. and China.
ATLANTIC. Northwest and KLM presently operate their trans-Atlantic flights
pursuant to a commercial and operational joint venture alliance. Through this
alliance, Northwest has expanded its presence in the trans-Atlantic market by
operating joint service between 13 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. Northwest provides service to Mumbai and Delhi, India from Amsterdam.
The Northwest/KLM alliance benefits from antitrust immunity that facilitates
coordinated pricing, scheduling, product development and marketing.
In September 1997, Northwest and KLM expanded their 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,
to expand their alliance to include additional partners and to further develop
strategies for joint marketing and product development. In February 1998, a
leading aviation trade magazine, Air Transport World, awarded its "1997 Airline
of the Year" honor to the Northwest/KLM alliance.
KLM and Alitalia entered into a strategic commercial alliance, which
commenced in November 1998. KLM and Alitalia have stated that they expect to
develop a European multi-hub network based in Amsterdam, Rome and Milan.
Alitalia is expected to join the Northwest/KLM trans-Atlantic joint venture
alliance, subject to regulatory approvals.
To further enhance Northwest's service in Europe, India, and Southeast Asia,
Northwest also has marketing agreements with Eurowings, Braathens, KLM uk, KLM
exel, Jet Airways Private Ltd., Kenya Airways, and Garuda Indonesia. KLM has
similar agreements with Air Engiadina of Switzerland and Regionale Air of
France, and Northwest expects to enter into similar agreements with these two
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
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U.S.-Netherlands city pair and to operate connecting service to destinations in
other countries. Based primarily on the open-entry market created by this treaty
and the limited competitive overlap between route systems, Northwest and KLM
petitioned the DOT for joint immunity from the U.S. antitrust laws and were
granted such immunity in January 1993. Under conditions imposed by the DOT in
1993 at the time the DOT granted antitrust immunity, Northwest and KLM
re-submitted their alliance agreement to the DOT 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 the Company's alliance with Continental, Northwest
will increase its Latin America presence. Continental flies to eight cities in
South America and offers additional connecting service through alliances with
foreign carriers. Northwest expects to implement code-sharing with Continental
in 1999.
CARGO
Northwest, utilizing eight Boeing 747 freighter aircraft, is the world's
tenth largest cargo air carrier (based on 1997 freight ton miles). Northwest is
one of only two U.S. passenger airlines to operate a dedicated all-cargo
freighter fleet. Cargo accounts for 7% of the Company's operating revenues, and
the majority of its cargo revenues originate in or are destined for Asia.
Through its Tokyo and Anchorage cargo hubs, Northwest serves most major
airfreight markets between the U.S. and the Pacific.
HOLDING COMPANY REORGANIZATION
In connection with the purchase of its interest in Continental, NWA Corp.
effected a holding company reorganization on November 20, 1998. As a result of
this reorganization, Northwest Airlines Holdings Corporation, which was formerly
known as Northwest Airlines Corporation and was at that time the publicly traded
holding company ("OLD NWA CORP."), became a direct wholly-owned subsidiary of
the new holding company, NWA Corp. As a result, 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.
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USE OF PROCEEDS
The proceeds from the sale of the certificates of a Trust (collectively, the
"CERTIFICATES") will be initially deposited with the applicable Depositary on
behalf of the applicable Escrow Agent for the benefit of the holders of the
Certificates (the "CERTIFICATEHOLDERS") of such Trusts. Upon the request of the
Trustees, the Escrow Agent will withdraw the applicable Deposits and deliver
such proceeds to the Trustees to be used during the Delivery Period to purchase
Equipment Notes issued, at Northwest's election, either (i) by each Owner
Trustee to finance a portion of the purchase price of the Leased Aircraft or
(ii) by Northwest to finance a portion of the purchase price of the Owned
Aircraft. 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., Northwest Airlines Holdings Corporation and the Trustee
pursuant to the terms of the Basic Agreement. The following summary of the
particular terms of the Certificates offered hereby supplements, and to the
extent inconsistent therewith replaces, the description of the general terms and
provisions of the Certificates set forth in the accompanying Prospectus under
the caption "Description of the Certificates." The statements under this caption
are a summary and do not purport to be complete. The summary makes use of terms
defined in and is qualified in its entirety by reference to all of the
provisions of the Basic Agreement, a form of which has been filed as an exhibit
to the Registration Statement of which the accompanying Prospectus is a part,
and to all of the provisions of the Trust Supplements which, together with the
forms of the related Participation Agreements, Indentures, Leases, Trust
Agreements, Liquidity Facilities, Note Purchase Agreement, Escrow Agreements,
Deposit Agreements and Intercreditor Agreement, 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 "--Subordination" below and
except that the principal amount, the interest rate, scheduled repayments of
principal and maturity date applicable to the Equipment Notes held by each Trust
and the final expected distribution date (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 1999-1 Pass Through Trust (the
"CLASS A TRUST," the "CLASS B TRUST," and the "CLASS C TRUST," and,
collectively, the "TRUSTS"). The Trusts will be formed pursuant to a pass
through trust agreement among NWA Corp., Northwest and the Trustee, dated as of
June 3, 1996 (as amended prior to the date hereof, 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 A 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
S-30
<PAGE>
with respect to each Leased Aircraft to finance 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 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 on the
delivery of each Aircraft during the Delivery Period.
- 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.
- 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)
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
Certificates of each such Trust (each a "CERTIFICATEHOLDER") 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
February 1 and August 1 of each year, commencing on August 1, 1999 (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.
S-31
<PAGE>
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 and will be distributed to the
holders of Escrow Receipts on the date receipt of such payment is confirmed by
the Paying Agent. 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).
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."
Payments of principal of the Equipment Notes are scheduled to be received by
the Trustee on February 1 and August 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
February 1 and August 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 A
Certificates is August 1, 2021, for the Class B Certificates is August 1, 2021,
and for the Class C Certificates is August 1, 2015.
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.
S-32
<PAGE>
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"), 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 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."
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.
S-33
<PAGE>
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 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.
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.
S-34
<PAGE>
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.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------- ---------------------------- ----------------------------
SCHEDULED SCHEDULED SCHEDULED
PRINCIPAL EXPECTED PRINCIPAL EXPECTED PRINCIPAL EXPECTED
DATES PAYMENTS POOL FACTOR PAYMENTS POOL FACTOR PAYMENTS POOL FACTOR
- ---------------------------- --------------- ----------- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
August 1, 1999.............. $ 0.00 1.0000000 $ 0.00 1.0000000 $ 70,000.00 0.9990558
February 1, 2000............ 3,531,150.00 0.9850061 3,573,121.53 0.9679699 4,638,132.40 0.9364967
August 1, 2000.............. 3,534,000.00 0.9700000 1,465,247.96 0.9548351 0.00 0.9364967
February 1, 2001............ 7,065,150.00 0.9400000 1,654,930.52 0.9400000 557,100.00 0.9289826
February 1, 2002............ 7,065,150.00 0.9100000 3,346,650.00 0.9100000 1,423,502.46 0.9097824
February 1, 2003............ 7,065,150.00 0.8800000 3,346,650.00 0.8800000 2,005,665.14 0.8827300
February 1, 2004............ 7,065,150.00 0.8500000 3,346,650.00 0.8500000 2,234,318.65 0.8525935
February 1, 2005............ 7,065,150.00 0.8200000 3,458,688.01 0.8189957 6,503,983.77 0.7648678
February 1, 2006............ 7,065,150.00 0.7900000 3,234,611.99 0.7900000 169,409.68 0.7625828
February 1, 2007............ 7,065,150.00 0.7600000 3,346,650.00 0.7600000 12,343,977.17 0.5960873
February 1, 2008............ 7,065,150.00 0.7300000 3,346,650.00 0.7300000 5,540,634.20 0.5213552
February 1, 2009............ 7,065,150.00 0.7000000 3,346,650.00 0.7000000 1,584,866.62 0.4999786
February 1, 2010............ 7,065,150.00 0.6700000 3,346,650.00 0.6700000 4,780,180.40 0.4355035
February 1, 2011............ 7,065,150.00 0.6400000 4,171,446.76 0.6326064 4,621,865.62 0.3731638
February 1, 2012............ 7,065,150.00 0.6100000 5,427,375.94 0.5839543 0.00 0.3731638
August 1, 2013.............. 7,065,150.00 0.5800000 441,127.29 0.5800000 24,957,437.71 0.0365380
February 1, 2014............ 7,065,150.00 0.5500000 3,346,650.00 0.5500000 2,708,926.18 0.0000000
February 1, 2015............ 9,420,200.00 0.5100000 20,288,422.66 0.3681308 0.00 0.0000000
February 1, 2016............ 9,420,200.00 0.4700000 25,186,137.50 0.1423575 0.00 0.0000000
February 1, 2017............ 27,687,486.92 0.3524335 9,449,819.78 0.0576475 0.00 0.0000000
February 1, 2018............ 39,771,418.36 0.1835564 0.00 0.0576475 0.00 0.0000000
February 1, 2019............ 42,481,019.21 0.0031737 78,113.13 0.0569473 0.00 0.0000000
February 1, 2020............ 747,425.51 0.0000000 6,352,756.93 0.0000000 0.00 0.0000000
</TABLE>
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 the 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).
S-35
<PAGE>
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 (i) and (vi) 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;
(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 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.
S-36
<PAGE>
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 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 Indenture 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 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 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)
S-37
<PAGE>
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.
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 A Certificates,
- the Class C Certificateholders shall have the right to purchase all, but
not less than all, of the Class A Certificates and the Class B
Certificates, and
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- 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
A Certificates, the Class B Certificates and the Class C Certificates,
in each case at a purchase price equal to the Pool Balance of the relevant
Class or Classes of Certificates plus accrued and unpaid interest thereon to the
date of purchase without Make-Whole Premium but including any other amounts due
to the Certificateholders of such Class or Classes. In each case, if prior to
the end of the ten-day period, any other Certificateholder of the same Class
notifies the purchasing Certificateholder that the other Certificateholder wants
to participate in such purchase, then such other Certificateholder may join with
the purchasing Certificateholder to purchase the Certificates pro rata based on
the interest in the Trust held by each Certificateholder.
PTC EVENT OF DEFAULT
A "PTC EVENT OF DEFAULT" is defined under each Pass Through Trust Agreement
as the failure to pay within 10 Business Days of the due date thereof
- the outstanding Pool Balance of the applicable Class of Certificates on
the Final Legal Distribution Date for such Class 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 with respect thereto in an amount sufficient to pay such
interest and shall have distributed such amount to the Certificateholders
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 August
1, 2021 for the Class A Certificates, August 1, 2021 for the Class B
Certificates and August 1, 2015 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 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.
- 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 AIRCRAFT 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 AIRCRAFT PARTICIPATION AGREEMENT, and together
with the other Owned Aircraft Participation Agreements and the Leased
Aircraft 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.
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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 that
any such modifications do not materially and adversely affect the
Certificateholders or (b) if such agreements are modified in any material
respect, to obtain 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 aggregate principal amount of Series A, B and C 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 initial loan to aircraft value with respect to an Aircraft (with the
value of any Aircraft for these purposes to equal the value (the "ASSUMED
APPRAISED VALUE") for such Aircraft set forth in "Prospectus Supplement
Summary--Equipment Notes and the Aircraft" under the column "Appraised
Base Value"), not exceed 38.3% in the case of the Series A Equipment
Notes, 56.3% in the case of Series B Equipment Notes and 70.0% in the case
of Series C Equipment Notes.
- The loan to aircraft value for each series of Equipment Notes issued in
respect of each Aircraft (computed as of the date of issuance thereof on
the basis of the Assumed Appraised Value of such Aircraft and the
Depreciation Assumption) not exceed as of any Regular Distribution Date
thereafter (assuming no default in the payment of the Equipment Notes)
38.0% in the case of the Series A Equipment Notes, 56.0% in the case of
the Series B Equipment Notes and 68.0% in the case of the Series C
Equipment Notes.
- The initial average life of the Series A Equipment Notes, the Series B
Equipment Notes and the Series C Equipment Notes on any Aircraft will not
extend beyond 14.5 years, 14.0 years and 11.5 years, respectively, from
the Issuance Date.
- As of the Delivery Period Termination Date the average life of the Class A
Certificates, the Class B Certificates and the Class C Certificates not be
more than 13.9 years, 13.0 years and 10.0 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 expected distribution date of each Class of Certificates be as
set forth in the "Prospectus Supplement Summary--Summary of Terms of
Certificates."
- The original aggregate principal amount of all of the Equipment Notes of
each Series not exceed the original aggregate face amount of the
Certificates issued by the corresponding Trust.
- 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.
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- The payment dates for the Equipment Notes and basic rent under the Leases
must be February 1 and August 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, 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 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 Economic Terms are indicative only and subject to change prior
to delivery of the Prospectus Supplement.
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.
(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.
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(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 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, 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
- 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.
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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 or any
Liquidity Facility, 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, NWA Corp.
or Northwest Airlines Holdings Corporation and the assumption by such
corporation of Northwest's, NWA Corp.'s or Northwest Airlines Holdings
Corporation's, as the case may be, obligations under such Pass Through
Trust Agreement, the Note Purchase Agreement or any Liquidity Facility.
- To add to the covenants of Northwest, NWA Corp. or Northwest Airlines
Holdings Corporation for the benefit of holders of such Certificates or to
surrender any right or power conferred upon Northwest, NWA Corp. or
Northwest Airlines Holdings Corporation in such Pass Through Trust
Agreement, the Intercreditor Agreement, the Note Purchase Agreement or any
Liquidity Facility.
- 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 or any Liquidity
Facility which may be defective or inconsistent with any other provision
in such Pass Through Trust Agreement, the Intercreditor Agreement, the
Note Purchase Agreement or any Liquidity Facility, 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 or any Liquidity Facility, provided that such
action will not materially adversely affect the interests of the holders
of such Certificates; to correct any mistake in such Pass Through Trust
Agreement, the Intercreditor Agreement, the Note Purchase 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 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 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 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 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.
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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, as provided in the
related Trust Supplement, 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 or any Liquidity Facility
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 or any Liquidity Facility. 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,
- 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 or
- 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).
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.
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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)
POSSIBLE ISSUANCE OF CLASS D CERTIFICATES
Series D Equipment Notes may be issued in connection with the financing of
Owned Aircraft or a 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. If 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.
TERMINATION OF THE TRUSTS
The obligations of Northwest, if any, and the Trustee with respect to a
Trust will terminate upon the distribution to Certificateholders of such Trust
of all amounts required to be distributed to them pursuant to the applicable
Pass Through Trust Agreement and the disposition of all property held in such
Trust. The Trustee will send to each Certificateholder of record of such Trust
notice of the termination of such Trust, the amount of the proposed final
payment and the proposed date for the distribution of such final payment for
such Trust. The final distribution to any Certificateholder of such Trust will
be made only upon surrender of such Certificateholder's Certificates at the
office or agency of the applicable Trustee specified in such notice of
termination. (Section 11.01)
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THE TRUSTEE
The Trustee for each Trust will be State Street Bank and Trust Company. With
certain exceptions, the Trustee makes no representations as to the validity or
sufficiency of the Basic Agreement, the Trust Supplements, the Certificates, the
Equipment Notes, the Indentures, the Leases or other related documents.
(Sections 7.03 and 7.14) The Trustee of any Trust shall not be liable, with
respect to the Certificates of such Trust, for any action taken or omitted to be
taken by it in good faith in accordance with the direction of the holders of a
majority in principal amount of outstanding Certificates of such Trust. Subject
to certain provisions, the Trustee shall be under no obligation to exercise any
of its rights or powers under any Pass Through Trust Agreement at the request of
any holders of Certificates issued thereunder unless there shall have been
offered to the Trustee reasonable indemnity. (Section 7.02(e)) Each Pass Through
Trust Agreement provides that the Trustee in their individual or any other
capacity may acquire and hold Certificates issued thereunder and, subject to
certain conditions, may otherwise deal with Northwest, NWA Corp. and with any
Owner Trustee with the same rights they would have if they were not the Trustee.
(Section 7.04)
BOOK-ENTRY; DELIVERY AND FORM
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 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.
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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
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 (the "DELIVERY PERIOD
TERMINATION DATE"), 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
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the Class A 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) exceeds $5 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 case of Class C
Certificates $5 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 193 basis points in the case of
the Class A Certificates, 248 basis points in the case of the Class B
Certificates and 325 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 case of Class C Certificates $5 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 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 its Chicago Branch, will act as
"Depositary" for each of the Class A, 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, 1997, ABN AMRO Holding
N.V. reported consolidated assets amounting to approximately $414 billion (based
on the exchange rate at March 31, 1998 of U.S. $1.00 to NGL 2.08). The
accounting principles applied in the preparation of the financial statements of
ABN AMRO Bank N.V. may not conform to U.S. generally accepted accounting
principles.
ABN AMRO Bank N.V. has long-term unsecured debt ratings of Aa1 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.
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ABN AMRO Bank N.V.'s Chicago branch was initially licensed by the
Commissioner of Banks and Real Estate for the State of Illinois on October 1,
1973. The Chicago branch is an unincorporated branch of ABN AMRO Bank N.V. and
is not a separate subsidiary. The branch is located at 135 South LaSalle Street,
Chicago, Illinois 60674-9135.
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.
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.
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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 such Trust of the interest payable
on the Certificates of such Trust at the Stated Interest Rate therefor 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 such Trust will bear
their allocable share of the deficiencies to the extent that there are no other
sources of funds. Although Citibank, N.A. is the initial Liquidity Provider for
each Trust, Citibank, N.A. may be replaced by one or more other entities with
respect to the Trusts under certain circumstances. Therefore, the liquidity
providers may differ.
DRAWINGS
The aggregate amount available under the Liquidity Facilities for each Trust
at February 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 February 1, 2000, is paid,
will be $23,696,129, $11,921,199, and $8,467,216, 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 Class on such
day and without regard to payments of principal on such Certificates.
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
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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)
If at any time the short-term unsecured debt rating of the Liquidity
Provider for any Trust then issued by either Rating Agency is lower than the
Threshold Rating applicable to such Trust, 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 and as otherwise provided in the Intercreditor
Agreement, the Subordination Agent will draw the then Maximum Available
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 the downgrading of the applicable
Liquidity Provider), 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 Class A Liquidity
Provider, and the short-term unsecured debt rating
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of P-1 by Moody's and A-1 by Standard & Poor's, in the case of the Class B
Liquidity Provider and the Class C Liquidity Provider.
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
"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 (i) 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 or (ii) after the short-term unsecured debt rating of the Liquidity
Provider is downgraded below the applicable Threshold Rating (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
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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 following the applicable Liquidity Provider's receipt of the notice
of such Interest Drawing, 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 the Base Rate 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.
"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 LIBOR
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.
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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 equal to the earnings, if any, on funds on
deposit in the Cash Collateral Account.
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 $300 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.
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
Citibank, N.A. 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.
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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 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 Class A Trustee until payment of Final Distributions to the holders of
Class A 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, 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
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
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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 $300 million), the Liquidity Providers holding
a majority in interest of the unreimbursed Liquidity Obligations will have the
right to become the Controlling Party with respect to any Indenture.
(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."
"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.
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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;
- to the Liquidity Provider to the extent required to pay interest accrued
on the Liquidity Obligations;
- 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/or, if applicable, to
replenish each Cash Collateral Account up to the Required Amount;
- to the Class A Trustee to the extent required to pay Expected
Distributions on the Class A Certificates;
- 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;
- 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.
"LIQUIDITY OBLIGATIONS" means all principal, interest, fees and other
amounts owing to the Liquidity Providers under the Liquidity Facilities or
certain other agreements.
"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 pursuant to the Intercreditor Agreement 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)
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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 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 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;
- to the Liquidity Provider to the extent required to pay interest accrued
on the Liquidity Obligations;
- (i) to the Liquidity Provider to the extent required to pay the
outstanding amount of all Liquidity Obligations 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 A Trustee to the extent required to pay Adjusted Expected
Distributions on the Class A Certificates;
- 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; 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
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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) 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 pursuant to the
Intercreditor Agreement 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), 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 A Certificates 38.0%, for the Class B
Certificates 56.0% and for the Class C Certificates 68.0%. (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).
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"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.
"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, 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.
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 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, 4th
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 four new Boeing 747-400 aircraft which are
scheduled for delivery in March 1999, July 1999, August 1999 and October 1999
(the period from the date hereof through January 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.
<TABLE>
<CAPTION>
EXPECTED EXPECTED APPRAISED BASE VALUE
REGISTRATION AIRCRAFT ENGINE MANUFACTURER'S DELIVERY -------------------------------------------
NUMBER TYPE TYPE SERIAL NUMBER DATE(1) AVM BK MBA
- ------------- ---------------- --------- ----------------- ---------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
671US Boeing 747-400 PW4056 26477 March 1999 $ 153,000,000 $ 155,000,000 $ 156,250,000
672US Boeing 747-400 PW4056 26475 July 1999 155,000,000 155,000,000 157,540,000
673US Boeing 747-400 PW4056 26476 August 1999 155,000,000 155,000,000 157,860,000
674US Boeing 747-400 PW4056 26478 October 1999 155,000,000 155,000,000 158,510,000
</TABLE>
- ------------------------
(1) Reflects the scheduled delivery month under Northwest's purchase agreement
with the manufacturer. The actual delivery date for any Aircraft may be
subject to delay.
APPRAISED VALUE
The appraised base values set forth in the foregoing chart were determined
by AVMARK, Inc. ("AVM") as of January 7, 1999, BK Associates, Inc. ("BK") as of
December 30, 1998 and Morten Beyer and Agnew, Inc. ("MBA", and together with AVM
and BK, the "APPRAISERS") as of December 31, 1998. 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 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 are scheduled for delivery from March 1999 through October 1999
under a purchase agreement between Northwest and The Boeing Company ("BOEING").
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 Boeing's or any
associated contractor's control or not occasioned by Boeing's or any associated
contractor's fault, misconduct or negligence. Northwest cannot predict whether
adjustments in such schedule will be required.
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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."
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 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 A 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 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 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 A 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 A 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)
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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 February 1, and August 1,
of each year, commencing on the first such date to occur after initial issuance
thereof. 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.
Scheduled principal payments on the Equipment Notes will be made on February
1 and August 1 in certain years, commencing on August 1, 1999 or on the first
Regular Distribution Date to occur after such Aircraft is delivered to the
Company. 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 Indenture pursuant to Section 2.13 of the
Indenture and Section 8(x) of the relevant Participation Agreement. In
connection with any such assumption of the Owner Trustee's obligations in
respect of the Leased Aircraft Notes, 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
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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 Indenture and the related
Participation Agreement. (Indentures, Sections 2.10(b) and 2.13; Leased Aircraft
Participation Agreements, Section 8(x); Leases, Sections 19(d)) See "--The
Leases--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 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).
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"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.
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, replacement aircraft (as described in "--The
Leases--Events of Loss") 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 table sets forth illustrative loan to Aircraft value ratios
for the Equipment Notes issued in respect of Leased Aircraft as of the February
Regular Distribution Dates that occur after the scheduled date of original
issuance of such Equipment Notes, assuming that the Equipment Notes in the
maximum
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principal amount are issued in respect of 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.
The following table is based on the assumption (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 until the fifteenth year 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.
<TABLE>
<CAPTION>
BOEING 747-400
-------------------------------------
EQUIPMENT
NOTE ASSUMED
OUTSTANDING AIRCRAFT LOAN TO
BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO
- ------------------- ----------- ----------- -----------
<S> <C> <C> <C>
February 1, 2000 $ 102.07 $ 154.75 66.0%
August 1, 2000 102.07 150.11 68.0
August 1, 2001 98.92 145.47 68.0
August 1, 2002 95.76 140.82 68.0
August 1, 2003 92.60 136.18 68.0
August 1, 2004 89.44 131.54 68.0
August 1, 2005 83.94 126.90 66.1
August 1, 2006 81.17 122.25 66.4
August 1, 2007 76.07 117.61 64.7
August 1, 2008 72.90 112.97 64.5
August 1, 2009 69.72 108.33 64.4
August 1, 2010 66.71 103.68 64.3
August 1, 2011 63.47 99.04 64.1
August 1, 2012 60.51 94.40 64.1
August 1, 2013 50.26 89.76 56.0
August 1, 2014 47.66 85.11 56.0
August 1, 2015 40.39 78.92 51.2
August 1, 2016 31.71 72.73 43.6
August 1, 2017 22.40 66.54 33.7
August 1, 2018 12.43 60.35 20.6
August 1, 2019 1.75 54.16 3.2
</TABLE>
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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).
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 Indenture 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
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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 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
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<PAGE>
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--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 ability to exercise remedies upon an Indenture Event of
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 creditor's 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 or the failure to satisfy any penalty rate or provision relating to a
default arising from any failure by the debtor to perform nonmandatory
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
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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--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."
A recent decision, WESTERN PACIFIC AIRLINES, INC. V. GATX (IN RE WESTERN
PACIFIC AIRLINES, INC.), 219 B.R. 305, on rehearing, 221 B.R. 1 (D. Colo: 1998),
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
special 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. Northwest has been advised that the decision is currently on
appeal.
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))
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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))
INDEMNIFICATION
Northwest will be required to indemnify each Loan Trustee, each Owner
Participant, each Owner Trustee, each Liquidity 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 any 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.
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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
February 1 and August 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)
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))
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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
$800,000. Title to parts incorporated or installed in or added to such Airframe
or Engine as a result of such alterations, modifications or additions vest in
the Owner Trustee subject to certain exceptions. In certain circumstances,
Northwest (or any Sublessee) is permitted to remove parts which were added by
Northwest (or any Sublessee) (without replacement) from an Airframe or Engine so
long as certain 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. 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
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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.
(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 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) 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,
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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
$400,000,000 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
$7,000,000 and the entire amount of any loss involving proceeds of $7,000,000 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 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
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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)
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 2015. 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 U.S. 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
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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))
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), 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.
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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 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 by the 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)
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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 PAYMENT DATES" means, with respect to each Lease, February 1 and
August 1 of each year, so long as Equipment Notes are outstanding under the
related Indenture, commencing August 1, 1999 or on the first Regular
Distribution Date to occur after such Aircraft is leased by the Company.
"LEASE PAYMENT DEFAULT" means a default under a Lease relating to either
payments of rent or involuntary bankruptcy or similar events.
"SUBLESSEE" means any sublessee under a Lease from time to time.
"SUPPLEMENTAL RENT" means all amounts, liabilities and obligations (other
than Basic Rent) which are owed by Northwest under each Lease and the agreements
related thereto.
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 summary describes the principal U.S. federal income tax
consequences to Certificateholders of the purchase, ownership and disposition of
the Certificates offered hereby. Except as otherwise specified, the summary is
addressed to beneficial owners of Certificates ("U.S. CERTIFICATEHOLDERS") that
are citizens or residents of the 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 trusts if a court within the United States
is able to exercise primary supervision over the administration of the trust and
one or more of the preceding persons have the authority to control all
substantial decisions of the trust ("U.S. PERSONS") that will hold the
Certificates as capital assets. This summary does not address the tax treatment
of U.S. Certificateholders that may be subject to special tax rules, such as
banks, insurance companies, dealers in securities or commodities, tax-exempt
entities, holders that will hold Certificates as part of a straddle or holders
that have a "functional currency" other than the U.S. Dollar, nor does it
address the tax treatment of U.S. Certificateholders that do not acquire
Certificates as part of the initial offering. The summary does not purport to be
a comprehensive description of all of the tax considerations that may be
relevant to a decision to purchase Certificates. This summary does not describe
any tax consequences arising under the laws of any State, locality or taxing
jurisdiction other than the United States.
The summary is based upon the tax laws and practice 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, which change
could apply retroactively. Prospective investors should note that no rulings
have been or will be sought from the Internal Revenue Service with respect to
any of the U.S. federal income tax consequences discussed below and no assurance
can be given that the Internal Revenue Service will not take contrary positions.
This summary supersedes the discussion in the Prospectus under the heading
"United States Federal Income Tax Consequences" to the extent it is inconsistent
therewith. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE CERTIFICATES.
TAX STATUS OF THE TRUSTS
In the opinion of Cadwalader, Wickersham & Taft, special 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 Deposits will be
S-80
<PAGE>
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 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 CLASS B AND CLASS C CERTIFICATEHOLDERS
If any of the Class B Trust or the Class C Trust (such Trusts being the
"SUBORDINATED TRUSTS" and the related Certificates being the "SUBORDINATED
CERTIFICATES") receives less than the full amount of the receipts of principal
or interest paid with respect to the Equipment Notes held by it (any shortfall
in such receipts being the "SHORTFALL AMOUNTS") because of the subordination of
the Equipment Notes held by such Trust under the Intercreditor Agreement, the
corresponding owners of beneficial interests in the Subordinated Certificates
(the "SUBORDINATED CERTIFICATEHOLDERS") would probably be treated for federal
income tax purposes as if they had (1) received as distributions their full
share of such receipts, (2) paid over to the relevant senior class of
Certificateholders an amount equal to their share of such Shortfall Amount, and
(3) retained the right to reimbursement of such amounts to the extent of future
amounts payable to such Subordinated Certificateholders with respect to such
Shortfall Amount.
Under this analysis, (1) Subordinated Certificateholders incurring a
Shortfall Amount would be required to include as current income any interest or
other income of the corresponding Subordinated Trust that was a component of the
Shortfall Amount, even though such amount was in fact paid to the relevant
senior class of Certificateholders, (2) a loss would only be allowed to such
Subordinated Certificateholders when their right to receive reimbursement of
such Shortfall Amount became worthless (i.e., when it becomes clear that funds
will not be available from any source to reimburse such loss), and (3)
reimbursement of such Shortfall Amount prior to such a claim of worthlessness
would not be taxable income to Subordinated Certificateholders because such
amount was previously included in income. These results should not significantly
affect the inclusion of income for Subordinated Certificateholders on the
accrual method of accounting, but could accelerate inclusion of income to
Subordinated Certificateholders on the cash method of accounting by, in effect,
placing them on the accrual method.
SALE OR OTHER DISPOSITION OF THE CERTIFICATES
Upon the sale, exchange or other disposition of a Certificate and the
related Deposit, a U.S. Certificateholder generally will recognize 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
S-81
<PAGE>
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 with respect to a
Certificate will be capital gain or loss if the Certificate was held as a
capital asset. Net long-term capital gains of individuals generally are taxed at
a 20% maximum rate compared to a 39.6% maximum rate for ordinary income for
property held for more than one year. Any gain with respect to an interest in a
Deposit likely will be treated as short-term capital gain or as ordinary income.
With respect to the Certificates, an Owner Participant's conveyance of its
interest in an Owner Trust should not constitute a taxable event to the holders
of interests in the related Certificates.
FOREIGN CERTIFICATEHOLDERS
Under present U.S. federal income tax law, assuming certain certification
requirements are satisfied (which include identification of the beneficial owner
of a Certificate), and subject to the discussion of backup withholding below:
(a) payments of interest (including any OID) on a Certificate 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 income
tax or withholding tax provided that (1) such Non-U.S. Certificateholder
does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of an Owner Participant or Northwest,
(2) 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 or Northwest, and (3) such
interest payments are not effectively connected with the conduct of a U.S.
trade or business of such Non-U.S. Certificateholder; and
(b) a Non-U.S. Certificateholder will not be subject to U.S. federal
income tax on any capital gain realized on the sale, exchange, retirement or
other disposition of a Certificate, unless (1) such Non-U.S.
Certificateholder is an individual who is present in the United States for
183 days or more during the taxable year of the sale, exchange, retirement
or other disposition and certain other requirements are met or (2) such gain
is effectively connected with the conduct of a U.S. trade or business of
such Non-U.S. Certificateholder.
The certification referred to above may be made on an IRS Form W-8 or
substantially similar substitute form.
INFORMATION REPORTING AND 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.
S-82
<PAGE>
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, 1999.
CERTAIN MASSACHUSETTS TAXES
The Trustee is a Massachusetts trust company with its corporate trust office
in Massachusetts. In the opinion of Bingham Dana LLP, counsel to the Trustee
under currently applicable law, assuming that the Trusts will not be taxable as
corporations, but, rather, will be classified either as grantor trusts under
subpart E, Part I of Subchapter J of the Code, (i) the Trusts will not be
subject to any tax (including, without limitation, net or gross income, tangible
or intangible property, net worth, capital, franchise or doing business tax),
fee or other governmental charge under the laws of the Commonwealth of
Massachusetts or any political subdivision thereof and (ii) Certificateholders
that are not residents of or otherwise subject to tax in Massachusetts will not
be subject to any tax (including, without limitation, net or gross income,
tangible or intangible property, net worth, capital, franchise or doing business
tax), fee or other governmental charge under the laws of the Commonwealth of
Massachusetts or any political subdivision thereof as a result of purchasing,
holding (including receiving payments with respect to) or selling a Certificate.
S-83
<PAGE>
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 (as well as 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 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, as applicable here, it is established that equity participation
in the Trust by "benefit plan investors" (including but not limited to Plans and
entities whose underlying assets include Plan assets by reason of an employee
benefit plan's investment in the entity) 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 neither of these exceptions applies and 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 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,
S-84
<PAGE>
the Trustees, the Escrow Agent, the Deposit aries, the Owner Trustees 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 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 professional 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 interest therein are exempt from the prohibited transaction
restrictions of ERISA and Section 4975 of the Code pursuant to one or more
prohibited transaction statutory or administrative exemptions.
CLASS A 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
A 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 (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. Under the terms of the Escrow Agreement, the proceeds from
the offering of the Class A, Class B and
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<PAGE>
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 A 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 A
Certificates, no assurance can be given that the Underwriter Exemption would
apply with respect to all transactions involving the Class A Certificates or the
assets of the Class A Trust. In particular, the Underwriter Exemption may not
apply to the purchase by Class B Certficiateholders or Class C
Certificateholders of Class A Certificates in connection with the exercise of
their rights upon the occurrence and during the continuance of a Triggering
Event. See "Description of the Certificates--Purchase Rights of
Certificateholders." Therefore, the fiduciary of a Plan considering the purchase
of a Class A 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.
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
It should be noted that the Small Business Job Protection Act of 1996 added
new Section 401(c) of ERISA relating to the status of the assets of insurance
company general accounts under ERISA and Section 4975 of the Code. Pursuant to
Section 401(c), the Department of Labor ("DOL") is required to issue final
regulations (the "GENERAL ACCOUNT REGULATIONS") with respect to insurance
policies issued on or before December 31, 1998 that are supported by an
insurer's general account. The General Account Regulations are to provide
guidance on which assets held by the insurer constitute "plan assets" for
purposes of the fiduciary responsibility provisions of ERISA and Section 4975 of
the Code. Section 401(c) also provides that, except in the case of avoidance of
the General Account Regulations and actions brought by the Secretary of Labor
relating to certain breaches of fiduciary duties that also constitute breaches
of state or federal criminal law, until the date that is 18 months after the
General Account Regulations become final, no liability under the fiduciary
responsibility and prohibited transaction provisions of ERISA and Section 4975
of the Code may result on the basis of a claim that the assets of the general
account of an insurance company constitute the assets of any Plan. The plan
asset status of insurance company separate accounts is unaffected by new Section
401(c) of ERISA, and separate account assets continue to be treated as the
assets of any Plan invested in a separate account, except to the extent provided
in the Plan Asset Regulation.
As of the date hereof, the DOL has issued proposed regulations under Section
401(c). If the General Account Regulations are adopted substantially in the form
in which proposed, the General Account Regulations may not exempt the assets of
insurance company general accounts from treatment as "plan assets" after
December 31, 1998. The proposed regulations should not, however, adversely
affect the applicability of PTCE 95-60 to purchases of Certificates by insurance
company general accounts.
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.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(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 after 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 A CLASS B CLASS C
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES
- ----------------------------------------------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
Morgan Stanley & Co. Incorporated................................ $ 47,101,000 $ 22,311,000 $ 14,828,000
Credit Suisse First Boston Corporation........................... 47,101,000 22,311,000 14,828,000
ABN Amro Incorporated............................................ 47,101,000 22,311,000 14,828,000
Chase Securities Inc............................................. 47,101,000 22,311,000 14,828,000
Salomon Smith Barney Inc......................................... 47,101,000 22,311,000 14,828,000
-------------- -------------- -------------
Total.......................................................... $ 235,505,000 $ 111,555,000 $ 74,140,000
-------------- -------------- -------------
-------------- -------------- -------------
</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>
CONCESSION REALLOWANCE
PASS THROUGH CERTIFICATE DESIGNATION TO DEALERS CONCESSION
- ---------------------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
1999-1A................................................................................. 0.50% 0.25%
1999-1B................................................................................. 0.50% 0.25%
1999-1C................................................................................. 0.50% 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.
The Underwriting Agreement provides that NWA Corp. and Northwest will
reimburse the Underwriters for certain expenses and will 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 seventh business day
following the date of pricing of the Certificates (such settlement cycle being
herein referred to as "T+7"). 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 three succeeding business days
will be required, by virtue of the fact that the Certificates initially will
settle in T+7, to specify an alternate settlement cycle at the time of any such
trade
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<PAGE>
to prevent a failed settlement. Purchasers of Certificates who wish to trade
Certificates on the date of pricing or the next three succeeding business days
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, or has
committed to be a lender, under one or more of the Company's credit facilities.
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,
as to certain matters relating to the authorization, execution and delivery of
the Basic Agreement, each Trust Supplement and the issuance of the Certificates.
EXPERTS
Ernst & Young LLP, independent auditors, have audited Old NWA Corp.'s
consolidated financial statements and schedule included in Old NWA Corp.'s
Annual Report on Form 10-K for the year ended December 31, 1997, as set forth in
their report, which is incorporated in the prospectus accompanying this
prospectus supplement by reference. Old NWA Corp.'s consolidated financial
statements are incorporated by reference in reliance on their report, given on
their authority as experts in accounting and auditing.
The references to AVM, BK and MBA, and to their respective appraisal
reports, dated as of January 7, 1999 in the case of AVM, December 30, 1998 in
the case of BK and December 31, 1998 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-88
<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-58
Administration Expenses........................ S-58
Aggregate LTV Collateral Amount................ S-59
Aircraft....................................... S-5
Aircraft Operative Agreements.................. S-41
AMTNOLs........................................ S-19
Appraised Current Market Value................. S-59
Appraisers..................................... S-61
ASMs........................................... S-16
Assumed Aircraft Value......................... S-66
Assumed Amortization Schedule.................. S-34
Assumed Appraised Value........................ S-40
Average Life Date.............................. S-65
Aviation Act................................... S-42
AVM............................................ S-61
Bankruptcy Code................................ S-13
Base Rate...................................... S-53
Basic Agreement................................ S-30
Basic Rent..................................... S-79
BK............................................. S-61
Boeing......................................... S-61
Business Day................................... S-34
Cash Collateral Account........................ S-51
Cede........................................... S-46
Certificate Account............................ S-33
Certificateholders............................. S-30
Certificate Owner.............................. S-46
Certificates................................... S-30
Civil Reserve Air Fleet Program................ S-79
Class A Certificates........................... S-30
Class A Trust.................................. S-30
Class B Certificates........................... S-30
Class B Trust.................................. S-30
Class C Certificates........................... S-30
Class C Trust.................................. S-30
Class Exemptions............................... S-85
Code........................................... S-19
Company........................................ S-4
Continental.................................... S-18
Controlling Party.............................. S-23
Definitive Certificates........................ S-46
Delivery Period................................ S-61
Delivery Period Termination Date............... S-47
Deposit........................................ S-47
<CAPTION>
DEFINED TERM PAGE
- ----------------------------------------------- ---------
<S> <C>
Deposit Account................................ S-47
Deposit Agreements............................. S-47
Deposit Make-Whole Premium..................... S-48
Depreciation Assumption........................ S-66
Distribution Date.............................. S-33
DOL............................................ S-86
DOT............................................ S-21
Downgrade Drawing.............................. S-51
DTC............................................ S-46
DTC Participants............................... S-46
EC............................................. S-29
Equipment...................................... S-69
Equipment Notes................................ S-62
ERISA.......................................... S-84
ERISA Plans.................................... S-84
Escrow Agent................................... S-49
Escrow Agreements.............................. S-49
Escrow Receipts................................ S-49
Event of Loss.................................. S-77
Expected Distributions......................... S-57
Express........................................ S-26
FAA............................................ S-19
Final Distributions............................ S-56
Final Drawing.................................. S-52
Final Expected Distribution Date............... S-30
Final Legal Distribution Date.................. S-32
Final Regulations.............................. S-83
General Account Regulations.................... S-86
H.15(519)...................................... S-65
IAM............................................ S-17
Indenture Default.............................. S-37
Indentures..................................... S-39
Intercreditor Agreement........................ S-22
Interest Drawings.............................. S-50
IRS............................................ S-19
Issuance Date.................................. S-52
KLM............................................ S-25
Lease.......................................... S-13
Lease Event of Default......................... S-37
Lease Payment Dates............................ S-79
Lease Payment Default.......................... S-79
Leased Aircraft................................ S-39
Leased Aircraft Indenture...................... S-39
Leased Aircraft Participation Agreement........ S-39
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ----------------------------------------------- ---------
<S> <C>
LIBOR.......................................... S-53
Liquidity Event of Default..................... S-54
Liquidity Expenses............................. S-57
Liquidity Facility............................. S-50
Liquidity Obligations.......................... S-57
Liquidity Provider............................. S-8
Loan Trustee................................... S-8
LTV Appraisal.................................. S-60
LTV Collateral Amount.......................... S-59
LTV Ratio...................................... S-59
LTVs........................................... S-6
Make-Whole Premium............................. S-64
Mandatory Document Terms....................... S-41
Mandatory Economic Terms....................... S-40
Maximum Amount................................. S-48
Maximum Available Commitment................... S-50
MBA............................................ S-61
Mesaba......................................... S-26
Minimum Sale Price............................. S-56
Moody's........................................ S-24
NOLs........................................... S-19
Non-Extension Drawing.......................... S-52
Non-Performing Equipment Note.................. S-60
Non-U.S. Certificateholder..................... S-82
Northwest...................................... S-4
Note Holders................................... S-41
Note Purchase Agreement........................ S-39
NWA Corp....................................... S-4
Old NWA Corp................................... S-29
Owned Aircraft................................. S-39
Owned Aircraft Indenture....................... S-39
Owned Aircraft Participation Agreement......... S-39
Owner Participant.............................. S-62
Owner Trustee.................................. S-30
Participation Agreement........................ S-39
Pass Through Trust Agreements.................. S-30
Paying Agent................................... S-49
Paying Agent Account........................... S-33
Performing Equipment Note...................... S-51
Permitted Investments.......................... S-38
Plan Asset Regulation.......................... S-84
Plans.......................................... S-84
Pool Balance................................... S-34
<CAPTION>
DEFINED TERM PAGE
- ----------------------------------------------- ---------
<S> <C>
Pool Factor.................................... S-34
PTC Event of Default........................... S-39
PTCE........................................... S-85
Rating Agencies................................ S-51
Receiptholder.................................. S-49
Regular Distribution Dates..................... S-32
Remaining Weighted Average Life................ S-65
Replacement Liquidity Facility................. S-51
Required Amount................................ S-50
RPMs........................................... S-16
Scheduled Payments............................. S-32
Section 1110 Period............................ S-51
Series A Equipment Notes....................... S-62
Series B Equipment Notes....................... S-62
Series C Equipment Notes....................... S-62
Shortfall Amounts.............................. S-81
Special Distribution Date...................... S-33
Special Payment................................ S-32
Special Payments Account....................... S-33
Standard & Poor's.............................. S-24
Stated Interest Rate........................... S-31
Sublessee...................................... S-79
Subordinated Certificateholders................ S-81
Subordinated Certificates...................... S-81
Subordinated Trusts............................ S-81
Subordination Agent............................ S-8
Supplemental Rent.............................. S-79
Termination Notice............................. S-54
Threshold Rating............................... S-51
Treasury Yield................................. S-64
Triggering Event............................... S-39
Trust Agreement................................ S-62
Trust Indenture Act............................ S-43
Trust Property................................. S-30
Trust Supplement............................... S-30
Trustee........................................ S-8
Trusts......................................... S-30
Underwriter Exemption.......................... S-85
Underwriters................................... S-87
Underwriting Agreement......................... S-87
U.S. Certificateholders........................ S-80
U.S. Persons................................... S-80
</TABLE>
I-2
<PAGE>
[LOGO] AVMARK INC.(R)
------------------------------------------------------------------------
WORLDWIDE AVIATION MARKETING AND MANAGEMENT SERVICE
1500 WILSON BLVD., SUITE 515 o ARLINGTON, VA 22209
TELEPHONE (703) 528-5610 o FAX (703) 528-3689
E-MAIL [email protected] o www.avmarkinc.com
A Desktop Appraisal
For Four Boeing
B 747-451 Aircraft
Prepared
For
Northwest Airlines
January 7, 1999
<PAGE>
[LOGO] AVMARK INC.(R)
------------------------------------------------------------------------
WORLDWIDE AVIATION MARKETING AND MANAGEMENT SERVICE
AVMARK has been retained by Northwest Airlines to perform a desktop base
value appraisal of four Boeing B-747-451 aircraft with variable delivery dates.
These aircraft are to have the following similarities:
Engines Seat Capacity Max T.O. Wt. Max Ldg. Wt.
PW 4056 418 875,000 630,000
The aircraft base value at the date of delivery will be:
Delivery Date Values (000)
March 1999 $153,000
July 1999 $155,000
August 1999 $155,000
October 1999 $155,000
THE DEFINITIONS, TERMS AND LIMITATIONS SET FORTH IN EXHIBIT A ARE
EXPRESSLY MADE A PART OF THIS APPRAISAL REPORT.
Sincerely,
Robert C. Miers
Director of Appraisals
<PAGE>
[LOGO] AVMARK INC.(R)
------------------------------------------------------------------------
WORLDWIDE AVIATION MARKETING AND MANAGEMENT SERVICE
The Fair Market Value
The current values used in this appraisal have been taken from
AVMARK's newest Transport Aircraft Values (TAV). AVMARK's forecast of current
and fixture aircraft prices is a reflection of the belief that an aircraft's
value is a function of two primary factors: the aircraft's earnings potential in
the hands of a profit-minded operator and its degree of favor or disfavor among
aircraft buyers and sellers in the marketplace.
Additionally, AVMARK continuously monitors aircraft transactions as they
occur in the marketplace. By applying its awareness of transaction prices to the
profit curve of the aircraft, AVMARK is able to analyze and determine the
relationship between an aircraft's worth in use and its price in the
marketplace. This relationship represents the degree of buyer/seller acceptance
of the aircraft, given the aircraft's profit potential. The new TAV represents
the culmination of these analyses.
The Base Value as set forth in this report assume that supply and demand
for the aircraft are in reasonable state equilibrium. The airframe, engines and
other major components assumed to be in half-life condition regarding their
overhaul status, that the aircraft is in an overall good condition and is in a
standard airline configuration. It also assumes that the aircraft is current
relative to all maintenance Airworthiness Directives (ADs) and Service Bulletins
(SBs), is certificated for U.S. FAR Part 121 operation and that its
specifications are those most common for that particular type of aircraft.
In making this appraisal, AVMARK has relied on information supplied by the
client and has made an adjustment to the base value for the higher than standard
Max Takeoff Weight of the subject aircraft.
<PAGE>
[LOGO] AVMARK INC.(R)
------------------------------------------------------------------------
WORLDWIDE AVIATION MARKETING AND MANAGEMENT SERVICE
The B-747-400
The B-747-400 was put in service in February 1989 with Northwest Airlines
who launched the program with orders in October 1985. The aircraft was first
certified with PW4000 engines and later offered with both GE and Rolls Royce
engines as well. However, the Pratt and Whitney engines have proved to be the
most popular with users of the equipment.
By the end of September 1998 444 B-747-400 aircraft had been delivered
with approximately 110 additional units on order. Production is forecast by the
Teal Group to continue well into the early 2000s with a further upgraded model
incorporating increases in gross weight and additional passenger capacity.
B-747-400 Production Forecast
- --------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Total
- --------------------------------------------------------------------------------
466 45 40 30 24 20 12 10 6 3 656
- --------------------------------------------------------------------------------
Source: The Teal Group
Despite the economic crises in Asia current deliveries of the B-747-300
have held up well and are projected to continue. There have been few
cancellations of orders, with Philippine Airlines the notable exception, as
Asian carriers have continued to accept new aircraft and then do sale and
leasebacks for hard currency.
There have been recent signs of improvement in the Asian economies and
airline traffic has held up well in other areas of the world.
<PAGE>
[LOGO] AVMARK INC.(R)
------------------------------------------------------------------------
WORLDWIDE AVIATION MARKETING AND MANAGEMENT SERVICE
EXHIBIT A
Definitions, Terms, and Limitations Relating To This Report
AVMARK. Inc. ("AVMARK") defines "Base Value" (either current or future
values) as the price at which we believe the aircraft would sell assuming that
the market environment is in a reasonable state of equilibrium. In the context
of our evaluation, the value we have determined as a Base Value is such only
when the specific conditions are met.
The base values are based upon AVMARK's knowledge of the industry and use
of certain estimates, assumptions or definitions, some of which are more fully
described in the attached report. THE BASE VALUE SHOULD NOT BE UTILIZED OUTSIDE
THE CONTEXT OF, OR WITHOUT KNOWLEDGE OF THOSE ESTIMATES, ASSUMPTIONS OR
DEFINITIONS.
The report reflects AVMARK's expert opinion and best judgment based on the
information available to it at time of preparation. The appraisal report was
prepared by AVMARK for the account of Northwest Airlines. AVMARK does not have,
and does not expect to have, any financial interest in the appraised property,
nor is AVMARK privy to any effort to induce a financial transaction, including
solicitation of loans or other investments on the basis of this report.
AVMARK accepts no responsibility for damages, if any suffered by any third
party as a result of decisions made or actions taken based on this report.
This appraisal was prepared for the use of Northwest Airlines and, as
such, is entitled to confidential treatment by AVMARK, Inc., and will not be
provided to other parties without the express consent of Northwest Airlines.
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
BK Associates, Inc.
1295 Northern Boulevard
Manhasset, New York 11030
(516) 365-6272 o Fax (516) 365-6287
December 30, 1998
Northwest Airlines
5101 Northwest Drive, Dept. A4010
St. Paul, MN 55111-3034
Gentlemen:
In response to your request, BK Associates, Inc. is pleased to provide this
opinion on the Base Value as of its respective delivery date on each of four
B747-451 aircraft, each powered by four Pratt & Whitney PW4056 engines
(Aircraft). The Aircraft are further identified in the conclusions of this
letter by serial number and date of delivery.
Set forth below is a summary of the methodology, considerations and assumptions
utilized in this appraisal.
CURRENT FAIR MARKET VALUE
According to the International Society of Transport Aircraft Trading's (ISTAT)
definition of FMV, to which BK Associates 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 FMV assumes that the aircraft is valued for its highest
and best use, that the parties to the hypothetical sale transaction are willing,
able, prudent and knowledgeable, and under no unusual pressure for a prompt
sale, and that the transaction would be negotiated in an open and unrestricted
market on an arm's length basis, for cash or equivalent consideration, and given
an adequate amount of time for effective exposure to prospective buyers, which
BK Associates considers to be 12 to 18 months.
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.
<PAGE>
BK Associates, Inc.
Northwest Airlines
December 30, 1998
Page 2
VALUE METHODOLOGY
As the definition suggests, Base Value is determined from historic and future
value trends and is not influenced by current market conditions. It is often
determined as a function of the original cost of the aircraft, technical
characteristics of competing aircraft, and development of new models. BK
Associates has determined from analysis of historic data, a relationship between
aircraft age and its value as a percentage of original value for the average
aircraft. These data form the basis for base value and forecast value
determinations but must be adjusted to reflect the value of engine and gross
weight options and other features of the aircraft. For new aircraft yet to be
delivered, the Base Value is determined from list price as well as known prices
for similar recently delivered aircraft.
LIMITING CONDITIONS AND ASSUMPTIONS
BK has neither inspected the Aircraft nor their maintenance records but relied
upon information supplied by you and from BK's own database. In determining the
base value of an aircraft, the following assumptions apply to the aircraft:
1. Unless it is new, the aircraft has half-time remaining to its next major
overhauls or scheduled shop visit on its airframe, engines, landing gear
and auxiliary power unit.
2. The aircraft is in compliance under a Federal Aviation Administration
approved airline maintenance program, with all airworthiness directives,
mandatory modifications and applicable service bulletins currently up to
industry standard.
3. The interior of the aircraft is in a standard configuration for its
specific type, with the buyer furnished equipment and options of the types
and models generally accepted and utilized in the industry.
4. The aircraft is in current flight operations.
5. The aircraft is sold for cash without seller financing.
6. The Aircraft is in average or better condition.
7. There is no accident damage.
<PAGE>
BK Associates. Inc.
Northwest Airlines
December 30, 1998
Page 3
CONCLUSIONS
Based on the above methodology, considerations and assumptions, it is our
opinion that the current base value of each aircraft as of today is as follows:
Serial Delivery Current
Number Date BV
------ ---- --
26477 03/1999 $155,000,000
26475 07/1999 155,000,000
26476 08/1999 155,000,000
26478 10/1999 155,000,000
BK Associates, Inc. has no present or contemplated future interest in the
Aircraft, nor any interest that would preclude our making a fair and unbiased
estimate. This appraisal represents the opinion of BK Associates, Inc. and
reflects our best judgment based on the information available to us at the time
of preparation and the time and budget constraints imposed by the client. It is
not given as a recommendation, or as an inducement, for any financial
transaction and further, BK Associates, Inc. assumes no responsibility or legal
liability for any action taken or not taken by the addressee, or any other
party, with regard to the appraised equipment. By accepting this appraisal, the
addressee agrees that BK Associates, Inc. shall bear no such responsibility or
legal liability. This appraisal is prepared for the use of the addressee and
shall not be provided to other parties without the express consent of the
addressee.
Sincerely yours,
BK ASSOCIATES, INC.
/s/ John F. Keitz
John F. Keitz
President
ISTAT Senior Certified Appraiser
JFK/kf
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
MORTEN BEYER & AGNEW
- --------------------------------------------------------------------------------
AVIATION CONSULTING FIRM
Appraisal of four Boeing 747-400 Aircraft
PREPARED FOR:
Northwest Airlines
DECEMBER 31, 1998
Washington, D.C. London
8180 Greensboro Drive Lahinch 62, Lashmere
Suite 1000 Copthorne
McLean, Virginia 22102 West Sussex
Phone +703 847 6598 Phone +44 1342 716248
Fax +703 847 1911 Fax +44 1342 718967
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
- --------------------------------------------------------------------------------
I. INTRODUCTION AND EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Morten Bayer and Agnew, Inc. (MBA), has been retained by Northwest Airlines to
determine the Base Value (BV) of four Boeing 747-400 aircraft to be delivered
new. The aircraft are further identified in Section II of this report.
In performing this valuation, we 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 BV of the total value of aircraft in
this portfolio is $630,160,000 with their respective individual values noted in
Section IV.
MBA uses the definition of certain terms, such as Current Market Value (CMV) and
BV, as promulgated by the International Society of Transport Aircraft Trading
(ISTAT), a non-profit association of management personnel from banks, leasing
companies, airlines, manufacturers, appraisers, brokers, and others who have a
vested interest in the commercial aviation industry.
ISTAT defines 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. Market Value (MV) 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 BV states that the market circumstances are assumed to
be in a reasonable state of equilibrium. Thus, BV pertains to an idealized
aircraft and market combination, but will not necessarily reflect the actual CMV
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] 1 12/31/98
MBA
<PAGE>
- --------------------------------------------------------------------------------
II. AIRCRAFT
- --------------------------------------------------------------------------------
--------------------------------------------------------------
Serial Number 26475 26476 26477 26478
--------------------------------------------------------------
Aircraft 747-451 747-451 747-451 747-451
--------------------------------------------------------------
Date of Mfr. 7/99 8/99 3/99 10/99
--------------------------------------------------------------
Powerplant PW4056 PW4056 PW4056 PW4056
--------------------------------------------------------------
MTOW (lbs.) 875,000 875,000 875,000 875,000
--------------------------------------------------------------
[GRAPHIC OMITTED]
[LOGO] 2 12/31/98
MBA
<PAGE>
- --------------------------------------------------------------------------------
III. CURRENT MARKET CONDITIONS
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] -------------------------
Boeing 747-400
-------------------------
The 747-400 is the current state-of-the-art model of the 747 family. It is
offered with all three engine manufacturers' power plants in passenger, Combi,
and cargo models. Three hundred and eighty have already been built, and 140
remain on order. The aircraft incorporates all of the design improvements
developed over the life of the 747 program, including the extended upper deck, a
two-pilot glass cockpit, a maximum gross weight of 883,000 pounds at takeoff,
and a range of up to 8,000 statute miles. The operator list is surprisingly thin
in terms of numbers of airlines, but some individual fleets are huge. The -400
had a total of 33 operators as of December, 1997, including British Airways with
39 in service and 27 more on order, and Singapore, with 37 and 8, respectively.
The continuing flow of new 747-400s has created a surplus of older 747-100s and
- -200s on the market. Until recently the new -400s have gone to meet the pent-up
demand for capacity. Half of the aircraft in service and on order are from the
Pacific Rim carriers, not counting almost 100 ordered by United and Northwest
for the same area and the fleets of the European carriers which will be deployed
on Pacific routes.
Back in 1993, we considered it probable that these orders and options would be
scaled back in the next few years to more realistic levels. The severe recession
that currently grips Japan tamed the appetite for new aircraft at ANA and JAL.
And as the Japanese economy went, so too went the economies of the rest of the
region. The total value of the 747-400 order book is close to $230.0 billion in
current dollars -- a considerable sum by anyone's calculation. It must be
remembered that 747-100s and -200s can perform the same mission as the -400
except at the most extreme ranges, and at a considerably lower capital cost. In
1996, average cost per block hour reported by the U.S. airlines for a 747-400
was $1,250 higher than a -100/-200 and cost per seat mile 13 percent higher.
[LOGO] 3 12/31/98
MBA
<PAGE>
This means that -400 operators are potentially vulnerable to the predatory
operations of low cost carriers using the older, cheaper aircraft.
We consider the long term value of the -400 series 747 to be virtually
bullet-proof, even when Airbus builds its A3XX. It may suffer in the short term
in event of forced sales in a down market, but its operational capabilities,
strong development history, and large market presence assure it a leading role
in the aircraft market for the next several decades.
Economics
The MBA Economic Model shows both the new 747-400 all-passenger and Combi
models. Operating margins are very high, but are largely offset at the net level
by the high costs of ownership. This effectively mandates utilization in
long-haul, high utilization markets which, of course, is what the aircraft was
built for.
Update
Since 1989, the 747-400 model has been the only 747 type produced by Boeing.
With higher gross weight, newer more efficient engines, the aircraft offers even
greater range and capacity. However, most of the world's B-747-400 demand has
been in the Asia-Pacific markets, including to and from Europe and the United
States. While specific numbers are scarce, it is certain that a large percentage
of on-the-books orders are being delayed, deferred, or cancelled.
Several airlines are offering early-delivered 400s for premature sale. Few
European or other airlines are able to absorb them. We see little prospect of
any passenger models being converted to cargo due to their even-though-
discounted, high capital costs and the competition offered by MD-11 and
B-747-200 conversions, costing much less. Boeing is still working on - but has
not yet announced - a firm design for the stretched B-747-500/600.
[LOGO] 4 12/31/98
MBA
<PAGE>
- --------------------------------------------------------------------------------
IV. VALUATION
- --------------------------------------------------------------------------------
-----------------------------------------------------------
Serial Number Current Base Value
-----------------------------------------------------------
26475 157,540,000
-----------------------------------------------------------
26476 157,860,000
-----------------------------------------------------------
26477 156,250,000
-----------------------------------------------------------
26478 158,510,000
-----------------------------------------------------------
In developing the CBV of these aircraft, MBA did not inspect the aircraft or its
historical specifications. Therefore, we used certain assumptions that are
generally accepted industry practice to calculate the value of an 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 overhaul status of the airframe, engines, landing gear and other
major components are in new delivery status.
3. The specifications of the aircraft are those most common for an
aircraft of this type new delivery.
4. The aircraft is in a standard airline configuration.
5. No accounting was made for lease obligations or terms of ownership.
[LOGO] 5 12/31/98
MBA
<PAGE>
- --------------------------------------------------------------------------------
V. COVENANTS
- --------------------------------------------------------------------------------
This report has been prepared for the exclusive use of Northwest Airlines/
Morgan Stanley and shall not be provided to other parties by MBA without the
express consent of Northwest Airlines/ Morgan Stanley.
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/Morgan Stanley 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
Manager of Operations
REVIEWED BY:
/s/ Morten S. Beyer
Morten S. Beyer
Chairman and CEO
ISTAT Certified Appraiser Fellow
[LOGO] 6 12/31/98
MBA
<PAGE>
PROSPECTUS
$1,500,000,000
NORTHWEST AIRLINES, INC.
PASS THROUGH CERTIFICATES
-----------
APPLICABLE UNDERLYING PAYMENTS
FULLY AND UNCONDITIONALLY GUARANTEED BY
NORTHWEST AIRLINES CORPORATION
Up to $1,500,000,000 aggregate public offering price of Pass Through
Certificates (the "Certificates") (or its equivalent (based on the applicable
exchange rate at the time of sale) in one or more foreign currencies or currency
units) may be offered for sale from time to time pursuant to this Prospectus and
related Prospectus Supplements (as defined below). Certificates may be issued in
one or more series in amounts, at prices and on terms to be determined at the
time of the offering. In respect of each offering of Certificates, a separate
Northwest Airlines Pass Through Trust for each series of Certificates being
offered (each, a "Trust") will be formed pursuant to one or more Pass Through
Trust Agreements (each, a "Basic Agreement") and one or more supplements thereto
(each, a "Trust Supplement") relating to such Trust to be entered into among
Northwest Airlines, Inc. ("Northwest"), Northwest Airlines Corporation ("NWA
Corp." and, together with its subsidiaries, the "Company") and the trustee named
therein (the "Trustee"), as trustee under each Trust. Each Certificate in a
series will represent a fractional undivided interest in the related Trust and
will have no rights, benefits or interests in respect of any other Trust. The
property of the Trusts will consist of equipment notes issued (a) on a
nonrecourse basis by one or more owner trustees pursuant to separate leveraged
lease transactions (the "Leased Aircraft Notes") to finance or refinance a
portion of the equipment cost of aircraft, including engines (each, a "Leased
Aircraft" and, collectively, the "Leased Aircraft"), which have been or will be
leased to Northwest pursuant to a separate lease agreement (each such lease
agreement, a "Lease") for each Leased Aircraft, or (b) with recourse to
Northwest (the "Owned Aircraft Notes" and, together with any Leased Aircraft
Notes, the "Equipment Notes") to finance all or a portion of the equipment cost
of, or to purchase all or a portion of the outstanding debt with respect to,
aircraft, including engines (each, an "Owned Aircraft" and, collectively, the
"Owned Aircraft"; together with Leased Aircraft, the "Aircraft"), which have
been or will be purchased and owned by Northwest. NWA Corp. will fully and
unconditionally guarantee (the "Parent Guaranty") to the holders from time to
time of Certificates (i) with respect to related Owned Aircraft Notes, the full
and prompt payment of principal, premium, if any, and interest thereon when and
as the same shall become due and payable, whether at maturity, upon redemption
or otherwise and (ii) with respect to related Leased Aircraft Notes, the full
and prompt payment of all amounts payable by Northwest under the related Lease
when and as the same shall become due and payable.
The specific terms of the particular Certificates in respect of which this
Prospectus is being delivered will be set forth in a supplement to this
Prospectus (the "Prospectus Supplement") which will be delivered together with
this Prospectus, including, where applicable, the specific designation, form,
aggregate principal amount, initial public offering price and distribution dates
relating to such Certificates, the currency in which such Certificates will be
payable, the Trust or Trusts relating to such Certificates, the Equipment Notes
to be purchased by such Trust or Trusts, the Aircraft relating to such Equipment
Notes, the leveraged lease transactions or financing arrangements, as the case
may be, relating to such Equipment Notes and other special terms relating to
such Certificates and the net proceeds from the offering of such Certificates.
The Certificates shall be issued in registered form only and may, if so
specified in the applicable Prospectus Supplement, be issued in accordance with
a book-entry system.
With respect to one or more Aircraft, Equipment Notes may be issued, each of
which may have a different interest rate, final maturity date and ranking in
respect of priority of payment. For each series of Certificates, the Trustee
will purchase one or more Equipment Notes issued with respect to one or more
Aircraft such that all of the Equipment Notes held in the related Trust will
have identical ranking and identical interest rates (in each case equal to the
rate applicable to the Certificates issued by such Trust), and such that the
latest maturity date for such Equipment Notes will occur on or before the final
distribution date for such Certificates. Interest paid on the Equipment Notes
held in each Trust will be passed through to the holders of the Certificates
relating to such Trust on the dates and at the rate per annum set forth in the
Prospectus Supplement relating to such Certificates until the final distribution
date for such Trust. Principal paid on the Equipment Notes held in each Trust
will be passed through to the holders of the Certificates relating to such Trust
in scheduled amounts on the dates set forth in the Prospectus Supplement
relating to such Certificates until the final distribution date for such Trust.
The Equipment Notes issued with respect to any Aircraft will be secured by a
security interest in such Aircraft and, in the case of the Leased Aircraft, by a
security interest in the Lease relating thereto, including the right to receive
rentals payable in respect of such Leased Aircraft by Northwest. Although
neither the Certificates nor the Leased Aircraft Notes will be direct
obligations of, or guaranteed by, Northwest, the amounts unconditionally payable
by Northwest for lease of Leased Aircraft will be sufficient to pay in full when
due all payments required to be made on the corresponding Leased Aircraft Notes.
The Certificates may be sold to or through underwriters, through dealers or
agents or directly to purchasers. See "Plan of Distribution." The Prospectus
Supplement will set forth the names of any underwriters, dealers or agents
involved in the sale of the Certificates in respect of which this Prospectus is
being delivered, the proposed amounts, if any, to be purchased by underwriters
and the compensation, if any, of such underwriters or agents. See "Plan of
Distribution" for information concerning secondary trading of the Certificates.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------
The date of this Prospectus is February 27, 1998.
<PAGE>
AVAILABLE INFORMATION
NWA Corp. and Northwest together have filed with the Securities and Exchange
Commission (the "Commission") Registration Statements on Form S-3 (together with
all amendments and exhibits, the "Registration Statements") under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the Certificates
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statements, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, and to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statements, reference is made to the exhibit
for a more complete description of the matter involved.
NWA Corp. is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports and other information with the Commission. Such
reports and other information, as well as the Registration Statement, including
exhibits and schedules filed therewith, may be inspected at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, Room 1024, and at the regional offices of the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of
such materials may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. Northwest is not required to file
separate reports, proxy and information statements or other information with the
Commission pursuant to the requirements of the Exchange Act. Instead,
information with respect to Northwest is provided, to the extent required, in
filings made by NWA Corp.
Separate financial statements of Northwest are not being provided because
all of the Certificates being issued by Northwest under this Prospectus will be
supported by full and unconditional guarantees by NWA Corp. and, therefore, such
financial statements are not deemed material.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of NWA Corp., which have been filed with the
Commission, are hereby incorporated by reference in this Prospectus:
(a) NWA Corp.'s Annual Report on Form 10-K for the fiscal year ended December
31, 1996; and
(b) NWA Corp.'s Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997; and
(c) NWA Corp.'s Current Reports on Form 8-K dated March 6, 1997, November 25,
1997, January 25, 1998 and February 19, 1998.
All documents filed by NWA Corp. pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Certificates offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the respective dates of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus. The Exchange Act file number is
0-23642.
2
<PAGE>
NWA Corp. will provide without charge to any person to whom a copy of this
Prospectus has been delivered, upon written or oral request, a copy of any or
all of the foregoing documents incorporated herein by reference (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to the Secretary's
Office, NWA Corp., 5101 Northwest Drive, Dept. A1180, St. Paul, Minnesota
55111-3034; telephone number (612) 726-2111.
THE COMPANY
Northwest, the principal wholly-owned indirect subsidiary of NWA Corp.,
operates the world's fourth largest airline (as measured by 1996 revenue
passenger miles ("RPMs")) and is engaged principally in commercial
transportation of passengers and cargo. Northwest's business focuses on the
development of a global airline network through the optimization of its domestic
hubs at Detroit, Minneapolis/St. Paul and Memphis, an extensive Pacific route
system with hubs at Tokyo and Osaka, and a transatlantic alliance with KLM Royal
Dutch Airlines ("KLM"), which operates a hub through Amsterdam.
Northwest operates substantial domestic and international route networks. As
of December 31, 1997, Northwest directly served more than 150 cities in 18
countries on the continents of North America, Asia and Europe. Northwest had
more than 54 million enplanements and flew over 72 billion RPMs in 1997.
NWA Corp. was originally formed under the name Wings Holdings Inc. The
Company's principal executive offices are located at 2700 Lone Oak Parkway,
Eagan, Minnesota 55121; its mailing address is 5101 Northwest Drive, St. Paul,
Minnesota 55111-3034 and its telephone number is (612) 726-2111.
GENERAL OUTLINE OF TRUST STRUCTURE
In respect of each offering of Certificates, one or more Trusts will be
formed, and the related Certificates issued, pursuant to separate Trust
Supplements to be entered into among the Trustee, NWA Corp. and Northwest in
accordance with the terms of the Basic Agreement. Concurrently with the
execution and delivery of each Trust Supplement, the Trustee, on behalf of the
Trust formed thereby, will enter into one or more purchase or refunding
agreements (each such agreement being herein referred to as a "Note Purchase
Agreement") pursuant to which it will purchase one or more Equipment Notes
relating to one or more of the Aircraft described in the applicable Prospectus
Supplement. Pursuant to the applicable Note Purchase Agreement or Note Purchase
Agreements, the Trustee, on behalf of each Trust, will purchase one or more
Equipment Notes such that the Equipment Notes that constitute the property of
such Trust will have identical interest rates (in each case equal to the rate
applicable to the Certificates issued by such Trust) and identical priority of
payment relative to each of the other Equipment Notes issued under the Related
Indentures (as defined below). The maturity dates of the Equipment Notes
acquired by each Trust will occur on or before the final distribution date
applicable to the Certificates that will be issued by such Trust. The Trustee
will distribute the amount of payments of principal, premium, if any, and
interest received by it as holder of the Equipment Notes to the
Certificateholders of the Trust in which such Equipment Notes are held. See
"Description of the Certificates" and "Description of the Equipment Notes."
USE OF PROCEEDS
Except as set forth in a Prospectus Supplement for a specific offering of
Certificates, the Certificates will be issued in order to facilitate (a) the
financing or refinancing of the debt portion and, in certain cases, the
refinancing of some of the equity portion of one or more separate leveraged
lease transactions entered into by Northwest, as lessee, with respect to the
Leased Aircraft as described in the applicable Prospectus Supplement, and (b)
the financing or refinancing of the aggregate principal amount of debt to be
issued, or the purchase of the aggregate principal amount of the debt previously
issued, by Northwest in respect of the Owned Aircraft as described in the
applicable Prospectus Supplement. The proceeds from the sale of
3
<PAGE>
Certificates in respect of such Owned or Leased Aircraft is not expected to
exceed 80% of the appraised value of such Owned or Leased Aircraft at the time
of financing or refinancing. Except as set forth in a Prospectus Supplement for
a specific offering of Certificates, the proceeds from the sale of the
Certificates will be used by the Trustee on behalf of the applicable Trust or
Trusts to purchase either (a) Leased Aircraft Notes issued by the respective
Owner Trustee or Owner Trustees to finance or refinance (as specified in the
applicable Prospectus Supplement) the related Leased Aircraft, or (b) Owned
Aircraft Notes issued by Northwest to finance or refinance (as specified in the
applicable Prospectus Supplement) the related Owned Aircraft. Any portion of the
proceeds from the sale of Certificates not used by the Trustee to purchase
Equipment Notes on or prior to the date specified therefor in the applicable
Prospectus Supplement will be distributed on a Special Distribution Date (as
defined below) to the applicable Certificateholders, together with interest, but
without premium. See "Description of Certificates--Special Distribution Upon
Unavailability of Aircraft."
The Leased Aircraft Notes will be issued under separate trust indentures
(the "Leased Aircraft Indentures") between a bank, trust company or other
institution specified in the related Prospectus Supplement, as trustee
thereunder (in such capacity, herein referred to as the "Loan Trustee"), and an
institution specified in the related Prospectus Supplement acting, not in its
individual capacity, but solely as owner trustee (an "Owner Trustee") of a
separate trust for the benefit of one or more institutional investors (each, an
"Owner Participant"). With respect to each Leased Aircraft, the related Owner
Participant will have provided or will provide from sources other than the
Leased Aircraft Notes a portion of the equipment cost of the related Leased
Aircraft. No Owner Participant, however, will be personally liable for any
amount payable under the related Leased Aircraft Indenture or the Leased
Aircraft Notes issued thereunder. Simultaneously with the acquisition of each
Leased Aircraft, the related Owner Trustee leased or will lease such Aircraft to
Northwest pursuant to a separate Lease. The Owned Aircraft Notes will be issued
under separate trust indentures (the "Owned Aircraft Indentures" and, together
with any Leased Aircraft Indentures, the "Indentures") between the applicable
Loan Trustee and Northwest.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
NWA Corp. and its consolidated subsidiaries for the periods indicated. The ratio
of earnings to fixed charges represents the number of times that fixed charges
were covered by earnings. In computing the ratio, earnings represent
consolidated earnings (loss) before income taxes, cumulative effect of
accounting change and fixed charges (excluding capitalized interest). Fixed
charges consist of interest expense (including capitalized interest), one-third
of rental expense, which is considered representative of the interest factor,
and amortization of debt discount and expense.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- -----------------------------------------------------
1997 1996 1995 1994 1993
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
3.05 2.74 1.90 1.88 (a)
</TABLE>
- --------------
(a) Earnings did not cover fixed charges by $121.5 million for the year ended
December 31, 1993. Excluding non-recurring special charges of $94.3 million
for the year ended December 31, 1993, earnings did not cover fixed charges
by $27.2 million.
4
<PAGE>
DESCRIPTION OF THE CERTIFICATES
In connection with each offering of Certificates, one or more separate
Trusts will be formed and one or more series of Certificates will be issued
pursuant to the Basic Agreement and one or more separate Trust Supplements to be
entered into among Northwest, NWA Corp. and the Trustee. The statements made
under this caption are summaries and reference is made to the detailed
provisions of the Basic Agreement, the form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
summaries relate to the Basic Agreement and each of the Trust Supplements, the
Trusts to be formed thereby and the Certificates to be issued by each Trust
except to the extent, if any, described in the applicable Prospectus Supplement.
The Prospectus Supplement that accompanies this Prospectus contains a glossary
of the material terms used with respect to the specific series of Certificates
being offered thereby. The Trust Supplement relating to each series of
Certificates and the forms of the related Note Purchase Agreement, Indenture,
Lease, Trust Agreement, Participation Agreement, Refunding Agreement,
Intercreditor Agreement and Revolving Credit Agreement, as applicable, will be
filed as exhibits to a post-effective amendment to the Registration Statement of
which this Prospectus is a part, a Current Report on Form 8-K, a Quarterly
Report on Form 10-Q or an Annual Report on Form 10-K, as applicable, filed by
NWA Corp. with the Commission.
The Certificates offered pursuant to this Prospectus will be limited to
$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
and all payments and distributions shall be made only from the related Trust
Property (as defined below). The property of each Trust (the "Trust Property")
will include the Equipment Notes held in such Trust, all monies at any time paid
thereon and all monies due and to become due thereunder and funds from time to
time deposited with the Trustee in accounts relating to such Trust and, if so
specified in the Prospectus Supplement related to a series of Certificates,
rights under intercreditor agreements relating to cross-subordination
arrangements and monies receivable under a liquidity facility. Each Certificate
will represent a pro rata share of the outstanding principal amount of the
Equipment Notes held in the related Trust and, unless otherwise specified in the
applicable Prospectus Supplement, will be issued in minimum denominations of
$1,000 or any integral multiple thereof (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 do not represent an interest in or obligation of Northwest, NWA
Corp., the Trustee, any of the Loan Trustees or Owner Trustees in their
individual capacities, any Owner Participant, or any affiliate of any thereof.
Each Certificateholder by its acceptance of a Certificate agrees to look solely
to the income and proceeds from the Trust Property as provided in the Basic
Agreement and the applicable Trust Supplement.
The Equipment Notes issued under an Indenture may be held in more than one
Trust and one Trust may hold Equipment Notes issued under more than one
Indenture (each Indenture the Equipment Notes of which are held in a Trust, a
"Related Indenture"). Unless otherwise provided in a Prospectus Supplement, only
Equipment Notes having the same priority of payment (the Equipment Notes of any
such priority, a "Class") may be held in the same Trust.
Interest will be passed through to Certificateholders of each Trust at the
rate per annum payable on the Equipment Notes held in such Trust, as set forth
for such Trust on the cover page of the applicable Prospectus Supplement.
5
<PAGE>
Reference is made to the Prospectus Supplement that accompanies this
Prospectus for a description of the specific series of Certificates being
offered thereby, including: (1) the specific designation and title of such
Certificates; (2) the Regular Distribution Dates (as defined below) and Special
Distribution Dates (as defined below) applicable to such Certificates; (3) the
currency or currencies (including currency units) in which such Certificates may
be denominated; (4) the specific form of such Certificates, including whether or
not such Certificates are to be issued in accordance with a book-entry system;
(5) a description of the Equipment Notes to be purchased by such Trust,
including (a) the period or periods within which, the price or prices at which,
and the terms and conditions upon which such Equipment Notes may or must be
redeemed or defeased in whole or in part, by Northwest or, with respect to
Leased Aircraft Notes, the Owner Trustee, (b) the payment priority of such
Equipment Notes in relation to any other Equipment Notes issued with respect to
the related Aircraft, (c) any additional security or liquidity enhancements
therefor and (d) any intercreditor or other rights or limitations between or
among the holders of Equipment Notes of different priorities issued by the same
Owner Trustee; (6) a description of the related Aircraft, including whether such
Aircraft is a Leased Aircraft or an Owned Aircraft; (7) a description of the
related Note Purchase Agreement and Related Indentures, including a description
of the events of default under the Related Indentures, the remedies exercisable
upon the occurrence of such events of default and any limitations on the
exercise of such remedies with respect to such Equipment Notes; (8) if such
Certificates relate to Leased Aircraft, a description of the related Lease,
Trust Agreement and Participation Agreement, including (a) the names of the
related Owner Trustees, (b) a description of the events of default under the
related Leases, the remedies exercisable upon the occurrence of such events of
default and any limitations on the exercise of such remedies with respect to
such Leased Aircraft Notes, and (c) the rights of the related Owner Trustee, if
any, and/or Owner Participant, if any, to cure failures of Northwest to pay rent
under the related Lease; (9) the extent, if any, to which the provisions of the
operative documents applicable to such Equipment Notes may be amended by the
parties thereto without the consent of the holders of, or only upon the consent
of the holders of a specified percentage of aggregate principal amount of, such
Equipment Notes; (10) cross-default or cross-collateralization provisions in the
Related Indentures; (11) subordination provisions among the holders of
Certificates, including any cross-subordination provisions among the holders of
Certificates in separate Trusts; and (12) any other special terms pertaining to
such Certificates.
If any Certificates are denominated in one or more foreign currencies or
currency units, the restrictions, certain United States federal income tax
considerations, specific terms and other information with respect to such
Certificates and such foreign currency or currency units will be set forth in
the applicable Prospectus Supplement.
BOOK-ENTRY REGISTRATION
GENERAL
If specified in the applicable Prospectus Supplement, the Certificates will
be subject to the provisions described below and under the caption "--Definitive
Certificates." Upon issuance, each series of Certificates will be represented by
one fully registered global certificate. Each global certificate will be
deposited with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of Cede & Co. ("Cede"), or its nominee. No person
acquiring an interest in such Certificates ("Certificate Owner") will be
entitled to receive a certificate representing such person's interest in such
Certificates, except as set forth below under "--Definitive Certificates."
Unless and until Definitive Certificates are issued under the limited
circumstances described herein, all references to actions by Certificateholders
shall refer to actions taken by DTC upon instructions from DTC Participants (as
defined below), and all references herein to distributions, notices, reports and
statements to Certificateholders shall refer, as the case may be, to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of such Certificates, or to DTC Participants for distribution to
Certificate Owners in accordance with DTC procedures.
6
<PAGE>
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 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,
7
<PAGE>
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
Certificates will be issued in certificated form ("Definitive Certificates")
to Certificate Owners or their nominees, rather than to DTC or its nominee, only
if (i) Northwest advises the Trustee in writing that DTC is no longer willing or
able to discharge properly its responsibilities as depository with respect to
such Certificates and Northwest is unable to locate a qualified successor, (ii)
Northwest, at its option, elects to terminate the book-entry system through DTC
or (iii) after the occurrence of certain events of default or other events
specified in the related Prospectus Supplement. Certificate Owners with
fractional undivided interests aggregating not less than a majority in interest
in such Trust advise the Trustee, Northwest and DTC through DTC Participants in
writing that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the Certificate Owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Certificate Owners through
DTC Participants of the availability of Definitive Certificates. Upon surrender
by DTC of the certificates representing the Certificates and receipt of
instructions for re-registration, the Trustee will reissue the Certificates as
Definitive Certificates to Certificate Owners.
Distributions of principal, premium, if any, and interest with respect to
Certificates will thereafter be made by the Trustee directly in accordance with
the procedures set forth in the Basic Agreement and the applicable Trust
Supplements, to holders in whose names the Definitive Certificates were
registered at the close of business on the applicable record date. Such
distributions will be made by check mailed to the address of such holder as it
appears on the register maintained by the Trustee. The final payment on any
Certificate, however, will be made only upon presentation and surrender of such
Certificate at the office or agency specified in the notice of final
distribution to Certificateholders.
Definitive Certificates will be freely transferable and exchangeable at the
office of the Trustee upon compliance with the requirements set forth in the
Basic Agreement and the applicable Trust Supplements. No service charge will be
imposed for any registration of transfer or exchange, but payment of a sum
sufficient to cover any tax or other governmental charge shall be required.
8
<PAGE>
PAYMENTS AND DISTRIBUTIONS
Subject to the effect of any cross-subordination provisions set forth in the
Prospectus Supplement for a series of Certificates, payments of principal,
premium, if any, and interest with respect to the Equipment Notes held in each
Trust will be distributed by the Trustee, upon receipt, to Certificateholders of
such Trust on the dates and in the currency specified in the applicable
Prospectus Supplement, except in certain cases when some or all of such
Equipment Notes are in default as described in the applicable Prospectus
Supplement. Payments of principal of, and interest on, the unpaid principal
amount of the Equipment Notes held in each Trust will be scheduled to be
received by the Trustee on the dates specified in the applicable Prospectus
Supplement (such scheduled payments of interest and principal on the Equipment
Notes to the Trustee are herein referred to as "Scheduled Payments," and the
dates specified in the applicable Prospectus Supplement for distribution of
Scheduled Payments to the Trustee are herein referred to as "Regular
Distribution Dates"). See "Description of the Equipment Notes General." Subject
to the effect of any cross-subordination provisions set forth in the Prospectus
Supplement for a series of Certificates, each Certificateholder of each Trust
will be entitled to receive a pro rata share of any distribution in respect of
Scheduled Payments of principal and interest made on the Equipment Notes held in
the Trust.
Payments of principal, premium, if any, and interest received by the Trustee
on account of the early redemption, if any, of the Equipment Notes relating to
one or more Aircraft held in a Trust, and payments, other than Scheduled
Payments received on a Regular Distribution Date, received by the Trustee
following default in respect of Equipment Notes held in a Trust relating to one
or more Aircraft ("Special Payments") will be distributed on the date determined
pursuant to the applicable Prospectus Supplement (a "Special Distribution Date")
except that, unless otherwise specified in the applicable Prospectus Supplement,
payments received by the Trustee following default in respect of the Equipment
Notes on a Regular Distribution Date as a result of a drawing under any
liquidity facility specified in the applicable Prospectus Supplement (each, a
"Liquidity Facility"), provided for the benefit of the Certificateholders shall
be distributed on such Regular Distribution Date. The Trustee will mail notice
to the Certificateholders of record of the applicable Trust not less than 20
days prior to the Special Distribution Date on which any Special Payment is
scheduled to be distributed by the Trustee stating such anticipated Special
Distribution Date.
POOL FACTORS
Unless there has been an early redemption, a purchase of an issue of
Equipment Notes by the related Owner Trustee after an Indenture Default (as
defined below), a default in the payment of principal in respect of one or more
issues of the Equipment Notes held in a Trust or certain actions have been taken
following a default thereon, as described in the applicable Prospectus
Supplement, the Pool Factor (as defined below) for the Trusts will decline in
proportion to the scheduled repayments of principal on the Equipment Notes held
in such Trust as described in the applicable Prospectus Supplement. In the event
of such redemption, purchase or default, the Pool Factor and the Pool Balance
(as defined below) of each Trust so affected will be recomputed after giving
effect thereto and notice thereof will be mailed to the Certificateholders of
such Trust. Each Trust will have a separate Pool Factor.
Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Balance" for each Trust or for the Certificates issued by any Trust
indicates, as of any date, the original aggregate face amount of the
Certificates of such Trust less the aggregate amount of all payments made in
respect of the Certificates of such Trust other than payments made in respect of
interest or premium thereon or reimbursement of any costs and expenses in
connection therewith. The Pool Balance for each Trust as of any Regular
Distribution Date or Special Distribution Date shall be computed after giving
effect to the payment of principal, if any, on the Equipment Notes or other
Trust Property held in such Trust and the distribution thereof to be made on
that date.
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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
(iii) the Pool Balance and the Pool Factor for such Trust.
So long as the Certificates are registered in the name of Cede, as nominee
for DTC, on the record date prior to each Regular Distribution Date and Special
Distribution Date, the Trustee will request from DTC a Securities Position
Listing setting forth the names of all DTC Participants reflected on DTC's books
as holding interests in the Certificates on such record date. On each Regular
Distribution Date and Special Distribution Date, the Trustee will mail to each
such DTC Participant the statement described above and will make available
additional copies as requested by such DTC Participant for forwarding to
Certificate Owners.
In addition, after the end of each calendar year, the Trustee will prepare
for each Certificateholder of each Trust at any time during the preceding
calendar year a report containing the sum of the amounts determined pursuant to
clauses (i) and (ii) above with respect to the Trust for such calendar year or,
in the event such person was a Certificateholder during only a portion of such
calendar year, for the applicable portion of such calendar year, and such other
items as are readily available to the Trustee and which a Certificateholder
shall reasonably request as necessary for the purpose of such
Certificateholder's preparation of its federal income tax returns. Such report
and such other items shall be prepared on the basis of information supplied to
the Trustee by the DTC Participants and shall be delivered by the Trustee to
such DTC Participants to be available for forwarding by such DTC Participants to
Certificate Owners in the manner described above.
At such time, if any, as the Certificates are issued in the form of
Definitive Certificates, the Trustee will prepare and deliver the information
described above to each Certificateholder of record of each Trust as the name
and period of beneficial ownership of such Certificateholder appears on the
records of the registrar of the Certificates.
VOTING OF EQUIPMENT NOTES
Subject to the effect of any cross-subordination provisions set forth in the
related Prospectus Supplement, the Trustee, as holder of the Equipment Notes
held in each Trust, has the right to vote and
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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 will specify the events of default under the Basic
Agreement (an "Event of Default") and the Related Indentures (an "Indenture
Default"). The Indenture Defaults will include events of default under the
related Leases (a "Lease Event of Default"). With respect to any Equipment Notes
which are supported by a Liquidity Facility the Indenture Defaults or Events of
Default may include events of default under such Liquidity Facility. Unless
otherwise provided in a Prospectus Supplement, all of the Equipment Notes issued
under the same Indenture will relate to a specific Aircraft and there will be no
cross-collateralization or cross-default provisions in the Indentures, and
events resulting in an Indenture Default under any particular Indenture will not
necessarily result in an Indenture Default occurring under any other Indenture.
If an Indenture Default occurs in fewer than all of the Indentures,
notwithstanding the treatment of Equipment Notes issued under any Indenture
under which an Indenture Default has occurred, payments of principal and
interest on the Equipment Notes issued pursuant to Indentures with respect to
which an Indenture Default has not occurred will continue to be made as
originally scheduled. As described below under "--Cross-Subordination Issues," a
Prospectus Supplement may provide the terms of any cross-subordination
provisions among Certificateholders of separate Trusts. If such provisions are
so provided, payments made pursuant to a Related Indenture under which an
Indenture Default has not occurred may be distributed first to the holders of
the Certificates issued under the Trust which holds the most senior Equipment
Notes issued under all Related Indentures.
The ability of the applicable Owner Trustee or Owner Participant under the
Related Indenture to cure Indenture Defaults, including Indenture Defaults that
result from the occurrence of a Lease Event of Default under the related Lease
will be described in the Prospectus Supplement. Unless otherwise provided in a
Prospectus Supplement, with respect to any Certificates or Equipment Notes
entitled to the benefits of a Liquidity Facility, a drawing under any such
Liquidity Facility for the purpose of making a payment of interest as a result
of the failure by Northwest to have made a corresponding payment will not cure
an Indenture Default related to such failure by Northwest.
The Prospectus Supplement related to a series of Certificates will describe
the circumstances under which the Trustee of the related Trust may vote some or
all of the Equipment Notes issued under the applicable Indenture or issued under
any Related Indentures. Such Prospectus Supplement will also set forth (i) the
percentage of Certificateholders of such Trust entitled to direct the Trustee to
take any action with respect to such Equipment Notes and, if applicable,
Equipment Notes issued under any other Related Indenture. If the Equipment Notes
outstanding under an Indenture are held by more than one Trust, then the ability
of the Certificateholders issued with respect to any one Trust to cause the Loan
Trustee with respect to any Equipment Notes held in such Trust to accelerate the
Equipment Notes under the Related Indenture or to direct the exercise of
remedies by the Loan Trustee under the Related Indenture will depend, in part,
upon the proportion between the aggregate principal amount of the Equipment
Notes outstanding under such Indenture and held in such Trust and the aggregate
principal amount of all Equipment Notes outstanding under such Indenture. In
addition, if cross-subordination provisions are applicable to any series of
Certificates, then the ability of the Certificateholders of any one Trust
holding Equipment Notes issued under Related Indentures to cause the Loan
Trustee with respect to any Equipment Notes held in such Trust to accelerate the
Equipment Notes under the Related Indenture or to direct the exercise of
remedies by the
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Loan Trustee under the Related Indenture will depend, in part, upon the Class of
Notes held in such Trust. If the Equipment Notes outstanding under an Indenture
are held by more than one Trust, then each Trust will hold Equipment Notes with
different terms from the Equipment Notes held in the other Trusts and therefore
the Certificateholders of a Trust may have divergent or conflicting interests
from those of the Certificateholders of the other Trusts holding Equipment Notes
relating to the same Indenture. In addition, so long as the same institution
acts as Trustee of each Trust, in the absence of instructions from the
Certificateholders of any such Trust, the Trustee for such Trust could for the
same reason be faced with a potential conflict of interest upon an Indenture
Default. In such event, the Trustee has indicated that it would resign as
Trustee of one or all such Trusts, and a successor trustee would be appointed in
accordance with the terms of the Basic Agreement.
The Prospectus Supplement for a series of Certificates will specify whether
and under what circumstances the Trustee may or shall sell for cash to any
person all or part of such Equipment Notes. Any proceeds received by the Trustee
upon any such sale shall be deposited in an account established by the Trustee
for the benefit of the Certificateholders of such Trust for the deposit of such
Special Payments (the "Special Payments Account") and shall be distributed to
the Certificateholders of such Trust on a Special Distribution Date. The market
for Equipment Notes in default may be very limited, and there can be no
assurance that they could be sold for a reasonable price. Furthermore, so long
as the same institution acts as Trustee of multiple Trusts, it may be faced with
a conflict in deciding from which Trust to sell Equipment Notes to available
buyers. If the Trustee sells any such Equipment Notes with respect to which an
Indenture Default exists for less than their outstanding principal amount, the
Certificateholders of such Trust will receive a smaller amount of principal
distributions than anticipated and will not have any claim for the shortfall
against Northwest, any Owner Trustee, Owner Participant or the Trustee.
Furthermore, neither the Trustee nor the Certificateholders of such Trust could
take any action with respect to any remaining Equipment Notes held in such Trust
so long as no Indenture Defaults exist with respect thereto.
Any amount, other than Scheduled Payments received on a Regular Distribution
Date, distributed to the Trustee of any Trust by the Loan Trustee under any
Indenture on account of the Equipment Notes held in such Trust following an
Indenture Default under such Indenture shall be deposited in the Special
Payments Account for such Trust and shall be distributed to the
Certificateholders of such Trust on a Special Distribution Date. In addition, if
a Prospectus Supplement provides that the applicable Owner Trustee may, under
circumstances specified therein, redeem or purchase the outstanding Equipment
Notes issued under the Related Indenture, the price paid by such Owner Trustee
to the Trustee of any Trust for the Equipment Notes issued under such Indenture
and held in such Trust shall be deposited in the Special Payments Account for
such Trust and shall be distributed to the Certificateholders of such Trust on a
Special Distribution Date.
Any funds representing payments received with respect to any Equipment Notes
held in a Trust in default, or the proceeds from the sale by the Trustee of any
such Equipment Notes, held by the Trustee in the Special Payments Account for
such Trust shall, to the extent practicable, be invested and reinvested by the
Trustee in Permitted Investments pending the distribution of such funds on a
Special Distribution Date. "Permitted Investments" will be specified in the
related Prospectus Supplement.
The Basic Agreement provides that the Trustee of each Trust shall, within 90
days after the occurrence of a default in respect of such Trust, give to the
Certificateholders of such Trust notice, transmitted by mail, of all uncured or
unwaived defaults with respect to such Trust known to it, provided that, except
in the case of default in the payment of principal, premium, if any, or interest
on any of the Equipment Notes held in such Trust, the Trustee shall be protected
in withholding such notice if it in good faith determines that the withholding
of such notice is in the interests of such Certificateholders. The term
"default" as used in this paragraph only means the occurrence of an Event of
Default with respect to a Trust as described above, except that in determining
whether any such Event of Default has occurred, any grace period or notice in
connection therewith shall be disregarded.
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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 of Certificates will specify the
percentage of Certificateholders entitled to waive, or to instruct the Trustee
to waive, any past Event of Default with respect to such Trust and thereby annul
any direction given with respect thereto. The Prospectus Supplement for a series
of Certificates will also specify the percentage of Certificateholders (and
whether of such Trust or of any other Trust holding Equipment Notes issued under
Related Indentures) entitled to waive, or to instruct the Trustee or the Loan
Trustee to waive, any past Indenture Default with respect to the Equipment Notes
held in such Trust and thereby annul any direction given with respect thereto.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
Northwest will be prohibited from consolidating with or merging into any
other corporation or transferring substantially all of its assets as an entirety
to any other corporation unless (i) the surviving successor or transferee
corporation shall (a) be a "citizen of the United States" (as defined in Section
40102(a)(15) of Title 49 of the United States Code) holding a carrier operating
certificate issued by the Secretary of Transportation pursuant to Chapter 447 of
Title 49, United States Code, for aircraft capable of carrying 10 or more
individuals or 6,000 pounds or more of cargo and with respect to which there is
in force an air carrier operating certificate issued pursuant to Part 121 of the
regulations under the sections of Title 49, United States Code, relating to
aviation and (b) expressly assume all of the obligations of Northwest contained
in the Basic Agreement and any Trust Supplement, the Note Purchase Agreements
and the Indentures and, with respect to the Leased Aircraft Notes, the
Participation Agreements and the Leases, and any other operative documents; (ii)
immediately after giving effect to such transaction, no Indenture Default (with
respect to the Owned Aircraft Notes) or Lease Event of Default (with respect to
the Leased Aircraft Notes) shall have occurred and be continuing; and (iii)
Northwest shall have delivered a certificate and an opinion or opinions of
counsel indicating that such transaction, in effect, complies with such
conditions.
MODIFICATIONS OF THE BASIC AGREEMENT
The Basic Agreement contains provisions permitting Northwest, NWA Corp. and
the Trustee of each Trust to enter into a supplemental trust agreement, without
the consent of the holders of any of the Certificates of such Trust, (i) to
provide for the formation of such Trust and the issuance of a series of
Certificates, (ii) to evidence the succession of another corporation to
Northwest or NWA Corp. and the assumption by such corporation of Northwest's or
NWA Corp.'s obligations under the Basic Agreement and the applicable Trust
Supplement, (iii) to add to the covenants of Northwest or NWA Corp. for the
benefit of holders of such Certificates, or to surrender any right or power in
the Basic Agreement conferred upon Northwest or NWA Corp., (iv) to cure any
ambiguity or correct or supplement any defective or inconsistent provision of
the Basic Agreement or the applicable Trust Supplement or to make any other
provisions with respect to matters or questions arising thereunder, provided
such action shall not adversely affect the interests of the holders of such
Certificates, or to cure any ambiguity or correct any mistake, (v) to modify,
eliminate or add to the provisions of the Basic Agreement to the extent as shall
be necessary to continue the qualification of the Basic Agreement (including any
supplemental agreement) under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act") and to add to the Basic Agreement such other provisions
as may be expressly permitted by the Trust Indenture Act, (vi) to provide for a
successor Trustee or to add to or change any provision of the Basic Agreement as
shall be necessary to facilitate the administration of the Trusts thereunder by
more than one Trustee, (vii) to add, eliminate or change any provisions under
such Basic Agreement that will not adversely affect the Certificateholders in
any material respect, provided that in each case, such modification does not
cause the corresponding Trust to become taxable as an "association" within the
meaning of Treasury Regulation Section 301.7701-2 or a "publicly traded
partnership" within the meaning of Section 7704 of the
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Code taxable as a corporation and (viii) to make any other amendments or
modifications to the Basic Agreement, provided such amendments or modifications
shall only apply to Certificates issued thereafter.
The Basic Agreement also contains provisions permitting Northwest, NWA Corp.
and the Trustee of each Trust, with the consent of the Certificateholders of
such Trust evidencing fractional undivided interests aggregating not less than a
majority in interest of such Trust, and, with respect to any Leased Aircraft,
with the consent of the applicable Owner Trustee (such consent not to be
unreasonably withheld), to execute supplemental trust agreements adding any
provisions to or changing or eliminating any of the provisions of the Basic
Agreement, to the extent relating to such Trust, and the applicable Trust
Supplement, or modifying the rights of the Certificateholders, except that no
such supplemental trust agreement may, without the consent of each
Certificateholder so affected thereby, (a) reduce in any manner the amount of,
or delay the timing of, any receipt by the Trustee of payments on the Equipment
Notes held in such Trust or distributions in respect of any Certificate related
to such Trust, or change the date or place of any payment in respect of any
Certificate, or make distributions payable in coin or currency other than that
provided for in such Certificates, or impair the right of any Certificateholder
of such Trust to institute suit for the enforcement of any such payment when
due, (b) permit the disposition of any Equipment Note held in such Trust, except
as provided in the Basic Agreement or the applicable Trust Supplement, or
otherwise deprive any Certificateholder of the benefit of the ownership of the
applicable Equipment Notes, (c) reduce the percentage of the aggregate
fractional undivided interests of the Trust provided for in the Basic Agreement
or the applicable Trust Supplement, the consent of the holders of which is
required for any such supplemental trust agreement or for any waiver provided
for in the Basic Agreement or such Trust Supplement, (d) modify any of the
provisions relating to the rights of the Certificateholders in respect of the
waiver of events of default or receipt of payment or (e) cause the Trust to
become taxable as an "association" within the meaning of Treasury Regulation
Section 301.7701-2 or a "publicly traded partnership" within the meaning of
Section 7704 of the Code taxable as a corporation.
MODIFICATION OF INDENTURE AND RELATED AGREEMENTS
The Prospectus Supplement will specify the Trustee's obligations in the
event that the Trustee, as the holder of any Equipment Notes held in a Trust,
receives a request for its consent to any amendment, modification or waiver
under the Indenture or other documents relating to such Equipment Notes
(including any Lease with respect to Leased Aircraft Notes or any Liquidity
Facility).
CROSS-SUBORDINATION ISSUES
The Equipment Notes issued under an Indenture may be held in more than one
Trust and one Trust may hold Equipment Notes issued under more than one Related
Indenture. Unless otherwise provided in a Prospectus Supplement, only Equipment
Notes of the same Class may be held in the same Trust. In such event, payments
made on account of a subordinate Class of Equipment Notes issued under a Related
Indenture may, under circumstances described in the related Prospectus
Supplement, be subordinated to the prior payment of all amounts owing to
Certificateholders of a Trust which holds senior Equipment Notes issued under
all Related Indentures. The Prospectus Supplement related to an issuance of
Certificates will describe any such "cross-subordination" provisions and any
related terms, including the percentage of Certificateholders under any Trust
which are permitted to (i) grant waivers of defaults under any Related
Indenture, (ii) consent to the amendment or modification of any Related
Indentures or (iii) direct the exercise of remedial actions under any Related
Indentures.
TERMINATION OF THE TRUSTS
The obligations of Northwest, NWA Corp. and the Trustee with respect to a
Trust will terminate upon the distribution to Certificateholders of such Trust
of all amounts required to be distributed to them pursuant to the Basic
Agreement and the applicable Trust Supplement and the disposition of all
property held in such Trust. The Trustee will send to each Certificateholder of
record of such Trust notice of the
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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 the date
specified in the applicable Prospectus Supplement. In such event, the Trustee
will hold the proceeds from the sale of such Certificates not used to purchase
Equipment Notes in an escrow account pending the purchase of the Equipment Notes
not so purchased. Such proceeds will be invested at the direction and risk of,
and for the account of, Northwest in certain specified investments, which may
include: (i) obligations of, or guaranteed by, the United States Government or
agencies thereof, (ii) open market commercial paper of any corporation
incorporated under the laws of the United States of America or any State thereof
rated at least P-2 or its equivalent by Moody's Investors Service, Inc. or at
least A-2 or its equivalent by Standard & Poor's Corporation, (iii) certificates
of deposit issued by commercial banks organized under the laws of the United
States or of any political subdivision thereof having a combined capital and
surplus in excess of $500,000,000 which banks or their holding companies have a
rating of A or its equivalent by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, provided, however, that the aggregate amount at any one time
so invested in certificates of deposit issued by any one bank shall not exceed
5% of such bank's capital and surplus, (iv) U.S. dollar denominated offshore
certificates of deposit issued by, or offshore time deposits with, any
commercial bank described in clause (iii) above or any subsidiary thereof and
(v) repurchase agreements with any financial institution having combined capital
and surplus of at least $500,000,000 with any of the obligations described in
(i) through (iv) as collateral; provided that if all of the above investments
are unavailable, the entire amounts to be invested may be used to purchase
federal funds from an entity described in clause (iii) above; and provided
further that no investment shall be eligible as a "specified investment" unless
the final maturity date or date of return of such investment is on or before (x)
the scheduled date for the purchase of such Equipment Notes, or (y) if no date
has been scheduled for the purchase of such Equipment Notes, the next Business
Day, or (z) if Northwest has given notice that such Equipment Notes will not be
purchased, the next applicable Special Distribution Date. Earnings on such
investments in the escrow account for each Trust will be paid to Northwest
periodically, and Northwest will be responsible for any losses.
On the next Regular Distribution Date specified in the applicable Prospectus
Supplement, Northwest will pay to the Trustee an amount equal to the interest
that would have accrued on any Equipment Notes purchased after the date of the
issuance of such Certificates from the date of the issuance of such Certificates
to, but excluding, the date of the purchase of such Equipment Notes by the
Trustee.
SPECIAL DISTRIBUTION UPON UNAVAILABILITY OF AIRCRAFT
To the extent that, due to a casualty to, or other event causing the
unavailability of, one or more Aircraft, the full amount of the proceeds from
the sale of any Certificates held in the escrow account referred to above is not
used to purchase Equipment Notes on or prior to the date specified in the
applicable Prospectus Supplement, an amount equal to the unused proceeds will be
distributed by the Trustee to the holders of record of such Certificates on a
pro rata basis upon not less than 20 days' prior notice to them on a Special
Distribution Date, together with interest thereon at a rate equal to the rate
applicable to such Certificates, but without premium, and Northwest will pay to
the Trustee on such date an amount equal to such interest.
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THE PARENT GUARANTY
NWA Corp. will unconditionally guarantee (i) with respect to related Owned
Aircraft Notes, the full and prompt payment of principal, premium, if any, and
interest thereon when and as the same shall become due and payable, whether at
maturity, upon redemption or otherwise, and (ii) with respect to related Leased
Aircraft Notes, the full and prompt payment of all amounts payable by Northwest
under the related Lease when and as the same shall become due and payable. The
Parent Guaranty will be enforceable without any need first to enforce any Owned
Aircraft Note or Lease against Northwest. The Parent Guaranty will be an
unsecured obligation of NWA Corp.
LIQUIDITY FACILITY
The related Prospectus Supplement may provide that one or more payments of
interest on the Certificates of one or more series will be supported by a
Liquidity Facility issued by an institution identified in the related Prospectus
Supplement. The provider of such Liquidity Facility will have a claim senior to
the Certificateholders' as specified in the related Prospectus Supplement.
THE TRUSTEE
The Trustee for each series of Certificates will be identified in the
Prospectus Supplement. With certain exceptions, the Trustee makes no
representations as to the validity or sufficiency of the Basic Agreement, the
Trust Supplements, the Certificates, the Equipment Notes, the Indentures, the
Leases or other related documents. The Trustee shall not be liable with respect
to any series of Certificates, for any action taken or omitted to be taken by it
in good faith in accordance with the direction of the holders of a majority in
principal amount of outstanding Certificates of such series issued under the
Basic Agreement. Subject to such provisions, such Trustee shall be under no
obligation to exercise any of its rights or powers under the Basic Agreement at
the request of any holders of Certificates issued thereunder unless they shall
have offered to the Trustee indemnity satisfactory to it. The Basic Agreement
provides that the Indenture Trustee in its individual or any other capacity may
acquire and hold Certificates issued thereunder and, subject to certain
conditions, may otherwise deal with Northwest and, with respect to the Leased
Aircraft, with any Owner Trustee with the same rights it would have if it were
not the Trustee.
The Trustee may resign with respect to any or all of the Trusts at any time,
in which event Northwest will be obligated to appoint a successor trustee. If
the Trustee ceases to be eligible to continue as Trustee with respect to a Trust
or becomes incapable of acting as Trustee or becomes insolvent, Northwest may
remove such Trustee, or any Certificateholder of such Trust for at least six
months may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of such Trustee and the
appointment of a successor trustee. Any resignation or removal of the Trustee
with respect to a Trust and appointment of a successor trustee for such Trust
does not become effective until acceptance of the appointment by the successor
trustee. Pursuant to such resignation and successor trustee provisions, it is
possible that a different trustee could be appointed to act as the successor
trustee with respect to each Trust. All references in this Prospectus to the
Trustee should be read to take into account the possibility that the Trusts
could have different successor trustees in the event of such a resignation or
removal.
The Basic Agreement provides that Northwest will pay the Trustee's fees and
expenses and indemnify the Trustee against certain liabilities.
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DESCRIPTION OF THE EQUIPMENT NOTES
The statements made under this caption are summaries and reference is made
to the entire Prospectus and detailed information appearing in the applicable
Prospectus Supplement. Where no distinction is made between the Leased Aircraft
Notes and the Owned Aircraft Notes or between their respective Indentures, such
statements refer to any Equipment Notes and any Indenture.
TO THE EXTENT THAT ANY PROVISION IN ANY PROSPECTUS SUPPLEMENT IS
INCONSISTENT WITH ANY PROVISION IN THIS SUMMARY, THE PROVISION OF SUCH
PROSPECTUS SUPPLEMENT WILL CONTROL.
GENERAL
All Equipment Notes will be issued under a separate Indenture either (a)
between the related Owner Trustee of a trust for the benefit of the Owner
Participant who is the beneficial owner of the related Aircraft, and the related
Loan Trustee, or (b) between Northwest and the related Loan Trustee. The
Equipment Notes issued pursuant to clause (a) of the preceding sentence will be
nonrecourse obligations of the applicable Owner Trust. Each Equipment Note will
be authenticated under an Indenture by the Loan Trustee. All Equipment Notes
issued under the same Indenture will relate to, and be secured by, one or more
Aircraft identified and described in the related Prospectus Supplement and
which, in the case of Equipment Notes issued as described in such clause (a),
are leased to Northwest pursuant to a Lease between the Owner Trustee under the
applicable Owner Trust and Northwest or, in the case of Equipment Notes issued
as described in clause (b), owned by Northwest.
With respect to each Leased Aircraft, the related Owner Trustee has acquired
or will acquire such Aircraft from Northwest or the manufacturer of such
Aircraft, as the case may be, has granted or will grant a security interest in
such Aircraft to the related Loan Trustee as security for the payments of the
related Leased Aircraft Notes, and has leased or will lease such Aircraft to
Northwest pursuant to the related Lease which has been or will be assigned to
the related Loan Trustee. Pursuant to each such Lease, Northwest will be
obligated to make or cause to be made rental and other payments to the related
Loan Trustee on behalf of the related Owner Trustee in amounts that will be
sufficient to make payments of the principal, interest and premium, if any,
required to be made in respect of such Leased Aircraft Notes when and as due and
payable.
The rental obligations of Northwest under each Lease and the obligations of
Northwest under each Owned Aircraft Indenture and under the Owned Aircraft Notes
will be general obligations of Northwest. Except in certain circumstances
involving Northwest's purchase of a Leased Aircraft and the assumption of the
Leased Aircraft Notes related thereto, the Leased Aircraft Notes are not
obligations of, or guaranteed by, Northwest.
PRINCIPAL AND INTEREST PAYMENTS
Interest received by the Trustee on the Equipment Notes held in each Trust
will be passed through to the Certificateholders of such Trust on the dates and
at the rate per annum set forth in the applicable Prospectus Supplement until
the final distribution for such Trust. Principal received by the Trustee on the
Equipment Notes held in each Trust will be passed through to the
Certificateholders of such Trust in scheduled amounts on the dates set forth in
the applicable Prospectus Supplement until the final distribution date for such
Trust.
If any date scheduled for any payment of principal, premium, if any, or
interest with respect to the Equipment Notes is not a Business Day, such payment
will be made on the next succeeding Business Day without any additional
interest.
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REDEMPTION
The applicable Prospectus Supplement will describe the circumstances,
whether voluntary or involuntary, under which the Equipment Notes may be
redeemed or purchased prior to the stated maturity date thereof, in whole or in
part, the premium, if any, applicable upon certain redemptions or purchases and
other terms applying to the redemptions or purchases of such Equipment Notes.
SECURITY
The Leased Aircraft Notes will be secured by (i) an assignment by the
related Owner Trustee to the related Loan Trustee of such Owner Trustee's rights
(except for certain rights, including those described below) under the Lease or
Leases with respect to the related Aircraft, including the right to receive
payments of rent thereunder, (ii) a mortgage granted to such Loan Trustee in
such Aircraft, subject to the rights of Northwest under such Lease or Leases and
(iii) an assignment to such Loan Trustee of certain of such Owner Trustee's
rights with respect to such Aircraft under the purchase agreement between
Northwest and the related manufacturer. Under the terms of each Lease,
Northwest's obligations in respect of each Leased Aircraft will be those of a
lessee under a "net lease." Accordingly, Northwest will be obligated, among
other things and at its expense, to cause each Leased Aircraft to be duly
registered, to pay all costs of operating such Aircraft and to maintain,
service, repair and overhaul (or cause to be maintained, serviced, repaired and
overhauled) such Aircraft. With respect to the Leased Aircraft, the assignment
by the related Owner Trustee to the related Loan Trustee of its rights under the
related Lease will exclude, among other things, rights of such Owner Trustee and
the related Owner Participant relating to indemnification by Northwest for
certain matters, insurance proceeds payable to such Owner Trustee in its
individual capacity and to such Owner Participant under liability insurance
maintained by Northwest pursuant to such Lease or by such Owner Trustee or such
Owner Participant, insurance proceeds payable to such Owner Trustee in its
individual capacity or to such Owner Participant under certain casualty
insurance maintained by such Owner Trustee or such Owner Participant pursuant to
such Lease and any rights of such Owner Participant or such Owner Trustee to
enforce payment of the foregoing amounts and their respective rights to the
proceeds of the foregoing.
The Owned Aircraft Notes will be secured by (i) a mortgage granted to the
related Loan Trustee of all of Northwest's right, title and interest in and to
such Owned Aircraft and (ii) an assignment to such Loan Trustee of certain of
Northwest's rights with respect to such Aircraft under the purchase agreement
between Northwest and the related manufacturer. Under the terms of each Owned
Aircraft Indenture, Northwest will be obligated, among other things and at its
expense, to cause each Owned Aircraft to be duly registered, to pay all costs of
operating such Aircraft and to maintain, service, repair and overhaul (or cause
to be maintained, serviced, repaired and overhauled) such Aircraft.
The Prospectus Supplement will specify the required insurance coverage with
respect to the Aircraft.
Northwest will be required, except under certain circumstances, to keep each
Aircraft registered under the Federal Aviation Act of 1958, 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
Federal Aviation Act. Such recordation of the Indenture, the Lease, if
applicable, and other documents with respect to each Aircraft will give the
related Loan Trustee a perfected security interest in the related Aircraft
whenever it is located in the United States or any of its territories and
possessions; the Convention on the International Recognition of Rights in
Aircraft (the "Convention") provides that such security will also be recognized,
with certain limited exceptions, in those jurisdictions that have ratified or
adhere to the Convention. Although Northwest has no current intention to do so,
Northwest will have the right, subject to certain conditions, at its own expense
to register each Aircraft in countries other than the United States. Unless
otherwise specified in the applicable Prospectus Supplement, prior to any such
change in the jurisdiction of registry, the related Loan Trustee shall have
received an opinion of Northwest's counsel that, among other things, confirms
the perfected status of the lien of the Related Indenture and, in the case
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of Leased Aircraft, confirms the validity and enforceability of the related
Lease in such jurisdiction, in each case subject, in certain cases, to certain
filings, recordations or other actions. Each Aircraft may also be operated by
Northwest or under lease, sublease or interchange arrangements in countries that
are not parties to the Convention. The extent to which the related Loan
Trustee's security interest would be recognized in an Aircraft located in a
country that is not a party to the Convention, and the extent to which such
security interest would be recognized in a jurisdiction adhering to the
Convention if the Aircraft is registered in a jurisdiction not a party to the
Convention, is uncertain. Moreover, in the case of an Indenture Default, the
ability of the related Loan Trustee to realize upon its security interest in an
Aircraft could be adversely affected as a legal or practical matter if such
Aircraft were registered or located outside the United States.
Unless otherwise specified in the applicable Prospectus Supplement, the
Equipment Notes will not be cross-collateralized and consequently the Equipment
Notes issued in respect of any one Aircraft will not be secured by any other
Aircraft or, in the case of Leased Aircraft Notes, the Lease related thereto.
Unless and until an Indenture Default with respect to a Leased Aircraft has
occurred and is continuing, the related Loan Trustee may exercise only limited
rights of the related Owner Trustee under the related Lease.
Funds, if any, held from time to time by the Loan Trustee with respect to
any Aircraft, prior to the distribution thereof, will be invested and reinvested
by such Loan Trustee. Such investment and reinvestment will be at the direction
of Northwest (except, with respect to a Leased Aircraft, in the case of a Lease
Event of Default under the applicable Lease or, with respect to an Owned
Aircraft, in the case of an Indenture Default under the applicable Indenture),
in certain investments described in the Related Indenture. The net amount of any
loss resulting from any such investments will be paid by Northwest.
Section 1110 of the Bankruptcy Code provides that, in reorganization cases
under Chapter 11 of the Bankruptcy Code, the right of a lessor with respect to,
and of the holder of a security interest in, aircraft capable of carrying 10 or
more individuals or 6,000 pounds or more of cargo (subject to certain
limitations in the case of any such aircraft first placed in service on or prior
to October 22, 1994) leased to or subject to a security interest granted by a
citizen of the United States (as defined in the Federal Aviation Act) holding an
air carrier operating certificate issued by the Secretary of Transportation
pursuant to the Federal Aviation Act for such aircraft (a certificate which
Northwest presently possesses) to take possession of such aircraft in compliance
with the provisions of the lease or security agreement is not affected by (a)
the automatic stay provision of the Bankruptcy Code, which provision generally
enjoins the taking of any action against a debtor by a creditor, (b) the
provision of the Bankruptcy Code allowing the trustee or debtor-in-possession to
use, sell or lease property of the estate and (c) any power of the bankruptcy
court to enjoin a repossession. Section 1110 provides, however, that the right
of a lessor or secured party to take possession of an aircraft in compliance
with the provisions of the lease or security agreement in the event of a default
may not be exercised for 60 days following the date of commencement of the
reorganization proceedings (unless specifically permitted by the bankruptcy
court) and may not be exercised at all if, within such 60-day period, the
trustee or debtor-in-possession agrees to perform the debtor's obligations that
become due on or after such date and cures all existing defaults (other than
defaults resulting solely from the financial condition, bankruptcy, insolvency
or reorganization of the debtor). Section 1110 does not prevent the trustee or
debtor-in-possession from rejecting a lease (including any Lease) or demanding a
renegotiation of such lease as a condition to not rejecting such lease. In
addition, if more than one aircraft are leased pursuant to a master lease and
accompanying lease supplement, the applicability of Section 1110 would be
determined on an aircraft-by-aircraft basis. Assuming Section 1110 is applicable
to all aircraft subject to a master lease, Section 1110 does not prevent the
trustee or debtor-in-possession from complying with the provisions of Section
1110 with respect to some lease supplements, and thereby retaining possession of
the related aircraft, and not complying with the provisions of Section 1110 with
respect to other lease supplements, and thereby enabling a repossession of other
aircraft.
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In connection with any issuance of Certificates under this Prospectus and
the applicable Prospectus Supplement, Northwest shall have received an opinion
from its counsel to the effect that (i) with respect to any Leased Aircraft, the
related Owner Trustee, as lessor under the related Lease, and the related Loan
Trustee, upon foreclosure of the Owner Trustee's interest in such Lease as
assignee of such Owner Trustee's rights under such Lease pursuant to the Related
Indenture, would be entitled to the benefits of Section 1110 of the Bankruptcy
Code with respect to the Aircraft initially delivered under such Lease and
subjected to the Related Indenture or (ii) with respect to any Owned Aircraft,
the related Loan Trustee under the Related Indenture would be entitled to the
benefits of Section 1110 of the Bankruptcy Code with respect to the Aircraft
initially subjected to the Related Indenture. Such opinions will not address the
possible replacement of an Aircraft after an Event of Loss (as defined in the
Indenture) in the future.
RANKING OF EQUIPMENT NOTES
Some of the Equipment Notes related to one or more Aircraft, as described in
the related Prospectus Supplement, may be subordinated and junior in right of
payment to other Equipment Notes related to the same Aircraft. The terms of such
subordination, if any, will be described in the related Prospectus Supplement.
PAYMENTS AND LIMITATION OF LIABILITY
Each Leased Aircraft will be leased by the related Owner Trustee to
Northwest for a term commencing on the delivery date thereof to such Owner
Trustee and expiring on a date not earlier than the latest maturity date of the
related Leased Aircraft Notes, unless previously terminated as permitted by the
terms of the related Lease. The basic rent and other payments under each such
Lease will be payable by Northwest in accordance with the terms specified in the
applicable Prospectus Supplement, and will be assigned by the related Owner
Trustee under the Related Indenture to the Loan Trustee to provide the funds
necessary to pay principal of, premium, if any, and interest due from such Owner
Trustee on the Leased Aircraft Notes issued under such Indenture. In certain
cases, the basic rent payments under a Lease may be adjusted, but each Lease
will provide that under no circumstances will rent payments by Northwest be less
than the scheduled payments on the related Leased Aircraft Notes. The balance of
any basic rent payment under each Lease, after payment of amounts due on the
Leased Aircraft Notes issued under the Indenture corresponding to such Lease,
will be paid over to the applicable Owner Participant. Northwest's obligation to
pay rent and to cause other payments to be made under each Lease will be general
obligations of Northwest.
With respect to the Leased Aircraft Notes, except in certain circumstances
involving Northwest's purchase of a Leased Aircraft and the assumption of the
Leased Aircraft Notes related thereto, the Leased Aircraft Notes will not be
obligations of, or guaranteed by, Northwest. With respect to the Leased Aircraft
Notes, none of the Owner Trustees, the Owner Participants or the Loan Trustees
shall be personally liable to any holder of such Leased Aircraft Notes for
amounts payable under such Leased Aircraft Notes, or, except as provided in the
Indentures relating thereto in the case of the Owner Trustees and the Loan
Trustees, for any liability under such Indentures. Except in the circumstances
referred to above, all amounts payable under any Leased Aircraft Notes (other
than payments made in connection with an optional redemption or purchase by the
related Owner Trustee or the related Owner Participant) will be made only from
(i) the assets subject to the lien of the Related Indenture with respect to such
Aircraft or the income and proceeds received by the related Loan Trustee
therefrom (including rent payable by Northwest under the related Lease) or (ii)
if so provided in the related Prospectus Supplement, the applicable Liquidity
Facility.
With respect to the Leased Aircraft Notes, except as otherwise provided in
the Related Indentures, no Owner Trustee shall be personally liable for any
amount payable or for any statements, representations, warranties, agreements or
obligations under such Indentures or under such Leased Aircraft Notes except for
its own willful misconduct or gross negligence. None of the Owner Participants
shall have any duty or
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responsibility under the Leased Aircraft Indentures or under such Leased
Aircraft Notes to the related Loan Trustee or to any holder of any such Leased
Aircraft Note.
Northwest's obligations under each Owned Aircraft Indenture and under the
Owned Aircraft Notes will be general obligations of Northwest.
DEFEASANCE OF THE INDENTURES AND THE EQUIPMENT NOTES IN CERTAIN CIRCUMSTANCES
Unless otherwise specified in the applicable Prospectus Supplement, the
applicable Indenture provides that the obligations of the related Loan Trustee
and, with respect to any Leased Aircraft Notes, the related Owner Trustee or,
with respect to any Owned Aircraft Notes, Northwest under the applicable
Indenture shall be deemed to have been discharged and paid in full (except for
certain obligations, including the obligations to register the transfer or
exchange of Equipment Notes, to replace stolen, lost, destroyed or mutilated
Equipment Notes and to maintain paying agencies and hold money for payment in
trust) on the 91st day after the date of irrevocable deposit with the related
Loan Trustee of money or certain obligations of the United States or any agency
or instrumentality thereof the payment of which is backed by the full faith and
credit of the United States which, through the payment of principal and interest
in respect thereof in accordance with their terms, will provide money in an
aggregate amount sufficient to pay when due (including as a consequence of
redemption in respect of which notice is given on or prior to the date of such
deposit) principal of, premium, if any, and interest on all Equipment Notes
issued thereunder in accordance with the terms of such Indenture. Such discharge
may occur only if, among other things, there has been published by the Internal
Revenue Service a ruling to the effect that holders of such Equipment Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit, defeasance and discharge and will be subject to federal income
tax on the same amount and in the same manner and at the same time as would have
been the case if such deposit, defeasance and discharge had not occurred.
Upon such defeasance, or upon payment in full of the principal of, premium,
if any, and interest on all Equipment Notes issued under any Indenture on the
maturity date therefor or deposit with the applicable Loan Trustee of money
sufficient therefor no earlier than one year prior to the date of such maturity,
the holders of such Equipment Notes will have no beneficial interest in or other
rights with respect to the related Aircraft or other assets subject to the lien
of such Indenture and such lien shall terminate.
ASSUMPTION OF OBLIGATIONS BY NORTHWEST
Unless otherwise specified in the applicable Prospectus Supplement with
respect to Leased Aircraft, upon the exercise by Northwest of any purchase
options it may have under the related Lease prior to the end of the term of such
Lease, Northwest may assume on a full recourse basis all of the obligations of
the Owner Trustee (other than its obligations in its individual capacity) under
the Indenture with respect to such Aircraft, including the obligations to make
payments in respect of the related Leased Aircraft Notes. In such event, certain
relevant provisions of the related Lease, including (among others) provisions
relating to maintenance, possession and use of the related Aircraft, liens,
insurance and events of default will be incorporated into such Indenture, and
the Leased Aircraft Notes issued under such Indenture will not be redeemed and
will continue to be secured by such Aircraft. It is a condition to such
assumption that, if such Aircraft is registered under the laws of the United
States, an opinion of counsel be delivered at the time of such assumption
substantially to the effect that the related Loan Trustee under such Indenture
should, immediately following such assumption, be entitled to the benefits of
Section 1110 of the Bankruptcy Code with respect to such Aircraft (including the
engines related thereto), but such opinion need not be delivered to the extent
that the benefits of such Section 1110 are not available to the Loan Trustee
with respect to such Aircraft or any engine related thereto immediately prior to
such assumption.
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LIQUIDITY FACILITY
The related Prospectus Supplement may provide that one or more payments of
interest on the related Equipment Notes of one or more series or distributions
made by the Trustee of the related Trust will be supported by a Liquidity
Facility issued by an institution identified in the related Prospectus
Supplement. Unless otherwise provided in the related Prospectus Supplement, the
provider of the Liquidity Facility will have a senior claim upon the assets
securing the Equipment Notes.
INTERCREDITOR ISSUES
Equipment Notes may be issued in different Classes, which means that the
Equipment Notes may have different payment priorities even though they are
issued by the same Owner Trustee and relate to the same Aircraft. In such event,
the related Prospectus Supplement will describe the priority of distributions
among such Equipment Notes (and any Liquidity Facilities therefor), the ability
of any Class to exercise and/or enforce any or all remedies with respect to the
related Aircraft (and, if the Equipment Notes are Leased Aircraft Notes, the
Lease related thereto) and certain other intercreditor terms and provisions.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion 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.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE CERTIFICATES.
TAX STATUS OF THE TRUSTS
In the opinion of Cadwalader, Wickersham & Taft, special tax counsel to
Northwest, in the case of each Series of Certificates, each Trust will be
classified as a grantor trust under subpart E, Part I of Subchapter J of the
Internal Revenue Code of 1986, as amended (the "Code") and not as an association
taxable as a corporation for U.S. federal income tax purposes. Accordingly, each
U.S. Certificateholder will be subject to federal income taxation as if it owned
directly a pro rata undivided interest in each asset owned by the corresponding
Trust and paid directly its share of fees and expenses paid by such Trust.
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TAXATION OF CERTIFICATEHOLDERS GENERALLY
A U.S. Certificateholder will be treated as owning its pro rata undivided
interest in each of the Equipment Notes and any other property held by the
related Trust. Accordingly, each U.S. Certificateholder's share of interest paid
on the Equipment Notes will be taxable as ordinary income, as it is paid or
accrued, in accordance with such owner's method of accounting for U.S. federal
income tax purposes and a U.S. Certificateholder's share of premium, if any,
paid on the Equipment Notes will be treated as capital gain. Any amounts
received by a Trust from Interest Drawings under the relevant Liquidity Facility
will be treated for U.S. federal income tax purposes as having the same
characteristics as the payments they replace.
Each U.S. Certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding Trust as provided in Section 162 or 212 of the Code.
Certain fees and expenses, including fees paid to the Trustee and the Liquidity
Provider, will be borne by parties other than the Certificateholders. It is
possible that such fees and expenses will be treated as constructively received
by the Trust, in which event a U.S. Certificateholder will be required to
include in income and will be entitled to deduct its pro rata share of such fees
and expenses. If a U.S. Certificateholder is an individual, estate or trust, the
deduction for such holder's share of such fees or expenses will be allowed only
to the extent that all of such holder's miscellaneous itemized deductions,
including such holder's share of such fees and expenses, exceed 2% of such
holder's adjusted gross income. In addition, in the case of U.S.
Certificateholders who are individuals, certain otherwise allowable itemized
deductions will be subject generally to additional limitations on itemized
deductions under the applicable provisions of the Code.
EFFECT OF SUBORDINATION OF SUBORDINATED CERTIFICATEHOLDERS
If any Trust with respect to a Series are subordinated with respect to other
Trusts of the same Series (such Trusts being the "Subordinated Trusts" and the
related Certificates being the "Subordinated Certificates") receives less than
the full amount of the receipts of principal or interest paid with respect to
the Equipment Notes held by it (any shortfall in such receipts being the
"Shortfall Amounts") because of the subordination of the Equipment Notes held by
such Trust under the Intercreditor Agreement, the corresponding owners of
beneficial interests in the Subordinated Certificates (the "Subordinated
Certificateholders") would probably be treated for federal income tax purposes
as if they had (1) received as distributions their full share of such receipts,
(2) paid over to the relevant preferred class of Certificateholders an amount
equal to their share of such Shortfall Amount, and (3) retained the right to
reimbursement of such amounts to the extent of future amounts payable to such
Subordinated Certificateholders with respect to such Shortfall Amount.
Under this analysis, (1) Subordinated Certificateholders incurring a
Shortfall Amount would be required to include as current income any interest or
other income of the corresponding Subordinated Trust that was a component of the
Shortfall Amount, even though such amount was in fact paid to the relevant
preferred class of Certificateholders, (2) a loss would only be allowed to such
Subordinated Certificateholders when their right to receive reimbursement of
such Shortfall Amount became worthless (i.e., when it becomes clear that funds
will not be available from any source to reimburse such loss), and (3)
reimbursement of such Shortfall Amount prior to such a claim of worthlessness
would not be taxable income to Subordinated Certificateholders because such
amount was previously included in income. These results should not significantly
affect the inclusion of income for Subordinated Certificateholders on the
accrual method of accounting, but could accelerate inclusion of income to
Subordinated Certificateholders on the cash method of accounting by, in effect,
placing them on the accrual method.
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
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interest on such Equipment Notes. The Prospectus Supplement will state whether
any Equipment Notes to be held by the related Trust will be issued with OID.
Generally, a holder of a debt instrument issued with original issue discount
that is not DE MINIMIS must include such original issue discount in income for
federal income tax purposes as it accrues, in advance of the receipt of the cash
attributable to such income, under a method that takes into account the
compounding of interest.
MARKET DISCOUNT
Generally, the term "market discount" means the excess of the remaining
principal amount of a Certificate over the holder's tax basis in such
Certificate immediately after its acquisition, subject to a DE MINIMIS
exception.
A holder who acquires a Certificate at a market discount will be required to
treat any gain realized on the disposition of such Certificate, except in
certain nonrecognition transactions, as ordinary income to the extent of the
market discount that accrued during the period that such holder held such
Certificate. Further, a disposition of a Certificate by gift (and in certain
other circumstances) could result in the recognition of market discount income,
computed as if such Certificate had been sold for its fair market value.
In the case of a partial principal payment on indebtedness subject to the
market discount rules, Section 1276 of the Code requires that such payment be
included in gross income as ordinary income to the extent such payment does not
exceed the market discount that has accrued during the period such indebtedness
was held. The amount of any accrued market discount later required to be
included in income upon a disposition, or subsequent partial principal payment,
will be reduced by the amount of accrued market discount previously included in
income.
Until Treasury regulations are issued, the explanatory Conference Committee
Report to the Tax Reform Act of 1986 (the "Conference Report") indicates that
holders of installment obligations (such as the Equipment Notes) with market
discount may elect to accrue market discount either (i) on the basis of a
constant interest rate or (ii) in the ratio to the total amount of remaining
market discount that the amount of stated interest paid in the accrual period
bears to the total amount of stated interest remaining to be paid on the
installment obligation as of the beginning of such period. Under Section 1277 of
the Code, if in any taxable year interest paid or accrued on indebtedness
incurred or continued to purchase or carry indebtedness subject to the market
discount rules exceeds the interest currently includable in income with respect
to such indebtedness, deduction of the excess interest must be deferred to the
extent of the market discount allocable to the taxable year. The deferred
portion of any interest expense will generally be deductible when such market
discount is included in income upon the sale or other disposition (including
repayment) of the indebtedness.
A holder of a Certificate acquired at a market discount may elect under
Section 1278 of the Code, in the manner provided by Revenue Procedure 92-67,
1992-34 I.R.B. 6, to include such discount in income as it accrues. The current
inclusion election applies to all market discount obligations acquired on or
after the first day to which the election applies, and may not be revoked
without the consent of the IRS. If a holder of a Certificate elects to include
market discount in income as it accrues, the foregoing rules of Section 1276 and
1277 of the Code with respect to the recognition of ordinary income on a sale or
other disposition of such Certificate and the deferral of interest deductions on
indebtedness related to such Certificate would not apply.
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
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principal amount of the Equipment Note allocable to such interest. In that
event, a U.S. Certificateholder who holds a Certificate as a capital asset may
elect to amortize that premium as an offset to interest income under Section 171
of the Code with corresponding reductions in the U.S. Certificateholder's tax
basis in its Certificate. In the case of installment obligations (such as the
Equipment Notes), the Conference Report indicates a Congressional intent that
amortization will be in accordance with the same rules that will apply to the
accrual of market discount on installment obligations (see discussion above).
Under certain circumstances, amortizable bond premium may be determined by
reference to any early call date. It is unclear how the amortizable bond premium
rules apply where, as in the case with the Equipment Notes, the amount of
redemption premium payable on an early call date is unknown. In addition, the
treatment of any unamortized bond premium remaining at the time of an early call
is unclear. The U.S. Certificateholders are urged to consult their own tax
advisors as to the treatment of any amortizable bond premiums.
SALE OR OTHER DISPOSITION OF THE CERTIFICATES
Upon the sale, exchange or other disposition of a Certificate, a U.S.
Certificateholder generally will recognize capital gain or loss equal to the
difference between the amount realized on the disposition (other than any amount
attributable to accrued interest which will be taxable as ordinary income) and
the U.S. Certificateholder's adjusted tax basis in the related Equipment Notes
and any other assets held by the corresponding Trust. A U.S. Certificateholder's
adjusted tax basis will equal the holder's cost for its Certificate, plus any
accrued OID or market discount previously included in income or less any
amortized bond premium or any previously recognized losses or prior principal
payments. Any gain or loss generally will be capital gain or loss (other than
accrued market discount not previously included in income) if the Certificate
was held as a capital asset.
FOREIGN CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of principal
and interest on the Equipment Notes to, or on behalf of, any beneficial owner of
a Certificate that is not a U.S. Person (a "Non-U.S. Certificateholder") will
not be subject to U.S. federal withholding tax; PROVIDED, in the case of
interest, that (i) such Non-U.S. Certificateholder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of the stock of any Owner Participant or any transferee of such interest, (ii)
such Non-U.S. Certificateholder is not a controlled foreign corporation for U.S.
tax purposes that is related to an Owner Participant and (iii) either (A) the
Non-U.S. Certificateholder certifies, under penalties of perjury, that it is not
a U.S. Person and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Certificate certifies, under penalties of perjury,
that such statement has been received from the Non-U.S. Certificateholder by it
or by another financial institution and furnishes the payor with a copy thereof.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a Certificate or upon receipt of premium paid on an Equipment
Note by a Non-U.S. Certificateholder will not be subject to U.S. federal income
or withholding taxes if (i) such gain is not effectively connected with a U.S.
trade or business of the holder and (ii) in the case of an individual, such
holder is not present in the United States for 183 days or more in the taxable
year of the sale, exchange, retirement or other disposition or receipt.
BACKUP WITHHOLDING
Payments made on the Certificates and proceeds from the sale of Certificates
will not be subject to a backup withholding tax of 31% unless, in general, the
Certificateholder fails to comply with certain reporting procedures or otherwise
fails to establish an exemption from such tax under applicable provisions of the
Code.
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ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, the
Certificates may, subject to certain legal restrictions, be purchased and held
by an employee benefit plan (a "Plan") subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or an individual
retirement account or an employee benefit plan subject to section 4975 of the
Code. A fiduciary of a Plan must determine that the purchase and holding of a
Certificate is consistent with its fiduciary duties under ERISA and does not
result in a non-exempt prohibited transaction as defined in section 406 of ERISA
or section 4975 of the Code. Employee benefit plans which are governmental plans
(as defined in section 3(32) of ERISA) and certain church plans (as defined in
section 3(33) of ERISA) are not subject to Title I of ERISA or section 4975 of
the Code. The Certificates may, subject to certain legal restrictions, be
purchased and held by such plans.
PLAN OF DISTRIBUTION
Certificates may be sold to one or more underwriters for public offering and
sale by them or to investors or other persons directly or through one or more
dealers or agents. Any such underwriter, dealer or agent involved in the offer
and sale of the Certificates will be named in an applicable Prospectus
Supplement.
The Certificates may be sold at a fixed price or prices, which may be
changed, or from time to time at market prices prevailing at the time of sale,
at prices related to such prevailing market prices or at negotiated prices.
Dealer trading may take place in certain of the Certificates, including
Certificates not listed on any securities exchange. Northwest does not intend to
apply for listing of the Certificates on a national securities exchange.
Northwest also may, from time to time, authorize underwriters acting as
Northwest's agents to offer and sell the Certificates upon the terms and
conditions as shall be set forth in any Prospectus Supplement. In connection
with the sale of Certificates, underwriters may be deemed to have received
compensation from Northwest in the form of underwriting discounts or commissions
and may also receive commissions from purchasers of Certificates for whom they
may act as agent. Underwriters may sell Certificates to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions (which may be changed from
time to time) from the purchasers for whom they may act as agent.
If a dealer is used directly by Northwest in the sale of Certificates in
respect of which this Prospectus is delivered, such Certificates will be sold to
the dealer, as principal. The dealer may then resell such Certificates to the
public at varying prices to be determined by such dealer at the time of resale.
Any such dealer and the terms of any such sale will be set forth in the
Prospectus Supplement relating thereto.
Certificates may be offered and sold through agents designated by Northwest
from time to time. Any such agent involved in the offer or sale of the
Certificates in respect of which this Prospectus is delivered will be named in,
and any commissions payable by Northwest to such agent will be set forth in, the
applicable Prospectus Supplement. Unless otherwise indicated in the applicable
Prospectus Supplement, any such agent will be acting on a best efforts basis for
the period of its appointment.
Offers to purchase Certificates may be solicited directly by Northwest and
sales thereof may be made by Northwest directly to institutional investors or
others who may be deemed to be underwriters within the meaning of the Securities
Act with respect to any resale thereof. The terms of any such sales will be
described in the Prospectus Supplement relating thereto. Except as set forth in
the applicable Prospectus Supplement, no director, officer or employee of
Northwest or NWA Corp. will solicit or receive a commission in connection with
direct sales by Northwest of the Certificates, although such persons may respond
to inquiries by potential purchasers and perform ministerial and clerical work
in connection with any such direct sales.
Any underwriting compensation paid by Northwest to underwriters, dealers or
agents in connection with the offering of Certificates, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in an applicable Prospectus Supplement. Underwriters, dealers
and
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agents participating in the distribution of the Certificates may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the Certificates may be deemed to be underwriting
discounts and commissions under the Securities Act. Underwriters, dealers and
agents may be entitled, under agreements with Northwest, to indemnification
against and contribution toward certain civil liabilities, including liabilities
under the Securities Act, and to reimbursement by Northwest for certain
expenses.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, NWA Corp. and its subsidiaries in the ordinary course of business.
If so indicated in an applicable Prospectus Supplement and subject to
existing market conditions, Northwest will authorize dealers acting as
Northwest's agents to solicit offers by certain institutions to purchase
Certificates at the public offering price set forth in such Prospectus
Supplement pursuant to Delayed Delivery Contracts ("Contracts") providing for
payment and delivery on the date or dates stated in such Prospectus Supplement.
Each Contract will be for an amount not less than, and the aggregate principal
amount of Certificates sold pursuant to Contracts shall not be less nor more
than, the respective amounts stated in such Prospectus Supplement. Institutions
with whom Contracts, when authorized, may be made include commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions and other institutions, but will in all cases be subject
to the approval of Northwest. Contracts will not be subject to any conditions
except the purchase by an institution of the Certificates covered by its
Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject. A
commission indicated in the applicable Prospectus Supplement will be granted to
underwriters and agents soliciting purchases of Certificates pursuant to
Contracts accepted by Northwest. Agents and underwriters will have no
responsibility in respect of the delivery or performance of Contracts.
If an underwriter or underwriters are utilized in the sale of any
Certificates, the applicable Prospectus Supplement will contain a statement as
to the intention, if any, of such underwriters at the date of such Prospectus
Supplement to make a market in the Certificates. No assurances can be given that
there will be a market for the Certificates.
The place and time of delivery for the Certificates in respect of which this
Prospectus is delivered will be set forth in the applicable Prospectus
Supplement.
LEGAL OPINIONS
Unless otherwise indicated in the applicable Prospectus Supplement, the
validity of the Certificates and the Parent Guaranty will be passed upon for
Northwest by Simpson Thacher & Bartlett, New York, New York. Unless otherwise
indicated in the applicable Prospectus Supplement, Simpson Thacher & Bartlett
will rely on the opinion of counsel for the Trustee as to certain matters
relating to the authorization, execution and delivery of such Certificates by,
and the valid and binding effect thereof on, such Trustee. Certain federal
income tax matters will be passed upon by Cadwalader, Wickersham & Taft, New
York, New York, special tax counsel to Northwest.
EXPERTS
The consolidated financial statements and schedule of Northwest Airlines
Corporation, appearing or incorporated by reference in NWA Corp's Annual Report
(Form 10-K) for the year ended December 31, 1996 and the consolidated financial
statements of NWA Corp. for the year ended December 31, 1997 included in NWA
Corp.'s Current Report (Form 8-K) dated February 19, 1998 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
included or incorporated by reference therein and incorporated herein by
reference. Such consolidated financial statements and schedule are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
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