<PAGE>
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 27, 1998.
$200,000,000
[LOGO]
Northwest Airlines, Inc.
Fully and Unconditionally Guaranteed by
Northwest Airlines Corporation
8.52% Notes due 2004
--------------
Northwest Airlines, Inc. will pay interest on the Notes on April 7 and October 7
of each year. The first interest payment will be made on October 7, 1999.
The Notes will mature on April 7, 2004. The Notes will be issued only
in denominations of $1,000 and integral multiples of $1,000.
The Notes will rank equally with all unsecured and unsubordinated indebtedness
of Northwest Airlines, Inc. The Notes will be fully and unconditionally
guaranteed on a senior basis by Northwest Airlines
Corporation, the indirect parent of Northwest
Airlines, Inc.
Northwest Airlines, Inc. is selling to the underwriter the Notes at a price of
98.587% per Note, or $197,174,000 for all of the Notes, plus accrued
interest, if any, from April 7, 1999. The underwriter proposes to
offer the Notes from time to time for sale in negotiated
transactions or otherwise, at market prices prevailing at
the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
Northwest has the option to redeem all or a portion of the Notes at any time at
the redemption price specified in this prospectus supplement under "Description
of Notes--Optional Redemption."
Investing in the Notes involves risks. See "Risk Factors" on page S-6.
Delivery of the Notes in book-entry form only, will be made through The
Depository Trust Company on or about April 7, 1999, against payment in
immediately available funds.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of 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.
Credit Suisse First Boston
Prospectus Supplement dated April 1, 1999.
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TABLE OF CONTENTS
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PROSPECTUS SUPPLEMENT PAGE
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PRESENTATION OF INFORMATION..................... S-2
HOLDING COMPANY REORGANIZATION.................. S-3
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE..................................... S-3
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING
DATA.......................................... S-4
RISK FACTORS.................................... S-6
USE OF PROCEEDS................................. S-11
CAPITALIZATION.................................. S-11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... S-12
THE COMPANY..................................... S-23
DESCRIPTION OF NOTES............................ S-28
CERTAIN U.S. FEDERAL INCOME TAX
CONSEQUENCES TO NON U.S. PERSONS.............. S-31
UNDERWRITING.................................... S-33
NOTICE TO CANADIAN RESIDENTS.................... S-34
LEGAL OPINIONS.................................. S-35
EXPERTS......................................... S-35
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PROSPECTUS PAGE
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AVAILABLE INFORMATION........................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE..................................... 2
THE COMPANY..................................... 3
USE OF PROCEEDS................................. 3
RATIO OF EARNINGS TO FIXED
CHARGES....................................... 3
DESCRIPTION OF DEBT SECURITIES.................. 3
DESCRIPTION OF WARRANTS......................... 13
PLAN OF DISTRIBUTION............................ 15
LEGAL OPINIONS.................................. 16
EXPERTS......................................... 16
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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 NOTES AND SEEKING OFFERS TO BUY THE NOTES, 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 NOTES.
PRESENTATION OF INFORMATION
These offering materials consist of two documents: (a) this prospectus
supplement, which describes the terms of the Notes that Northwest Airlines, Inc.
("Northwest") is currently offering (the "Notes"), and (b) the accompanying
prospectus, which provides general information about Northwest's debt
securities, some of which may not apply to the Notes that Northwest is currently
offering. THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT REPLACES ANY
INCONSISTENT INFORMATION INCLUDED IN THE ACCOMPANYING PROSPECTUS.
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 cross references in this
prospectus supplement are to captions contained in this prospectus supplement
and not in the accompanying prospectus, unless otherwise stated.
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For more complete information about Northwest Airlines Corporation ("NWA
Corp.," and together with its subsidiaries, the "Company" or "we") and
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."
HOLDING COMPANY REORGANIZATION
In connection with the purchase of an equity interest in Continental
Airlines, Inc. ("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. References in this prospectus supplement
to NWA Corp. for time periods prior to November 20, 1998 refer to Old NWA Corp.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
NWA Corp. files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commissions (the "SEC"). You
may also read and copy any document we file at the SEC's public reference rooms
in Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our
SEC filings are available to the public over the internet at the SEC's web site
at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be a part of this prospectus supplement, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until we sell all of the Notes:
- Annual Report on Form 10-K for the year ended December 31, 1998; and
- Current Reports on Form 8-K filed on January 22, 1999 and February 24,
1999.
You may request a copy of these filings (other than exhibits to these
documents) at no cost, by writing or telephoning the Secretary's Office, NWA
Corp., 5101 Northwest Drive, Dept. A1180, St. Paul, Minnesota 55111-3034,
telephone: (612) 726-2111.
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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 annual historical financial data were
derived from NWA Corp.'s audited consolidated financial statements and the notes
thereto, incorporated by reference in this prospectus supplement. See
"Incorporation of Certain Documents by Reference."
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YEAR ENDED DECEMBER 31,
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1998 1997 1996
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STATEMENT OF OPERATIONS DATA (IN MILLIONS):
Operating revenues
Passenger........................................................... $ 7,606.5 $ 8,822.1 $ 8,598.3
Cargo............................................................... 633.5 789.4 745.8
Other............................................................... 804.8 614.3 536.4
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9,044.8 10,225.8 9,880.5
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Operating expenses (1)................................................ 9,236.2 9,068.6 8,826.7
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Operating income (loss)............................................... (191.4) 1,157.2 1,053.8
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Income (loss) before extraordinary item (2)........................... $ (285.5) $ 605.8 $ 536.1
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OTHER DATA (IN MILLIONS EXCEPT FINANCIAL RATIO DATA):
Ratio of earnings to fixed charges.................................... .17x (3) 3.05x 2.74x
Cash provided by operating activities................................. $ 88.3 $ 1,607.3 $ 1,372.3
Cash used in investing activities..................................... (1,113.1) (885.9) (1,241.9)
Cash provided by (used in) financing activities....................... 764.4 (540.4) (421.9)
EBIT (4).............................................................. (117.9) 1,218.7 1,134.9
EBITDA (5)............................................................ 309.1 1,614.7 1,512.6
EBITDAR (6)........................................................... 654.2 1,973.6 1,858.9
EBIT/interest expense................................................. (.4x) 5.2x 4.3x
EBITDA/interest expense............................................... 1.0 6.9 5.8
EBITDAR/interest expense and aircraft rentals......................... 1.0 3.3 3.1
OPERATING STATISTICS (7):
Scheduled Service:
Available seat miles (millions) (8)................................. 91,310.7 96,963.6 93,913.7
Revenue passenger miles (millions) (9).............................. 66,738.3 72,031.3 68,639.1
Passenger load factor (%) (10)...................................... 73.1 74.3 73.1
Revenue passengers (millions)....................................... 50.5 54.7 52.7
Revenue yield per passenger mile (cents) (11)....................... 11.26 12.11 12.53
Passenger revenue per scheduled ASM (cents)......................... 8.23 9.00 9.16
Operating revenue per total ASM (cents) (12).......................... 9.12 9.76 9.85
Operating expense per total ASM (cents) (12).......................... 9.21 8.63 8.78
Cargo ton miles (millions) (13)....................................... 1,954.4 2,282.8 2,215.8
Cargo revenue per ton mile (cents).................................... 32.4 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
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(TABLE CONTINUES AND FOOTNOTES APPEAR ON FOLLOWING PAGE)
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(CONTINUED FROM PRIOR PAGE)
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DECEMBER 31,
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1998 1997
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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
Long-term obligations under capital leases, including current obligations............... 654.9 705.3
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)
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(1) The Company recorded a fleet disposition charge of $65.9 million ($41.6
million after tax) 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) for the year ended December 31, 1998.
(2) The 1997 extraordinary item was $(9.3) million.
(3) Earnings did not cover fixed charges by $452.3 million for the year
ended December 31, 1998.
(4) EBIT represents income (loss) before extraordinary item plus the sum of
interest expense (net of capitalized interest) and income tax expense
(benefit).
(5) EBITDA represents EBIT, as defined in (4) above, plus depreciation and
amortization.
(6) EBITDAR represents EBITDA, as defined in (5) above, plus aircraft
rentals. EBIT, EBITDA and EBITDAR are presented because each is a widely
accepted financial indicator of a company's ability to incur and service
debt. However, EBIT, EBITDA and EBITDAR should not be considered in
isolation, as a substitute for net income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity.
(7) All statistics exclude Express Airlines I, Inc.
(8) "Available seat miles" ("ASMs") represents the number of seats available
for passengers multiplied by the number of scheduled miles the seats are
flown.
(9) "Revenue passenger miles" ("RPMs") represents the number of miles flown
by revenue passengers in scheduled service.
(10) "Passenger load factor" is calculated by dividing revenue passenger
miles by available seat miles, and represents the percentage of aircraft
seating capacity utilized.
(11) "Revenue yield per passenger mile" represents the average revenue
received from each mile a passenger is flown in scheduled service.
(12) 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.
(13) "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 PROSPECTUS SUPPLEMENT, THE ACCOMPANYING
PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS BEFORE INVESTING IN THE NOTES.
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.
At December 31, 1998, Northwest had $4.20 billion of long-term debt and
capital lease obligations that would rank equally in right of payment with the
Notes, of which $3.31 billion was secured by Northwest's assets, and no
long-term debt or capital lease obligations that would rank senior in right of
payment to the Notes. At the same date, NWA Corp. had $2.09 billion of
indebtedness which would rank equally in right of payment with the full and
unconditional guarantee by NWA Corp. of the Notes (the "Parent Guaranty"), none
of which was secured by NWA Corp.'s assets, and no long-term debt that would
rank senior in right of payment to the Parent Guaranty.
The Notes will rank equally in right of payment with all other unsecured and
unsubordinated indebtedness of Northwest, and the Parent Guaranty will rank
equally with all other unsecured and unsubordinated indebtedness of NWA Corp.
The Notes are effectively subordinated to the claims of Northwest's secured
lenders, and the Parent Guaranty is effectively subordinated to the claims of
NWA Corp.'s secured lenders and claims against NWA Corp.'s subsidiaries.
In addition, Northwest operates in a capital intensive industry.
Periodically, Northwest is required to make significant capital expenditures for
new aircraft and related equipment. We cannot assure you that sufficient
financing will be available for all aircraft and other capital expenditures not
covered by commercial financing.
ABSENCE OF CERTAIN COVENANTS
The terms of the Notes and NWA Corp.'s Parent Guaranty of the Notes do not
limit Northwest's or NWA Corp's ability to incur additional indebtedness that
may rank equally in right of payment to the Notes or such Parent Guaranty, to
incur liens or to pay dividends or make distributions on, or redeem or
repurchase, NWA Corp.'s capital stock. In addition, the Notes do not contain
provisions that would give holders of the Notes the right to require Northwest
to repurchase their Notes in the event a change of
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control of Northwest or a decline in the credit rating of Northwest's or NWA
Corp.'s debt securities from a takeover, recapitalization or similar
restructuring, or any other reason.
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 six-year agreements during the fourth quarter of 1998.
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 ("NMB").
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 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
by the NMB. The remaining ground employees continue to be represented by the
IAM. On February 16, 1999, the IAM membership ratified a new four-year
agreement.
We estimate the increased costs under the six ratified agreements will be
approximately $145 million for 1999 based on current levels of employment.
Because the terms of the new labor agreements are determined by collective
bargaining, we cannot predict the outcome of the remaining negotiations at this
time. We believe that our labor costs will remain competitive in comparison to
other large U.S. airlines.
RISKS REGARDING NORTHWEST/JUSTICE DEPARTMENT LITIGATION
In November 1998, Northwest and Continental began implementing their
long-term global alliance involving extensive code-sharing, frequent flyer
program reciprocity and other cooperative activities. In a related transaction,
the Company acquired from Continental's principal shareholder and certain other
parties securities representing 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.
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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.
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 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
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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
would use the NOLs, AMTNOLs and credits significantly earlier than their
expiration and the annual limitations would not adversely impact the Company.
However, if the IRS were to successfully assert that an ownership change had
occurred on any date prior to November 1995 (including August 1, 1993 when the
Company entered into labor agreements that provided stock for labor cost
savings) our ability to use our NOLs, AMTNOLs and credits would be significantly
impaired because the value of Old NWA Corp.'s stock on certain prior testing
dates was relatively low. Such value would adversely affect the annual
limitation described above.
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
Prior to this offering, there has been no public market for the Notes.
Neither Northwest nor NWA Corp. intends to apply for listing of the Notes on any
securities exchange. The underwriter may assist in resales of the Notes, but it
is not required to do so. A secondary market for the Notes 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 Notes. If an active
public market does not develop, the market price and liquidity of the Notes may
be adversely affected.
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
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available, deep price discounting has ceased. We cannot predict the extent to
which these industry conditions will continue.
Northwest's competitors include all the other major domestic airlines, as
well as foreign, national, regional and new entrant airlines, some of which have
more financial resources or lower cost structures than Northwest. Northwest uses
yield inventory management systems to vary the number of discount seats offered
on each flight in an effort to maximize revenues while remaining price
competitive with lower-cost carriers. These competitors' low-cost fares could
affect our operating results.
In recent years, the major U.S. airlines have formed marketing alliances
with other U.S. and foreign airlines. Such alliances generally provide for
"code-sharing," frequent flyer program reciprocity, coordinated scheduling of
flights to permit convenient connections and other joint marketing activities.
Such arrangements permit an airline to market flights operated by other alliance
members as its own. This increases the destinations, connections and frequencies
offered by the airline, which provide an opportunity to increase traffic on that
airline's segment of flights connecting with alliance partners. Other major U.S.
airlines have alliances or planned alliances that may be more extensive than
Northwest's alliances. We cannot predict the extent to which we will be
disadvantaged by competing alliances.
AIRCRAFT FUEL
Because fuel costs are a significant portion of our operating costs (11.9%
for 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 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.
S-10
<PAGE>
USE OF PROCEEDS
We will use the net proceeds from the sale of the Notes for general
corporate purposes.
CAPITALIZATION
The following table sets forth the capitalization of NWA Corp. on a
consolidated basis at December 31, 1998. The table should be read in conjunction
with NWA Corp.'s consolidated financial statements and the notes thereto
incorporated by reference in this prospectus supplement. See "Incorporation of
Certain Documents by Reference."
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
--------------------
<S> <C>
(IN MILLIONS)
--------------------
Cash, cash equivalents and unrestricted short-term investments.............................. $ 480.0
--------
--------
Short-term debt:
Short-term borrowings..................................................................... $ 8.9
Current maturities of long-term debt...................................................... 319.2
Current obligations under capital leases.................................................. 57.6
--------
Total short-term debt................................................................. $ 385.7
--------
--------
Long-term debt and capital lease obligations:
Revolving credit facilities............................................................... $ 824.8
Equipment pledge notes.................................................................... 341.1
Secured notes due through 2009............................................................ 348.9
Sale-leaseback financing obligations...................................................... 223.0
Unsecured notes due 2004 through 2008..................................................... 648.9
NWA Trust No. 1 Notes..................................................................... 179.6
NWA Trust No. 2 Notes..................................................................... 251.3
Long-term obligations under capital leases................................................ 597.3
Term loans................................................................................ 160.2
Secured notes due through 2016............................................................ 240.0
Aircraft notes............................................................................ 347.1
Other..................................................................................... 116.6
--------
Total long-term debt and capital lease obligations.................................... 4,278.8
--------
Mandatorily Redeemable Preferred Security of subsidiary which holds solely non-recourse
obligation of Northwest................................................................. 564.1
Series C Preferred Stock, $.01 par value; authorized 25,000,000 shares, 5,622,733 shares
issued and outstanding.................................................................. 260.7
Common stockholders' equity (deficit):
Common Stock $.01 par value; 315,000,000 shares authorized; 108,953,764 shares issued... 1.1
Additional paid-in capital................................................................ 1,444.6
Accumulated deficit....................................................................... (648.5)
Accumulated other comprehensive loss...................................................... (68.1)
Treasury stock; 28,978,351 shares......................................................... (1,205.8)
--------
Total common stockholders' equity (deficit)........................................... (476.7)
--------
Total capitalization.................................................................. $ 4,626.9
--------
--------
</TABLE>
S-11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
REFERENCES BELOW TO THE "ANNUAL REPORT" MEAN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 INCORPORATED BY REFERENCE
IN THE ACCOMPANYING PROSPECTUS. SEE "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
NWA Corp. incurred a net loss of $285.5 million for the year ended December
31, 1998, compared with net income of $596.5 in 1997. Loss per share was $3.48
in 1998 compared with diluted earnings per share of $5.21 in 1997. An operating
loss of $191.4 million was reported in 1998 compared to operating income of
$1.16 billion in 1997.
The year ended December 31, 1998 was affected by labor-related disruptions
which included the pilots' strike. Because of these events, year-over-year
comparisons are not a useful measure of the underlying operating and financial
performance of the Company. However, for continuity of reporting and as a
measure of the impact of the labor disruptions, the traditional comparisons are
presented herein. The Company estimates the cost of the labor disruptions in
lost revenue and incremental expenses to be approximately $1.04 billion on a
pre-tax basis for the year ended December 31, 1998.
Northwest is the principal indirect operating subsidiary of NWA Corp.,
accounting for more than 95% of the Company's 1998 consolidated operating
revenues and expenses. The Company's operating results are significantly
impacted by both general and industry economic environments. Small fluctuations
in revenue per available seat mile ("RASM") and cost per available seat mile
("CASM") can have significant impacts on the Company's profitability. The
Company acquired Express Airlines I, Inc. ("Express") on April 1, 1997; the
operating results of Express are included in the consolidated financial
statements in the Annual Report commencing on that date.
RESULTS OF OPERATIONS--1998 COMPARED TO 1997
OPERATING REVENUES
Operating revenues were $9.04 billion, a decrease of $1.18 billion (11.5%).
Operating revenue per total service available seat mile ("ASM") decreased 6.6%.
System passenger revenue decreased $1.22 billion (13.8%) primarily attributable
to a decrease in scheduled service ASMs and a decrease in passenger RASM due to
the labor disruptions. The decrease in RASM was also a result of a weaker Asian
economic environment and weaker foreign currency exchange rates. Passenger
revenue included $93.6 million and $100.1 million of Express revenues for the
years ended December 31, 1998 and 1997, respectively.
The following analysis by market is based on information reported to the DOT
and excludes Express:
<TABLE>
<CAPTION>
SYSTEM DOMESTIC PACIFIC ATLANTIC
-- -------------- -------------- -------
<S> <C> <C> <C>
1998
Passenger revenue (in millions)...................... $7,512.9 $ 5,190.1 $ 1,619.9 $ 702.9
INCREASE/(DECREASE) FROM 1997:
Passenger revenue (in millions)...................... $(1,209.1) $ (691.8) $ (573.1) $ 55.8
Percent............................................ (13.9)% (11.8)% (26.1)% 8.6%
Scheduled service ASMs (capacity).................... (5.8)% (6.3)% (12.1)% 22.2%
Passenger RASM....................................... (8.6)% (5.8)% (15.9)% (11.1)%
Yield................................................ (7.0)% (5.4)% (13.4)% (5.4)%
Passenger load factor................................ (1.2) pts. (.3) pts. (2.2) pts. (5.1) pts.
</TABLE>
Domestic passenger revenue was lower due to decreased capacity and yields
resulting from the labor disruptions.
S-12
<PAGE>
Pacific passenger revenue decreased due to the labor disruptions, an
unfavorable general economic environment in the Pacific and weaker Asian
currencies, of which the largest impact was due to the Japanese economy and yen.
The average yen per U.S. dollar exchange rate for the year ended December 31,
1998 and 1997 was 133 and 120, respectively, a weakening of the yen of 10.8%. In
response to the continued weak Asian economic environment, lower demand and
increased competition, the Company reduced capacity in the region during 1998.
Atlantic passenger revenue increased due to an increase in capacity which
resulted primarily from new flying (including service to Mumbai and Delhi, India
from Amsterdam) and the initiation of Philadelphia-Amsterdam and
Seattle-Amsterdam service and increases in Minneapolis/St. Paul-Amsterdam and
Detroit-Amsterdam services, offset by a decrease in RASM as a result of the
labor disruptions.
Cargo revenue decreased $155.9 million (19.7%) due to 14.4% fewer cargo ton
miles and a 6.2% decrease in cargo revenue per ton mile due to the labor
disruptions, a weaker Asian economic environment and weaker Asian currency
exchange rates. Other revenue increased $190.5 million (31.0%) due to increased
revenue from KLM Royal Dutch Airlines ("KLM") joint venture alliance settlements
and MLT Inc.
OPERATING EXPENSES
Operating expenses increased $167.6 million (1.8%). Operating capacity
decreased 5.9% to 91.4 billion total service ASMs which contributed to the 6.7%
increase in operating expense per total service ASM. Salaries, wages and
benefits increased $236.7 million (7.8%) due primarily to an increase in average
full-time equivalent employees of 4.0%, retroactive compensation related to
collective bargaining agreements and the impact of settled contracts. Aircraft
fuel and taxes decreased $296.7 million (21.3%) due to a 17.4% decrease in the
average fuel price per gallon from 64.86 cents to 53.60 cents and a 6.0%
decrease in fuel gallons consumed as a result of the labor disruptions.
Commissions decreased $163.3 million (19.1%) due to lower revenues as a result
of the labor disruptions, a lower effective commission rate caused by a shift in
revenue mix and changes to the Company's commission structure which began in
September 1997. Aircraft maintenance, materials and repairs increased $140.6
million (22.7%) due to higher utilization of outside suppliers as a result of
increased scheduled overhauls and timing of check cycles, and decreased employee
productivity due to the labor disruptions. Other expenses (the principal
components of which include outside services, selling and marketing expenses,
passenger food, personnel, advertising and promotional expenses, communication
expenses and supplies) increased $239.4 million (12.2%), due primarily to
increased business for MLT Inc., claims, advertising and promotions, as well as
the accelerated retirement of seven of the Company's oldest Boeing 747 aircraft
resulting in a fleet disposition charge of $65.9 million recorded in the fourth
quarter. See Note A to the consolidated financial statements in the Annual
Report for additional discussion of the fleet disposition charge.
OTHER INCOME AND EXPENSE
Interest expense-net increased $78.0 million (33.3%) primarily due to
additional borrowings to fund the Company's cash requirements. This level of
increase is expected to continue into 1999 due to the higher level of
borrowings. The foreign currency loss for the year ended December 31, 1998 was
primarily attributable to balance sheet remeasurement of foreign
currency-denominated assets and liabilities. Other, net increased primarily due
to the sale of an equity investment in GHI Limited.
RESULTS OF OPERATIONS--1997 COMPARED TO 1996
OPERATING REVENUES
Operating revenues were $10.23 billion, an improvement of $345.3 million
(3.5%). Operating revenue per total service ASM decreased.9%. System passenger
revenue increased $223.8 million (2.6%) due to an increase in scheduled service
ASMs and the inclusion of Express revenues of $100.1 million. These
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<PAGE>
increases were offset by a decrease in passenger RASM driven by unfavorable
foreign currency exchange rates and the reinstatement of federal ticket taxes in
March 1997.
The following analysis by market is based on information reported to the DOT
and excludes Express:
<TABLE>
<CAPTION>
SYSTEM DOMESTIC PACIFIC ATLANTIC
---------- -------------- -------------- -------
<S> <C> <C> <C> <C>
1997
Passenger revenue (in millions)................... $ 8,722.0 $ 5,881.9 $ 2,193.0 $ 647.1
INCREASE/(DECREASE) FROM 1996:
Passenger revenue (in millions)................... $ 123.7 $ 165.5 $ (58.4) $ 16.6
Percent......................................... 1.4% 2.9% (2.6)% 2.6%
Scheduled service ASMs (capacity)................. 3.2% 2.2% 5.6% 1.7%
Passenger RASM.................................... (1.7)% .7% (7.7)% .9%
Yield............................................. (3.4)% (2.0)% (7.4)% (1.4)%
Passenger load factor............................. 1.2 pts. 1.8 pts. (.4) pts. 1.9 pts.
</TABLE>
Domestic passenger revenue increased as a result of an increase in capacity
and an increase in RASM. The Company increased frequencies to ten cities and
entered six new markets. The increase in RASM was due to an increase in
passenger load factor offset by a decrease in yield due to the reinstatement of
federal taxes on airline tickets and international departures. The Company
benefitted from the absence of ticket taxes for two months in 1997 versus eight
months in 1996.
Pacific passenger revenue decreased due to a decrease in RASM which was
partially offset by an increase in capacity related to the initiation of
Minneapolis/St. Paul-Osaka service and additional trans-Pacific frequencies,
mainly for the Minneapolis/St. Paul-Tokyo service. The decrease in Pacific RASM
was primarily due to a decrease in yield, which was largely attributable to a
weaker Japanese yen. The average yen per U.S. dollar exchange rate for the year
ended December 31, 1997 and 1996 was 120 and 108, respectively, a weakening of
the yen of 11.2%. Atlantic passenger revenue increased due to an increase in
capacity and an increase in RASM.
Cargo revenue increased $43.6 million (5.8%) due to a 2.6% increase in cargo
revenue per ton mile and 3.0% more cargo ton miles primarily due to the
development of a more efficient freighter schedule. The increase in cargo
revenue per ton mile was primarily due to increased import sales driven by the
continued strength of the U.S. dollar versus Asian currencies. Other revenue
increased $77.9 million (14.5%) due to settlements under the joint venture
alliance with KLM and increased charter activity.
OPERATING EXPENSES
Operating expenses increased $241.9 million (2.7%) compared to the 3.3%
capacity increase to 97.1 billion total service ASMs. Operating expense per
total service ASM decreased for the first time in four years from 8.78 cents per
total service ASM to 8.63 cents, a decrease of 1.7%. Salaries, wages and
benefits increased $314.5 million (11.6%) due primarily to the end of the Wage
Savings Period as discussed under "Liquidity and Capital Resources--LABOR
AGREEMENTS" and an increase in average full-time equivalent employees of 3.3%.
The increase in full-time equivalent employees was attributable to the increased
flying of 3.3% and increased traffic of 3.7%. Offsetting the increased salaries,
wages and benefits expense was $49.2 million in lower pension expense due to a
higher pension discount rate applied in 1997 compared to 1996. Aircraft fuel and
taxes decreased $3.1 million (.2%) due to a 3.5% decrease in the average fuel
price per gallon from 67.21 cents to 64.86 cents offset by an increase of 2.6%
in fuel gallons consumed. Commissions decreased $13.2 million (1.5%) primarily
due to increased domestic revenue where effective commission rates are lower
than those paid internationally and also due to changes in the Company's
commission structure beginning in September 1997 which reduced commissions paid
from 10% to 8% on tickets purchased in the U.S. or Canada for travel to
destinations outside North America. Aircraft maintenance materials and repairs
increased $64.2 million (11.5%) due primarily to $19.1 million (3.4%)
S-14
<PAGE>
related to Express and an increased number of scheduled airframe and engine
overhauls in accordance with the Company's maintenance program. The Company
contracted for some of its additional maintenance work with outside suppliers,
resulting in labor costs that would normally be classified as salaries and wages
being included in maintenance materials and repairs expense. Other expenses
increased $88.7 million (4.7%) due primarily to increased volume and rates for
outside services, selling and marketing fees and personnel expenses.
OTHER INCOME AND EXPENSE
Interest expense-net decreased $28.4 million (10.8%) primarily due to the
retirement of debt prior to scheduled maturity and lower interest rates on debt.
The foreign currency gain for the year ended December 31, 1997 was primarily
attributable to balance sheet remeasurement of foreign currency-denominated
assets and liabilities.
EXTRAORDINARY ITEM
The Company repurchased for $78.7 million certain NWA Trust No. 2 aircraft
notes in January 1998 pursuant to a tender offer. An extraordinary loss of $9.3
million, net of tax, was recorded in 1997 as 99% of the notes were tendered by
December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had cash and cash equivalents of $480
million and borrowing capacity of $1.0 billion under its revolving credit
facilities, providing total available liquidity of $1.48 billion.
Cash flows from operating activities were $88.3 million for 1998, a decrease
of $1.52 billion compared with 1997 due primarily to the labor disruptions as
well as higher than normal sale proceeds of frequent flyer miles in 1997 of
$387.7 million. Cash flows from operating activities were $1.61 billion for 1997
and $1.37 billion for 1996. Net cash used in investing and financing activities
during 1998, 1997 and 1996 was $348.7 million, $1.43 billion and $1.66 billion,
respectively.
INVESTING ACTIVITIES
Investing activities in 1998 consisted primarily of the purchase of 13
Airbus A320 aircraft, ten RJ85 aircraft, and three used DC10 aircraft, costs to
commission aircraft before entering revenue service, engine hushkitting,
aircraft modifications, deposits on ordered aircraft and ground equipment
purchases. On November 20, 1998, NWA Corp. issued 2.6 million shares of common
stock and paid $399 million in cash to acquire the beneficial ownership of 8.7
million shares of Class A Common Stock of Continental. The Company funded its
investment in Continental with cash from its general working capital. In a
related transaction, Northwest and Continental entered into a thirteen-year
global strategic commercial alliance that connects the two carriers' networks
and includes extensive code-sharing, frequent flyer program reciprocity and
other cooperative activities.
Investing activities in 1997 consisted primarily of costs to commission
aircraft before entering revenue service, deposits on ordered aircraft, the
refurbishment of DC9 aircraft, engine hushkitting, ground equipment purchases,
the acquisition of Express, the purchase off lease of four aircraft and the
purchase of eight RJ85 aircraft, one DC10-30 aircraft and three DC9-30 aircraft.
Capital expenditures for 1996 pertained primarily to the acquisition of 13
Boeing 757 aircraft, seven DC9-30 aircraft, three DC10-30 aircraft and two
747-200 aircraft; the purchase off lease of 22 aircraft; and the refurbishment
of DC9 aircraft.
S-15
<PAGE>
FINANCING ACTIVITIES
Financing activities in 1998 included the Company's repurchase of its
remaining Common Stock held by KLM, the issuance of $400 million of unsecured
notes, the incurrence of $240 million of debt secured by six Boeing 757
aircraft, the payment of debt and capital lease obligations, and the sale and
leaseback of 13 A320 aircraft and four RJ85 aircraft. During the third quarter,
in anticipation of potential labor disruptions, the Company borrowed the $2.08
billion available under its credit facilities, and subsequently repaid such
borrowings. In October 1998, the Company borrowed $835 million to fund its cash
requirements.
On May 1, 1998, NWA Corp. purchased from KLM the remaining 18.2 million
shares of NWA Corp. Common Stock which had been reclassified as redeemable
common stock. The Company had previously agreed to repurchase the shares over a
three-year period ending in September 2000. The purchase price of $780.4 million
was paid with a combination of $336.7 million of cash and three senior unsecured
7.88% notes with principal amounts of $206 million, $137.7 million and $100
million. The Company repaid the first note on September 29, 1998; the remaining
two notes are due on September 29, 1999 and 2000, respectively.
The Company's Credit Agreement was amended in December 1997 to increase its
existing revolving credit facility from $500 million to $675 million and to
extend the availability period to December 2002. In addition, the facility added
a new $175 million 364-day unsecured revolving credit facility due in December
1998. In December 1998, $10.2 million of the $175 million 364-day revolver was
converted into a term loan due December 2002. The remaining $164.8 million was
renewed for another 364 days; however, to the extent this facility is not
renewed for an additional 364-day period, the Company may borrow up to the
entire non-renewed portion of the facility and all such borrowings mature in
December 2002. In May 1998, the Company provided certain collateral to secure
its previously unsecured term loan and revolving credit facilities under the
Credit Agreement.
In May 1998, the Company obtained a secured 364-day $1.0 billion additional
revolving credit facility. This revolving credit facility was renewed in
February 1999, which extended the expiration date from May 11, 1999 to February
8, 2000 and reduced the amount available from $1.0 billion to $750 million.
Interest is calculated at a floating rate based on the London Interbank Offered
Rate plus 2.25% with a .5% per annum commitment fee payable on the unused
portion of such revolving credit facility.
In February 1999, the Company completed an offering of $421.2 million of
pass through certificates to be used to finance, directly or through leveraged
lease arrangements, the acquisition of four new Boeing 747-400 aircraft
scheduled for delivery in 1999.
Financing activities in 1997 pertained primarily to NWA Corp.'s repurchases
of its Common Stock and Series A and B Preferred Stock, the issuance of $250
million of unsecured notes, the sale and leaseback of eight RJ85 aircraft and
the payment of debt and capital lease obligations. On September 29, 1997, the
Company repurchased 6.8 million shares of NWA Corp. Common Stock held by KLM for
$273.1 million. Concurrently, all of NWA Corp.'s Series A and B Preferred Stock
held by KLM and other holders was repurchased for $251.3 million. Both
repurchases were funded using existing cash resources.
Financing activities in 1996 pertained primarily to the sale and leaseback
of seven Boeing 757 aircraft and the payment of debt and capital lease
obligations, including prepayments of $180 million. In July 1996, NWA Corp.
acquired from KLM 3,691.2 shares of NWA Corp. Series A Preferred Stock and
2,962.8 shares of NWA Corp. Series B Preferred Stock in exchange for $379
million of unsecured promissory notes which were repaid in December 1996.
See Note D to the consolidated financial statements in the Annual Report for
maturities of long-term debt for the five years subsequent to December 31, 1998.
S-16
<PAGE>
CAPITAL COMMITMENTS
The current aircraft delivery schedule provides for the acquisition of 102
aircraft over the next eight years. See Notes K and N to the consolidated
financial statements in the Annual Report for additional discussion of aircraft
capital commitments. Other capital expenditures, including costs to commission
presently owned aircraft that have not yet entered revenue service, but
excluding those costs discussed below, are projected to be approximately $250
million in 1999, which the Company anticipates funding primarily with cash from
operations.
The Company has adopted programs to hushkit and modify 173 DC9 aircraft to
meet noise and aging aircraft requirements. As of December 31, 1998, the Company
hushkitted 130 of these aircraft and plans on completing the remaining aircraft
by December 31, 1999 for $68 million. The aging aircraft modifications are
expected to aggregate $147 million during the next three years for these
aircraft. Capital expenditures for engine hushkits and aging aircraft
modifications were $157 million in 1998. The Company has also elected to upgrade
aircraft systems and refurbish interiors for the 173 DC9 aircraft. Capital
expenditures associated with upgrading systems and interior refurbishment were
$31 million in 1998, which completed the interior refurbishment of the DC9
aircraft. Aircraft system upgrade costs are expected to aggregate $27 million
during the next three years.
The Company completed the interior refurbishment of three 747 aircraft and
five DC10 aircraft and plans to refurbish the interiors of 25 additional 747
aircraft and 21 additional DC10 aircraft. The program to refurbish the interiors
of the Company's international 747 and DC10 aircraft is estimated to aggregate
$67 million during the next three years. As of December 31, 1998, the Company
hushkitted 10 of its 29 Boeing 727-200 aircraft. Remaining costs are estimated
to aggregate approximately $13 million in 1999.
In February 1999, the Company entered into an agreement to purchase 54
Canadian Regional Jet aircraft, with options to purchase up to 70 additional
aircraft. The scheduled delivery for such aircraft is nine in 2000, 22 in 2001,
ten in 2002, eight in 2003 and five in 2004. Committed expenditures for these
aircraft, including estimated amounts for contractual price escalations and
predelivery deposits, will be approximately: $50 million in 1999, $175 million
in 2000, $400 million in 2001, $200 million in 2002, $150 million in 2003 and
$100 million in 2004. Financing has been arranged for the committed aircraft.
The Company has not yet selected the operator of these aircraft.
WORKING CAPITAL
The Company operates, like its competitors, with a working capital deficit,
which aggregated $1.59 billion at December 31, 1998. The working capital deficit
is primarily attributable to the $1.11 billion air traffic liability for advance
ticket sales.
LABOR AGREEMENTS
The labor cost savings discussed in Note C to the consolidated financial
statements in the Annual Report improved the Company's 1993 to 1996 cash flow
from operating activities. The Company's 1993 agreements with the employee
unions provided that wage scales at the end of the Wage Savings Period snapback
to August 1, 1993 levels and snap-up pursuant to formulae based in part on wage
rates and wage rate increases at other large U.S. airlines. Consequently, at the
end of the Wage Savings Period, salaries and wages increased by approximately
$340 million on an annualized basis including $50 million for snap-ups. The
Company's labor contract with each of its unions became amendable as each labor
cost savings agreement ended in 1996. Contract negotiations began at that time
with the unions.
On August 28, 1998, Northwest ceased its flight operations as a result of a
strike by its pilots represented by Air Line Pilots Association, International
("ALPA"). The Northwest Master Executive Council ("Northwest MEC") of ALPA
announced the commencement of the strike as a result of the failure to reach
agreement with Northwest on the terms of a new collective bargaining agreement.
The
S-17
<PAGE>
strike followed the expiration of a 30-day "cooling off" period that began July
30, 1998, when an impasse was declared by the NMB. The cessation of flight
operations lasted 18 days. On September 13, 1998, a new four-year agreement was
ratified. The agreement provides for lump sum retroactive payments to pilots
equal to 3.5% of salaries since October 31, 1996, wage increases of 3% annually
through 2001, 2.5 million stock options to be granted over a three year period,
elimination of the "B pay scale" over three years, enhanced vacation benefits
and a profit sharing plan. The agreement also permits implementation of the
Continental alliance.
On October 28, 1998, the Company and its 15 meteorologists reached and
ratified an agreement on a new six-year contract. On October 30, 1998, the 260
members of the Aircraft Technical Support Association, the Company's fourth
largest union, ratified a new six-year agreement. On December 1, 1998, the 170
members of the Transport Workers Union ratified a new five-year contract. On
December 23, 1998, the Company and its 148 flight kitchen employees represented
by the IAM signed a new four-year contract.
The Company and the IAM reached a tentative agreement in June 1998, which
was not ratified by the covered employees, who included mechanics and related
employees, clerks, agents, equipment service employees and stock clerks. In
November 1998, at 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 by the NMB. The
remaining ground employees continue to be represented by the IAM. On February
16, 1999, the IAM ratified a new four-year agreement. The agreement provides for
lump sum retroactive payments equal to 3.5% of salaries since October 2, 1996, a
14% wage increase over the duration of the contract and a 50% increase in
pension benefits. The Company estimates the increased costs under the six
ratified agreements will be approximately $145 million for 1999 based on current
levels of employment.
The Company remains in direct negotiations with the International
Brotherhood of Teamsters ("IBT"), which represents its flight attendants.
Contract negotiations are being mediated by the NMB. Because the terms of new
labor agreements will be determined by collective bargaining, the Company cannot
predict the outcome of the negotiations at this time.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in the price of
fuel, foreign currency exchange rates and interest rates as discussed below. The
sensitivity analyses presented do not consider the effects that such adverse
changes may have on overall economic activity nor do they consider additional
actions management may take to mitigate its exposure to such changes. Actual
results may differ. See Note O to the consolidated financial statements in the
Annual Report for accounting policies and additional information.
AIRCRAFT FUEL
The Company's earnings are affected by changes in the price and availability
of aircraft fuel. In order to provide a measure of control over price and
supply, the Company trades and ships fuel and maintains fuel storage facilities
to support its flight operations. The Company also manages the price risk of
fuel costs primarily utilizing futures contracts traded on regulated exchanges.
Market risk is estimated as a hypothetical 10% increase in the December 31, 1998
cost per gallon of fuel based on projected 1999 fuel usage which would result in
an increase to aircraft fuel expense of approximately $80 million in 1999, net
of gains realized from fuel hedge instruments outstanding at December 31, 1998,
compared to an estimated $90 million at December 31, 1997. As of December 31,
1998, the Company had hedged approximately 10% of its 1999 fuel requirements,
including 40% of the first quarter, compared to 28% and 63%, respectively, at
December 31, 1997.
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<PAGE>
FOREIGN CURRENCY
The Company is exposed to the effect of foreign exchange rate fluctuations
on the U.S. dollar value of foreign currency-denominated operating revenues and
expenses. The Company's largest exposure comes from the Japanese yen. From time
to time, the Company uses financial instruments to hedge its exposure to the
Japanese yen. The result of a uniform 10% strengthening in the value of the U.S.
dollar from December 31, 1998 levels relative to each of the currencies in which
the Company's revenues and expenses are denominated would result in a decrease
in operating income of approximately $60 million for the year ending December
31, 1999, net of gains realized from yen hedge instruments outstanding at
December 31, 1998, compared to an estimated $48 million decrease at December 31,
1997. This is due to the Company's foreign currency-denominated revenues
exceeding its foreign currency-denominated expenses. The increase to other
income due to the remeasurement of net foreign currency-denominated liabilities
and the increase to common stockholders' equity deficit due to the translation
of net yen-denominated liabilities resulting from a 10% strengthening in the
value of the U.S. dollar is not material for 1998 and 1997. This sensitivity
analysis was prepared based upon projected foreign currency-denominated revenues
and expenses and foreign currency-denominated assets and liabilities as of
December 31, 1998 and 1997.
In 1998, the Company's yen-denominated revenues exceeded its yen-denominated
expenses by approximately 38 billion yen (approximately $286 million) and its
yen-denominated liabilities exceeded its yen-denominated assets by an average of
16.4 billion yen ($125 million). In general, each time the yen strengthens
(weakens), the Company's operating income is favorably (unfavorably) impacted
due to net yen-denominated revenue exceeding expenses and a nonoperating foreign
currency loss (gain) is recognized due to the remeasurement of net
yen-denominated liabilities. The Company's operating income was negatively
impacted by approximately $20 million due to the average yen being weaker in
1998 compared to 1997 and $70 million due to the average yen being weaker in
1997 compared to 1996. The yen to U.S. dollar exchange rate at December 31,
1998, 1997 and 1996 was 113 yen to $1, 131 yen to $1 and 116 yen to $1,
respectively. There was no material impact on 1998 earnings associated with the
Japanese yen put options purchased to hedge its 1998 net yen-denominated cash
flows. As of December 31, 1998, the Company had entered into forward contracts
to hedge approximately 35% of its 1999 yen-denominated ticket sales, which also
represents approximately 95% of the Company's excess of yen-denominated revenues
over expenses.
INTEREST
The Company's earnings are also affected by changes in interest rates due to
the impact those changes have on its interest income from cash equivalents and
short-term investments and its interest expense from floating rate debt
instruments. The Company has mitigated this risk by limiting its floating rate
indebtedness to approximately 46% and 47% of long-term debt and capital leases
at December 31, 1998 and 1997, respectively. If long-term interest rates average
10% more in 1999 than they did during 1998, the Company's net interest expense
would increase by approximately $14 million, compared to an estimated $7 million
for 1998 measured at December 31, 1997. If short-term interest rates average 10%
more in 1999 than they did during 1998, the Company's interest income from cash
equivalents and short-term investments would increase by approximately $3
million compared to an estimated $7 million for 1998 measured at December 31,
1997. These amounts are determined by considering the impact of the hypothetical
interest rates on the Company's floating rate indebtedness, cash equivalent and
short-term investment balances at December 31, 1998.
Market risk for fixed-rate indebtedness is estimated as the potential
increase in fair value resulting from a hypothetical 10% decrease in interest
rates and amounts to approximately $50 million during 1999, compared to an
estimated $45 million for 1998 measured at December 31, 1997 for 1998. The fair
values of the Company's indebtedness were estimated using quoted market prices
or discounted future cash flows based on the Company's incremental borrowing
rates for similar types of borrowing arrangements.
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OTHER INFORMATION
INCOME TAXES
Sections 382 and 383 of the Code, and Treasury regulations limit the amounts
of NOLs, AMTNOLs and credits that can be used to offset taxable income (or used
as a credit) in any single tax year if the corporation experiences more than a
50% ownership change, as defined therein, over a three-year testing period
ending on the testing date. See Note J to the consolidated financial statements
in the Annual Report for information regarding income taxes and NOLs, AMTNOLs
and credits.
Management believes that an offering of outstanding common stock by existing
stockholders in November 1995 triggered an ownership change, but that no
ownership change occurred before that time. If such an ownership change did
occur as a result of the offering, management believes that, even as limited by
the Code, the Company would use the NOLs, AMTNOLs and credits significantly
earlier than their expiration, and the annual limitation would not adversely
impact the Company. However, if the IRS were to successfully assert that an
ownership change had occurred on any date prior to November 1995 (including
August 1, 1993 when the Company entered into labor agreements that provided
stock for labor cost savings), the Company's ability to use its NOLs, AMTNOLs
and credits would be significantly impaired because the value of NWA Corp's
stock on certain prior testing dates was relatively low. Such value would
adversely affect the annual limitation.
YEAR 2000 READINESS
The Year 2000 issue is the result of computer programs being written using
two digits to identify the applicable year and not taking into account the
change in century that will occur in the year 2000. As a result, such systems
may fail completely or create erroneous results when the year 2000 is defined by
the system as "00." The Company uses a significant number of information
technology ("IT") and non-IT ("embedded operating systems") systems that are
essential to its operations. As a result, the Company implemented a Year 2000
project to modify its computer systems to function properly in 2000 and in the
years after that. The Year 2000 project is being coordinated through a
senior-level task force that reports periodically to senior management and the
Board of Directors.
The Company is also reviewing the Year 2000 readiness of third parties with
whom the Company's systems interface and exchange data or upon whom the
Company's business depends and is coordinating efforts with these outside third
parties to minimize the extent to which its business will be vulnerable to such
third parties' failure to remediate their own Year 2000 issues. The Company's
business is also dependent upon U.S. and foreign governmental agencies and
certain governmental organizations or entities, which provide essential aviation
industry infrastructure, such as the FAA. There can be no assurance that the
systems of such third parties on which the Company's business relies (including
those of the FAA) will be modified on a timely basis. As part of this review,
the Company is actively involved in airline industry Year 2000 review efforts
led by the Air Transport Association and the International Air Transport
Association. The Company's business, financial condition or results of
operations could be materially adversely affected by the failure of its systems
or equipment to operate properly beyond 1999, or failure of those operated by
other parties such as the air traffic control and related systems of the FAA and
international aviation and local airport authorities.
The five phases of the Company's Year 2000 project used for identifying and
modifying the various programs and systems include inventory, assessment,
conversion, testing and implementation. The Company has completed all phases for
91% of its internal IT systems and anticipates completion of the remaining
systems in the first quarter of 1999. The Company is approximately 80% completed
with the assessment phase of the impact of Year 2000 on its non-IT systems and
third party relationships, which is expected to be completed in the second
quarter of 1999 with all phases anticipated to be completed in 1999. To some
extent, the Company's readiness in this area is dependent on the readiness of
third parties.
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As a precautionary measure, the Company is also developing entity-wide
contingency plans designed to allow continued operation in the event of failure
of the Company's or third parties' systems. Contingency plans are expected to be
in place by the end of the second quarter of 1999 and are expected to be
executed as necessary.
The Company has spent $25 million of its initial estimated cost of $55
million, of which $15 million has been spent and expensed during 1998. The
Company now estimates that the total project costs will be somewhat less than
the estimated $55 million. The costs associated with the Year 2000 project are
being funded through cash from operations and are not expected to have a
material effect on the Company's business, financial condition or results from
operations. Maintenance or modification costs associated with making existing
computer systems Year 2000 compliant will be expensed as incurred. A majority of
the estimated total Year 2000 compliance cost has been funded by reallocating
existing resources rather than incurring incremental costs.
The costs of the Company's Year 2000 project and the date on which the
Company believes it will be completed are based on management's best estimates
and include assumptions regarding third party modification plans. However, in
particular due to the potential impact of third party modification plans, there
can be no assurance that these estimates will be achieved and actual results
could differ materially from those anticipated.
This section captioned "Year 2000 Readiness" is a "Year 2000 Readiness
Disclosure" as defined in section 3(9) of the "Year 2000 Information and
Readiness Disclosure Act," (Public Law 105-271), enacted in October 1998.
THE EURO
Effective January 1, 1999, certain European countries adopted a common
currency, the "euro." Full conversion to the euro is scheduled to be completed
by July 1, 2002. The Company has developed a plan to modify the Company's
operating systems to properly handle the euro through the full conversion. Costs
associated with the euro project were accounted for in accordance with the
existing accounting policies and funded through cash from operations. Management
does not believe the implementation of this single currency plan will have a
material effect on the Company's business, financial condition or results from
operations.
U.S. TRANSPORTATION TAXES
The United States passenger ticket tax and other transportation taxes, which
were reinstated in the first quarter of 1997, expired on September 30, 1997. The
Taxpayer Relief Act enacted by Congress revised transportation taxes and
instituted new taxes for tickets for travel from October 1, 1997 to December 31,
2007. Over a five-year period on a sliding scale, the passenger ticket tax will
be reduced from 10 percent to 7.5 percent and a $3 per passenger segment fee
will be phased in. The fee for international arrivals and departures was
increased from $6 per departure to $12 for each arrival and departure. The
departure tax on travel between the U.S. 48 states and Alaska or Hawaii remained
at $6. Additionally, a 7.5 percent tax was added on the purchase of frequent
flyer miles.
DETROIT MIDFIELD TERMINAL
In October 1996, the Company and Wayne County, Michigan (the "County")
entered into an agreement pursuant to which, subject to the satisfaction of
certain conditions set forth in the agreement, the Company will manage and
supervise the design and construction of a $1.08 billion terminal at Detroit
Metropolitan Wayne County Airport. The new terminal is scheduled to be completed
in 2001 and has been funded by the County's issuance of airport revenue bonds
payable primarily from future passenger facility charges and federal and State
of Michigan grants. The Company and the County have entered into
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agreements pursuant to which the Company will lease space in the new terminal
for a term of 30 years from the date the terminal opens.
REGULATION
In April 1998, the DOT issued proposed competition guidelines, which would
severely limit major carriers' ability to compete with new entrant carriers. In
addition, the Department of Justice is investigating competition at major hub
airports. The outcomes of the DOT guidelines and the investigations are unknown.
However, to the extent that restrictions are imposed upon Northwest's ability to
respond to competition, Northwest's business may be adversely impacted.
NEW ACCOUNTING STANDARDS
See Note A to the consolidated financial statements in the Annual Report for
recent accounting standards.
FORWARD-LOOKING STATEMENTS
Certain statements made throughout the Management's Discussion and Analysis
of Financial Condition and Results of Operations are forward-looking and are
based upon information available to the Company on the date hereof. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
These statements deal with the Company's expectations about the future and are
subject to a number of factors that could cause actual results to differ
materially from the Company's expectations.
It is not reasonably possible to itemize all of the many factors and
specific events that could affect the outlook of an airline operating in the
global economy. Some factors that could significantly impact expected capacity,
load factors, revenues, expenses and cash flows include the airline pricing
environment, fuel costs, labor negotiations both at the Company and other
carriers, low-fare carrier expansion, capacity decisions of other carriers,
actions of the U.S. and foreign governments, foreign currency exchange rate
fluctuation, inflation, the general economic environment in the U.S. and other
regions of the world and other factors discussed herein.
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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 that operates through a hub in
Amsterdam; and
- a global alliance with Continental.
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.
RECENT ALLIANCE DEVELOPMENTS
On November 20, 1998, NWA Corp. issued 2.6 million shares of common stock
and paid $399 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 program
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.
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OPERATIONS AND ROUTE NETWORK
Northwest operates substantial domestic and international route networks and
directly serves more than 150 cities in 21 countries in North America, Asia and
Europe. Northwest had more than 50.5 million enplanements and flew over 66.7
billion RPMs in 1998. Northwest began operations in 1926.
Northwest has expanded its network and provides greater service to its
customers through the use of domestic and international alliances and code-share
agreements with other airlines. Code-sharing is an agreement under which an
airline's flights can be marketed under the two-letter designator code of
another airline. By coordinating flight schedules, product development and
marketing, Northwest and its alliance partners provide a global network to over
500 cities and 90 countries 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, 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.
DETROIT. Northwest and Mesaba together serve over 130 cities from Detroit.
For the 12 months ended June 30, 1998, Northwest and Mesaba enplaned 66% of
originating passengers from this hub, while the next largest competitor enplaned
5%. Detroit, which is the sixth largest origination/destination hub in the U.S.,
is Northwest's largest international gateway from the continental U.S., offering
nonstop flights to 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 June 30, 1998, Northwest and
Mesaba enplaned 73% of originating passengers from this hub, while the next
largest competitor enplaned 5%. Minneapolis/St. Paul is the eleventh largest
origination/destination hub in the U.S.
MEMPHIS. Northwest and Express together serve over 80 cities from Memphis.
For the 12 months ended June 30, 1998, Northwest enplaned 56% of originating jet
passengers from this hub, while the next largest competitor enplaned 23%. Mesaba
began serving this hub in March 1999 with regional jet service.
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
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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
and carry Japanese originating passengers. Northwest and United are the only
U.S. passenger carriers that have "fifth freedom" rights from Japan. On March
14, 1998, the U.S. and Japan expanded their aviation agreement. Primary benefits
of the new agreement for Northwest included unlimited rights and frequencies to
operate between any point in the U.S. and Japan and the ability to code-share
with Japanese carriers. The agreement confirmed and expanded Northwest's "fifth
freedom" rights and the U.S. received assurances that Northwest will retain all
its weekly takeoff and landing slots at Tokyo and Osaka and will have access to
new slots as they become available. In 1998, the Company added nonstop service
between Detroit and Nagoya, Las Vegas and Tokyo, Anchorage and Tokyo, and Nagoya
and Manila. In 1999, Northwest began nonstop service between Kaohsiuing, Taiwan
and Osaka and Kuala Lumpur, Malaysia and Osaka.
Northwest continues to expand its Pacific presence through additional
alliances. Northwest is currently implementing an alliance with Japan Air
System, which has approximately 25% of Japan's domestic traffic. The alliance
includes coordinated flight connections, traffic servicing and reciprocal
frequent flyer programs and is expected to include code-sharing and other
cooperative activities. Northwest also has code-sharing and marketing agreements
with Hawaiian Airlines and Pacific Island Aviation.
In October 1998, the Company began code-sharing with Air China as part of a
minimum four-year alliance entered into in May 1998. The alliance connects the
two carriers' networks and also includes
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frequent flyer program 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.
On February 2, 1999, Northwest and Malaysia Airlines entered into a
Memorandum of Understanding ("MOU") designed to lead to an operational and
marketing alliance. The MOU provides for coordinated flight connections,
code-sharing, frequent flyer program reciprocity and other coordinated
activities.
ATLANTIC. Northwest provides passenger service from seven U.S. gateway
cities to Amsterdam, Paris, Frankfurt and London (Gatwick) with 70 weekly
nonstop flights. Northwest also provides service to Mumbai and Delhi, India from
Amsterdam. Daily nonstop service from Minneapolis/St. Paul to Oslo, Norway is
scheduled to begin on May 1, 1999 and from Minneapolis/St. Paul to Amsterdam in
April 1999. An additional seasonal daily nonstop flight from Detroit to
Amsterdam is planned to be added in June 1999.
Northwest and KLM presently operate their trans-Atlantic flights pursuant to
a commercial and operational joint venture alliance. Northwest and KLM have
expanded their trans-Atlantic presence by operating joint service between 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. 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
and will explore extending their alliance to include additional partners and to
further develop strategies for joint marketing and product development. In
February 1998, a leading aviation trade magazine, AIR TRANSPORT WORLD, awarded
its "1997 Airline of the Year" honor to the Northwest/KLM alliance.
In November 1998, KLM and Alitalia entered into 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.
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 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, under conditions imposed by
the DOT, were granted such immunity in January 1993. 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
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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 in Latin America
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.
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DESCRIPTION OF NOTES
The following description of the Notes (referred to in the accompanying
prospectus as "Senior Debt Securities") supplements the more general description
of the Senior Debt Securities that appears in the accompanying prospectus. You
should read this section together with the section entitled "Description of Debt
Securities" in the accompanying prospectus. If there are any inconsistencies
between the information in this section and the information in the prospectus,
the information in this section controls. The following summary of certain terms
of the Notes and the Indenture (as defined below) does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the
provisions of the Indenture and those terms made a part of the Indenture by
reference to the TIA as in effect on the date of the closing of the offering of
the Notes. Any capitalized terms that are defined in the prospectus have the
same meanings in this section unless a different definition appears in this
section.
GENERAL
The 8.52% Notes due 2004 (the "Notes") offered hereby are a series of Senior
Debt Securities described in the accompanying Prospectus.
The Notes will be general unsecured obligations of Northwest. The Notes will
mature on April 7, 2004 and will be limited to an aggregate principal amount of
$200,000,000, although the Indenture provides that additional Senior Debt
Securities may be issued thereunder up to the aggregate principal amount, which
is not limited by the Indenture, authorized from time to time by Northwest's
Board of Directors. The Notes will bear interest at the rates per annum shown on
the cover of this prospectus supplement from April 7, 1999 or from the most
recent Interest Payment Date to which interest has been paid or provided for.
Interest will be payable semiannually on April 7 and October 7 of each year,
commencing October 7, 1999, to the person in whose name the Note (or any
predecessor Note) is registered at the close of business on March 21 and
September 21, as the case may be, next preceding such Interest Payment Date.
Interest will be computed on the basis of a 360-day year consisting of twelve
30-day months. The Notes will be issued in fully registered form, without
coupons, in denominations of $1,000 and integral multiples thereof.
The Notes will be issued under an Indenture (the "Original Indenture") dated
as of March 1, 1997, among Northwest, as issuer, Old NWA Corp., as guarantor,
and State Street Bank and Trust Company, as trustee (the "Trustee"), as
supplemented by a Supplemental Indenture dated as of November 20, 1998 among
Northwest, NWA Corp. and Old NWA Corp., and the Trustee and by a Second
Supplemental Indenture dated as of February 25, 1999 among Northwest, NWA Corp.
and Old NWA Corp., and the Trustee (the Original Indenture, as supplemented, the
"Indenture"). In the accompanying prospectus, we refer to the Original Indenture
as the "Senior Indenture."
The Notes will be fully and unconditionally guaranteed on an unsecured basis
by NWA Corp., which Parent Guaranty shall rank equally with all future unsecured
and unsubordinated indebtedness of NWA Corp. and senior in right of payment to
all subordinated indebtedness of NWA Corp.
The Notes will be represented by one or more permanent global Notes
registered in the name of The Depository Trust Company ("DTC") or its nominee,
as described below. As discussed below, payment of principal of, and interest
on, Notes represented by one or more permanent global Notes registered in the
name of or held by DTC or its nominee, as the case may be, will be made in
immediately available funds to DTC or its nominee, as the case may be, as the
registered owner and holder of such permanent global Note or Notes. See below
under "Global Notes."
OPTIONAL REDEMPTION
The Notes will be redeemable prior to maturity, at the option of Northwest,
at any time in whole or from time to time in part, upon not less than 30 and not
more than 60 days' notice mailed to each holder of
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Notes to be redeemed at the holder's address appearing in the Register (as
defined in the Indenture), at a price equal to 100% of the principal amount
thereof plus accrued interest to the Redemption Date (as defined in the
Indenture) (subject to the right of holders of record on the relevant record
date to receive interest due on an interest payment date that is on or prior to
the Redemption Date) plus a Make-Whole Premium (as defined below), if any (the
"redemption price"). In no event will the redemption price ever be less than
100% of the principal amount of the Notes plus accrued interest to the
Redemption Date.
The amount of the Make-Whole Premium with respect to any Note (or portion
thereof) to be redeemed will be equal to the excess, if any, of:
(i) the sum of the present values, calculated as of the Redemption Date, of:
(A) each interest payment that, but for such redemption, would have been
payable on the Note (or portion thereof) being redeemed on each
Interest Payment Date occurring after the Redemption Date (excluding
any accrued interest for the period prior to the Redemption Date);
and
(B) the principal amount that, but for such redemption, would have been
payable at the final maturity of the Note (or portion thereof) being
redeemed;
over
(ii) the principal amount of the Note (or portion thereof) being redeemed
plus accrued and unpaid interest to the date of determination.
The present values of interest and principal payments referred to in clause
(i) above will be determined in accordance with generally accepted principles of
financial analysis. Such present values will be calculated by discounting the
amount of each payment of interest or principal from the date that each such
payment would have been payable, but for the redemption, to the Redemption Date
at a discount rate equal to the Treasury Yield (as defined below) plus 37.5
basis points.
The Make-Whole Premium will be calculated by an independent investment
banking institution of national standing appointed by Northwest; provided, that
if Northwest fails to make such appointment at least 45 business days prior to
the Redemption Date, or if the institution so appointed is unwilling or unable
to make such calculation, such calculation will be made by Credit Suisse First
Boston Corporation or, if such firm is unwilling or unable to make such
calculation, by an independent investment banking institution of national
standing appointed by the Trustee (in any such case, an "Independent Investment
Banker").
For purposes of determining the Make-Whole Premium, "Treasury Yield" means a
rate of interest per annum equal to the weekly average yield to maturity of
United States Treasury Notes that have a constant maturity that corresponds to
the remaining term to maturity of the Notes, calculated to the nearest 1/12th of
a year (the "Remaining Term"). The Treasury Yield will be determined as of the
third business day immediately preceding the applicable Redemption Date.
The weekly average yields of United States Treasury Notes will be determined
by reference to the most recent statistical release published by the Federal
Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or
any successor release (the "H.15 Statistical Release"). If the H.15 Statistical
Release sets forth a weekly average yield for United States Treasury Notes
having a constant maturity that is the same as the Remaining Term, then the
Treasury Yield will be equal to such weekly average yield. In all other cases,
the Treasury Yield will be calculated by interpolation, on a straight-line
basis, between the weekly average yields on the United States Treasury Notes
that have a constant maturity closest to and greater than the Remaining Term and
the United States Treasury Notes that have a constant maturity closest to and
less than the Remaining Term (in each case as set forth in the H.15 Statistical
Release). Any weekly average yields so calculated by interpolation will be
rounded to the nearest 1/100th of 1%, with any figure of 1/200% or above being
rounded upward. If weekly average yields for United
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States Treasury Notes are not available in the H.15 Statistical Release or
otherwise, then the Treasury Yield will be calculated by interpolation of
comparable rates selected by the Independent Investment Banker.
If less than all of the Notes are to be redeemed, the Trustee will select
the Notes to be redeemed by such method as the Trustee shall deem fair and
appropriate. The Trustee may select for redemption Notes and portions of Notes
in amounts of $1,000 or whole multiples of $1,000.
The Notes will not be entitled to the benefit of any sinking fund or other
mandatory redemption provisions.
GLOBAL NOTES
The Notes will be issued in whole or in part in the form of one or more
global Notes (each, a "Global Note") deposited with, or on behalf of, DTC and
registered in the name of the nominee of DTC and registered in the name of a
nominee of DTC. Except under the limited circumstances described in the
prospectus under "Description of Debt Securities--Global Debt Securities,"
owners of beneficial interests in Global Notes will not be entitled to physical
delivery of Notes in certificated form. Global Notes may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any nominee to a successor of DTC or a
nominee of such successor. A further description of DTC's procedures with
respect to the Global Notes is set forth in the prospectus under "Description of
Debt Securities--Global Debt Securities." It is anticipated that DTC will
confirm to Northwest, NWA Corp., the underwriter and the Trustee that it intends
to follow such procedures.
It is anticipated that DTC will advise Northwest and the underwriter as
follows. 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 a
"clearing agency" registered pursuant to the provisions of section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
of its participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. DTC's participants include
securities brokers and dealers (including the underwriter), banks, trust
companies, clearing corporations and certain other organizations, some of which
(and/or their representatives) own DTC. Access to DTC's book-entry system is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly.
DTC's management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC ("DTC Services"), continue to
function appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally, DTC's plan includes a
testing phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to: (1)
impress upon them the importance of such services being Year 2000
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compliant; and (ii) determine the extent of their efforts for Year 2000
remediation (and, as appropriate, testing) of their services. In addition, DTC
is in the process of developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to Year 2000
problems has been provided to the Industry for informational purposes only and
is not intended to serve as a representation, warranty, or contract modification
of any kind.
The information in this section regarding DTC and its book-entry system has
been obtained from sources that we believe to be accurate, but we assume no
responsibility for the accuracy of this information. In addition, we have no
responsibility for the performance by DTC or its participants of their
obligations as described here or under the rules and procedures governing these
obligations.
SAME DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the underwriter in immediately
available funds. All payments of principal and interest will be made by
Northwest in immediately available funds.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. PERSONS
The following is a summary of certain U.S. federal income tax considerations
for beneficial owners of the Notes that are "non-U.S. persons" under the Code.
Under the Code, a "non-U.S. person" means a person that is not any of the
following:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision thereof;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust which is either subject to the supervision of a court within the
United States and the control of one or more U.S. persons or has a valid
election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
This summary is based on current law which is subject to change (perhaps
retroactively), is for general purposes only and should not be considered tax
advice. This summary does not represent a detailed description of the federal
income tax consequences to you in light of your particular circumstances. In
addition, it does not represent a detailed description of the U.S. federal
income tax consequences applicable to you if you are subject to special
treatment under the U.S. federal income tax laws (including if you are a
"controlled foreign corporation," "passive foreign investment company" or
"foreign personal holding company"). We cannot assure you that a change in law
will not alter significantly the tax considerations that we describe in this
summary.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE PARTICULAR U.S.
FEDERAL INCOME TAX CONSEQUENCES TO YOU OF THE OWNERSHIP OF THE NOTES, AS WELL AS
THE CONSEQUENCES TO YOU ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
U.S. FEDERAL WITHHOLDING TAX
The 30% U.S. federal withholding tax will not apply to any payment of
principal or interest (including original issue discount) on the Notes provided
that:
- you do not actually (or constructively) own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the Code and the U.S. Treasury Regulations;
- you are not a controlled foreign corporation that is related to us through
stock ownership;
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- you are not a bank whose receipt of interest on the Notes is described in
the Code; and
- (a) you provide your name and address on an IRS Form W-8, and certify,
under penalty of perjury, that you are not a U.S. person or (b) a
financial institution holding the Notes on your behalf certifies, under
penalty of perjury, that it has received an IRS Form W-8 from the
beneficial owner and provides us with a copy.
If you cannot satisfy the requirements described above, payments of premium
and interest (including original issue discount) made to you will be subject to
the 30% U.S. federal withholding tax, unless you provide us with a properly
executed (1) IRS Form 1001 claiming an exemption from withholding under the
benefit of a tax treaty or (2) IRS Form 4224 stating that interest paid on the
Note is not subject to withholding tax because it is effectively connected with
your conduct of a trade or business in the United States.
The 30% U.S. federal withholding tax will not apply to any gain or income
that you realize on the sale, exchange, retirement or other disposition of the
Note.
U.S. FEDERAL ESTATE TAX
Your estate will not be subject to U.S. federal estate tax on the Notes
beneficially owned by you at the time of your death, provided that (1) you do
not own 10% or more of the total combined voting power of all classes of our
voting stock (within the meaning of the Code and the U.S. Treasury Regulations)
and (2) interest on that Note would not have been, if received at the time of
your death, effectively connected with the conduct by you of a trade or business
in the United States.
U.S. FEDERAL INCOME TAX
If you are engaged in a trade or business in the United States and interest
on the Notes is effectively connected with the conduct of that trade or business
(although exempt from the 30% withholding tax), you will be subject to U.S.
federal income tax on that interest on a net income basis in the same manner as
if you were a U.S. person as defined under the Code. In addition, if you are a
foreign corporation, you may be subject to a branch profits tax equal to 30% (or
lower applicable treaty rate) of your earnings and profits for the taxable year,
subject to adjustments that are effectively connected with the conduct by you of
a trade or business in the United States. For this purpose, interest on the
Notes will be included in earnings and profits.
Any gain or income realized on the disposition of a Note generally will not
be subject to U.S. federal income tax unless:
- that gain or income is effectively connected with the conduct of a trade
or business in the United States by you;
- you are an individual who is present in the United States for 183 days or
more in the taxable year of that disposition, and certain other conditions
are met; or
- to the extent the gain is considered accrued but unpaid interest on the
Note, the requirements described above are not satisfied.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, you will not be required to provide information reporting and
backup withholding regarding payments that we make to you provided that we do
not have actual knowledge that you are a U.S. person and we have received from
you the statement described above under "U.S. Federal Withholding Tax."
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In addition, you will not be required to pay backup withholding and provide
information reporting regarding the proceeds of the sale of a Note within the
United States or conducted through certain U.S.-related financial intermediaries
if the payor receives the statement described above and does not have actual
knowledge that you are a U.S. person, as defined under the Code, or you
otherwise establish an exemption.
U.S. Treasury Regulations were recently issued that generally modify the
information reporting and backup withholding rules applicable to certain
payments made after December 31, 1999. In general, the new U.S. Treasury
Regulations would not significantly alter the present rules discussed above,
except in certain special situations.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against your U.S. federal income tax liability provided the
required information is furnished to the IRS.
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated April 1, 1999, Northwest and NWA Corp. have agreed to sell to
Credit Suisse First Boston Corporation all of the Notes.
The underwriter will offer the Notes for sale from time to time in one or
more transactions, which may include block transactions, in negotiated
transactions or otherwise, or a combination of both methods of sale, at market
prices prevailing at the time of sale, at prices related to prevailing market
prices or at negotiated prices. The underwriter may do so by selling the Notes
to or through broker/dealers, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the underwriter and/or
the purchasers of the Notes for whom they may act as agents. In connection with
the sale of the Notes, the underwriter may be deemed to have received
compensation from Northwest in the form of underwriting discounts, and the
underwriter may also receive commissions from the purchasers of the Notes for
whom it may act as agent. The underwriter and any broker/dealers that
participate with the underwriter in the distribution of the Notes may be deemed
to be underwriters, and any discounts or commissions received by them and any
profit on the resale of the Notes by them may be deemed to be underwriting
discounts or commissions.
The underwriter is purchasing the Notes from Northwest at 98.587% of the
principal amount per Note, which represents $197,174,000 aggregate proceeds to
Northwest before it deducts its out-of-pocket expenses of approximately
$280,000. The underwriting agreement provides that the underwriter is obligated
to purchase all of the Notes if any are purchased.
The Notes are a new issue of securities with no established trading market.
The underwriter intends to make a secondary market for the Notes. However, it is
not obligated to do so and may discontinue making a secondary market for the
Notes at any time without notice. No assurance can be given as to how liquid the
trading market for the Notes will be.
Northwest and NWA Corp. have agreed to indemnify the underwriter against
liabilities under the Securities Act, or contribute to payments which the
underwriter may be required to make in respect thereof.
The underwriter may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Notes in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the underwriter to reclaim a selling concession from a
syndicate member when the Notes originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover
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syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Notes to be higher than
it would otherwise be in the absence of such transactions. These transactions,
if commenced, may be discontinued at any time.
In the ordinary course of their respective businesses, the underwriter and
its affiliates have engaged, and may in the future engage, in investment banking
transactions with Northwest, NWA Corp. or their affiliates. An affiliate of the
Underwriter is a lender under the Company's credit facilities.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Notes in Canada is being made only on a private
placement basis exempt from the requirement that Northwest and NWA Corp. prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of Notes are effected. Accordingly, any resale of the
Notes in Canada must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may require resales
to be made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the Notes.
REPRESENTATIVES OF PURCHASERS
Each purchaser of Notes in Canada who receives a purchase confirmation will
be deemed to represent to Northwest and NWA Corp. and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Notes without the benefit
of a prospectus qualified under such securities laws, (ii) where required by
law, that such purchaser is purchasing as principal and not as agent, and (iii)
such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission of rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's and the guarantor's directors and officers as well as
the experts named herein may be located outside of Canada and, as a result, it
may not be possible for Canadian purchasers to effect service of process within
Canada upon the issuer, the guarantor or such persons. All or a substantial
portion of the assets of the issuer, the guarantor and such persons may be
located outside of Canada and, as a result, it may not be possible to satisfy a
judgment against the issuer, the guarantor or such persons in Canada or to
enforce a judgment obtained in Canadian courts against such issuer, guarantor or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Notes to whom the SECURITIES ACT (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any Notes acquired
by such purchaser pursuant to this offering. Such report must be in the form
attached to a British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from Northwest. Only one such report must be filed
in respect of Notes acquired on the same date and under the same prospectus
exemption.
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TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Notes should consult their own legal and tax advisers
with respect to the tax consequences of an investment in the Notes in their
particular circumstances and with respect to the eligibility of the Notes for
investment by the purchaser under relevant Canadian legislation.
LEGAL OPINIONS
The validity of the Notes offered hereby will be passed upon for NWA Corp.
and Northwest by Simpson Thacher & Bartlett, New York, New York and for the
underwriter by Shearman & Sterling, New York, New York. In rendering its
opinion, Simpson Thacher & Bartlett will rely as to matters of Minnesota law on
an opinion from the Office of the General Counsel of NWA Corp. and Northwest.
EXPERTS
Ernst & Young LLP, independent auditors, have audited NWA Corp.'s
consolidated financial statements and schedule included in NWA Corp.'s Annual
Report on Form 10-K for the year ended December 31, 1998, as set forth in their
report, which is incorporated in the accompanying prospectus and this prospectus
supplement by reference. 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.
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<PAGE>
PROSPECTUS
$1,500,000,000
NORTHWEST AIRLINES, INC.
DEBT SECURITIES AND WARRANTS TO PURCHASE DEBT SECURITIES
-------------
PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST FULLY AND UNCONDITIONALLY
GUARANTEED BY
NORTHWEST AIRLINES CORPORATION
Northwest Airlines, Inc. ("Northwest") may from time to time offer, together
or separately, its debt securities, consisting of debentures, notes and/or other
evidences of indebtedness representing unsecured obligations of Northwest (the
"Debt Securities"), and warrants (the "Warrants") to purchase Debt Securities
(collectively, the "Securities"), in amounts, at prices and on terms to be
determined at the time of offering. The Debt Securities offered pursuant to this
Prospectus may be issued as unsecured and unsubordinated Debt Securities
("Senior Debt Securities") or as unsecured and subordinated Debt Securities
("Senior Subordinated Debt Securities"), in one or more series and, together
with any Warrants, will be limited to $1,500,000,000 aggregate public offering
price and exercise price (or its equivalent (based on the applicable exchange
rate at the time of sale) in one or more foreign currencies or currency units).
The specific terms of the particular Securities in respect of which this
Prospectus is being delivered (the "Offered Securities") will be set forth in a
supplement to this Prospectus (the "Prospectus Supplement") which will be
delivered together with this Prospectus, including, where applicable, in the
case of Debt Securities, the specific designation (including whether the Offered
Securities are Senior Debt Securities or Senior Subordinated Debt Securities),
aggregate principal amount, the denomination, maturity, premium, if any, the
rate (which may be fixed or variable), time and method of calculating payments
of interest, if any, the place or places where principal of, premium, if any,
and interest, if any, on such Debt Securities will be payable, the currency in
which principal of, premium, if any, and interest, if any, on such Debt
Securities will be payable, any terms of redemption at the option of Northwest
or the holder, any sinking fund provisions, the initial public offering price
and other special terms and, in the case of Warrants, the specific designation,
aggregate number, duration, initial public offering price, exercise price,
currency in which the exercise price is payable, detachability of any Warrants,
description of the Debt Securities for which such Warrants are exercisable,
terms of any mandatory or optional call and other special terms, together with
any other terms in connection with the offering and sale of the Offered
Securities, and the net proceeds to Northwest from such offering. This
Prospectus, together with the Prospectus Supplement relating to any Warrants
that have been issued, may also be delivered in connection with the issuance of
the Debt Securities for which such Warrants are exercised.
The Securities may be denominated in United States dollars or, at the option
of Northwest if so specified in the applicable Prospectus Supplement, in one or
more foreign currencies or currency units. The Debt Securities may be issued in
registered form or bearer form, or both. If so specified in the applicable
Prospectus Supplement, Debt Securities of a series may be issued in whole or in
part in the form of one or more temporary or permanent global securities.
The Senior Debt Securities will rank on a parity with all unsecured and
unsubordinated indebtedness of Northwest, and the Senior Subordinated Debt
Securities will be subordinated in right of payment to all Senior Indebtedness
(as hereinafter defined). See "Description of Securities--Subordination of
Senior Subordinated Debt Securities." The Senior Debt Securities and the Senior
Subordinated Debt Securities will be fully and unconditionally guaranteed (the
"Parent Guaranty") by Northwest Airlines Corporation ("NWA Corp." and, together
with its subsidiaries, the "Company"), the indirect parent of Northwest, on a
senior basis and a senior subordinated basis, respectively.
As of December 31, 1997, Northwest had $2,099.2 million of long-term debt
and capital lease obligations which would rank PARI PASSU in right of payment
with the Senior Debt Securities, of which $1,587.4 million was secured by
Northwest's assets and no long-term debt or capital lease obligations which
would rank senior in right of payment to the Senior Debt Securities. As of the
same date, Northwest had no long-term debt or capital lease obligations which
would rank PARI PASSU in right of payment with the Senior Subordinated Debt
Securities and $2,099.2 million of long-term debt and capital lease obligations
which would rank senior in right of payment to the Senior Subordinated Debt
Securities, of which $1,587.4 million was secured by Northwest's assets. As of
the same date, NWA Corp. had $729.8 million of long-term debt obligations
(consisting entirely of NWA Corp.'s guarantees of the indebtedness of
subsidiaries) which would rank PARI PASSU in right of payment with the Parent
Guaranty of the Senior Debt Securities, none of which was secured by NWA Corp.'s
assets, and which would rank prior in right of payment to the Parent Guaranty of
the Senior Subordinated Debt Securities. As of such date, NWA Corp. had no
obligations which would rank senior in right of payment to the Parent Guaranty
of the Senior Debt Securities and no obligations which would rank PARI PASSU in
right of payment with the Parent Guaranty of the Senior Subordinated Debt
Securities.
------------------
Northwest may sell the Securities 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 Offered Securities 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.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF DEBT SECURITIES OR
WARRANTS 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 Securities
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 securities being issued by Northwest under this prospectus are fully
and unconditionally guaranteed by NWA Corp. and such financial statements are
therefore 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;
(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 Securities offered hereby shall be deemed
to be incorporated by reference into this Prospectus and to be a part hereof
from the respective dates of filing of such documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. The Exchange Act file number is 0-23642.
NWA Corp. will provide without charge to any person to whom a copy of this
Prospectus has been delivered, upon written or oral request, a copy of any or
all of the foregoing documents incorporated herein by reference (other than
exhibits to such documents). 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.
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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.
USE OF PROCEEDS
Unless otherwise indicated in the applicable Prospectus Supplement, the net
proceeds to Northwest from the sale of the Securities offered hereby will be
added to the working capital of Northwest and will be available for general
corporate purposes, among which may be the repayment of outstanding indebtedness
and financing of capital expenditures. The Company does not currently expect to
discharge any such indebtedness or finance any such capital expenditures with
the proceeds of the sale of Securities offered hereby.
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.
DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities are to be issued under an Indenture, dated as of
March 1, 1997, among Northwest, as issuer, NWA Corp., as guarantor, and State
Street Bank and Trust Company, as Trustee (the "Senior Indenture"). The Senior
Subordinated Debt Securities are to be issued under an Indenture, dated as of
July 1, 1995, among Northwest, as issuer, NWA Corp., as guarantor, and State
Street Bank & Trust Company, as Trustee (the "Subordinated Indenture"). The
Senior Indenture and the Subordinated Indenture are referred to herein
individually as an "Indenture" and collectively as the "Indentures." A
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copy of the form of each Indenture is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
A series of Debt Securities may be offered contemporaneously with an
offering of Warrants to purchase an additional portion of such or another series
of Debt Securities. Warrants to purchase a series of Debt Securities may also be
offered independently of any offering of Debt Securities. See "Description of
Warrants." The statements herein relating to the Debt Securities and the
Indentures are summaries and reference is made to the detailed provisions of the
Indentures, including the definitions therein of certain terms capitalized in
this Prospectus. Where no distinction is made between the Senior Debt Securities
and the Senior Subordinated Debt Securities or between the Senior Indenture and
the Subordinated Indenture, such summaries refer to any Debt Securities and
either Indenture. Whenever particular defined terms of the Indentures are
referred to herein or in a Prospectus Supplement, such defined terms are
incorporated herein or therein by reference.
The anticipated market for the Debt Securities and the specific use of
proceeds of an offering of such securities will be set forth in the applicable
Prospectus Supplement.
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
The Indentures do not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and provide that Debt Securities may
be issued from time to time in one or more series. The Senior Debt Securities
will be unsecured and unsubordinated obligations of Northwest and will rank on a
parity with all other unsecured and unsubordinated indebtedness of Northwest.
The Senior Subordinated Debt Securities will be unsecured obligations of
Northwest and, as set forth below under "Subordination of Senior Subordinated
Debt Securities," will be subordinated in right of payment to all Senior
Indebtedness of Northwest.
Reference is made to the Prospectus Supplement which accompanies this
Prospectus for a description of the specific series of Debt Securities being
offered thereby or, if Warrants are being offered thereby, the Debt Securities
to be issued upon exercise of such Warrants, including: (1) the specific
designation of such Debt Securities, including whether the Debt Securities are
Senior Debt Securities or Senior Subordinated Debt Securities; (2) any limit
upon the aggregate principal amount of such Debt Securities; (3) the date or
dates on which the principal of such Debt Securities will mature or the method
of determining such date or dates; (4) the rate or rates (which may be fixed or
variable) at which such Debt Securities will bear interest, if any, or the
method of calculating such rate or rates; (5) the date or dates from which
interest, if any, will accrue or the method by which such date or dates will be
determined; (6) the date or dates on which interest, if any, will be payable and
the record date or dates therefor; (7) the place or places where principal of,
premium, if any, and interest, if any, on such Debt Securities will be payable;
(8) the period or periods within which, the price or prices at which, the
currency or currencies (including currency units) in which, and the terms and
conditions upon which, such Debt Securities may be redeemed, in whole or in
part, at the option of Northwest; (9) the obligation, if any, of Northwest to
redeem or purchase such Debt Securities pursuant to any sinking fund or
analogous provisions, upon the happening of specified events, or at the option
of a holder thereof and the period or periods within which, the price or prices
at which and the terms and conditions upon which, such Debt Securities shall be
redeemed or purchased, in whole or in part, pursuant to such obligations; (10)
the denominations in which such Debt Securities are authorized to be issued;
(11) the currency or currency units for which Debt Securities may be purchased
or in which Debt Securities may be denominated and/or the currency or currency
units in which principal of, premium, if any, and/or interest, if any, on such
Debt Securities will be payable or redeemable and whether Northwest or the
holders of any such Debt Securities may elect to receive payments in respect of
such Debt Securities in a currency or currency units other than that in which
such Debt Securities are stated to be payable or
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<PAGE>
redeemable; (12) if other than the principal amount thereof, the portion of the
principal amount of such Debt Securities which will be payable upon declaration
of the acceleration of the maturity thereof or the method by which such portion
shall be determined; (13) the person to whom any interest on any such Debt
Security shall be payable if other than the person in whose name such Debt
Security is registered on the applicable record date; (14) any addition to, or
modification or deletion of, any Event of Default or any covenant of Northwest
or NWA Corp. specified in the Indenture with respect to such Debt Securities;
(15) the application, if any, of such means of defeasance or covenant defeasance
as may be specified for such Debt Securities and coupons; (16) whether such Debt
Securities are to be issued in whole or in part in the form of one or more
temporary or permanent global securities and, if so, the identity of the
depositary for such global security or securities; (17) the terms and conditions
relating to Warrants issued by Northwest in connection with or for the purchase
of such Debt Securities; (18) any index used to determine the amount of payments
of principal of (and premium, if any) and interest, if any, on such Debt
Securities; (19) any provisions relating to the exchange of such Debt
Securities; and (20) any other special terms pertaining to such Debt Securities.
Unless otherwise specified in the applicable Prospectus Supplement, the Debt
Securities will not be listed on any securities exchange.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities will be issued in fully registered form without coupons. Where Debt
Securities of any series are issued in bearer form, the special restrictions and
considerations, including special offering restrictions and special Federal
income tax considerations, applicable to any such Debt Securities and to payment
on and transfer and exchange of such Debt Securities will be described in the
applicable Prospectus Supplement. Bearer Debt Securities will be transferable by
delivery.
Debt Securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate which at the time of
issuance is below market rates. Certain Federal income tax consequences and
special considerations applicable to any such Debt Securities will be described
in the applicable Prospectus Supplement.
If the purchase price of any Debt Securities is payable in one or more
foreign currencies or currency units or if any Debt Securities are denominated
in one or more foreign currencies or currency units or if the principal of,
premium, if any, or interest, if any, on any Debt Securities is payable in one
or more foreign currencies or currency units, the restrictions, elections,
certain Federal income tax considerations, specific terms and other information
with respect to such issue of Debt Securities and such foreign currency or
currency units will be set forth in the applicable Prospectus Supplement.
DENOMINATIONS, PAYMENT, REGISTRATION, TRANSFER AND EXCHANGE
Registered Securities will be issuable in denominations of $1,000 and
integral multiples of $1,000, and Bearer Securities will be issuable in the
denomination of $5,000 or, in each case, in such other denominations and
currencies as may be in the terms of the Debt Securities of any particular
series. Unless otherwise provided in the applicable Prospectus Supplement,
payments in respect of the Debt Securities will be made, subject to any
applicable laws and regulations, in the designated currency at the office or
agency of Northwest maintained for that purpose as Northwest may designate from
time to time, except that, at the option of Northwest, interest payments, if
any, on Debt Securities in registered form may be made (i) by checks mailed by
the Trustee to the holders of Debt Securities entitled thereto at their
registered addresses or (ii) by wire transfer to an account maintained by the
Person entitled thereto as specified in the Register. Unless otherwise indicated
in an applicable Prospectus Supplement, payment of any installment of interest
on Debt Securities in registered form will be made to the Person in whose name
such Debt Security is registered at the close of business on the regular record
date for such interest.
Payment in respect of Debt Securities in bearer form will be payable in the
currency and in the manner designated in the applicable Prospectus Supplement,
subject to any applicable laws and regulations, at such paying agencies outside
the United States as Northwest may appoint from time to
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<PAGE>
time. The paying agents outside the United States, if any, initially appointed
by Northwest for a series of Debt Securities will be named in the applicable
Prospectus Supplement. Northwest may at any time designate additional Paying
Agents or rescind the designation of any paying agents, except that, if Debt
Securities of a series are issuable as Registered Securities, Northwest will be
required to maintain at least one paying agent in each Place of Payment for such
series and, if Debt Securities of a series are issuable as Bearer Securities,
Northwest will be required to maintain a Paying Agent in a Place of Payment
outside the United States where Debt Securities of such series and any coupons
appertaining thereto may be presented and surrendered for payment. Northwest
will have the right to require a holder of any Debt Security, in connection with
the payment of the principal of, premium, if any, and interest, if any, on such
Debt Security, to certify information to Northwest or, in the absence of such
certification, Northwest will be entitled to rely on any legal presumption to
enable Northwest to determine its duties and liabilities, if any, to deduct or
withhold taxes, assessments or governmental charges from such payment.
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities in registered form will be transferable or exchangeable at the agency
of Northwest maintained for such purpose as designated by Northwest from time to
time. Debt Securities may be transferred or exchanged without service charge,
other than any tax or other governmental charge imposed in connection therewith.
In the event of any redemption in part, Northwest shall not be required to
(i) issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days before any
selection of Debt Securities of that series to be redeemed and ending at the
close of business on (A) if Debt Securities of the series are issuable only as
Registered Securities, the day of mailing of the relevant notice of redemption
and (B) if Debt Securities of the series are issuable as Bearer Securities, the
day of the first publication of the relevant notice of redemption or, if Debt
Securities of the series are also issuable as Registered Securities and there is
no publication, the mailing of the relevant notice of redemption; (ii) register
the transfer of or exchange any Registered Securities, or portion thereof,
called for redemption or otherwise surrendered for repayment, except the
unredeemed or unrepaid portion of any Registered Security being redeemed or
repaid in part; or (iii) exchange any Bearer Security called for redemption,
except to exchange such Bearer Security for a Registered Security of that series
and like tenor which is immediately surrendered for redemption.
SUBORDINATION OF SENIOR SUBORDINATED DEBT SECURITIES
The obligation of Northwest to make payment on account of the principal of,
premium, if any, and interest, if any, on the Senior Subordinated Debt
Securities will be subordinated and junior in right of payment, as set forth in
the Subordinated Indenture, to the prior payment in full of all Senior
Indebtedness of Northwest. The Senior Subordinated Debt Securities will rank
PARI PASSU with any future Indebtedness of Northwest which by its terms states
that it will rank PARI PASSU with the Senior Subordinated Debt Securities. The
Senior Subordinated Debt Securities will rank senior to all other existing and
future subordinated Indebtedness or other subordinated obligations of Northwest.
Notwithstanding the foregoing, payment from the money or the proceeds of U.S.
Government Obligations held in any defeasance trust described under "Defeasance"
below is not subordinate to any Senior Indebtedness or subject to the
restrictions described herein.
"Senior Indebtedness" of Northwest means all Indebtedness of Northwest
(other than the Senior Subordinated Debt Securities) unless such Indebtedness,
by its terms or the terms of the instrument creating or evidencing it, is
subordinate in right of payment to or PARI PASSU with the Senior Subordinated
Debt Securities; PROVIDED, HOWEVER, that such Senior Indebtedness does not
include (x) any Indebtedness, guarantee or other obligation of Northwest that is
subordinate or junior in any respect to any other Indebtedness of Northwest or
(y) any Indebtedness of Northwest to any of its Subsidiaries or to any Person of
which Northwest is a Subsidiary. "Indebtedness" of any Person means, without
duplication, the principal of, premium, if any, and accrued and unpaid interest
(including post-petition interest, whether or not allowable as a claim in
bankruptcy) on (i) indebtedness of such Person for money borrowed, (ii)
guarantees
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<PAGE>
by such Person of indebtedness for money borrowed by any other Person, (iii)
indebtedness of such Person evidenced by notes, debentures, bonds or other
instruments of indebtedness for payment of which such Person is responsible or
liable, (iv) obligations for the reimbursement of any obligor on any letter of
credit, bankers' acceptance or similar credit transaction, (v) obligations of
such Person under Capital Leases and Flight Equipment leases, (vi) obligations
under interest rate and currency swaps, caps, collars options, forward or spot
contracts or similar arrangements or with respect to foreign currency hedges or
aircraft fuel hedges, (vii) commitment and other bank financing fees under
contractual obligations associated with bank debt, (viii) any indebtedness
representing the deferred and unpaid purchase price of any property or business,
and (ix) all deferrals, renewals, extensions and refundings of any such
indebtedness or obligations; PROVIDED, HOWEVER, that Indebtedness shall not
include amounts owed to trade creditors in the ordinary course of business,
nonrecourse indebtedness secured by real property located outside the United
States or operating lease rental payments (other than Flight Equipment lease
rental payments) in the ordinary course of business.
No payment on account of principal of, premium, if any, or interest on the
Senior Subordinated Debt Securities or deposit pursuant to the provisions
described under "Defeasance" below may be made if (i) any Senior Indebtedness is
not paid when due (following the expiration of any applicable grace period) or
(ii) any other default on Senior Indebtedness occurs and the maturity of any
Senior Indebtedness is accelerated in accordance with its terms unless, in
either case, (a) such failure to pay or acceleration relates to Senior
Indebtedness in an aggregate amount equal to or less than $20 million, (b) the
default has been cured or waived or has ceased to exist, (c) such acceleration
has been rescinded, or (d) such Senior Indebtedness has been paid in full. A
failure to make any payment with respect to the Senior Subordinated Debt
Securities as a result of the foregoing provisions will not limit the right of
the holders of the Senior Subordinated Debt Securities to accelerate the
maturity thereof as a result of such payment default.
Upon any distribution of the assets of Northwest upon any dissolution, total
or partial liquidation or reorganization of or similar proceeding relating to
Northwest, the holders of Senior Indebtedness will be entitled to receive
payment in full before the holders of the Senior Subordinated Debt Securities
are entitled to receive any payment. By reason of such subordination, in the
event of insolvency, creditors of Northwest who are holders of Senior
Indebtedness or of other unsubordinated Indebtedness may recover more, ratably,
than the holders of the Senior Subordinated Debt Securities.
THE PARENT GUARANTY
NWA Corp. will unconditionally guarantee, pursuant to Indentures, the due
and punctual payment of the principal of, premium, if any, and interest on the
Debt Securities when the same shall become due, whether by acceleration or
otherwise. The Parent Guaranty will be enforceable without any need first to
enforce Debt Securities against Northwest. The Parent Guaranty of the Senior
Subordinated Debt Securities will be subordinated and junior in right of
payment, as set forth in the Senior Subordinated Debt Securities Indenture, to
the prior payment in full of all Senior Indebtedness of NWA Corp. The terms of
such subordination will parallel the subordination terms applicable to the
Senior Subordinated Debt Securities as set forth above under "Subordination of
Senior Subordinated Debt Securities," except that, for purposes of the Parent
Guaranty, Senior Indebtedness of NWA Corp. means all Indebtedness of NWA Corp.
(other than the Parent Guaranty) unless such Indebtedness, by its terms or by
the terms of the instrument creating or evidencing it, is subordinate in right
of payment to or PARI PASSU with the Parent Guaranty; PROVIDED, HOWEVER, that
such Senior Indebtedness does not include any Indebtedness of NWA Corp. to any
of its subsidiaries. The Parent Guaranty of the Senior Subordinated Debt
Securities will rank PARI PASSU with any future Indebtedness of NWA Corp. which
by its terms states that it will rank PARI PASSU with the Parent Guaranty of the
Senior Subordinated Debt Securities. The Parent Guaranty of the Senior
Subordinated Debt Securities will rank senior to all other existing and future
subordinated Indebtedness or other subordinated obligations of NWA Corp.
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GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more fully registered global securities (a "Registered Global
Security") that will be deposited with a depositary (the "Depositary") or with a
nominee for the Depositary identified in the applicable Prospectus Supplement.
In such a case, one or more Registered Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding Debt Securities of the series to be represented
by such Registered Global Security or Securities. Unless and until it is
exchanged in whole or in part for Debt Securities in definitive certificated
form, a Registered Global Security may not be registered for transfer or
exchange except as a whole by the Depositary for such Registered Global Security
to a nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary or by such Depositary or any
such nominee to a successor Depositary for such series or a nominee of such
successor Depositary and except in the circumstances described in the applicable
Prospectus Supplement.
The specific terms of the depositary arrangement with respect to any portion
of a series of Debt Securities to be represented by a Registered Global Security
will be described in the applicable Prospectus Supplement. Northwest expects
that the following provisions will apply to depositary arrangements.
Upon the issuance of any Registered Global Security, and the deposit of such
Registered Global Security with or on behalf of the Depositary for such
Registered Global Security, the Depositary will credit, on its book-entry
registration and transfer system, the respective principal amounts of the Debt
Securities represented by such Registered Global Security to the accounts of
institutions ("participants") that have accounts with the Depositary or its
nominee. The accounts to be credited will be designated by the underwriters or
agents engaging in the distribution of such Debt Securities or by Northwest, if
such Debt Securities are offered and sold directly by Northwest. Ownership of
beneficial interests in a Registered Global Security will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests by participants in such Registered Global Security will
be shown on, and the transfer of that ownership interest will be effected only
through, records maintained by the Depositary for such Registered Global
Security or by its nominee. Ownership of beneficial interests in such Registered
Global Security by persons that hold through participants will be shown on, and
the transfer of that ownership interest within such participant will be effected
only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. The foregoing limitations and
such laws may impair the ability to transfer beneficial interests in such
Registered Global Securities.
So long as the Depositary for a Registered Global Security, or its nominee,
is the registered owner of such Registered Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder of
the Debt Securities represented by such Registered Global Security for all
purposes under the Indentures. Unless otherwise specified in the applicable
Prospectus Supplement and except as specified below, owners of beneficial
interests in such Registered Global Security will not be entitled to have Debt
Securities of the series represented by such Registered Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of Debt Securities of such series in certificated form and will not be
considered the holders thereof for any purposes under the Indentures.
Accordingly, each person owning a beneficial interest in such Registered Global
Security must rely on the procedures of the Depositary and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interest, to exercise any rights of a holder under the
Indentures. The Depositary may grant proxies and otherwise authorize
participants to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action which a holder is entitled to give or
take under the Indentures. Northwest understands that, under existing industry
practices, if Northwest requests any action of holders or an owner of a
beneficial interest in which Registered Global Security desires to give any
notice or take any action a holder is entitled to give or take under the
Indentures, the Depositary would authorize the participants to give such notice
or take such action, and participants would authorize
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<PAGE>
beneficial owners owning through such participants to give such notice or take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
Unless otherwise specified in the applicable Prospectus Supplement, payments
with respect to principal, premium, if any, and interest, if any, on Debt
Securities represented by a Registered Global Security registered in the name of
a Depositary or its nominee will be made to such Depositary or its nominee, as
the case may be, as the registered owner of such Registered Global Security.
Northwest expects that the Depositary for any Debt Securities represented by
a Registered Global Security, upon receipt of any payment of principal, premium
or interest, will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Registered Global Security as shown on the records of such
Depositary. Northwest also expects that payments by participants to owners of
beneficial interests in such Registered Global Security held through such
participants will be governed by standing instructions and customary practices,
as is now the case with the securities held for the accounts of customers
registered in "street names," and will be the responsibility of such
participants. None of Northwest, NWA Corp., the Trustee or any agent of
Northwest shall have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Registered Global Security, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Unless otherwise specified in the applicable Prospectus Supplement, if the
Depositary for any Debt Securities represented by a Registered Global Security
is at any time unwilling or unable to continue as Depositary and a successor
Depositary is not appointed by Northwest within ninety days, Northwest will
issue such Debt Securities in definitive certificated form in exchange for such
Registered Global Security. In addition, Northwest may at any time and in its
sole discretion determine not to have any of the Debt Securities of a series
represented by one or more Registered Global Securities and, in such event, will
issue Debt Securities of such series in definitive certificated form in exchange
for all of the Registered Global Securities representing such Debt Securities.
Further, if Northwest so specifies with respect to the Debt Securities of a
series, an owner of a beneficial interest in a Registered Global Security
representing Debt Securities of such series may, on terms acceptable to
Northwest and the Depositary for such Registered Global Security, receive Debt
Securities of such series in definitive form registered in the name of such
beneficial owner or its designee.
CONSOLIDATION, MERGER OR SALE BY NORTHWEST OR NWA CORP.
Each Indenture provides that neither Northwest nor NWA Corp. may merge or
consolidate with or into any other corporation or sell, convey, transfer, lease
or otherwise dispose of all or substantially all of its assets to any Person,
unless (i) (a) in the case of a merger or consolidation, Northwest or NWA Corp.
is the surviving corporation, as the case may be, or (b) in the case of a merger
or consolidation where Northwest or NWA Corp. is not the surviving corporation
and in the case of such a sale, conveyance or other disposition, the resulting,
successor or acquiring Person is a corporation organized and existing under the
laws of the United States of America or a State thereof or the District of
Columbia and such corporation expressly assumes by supplemental indenture all
the obligations of Northwest under the Debt Securities and any coupons
appertaining thereto (or of NWA Corp. under the Parent Guaranty, as the case may
be) and the obligations of Northwest or NWA Corp., as the case may be, under the
Indentures, (ii) immediately after giving effect to such merger or
consolidation, or such sale, conveyance, transfer, lease or other disposition
(including, without limitation, any Debt directly or indirectly incurred or
anticipated to be incurred in connection with or in respect of such
transaction), no Default or Event of Default shall have occurred and be
continuing and (iii) certain other conditions are met. In the event a successor
corporation assumes the obligations of Northwest or NWA Corp., as the case may
be, such successor corporation shall succeed to and be substituted for Northwest
or NWA Corp. as the case may be, under the Indentures and under the Debt
Securities and any coupons appertaining thereto and all obligations of Northwest
or NWA Corp., as the case may be, shall terminate. In the event of any such
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permitted consolidation, merger, sale, conveyance, disposition or other change
of control transaction (including a highly leveraged transaction), the holders
of the Debt Securities will not have the right to require redemption thereof or
similar rights unless otherwise provided in the applicable Prospectus
Supplement.
EVENTS OF DEFAULT, NOTICE AND CERTAIN RIGHTS ON DEFAULT
Events of Default with respect to Debt Securities of any series issued
thereunder are defined in the Indentures as being: default for thirty days in
payment of any interest on any Debt Security of that series or any coupon
appertaining thereto or any additional amount payable with respect to Debt
Securities of such series as specified in the applicable Prospectus Supplement
when due; default in payment of principal, premium, if any, or on redemption or
otherwise, or in the making of a mandatory sinking fund payment of any Debt
Securities of that series when due; default for sixty days after notice to
Northwest and NWA Corp. by the Trustee, or to Northwest, NWA Corp. and the
Trustee by the holders of 25% in aggregate principal amount of the Debt
Securities of such series then outstanding, in the performance of any other
agreement applicable to the Debt Securities of that series, in the Indenture or
in any supplemental indenture or board resolution referred to therein under
which the Debt Securities of that series may have been issued; and certain
events of bankruptcy, insolvency or reorganization of Northwest or NWA Corp. Any
other Events of Default applicable to a specified series of Debt Securities will
be described in the applicable Prospectus Supplement. An Event of Default with
respect to a particular series of Debt Securities will not necessarily be an
Event of Default with respect to any other series of Debt Securities.
The Indentures provide that, if an Event of Default specified therein occurs
with respect to the Debt Securities of any series issued thereunder and is
continuing, the Trustee for such series or the holders of 25% in aggregate
principal amount of all of the outstanding Debt Securities of that series, by
written notice to Northwest and NWA Corp. (and to the Trustee for such series,
if notice is given by such holders of Debt Securities), may declare the
principal (or, if the Debt Securities of that series are original issue discount
Debt Securities or indexed Debt Securities, such portion of the principal amount
specified in the applicable Prospectus Supplement) of all the Debt Securities of
that series to be due and payable.
The Indentures provide that the Trustee for any series of Debt Securities
shall, within ninety days after the occurrence of a Default known to it with
respect to Debt Securities of that series, give to the holders of the Debt
Securities of that series notice of all such uncured Defaults; PROVIDED, that
such notice shall not be given until 60 days after the occurrence of a Default
with respect to Debt Securities of that series involving a failure to perform a
covenant other than the obligation to pay principal, premium, if any, or
interest or make a mandatory sinking fund payment; and PROVIDED FURTHER, that,
except in the case of default in payment on the Debt Securities of that series,
the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers (as defined therein) in good faith determines that
withholding such notice is in the interest of the holders of the Debt Securities
of that series. "Default" means any event which is, or, after notice or passage
of time or both, would be, an Event of Default.
The Indentures provide that the Trustee will be under no obligation to
exercise any of its rights or powers under such Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered to the
Trustee reasonable indemnity. Subject to such provisions for indemnification of
the Trustee, the Indentures provide that the holders of not less than a majority
in aggregate principal amount of the Debt Securities of each series affected
(with each such series voting as a class) may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee for such
series, or exercising any trust or power conferred on such Trustee.
The Indentures include a covenant that Northwest will file annually with the
Trustee a certificate as to Northwest's compliance with all conditions and
covenants of the applicable Indenture.
The holders of not less than a majority in aggregate principal amount of any
series of Debt Securities by notice to the Trustee for such series may waive, on
behalf of the holders of all Debt Securities of such series, any past Default or
Event of Default with respect to that series and its consequences, and may
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rescind and annul a declaration of acceleration with respect to that series
(unless a judgment or decree based on such acceleration has been obtained and
entered), except a Default or Event of Default in the payment of the principal
of, premium, if any, or interest, if any, on any Debt Security (and any
acceleration resulting therefrom) and certain other defaults.
MODIFICATION OF THE INDENTURES
The Indentures contain provisions permitting Northwest, NWA Corp. and the
Trustee to enter into one or more supplemental indentures without the consent of
the holders of any of the Debt Securities in order (i) to evidence the
succession of another corporation to Northwest or NWA Corp. and the assumption
of the covenants of Northwest or NWA Corp. by a successor; (ii) to add to the
covenants of Northwest or NWA Corp. or surrender any right or power of Northwest
or NWA Corp. and to make the occurrence, or the occurrence and continuance, of a
default in any of such additional covenants, restrictions or conditions a
Default or an Event of Default permitting the enforcement of all or any of the
several remedies provided in this Indenture as herein set forth; provided,
however, that in respect of any such additional covenant, restriction or
condition such supplemental indenture may provide for a particular period of
grace after default (which period may be shorter or longer than that allowed in
the case of other defaults) or may provided for an immediate enforcement upon
such default or may limit the remedies available to the Trustee upon such
default; (iii) to add additional Events of Default with respect to any series;
(iv) to add or change any provisions to such extent as necessary to permit or
facilitate the issuance of Debt Securities in bearer form or in global form; (v)
under certain circumstances to add to, change or eliminate any provision
affecting Debt Securities not yet issued; (vi) to secure the Debt Securities;
(vii) to add to the conditions, limitations and restrictions on the authorized
amount, terms or purposes of issue, authentication and delivery of Securities,
as herein set forth, other conditions, limitations and restrictions thereafter
to be observed; (viii) to establish the form or terms of Debt Securities; (ix)
to evidence and provide for successor Trustees; (x) if allowed without penalty
under applicable laws and regulations, to permit payment in respect of Debt
Securities in bearer form in the United States; (xi) to correct or supplement
any inconsistent provisions or to make any other provisions with respect to
matters or questions arising under the Indentures, PROVIDED that such action
does not adversely affect the interests of any holder of Debt Securities of any
series issued under such Indentures in any material respect; (xii) to cure any
ambiguity or correct any mistake; or (xiii) to supplement any of the provisions
of the Indentures to such extent as shall be necessary to permit or facilitate
the defeasance and discharge of any series of Debt Security; provided that any
such action shall not adversely affect the interests of the Holders of any such
series or any other series of Debt Securities or any related coupons in any
material respect.
The Indentures also contain provisions permitting Northwest, NWA Corp. and
the Trustee, with the consent of the holders of a majority in aggregate
principal amount of the outstanding Debt Securities of each series affected by
such supplemental indenture, to execute supplemental indentures adding any
provisions to or changing or eliminating any of the provisions of the Indentures
or any supplemental indenture or modifying the rights of the holders of Debt
Securities of such series, except that no such supplemental indenture may,
without the consent of the holder of each Debt Security so affected, (i) change
the time for payment of principal or interest on any Debt Security; (ii) reduce
the principal of, or any installment of principal of, or interest on any Debt
Security; (iii) reduce the amount of premium, if any, payable upon the
redemption of any Debt Security; (iv) reduce the amount of principal payable
upon acceleration of the maturity of an Original Issue Discount Debt Security;
(v) change the coin or currency in which any Debt Security or any premium or
interest thereon is payable; (vi) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security; (vii) reduce
the percentage in principal amount of the outstanding Debt Securities of any
series the consent of whose holders is required for modification or amendment of
the Indentures or for waiver of compliance with certain provisions of the
Indentures or for waiver of certain defaults; (viii) change the obligation of
Northwest to maintain an office or agency in the places and for the purposes
specified in the Indentures;
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(ix) modify the obligations of NWA Corp. to make payment under the Parent
Guaranty; or (x) modify any of the foregoing provisions.
DEFEASANCE
If indicated in the applicable Prospectus Supplement, Northwest may elect
either (i) to defease and be discharged from any and all obligations with
respect to the Debt Securities of or within any series (except as described
below) ("defeasance") or (ii) to be released from its obligations with respect
to certain covenants applicable to the Debt Securities of or within any series
("covenant defeasance"), upon the deposit with the Trustee for such series (or
other qualifying trustee), in trust for such purpose, of money and/or Government
Obligations which through the payment of principal and interest in accordance
with their terms will provide money in the amount sufficient to pay the
principal of, premium, if any, and interest on such Debt Securities to Maturity
or redemption, as the case may be, and any mandatory sinking fund or analogous
payments thereon. Upon the occurrence of a defeasance, Northwest will be deemed
to have paid and discharged the entire indebtedness represented by such Debt
Securities and any coupons appertaining thereto and to have satisfied all of its
other obligations under such Debt Securities and any coupons appertaining
thereto (except for (i) the rights of holders of such Debt Securities to
receive, solely from the trust funds deposited to defease such Debt Securities,
payments in respect of the principal of, premium, if any, and interest, if any,
on such Debt Securities or any coupons appertaining thereto when such payments
are due and (ii) certain other obligations as provided in the Indentures). Upon
the occurrence of a covenant defeasance, Northwest will be released only from
its obligations to comply with certain covenants contained in the Indenture
relating to such Debt Securities, will continue to be obligated in all other
respects under such Debt Securities and will continue to be contingently liable
with respect to the payment of principal, interest, if any, and premium, if any,
with respect to such Debt Securities.
Unless otherwise specified in the applicable Prospectus Supplement and
except as described below, the conditions to both defeasance and covenant
defeasance are as follows: (i) such defeasance or covenant defeasance must not
result in a breach or violation of, or constitute a Default or Event of Default
under, the applicable Indenture, or result in a breach or violation of, or
constitute a default under, any other material agreement or instrument of
Northwest or NWA Corp.; (ii) certain bankruptcy related Defaults or Events of
Default with respect to Northwest or NWA Corp. must not have occurred and be
continuing during the period commencing on the date of the deposit of the trust
funds to defease such Debt Securities and ending on the 91st day after such
date; (iii) Northwest must deliver to the Trustee an Opinion of Counsel to the
effect that the holders of such Debt Securities will not recognize income, gain
or loss for Federal income tax purposes as a result of such defeasance or
covenant defeasance and will be subject to Federal income tax on the same
amounts and in the same manner and at all the same times as would have been the
case if such defeasance or covenant defeasance had not occurred (such Opinion of
Counsel, in the case of defeasance, must refer to and be based upon a ruling of
the Internal Revenue Service or a change in applicable Federal income tax law
occurring after the date of the Indentures); (iv) Northwest must deliver to the
Trustee an Officers' Certificate and an Opinion of Counsel with respect to
compliance with the conditions precedent to such defeasance or covenant
defeasance and with respect to certain registration requirements under the
Investment Company Act of 1940, as amended; and (v) any additional conditions to
such defeasance or covenant defeasance which may be imposed on Northwest
pursuant to the applicable Indenture. The Indentures require that a nationally
recognized firm of independent public accountants deliver to the Trustee a
written certification as to the sufficiency of the trust funds deposited for the
defeasance or covenant defeasance of such Debt Securities. The Indentures do not
provide the holders of such Debt Securities with recourse against such firm. If
indicated in the applicable Prospectus Supplement, in addition to obligations of
the United States or an agency or instrumentality thereof, Government
Obligations may include obligations of the government or any agency or
instrumentality of the government issuing the currency in which Debt Securities
of such series are payable. In the event that Government Obligations deposited
with the Trustee for the defeasance of such Debt Securities decrease in value or
default subsequent to their being deposited, Northwest will have no further
obligation, and the
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holders of such Debt Securities will have no additional recourse against
Northwest, as a result of such decrease in value or default. As described above,
in the event of a covenant defeasance, Northwest remains contingently liable
with respect to the payment of principal, interest, if any, and premium, if any,
with respect to the Debt Securities.
Northwest may exercise its defeasance option with respect to such Debt
Securities notwithstanding its prior exercise of its covenant defeasance option.
If Northwest exercises its defeasance option, payment of such Debt Securities
may not be accelerated because of a Default or an Event of Default. If Northwest
exercises its covenant defeasance option, payment of such Debt Securities may
not be accelerated by reason of a Default or an Event of Default with respect to
the covenants to which such covenant defeasance is applicable. However, if such
acceleration were to occur, the realizable value at the acceleration date of the
money and Government Obligations in the defeasance trust could be less than the
principal and interest then due on such Debt Securities, in that the required
deposit in the defeasance trust is based upon scheduled cash flow rather than
market value, which will vary depending upon interest rates and other factors.
The applicable Prospectus Supplement may further describe the provisions, if
any, applicable to defeasance or covenant defeasance with respect to Debt
Securities of a particular series.
THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indentures.
Northwest and NWA Corp. also maintain banking and other commercial relationships
with State Street Bank and Trust Company and its affiliates in the ordinary
course of business and State Street Bank and Trust Company acts as Trustee under
several other indentures for NWA Corp. and Northwest.
DESCRIPTION OF WARRANTS
Northwest may issue Warrants for the purchase of Debt Securities. Warrants
may be issued together with or separately from any Debt Securities offered by
any Prospectus Supplement and, if issued together with Debt Securities, may be
attached to or separate from such Debt Securities. The Warrants are to be issued
under one or more separate Warrant Agreements (a "Warrant Agreement") to be
entered into between Northwest and State Street Bank and Trust Company,
successor to The First National Bank of Boston, as Warrant Agent, all as set
forth in the Prospectus Supplement relating to the particular issue of Warrants.
The Warrant Agent will act solely as an agent of Northwest in connection with
the Warrants and will not assume any obligation or relationship of agency or
trust for or with any holders of Warrants or beneficial owners of Warrants. The
statements herein relating to the Warrants and the Warrant Agreements are
summaries and reference is made to the detailed provisions of the Warrant
Agreements. A form of Warrant Agreement for Warrants Sold Attached to Debt
Securities and a form of Warrant Agreement for Warrants Sold Alone have been
incorporated by reference as exhibits to the Registration Statement.
GENERAL
If Warrants are offered, reference is made to the applicable Prospectus
Supplement which accompanies this Prospectus for a description of the specific
terms of the Warrants being offered thereby, including (i) the specific
designation and aggregate number of such Warrants, (ii) the offering price and
the currency or composite currencies for which Warrants may be purchased, (iii)
the designation (including whether the Debt Securities are Senior Debt
Securities or Senior Subordinated Debt Securities), aggregate principal amount,
currency or composite currencies and terms of the Debt Securities purchasable
upon exercise of the Warrants, (iv) if applicable, the designation and terms of
the Debt Securities with which the Warrants are issued and the number of
Warrants issued with the minimum denomination of each such Debt Security, (v) if
applicable, the date on and after which the Warrants and the related Debt
Securities will be separately transferable, (vi) the principal amount of Debt
Securities purchasable upon exercise of
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one Warrant and the price or the manner of determining the price and currency or
composite currencies or other consideration (which may include Debt Securities)
for which such principal amount of Debt Securities may be purchased upon such
exercise, (vii) the date on which the right to exercise the Warrants shall
commence and the date on which such right shall expire (the "Expiration Date"),
(viii) the terms of any mandatory or optional redemption by Northwest, (ix)
certain Federal income tax consequences, (x) whether the certificates for
Warrants will be issued in registered or unregistered form, and (xi) any other
special terms pertaining to such Warrants. Unless otherwise specified in the
applicable Prospectus Supplement, the Warrants will not be listed on any
securities exchange.
Warrant certificates may be exchanged for new Warrant certificates of
different denominations, may (if in registered form) be presented for
registration of transfer and exchange and may be exercised at an office or
agency of the Warrant Agent maintained for that purpose (the "Warrant Agent
Office"). No service charge will be made for any transfer or exchange of Warrant
certificates, but Northwest may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. Prior to the
exercise of their Warrants, holders of Warrants will not have any of the rights
of holders of the Debt Securities purchasable upon such exercise, including the
right to receive payments of principal of, premium, if any, or interest, if any,
on the Debt Securities purchasable upon such exercise or to enforce covenants in
the Indenture.
The Warrant Agent will act solely as an agent of Northwest in connection
with the Warrants and will not assume any obligation or relationship of agency
or trust for or with any holders of Warrants or beneficial owners of Warrants.
EXERCISE OF WARRANTS
Each Warrant will entitle the holder to purchase such principal amount of
Debt Securities at such exercise price, for such consideration and during such
period or periods as shall in each case be set forth in, or calculable from, the
Prospectus Supplement relating to the Warrants. Warrants may be exercised at any
time during such period up to 5:00 P.M. New York City time on the Expiration
Date set forth in the Prospectus Supplement relating to such Warrants. After the
close of business on the Expiration Date (or such later date to which such
Expiration Date may be extended by Northwest), unexercised Warrants will become
void.
Warrants may be exercised by delivery to the Warrant Agent of payment as
provided in the applicable Prospectus Supplement of the amount required to
purchase the Debt Securities purchasable upon such exercise together with
certain information set forth on the reverse side of the Warrant certificate.
Unless otherwise provided in the applicable Prospectus Supplement, upon receipt
of such payment and the Warrant certificate properly completed and duly executed
at the Warrant Agent Office or any other office or agency indicated in the
applicable Prospectus Supplement, Northwest will, as soon as practicable, issue
and deliver the Debt Securities purchasable upon such exercise. If fewer than
all of the Warrants represented by such Warrant certificate are exercised, a new
Warrant certificate will be issued for the amount of unexercised Warrants.
MODIFICATION OF WARRANT AGREEMENTS
The Warrant Agreements contain a provision permitting Northwest and the
Warrant Agent, without the consent of any Warrantholder, to supplement or amend
the Warrant Agreement in order to cure any ambiguity, and to correct or
supplement any provision contained therein which may be defective or
inconsistent with any other provisions or to make other provisions in regard to
matters or questions arising thereunder which Northwest and the Warrant Agent
may deem necessary or desirable and which do not adversely affect the interests
of the Warrantholders.
WARRANT AGENT
State Street Bank and Trust Company will act as the Warrant Agent under the
Warrant Agreement. Northwest and NWA Corp. maintain banking and other commercial
relationships with State Street Bank and Trust Company and its affiliates in the
ordinary course of business.
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PLAN OF DISTRIBUTION
Northwest may sell Securities to one or more underwriters for public
offering and sale by them or may sell Securities 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 Offered Securities will be named
in an applicable Prospectus Supplement.
The Offered Securities 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 Offered Securities, including
Offered Securities not listed on any securities exchange. Northwest also may,
from time to time, authorize underwriters acting as Northwest's agents to offer
and sell the Offered Securities upon the terms and conditions as shall be set
forth in any Prospectus Supplement. In connection with the sale of Offered
Securities, 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 Offered Securities for whom they may act
as agent. Underwriters may sell Offered Securities 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 Offered Securities
in respect of which this Prospectus is delivered, Northwest will sell such
Offered Securities to the dealer, as principal. The dealer may then resell such
Offered Securities 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.
Offered Securities 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
Offered Securities 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 Offered Securities 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 Offered Securities, 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 Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in an applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Offered Securities 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., Northwest and NWA Corp.'s other subsidiaries in the
ordinary course of business.
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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 Offered
Securities from Northwest 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 Offered Securities 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 Offered Securities 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 Offered Securities pursuant to Contracts accepted by
Northwest. Agents and underwriters will have no responsibility in respect of the
delivery or performance of Contracts.
The Offered Securities may or may not be listed on a national securities
exchange or a foreign securities exchange. If an underwriter or underwriters are
utilized in the sale of any Offered Securities, 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
Offered Securities. No assurances can be given that there will be a market for
the Offered Securities.
The place and time of delivery for the Offered Securities in respect of
which this Prospectus is delivered will be set forth in the applicable
Prospectus Supplement. Debt Securities issuable upon exercise of Warrants will
be issued upon payment of the exercise price and otherwise in accordance with
the relevant terms applicable to such Warrants and described in the relevant
Prospectus Supplement.
LEGAL OPINIONS
Unless otherwise indicated in the applicable Prospectus Supplement, the
validity of the Debt Securities (and the Parent Guaranty) and Warrants offered
hereby will be passed upon for Northwest and NWA Corp. by Simpson Thacher &
Bartlett, New York, New York. In rendering such opinion, Simpson Thacher &
Bartlett will be relying as to matters of Minnesota law on an opinion from the
Office of the General Counsel of NWA Corp. and Northwest.
EXPERTS
The consolidated financial statements and schedule of NWA Corp. 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 for the year
ended December 31, 1997 of NWA Corp. 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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