<PAGE>
The information in this preliminary prospectus supplement is not complete and
may be changed. We may not sell these securities or accept offers to buy these
securities before this prospectus supplement is delivered in final form. This
preliminary prospectus supplement and the accompanying prospectus are not an
offer to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 4, 2000
PRELIMINARY PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JUNE 7, 1999
$499,501,910
[LOGO]
Northwest Airlines
2000-1 Pass Through Trusts
Pass Through Certificates, Series 2000-1
---------
Northwest Airlines, Inc. is issuing, through three separate trusts,
Class A, Class B and Class C Certificates, Series 2000-1. The proceeds from the
sale of certificates will be used to finance or refinance the acquisition by
Northwest Airlines, Inc. of 12 new Airbus A319-100 Aircraft scheduled for
delivery from May 2000 to June 2001 and 6 Boeing 757-200 Aircraft delivered new
to Northwest during 1996.
Interest on the certificates will be payable semiannually on each April 1
and October 1, beginning October 1, 2000. Principal payments in respect of the
certificates are scheduled on April 1 or October 1, or both, in certain years,
beginning on April 1, 2001.
The Class A certificates will rank senior in right of distributions to the
other certificates. The Class B certificates will rank junior in right of
distributions to the Class A certificates and will rank senior in right of
distributions to the Class C certificates. The Class C certificates will rank
junior in right of distributions to the other certificates.
Credit Suisse First Boston, New York branch will provide a liquidity
facility for each class of certificates, in each case in an amount sufficient to
make three semiannual interest payments.
The certificates represent interests in the assets of the pass through
trusts formed for this offering and do not represent interests in or obligations
of Northwest Airlines, Inc. or any of its affiliates.
Investing in the Certificates involves risks. See "Risk Factors" beginning
on page S-18.
<TABLE>
<CAPTION>
Principal Final Expected Price to
Pass Through Certificates Amount* Interest Rate Distribution Date* Public(1)(2)
- ------------------------- ------------- ------------- ------------------------ ------------
<S> <C> <C> <C> <C>
Class 2000-1A....................... $307,116,032 % October 1, 2019 100%
Class 2000-1B....................... 101,321,514 April 1, 2018 100
Class 2000-1C....................... 91,064,364 April 1, 2010 100
</TABLE>
- ------------------------
* Indicative only. Subject to change.
(1) Plus accrued interest, if any, from April , 2000.
(2) Northwest Airlines, Inc. will pay the underwriters a commission of $ .
Delivery of the certificates to purchasers in book-entry form only, will be
made on or about April , 2000. The certificates will not be listed on any
national securities exchange.
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 prospectus to which it relates is truthful or
complete. Any representation to the contrary is a criminal offense.
<TABLE>
<S> <C>
Credit Suisse First Boston
Morgan Stanley Dean Witter Salomon Smith Barney
Chase Securities Inc. U.S. Bancorp Piper Jaffray
</TABLE>
The Date of this Prospectus Supplement is April , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT PAGE
- --------------------- --------
<S> <C>
PRESENTATION OF INFORMATION................................. S-3
SUMMARY OF TERMS............................................ S-4
THE OFFERING................................................ S-8
RISK FACTORS................................................ S-18
THE COMPANY................................................. S-25
USE OF PROCEEDS............................................. S-30
DESCRIPTION OF THE CERTIFICATES............................. S-30
DESCRIPTION OF THE DEPOSIT AGREEMENTS....................... S-48
DESCRIPTION OF THE ESCROW AGREEMENTS........................ S-50
DESCRIPTION OF THE LIQUIDITY FACILITIES..................... S-50
DESCRIPTION OF THE INTERCREDITOR AGREEMENT.................. S-57
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS.............. S-63
DESCRIPTION OF THE EQUIPMENT NOTES.......................... S-66
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES................ S-85
CERTAIN CONNECTICUT TAXES................................... S-88
ERISA CONSIDERATIONS........................................ S-89
UNDERWRITING................................................ S-92
NOTICE TO CANADIAN RESIDENTS................................ S-93
LEGAL MATTERS............................................... S-94
EXPERTS..................................................... S-94
APPENDIX I--INDEX OF CERTAIN DEFINED TERMS
APPENDIX II--SUMMARY OF AIRCRAFT APPRAISALS
<CAPTION>
PROSPECTUS
- ----------
ABOUT THIS PROSPECTUS. 2
<S> <C>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 3
DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS.................................................. 3
THE COMPANY................................................. 4
GENERAL OUTLINE OF TRUST STRUCTURE.......................... 4
USE OF PROCEEDS............................................. 6
RATIO OF EARNINGS TO FIXED CHARGES.......................... 6
DESCRIPTION OF THE CERTIFICATES............................. 7
DESCRIPTION OF THE EQUIPMENT NOTES.......................... 20
UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES................................................ 25
ERISA CONSIDERATIONS........................................ 29
PLAN OF DISTRIBUTION........................................ 30
LEGAL OPINIONS.............................................. 31
EXPERTS..................................................... 31
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT OR ANY DOCUMENT TO WHICH WE HAVE REFERRED YOU. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION PROVIDED IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS
DOCUMENT.
S-2
<PAGE>
PRESENTATION OF INFORMATION
These offering materials consist of two documents: (a) this prospectus
supplement, which describes the terms of the certificates that Northwest
Airlines, Inc. is currently offering, and (b) the accompanying prospectus, which
provides general information about Northwest Airlines, Inc. pass through
certificates, some of which may not apply to the certificates that Northwest
Airlines, Inc. is currently offering. THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT REPLACES ANY INCONSISTENT INFORMATION INCLUDED IN THE ACCOMPANYING
PROSPECTUS.
We have given certain capitalized terms specific meanings for purposes of
this prospectus supplement. The "Index of Certain Defined Terms" attached as
Appendix I to this prospectus supplement lists the page in this prospectus
supplement on which we have defined each such term.
At varying places in this prospectus supplement and the prospectus, we refer
you to other sections of such documents for additional information by indicating
the caption heading of such other sections. The page on which each principal
caption included in this prospectus supplement and the prospectus can be found
is listed in the Table of Contents on the previous page. All such cross
references in the prospectus supplement are to captions contained in this
prospectus supplement and not in the accompanying prospectus, unless otherwise
stated.
S-3
<PAGE>
SUMMARY OF TERMS
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT
IS IMPORTANT TO YOU. FOR MORE COMPLETE INFORMATION ABOUT NORTHWEST AIRLINES
CORPORATION ("NWA CORP.", AND TOGETHER WITH ITS SUBSIDIARIES, THE "COMPANY" OR
"WE") AND NORTHWEST AIRLINES, INC. ("NORTHWEST"), YOU SHOULD READ THIS ENTIRE
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, AS WELL AS THE MATERIALS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION THAT ARE CONSIDERED TO BE PART
OF SUCH PROSPECTUS. SEE "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" IN THE
PROSPECTUS.
SUMMARY OF TERMS OF CERTIFICATES*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
CERTIFICATES CERTIFICATES CERTIFICATES
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Aggregate Face Amount........ $307,116,032 $101,321,514 $91,064,364
Ratings:
Moody's...................... Aa3 A2 Baa2
Standard & Poor's............ AA A+ BBB+
Initial Loan to Aircraft
Value (cumulative)(1)...... 40.3% 53.3% 64.5%
Expected Principal
Distribution Window (in
years)..................... 0.95-19.45 0.95-17.95 0.95-9.95
Initial Average Life from
Issuance Date (in years)... 12.90 11.50 7.00
April 1 and April 1 and
Regular Distribution Dates... April 1 and October 1 October 1
October 1
Final Expected Regular
Distribution Date.......... October 1, 2019 April 1, 2018 April 1, 2010
Final Legal Distribution
Date....................... April 1, 2021 October 1, 2019 October 1, 2011
Minimum Denomination......... $1,000 $1,000 $1,000
Section 1110 Protection...... Yes Yes Yes
Liquidity Facility 3 semiannual interest 3 semiannual interest
Coverage................... 3 semiannual interest payments payments
payments
</TABLE>
- ------------------------
* The amounts of Certificates offered and terms of such Certificates are
indicative only and subject to change.
(1) These percentages are calculated as of July 1, 2001. In making such
calculations, we have assumed that all Aircraft are delivered prior to such
date, that the maximum principal amount of the Equipment Notes is issued and
that the aggregate appraised Aircraft base value is $754,801,570 as of such
date. The appraised base value is only an estimate and reflects certain
assumptions, which assumptions may not reflect current market conditions.
See "Description of the Aircraft and the Appraisals."
S-4
<PAGE>
EQUIPMENT NOTES AND THE AIRCRAFT*
Set forth below is certain information about the Equipment Notes expected to
be held in the trusts and the aircraft expected to secure such equipment notes
(the "AIRCRAFT"):
<TABLE>
<CAPTION>
ACTUAL/ MAXIMUM
ACTUAL/ EXPECTED DATE PRINCIPAL
EXPECTED MANUFACTURER'S DELIVERED OR AMOUNT OF
AIRCRAFT REGISTRATION SERIAL SCHEDULED EQUIPMENT APPRAISED
TYPE NUMBER(1) NUMBER(1) DELIVERY MONTH(2) NOTES(3) BASE VALUE(4)
- --------------------- ------------ --------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Airbus A319-100 N315NB 1230 May 2000 $27,643,000 $39,400,000
Airbus A319-100 N316NB 1249 June 2000 27,643,000 39,446,667
Airbus A319-100 N317NB September 2000 27,643,000 39,686,667
Airbus A319-100 N318NB September 2000 27,643,000 39,686,667
Airbus A319-100 N319NB October 2000 27,643,000 39,833,333
Airbus A319-100 N320NB December 2000 27,643,000 39,930,000
Airbus A319-100 N321NB January 2001 27,643,000 40,073,333
Airbus A319-100 N322NB February 2001 27,643,000 40,123,333
Airbus A319-100 N323NB March 2001 27,643,000 40,173,333
Airbus A319-100 N324NB March 2001 27,643,000 40,173,333
Airbus A319-100 N325NB May 2001 27,643,000 40,366,667
Airbus A319-100 N326NB June 2001 27,643,000 40,416,667
Boeing 757-200 N544US 26491 May 1996 33,624,000 46,700,000
Boeing 757-200 N545US 26492 June 1996 33,672,000 46,766,667
Boeing 757-200 N546US 26493 July 1996 33,717,600 46,830,000
Boeing 757-200 N547US 26494 August 1996 33,763,200 46,893,333
Boeing 757-200 N548US 26495 August 1996 33,763,200 46,893,333
Boeing 757-200 N549US 26496 September 1996 33,811,200 46,960,000
</TABLE>
- ------------------------------
* Indicative only. Subject to change.
(1) Actual Registration Numbers and Manufacturer's Serial Numbers for each
Boeing 757-200 Aircraft are indicated above. Expected Registration Numbers
and Manufacturer's Serial Numbers are provided for each Airbus A319-100
Aircraft, and expected Manufacturer's Serial Numbers for Airbus A319-100
Aircraft delivered through June 2000 are also indicated above.
Manufacturer's Serial Numbers for all other Airbus A319-100 Aircraft have
not yet been assigned by the manufacturer.
(2) In the case of Airbus A319-100 Aircraft which have not been delivered, this
information is based upon Northwest's purchase agreement with the
manufacturer. The actual delivery date for any of these Aircraft may be
subject to delay. The delivery deadline for purposes of this offering will
be no later than September 30, 2001 (the "DELIVERY PERIOD TERMINATION
DATE"). See "Description of the Aircraft and the Appraisals--Deliveries of
Aircraft." Northwest has the option to substitute other aircraft if the
delivery of any Aircraft is expected to be delayed for more than 30 days
after the month scheduled for delivery or beyond the delivery deadline. See
"Description of the Aircraft and the Appraisals--Substitute Aircraft."
(3) The actual principal amount issued for any Aircraft may be less than the
amounts set forth in this table depending upon the circumstances of the
financing of such Aircraft. The aggregate principal amount of all of the
equipment notes of each series will not exceed the aggregate face amount of
Certificates of the corresponding class.
(4) The appraised base value of each Aircraft set forth above is based upon the
lesser of the average and median values of such Aircraft, projected in the
case of the Airbus A319-100 Aircraft as of the scheduled delivery month of
the related Aircraft, as appraised by the following three independent
appraisal and consulting firms:
<TABLE>
<CAPTION>
APPRAISER DATE OF APPRAISAL
--------- -----------------
<S> <C>
Aircraft Information Systems, Inc........................... March 28, 2000
AV Solutions................................................ March 23, 2000
Morten Beyer and Agnew, Inc................................. March 30, 2000
</TABLE>
Such appraisals are based on varying assumptions and methodologies which
may not reflect current conditions. An appraisal is only an estimate of
value and you should not rely upon it as a measure of realizable value. See
"Risk Factors--Factors Relating to the Certificates and the
Offering--Appraisals and Realizable Value of the Aircraft."
S-5
<PAGE>
LOAN TO AIRCRAFT VALUE RATIOS*
The following table sets forth loan to Aircraft value ratios ("LTVS") for
each Class of Certificates as of July 1, 2001 and as of each October 1 Regular
Distribution Date thereafter assuming that Equipment Notes of each Series in the
maximum principal amount for all of the Aircraft are acquired by the Trusts
prior to July 1, 2001. The table should not be considered a forecast or
prediction of expected or likely LTVs but simply a mathematical calculation
based upon one set of assumptions. See "Risk Factors--Risk Factors Relating to
the Certificates and the Offering--Appraisals and Realizable Value of the
Aircraft."
The following table was compiled on an aggregate basis. However, the
Equipment Notes secured by an Aircraft will not have a security interest in any
other Aircraft. This means that any excess proceeds realized from the sale of an
Aircraft or other exercise of remedies will not be available to cover any
shortfalls on the Equipment Notes relating to any other Aircraft. See
"Description of the Equipment Notes--Loan to Value Ratios of Equipment Notes"
for examples of LTVs for the Equipment Notes issued in respect of individual
Aircraft, which may be more relevant in a default situation than the aggregate
values shown below.
<TABLE>
<CAPTION>
ASSUMED POOL BALANCE(2) LTV(3)
AGGREGATE ------------------------------------------ ---------------------------
AIRCRAFT CLASS A CLASS B CLASS C CLASS A CLASS B
DATE VALUE(1) CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
- ---- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
July 1, 2001.................. 754,801,570 303,797,183 98,746,267 84,409,952 40.2% 53.3%
October 1, 2001............... 742,430,611 296,377,912 96,899,485 81,024,749 39.9% 53.0%
October 1, 2002............... 718,470,288 288,172,718 95,572,068 80,392,735 40.1% 53.4%
October 1, 2003............... 694,509,965 279,376,831 93,125,817 78,592,254 40.2% 53.6%
October 1, 2004............... 670,549,642 270,295,326 90,098,642 77,423,800 40.3% 53.7%
October 1, 2005............... 646,589,320 261,598,889 87,199,824 70,063,633 40.5% 53.9%
October 1, 2006............... 622,628,997 252,837,953 83,826,037 61,436,251 40.6% 54.1%
October 1, 2007............... 598,668,674 244,236,597 80,943,991 43,670,511 40.8% 54.3%
October 1, 2008............... 574,708,352 234,743,392 77,142,366 32,642,862 40.8% 54.3%
October 1, 2009............... 550,748,029 225,556,162 75,185,555 3,976,664 41.0% 54.6%
October 1, 2010............... 526,787,706 215,216,078 71,229,129 0 40.9% 54.4%
October 1, 2011............... 502,827,383 204,303,940 60,334,093 0 40.6% 52.6%
October 1, 2012............... 475,673,386 192,768,034 51,761,449 0 40.5% 51.4%
October 1, 2013............... 448,519,389 180,367,156 35,007,506 0 40.2% 48.0%
October 1, 2014............... 421,365,392 162,018,882 24,260,137 0 38.5% 44.2%
October 1, 2015............... 394,211,395 124,664,183 5,990,827 0 31.6% 33.1%
October 1, 2016............... 364,276,832 101,795,305 3,738,024 0 27.9% 29.0%
October 1, 2017............... 272,812,827 36,328,411 2,265,027 0 13.3% 14.1%
October 1, 2018............... 113,972,389 10,850,829 0 0 9.5% NA
October 1, 2019............... 0 0 0 0 NA NA
<CAPTION>
LTV(3)
------------
CLASS C
DATE CERTIFICATES
- ---- ------------
<S> <C>
July 1, 2001.................. 64.5%
October 1, 2001............... 63.9%
October 1, 2002............... 64.6%
October 1, 2003............... 65.0%
October 1, 2004............... 65.3%
October 1, 2005............... 64.8%
October 1, 2006............... 63.9%
October 1, 2007............... 61.6%
October 1, 2008............... 59.9%
October 1, 2009............... 55.3%
October 1, 2010............... NA
October 1, 2011............... NA
October 1, 2012............... NA
October 1, 2013............... NA
October 1, 2014............... NA
October 1, 2015............... NA
October 1, 2016............... NA
October 1, 2017............... NA
October 1, 2018............... NA
October 1, 2019............... NA
</TABLE>
- ------------------------------
* The periodic outstanding balances and the resulting LTVs for each Class of
Certificates are indicative only and subject to change.
(1) We have assumed (the "DEPRECIATION ASSUMPTION") that the initial appraised
value of each Aircraft, determined as described under "--Equipment Notes and
the Aircraft," declines by approximately 3% per year for the first fifteen
years after the year of delivery by the manufacturer of such Aircraft, by
approximately 4% per year for the next five years and by approximately 5%
per year thereafter. Other depreciation assumptions would result in
important differences in the LTVs.
(2) In calculating the outstanding balances, we have assumed that the Trusts
will acquire the maximum principal amount of Equipment Notes for all
Aircraft. See "Description of the Deposit Agreements--Unused Deposits."
(3) The LTVs for each Class of Certificates were obtained for each Regular
Distribution Date by dividing (i) the expected outstanding balance of such
Class together with the expected outstanding balance of all other Classes
senior in right of payment to such Class after giving effect to the
distributions expected to be made on such date, by (ii) the assumed value of
all of the Aircraft on such date based on the assumptions described above.
The outstanding balances and LTVs may change if, among other things, the
aggregate principal amount of the Equipment Notes acquired by the Trusts is
less than the maximum permitted under the terms of this offering or the
amortization of the Equipment Notes differs from the assumed amortization
schedule calculated for purposes of this prospectus supplement.
S-6
<PAGE>
CASH FLOW STRUCTURE
Set forth below is a diagram illustrating the structure for the offering of
the Certificates and certain cash flows.
[LOGO]
- ------------------------
(1) Each Aircraft leased to Northwest will be subject to a separate Lease and a
related Indenture; each Aircraft owned by Northwest will be subject to a
separate Indenture; Northwest will have the ability to enter into a
sale/leaseback transaction involving an Aircraft it initially owns.
(2) Liquidity Facilities are available with respect to the Class A, B and C
Certificates for up to three semiannual interest payments.
(3) The proceeds of the offering of each Class of Certificates will initially be
held in escrow and deposited with the Depositary. The Depositary will hold
such funds as interest-bearing Deposits. Each Trust will withdraw funds from
the Deposits relating to such Trust to purchase Equipment Notes from time to
time as each Aircraft is financed. The scheduled payments of interest on the
Equipment Notes and on the Deposits relating to a Trust, taken together,
will be sufficient to pay accrued interest on the outstanding Certificates
of such Trust. The Liquidity Facilities will not cover interest on the
Deposits. If any funds remain as Deposits with respect to any Trust at the
Delivery Period Termination Date, such funds will be withdrawn by the Escrow
Agent and distributed to the holders of the Certificates issued by such
Trust, together with accrued and unpaid interest thereon, and, in certain
circumstances, a Deposit Make-Whole Premium payable by Northwest.
S-7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Trusts....................................... The Class A Trust, the Class B Trust and the Class C
Trust will be formed pursuant to a Pass Through Trust
Agreement among NWA Corp., Northwest and State Street
Bank and Trust Company of Connecticut, National
Association, as Trustee.
Certificates Offered......................... - Class A Certificates
- Class B Certificates
- Class C Certificates
Each Class of Certificates will represent a
fractional undivided interest in a related Trust.
Use of Proceeds.............................. The proceeds from the sale of the Certificates of
each Trust will be used to acquire Equipment Notes
issued to finance or refinance the acquisition by
Northwest, or an Owner Trustee, of 12 new Airbus
A319-100 Aircraft scheduled for delivery from May
2000 to June 2001 and 6 Boeing 757-200 Aircraft
delivered new to Northwest during 1996. Such Aircraft
will be operated by Northwest.
Subordination Agent, Paying Agent and Loan
Trustee.................................... State Street Bank and Trust Company
Trustee...................................... State Street Bank and Trust Company of Connecticut,
National Association
Initial Liquidity Provider................... Credit Suisse First Boston, New York branch, an
affiliate of Credit Suisse First Boston Corporation.
There will be a separate liquidity facility for each
Class of Certificates.
Escrow Agent................................. First Security Bank, National Association
Depositary................................... ABN AMRO Bank N.V., acting through a United States
branch
Trust Property............................... The property of each Trust will include:
- Equipment Notes acquired by such Trust.
- All rights of the Trust under an intercreditor
agreement (including all monies receivable pursuant
to such rights).
- All rights of the Trust to acquire Equipment Notes
under the Note Purchase Agreement.
- All rights of the Trust under the related Escrow
and Paying Agent Agreement.
- All monies receivable under the liquidity facility
for such Trust.
- Funds from time to time deposited with the Trustee
in accounts relating to such Trust.
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
Guaranty..................................... NWA Corp. will unconditionally guarantee the payments
of Northwest under each lease of an Aircraft entered
into by Northwest and each Equipment Note issued or
assumed by Northwest.
Regular Distribution Dates................... April 1 and October 1, commencing on October 1, 2000.
Record Dates................................. The fifteenth day preceding the related Distribution
Date.
Distributions................................ The Trustee and the Paying Agent, as applicable, will
distribute all payments of principal, premium (if
any) and interest received on the Equipment Notes
held in each Trust and all payments of interest and
Deposit Make-Whole Premium (if any) on the Deposits
relating to each Trust to the holders of the
Certificates of such Trust, subject, in the case of
payments on the Equipment Notes, to the subordination
provisions applicable to the Certificates.
Subject to the subordination provisions applicable to
the Certificates, scheduled payments of principal and
interest made on the Equipment Notes will be
distributed on the applicable Regular Distribution
Dates.
Subject to the subordination provisions applicable to
the Certificates, payments of principal, premium (if
any) and interest made on the Equipment Notes
resulting from any early redemption or purchase of
such Equipment Notes will be distributed on a special
distribution date after not less than 15 days' notice
to holders of the related Certificates.
Possible Issuance of Class D Equipment
Notes...................................... Northwest may elect to issue Series D Equipment Notes
in connection with the financing of Owned Aircraft.
Series D Equipment Notes will not be purchased by any
of the Trusts and will be funded from sources other
than this offering and will be subordinated to the
Series A, B and C Equipment Notes issued with respect
to the same Owned Aircraft.
Subordination................................ The Trusts, the Liquidity Provider and the
Subordination Agent will enter into an intercreditor
agreement. Distributions on the Certificates will be
made in the following order:
- First, to holders of the Class A Certificates.
- Second, to the holders of the Class B Certificates.
- Third, to the holders of the Class C Certificates.
Certain payments to the Liquidity Provider will be
made prior to payments on the Certificates as
discussed under "Description of the Intercreditor
Agreement--Distributions."
If Northwest is in bankruptcy or certain other
specified events have occurred and, in either case,
Northwest is
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
continuing to meet certain of its obligations, the
subordination provisions applicable to the
Certificates permit distributions to be made to
junior Certificates prior to making distributions in
full on the senior Certificates.
Control of Loan Trustee...................... The holders of at least a majority of the outstanding
principal amount of Equipment Notes issued under each
Indenture will be entitled to direct the Loan Trustee
under such Indenture in taking action as long as no
Indenture Default is continuing thereunder. If an
Indenture Default is continuing, subject to certain
conditions, the "Controlling Party" will direct the
Loan Trustees (including in exercising remedies, such
as accelerating such Equipment Notes or foreclosing
the lien on the Aircraft securing such Equipment
Notes).
The Controlling Party will be:
- The Class A Trustee until payment of final
distributions to the holders of Class A Certificates;
and thereafter,
- The Class B Trustee until payment of final
distributions to holders of Class B Certificates; and
thereafter,
- The Class C Trustee; and
- Under certain circumstances, the Liquidity
Provider.
Limitation on Sale of Aircraft............... In exercising remedies during the nine months after
the earlier of (a) the acceleration of the Equipment
Notes issued pursuant to any Indenture or (b) the
bankruptcy of Northwest, the Controlling Party may
not sell such Equipment Notes or the Aircraft subject
to the lien of such Indenture for less than certain
specified minimums or modify lease rental payments
for such Aircraft below a specified threshold.
Right to Buy Other Classes of Certificates... If Northwest is in bankruptcy or certain other
specified events have occurred, the
Certificateholders may have the right to buy certain
other Classes of Certificates on the following basis:
- The Class B Certificateholders will have the right
to purchase all, but not less than all, of the Class
A Certificates.
- The Class C Certificateholders will have the right
to purchase all, but not less than all, of the Class
A and Class B Certificates.
The purchase price in each case described above will
be the outstanding balance of the applicable Class of
Certificates plus accrued and unpaid interest without
any premium.
Liquidity Facilities......................... Under the Liquidity Facility for each Trust, the
Liquidity Provider will, if necessary, make advances
in an aggregate
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
amount sufficient to pay interest on the applicable
Class of Certificates on up to three successive
semiannual Regular Distribution Dates at the
applicable Stated Interest Rate for such
Certificates. The Liquidity Facilities cannot be used
to pay any other amount in respect of the
Certificates and will not cover amounts held in
escrow as Deposits with a Depositary.
Notwithstanding the subordination provisions
applicable to the Certificates, the holders of the
Certificates to be issued by each Trust will be
entitled to receive and retain the proceeds of
drawings under the Liquidity Facility for such Trust.
Upon each drawing under any Liquidity Facility to pay
interest on the Certificates, the Subordination Agent
will reimburse the applicable Liquidity Provider for
the amount of such drawing. Such reimbursement
obligation and all interest, fees and other amounts
owing to the applicable Liquidity Provider under each
Liquidity Facility and certain other agreements will
rank senior to the Certificates in right of payment.
Escrowed Funds............................... Funds paid to the Escrow Agent by the Underwriters
will be deposited with the applicable Depositary and
held as Deposits pursuant to separate Deposit
Agreements for each Trust. Funds may be withdrawn by
the Escrow Agent at the direction of the applicable
Trustee from time to time to purchase Equipment Notes
prior to the Delivery Period Termination Date. On
each Regular Distribution Date, the applicable
Depositary will pay to the Paying Agent interest
accrued on the Deposits relating to each Trust at a
rate per annum equal to the interest rate applicable
to the Certificates issued by such Trust. The Paying
Agent, on behalf of the Escrow Agent, will pay such
interest to the applicable Receiptholders. The
Deposits relating to a Trust and interest paid
thereon will not be subject to the subordination
provisions applicable to the Certificates. The
Deposits cannot be used to pay any other amount in
respect of the Certificates.
Unused Escrowed Funds........................ Less than all of the Deposits held in escrow may be
used to purchase Equipment Notes by the Delivery
Period Termination Date. This may occur because of
delays in the delivery of certain Aircraft,
variations in the terms of a lease financing or other
reasons. If any funds remain as Deposits with respect
to any Trust after the Delivery Period Termination
Date, they will be withdrawn by the Escrow Agent for
such Trust and distributed, with accrued and unpaid
interest, to the holders of Escrow Receipts relating
to the respective Trust after at least 15 days' prior
written notice. In addition, in the case of Deposits
relating to the Class A and Class B Certificates,
such distribution will
</TABLE>
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<TABLE>
<S> <C>
include a premium payable by Northwest equal to the
Deposit Make-Whole Premium with respect to such
Trust's remaining Deposits, provided that no premium
will be paid with respect to unused Deposits
attributable to the failure of an Aircraft to be
delivered prior to the Delivery Period Termination
Date due to any reason not occasioned by Northwest's
fault or negligence. In the case of Deposits relating
to the Class C Certificates, any distribution of any
unused amounts will include a premium payable by
Northwest equal to the Deposit Make-Whole Premium to
the extent (i) such distribution relates to the
non-delivery of an Aircraft due to Northwest's fault
or negligence or (ii) the aggregate amount of all
such distributions relating to Class C Certificates
(other than the amounts relating to the non-delivery
of an Aircraft) exceeds $7,500,000. The Deposit
Make-Whole Premium for the Class A, Class B and Class
C Certificates is computed using the applicable
Treasury Rate plus , and basis points,
respectively. See "Description of the Deposit
Agreements--Unused Deposits."
Obligation to Purchase Equipment Notes....... The Class A, Class B and Class C Trustees will be
obligated to purchase the Series A, Series B and
Series C Equipment Notes issued with respect to each
Aircraft pursuant to the Note Purchase Agreement.
Northwest may enter into a leveraged lease financing
or a secured debt financing with respect to each
Aircraft pursuant to forms of financing agreements
attached to the Note Purchase Agreement. Northwest
may elect to convert an Owned Aircraft to a Leased
Aircraft at any time by entering into a sale/
leaseback transaction. In the case of a Leased
Aircraft, the terms of the financing agreements
entered into may differ from the forms of such
agreements described in this prospectus supplement
because a third party--the Owner Participant--will
provide a portion of the financing of the Aircraft
and may request changes. However, under the Note
Purchase Agreement, the terms of such financing
agreements must (a) contain the mandatory document
terms set forth in the Note Purchase Agreement and
(b) not vary the mandatory economic terms set forth
in the Note Purchase Agreement. In addition,
Northwest must (a) certify to the Trustees that any
such modifications do not materially and adversely
affect the Certificateholders or (b) if such
agreements are modified in any material respect,
obtain written confirmation from each Rating Agency
that the use of versions of such agreements modified
in any material respect will not result in a
withdrawal, suspension or downgrading of the rating
of any Class of Certificates. The Trustees will not
be obligated to purchase Equipment Notes if, at the
time of issuance, Northwest is in bankruptcy
</TABLE>
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<S> <C>
or certain other specified events have occurred. See
"Description of the Certificates--Obligation to
Purchase Equipment Notes."
Equipment Notes
(a) Issuer................................... LEASED AIRCRAFT. If Northwest leases an Aircraft, the
Aircraft will be owned by an Owner Trust created by
the related Owner Participant and the Equipment Notes
for such Aircraft will be issued by the applicable
Owner Trustee. The Equipment Notes will represent
obligations of the Owner Trust. Payments made by
Northwest under the lease will be sufficient to pay
scheduled payments on the Equipment Notes. The
obligations of Northwest under the lease will be
guaranteed by NWA Corp.
OWNED AIRCRAFT. If Northwest purchases an Aircraft,
the Equipment Notes will be issued by Northwest and
guaranteed by NWA Corp.
(b) Interest................................. The Equipment Notes held in each Trust will accrue
interest at the rate per annum for the Certificates
issued by such Trust set forth on the cover page of
this prospectus supplement. Interest will be payable
on April 1 and October 1 of each year, commencing on
the first such date after issuance of such Equipment
Notes. Interest is calculated on the basis of a
360-day year consisting of twelve 30-day months.
(c) Principal................................ Principal payments on the Series A, Series B and
Series C Equipment Notes are scheduled on April 1 or
October 1, or both, in certain years, commencing on
April 1, 2001. See "Description of the
Certificates--Pool Factors."
(d) Redemption and Purchase.................. AIRCRAFT EVENT OF LOSS. If an Event of Loss occurs
with respect to an Aircraft, all of the Equipment
Notes issued with respect to such Aircraft will be
redeemed, unless such Aircraft is replaced by
Northwest under the related lease or financing
agreements. The redemption price in such case will be
the unpaid principal amount of such Equipment Notes,
together with accrued interest, but without any
premium.
OPTIONAL REDEMPTION. The issuer of the Equipment
Notes with respect to an Aircraft may elect to redeem
them prior to maturity. The redemption price in such
case will be the unpaid principal amount of such
Equipment Notes, together with accrued interest plus
a make-whole premium. See "Description of the
Equipment Notes--Redemption."
PURCHASE BY OWNER. If an event of default under a
lease relating to an Aircraft (a "LEASE") is
continuing, the applicable Owner Trustee or Owner
Participant may elect to purchase all of the
Equipment Notes with respect to such Aircraft,
subject to the terms of the applicable Indenture.
</TABLE>
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The purchase price in such case will be the unpaid
principal amount of such Equipment Notes, together
with accrued interest, but without any premium
(provided that a make-whole premium will be payable
under certain circumstances specified in the
applicable Indenture).
(e) Security................................. The Equipment Notes issued with respect to each
Aircraft will be secured by a security interest in
such Aircraft and, in the case of Leased Aircraft, in
the related Owner Trustee's rights under the Lease
with respect to such Aircraft (with certain limited
exceptions).
The Equipment Notes issued in respect of an Aircraft
will not be secured by any other Aircraft or Leases.
This means that any excess proceeds from the sale of
an Aircraft or other exercise of remedies with
respect to such Aircraft will not be available to
cover any shortfall with respect to any other
Aircraft.
By virtue of the Intercreditor Agreement, the
Equipment Notes are cross-subordinated. This means
that payments received on a junior class of Equipment
Notes issued in respect of one Aircraft may be
applied in accordance with the priority of payment
provisions set forth in the Intercreditor Agreement
to make payments in respect of a more senior Class of
Certificates.
There will not be cross-default provisions in the
Indentures or in the Leases. This means that if the
Equipment Notes issued with respect to one or more
Aircraft are in default and the Equipment Notes
issued with respect to the remaining Aircraft are not
in default, no remedies will be exercisable with
respect to the remaining Aircraft.
(f) Section 1110 Protection.................. Northwest's special counsel will provide to the
Trustees its opinion that the benefits of Section
1110 of Title 11 of the United States Code (the
"BANKRUPTCY CODE") will be available with respect to
the Equipment Notes.
Certain U.S. Federal Income Tax
Consequences............................... Each Trust will not be subject to U.S. federal income
taxation. Each beneficial owner of a Certificate who
is a U.S. Certificateholder (as defined herein)
generally will be required to report on its federal
income tax return its pro rata share of income from
the relevant Deposits at the related Certificate
interest rate, income from the Equipment Notes at the
interest rate thereon (including amounts paid by the
Liquidity Provider) and income on other property held
by the related Trust and will be permitted to deduct,
subject to applicable limitations, its share of the
deductions and losses of the related Trust. See
"Certain U.S. Federal Income Tax Consequences."
</TABLE>
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<S> <C>
ERISA Considerations......................... Each person who acquires a Certificate will be deemed
to have represented that either: (a) no employee
benefit plan assets have been used to purchase such
Certificate or (b) the purchase and holding of such
Certificate are exempt from the prohibited
transaction restrictions of the Employee Retirement
Income Security Act of 1974 and the Internal Revenue
Code of 1986 pursuant to one or more prohibited
transaction exemptions. See "ERISA Considerations."
Rating of the Certificates................... It is a condition to the issuance of the Certificates
that the Certificates be rated by Moody's and
Standard & Poor's not less than the ratings set forth
below:
</TABLE>
<TABLE>
<CAPTION>
STANDARD &
CERTIFICATES MOODY'S POOR'S
- ------------ -------- --------------
<S> <C> <C>
Class A............................................. Aa3 AA
Class B............................................. A2 A+
Class C............................................. Baa2 BBB+
</TABLE>
<TABLE>
<S> <C>
A rating is not a recommendation to purchase, hold or
sell Certificates, since such rating does not address
market price or suitability for a particular
investor. There can be no assurance that such ratings
will not be lowered or withdrawn by a Rating Agency.
Standard & Poor's has indicated that its rating
applies to a unit consisting of Certificates
representing the Trust Property and Escrow Receipts
initially representing undivided interests in certain
rights to the Deposits. Amounts deposited under the
Escrow Agreements are not entitled to the benefits of
Section 1110 of the Bankruptcy Code. Counsel for
Northwest will opine to the underwriters that,
subject to the assumptions and qualifications
contained therein, amounts deposited under the Escrow
Agreements are not property of Northwest. Neither the
Certificates nor the Escrow Receipts may be
separately assigned or transferred.
</TABLE>
<TABLE>
<CAPTION>
STANDARD &
MOODY'S POOR'S
-------- ----------
<S> <C> <C> <C>
Rating of the Depositary............ Short Term.......................... P-1 A-1+
Threshold Rating for the Liquidity
Provider.......................... Short Term P-1 A-1+
Class A Certificates................
Class B Certificates................ P-1 A-1
Class C Certificates................ P-1 A-1
</TABLE>
<TABLE>
<S> <C>
Liquidity Provider Rating.................... Credit Suisse First Boston, New York branch meets the
Threshold Rating requirement for the Class A, B and C
Certificates.
</TABLE>
S-15
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents summary consolidated financial data and
operating statistics of NWA Corp. The annual historical financial data were
derived from NWA Corp.'s audited consolidated financial statements and the notes
thereto, which are incorporated by reference in the prospectus accompanying this
prospectus supplement. See "Incorporation of Certain Documents by Reference" in
the accompanying prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (IN MILLIONS, EXCEPT PER SHARE
DATA):
Operating revenues
Passenger............................................... $8,692 $7,607 $8,822
Cargo................................................... 725 634 789
Other................................................... 859 804 615
------ ------ ------
10,276 9,045 10,226
------ ------ ------
Operating expenses (1).................................... 9,562 9,236 9,069
------ ------ ------
Operating income (loss)................................... 714 (191) 1,157
------ ------ ------
Amounts before 1997 extraordinary item (2):
Income (loss) (3)....................................... $ 300 $ (285) $ 606
====== ====== ======
Earnings (loss) per common share:
Basic................................................. $ 3.69 $(3.48) $ 5.89
Diluted............................................... $ 3.26 (3.48) 5.29
OTHER DATA:
Ratio of earnings to fixed charges...................... 1.64x (4) 3.05x
OPERATING STATISTICS (5):
Scheduled Service:
Available seat miles (millions) (6)..................... 99,446 91,311 96,964
Revenue passenger miles (millions) (7).................. 74,168 66,738 72,031
Passenger load factor (%) (8)........................... 74.6 73.1 74.3
Revenue passengers (millions)........................... 56.1 50.5 54.7
Revenue yield per passenger mile (cents) (9)............ 11.58 11.26 12.11
Passenger revenue per scheduled ASM (cents)............. 8.64 8.23 9.00
Operating revenue per total ASM (cents) (10).............. 9.44 9.12 9.76
Operating expense per total ASM (cents) (10).............. 8.71 9.21 8.63
Cargo ton miles (millions) (11)........................... 2,336 1,954 2,283
Cargo revenue per ton mile (cents)........................ 31.01 32.39 34.54
Fuel gallons consumed (millions).......................... 2,039 1,877 1,996
Average fuel cost per gallon (cents)...................... 53.55 53.60 64.86
Number of operating aircraft at end of period............. 410 409 405
Full-time equivalent employees at end of period............. 51,823 50,565 48,984
</TABLE>
(Table continues and footnotes appear on following page.)
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<PAGE>
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA (IN MILLIONS):
Cash, cash equivalents and unrestricted short-term
investments............................................. $ 749 $ 480
Total assets.............................................. 10,584 10,281
Long-term debt, including current portion................. 3,666 4,001
Mandatorily redeemable preferred security of subsidiary... 626 564
Preferred redeemable stock................................ 243 261
Common stockholders' equity (deficit)..................... (52) (477)
</TABLE>
- ------------------------
(1) The Company recorded a fleet disposition charge of $66 million ($42 million
after tax or $.51 per share) related to its seven oldest Boeing 747 aircraft
in the fourth quarter of 1998. The Company has made provisions for out-of
period charges related to both collective bargaining agreements that were
ratified in 1998 and estimated provisions for the Company's remaining
amendable collective bargaining agreements of $151 million ($95 million
after tax or $1.16 per share) for the year ended December 31, 1998.
(2) The 1997 extraordinary loss was $9 million ($.10 per basic share and $.08
per diluted share).
(3) In 1999, the Company sold a portion of its interest in Equant N.V. and
recorded a gain of $48 million ($30 million after tax or $.33 per share)
related to these transactions.
(4) Earnings did not cover fixed charges by $452 million for the year ended
December 31, 1998.
(5) All statistics exclude Express Airlines I, Inc.
(6) "Available seat miles" ("ASMS") represents the number of seats available for
passengers multiplied by the number of scheduled miles the seats are flown.
(7) "Revenue passenger miles" ("RPMS") represents the number of miles flown by
revenue passengers in scheduled service.
(8) "Passenger load factor" is calculated by dividing revenue passenger miles by
available seat miles, and represents the percentage of aircraft seating
capacity utilized.
(9) "Revenue yield per passenger mile" represents the average revenue received
from each mile a passenger is flown in scheduled service.
(10) Excludes the estimated revenues and expenses associated with the operation
of Northwest's fleet of 747 freighter aircraft, MLT Inc. and gain/loss on
disposition of assets.
(11) "Cargo ton miles" represents the tonnage of freight and mail carried
multiplied by the number of miles flown.
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<PAGE>
RISK FACTORS
YOU SHOULD READ CAREFULLY THIS ENTIRE PROSPECTUS SUPPLEMENT, THE
ACCOMPANYING PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS BEFORE INVESTING IN THE CERTIFICATES.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS INCLUDE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE EXCHANGE ACT OF 1934. ALL STATEMENTS OTHER
THAN STATEMENTS OF HISTORICAL FACTS INCLUDED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, INCLUDING STATEMENTS
REGARDING OUR FUTURE FINANCIAL POSITION, ARE FORWARD-LOOKING STATEMENTS.
ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE, WE CANNOT ASSURE YOU THAT SUCH EXPECTATIONS WILL BE
CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM SUCH EXPECTATIONS ARE DISCLOSED BELOW AND ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
RISK FACTORS RELATING TO NORTHWEST AND NWA CORP.
INDEBTEDNESS
We have substantial levels of indebtedness. As of December 31, 1999, we had
long-term debt and capital lease obligations of $4.26 billion. Of this
indebtedness, 34% bears interest at floating rates. The amount of our long-term
debt that matures in 2000 is $312 million. Additionally, $210 million matures in
2001, $226 million matures in 2002, and $135 million matures in 2003. As of
December 31, 1999, future minimum lease payments under capital leases were
$102 million for 2000, $103 million for 2001, $281 million for 2002 and
$83 million for 2003. These levels of indebtedness do not include a mandatory
obligation to redeem $243 million of preferred stock in 2003.
In addition, we operate in a capital-intensive industry. Periodically, we
are required to make significant capital expenditures for new aircraft and
related equipment. There can be no assurance that sufficient financing will be
available for all aircraft and other capital expenditures not covered by
commercial financing.
LABOR AGREEMENTS
Approximately 90% of our employees are members of collective bargaining
units. Consequently, labor wage rates and costs are subject to collective
bargaining. During 1998 and 1999, we signed seven new agreements with our
domestic collective bargaining groups. The terms of the new agreements range
from four to six years.
Contract negotiations commenced in October 1999 with the Aircraft Mechanics
Fraternal Association ("AMFA"), which represents our mechanics. In
February 2000, we and AMFA jointly requested mediation from the National
Mediation Board. We are also presently in mediated negotiations with the union
representing our flight attendants. We believe that mutually acceptable
agreements can be reached with these labor groups, but because the terms of the
agreements will be determined by collective bargaining, we cannot predict the
outcome of the negotiations at this time.
RISKS REGARDING NORTHWEST/JUSTICE DEPARTMENT LITIGATION
In October 1998, the U.S. Department of Justice commenced a civil antitrust
action against us and Continental challenging our acquisition of the beneficial
ownership of 8,661,224 shares of Continental Class A Common Stock. The Justice
Department is seeking to have us divest the Continental securities or to impose
additional terms and restrictions on us with respect to the Continental
securities acquired. Although we cannot predict the outcome of litigation, we
intend to defend the lawsuit vigorously. The
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<PAGE>
lawsuit did not challenge the alliance between Northwest and Continental,
although the Justice Department has indicated that it will continue to monitor
the alliance.
RISKS REGARDING ALLIANCES
Northwest is currently a party to numerous alliances with other airlines,
and may enter into additional alliances in the future. Northwest's ability to
grow its route network by entering into alliances depends upon the availability
of suitable alliance candidates and the ability of Northwest and its alliance
partners to meet business objectives and to perform their obligations under the
alliance agreements. Northwest's ability to successfully achieve the anticipated
benefits of its alliances depends upon many factors including:
- Disapproval or delay by regulatory authorities or adverse regulatory
developments;
- Competitive pressures;
- Customer acceptance of the alliance; and
- Northwest's and its alliance partners' ability to modify certain contracts
that may restrict certain aspects of the alliance.
FOREIGN CURRENCY EXPOSURE
Northwest conducts a significant portion of its operations in foreign
locations. As a result, Northwest has operating revenues and, to a lesser
extent, operating expenses, as well as assets and liabilities, denominated in
foreign currencies. Fluctuations in such foreign currencies, especially the
Japanese yen, can significantly affect Northwest's operating performance. From
time to time, Northwest uses financial instruments to hedge its exposure to the
Japanese yen.
POSSIBLE LIMITATION ON NET OPERATING LOSS CARRYFORWARDS
We used net operating loss carryforwards ("NOLS") of approximately
$1.05 billion in 1994 and 1995 and alternative minimum tax net operating loss
carryforwards ("AMTNOLS") of approximately $458 million in 1994 and 1995. 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 NWA Corp.'s stock on certain prior
testing dates was relatively low and a low value would adversely affect the
annual limitation described above.
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<PAGE>
NEGATIVE NET WORTH
As of December 31, 1999, our common stockholders' deficit was $52 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 common 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.
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. On most of
Northwest's routes, it competes with at least one of these carriers. 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 the Company's 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 (11.4%
for 1999), significant changes in fuel costs would materially affect our
operating results. Fuel prices continue to be susceptible to, among other
factors, political events, and we cannot control near or long-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 1999
consumption) would impact operating expenses by approximately $1.7 million per
month. Changes in fuel prices may have a greater impact on Northwest than on
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 U.S. Department of
Transportation ("DOT") have also proposed the regulation of airlines' responses
to their competitors' activities. Restrictions on the ownership and transfer of
airline routes
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<PAGE>
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 U.S. and foreign governments may be amended
from time to time, or because appropriate slots or facilities may not be
available. We cannot assure you that laws or regulations enacted in the future
will not adversely affect us.
RISK FACTORS RELATING TO THE CERTIFICATES AND THE OFFERING
APPRAISALS AND REALIZABLE VALUE OF AIRCRAFT
Three independent appraisal and consulting firms have prepared appraisals of
the Aircraft. Letters summarizing such appraisals are annexed to this prospectus
supplement as Appendix II. Such appraisals, which are based upon the base value
of the Aircraft, rely on certain varying assumptions and methodologies, which
differ among the appraisers, and were prepared without physical inspection of
the Aircraft and may not reflect current market conditions that could affect the
value of the Aircraft. Appraisals that are based on other assumptions and
methodologies may result in valuations that are materially different from those
contained in such appraisals. See "Description of the Aircraft and the
Appraisals--The Appraisals."
An appraisal is only an estimate of value. It does not indicate the price at
which an Aircraft may be purchased from the Aircraft manufacturer. Nor should an
appraisal be relied upon as a measure of realizable value. The proceeds realized
upon a sale of any Aircraft may be less than its appraised value. In particular,
the appraisals of the Airbus A319-100 Aircraft are estimates of values as of
future delivery dates. The value of an Aircraft if remedies are exercised under
the applicable Indenture will depend on various factors, including:
- market and economic conditions;
- the availability of similar aircraft;
- the availability of buyers;
- the condition of the Aircraft; and
- whether the Aircraft are sold separately or as a block.
There can be no assurance that the proceeds realized upon any such exercise
of remedies would be sufficient to satisfy in full payments due on the
Certificates. The Equipment Notes are not cross-collateralized and,
consequently, liquidation proceeds from the sale of an Aircraft in excess of the
principal amount of the Equipment Notes related to such Aircraft will not be
available to cover losses, if any, on any other Equipment Notes.
MAINTENANCE
To the extent described in the Leases and the Owned Aircraft Indentures,
Northwest will be responsible for the maintenance, service, repair and overhaul
of the Aircraft. If Northwest fails to adequately perform these
responsibilities, the value of the Aircraft may be reduced. In addition, the
value of the Aircraft may deteriorate even if Northwest fulfills its maintenance
responsibilities. As a result, it is possible that upon a liquidation, there
will be less proceeds than anticipated to repay the holders of Equipment Notes.
See "Description of Equipment Notes--The Leases and Certain Provisions of the
Owned Aircraft Indentures."
INSURANCE
To the extent described in the Leases and the Owned Aircraft Indentures,
Northwest must maintain public liability, property damage and all-risk aircraft
hull insurance on the Aircraft. If
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<PAGE>
Northwest fails to maintain adequate levels of insurance, the proceeds which
could be obtained upon an event of loss may be insufficient to repay the holders
of Equipment Notes. See "Description of the Equipment Notes--The Leases and
Certain Provisions of the Owned Aircraft Indentures--Insurance."
REPOSSESSION
There are no general geographic restrictions on Northwest's ability to
operate the Aircraft. Although it does not currently intend to do so, Northwest
is permitted to register the Aircraft in foreign jurisdictions and to lease an
Owned Aircraft or sublease a Leased Aircraft, as the case may be. It may be
difficult, time-consuming and expensive for the Loan Trustee to exercise its
repossession rights if the Aircraft is located outside the United States, is
registered in a foreign location or is subleased to a foreign operator.
Additional difficulties may exist when a permitted sublessee, in the case of a
Leased Aircraft, or lessee, in the case of an Owned Aircraft is the subject of a
bankruptcy, insolvency or similar event.
In addition, certain jurisdictions may allow for certain other liens or
other third party rights to have priority over the security interest in the
Aircraft. As a result, the benefits of the security interest created in the
Equipment Notes could be limited.
PRIORITY OF DISTRIBUTIONS; SUBORDINATION
According to the intercreditor agreement among the Trusts, the Liquidity
Provider and the Subordination Agent (the "INTERCREDITOR AGREEMENT"), the
Liquidity Provider receives payment of all amounts owed to it before the holders
of any Class of Certificates receive any funds. In addition, in certain default
situations the Subordination Agent and the Trustees will receive certain
payments before the holders of any Class of Certificates. See "Description of
the Intercreditor Agreement--Priority of Distributions." Certain Classes of
Certificates are subordinated to other Classes in rights to distributions. See
"Description of the Certificates--Subordination." Consequently, a payment
default under any Equipment Note or a Triggering Event may cause the
distribution to more senior Classes of Certificates of payments received from
payment on one or more junior series of Equipment Notes. If this should occur,
the interest accruing on the remaining Equipment Notes would be less than the
interest accruing on the remaining Certificates. This is because the remaining
Certificates of the junior Classes accrue interest at a higher rate than the
remaining Equipment Notes, which include series applicable to the senior Classes
bearing interest at a lower rate. As a result of this possible interest
shortfall, the holders of one or more junior Classes of Certificates may not
receive the full amount due to them after a payment default under any Equipment
Note even if all Equipment Notes are eventually paid in full.
CONTROL OVER COLLATERAL; SALE OF COLLATERAL
If an Indenture Default is continuing the Loan Trustee under such Indenture
will be directed by the "Controlling Party" in the exercise of remedies under
such Indenture, including accelerating the applicable Equipment Notes or
foreclosing the lien on the Aircraft securing such Equipment Notes. See
"Description of the Certificates--Indenture Defaults and Certain Rights Upon an
Indenture Default."
THE CONTROLLING PARTY WILL BE:
- The Class A Trustee until payment of final distributions to the holders of
Class A Certificates; and thereafter,
- The Class B Trustee until payment of final distributions to the holders of
Class B Certificates; and thereafter,
- The Class C Trustee; and
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- Under certain circumstances, the Liquidity Provider if the obligations
owed to it have not been paid in full. If there is more than one Liquidity
Provider, the Liquidity Provider which is owed the greater amount of
obligations shall have such right.
During the continuation of any Indenture Default, the Controlling Party may
accelerate and sell the Equipment Notes issued under such Indenture, subject to
certain limitations. See "Description of the Intercreditor
Agreement--Intercreditor Rights--Sale of Equipment Notes or Aircraft." The
market for Equipment Notes during any Indenture Default may be very limited, and
we cannot assure you as to the price at which they could be sold. If the
Controlling Party sells any Equipment Notes for less than their outstanding
principal amount, certain holders of Certificates will receive a smaller amount
of principal distributions than anticipated and will not have any claim for the
shortfall against Northwest, any Owner Trustee, any Owner Participant or any
Trustee.
REVISIONS TO AGREEMENTS
The Owner Participants have not yet been identified. In connection with the
negotiation of definitive documents for a Leased Aircraft the Owner Participant
may request revisions to the Participation Agreement, Lease, Trust Agreement and
Indenture applicable to the Owner Trust related to such Aircraft. As a result,
the terms of such documents applicable to such Aircraft may differ from the
descriptions of them contained in this prospectus supplement. However, these
documents must still contain certain economic terms and document terms. See
"Description of the Certificates--Obligation to Purchase Equipment Notes."
Each Owner Participant will have the right to sell, assign or otherwise
transfer its interest as Owner Participant in any Leased Aircraft transaction,
subject to the terms and conditions of the relevant Participant Agreement and
related documents.
UNUSED ESCROWED FUNDS
Under certain circumstances, less than all of the funds held in escrow as
Deposits may be used to purchase Equipment Notes by the Delivery Period
Termination Date. See "Description of the Deposit Agreements--Unused Deposits."
If any funds remain as Deposits with respect to any Trust after the Delivery
Period Termination Date, they will be withdrawn by the Escrow Agent for that
Trust and distributed, with accrued and unpaid interest, to the
Certificateholders of such Trust. In addition, if the remaining Deposits relate
to the Class A and Class B Trusts, such distribution will include a premium
payable by Northwest equal to the Deposit Make-Whole Premium with respect to
such remaining Deposits. However, no premium will be paid with respect to unused
Deposits attributable to the failure of an Aircraft to be delivered prior to the
Delivery Period Termination Date due to any reason not occasioned by Northwest's
fault or negligence. In the case of Deposits relating to the Class C
Certificates, any distribution of any unused amounts will include a premium
payable by Northwest equal to the Deposit Make-Whole Premium to the extent
(i) such distribution relates to the non-delivery of an Aircraft due to
Northwest's fault or negligence or (ii) the aggregate amount of all such
distributions relating to Class C Certificates (other than the amounts relating
to the non-delivery of an Aircraft) exceeds $7,500,000. See "Description of the
Deposit Agreements--Unused Deposits."
RATINGS OF THE CERTIFICATES
It is a condition to the issuance of the Certificates that the Class A
Certificates be rated not lower than Aa3 by Moody's Investors Service, Inc.
("MOODY'S") and AA by Standard & Poor's Ratings Services, a Division of the
McGraw-Hill Companies, Inc. ("STANDARD & POOR'S"), the Class B Certificates be
rated not lower than A2 by Moody's and A+ by Standard & Poor's and the Class C
Certificates be rated not lower than Baa2 by Moody's and BBB+ by Standard &
Poor's. A rating is not a recommendation to purchase, hold or sell Certificates,
since such rating does not address market price
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or suitability for a particular investor. A rating may not remain for any given
period of time and may be lowered or withdrawn entirely by a Rating Agency if,
in its judgment, circumstances in the future (including the downgrading of
Northwest, any Depositary or the Liquidity Provider) so warrant. The rating of
the Certificates is based primarily on the default risk of the Equipment Notes
and the applicable Depositary, the availability of the Liquidity Facility for
the benefit of holders of the Certificates, the collateral value provided by the
Aircraft and the subordination provisions applicable to the Certificates. The
foregoing ratings address the likelihood of timely payment of interest (at the
Stated Interest Rate and without any premium) when due on the Certificates and
the ultimate payment of principal of the Certificates by the Final Legal
Distribution Date. Such ratings do not address the possibility of certain
defaults or other circumstances (such as a loss event) which could result in the
payment of the outstanding principal amount of the Certificates prior to the
Final Expected Distribution Date. See "Description of the Certificates."
Standard & Poor's has indicated that its rating applies to a unit consisting of
Certificates representing the Trust Property and Escrow Receipts initially
representing undivided interests in certain rights to Deposits initially
totaling $499,501,910. Amounts deposited under the Escrow Agreements are not
entitled to the benefits of Section 1110 of the Bankruptcy Code. Counsel for
Northwest will opine to the underwriters that, subject to the assumptions and
qualifications contained therein, amounts deposited under the Escrow Agreements
are not property of Northwest. Neither the Certificates nor the Escrow Receipts
may be separately assigned or transferred.
The reduction, suspension or withdrawal of the ratings of the Certificates
will not, by itself, constitute an Event of Default.
LIMITED ABILITY TO RESELL THE CERTIFICATES
Prior to this offering, there has been no public market for the
Certificates. None of Northwest, NWA Corp. or any Trust intends to apply for
listing of the Certificates on any securities exchange or for quotation on the
Nasdaq National Market. The underwriters may assist in resales of the
Certificates, but they are not required to do so. A secondary market for the
Certificates may not develop. If a secondary market does develop, it might not
continue or it might not be sufficiently liquid to allow you to resell any of
your Certificates. If an active public market does not develop, the market price
and liquidity of the Certificates may be adversely affected.
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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 strike adjusted 1998
RPMs) and is engaged in the business of transporting passengers and cargo.
Northwest began operations in 1926 and its business focuses on the development
of a global airline network through its strategic assets that include:
- domestic hubs at Detroit, Minneapolis/St. Paul and Memphis;
- an extensive Pacific route system with hubs at Tokyo and Osaka;
- a trans-Atlantic alliance with KLM Royal Dutch Airlines ("KLM") which
operates through a hub in Amsterdam and with Alitalia which operates
through hubs in Rome and Milan; and
- a global alliance with Continental.
Northwest has developed strategies that are designed to utilize the
Company's strategic assets to its competitive advantage. These strategies focus
on providing safe, reliable, convenient and consistent air transportation. In
addition, the Company's frequent flyer program, customer service improvements
and targeted fare promotions are designed to maintain and improve its
competitive position.
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 56.1 million enplanements and flew over
74.2 billion RPMs in 1999.
During 1999, Northwest strengthened its network through existing alliances
and the addition of several new alliance partners. Long-term alliances are the
most effective way for Northwest to enter global markets that it would not be
able to serve alone and the most economic way to expand globally due to the
synergies shared by the partners. Alliances improve the travel experience
through code-sharing, integration of frequent flyer programs and reciprocal
airport lounge access and also provide route and schedule coordination, joint
marketing, sharing of airport facilities and services and joint procurement of
certain goods and services. Northwest and its alliance partners provide a global
network to over 750 cities and more than 120 countries in the U.S., Canada,
Asia, India, the South Pacific, Europe, the Middle East, Africa, Mexico and the
Caribbean, Central America and South America.
DOMESTIC SYSTEM
Northwest's domestic route system serves 45 states in the U.S., the District
of Columbia, Mexico, Canada and the Caribbean. Northwest operates its domestic
system through its hubs at Detroit, Minneapolis/St. Paul and Memphis. The hub
system gathers passengers from the hub and cities surrounding the hub and
provides more frequent local and connecting service than if each route were
served on a nonstop point-to-point basis. As part of its alliance with
Continental, Northwest's passengers are also able to connect through
Continental's hubs in Newark, Houston and Cleveland to additional cities not
previously served by Northwest.
Northwest has exclusive marketing agreements with two regional carriers:
Mesaba Aviation, Inc. ("MESABA") and Express Airlines I, Inc. ("EXPRESS"), a
wholly-owned indirect subsidiary of NWA Corp. Under these agreements, these
regional carriers operate their flights under the Northwest "NW" code and are
identified as Northwest Airlink carriers. The primary purpose of these marketing
agreements is to provide more frequent service to small cities, which increases
connecting traffic at Northwest's hubs. These carriers serve over 125 airports,
78 of which are not served by Northwest.
Northwest's hubs provide connections that feed traffic into its nine gateway
cities for international service. Northwest operates international flights from
its Detroit and Minneapolis/St. Paul hubs as well as from Anchorage, Boston,
Honolulu, Las Vegas, Los Angeles, New York, San Francisco, Seattle and
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Washington, D.C. Northwest, together with Mesaba, currently operates service to
seven cities in Mexico, 12 cities in Canada and five cities in the Caribbean.
DETROIT. Northwest and Mesaba together serve over 130 cities from Detroit.
For the nine months ended September 30, 1999, Northwest and Mesaba enplaned 62%
of originating passengers from this hub, while the next largest competitor
enplaned 7%. Detroit, which is the seventh largest origination/ destination hub
in the U.S., is Northwest's largest international gateway from the continental
U.S., offering 192 weekly nonstop flights to 18 foreign cities, including 19
nonstop flights to Japan per week.
Northwest is managing and supervising the design and construction of a
$1.2 billion terminal at Detroit Metropolitan Wayne County Airport. The new
terminal is scheduled to be completed in 2001 and will have 74 gates and a
regional jet aircraft facility with 25 additional gates as well as a fourth
parallel runway, over 55 shops and restaurants, four enlarged WorldClubs,
expanded ticketing areas, a 12,000-space parking facility, covered curbside
drop-off areas and significant luggage handling system upgrades. The new
terminal has been funded by Wayne County's issuance of general airport revenue
bonds payable primarily from future passenger facility charges and federal and
State of Michigan grants.
MINNEAPOLIS/ST. PAUL. Northwest and Mesaba together serve over 140 cities
from Minneapolis/St. Paul. For the nine months ended September 30, 1999,
Northwest and Mesaba enplaned 70% 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.
Minneapolis/St. Paul International Airport is in the midst of a
$2.4 billion construction program that will add 15 new jet gates, 30 regional
aircraft gates (which replace existing regional aircraft parking positions), a
people mover, a new north/south runway, additional parking, and will extend and
improve existing runways. This multi-year project is scheduled to be completed
in phases through 2010.
MEMPHIS. Northwest and its Airlink carriers serve over 80 cities from
Memphis. For the nine months ended September 30, 1999, they enplaned
approximately 52% of originating jet passengers from this hub, while the next
largest competitor enplaned approximately 25%.
The Memphis-Shelby County Airport Authority is in the process of a
$400 million airport renovation and expansion scheduled to be completed in 2004.
This program will provide nearly $300 million in airfield improvements including
a new runway, $40 million in parking expansion and $60 million in terminal
improvements, which will directly benefit Northwest with the creation of 23 new
gates with jet bridges and the redevelopment of existing concourses to
accommodate regional jet aircraft.
INTERNATIONAL SYSTEM
Northwest has a comprehensive route network to the Pacific, providing
extensive service to Japan and China, and also services destinations in Europe
and India.
PACIFIC. Northwest has served the Pacific market since 1947 and has one of
the world's largest Pacific route networks, with approximately 450 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 certificates and slot portfolio to
operate a network linking nine 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 and provides the most
service between the U.S. and Osaka. Northwest currently operates 39 weekly
departures from Osaka, which includes service between four U.S. gateways and
three Asian destinations.
Northwest provides passenger service between various points in the U.S. and
Japan and operates flights between Japan and Korea, Taiwan, the Philippines,
Thailand, Singapore, Malaysia, Northern
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Mariana Islands, and China, including Hong Kong. Northwest's Japan presence
results from the U.S.-Japan bilateral aviation agreement, 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 Airlines, Inc. ("United") are the only U.S. passenger
carriers that have "fifth freedom" rights from Japan. Northwest also has
unlimited rights and frequencies to operate between any point in the U.S. and
Japan and the ability to code-share with Japanese carriers.
Northwest is the only U.S. carrier to operate nonstop service between the
U.S. and Beijing, China's capital, with four flights weekly from Detroit. Under
the new U.S.-China aviation agreement Northwest recently increased its
Detroit-Shanghai one-stop service from two to four flights weekly and
inaugurated two all-cargo freighter service flights between the U.S. and
Shanghai via Tokyo. In April 2000, Northwest inaugurated the first nonstop
service between Detroit and Shanghai with two weekly flights.
ATLANTIC. Northwest provides passenger service from various points in the
U.S. to Amsterdam, Paris, Frankfurt and London (Gatwick) with 77 weekly nonstop
flights. Northwest also provides service to Mumbai and Delhi, India from
Amsterdam.
Northwest and KLM operate their trans-Atlantic flights pursuant to a
commercial and operational joint venture alliance, which has antitrust immunity
that facilitates coordinated pricing, scheduling, product development and
marketing. In 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. Northwest
and KLM have expanded their trans-Atlantic presence by operating joint service
between 12 U.S. cities and Amsterdam, KLM's hub airport. Code-sharing between
Northwest and KLM has been implemented on flights to 59 European, seven Middle
Eastern, nine African, three Asian and over 175 U.S. cities. Northwest and KLM
have a minimum of ten years remaining under their current joint venture
alliance.
KLM and Alitalia have formed a European multi-hub network based in
Amsterdam, Rome and Milan. In May 1999, Northwest, KLM and Alitalia announced
that Alitalia will join the Northwest/ KLM trans-Atlantic joint venture
alliance. In December 1999, Northwest, KLM and Alitalia received antitrust
immunity from the DOT for the airlines' tripartite alliance. 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 1999
ASMs) with service to 65 countries. KLM, Alitalia and Air Europa, a privately
owned Spanish carrier with a fleet of 46 aircraft, have also signed a tripartite
letter of intent.
Northwest and KLM currently provide code-share service to Rome, Milan,
Turin, Venice and Bologna, Italy from Amsterdam under the new U.S.-Italy
open-skies agreement. Northwest began daily nonstop service between Detroit and
Rome and Detroit and Milan in April 2000.
ALLIANCES
Northwest operates within an international global alliance whose other
primary members are KLM, Continental and Alitalia. Through these and other
alliance partners, such as Air China, Malaysia Airlines and Japan Air System,
Northwest is able to provide seamless global service and more choices to its
customers through code-sharing, frequent flyer program reciprocity, coordinated
scheduling of flights to permit convenient connections, airport facility
coordination and other cooperative activities. This coordination increases the
destinations, connections and frequencies offered by Northwest, and thus
provides an opportunity to increase traffic on flight segments connecting with
alliance partners. Code-sharing is an agreement under which an airline's flights
can be marketed under the two-letter
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designator code of another airline, thereby allowing the two carriers to provide
joint service with one aircraft.
Northwest and Continental are operating in the second year of 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 continue to operate
their two networks under separate identities. The combined network has resulted
in a domestic presence comparable to that of either United or American
Airlines, Inc. (as measured by ASMs for the twelve months ended December 31,
1999), provided Northwest access to Central and South America and increased its
Pacific presence.
Northwest and Continental currently code-share to 276 destinations. The
code-share flights serve six cities in Central America, four cities in South
America, 12 cities in Mexico, seven cities in the Caribbean, 16 cities in
Canada, six cities in Asia and 225 cities in the U.S. Northwest anticipates that
it will continue to increase its code-sharing with Continental. Through
increased domestic and international connections, Northwest has increased its
market share and enhanced its revenue. Other joint activities include airport
facility coordination, joint purchasing and certain coordinated sales programs.
Through combined purchasing power and increased efficiencies in airport
operations, Northwest is experiencing reduced operating costs.
In December 1999, Continental and KLM announced plans for a joint marketing
initiative which is to include through check-in, frequent flyer program
reciprocity, other cooperative activities, and, subject to governmental
approval, code-sharing on selected flights. Continental and Alitalia currently
code-share between the U.S. and Italy. Continental is expected to be included in
the trans-Atlantic joint venture alliance among Northwest, KLM and Alitalia.
Northwest has domestic marketing agreements with Alaska Airlines, America
West Airlines, Inc., Big Sky Airlines, Business Express Airlines, Continental
Express Airlines, Hawaiian Airlines and Horizon Air for code-sharing on some of
these carriers' routes and frequent flyer program reciprocity. In
February 2000, Northwest signed code-share agreements with Gulfstream
International Airlines and American Eagle Airlines. The primary purpose of these
arrangements is to provide increased connections between the airlines' route
networks so as to generate increased traffic into Northwest's domestic system
and international gateways.
Northwest's alliance with Air China connects the two carriers' networks and
also includes frequent flyer program reciprocity and joint marketing. Northwest
and Air China provide 17 flights each week between the U.S. and China.
Code-share service was expanded within the U.S. during 1999 and is planned to
include domestic routes within China in 2000. Northwest alliance partners,
Alaska Airlines, America West Airlines and Continental, have also entered into
alliance agreements with Air China. Northwest and its partners collectively
provide the most service, nonstop and one-stop, between the U.S. and China.
Northwest continues to expand its Pacific presence through additional
alliances. Northwest has implemented an alliance with Japan Air System, which
operates more domestic routes in Japan than any other carrier. The alliance
includes code-sharing, coordinated flight connections, traffic servicing and
reciprocal frequent flyer programs. Northwest also implemented an alliance with
Malaysia Airlines during 1999, and the two airlines have jointly applied to the
DOT for immunity from U.S. antitrust laws. Currently, Northwest is the only U.S.
airline serving Malaysia. Northwest also has code-sharing and reciprocal
frequent flyer programs with Pacific Island Aviation.
To further enhance Northwest's service in Europe, India, and Southeast Asia,
Northwest has code-sharing and reciprocal frequent flyer programs with Air Alps
Aviation, Air Engiadina, Braathens, Cyprus Airways, Eurowings, KLM exel, KLM uk
and Martinair. Northwest also has frequent flyer reciprocity with Garuda
Indonesia, Jet Airways Private Ltd. and Kenya Airways.
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CARGO
In 1999, cargo accounted for 7% of Northwest's operating revenues, with the
majority of its cargo revenues originating in or destined for Asia. Through its
Tokyo and Anchorage cargo hubs, Northwest serves most major air freight markets
between the U.S. and the Pacific with nine Boeing 747-200 freighter aircraft. A
tenth freighter was acquired in November 1999 and will begin scheduled service
in 2000. Northwest is one of only two U.S. passenger airlines to operate a
dedicated freighter fleet.
The trans-Pacific market is expected to be a leading growth market for the
air freight industry with most of the growth expected to originate from the
high-yield express business. Northwest is able to participate in the express
business due to its extensive network across the Pacific, its hubs at Tokyo and
Anchorage that allow for the efficient transfer of freight, and its dedicated
freighter fleet. The Company, along with KLM and Alitalia, launched a new
international product line, SELECT, in 1999. Initially offered from U.S. markets
to international markets, SELECT is a three-tier time-definite product that
gives customers more control over when each shipment arrives at a destination.
OTHER ACTIVITIES
MLT INC. MLT Inc. ("MLT") is among the largest vacation wholesale companies
in the U.S. In addition to its MLT Vacations charter program, MLT markets and
supports Northwest's WorldVacations and offers leisure fares to destinations
throughout the U.S., Canada, Mexico, the Caribbean, Europe and Asia, primarily
on Northwest.
NORTHWEST AEROSPACE TRAINING CORPORATION. Northwest Aerospace Training
Corporation ("NATCO") provides training and aircraft simulation services to
pilots for Northwest, other airlines, governments and corporations. The NATCO
training facility is among the world's largest aircraft simulation facilities,
with 21 full-flight simulators and training devices. NATCO's customer base
includes both domestic and international airlines. In 1999, NATCO had
$14 million in revenue from third parties.
WORLDSPAN. Northwest PARS, Inc. holds a 33.7% partnership interest in
WORLDSPAN, L.P. ("WORLDSPAN"). Worldspan operates and markets a computer
reservations and passenger processing system ("CRS") for the travel industry.
Delta Air Lines, Inc. and Trans World Airlines, Inc. own 40% and 26.3% of
Worldspan, respectively.
HOLDING COMPANY REORGANIZATION
On November 20, 1998 NWA Corp. effected a holding company reorganization. As
a result, Northwest Airlines Holding Corporation (formerly known as Northwest
Airlines Corporation and, prior to the reorganization, the publicly traded
holding company, "OLD NWA CORP.") became a direct wholly owned subsidiary of NWA
Corp. NWA Corp. is now the publicly traded holding company, which owns directly
Old NWA Corp. and indirectly the holding and operating subsidiaries of Old NWA
Corp. References in this prospectus supplement to NWA Corp. for time periods
prior to November 20, 1998 refer to Old NWA Corp.
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USE OF PROCEEDS
The proceeds from the sale of the Certificates of a Trust (collectively, the
"CERTIFICATES") will be used during the Delivery Period to purchase Equipment
Notes issued, at Northwest's election, either (i) by each Owner Trustee to
finance or refinance a portion of the purchase price of the Leased Aircraft or
(ii) by Northwest to finance or refinance a portion of the purchase price of the
Owned Aircraft. Proceeds to be used to purchase Equipment Notes to finance or
refinance future aircraft deliveries will be initially deposited with the
applicable Depositary on behalf of the applicable Escrow Agent of such Trusts.
Upon the request of the Trustees, the Escrow Agent will withdraw the applicable
Deposits and deliver such proceeds to the Trustees. All of the proceeds from the
sale of the Certificates will be used by the Trustee to purchase at par all of
the Equipment Notes subject to the circumstances described under "Description of
the Deposit Agreement--Unused Deposits."
DESCRIPTION OF THE CERTIFICATES
The Certificates offered hereby will be issued pursuant to three separate
Trust Supplements (each a "TRUST SUPPLEMENT") to be entered into among
Northwest, NWA Corp. and the Trustee pursuant to the terms of a pass through
trust agreement among NWA Corp., Northwest and the Trustee, dated as of June 3,
1999 (the "BASIC AGREEMENT"). The following summary of the particular terms of
the Certificates offered hereby supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and provisions of the
Certificates set forth in the accompanying Prospectus under the caption
"Description of the Certificates." The statements under this caption are a
summary and do not purport to be complete. The summary makes use of terms
defined in and is qualified in its entirety by reference to all of the
provisions of the Basic Agreement, a form of which has been filed as an exhibit
to the Registration Statement of which the accompanying Prospectus is a part,
and to all of the provisions of the Trust Supplements which, together with the
forms of the related Participation Agreements, Indentures, Leases and Trust
Agreements and the Liquidity Facilities, Note Purchase Agreement, Escrow
Agreements, Deposit Agreements and Intercreditor Agreement, will be filed by NWA
Corp. with the Commission as exhibits to a Current Report on Form 8-K, a
Quarterly Report on Form 10-Q or an Annual Report on Form 10-K. Except as
otherwise indicated, the following summary relates to each of the Trusts and the
Certificates issued by each Trust. The terms and conditions governing each of
the Trusts will be substantially the same, except as described under
"Description of the Intercreditor Agreement--Priority of Distributions" below
and except that the principal amount, the interest rate, scheduled repayments of
principal and maturity date applicable to the Equipment Notes held by each Trust
and the final expected distribution date (the "FINAL EXPECTED DISTRIBUTION
DATE") applicable to each Trust will differ. Citations to the relevant sections
of the Basic Agreement appear below in parentheses unless otherwise indicated.
GENERAL
The Certificates of each Trust will be issued in fully registered form only
and will be subject to the provisions described below under "--Book Entry;
Delivery and Form." Each Certificate will represent a fractional undivided
interest in one of three Northwest Airlines 2000-1 Pass Through Trust (the
"CLASS A TRUST," the "CLASS B TRUST," and the "CLASS C TRUST," and,
collectively, the "TRUSTS"). The Trusts will be formed pursuant to the Basic
Agreement, and the Trust Supplements (together with the Basic Agreement,
collectively, the "PASS THROUGH TRUST AGREEMENTS"). The Certificates are
referred to herein as the "CLASS A CERTIFICATES," the "CLASS B CERTIFICATES,"
and the "CLASS C CERTIFICATES." Each Certificate will represent a fractional
undivided interest in the Trust created by the Basic Agreement and the
applicable Trust Supplement pursuant to which such Certificate is issued.
The property of each Trust (the "TRUST PROPERTY") will consist of:
- Subject to the Intercreditor Agreement, Equipment Notes acquired under the
Note Purchase Agreement and issued, at Northwest's election, either
(a) on a nonrecourse basis by the trustees (each, an "OWNER TRUSTEE") of
separate owner trusts in each separate leveraged lease transaction
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with respect to each Leased Aircraft to finance or refinance a portion of
the purchase price of such Leased Aircraft by the Owner Trustee, in which
case the applicable Leased Aircraft will be leased to Northwest, or
(b) on a recourse basis by Northwest in connection with each separate
secured loan transaction with respect to each Owned Aircraft to finance or
refinance a portion of the purchase price of such Owned Aircraft by
Northwest.
- The rights of such Trust to acquire Equipment Notes under the Note
Purchase Agreement.
- The rights of such Trust under the applicable Escrow Agreement to request
the Escrow Agent to withdraw from the applicable Depositary funds
sufficient to enable each such Trust to purchase Equipment Notes during
the Delivery Period.
- The rights of such Trust under the Intercreditor Agreement (including all
monies receivable in respect of such rights).
- Monies receivable under the Liquidity Facility for such Trust.
- Funds from time to time deposited with the Trustee in accounts relating to
such Trust.
Certificates will be issued only in minimum denominations of $1,000 or
integral multiples thereof, except that one Certificate of each Trust may be
issued in a different denomination. (Section 3.01) (UNLESS OTHERWISE SPECIFIED,
"SECTION" REFERENCES REFER TO SECTIONS OF THE BASIC AGREEMENT.)
The Certificates represent interests in the respective Trusts and all
payments and distributions thereon will be made only from the Trust Property.
(Section 3.08) The Certificates do not represent an interest in or obligation of
Northwest, NWA Corp., the Trustee, any of the Loan Trustees or Owner Trustees in
their individual capacities, any Owner Participant or any affiliate of any
thereof.
Pursuant to the Escrow Agreement applicable to each Trust, the holders of
the Certificates of each Trust (the "CERTIFICATEHOLDERS") as holders of the
Escrow Receipts affixed to each Certificate will be entitled to certain rights
with respect to payments and withdrawals that are required to be made by the
applicable Depositary under the applicable Deposit Agreement. Accordingly, any
transfer of a Certificate will have the effect of transferring the corresponding
rights with respect to such payments, and rights with respect to payments and
withdrawals to be made under the applicable Deposit Agreement may not be
separately transferred by holders of the Certificates. Rights with respect to
the Deposits, payments and withdrawals to be made under the applicable Deposit
Agreement and the Escrow Agreement relating to a Trust, except for the right to
request withdrawals for the purchase of Equipment Notes, will not constitute
Trust Property of such Trust.
PAYMENTS AND DISTRIBUTIONS
The following description of distributions on the Certificates should be
read in conjunction with the description of the Intercreditor Agreement which
may have the consequence of altering the effect of the following provisions in a
default situation. See "Description of the Intercreditor Agreement--Priority of
Distributions." Interest with respect to the Equipment Notes held in each Trust
will accrue at the applicable rate per annum for Certificates to be issued by
such Trust set forth on the cover page of this prospectus supplement, payable on
April 1 and October 1 of each year, commencing on October 1, 2000 (or, in the
case of Equipment Notes issued after such date, commencing with the first such
date to occur after initial issuance thereof). The non-default interest rate
applicable to each Class of Certificates is referred to as the "STATED INTEREST
RATE" for such Trust. All such interest payments will be distributed to
Certificateholders of such Trust on each such date until the Final Distribution
Date for such Trust, subject to the Intercreditor Agreement. Interest is
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Interest will accrue on the Deposits relating to each Trust at a rate equal
to the interest rate applicable to the Certificates issued by such Trust. The
Deposits relating to a Trust and interest paid thereon will not be subject to
the subordination provisions applicable to the Certificates.
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Payments of interest on the Deposits with respect to each Trust will be made
by the applicable Depositary to the Paying Agent for distribution to the holders
of Escrow Receipts as described below. Payments of principal, premium (if any)
and interest on the Equipment Notes or with respect to other Trust Property held
in each Trust will be distributed by the Trustee to Certificateholders of such
Trust on the date receipt of such payment is confirmed, except in the case of
certain types of Special Payments.
Payments of interest applicable to the Certificates to be issued by each of
the Trusts will be supported by a separate Liquidity Facility to be provided by
the Liquidity Provider for the benefit of the holders of such Certificates in an
aggregate amount sufficient to pay interest thereon at the Stated Interest Rate
for such Trust on the next three successive Regular Distribution Dates (without
regard to any future payments of principal on such Certificates).
The Liquidity Facility with respect to each Trust does not cover interest
payable by the applicable Depositary on the Deposits relating to such Trust.
Furthermore, the Liquidity Facility does not provide for drawings thereunder to
pay for principal of or premium on such Certificates, any interest on such
Certificates in excess of the Stated Interest Rates, or, notwithstanding the
subordination provisions of the Intercreditor Agreement, principal of or
interest or premium on the Certificates of any other Class. Therefore, only the
holders of the Certificates to be issued by a particular Trust are entitled to
receive and retain the proceeds of drawings under the Liquidity Facility for
such Trust. See "Description of the Liquidity Facilities."
Payments of principal of the Equipment Notes are scheduled to be received by
the Trustee on April 1 and October 1 in certain years depending upon the terms
of the Equipment Notes held in such Trust.
Scheduled payments of interest on the Deposits and of interest or principal
on the Equipment Notes are herein referred to as "SCHEDULED PAYMENTS", and
April 1 and October 1 of each year are herein referred to as "REGULAR
DISTRIBUTION DATES." See "Description of the Equipment Notes--Principal and
Interest Payments." The "FINAL LEGAL DISTRIBUTION DATE" for the Class A
Certificates is
April 1, 2021, for the Class B Certificates is October 1, 2019, and for the
Class C Certificates is
October 1, 2011.
The Paying Agent with respect to each Escrow Agreement will distribute on
each Regular Distribution Date to the Certificateholders of the Trust to which
such Escrow Agreement relates all Scheduled Payments received in respect of the
related Deposits, the receipt of which is confirmed by the Paying Agent on such
Regular Distribution Date. The Trustee of each Trust will distribute, subject to
the Intercreditor Agreement, on each Regular Distribution Date to the
Certificateholders of such Trust all Scheduled Payments received in respect of
Equipment Notes held on behalf of such Trust, the receipt of which is confirmed
by the Trustee on such Regular Distribution Date. Each Certificateholder of each
Trust will be entitled to receive its proportionate share, based upon its
fractional interest in such Trust, of any distribution in respect of Scheduled
Payments of interest on the Deposits relating to such Trust and, subject to the
Intercreditor Agreement, of principal or interest on Equipment Notes held by the
Subordination Agent on behalf of such Trust. Each such distribution of Scheduled
Payments will be made by the applicable Paying Agent or Trustee to the
Certificateholders of record of the relevant Trust on the record date applicable
to such Scheduled Payment subject to certain exceptions. (Sections 4.01 and
4.02; Escrow Agreement, Section 2.03) If a Scheduled Payment is not received by
the applicable Paying Agent or Trustee on a Regular Distribution Date but is
received within five days thereafter, it will be distributed on the date
received to such holders of record. If it is received after such five-day
period, it will be treated as a Special Payment (as defined below) and
distributed as described below.
Any payment in respect of, or any proceeds of, any Equipment Note, a Trust
Indenture Estate under (and as defined in) any Leased Aircraft Indenture or
Collateral under (and as defined in) any Owned Aircraft Indenture other than a
Scheduled Payment (each, a "SPECIAL PAYMENT") will be
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distributed on, in the case of an early redemption or a purchase of any
Equipment Note, the date of such early redemption or purchase (which is a
Business Day), and otherwise on the Business Day specified for distribution of
such Special Payment pursuant to a notice delivered by each Trustee as soon as
practicable after the Trustee has received funds for such Special Payment (each
a "SPECIAL DISTRIBUTION DATE", each Special Distribution Date and Regular
Distribution Date, a "DISTRIBUTION DATE"). Any such distribution will be subject
to the Intercreditor Agreement.
Any unused Deposits to be distributed after the Delivery Period Termination
Date or the occurrence of a Triggering Event, together with accrued and unpaid
interest thereon (each, also a "SPECIAL PAYMENT"), will be distributed on a date
15 days after the Paying Agent has received notice of the event requiring such
distribution (also a "SPECIAL DISTRIBUTION DATE"). However, if such date is
within ten days before or after a Regular Distribution Date, such Special
Payment will be made on such Regular Distribution Date. Payments made on or with
respect to a Deposit are not subject to the Intercreditor Agreement.
Each Paying Agent, in the case of the Deposits, and each Trustee, in the
case of Trust Property, will mail a notice to the Certificateholders of the
applicable Trust stating the scheduled Special Distribution Date, the related
record date, the amount of the Special Payment and the reason for the Special
Payment. In the case of a redemption or purchase of the Equipment Notes held in
the related Trust or any distribution of unused Deposits after the Delivery
Period Termination Date or the occurrence of a Triggering Event, such notice
will be mailed not less than 15 days prior to the date such Special Payment is
scheduled to be distributed, and in the case of any other Special Payment, such
notice will be mailed as soon as practicable after the Trustee has confirmed
that it has received funds for such Special Payment. (Section 4.02(c); Trust
Supplements, Section 6.01; Escrow Agreement, Sections 2.03 and 2.06) Each
distribution of a Special Payment, other than a final distribution, on a Special
Distribution Date for any Trust will be made by the Paying Agent or the Trustee,
as applicable, to the Certificateholders of record of such Trust on the record
date applicable to such Special Payment. (Section 4.02(b)) See "--Indenture
Defaults and Certain Rights upon an Indenture Default" and "Description of the
Equipment Notes--Redemption."
Each Pass Through Trust Agreement will require that the Trustee establish
and maintain, for the related Trust and for the benefit of the
Certificateholders of such Trust, one or more non-interest bearing accounts (the
"CERTIFICATE ACCOUNT") for the deposit of payments representing Scheduled
Payments received by such Trustee. Each Pass Through Trust Agreement will
require that the Trustee establish and maintain, for the related Trust and for
the benefit of the Certificateholders of such Trust, one or more accounts (the
"SPECIAL PAYMENTS ACCOUNT") for the deposit of payments representing Special
Payments received by such Trustee, which are to be non-interest bearing except
in certain circumstances where the Trustee may invest amounts in such account in
certain permitted investments. Pursuant to the terms of each Pass Through Trust
Agreement, the Trustee will be required to deposit any Scheduled Payments
relating to the applicable Trust received by it in the Certificate Account of
such Trust and to deposit any Special Payments so received by it in the Special
Payments Account of such Trust. (Section 4.01; Trust Supplements, Section 3.01)
All amounts so deposited will be distributed by the Trustee on a Regular
Distribution Date or a Special Distribution Date, as appropriate.
(Section 4.02; Trust Supplements, Section 6.01)
Each Escrow Agreement requires that the Paying Agent establish and maintain,
for the benefit of the Receiptholders, one or more accounts (the "PAYING AGENT
ACCOUNT"), which are to be non-interest bearing. Pursuant to the terms of the
Escrow Agreement, the Paying Agent is required to deposit interest on Deposits
relating to such Trust and any unused Deposits withdrawn by the Escrow Agent in
the Paying Agent Account. All amounts so deposited will be distributed by the
Paying Agent on a Regular Distribution Date or Special Distribution Date, as
appropriate.
The final distribution for each Trust will be made only upon presentation
and surrender of the Certificates for such Trust at the office or agency of the
Trustee specified in the notice given by the
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Trustee of such final distribution. The Trustee will mail such notice of the
final distribution to the Certificateholders of such Trust, specifying the date
set for such final distribution and the amount of such distribution.
(Section 11.01) See "--Termination of the Trusts" below. Distributions in
respect of Certificates issued in global form will be made as described in
"--Book-Entry; Delivery and Form" below.
If any Distribution Date is a Saturday, Sunday or other day on which
commercial banks are authorized or required to close in New York, New York,
Minneapolis, Minnesota, Chicago, Illinois, Boston, Massachusetts or Salt Lake
City, Utah (any other day being a "BUSINESS DAY"), distributions scheduled to be
made on such Regular Distribution Date or Special Distribution Date will be made
on the next succeeding Business Day with the same force and effect as if made on
such scheduled date and without additional interest.
POOL FACTORS
The "POOL BALANCE" for each Trust or for the Certificates issued by any
Trust indicates, as of any date, the original aggregate face amount of the
Certificates of such Trust less the aggregate amount of all payments made in
respect of the Certificates of such Trust or in respect of Deposits relating to
such trust other than payments made in respect of interest or Make-Whole Premium
thereon or reimbursement of any costs and expenses in connection therewith. The
Pool Balance for each Trust as of any Regular Distribution Date or Special
Distribution Date shall be computed after giving effect to any Special
Distribution with respect to unused Deposits, the payment of principal if any on
the Equipment Notes or other Trust Property held in such Trust and the
distribution thereof to be made on that date.
The "POOL FACTOR" for each Trust as of any Regular Distribution Date or
Special Distribution Date is the quotient (rounded to the seventh decimal place)
computed by dividing (i) the Pool Balance by (ii) the original aggregate face
amount of the Certificates of such Trust. The Pool Factor for each Trust as of
any Regular Distribution Date or Special Distribution Date shall be computed
after giving effect to any Special Distribution with respect to unused Deposits,
the payment of principal if any on the Equipment Notes or other Trust Property
held in such Trust and the distribution thereof to be made on that date.
Assuming that no early redemption or purchase, or default, in respect of any
Equipment Notes shall have occurred, the Pool Factor for each Trust will be
1.0000000 on the date of issuance of the Certificates; thereafter, the Pool
Factor for each Trust will decline as described herein to reflect reductions in
the Pool Balance of such Trust. The amount of a Certificateholder's pro rata
share of the Pool Balance of a Trust can be determined by multiplying the par
value of the holder's Certificate of such Trust by the Pool Factor for such
Trust as of the applicable Regular Distribution Date or Special Distribution
Date. Notice of the Pool Factor and the Pool Balance for each Trust will be
mailed to Certificateholders of such Trust on each Regular Distribution Date and
Special Distribution Date.
The following table sets forth an illustrative aggregate principal
amortization schedule for the Equipment Notes held in each Trust (the "ASSUMED
AMORTIZATION SCHEDULE") and resulting Pool Factors with respect to such Trust.
The actual aggregate principal amortization schedule applicable to a Trust and
the resulting Pool Factors with respect to such Trust may differ from those set
forth below, since the amortization schedule for the Equipment Notes issued with
respect to an Aircraft may vary from such illustrative amortization schedule so
long as it complies with the Mandatory Economic Terms. The scheduled
distribution of principal payments for any Trust will be affected if any
Equipment Notes held in such Trust are redeemed or purchased or if a default in
payment on such Equipment Notes occurred. Accordingly, the aggregate principal
amortization schedule applicable to a Trust and the resulting Pool Factors may
differ from those set forth in the following table.
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<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------ ------------------------ ------------------------
SCHEDULED SCHEDULED SCHEDULED
PRINCIPAL EXPECTED PRINCIPAL EXPECTED PRINCIPAL EXPECTED
DATE PAYMENTS* POOL FACTOR PAYMENTS* POOL FACTOR PAYMENTS* POOL FACTOR
- ---- ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
October 1, 2000.......... -- -- --
April 1, 2001............ 3,318,849 2,575,247 6,654,412
October 1, 2001.......... 7,419,271 1,846,783 3,385,202
April 1, 2002............ 4,193,711 393,278 105,320
October 1, 2002.......... 4,011,483 934,139 526,694
April 1, 2003............ 4,363,890 1,083,746 1,387,451
October 1, 2003.......... 4,431,997 1,362,505 413,030
April 1, 2004............ 5,203,076 1,734,363 794,748
October 1, 2004.......... 3,878,429 1,292,813 373,706
April 1, 2005............ 5,034,745 1,678,252 2,596,012
October 1, 2005.......... 3,661,692 1,220,567 4,764,156
April 1, 2006............ 4,739,451 1,681,317 7,445,154
October 1, 2006.......... 4,021,486 1,692,470 1,182,228
April 1, 2007............ 4,330,986 1,055,970 11,019,181
October 1, 2007.......... 4,270,370 1,826,077 6,746,559
April 1, 2008............ 4,392,023 3,028,872 11,027,649
October 1, 2008.......... 5,101,182 772,753 --
April 1, 2009............ 4,236,380 809,512 3,977,730
October 1, 2009.......... 4,950,850 1,147,299 24,688,468
April 1, 2010............ 5,104,391 1,701,467 3,976,664
October 1, 2010.......... 5,235,693 2,254,958 --
April 1, 2011............ 5,388,756 1,645,773 --
October 1, 2011.......... 5,523,383 9,249,263 --
April 1, 2012............ 5,680,007 1,246,042 --
October 1, 2012.......... 5,855,899 7,326,602 --
April 1, 2013............ 6,109,656 3,506,925 --
October 1, 2013.......... 6,291,221 13,247,019 --
April 1, 2014............ 8,144,587 4,265,297 --
October 1, 2014.......... 10,203,688 6,482,073 --
April 1, 2015............ 8,637,271 2,995,395 --
October 1, 2015.......... 28,717,428 15,273,915 --
April 1, 2016............ 19,340,862 2,252,803 --
October 1, 2016.......... 3,528,016 -- --
April 1, 2017............ 7,900,159 -- --
October 1, 2017.......... 57,566,735 1,472,996 --
April 1, 2018............ 17,888,401 2,265,023 --
October 1, 2018.......... 7,589,180 -- --
April 1, 2019............ 9,988,014 -- --
October 1, 2019.......... 862,814 -- --
</TABLE>
- ------------------------
* Indicative only. Subject to change.
The final schedule of principal payments and the resulting schedule of Pool
Balances and Pool Factors may change from that set forth above as a result of
any reoptimization negotiated with an Owner Participant. In addition, the Pool
Factor and Pool Balance of each Trust will be recomputed if there has been an
early redemption, purchase, or a default in the payment of principal or interest
in respect of one or more issues of the Equipment Notes held in a Trust, as
described in "--Indenture Defaults and Certain Rights Upon an Indenture Default"
and "Description of the Equipment Notes--Redemption," or a special distribution
attributable to unused Deposits after the Delivery Period Termination Date or
the occurrence of a Triggering Event. In the event of (i) any such redemption,
purchase or default or (ii) any other change in the schedule of repayments from
the Assumed
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Amortization Schedule, the Pool Factors and the Pool Balances of each Trust so
affected will be recomputed after giving effect thereto and notice thereof will
be mailed to the Certificateholders of such Trust promptly after the Delivery
Period Termination Date in the case of clause (ii) and promptly after the
occurrence of any event described in clause (i).
REPORTS TO CERTIFICATEHOLDERS
On each Regular Distribution Date and Special Distribution Date, the
applicable Paying Agent and Trustee, as the case may be, will include with each
distribution of a Scheduled Payment or Special Payment, respectively, to
Certificateholders of the related Trust a statement, giving effect to such
distribution to be made on such Regular Distribution Date or Special
Distribution Date, setting forth the following information (per $1,000 aggregate
principal amount of Certificate for such Trust, as to (i), (ii), (iii) (iv) and
(v) below):
(i) the aggregate amount of funds distributed on such Distribution Date
under the Pass Through Trust Agreement and under the Escrow Agreement,
indicating the amount allocable to each source, including any portion
thereof paid by the Liquidity Provider;
(ii) the amount of such distribution under the Pass Through Trust
Agreement allocable to principal and the amount allocable to Make-Whole
Premium (if any);
(iii) the amount of such distribution under the Pass Through Trust
Agreement allocable to interest;
(iv) the amount of such distribution under the Escrow Agreement
allocable to interest.
(v) the amount of such distribution under the Escrow Agreement allocable
to unused Deposits, if any; and
(vi) the Pool Balance and the Pool Factor for such Trust.
(Section 4.03)
With respect to the Certificates registered in the name of Cede, as nominee
for DTC, on the record date prior to each Distribution Date, the applicable
Trustee will request from DTC a Securities Position Listing setting forth the
names of all DTC Participants reflected on DTC's books as holding interests in
the Certificates on such record date. On each Distribution Date, the applicable
Trustee will mail to each such DTC Participant the statement described above and
will make available additional copies as requested by such DTC Participant for
forwarding to holders of Certificates.
In addition, after the end of each calendar year, the applicable Paying
Agent and Trustee, as the case may be, will prepare for each Certificateholder
of each Trust at any time during the preceding calendar year a report containing
the sum of the amounts determined pursuant to clauses (i), (ii), (iii),
(iv) and (v) above with respect to the Trust for such calendar year or, in the
event such person was a Certificateholder during only a portion of such calendar
year, for the applicable portion of such calendar year, and such other items as
are readily available to such Trustee and which a Certificateholder shall
reasonably request as necessary for the purpose of such Certificateholder's
preparation of its U.S. federal income tax returns. (Section 4.03) Such report
and such other items shall be prepared on the basis of information supplied to
the applicable Paying Agent and Trustee, as the case may be, by the DTC
Participants and shall be delivered by such Trustee to such DTC Participants to
be available for forwarding by such DTC Participants to Certificate Owners in
the manner described above. See "--Book-Entry; Delivery and Form."
With respect to the Certificates issued in definitive form, the applicable
Trustee will prepare and deliver the information described above to each
Certificateholder of record of each Trust as the name of such Certificateholder
appears on the records of the registrar of the Certificates.
INDENTURE DEFAULTS AND CERTAIN RIGHTS UPON AN INDENTURE DEFAULT
An event of default under an Indenture (an "INDENTURE DEFAULT") will, with
respect to the Leased Aircraft Indentures, include an event of default under the
related Lease (a "LEASE EVENT OF DEFAULT"). Since the Equipment Notes issued
under an Indenture will be held in more than one Trust, a
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continuing Indenture Default under such Indenture would affect the Equipment
Notes held by each such Trust. There are no cross-default provisions in the
Indentures or Leases. Consequently, events resulting in an Indenture Default
under any particular Indenture may or may not result in an Indenture Default
under any other Indenture and events resulting in a Lease Event of Default under
one Lease may or may not result in a Lease Event of Default under any other
Lease. If an Indenture Default occurs in fewer than all of the Indentures,
notwithstanding the treatment of Equipment Notes issued under any Indenture
under which an Indenture Default has occurred, payments of principal and
interest on all of the Equipment Notes issued pursuant to Indentures with
respect to which an Indenture Default has not occurred will continue to be
distributed to the holders of the Certificates as originally scheduled, subject
to the Intercreditor Agreement. See "Description of the Intercreditor
Agreement--Priority of Distributions."
With respect to each Leased Aircraft, the applicable Owner Trustee and Owner
Participant will, under the related Indenture, have the right under certain
circumstances to cure Indenture Defaults that result from the occurrence of a
Lease Event of Default under the related Lease. If the Owner Trustee or the
Owner Participant exercises any such cure right, the Indenture Default will be
deemed to have been cured.
In the event that the same institution acts as Trustee of multiple Trusts,
in the absence of instructions from the Certificateholders of any such Trust,
such Trustee could be faced with a potential conflict of interest upon an
Indenture Default. In such event, the Trustee has indicated that it would resign
as Trustee of one or all such Trusts, and a successor trustee would be appointed
in accordance with the terms of the applicable Pass Through Trust Agreement.
State Street Bank and Trust Company of Connecticut, National Association will be
the initial Trustee under each Trust.
Upon the occurrence and continuation of any Indenture Default under any
Indenture, the Controlling Party will direct the Loan Trustee thereunder in the
exercise of remedies and may accelerate and sell all (but not less than all) of
the Equipment Notes issued under such Indenture to any person, subject to
certain limitations. The proceeds of such sale will be distributed pursuant to
the provisions of the Intercreditor Agreement. Any proceeds received by the
applicable Trustee upon any such sale shall be deposited in the applicable
Special Payments Account and shall be distributed to the Certificateholders of
such Trust on a Special Distribution Date. (Sections 4.01 and 4.02) The market
for Equipment Notes at the time of the existence of any Indenture Default may be
very limited, and there can be no assurance as to the price at which they could
be sold. If such Trustee sells any such Equipment Notes for less than their
outstanding principal amount, certain Certificateholders will receive a smaller
amount of principal distributions than anticipated and will not have any claim
for the shortfall against Northwest, NWA Corp., any Owner Trustee, any Owner
Participant, any Liquidity Provider or any Trustee.
Any amount, other than Scheduled Payments received on a Regular Distribution
Date or within five days thereafter, distributed to the Trustee of any Trust by
the Subordination Agent on account of the Equipment Notes or other Trust
Property held in such Trust following an Indenture Default under any Indenture
shall be deposited in the Special Payments Account for such Trust and shall be
distributed to the Certificateholders of such Trust on a Special Distribution
Date. (Section 4.02) In addition, if, following an Indenture Default under any
Leased Aircraft Indenture, the applicable Owner Participant or Owner Trustee
exercises its option to redeem or purchase the outstanding Equipment Notes
issued under such Leased Aircraft Indenture, the price paid by such Owner
Trustee for the Equipment Notes issued under such Indenture and distributed to
such Trust by the Subordination Agent shall be deposited in the Special Payments
Account for such Trust and shall be distributed to the Certificateholders of
such Trust on a Special Distribution Date. (Section 4.02)
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Any funds representing payments received with respect to any defaulted
Equipment Notes held in a Trust, or the proceeds from the sale of any Equipment
Notes, held by such Trustee in the Special Payments Account for such Trust
shall, to the extent practicable, be invested and reinvested by such Trustee in
Permitted Investments pending the distribution of such funds on a Special
Distribution Date. (Section 4.04) "PERMITTED INVESTMENTS" are defined as
obligations of the United States or agencies or instrumentalities thereof the
payment of which is backed by the full faith and credit of the United States and
which mature in not more than 60 days or such lesser time as is required for the
distribution of any such funds on a Special Distribution Date. (Section 1.01)
Each Pass Through Trust Agreement provides that the Trustee of the related
Trust shall, within 90 days after the occurrence of any default, give to the
Certificateholders of such Trust notice, transmitted by mail, of all uncured or
unwaived defaults with respect to such Trust known to it, provided that, except
in the case of default in the payment of principal, Make-Whole Premium, if any,
or interest on any of the Equipment Notes or other Trust Property held in such
Trust, the applicable Trustee shall be protected in withholding such notice if
it in good faith determines that the withholding of such notice is in the
interests of such Certificateholders. (Section 7.01) The term "default" as used
in this paragraph only with respect to any Trust means the occurrence of an
Indenture Default under any Indenture pursuant to which Equipment Notes held by
such Trust were issued, as described above, except that in determining whether
any such Indenture Default has occurred, any grace period or notice in
connection therewith will be disregarded.
Each Pass Through Trust Agreement contains a provision entitling the Trustee
of the related Trust, subject to the duty of such Trustee during a default to
act with the required standard of care, to be offered reasonable security or
indemnity by the holders of the Certificates of such Trust before proceeding to
exercise any right or power under such Pass Through Trust Agreement at the
request of such Certificateholders. (Section 7.02(e))
In certain cases, the holders of the Certificates of a Trust evidencing
fractional undivided interests aggregating not less than a majority in interest
of such Trust may on behalf of the holders of all the Certificates of such Trust
waive any past "event of default" and its consequences under the related Pass
Through Trust Agreement or, if the Trustee of such Trust is the Controlling
Party, may direct the Trustee to instruct the applicable Loan Trustee to waive
any past Indenture Default with respect to such Trust and thereby annul any
direction to such Loan Trustee with respect thereto, PROVIDED, HOWEVER, the
consent of each holder of a Certificate of a Trust is required to waive (i) a
default in the deposit of any Scheduled Payment or Special Payment or in the
distribution thereof, (ii) a default in payment of the principal, Make-Whole
Premium, if any, or interest with respect to any of the Equipment Notes held in
such Trust and (iii) a default in respect of any covenant or provision of the
related Pass Through Trust Agreement that cannot be modified or amended without
the consent of each Certificateholder of such Trust affected thereby.
(Section 6.05) Each Indenture will provide that, with certain exceptions, the
holders of the majority in aggregate unpaid principal amount of the Equipment
Notes issued thereunder may on behalf of all such holders waive any past default
or Indenture Default thereunder. Notwithstanding the foregoing provisions of
this paragraph, however, pursuant to the Intercreditor Agreement, only the
Controlling Party will be entitled to waive any such past default or Indenture
Default.
PURCHASE RIGHTS OF CERTIFICATEHOLDERS
Upon the occurrence and during the continuation of a Triggering Event, with
ten days' written notice to the Trustee and each other Certificateholder of the
same Class,
- the Class B Certificateholders shall have the right to purchase all, but
not less than all, of the Class A Certificates,
- the Class C Certificateholders shall have the right to purchase all, but
not less than all, of the Class A Certificates and the Class B
Certificates, and
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- if Class D Certificates have been issued, the Class D Certificateholders
shall have the right to purchase all, but not less than all, of the
Class A Certificates, the Class B Certificates and the Class C
Certificates,
in each case at a purchase price equal to the Pool Balance of the relevant Class
or Classes of Certificates plus accrued and unpaid interest thereon to the date
of purchase without Make-Whole Premium but including any other amounts due to
the Certificateholders of such Class or Classes. In each case, if prior to the
end of the ten-day period, any other Certificateholder of the same Class
notifies the purchasing Certificateholder that the other Certificateholder wants
to participate in such purchase, then such other Certificateholder may join with
the purchasing Certificateholder to purchase the Certificates pro rata based on
the interest in the Trust held by each Certificateholder.
PTC EVENT OF DEFAULT
A "PTC EVENT OF DEFAULT" is defined under each Pass Through Trust Agreement
as the failure to pay within 10 Business Days of the due date thereof
- the outstanding Pool Balance of the applicable Class of Certificates on
the Final Legal Distribution Date for such Class or
- interest due on the applicable Class of Certificates on any Distribution
Date (unless the Subordination Agent shall have made an Interest Drawing
or a withdrawal from the Cash Collateral Account for such class of
Certificates with respect thereto in an amount sufficient to pay such
interest and shall have distributed such amount to the Certificateholders
entitled thereto).
Any failure to make expected principal distributions on any Class of
Certificates on any Regular Distribution Date (other than the Final Legal
Distribution Date) will not constitute a PTC Event of Default with respect to
such Certificates. A PTC Event of Default with respect to the most senior Class
of Certificates resulting from an Indenture Default under all Indentures will
constitute a "TRIGGERING EVENT." The Final Legal Distribution Date is April 1,
2021 for the Class A Certificates, October 1, 2019 for the Class B Certificates
and October 1, 2011 for the Class C Certificates. For a discussion of the
consequences of a Triggering Event, see "Description of the Intercreditor
Agreement--Priority of Distributions."
OBLIGATION TO PURCHASE EQUIPMENT NOTES
Each Trustee will be obligated to purchase the Equipment Notes issued with
respect to the Aircraft during the Delivery Period, subject to the terms and
conditions of a note purchase agreement (the "NOTE PURCHASE AGREEMENT") and the
applicable Participation Agreement. Under the Note Purchase Agreement, Northwest
agrees to finance each Aircraft in the manner provided therein. Northwest will
have the option of entering into a leveraged lease financing or a secured debt
financing with respect to each Aircraft and will have the ability to convert an
Owned Aircraft to a Leased Aircraft and at the time of such conversion, if prior
to the Delivery Period Termination Date, to have the applicable Owner Trustee
issue reoptimized Leased Aircraft Notes to each Trustee (subject to the
Mandatory Economic Terms and written confirmation from each Rating Agency that
such conversion and/or such reoptimization will not result in a withdrawal,
suspension or downgrading of the ratings of any Class of Certificates) in
replacement for the Owned Aircraft Notes previously issued to each Trustee.
- If Northwest chooses to enter into a leveraged lease financing with
respect to an Aircraft (such Aircraft, a "LEASED AIRCRAFT"), the Note
Purchase Agreement provides for the relevant parties to enter into a
participation agreement (each, a "LEASED PARTICIPATION AGREEMENT"), a
Lease and an indenture (each, a "LEASED AIRCRAFT INDENTURE") relating to
the financing of such Leased Aircraft.
- If Northwest chooses to enter into a secured debt financing with respect
to an Aircraft (such Aircraft, an "OWNED AIRCRAFT"), the Note Purchase
Agreement provides for the relevant parties to enter into a participation
agreement (each, an "OWNED PARTICIPATION AGREEMENT", and together
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with the other Owned Participation Agreements and the Leased Aircraft
Participation Agreements, the "PARTICIPATION AGREEMENTS") and an indenture
(each, an "OWNED AIRCRAFT INDENTURE," and together with the other Owned
Aircraft Indentures and the Leased Aircraft Indentures, the "INDENTURES")
relating to the financing of such Owned Aircraft.
The description of such agreements in this prospectus supplement is based on
the forms of such agreements to be utilized pursuant to the Note Purchase
Agreement. In the case of a Leased Aircraft, the terms of the agreements
actually entered into may differ from the forms of such agreements and,
consequently, may differ from the description of such agreements contained in
this prospectus supplement. See "Description of the Equipment Notes." However,
under the Note Purchase Agreement, the terms of such agreements are required to
(a) contain the Mandatory Document Terms (as such Mandatory Document Terms are
permitted to vary in accordance with the terms of the Note Purchase Agreement)
and (b) not vary the Mandatory Economic Terms except as expressly provided
therein. In addition, Northwest is obligated (a) to certify to the Trustees that
any such modifications do not materially and adversely affect the
Certificateholders or (b) if such agreements are modified in any material
respect, to obtain written confirmation from each Rating Agency that the use of
such agreements will not result in a withdrawal, suspension or downgrading of
the rating of any Class of Certificates. Under the Note Purchase Agreement, it
is a condition precedent to the obligation of each Trustee to purchase the
Equipment Notes related to the financing of an Aircraft that no Triggering Event
has occurred. The Trustees have no right or obligation to purchase Equipment
Notes after the Delivery Period Termination Date.
The "MANDATORY ECONOMIC TERMS," as defined in the Note Purchase Agreement,
will require, among other things, that:
- The maximum principal amount of all the Equipment Notes issued with
respect to an Aircraft shall not exceed the maximum principal amount of
Equipment Notes indicated for each such Aircraft as set forth in the
following table:
<TABLE>
<CAPTION>
ACTUAL/EXPECTED MAXIMUM PRINCIPAL
REGISTRATION AMOUNT OF
AIRCRAFT TYPE NUMBER EQUIPMENT NOTES *
- ----------------------------------- --------------- -----------------
<S> <C> <C>
Airbus A319-100.................... N315NB 27,643,000
Airbus A319-100.................... N316NB 27,643,000
Airbus A319-100.................... N317NB 27,643,000
Airbus A319-100.................... N318NB 27,643,000
Airbus A319-100.................... N319NB 27,643,000
Airbus A319-100.................... N320NB 27,643,000
Airbus A319-100.................... N321NB 27,643,000
Airbus A319-100.................... N322NB 27,643,000
Airbus A319-100.................... N323NB 27,643,000
Airbus A319-100.................... N324NB 27,643,000
Airbus A319-100.................... N325NB 27,643,000
Airbus A319-100.................... N326NB 27,643,000
Boeing 757-200..................... N544US 33,624,000
Boeing 757-200..................... N545US 33,672,000
Boeing 757-200..................... N546US 33,717,600
Boeing 757-200..................... N547US 33,763,200
Boeing 757-200..................... N548US 33,763,200
Boeing 757-200..................... N549US 33,811,200
</TABLE>
---------------------------
* The actual principal amount issued for any Aircraft may be less than the
amounts set forth in this table depending upon the circumstances of the
financing of such Aircraft. The aggregate principal amount of all of the
equipment notes of each series will not exceed the aggregate face amount
of Certificates of the corresponding Class.
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<PAGE>
- The loan to aircraft value ratio with respect to each Aircraft (computed
on the basis of the Appraised Base Value of such Aircraft and the
Depreciation Assumption) at the time of issuance of the related Equipment
Notes and on any Regular Distribution Date thereafter shall not exceed the
amounts set forth in the following table:
<TABLE>
<CAPTION>
ACTUAL/
EXPECTED SERIES A SERIES B SERIES C
REGISTRATION EQUIPMENT EQUIPMENT EQUIPMENT
AIRCRAFT TYPE NUMBER NOTES NOTES NOTES
- -------------------------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C>
Airbus A319-100........... N315NB 41.9% 56.5% 70.2%
Airbus A319-100........... N316NB 41.9% 56.4% 70.1%
Airbus A319-100........... N317NB 41.6% 56.1% 69.7%
Airbus A319-100........... N318NB 41.6% 56.1% 69.7%
Airbus A319-100........... N319NB 41.5% 55.9% 69.4%
Airbus A319-100........... N320NB 41.4% 55.7% 69.2%
Airbus A319-100........... N321NB 41.2% 55.5% 69.0%
Airbus A319-100........... N322NB 41.2% 55.5% 68.9%
Airbus A319-100........... N323NB 41.1% 55.4% 68.8%
Airbus A319-100........... N324NB 41.1% 55.4% 68.8%
Airbus A319-100........... N325NB 40.9% 55.1% 68.5%
Airbus A319-100........... N326NB 40.9% 55.1% 68.4%
Boeing 757-200............ N544US 43.8% 59.1% 72.0%
Boeing 757-200............ N545US 43.8% 59.0% 72.0%
Boeing 757-200............ N546US 43.7% 58.9% 72.0%
Boeing 757-200............ N547US 43.7% 58.8% 72.0%
Boeing 757-200............ N548US 43.7% 58.8% 72.0%
Boeing 757-200............ N549US 43.6% 58.8% 72.0%
</TABLE>
- As of each Regular Distribution Date after the Delivery Period Termination
Date, the LTV for each Class of Certificates (computed as of any such date
on the basis of the Appraised Base Value of the Aircraft that have been
delivered and the Depreciation Assumption) will not exceed 41% for the
Class A Certificates, 55% for the Class B Certificates and 66% for the
Class C Certificates.
- The initial average life of the Series A Equipment Notes, the Series B
Equipment Notes and the Series C Equipment Notes on any Aircraft will not
be more than 14.5 years, 13.0 years and 8.0 years, respectively, in each
case from the Issuance Date.
- As of the first Regular Distribution Date following the Delivery Period
Termination Date the average life of each Class of Certificates (computed
without regard to the acceleration of any Equipment Notes and after giving
effect to any special distribution on the Certificates thereafter required
in respect of unused Deposits) shall be not less than the minimum nor more
than the maximum years set forth in the following table:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
EQUIPMENT EQUIPMENT EQUIPMENT
NOTES NOTES NOTES
---------- ---------- ----------
<S> <C> <C> <C>
Minimum 10.0 years 10.0 years 5.0 years
Maximum 12.95 11.5 7.0
</TABLE>
- The final maturity date of the Series A Equipment Notes, the Series B
Equipment Notes and the Series C Equipment Notes will not extend beyond
October 1, 2019, April 1, 2018 and April 1, 2010, respectively.
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<PAGE>
- At the earlier of the date on which all Aircraft have been delivered and
all Equipment Notes issued and the Delivery Period Termination Date, the
aggregate principal amount of each Series of Equipment Notes shall equal
the original aggregate face amount of the related Class of Certificates
without giving effect to any principal payments on such Equipment Notes
but after giving effect to any reductions to the Pool Balance for such
Class of Certificates from Deposits not used to purchase Equipment Notes
on or before such date.
- The interest rate applicable to each Series of Equipment Notes must be
equal to the rate applicable to the Certificates issued by the
corresponding Trust.
- The payment dates for the Equipment Notes and basic rent under the Leases
must be April 1 and October 1, provided that at Northwest's election,
basic rent may also be paid at the commencement of a Lease.
- Basic rent (and supplemental rent), stipulated loss values and termination
values under the Leases must be sufficient to pay amounts due with respect
to the related Equipment Notes.
- The amounts payable under the all-risk aircraft hull insurance maintained
with respect to each Aircraft must be sufficient to pay the applicable
stipulated loss value or, in the case of Owned Aircraft, unpaid principal
amount of the related Equipment Notes, subject to certain rights of
self-insurance.
- (a) The past due rate in the Indentures and the Leases, (b) the Make-Whole
Premium payable under the Indentures, (c) the provisions relating to the
redemption and purchase of Equipment Notes in the Indentures, (d) the
minimum liability insurance amount on Aircraft in the Leases and (e) the
indemnification of the Loan Trustees, Subordination Agent, Liquidity
Provider, Trustees, Escrow Agents and registered holders of the Equipment
Notes (in such capacity, the "NOTE HOLDERS") with respect to certain taxes
and expenses, in each case must be no less favorable to the Loan Trustees,
Subordination Agent, the Liquidity Provider, the Trustees, the Escrow
Agents and the Note Holders than as set forth in the form of Participation
Agreements, Lease and Indentures (collectively, the "AIRCRAFT OPERATIVE
AGREEMENTS").
The Mandatory Economic Terms are indicative only and subject to change prior
to the delivery of the Prospectus Supplement.
The "MANDATORY DOCUMENT TERMS" prohibit modifications in any material
adverse respect to certain specified provisions of the Aircraft Operative
Agreements annexed to the Note Purchase Agreement, as follows:
- In the case of the Indentures, the following modifications are prohibited:
(i) modifications to the Granting Clause of the Indentures so as to
deprive the Note Holders of a first priority security interest in
the Aircraft and, in the case of a Leased Aircraft, the Lease or to
eliminate the obligations intended to be secured thereby.
(ii) modifications to certain provisions relating to the issuance,
redemption, purchase, payments, and ranking of the Equipment Notes
(including the obligation to pay the Make-Whole Premium in certain
circumstances).
(iii) modifications to certain provisions regarding Indenture Defaults,
remedies relating thereto and rights of the Owner Trustee and Owner
Participant in such circumstances.
(iv) modifications to certain provisions relating to any replaced
airframe or engines with respect to an Aircraft.
(v) modifications to the provision that New York law will govern the
Indentures.
- In the case of the Lease, the following modifications are prohibited:
(i) modifications to certain provisions regarding the unconditional
obligation of Northwest to pay basic rent, stipulated loss value and
termination value to the Leased Aircraft Trustee.
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<PAGE>
(ii) modification of the obligations of Northwest to record the Leased
Aircraft Indenture with the Federal Aviation Administration and to
maintain such Indenture as a first-priority perfected mortgage on
the related Aircraft.
(iii) modification of the obligations of Northwest to furnish certain
opinions with respect to a replacement airframe.
(iv) modification of the obligations of Northwest to consent to the
assignment of the Lease by the Owner Trustee as collateral under
the Leased Aircraft Indenture, as well as modifications which would
either alter the provision that New York law will govern the Lease
or would deprive the Loan Trustee of rights expressly granted to it
under the Leases.
- In the case of the Participation Agreement, the following modifications
are prohibited:
(i) modifications to certain conditions to the obligations of the
Trustees to purchase the Equipment Notes issued with respect to an
Aircraft involving obtaining a certificate of airworthiness with
respect to such Aircraft, delivery of an opinion of outside counsel
with respect to the entitlement to the benefits of Section 1110 with
respect to such Aircraft and filings of certain documents with the
Federal Aviation Administration.
(ii) modifications to the provisions restricting the Note Holder's
ability to transfer such Equipment Notes.
(iii) modifications to certain provisions requiring the delivery of legal
opinions.
(iv) modifications to the provision that New York law will govern the
Participation Agreement.
- In the case of all of the Aircraft Operative Agreements, modifications are
prohibited in any material adverse respect as regards the interest of the
Note Holders, the Subordination Agent, the Liquidity Provider or the Loan
Trustee in the definition of "Make-Whole Premium."
Notwithstanding the foregoing, any such Mandatory Document Term may be
modified to correct or supplement any such provision which may be defective or
to cure any ambiguity or correct any mistake, provided that any such action does
not materially adversely affect the interests of the Note Holders, the
Subordination Agent, the Liquidity Provider, Loan Trustees or the
Certificateholders.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
Northwest will be prohibited from consolidating with or merging into any
other corporation or transferring substantially all of its assets as an entirety
to any other corporation unless
- the surviving successor or transferee corporation shall
(i) be a "citizen of the United States" as defined in
Section 40102(a)(15) of Title 49 of the United States Code, as
amended, relating to aviation (the "AVIATION ACT"),
(ii) be a United States certificated air carrier, and
(iii) expressly assume all of the obligations of Northwest contained in
the Pass Through Trust Agreements, the Indentures, the
Participation Agreements and the Leases, and any other operative
documents;
- immediately after giving effect to such transaction, no Lease Event of
Default, in the case of a Leased Aircraft, or an Indenture Default, in the
case of an Owned Aircraft shall have occurred and be continuing; and
- Northwest shall have delivered a certificate and an opinion or opinions of
counsel indicating that such transaction complies with such conditions.
(Section 5.02)
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<PAGE>
The Pass Through Trust Agreements and the Indentures will not contain any
covenants or provisions which may afford the applicable Trustee or
Certificateholders protection in the event of a highly leveraged transaction,
including transactions effected by management or affiliates, which may or may
not result in a change in control of Northwest or NWA Corp.
MODIFICATIONS OF THE PASS THROUGH TRUST AGREEMENTS AND CERTAIN OTHER AGREEMENTS
Each Pass Through Trust Agreement will contain provisions permitting, at the
request of the Company, the execution of amendments or supplements to such Pass
Through Trust Agreement or, if applicable, to the Deposit Agreements, the Escrow
Agreements, the Intercreditor Agreement, the Note Purchase Agreement or any
Liquidity Facility, without the consent of the holders of any of the
Certificates of such Trust:
- To provide for the formation of a Trust, to issue an additional series of
Certificates and to enter into Trust Supplements setting forth the terms
of any series of Certificates.
- To evidence the succession of another corporation to Northwest or NWA
Corp. and the assumption by such corporation of Northwest's or NWA
Corp.'s, as the case may be, obligations under such Pass Through Trust
Agreement, the Note Purchase Agreement or any Liquidity Facility.
- To add to the covenants of Northwest or NWA Corp. for the benefit of
holders of such Certificates or to surrender any right or power conferred
upon Northwest or NWA Corp. in such Pass Through Trust Agreement, the
Intercreditor Agreement, the Note Purchase Agreement or any Liquidity
Facility.
- Except where Certificateholder consent is required by the Trust Supplement
(Sections 9.02(1)-9.02(6)) and as described below, to correct or
supplement any provision of such Pass Through Trust Agreement, the Deposit
Agreements, the Escrow Agreements, the Intercreditor Agreement, the Note
Purchase Agreement or any Liquidity Facility which may be defective or
inconsistent with any other provision in such Pass Through Trust
Agreement, the Intercreditor Agreement, the Note Purchase Agreement or any
Liquidity Facility, as applicable, or to cure any ambiguity or to modify
any other provision with respect to matters or questions arising under
such Pass Through Trust Agreement, the Deposit Agreements, the Escrow
Agreements, the Intercreditor Agreement, the Note Purchase Agreement or
any Liquidity Facility, provided that such action will not materially
adversely affect the interests of the holders of such Certificates; to
correct any mistake in such Pass Through Trust Agreement, the
Intercreditor Agreement, the Note Purchase Agreement or any Liquidity
Facility; or, as provided in the Intercreditor Agreement, to give effect
to or provide for a Replacement Facility.
- To comply with any requirement of the Commission, any applicable law,
rules or regulations of any exchange or quotation system on which the
Certificates are listed, or any regulatory body.
- To modify, eliminate or add to the provisions of such Pass Through Trust
Agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement or any Liquidity
Facility to such extent as is necessary to continue the qualification of
such Pass Through Trust Agreement (including any supplemental agreement)
under the Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE
ACT"), or any similar federal statute enacted after the execution of such
Pass Through Trust Agreement, and to add to such Pass Through Trust
Agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement or any Liquidity
Facility such other provisions as may be expressly permitted by the Trust
Indenture Act.
- To evidence and provide for the acceptance of appointment under such Pass
Through Trust Agreement, the Deposit Agreements, the Escrow Agreements,
the Intercreditor Agreement, the Note Purchase Agreement or any Liquidity
Facility by a successor Trustee and to add to or
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<PAGE>
change any of the provisions of such Pass Through Trust Agreement, the
Deposit Agreements, the Escrow Agreements, the Intercreditor Agreement,
the Note Purchase Agreement or any Liquidity Facility as is necessary to
provide for or facilitate the administration of the Trusts under the Basic
Agreement by more than one Trustee.
In each case, such modification or supplement may not adversely affect the
status of the Trust as either a grantor trust under Subpart E, Part I of
Subchapter J of Chapter 1 of Subtitle A of the Code, or a partnership for U.S.
federal income tax purposes. (Trust Supplements, Section 5.01)
Each Pass Through Trust Agreement also contains provisions permitting the
execution, with the consent of the holders of the Certificates of the related
Trust evidencing fractional undivided interests aggregating not less than a
majority in interest of such Trust of supplemental trust agreements adding any
provisions to or changing or eliminating any of the provisions of such Pass
Through Trust Agreement the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement or any Liquidity Facility
to the extent applicable to such Certificateholders or of modifying the rights
and obligations of such Certificateholders under such Pass Through Trust
Agreement, the Deposit Agreements, the Escrow Agreements, the Intercreditor
Agreement, the Note Purchase Agreement or any Liquidity Facility. No such
amendment or supplement may, without the consent of the holder of each
Certificate so affected thereby:
- reduce in any manner the amount of, or delay the timing of, any receipt by
the Trustee of payments on the Equipment Notes or other Trust Property
held in such Trust or distributions in respect of any Certificate related
to such Trust, or change the date or place of any payment in respect of
any Certificate, or make distributions payable in coin or currency other
than that provided for in such Certificates, or impair the right of any
Certificateholder of such Trust to institute suit for the enforcement of
any such payment when due,
- permit the disposition of any Equipment Note held in such Trust, except as
provided in such Pass Through Trust Agreement, or otherwise deprive any
Certificateholder of the benefit of the ownership of the applicable
Equipment Notes,
- alter the priority of distributions specified in the Intercreditor
Agreement,
- reduce the percentage of the aggregate fractional undivided interests of
the Trust provided for in such Pass Through Trust Agreement, the consent
of the holders of which is required for any such supplemental trust
agreement or for any waiver provided for in such Pass Through Trust
Agreement or
- modify any of the provisions relating to the rights of the
Certificateholders in respect of the waiver of Events of Default or
receipt of payment. (Section 9.01)
In the event that a Trustee, as holder (or beneficial owner through the
Subordination Agent) of any Equipment Note in trust for the benefit of the
Certificateholders of the relevant Trust or as Controlling Party under the
Intercreditor Agreement, receives (directly or indirectly through the
Subordination Agent) a request for a consent to any amendment, modification,
waiver or supplement under any Indenture, any Participation Agreement, any
Lease, any Equipment Note or any other related document, the Trustee will
forthwith send a notice of such proposed amendment, modification, waiver or
supplement to each Certificateholder of the relevant Trust registered on the
register of such Trust as of the date of such notice. The Trustee will request
from the Certificateholders a direction as to:
- Whether or not to take or refrain from taking (or direct the Subordination
Agent to take or refrain from taking) any action which a holder of such
Equipment Note or the Controlling Party has the option to direct.
- Whether or not to give or execute (or direct the Subordination Agent to
give or execute) any waivers, consents, amendments, modifications or
supplements as a holder of such Equipment Note or as Controlling Party.
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<PAGE>
- How to vote (or direct the Subordination Agent to vote) any Equipment Note
if a vote has been called for with respect thereto.
Provided such a request for Certificateholder direction has been made, in
directing any action or casting any vote or giving any consent as the holder of
any Equipment Note (or in directing the Subordination Agent in any of the
foregoing):
- Other than as Controlling Party, the Trustee will vote for or give consent
to any such action with respect to such Equipment Note in the same
proportion as that of (x) the aggregate face amount of all Certificates
actually voted in favor of or for giving consent to such action by such
direction of Certificateholders to (y) the aggregate face amount of all
outstanding Certificates of the relevant Trust.
- As the Controlling Party, the Trustee will vote as directed in such
Certificateholder direction by the Certificateholders evidencing
fractional undivided interests aggregating not less than a majority in
interest in the relevant Trust.
For purposes of the second preceding sentence, a Certificate is deemed
"actually voted" if the Certificateholder has delivered to the Trustee an
instrument evidencing such Certificateholder's consent to such direction prior
to one Business Day before the Trustee directs such action or casts such vote or
gives such consent. Notwithstanding the foregoing, but subject to certain rights
of the Certificateholders under the relevant Pass Through Trust Agreement and
subject to the Intercreditor Agreement, the Trustee may, in its own discretion
and at its own direction, consent and notify the relevant Loan Trustee of such
consent (or direct the Subordination Agent to consent and notify the relevant
Loan Trustee of such consent) to any amendment, modification, waiver or
supplement under the relevant Indenture, Participation Agreement or Lease, any
relevant Equipment Note or any other related document, if an Indenture Default
under any Indenture has occurred and is continuing, or if such amendment,
modification, waiver or supplement does not materially adversely affect the
interests of the Certificateholders. (Section 10.01)
POSSIBLE ISSUANCE OF CLASS D CERTIFICATES
Series D Equipment Notes may be issued in connection with the financing of
Owned Aircraft or Leased Aircraft, which will be funded from sources other than
this offering. The sale of the Series D Equipment Notes may be funded through
the sale of Class D Certificates. No Series D Equipment Notes will be issued at
any time prior to the consummation of this offering. The Note Purchase Agreement
provides the ability to issue any Series D Equipment Notes is contingent upon
obtaining written confirmation from each Rating Agency that the issuance of such
Series D Equipment Notes will not result in a withdrawal or downgrading of the
rating of any Class of Certificates. If the Class D Certificates are issued, the
Trustee with respect to such Certificates will become a party to the
Intercreditor Agreement. See "Description of the Intercreditor Agreement." If
Series D Equipment Notes are issued to other than the Class D Trust, such
Series D Equipment Notes will nevertheless be subject to provisions of the
Intercreditor Agreement that allow the Controlling Party, during the continuance
of an Indenture Default, to direct the Loan Trustee in taking action under the
applicable Indenture and payments on the Series D Equipment Notes will be
subordinated to the Series A Equipment Notes, Series B Equipment Notes,
Series C Equipment Notes and drawings under the Liquidity Facilities.
TERMINATION OF THE TRUSTS
The obligations of Northwest, if any, and the Trustee with respect to a
Trust will terminate upon the distribution to Certificateholders of such Trust
of all amounts required to be distributed to them pursuant to the applicable
Pass Through Trust Agreement and the disposition of all property held in such
Trust. The Trustee will send to each Certificateholder of record of such Trust
notice of the termination of such Trust, the amount of the proposed final
payment and the proposed date for the
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<PAGE>
distribution of such final payment for such Trust. The final distribution to any
Certificateholder of such Trust will be made only upon surrender of such
Certificateholder's Certificates at the office or agency of the applicable
Trustee specified in such notice of termination. (Section 11.01)
THE TRUSTEE
The Trustee for each Trust will be State Street Bank and Trust Company of
Connecticut, National Association. With certain exceptions, the Trustee makes no
representations as to the validity or sufficiency of the Basic Agreement, the
Trust Supplements, the Certificates, the Equipment Notes, the Indentures, the
Leases or other related documents. (Sections 7.03 and 7.14) The Trustee of any
Trust shall not be liable, with respect to the Certificates of such Trust, for
any action taken or omitted to be taken by it in good faith in accordance with
the direction of the holders of a majority in principal amount of outstanding
Certificates of such Trust. Subject to certain provisions, the Trustee shall be
under no obligation to exercise any of its rights or powers under any Pass
Through Trust Agreement at the request of any holders of Certificates issued
thereunder unless there shall have been offered to the Trustee reasonable
indemnity. (Section 7.02(e)) Each Pass Through Trust Agreement provides that the
Trustee in their individual or any other capacity may acquire and hold
Certificates issued thereunder and, subject to certain conditions, may otherwise
deal with Northwest, NWA Corp. and with any Owner Trustee with the same rights
they would have if they were not the Trustee. (Section 7.04)
BOOK-ENTRY; DELIVERY AND FORM
Upon issuance, each Class of Certificates will be represented by one or more
fully registered global certificates. Each global certificate will be deposited
with, or on behalf of, The Depository Trust Company ("DTC") and registered in
the name of Cede & Co. ("CEDE"), or its nominee. No person acquiring an interest
in such Certificates ("CERTIFICATE OWNER") will be entitled to receive a
certificate representing such person's interest in such Certificates, except as
set forth in the Prospectus under "Book Entry Registration--Definitive
Certificates." Unless and until definitive certificates ("DEFINITIVE
CERTIFICATES") are issued under the limited circumstances described herein, all
references to actions by Certificateholders shall refer to actions taken by DTC
upon instructions from DTC Participants, and all references herein to
distributions, notices, reports and statements to Certificateholders shall
refer, as the case may be, to distributions, notices, reports and statements to
DTC or Cede, as the registered holder of such Certificates, or to DTC
Participants for distribution to Certificate Owners in accordance with DTC
procedures. "DTC PARTICIPANTS" refers to the participants in DTC who clear and
settle securities transactions through DTC's electronic book-entry system.
None of Northwest, NWA Corp. or the Trustee will have any liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Certificates held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
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<PAGE>
DESCRIPTION OF THE DEPOSIT AGREEMENTS
The following is a description of the particular terms of the Deposit
Agreements. The statements under this caption are summaries and do not purport
to be complete and are qualified in their entirety by reference to all of the
provisions of the Deposit Agreements, each of which will be filed as an exhibit
to an Annual Report on Form 10-K, a Quarterly Report on Form 10-Q, or to a
Current Report on Form 8-K to be filed by NWA Corp. with the Commission. The
provisions of the Deposit Agreements are substantially identical except as
otherwise indicated.
GENERAL
Pursuant to the Escrow Agreements, the Escrow Agent with respect to each
Trust will enter into a separate Deposit Agreement with the applicable
Depositary. Pursuant to the deposit agreements between the Escrow Agent and the
applicable Depositary (the "DEPOSIT AGREEMENTS"), the Depositaries will
establish separate accounts in the name of the Escrow Agent (each such account,
a "DEPOSIT ACCOUNT"). On the Issuance Date, the proceeds of this offering will
be deposited (each, a "DEPOSIT") into the Deposit Accounts by the Underwriters
on behalf of such Escrow Agent.
On each Regular Distribution Date the applicable Depositary will pay to the
Paying Agent on behalf of the applicable Escrow Agent, for distribution to the
holders of Escrow Receipts relating to the applicable Trust, an amount equal to
interest accrued on the Deposits relating to such Trust during the relevant
interest period at a rate per annum equal to the interest rate applicable to the
Certificates issued by such Trust.
In connection with the financing of each delivered Aircraft during the
Delivery Period, the Trustee for each of the Trusts will request that the Escrow
Agent relating to the applicable Trust withdraw from the Deposits relating to
the applicable Trust funds sufficient to enable the Trustee of such Trust to
purchase the Equipment Note of the series applicable to such Trust issued with
respect to such Aircraft. Accrued but unpaid interest on all such Deposits
withdrawn will be paid on the next Regular Distribution Date. Any portion of any
Deposit withdrawn which is not used to purchase such Equipment Note will be
re-deposited by each Trustee into an account relating to the applicable Trust.
The Deposits relating to the Trusts and interest paid thereon will not be
subject to the subordination provisions of the Intercreditor Agreement and will
not be available to pay any other amount in respect of the Certificates.
UNUSED DEPOSITS
The Trustees' obligations to purchase the Equipment Notes issued with
respect to each Aircraft are subject to satisfaction of certain conditions at
the time of delivery, as set forth in the Note Purchase Agreement and the
Participation Agreements. See "Description of the Certificates--Obligation to
Purchase Equipment Notes." No assurance can be given that all such conditions
will be satisfied at the time of delivery for each Aircraft. Moreover, with
respect to the Airbus A319-100 Aircraft, which will be newly manufactured, their
delivery as scheduled is subject to delays in the manufacturing process and to
that Aircraft manufacturer's right to postpone deliveries under its purchase
agreement with Northwest. See "Description of the Aircraft and
Appraisals--Deliveries of Aircraft." Depending on the circumstances of the
financing of each Aircraft, the maximum aggregate principal amount of Equipment
Notes may not be issued.
If any funds remain as Deposits with respect to any Trust at the Delivery
Period Termination Date or, if earlier, upon the acquisition by such Trusts of
the Equipment Notes with respect to all of the
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Aircraft, such funds will be withdrawn by the Escrow Agent and distributed, with
accrued and unpaid interest thereon to the holders of Escrow Receipts relating
to the respective Trust after at least 15 days' prior written notice. Such
distribution will include, in the case of Deposits relating to the Class A and
Class B Certificates, a premium payable by Northwest equal to the Deposit
Make-Whole Premium with respect to the remaining Deposits applicable to each
such Trust, provided that no Deposit Make-Whole Premium will be payable with
respect to unused Deposits attributable to the failure of an Aircraft to be
delivered prior to the Delivery Period Termination Date due to any reason not
occasioned by Northwest's fault or negligence. In the case of Deposits relating
to the Class C Certificates, any distribution of any unused amounts will include
a premium payable by Northwest equal to the Deposit Make-Whole Premium to the
extent (i) such distribution relates to the non-delivery of an Aircraft due to
Northwest's fault or negligence or (ii) the aggregate amount of all such
distributions relating to Class C Certificates (other than the amounts relating
to the non-delivery of an Aircraft due to any reason not occasioned by
Northwest's fault or negligence) exceeds $7,500,000.
"DEPOSIT MAKE-WHOLE PREMIUM" means, with respect to the distribution of
unused Deposits to holders of any Certificates, as of any date of determination,
an amount equal to the excess, if any, of (a) the present value of the excess of
(i) the scheduled payment of principal and interest to maturity of the related
Series of Equipment Notes, in a principal amount equal to the maximum principal
amount thereof (the "MAXIMUM AMOUNT") minus the sum of (1) the amount of
Deposits relating to any Aircraft not delivered due to any reason not occasioned
by Northwest's fault or negligence and (2) in the case of Class C Certificates,
$7,500,000, on each remaining Regular Distribution Date for such Class under the
Assumed Amortization Schedule over (ii) the scheduled payment of principal and
interest to maturity of the Equipment Notes actually acquired by the Trustee for
such Class on each such Regular Distribution Date, such present value computed
by discounting such excess on a semiannual basis on each Regular Distribution
Date (assuming a 360-day year of twelve 30-day months) using a discount rate
equal to the Treasury Yield plus basis points in the case of the Class A
Certificates, basis points in the case of the Class B Certificates and
basis points in the case of the Class C Certificates over (b) the amount
of such unused Deposits to be distributed to the holders of such Certificates
minus the sum of (1) the amount of Deposits relating to any Aircraft not
delivered due to any reason not occasioned by Northwest's fault or negligence
and (2) in the case of Class C Certificates, $7,500,000, plus accrued and unpaid
interest on such net amount to but excluding the date of determination from and
including the preceding Regular Distribution Date (or if such date of
determination precedes the first Regular Distribution Date, the date of issuance
of the Certificates).
DISTRIBUTION UPON OCCURRENCE OF A TRIGGERING EVENT
If a Triggering Event occurs prior to the Delivery Period Termination Date,
the Escrow Agent for the Trusts will withdraw any funds then held as Deposits
with respect to such Trusts and cause such funds, with accrued and unpaid
interest thereon but without any premium, to be distributed to the holders of
Escrow Receipts relating to such Trusts by the Paying Agent on behalf of the
Escrow Agent, after at least 15 days' prior written notice. Accordingly, if a
Triggering Event occurs prior to the Delivery Period Termination Date, the
Trusts will not acquire Equipment Notes issued with respect to Aircraft
delivered after the occurrence of such Triggering Event.
DEPOSITARY
ABN AMRO Bank N.V., acting through a United States branch, will act as
"Depositary" for each of the Class A, Class B and Class C Certificates.
ABN AMRO Bank N.V. is a direct subsidiary of ABN AMRO Holding N.V., an
international multi-bank holding company. At December 31, 1998, ABN AMRO Holding
N.V. reported consolidated
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assets amounting to approximately $504 billion (based on the exchange rate at
such date of U.S. $1.00 to NGL 1.8892). The accounting principles applied in the
preparation of the financial statements of ABN AMRO Bank N.V. may not conform to
U.S. generally accepted accounting principles.
ABN AMRO Bank N.V. has long-term unsecured debt ratings of Aa2 from Moody's
and AA from Standard & Poor's and short-term unsecured debt ratings of P-1 from
Moody's and A-1+ from Standard & Poor's.
DESCRIPTION OF THE ESCROW AGREEMENTS
The following is a description of the particular terms of the escrow and
paying agent agreements (the "ESCROW AGREEMENTS"). The statements under this
caption are summaries only and do not purport to be complete and are qualified
in their entirety by reference to all of the provisions of the Escrow
Agreements, each of which will be filed as an exhibit to an Annual Report on
Form 10-K, a Quarterly Report on Form 10-Q, or to a Current Report on Form 8-K
to be filed by NWA Corp. with the Commission. The provisions of the Escrow
Agreements are substantially identical except as otherwise indicated.
First Security Bank, National Association, as escrow agent in respect of the
Trusts (the "ESCROW AGENT"), State Street Bank and Trust Company, as paying
agent on behalf of the Escrow Agent in respect of each such Trust (the "PAYING
AGENT"), the Trustee of each of the Trusts and the Underwriters will enter into
a separate Escrow Agreement for the benefit of the Certificateholders of each
such Trust as holders of the Escrow Receipts affixed thereto (in such capacity,
a "RECEIPTHOLDER"). The proceeds of the offering of Certificates of each Trust
will be deposited by the Underwriters on behalf of the Escrow Agent (for the
benefit of Receiptholders) with the applicable Depositary as Deposits relating
to such Trusts.
Each Escrow Agent will permit the Trustee of the related Trust to cause
funds to be withdrawn from such Deposits on or prior to the Delivery Period
Termination Date for such Trustee to purchase the related Equipment Notes
pursuant to the Note Purchase Agreement. In addition, the Escrow Agent will
direct the applicable Depositary to pay interest on the Deposits accrued in
accordance with the Deposit Agreement to the Paying Agent for distribution to
the Receiptholders.
Each Escrow Agreement requires that the Paying Agent establish and maintain,
for the benefit of the related Receiptholders, one or more Paying Agent
Account(s), which are non-interest-bearing. The Paying Agent will deposit
interest on Deposits and any unused Deposits withdrawn by the Escrow Agent in
the related Paying Agent Account. The Paying Agent will distribute these amounts
on a Regular Distribution Date or Special Distribution Date, as appropriate.
Upon receipt by the applicable Depositary of a portion of the cash proceeds
from this Offering, the Escrow Agent will issue one or more escrow receipts
("ESCROW RECEIPTS") which will be affixed by the relevant Trustee to each
Certificate. Each Escrow Receipt evidences a fractional undivided interest in
amounts from time to time deposited into the Paying Agent Account and is limited
in recourse to amounts deposited into such account. An Escrow Receipt may not be
assigned or transferred except in connection with the assignment or transfer of
the Certificate to which it is affixed. Each Escrow Receipt will be registered
by the Escrow Agent in the same name and manner as the Certificate to which it
is affixed.
DESCRIPTION OF THE LIQUIDITY FACILITIES
The following summary describes certain terms of the Liquidity Facilities
and certain provisions of the Intercreditor Agreement relating to the Liquidity
Facilities. The summary does not purport to be
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complete and is qualified in its entirety by reference to the provisions of the
Liquidity Facilities and such provisions of the Intercreditor Agreement, each of
which will be filed as an exhibit to an Annual Report on Form 10-K, a Quarterly
Report on Form 10-Q, or a Current Report on Form 8-K to be filed by NWA Corp.
with the Commission. The provisions of the Liquidity Facilities are
substantially identical except as otherwise indicated.
GENERAL
The Liquidity Provider will enter into a separate revolving credit agreement
with the Subordination Agent (each, a "LIQUIDITY FACILITY") with respect to the
Certificates of each Trust pursuant to which the Liquidity Provider will make
one or more advances to the Subordination Agent that will be used solely to pay
interest on such Certificates when due, subject to certain limitations. The
Liquidity Facility for each Trust is intended to enhance the likelihood of
timely receipt by the Certificateholders of such Trust of the interest payable
on the Certificates of such Trust at the Stated Interest Rate therefor on up to
three consecutive semiannual Regular Distribution Dates. If interest payment
defaults occur which exceed the amount covered by or available under the
Liquidity Facility for a Trust, the Certificateholders of such Trust will bear
their allocable share of the deficiencies to the extent that there are no other
sources of funds. Although Credit Suisse First Boston, New York branch is the
initial Liquidity Provider for each Trust, Credit Suisse First Boston, New York
branch may be replaced by one or more other entities with respect to the Trusts
under certain circumstances. Therefore, the liquidity providers may differ.
DRAWINGS
The aggregate amount available under the Liquidity Facilities for each Trust
at October 1, 2001, the first Regular Distribution Date after the Delivery
Period Termination Date, assuming that Equipment Notes in the maximum principal
amount with respect to all Aircraft are acquired by the Trusts and that all
interest and principal due on or prior to October 1, 2001, is paid, will be
$ , $ , and $ , respectively.
Except as otherwise provided below, the Liquidity Facility for each Trust
will enable the Subordination Agent to make interest drawings ("INTEREST
DRAWINGS") thereunder on any Regular Distribution Date to pay interest then due
and payable on the Certificates of such Trust at the Stated Interest Rate for
such Trust to the extent that the amount, if any, available to the Subordination
Agent on such Regular Distribution Date is not sufficient to pay such interest.
The maximum amount available to be drawn under a Liquidity Facility with respect
to any Trust on any Regular Distribution Date to fund any shortfall of interest
on Certificates of such Trust will not exceed the then Maximum Available
Commitment under such Liquidity Facility.
"MAXIMUM AVAILABLE COMMITMENT" at any time under each Liquidity Facility is
an amount equal to the then Required Amount of such Liquidity Facility less the
aggregate amount of each Interest Drawing outstanding under such Liquidity
Facility at such time, provided that following a Downgrade Drawing, a Final
Drawing or a Non-Extension Drawing under a Liquidity Facility, the Maximum
Available Commitment under such Liquidity Facility will be zero.
"REQUIRED AMOUNT" means, for any day and with respect to any Trust, the sum
of the aggregate amount of interest, calculated at the Stated Interest Rate
applicable to the Certificates issued by such Trust, that would be payable on
such Certificates on each of the three successive semiannual Regular
Distribution Dates immediately following such day or, if such day is a Regular
Distribution Date, on such day and the succeeding two Regular Distribution
Dates, in each case calculated based on the Pool
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Balance for such Class on such day and without regard to expected future
payments of principal on such Certificates.
The Liquidity Facility for any Class of Certificates will not provide for
drawings thereunder to pay for principal of or premium on the Certificates of
such Class or any interest on the Certificates of such Class in excess of the
Stated Interest Rate for such Class or more than three semiannual installments
of interest thereon or principal of or interest or premium on the Certificates
of any other Class. (Liquidity Facilities, Section 2.02; Intercreditor
Agreement, Section 3.6) In addition, the Liquidity Facility with respect to each
Trust will not provide for drawings thereunder to pay any amounts payable with
respect to the Deposits relating to such Trust.
Each payment by the Liquidity Provider will reduce by the same amount the
Maximum Available Commitment under such Liquidity Facility, subject to
reinstatement as hereinafter described. With respect to any Interest Drawings
under a Liquidity Facility, upon reimbursement of the Liquidity Provider in full
for the amount of such Interest Drawings plus interest thereon, the Maximum
Available Commitment under such Liquidity Facility will be reinstated to an
amount not to exceed the then Required Amount of such Liquidity Facility;
provided, however, that such Liquidity Facility will not be so reinstated at any
time if (i) a Liquidity Event of Default has occurred and is continuing and
(ii) less than 65% of the then aggregate outstanding principal amount of all
Equipment Notes are Performing Equipment Notes. With respect to any other
drawings under such Liquidity Facility, amounts available to be drawn thereunder
are not subject to reinstatement. Following the reduction of the Pool Balance
for the applicable Trust, the Maximum Commitment of the Liquidity Facility for
such Trust will be automatically reduced from time to time to an amount equal to
the Required Amount for such Trust. (Liquidity Facilities, Section 2.04(a))
"PERFORMING EQUIPMENT NOTE" means an Equipment Note issued pursuant to an
Indenture with respect to which no payment default has occurred and is
continuing (without giving effect to any acceleration); provided that if a
bankruptcy proceeding is commenced involving Northwest under the Bankruptcy
Code, (a) any payment default existing during the 60-day period under
Section 1110(a)(1)(A) of the Bankruptcy Code (or such longer period as may apply
under Section 1110(b) of the Bankruptcy Code) (the "SECTION 1110 PERIOD") will
not be taken into consideration, unless during the Section 1110 Period the
trustee in such proceeding or Northwest refuses to assume or agree to perform
its obligations under the Lease related to such Equipment Note (in the case of a
Leased Aircraft) or under the Owned Aircraft Indenture related to such Equipment
Note (in the case of an Owned Aircraft), and (b) any payment default occurring
after the date of the order of relief in such proceeding will not be taken into
consideration if such payment default is cured under Section 1110(a)(1)(B) of
the Bankruptcy Code before the later of 30 days after the date of such default
or the expiration of the Section 1110 Period. (Intercreditor Agreement,
Section 1.1)
REPLACEMENT OF LIQUIDITY FACILITIES
If at any time the short-term unsecured debt rating of the Liquidity
Provider for any Trust then issued by either Rating Agency is lower than the
Threshold Rating applicable to such Trust, the Liquidity Facility provided by
such Liquidity Provider may be replaced by a Replacement Facility. If such
Liquidity Facility is not replaced with a Replacement Facility within 30 days
after notice of the downgrading and as otherwise provided in the Intercreditor
Agreement, the Subordination Agent will draw the then Maximum Available
Commitment under such Liquidity Facility (the "DOWNGRADE DRAWING"). The
Subordination Agent will deposit the proceeds of any Downgrade Drawing in a cash
collateral account (the "CASH COLLATERAL ACCOUNT") for such Class of
Certificates and will use these proceeds for the same purposes and under the
same circumstances and subject to the same conditions
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as cash payments of Interest Drawings under such Liquidity Facility would be
used. (Liquidity Facilities, Section 2.02(c); Intercreditor Agreement,
Section 3.6(c))
A "REPLACEMENT LIQUIDITY FACILITY" for any Liquidity Facility means an
irrevocable liquidity facility (or liquidity facilities) in substantially the
form of the replaced Liquidity Facility, including reinstatement provisions, or
in such other form (which may include a letter of credit) as will permit
Standard & Poor's and Moody's (the "RATING AGENCIES") to confirm in writing
their respective ratings then in effect for the Certificates (before downgrading
of such ratings, if any, as a result of the downgrading of the applicable
Liquidity Provider), in a face amount (or in an aggregate face amount) equal to
the amount of interest payable on the Certificates of such Trust (at the Stated
Interest Rate for such Trust, and without regard to expected future principal
payments) on the three Regular Distribution Dates following the date of
replacement of such Liquidity Facility (or if such day is a Regular Distribution
Date, on such day and the succeeding two Regular Distribution Dates) and issued
by a person (or persons) having unsecured short-term debt ratings issued by both
Rating Agencies that are equal to or higher than the Threshold Rating for the
relevant Class. (Intercreditor Agreement, Section 1.1) The provider of any
Replacement Facility will have the same rights (including, without limitation,
priority distribution rights and rights as "Controlling Party") under the
Intercreditor Agreement as the replaced initial Liquidity Provider.
"THRESHOLD RATING" means the short-term unsecured debt rating of P-1 by
Moody's and A-1+ by Standard & Poor's, in the case of the Class A Liquidity
Provider, and the short-term unsecured debt rating of P-1 by Moody's and A-1 by
Standard & Poor's, in the case of the Class B Liquidity Provider and the
Class C Liquidity Provider.
The Liquidity Facility for each Trust will provide that the relevant
Liquidity Provider's obligations thereunder will expire on the earliest of:
- 364 days after the initial issuance date of the Certificates ("ISSUANCE
DATE").
- The date on which the Subordination Agent delivers to such Liquidity
Provider a certification that all of the Certificates of such Trust have
been paid in full.
- The date on which the Subordination Agent delivers to such Liquidity
Provider a certification that a Replacement Liquidity Facility has been
substituted for such Liquidity Facility.
- The fifth Business Day following receipt by the Subordination Agent of a
Termination Notice from such Liquidity Provider (see "--Liquidity Events
of Default").
- The date on which no amount is or may (by reason of reinstatement) become
available for drawing under such Liquidity Facility.
- The date on which the Liquidity Provider honors a Downgrade Drawing, a
Non-Extension Drawing or a Final Drawing. (Liquidity Facilities, Sections
1.01 and 2.04(b))
Each Liquidity Facility provides that the scheduled expiration date thereof
may be extended for additional 364-day periods by mutual agreement.
The Intercreditor Agreement will provide for the replacement of any
Liquidity Facility for any Trust if it is scheduled to expire earlier than
15 days after the Final Legal Distribution Date for the Certificates of such
Trust if such Liquidity Facility is not extended at least 25 days prior to its
then scheduled expiration date. If such Liquidity Facility is not so extended or
replaced by the 25th day prior to its then scheduled expiration date, the
Subordination Agent will draw its then Maximum Available Commitment (the
"NON-EXTENSION DRAWING"). The Subordination Agent will deposit the proceeds of
the
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Non-Extension Drawing in the Cash Collateral Account for the related Class of
Certificates as cash collateral to be used for the same purposes and under the
same circumstances, and subject to the same conditions, as cash payments of
Interest Drawings under such Liquidity Facility would be used. (Liquidity
Facilities, Section 2.02(b); Intercreditor Agreement, Section 3.6(d))
Subject to certain limitations, Northwest may, at its option, arrange for a
Replacement Liquidity Facility at any time to replace any Liquidity Facility for
any Trust (including without limitation any Replacement Liquidity Facility
described in the following sentence). Subject to certain conditions, Credit
Suisse First Boston, New York branch, as the initial Liquidity Provider, may, at
its option, arrange for a Replacement Liquidity Facility for any Trust at any
time. In addition, any Liquidity Provider may, at its option, arrange for a
Replacement Liquidity Facility to replace a non-extended Liquidity Facility
during the period no earlier than 60 days and no later than 25 days prior to the
then scheduled expiration date of such Liquidity Facility. (Intercreditor
Agreement, Section 3.6(c) and (e)) If any Replacement Liquidity Facility is
provided at any time after a Downgrade Drawing or a Non-Extension Drawing under
any Liquidity Facility, the funds with respect to such Liquidity Facility on
deposit in the Cash Collateral Account for such Trust will be returned to the
Liquidity Provider being replaced. (Intercreditor Agreement, Section 3.6(f))
Upon receipt by the Subordination Agent of a Termination Notice with respect
to any Liquidity Facility from the applicable Liquidity Provider, the
Subordination Agent will request a final drawing ("FINAL DRAWING") under such
Liquidity Facility in an amount equal to the then Maximum Available Commitment
thereunder. The Subordination Agent will hold the proceeds of such Final Drawing
in the Cash Collateral Account for the related Trust as cash collateral to be
used for the same purposes and under the same circumstances, and subject to the
same conditions, as cash payments of Interest Drawings under such Liquidity
Facility would be used. (Liquidity Facilities, Section 2.02(d); Intercreditor
Agreement, Section 3.6(i))
REIMBURSEMENT OF DRAWINGS
The Subordination Agent must reimburse amounts drawn under any Liquidity
Facility by reason of an Interest Drawing, Final Drawing, Downgrade Drawing or
Non-Extension Drawing and interest thereon, but only to the extent that the
Subordination Agent has funds available therefor.
INTEREST DRAWINGS AND FINAL DRAWINGS
Amounts drawn by reason of an Interest Drawing or Final Drawing will be
immediately due and payable, together with interest on the amount of such
drawing. From the date of each such drawing to (but excluding) the third
business day thereafter, interest will accrue at the Base Rate plus 2.25% per
annum. Thereafter, interest will accrue at LIBOR for the applicable interest
period plus 2.25% per annum. In the case of the Final Drawing, however, the
Subordination Agent may (x) convert the Final Drawing into a drawing bearing
interest at the Base Rate plus 2.25% per annum on the last day of an Interest
Period for such Drawing or (y) elect to maintain the Final Drawing as a drawing
bearing interest at LIBOR for the applicable Interest Period plus 2.25% per
annum.
"BASE RATE" means a fluctuating interest rate per annum in effect from time
to time, which rate per annum is at all times equal to (a) the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a business day, for the next preceding business day) by the
Federal Reserve Bank of New York, or if such rate is not so published for any
day that is a business day, the average of the quotations for such day for such
transactions received by the applicable
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Liquidity Provider from three Federal funds brokers of recognized standing
selected by it, plus (b) one-quarter of one percent (0.25%) per annum.
"LIBOR" means, with respect to any interest period, (i) the rate per annum
appearing on display page 3750 (British Bankers Association--LIBOR) of the Dow
Jones Markets Service (or any successor or substitute therefor) at approximately
11:00 A.M. (London time) two business days before the first day of such interest
period, as the rate for dollar deposits with a maturity comparable to such
interest period, or (ii) if the rate calculated pursuant to clause (i) above is
not available, the average (rounded upwards, if necessary, to the next 1/16 of
1%) of the rates per annum at which deposits in dollars are offered for the
relevant interest period by three banks of recognized standing selected by the
applicable Liquidity Provider in the London interbank market at approximately
11:00 A.M. (London time) two business days before the first day of such interest
period in an amount approximately equal to the principal amount of the advance
to which such interest period is to apply and for a period comparable to such
interest period.
DOWNGRADE DRAWINGS AND NON-EXTENSION DRAWINGS
The amount drawn under any Liquidity Facility by reason of a Downgrade
Drawing or a Non-Extension Drawing will be treated as follows:
- Such amount will be released on any Distribution Date to the applicable
Liquidity Provider to the extent that such amount exceeds the Required
Amount.
- Any portion of such amount withdrawn from the Cash Collateral Account for
such Certificates to pay interest on such Certificates will be treated in
the same way as Interest Drawings.
- The balance of such amount will be invested in Eligible Investments.
Any Downgrade Drawing or Non-Extension Drawing under any of the Liquidity
Facilities, other than any portion thereof applied to the payment of interest on
the Certificates, will bear interest (i) at the Base Rate with respect to the
period from the date of such drawing to (but excluding) the third business day
thereafter, (ii) from and after such third business day, subject to clause (iii)
below, at a rate equal to LIBOR for the applicable Interest Period (and will
continue to be subject to payment of a commitment fee on the amount of such
Downgrade Drawing or Non-Extension Drawing) and (iii) from and after the date,
if any, on which it is converted into a Final Drawing as described under
"--Liquidity Events of Default", at a rate equal to LIBOR for the applicable
Interest Period (or, as described in the first paragraph under "--Interest
Drawings and Final Drawings" above, the Base Rate) plus 2.25% per annum.
LIQUIDITY EVENTS OF DEFAULT
Events of Default under each Liquidity Facility (each, a "LIQUIDITY EVENT OF
DEFAULT") will consist of:
- The acceleration of all the Equipment Notes (provided, that if such
acceleration occurs during the Delivery Period, the aggregate principal
amount thereof exceeds $300,000,000).
- Certain bankruptcy or similar events involving Northwest. (Liquidity
Facilities, Section 1.01)
If any Liquidity Event of Default under any Liquidity Facility has occurred
and is continuing and less than 65% of the aggregate outstanding principal
amount of all Equipment Notes are Performing Equipment Notes, the applicable
Liquidity Provider may, in its discretion, give a notice of termination
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of such Liquidity Facility (a "TERMINATION NOTICE"). The Termination Notice will
have the following consequences:
- The related Liquidity Facility will expire on the fifth Business Day after
the date on which such Termination Notice is received by the Subordination
Agent.
- The Subordination Agent will promptly request, and the applicable
Liquidity Provider will make, a Final Drawing thereunder in an amount
equal to the then Maximum Available Commitment thereunder.
- Any Drawing remaining unreimbursed as of the date of termination will be
automatically converted into a Final Drawing under such Liquidity
Facility.
- All amounts owing to the applicable Liquidity Provider automatically will
be accelerated.
Notwithstanding the foregoing, the Subordination Agent will be obligated to
pay amounts owing to the applicable Liquidity Provider only to the extent of
funds available therefor after giving effect to the payments in accordance with
the provisions set forth under "Description of the Intercreditor
Agreement--Priority of Distributions." (Liquidity Facilities, Section 6.01) Upon
the circumstances described below under "Description of the Intercreditor
Agreement--Intercreditor Rights--Controlling Party," a Liquidity Provider may
become the Controlling Party with respect to the exercise of remedies under the
Indentures. (Intercreditor Agreement, Section 2.6(c))
LIQUIDITY PROVIDER
The initial Liquidity Provider for the Class A Trust, Class B Trust and
Class C Trust will be Credit Suisse First Boston, New York branch. Credit Suisse
First Boston, New York branch is an affiliate of Credit Suisse First Boston
Corporation, which will act as an underwriter of the Certificates. Credit Suisse
First Boston has long-term unsecured debt ratings of A1 from Moody's and AA from
Standard & Poor's and short-term unsecured debt ratings of P-1 from Moody's and
A-1+ from Standard & Poor's.
The description of Credit Suisse First Boston, New York branch, has been
provided by Credit Suisse First Boston, New York branch. However, Credit Suisse
First Boston, New York branch, has not been involved in the preparation and does
not accept responsibility for this prospectus supplement.
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DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following summary describes certain provisions of the Intercreditor
Agreement. The summary does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Intercreditor Agreement which
will be filed as an exhibit to an Annual Report on Form 10-K, a Quarterly Report
on Form 10-Q, or to a Current Report on Form 8-K to be filed by NWA Corp. with
the Commission.
INTERCREDITOR RIGHTS
CONTROLLING PARTY
With respect to any Indenture at any given time, the Trustee and the
Liquidity Provider will agree that the Loan Trustee under such Indenture will be
directed in taking, or refraining from taking, any action under such Indenture
or with respect to the Equipment Notes issued under such Indenture, by the
holders of at least a majority of the outstanding principal amount of the
Equipment Notes issued under such Indenture, so long as no Indenture Default
(which, with respect to Leased Aircraft, has not been cured by the applicable
Owner Trustee or Owner Participant) has occurred and is continuing under such
Indenture. For so long as the Subordination Agent is the registered holder of
the Equipment Notes, the Subordination Agent will act with respect to the
preceding sentence in accordance with the directions of the Trustees for whom
the Equipment Notes issued under such Indenture are held as Trust Property, to
the extent constituting, in the aggregate, directions with respect to the
required principal amount of Equipment Notes. (Intercreditor Agreement,
Section 2.6(a))
At any time an Indenture Default has occurred and is continuing under an
Indenture (which, with respect to Leased Aircraft, has not been cured by the
applicable Owner Trustee or Owner Participant), the Loan Trustee under such
Indenture will be directed in taking, or refraining from taking, any action
thereunder or with respect to the Equipment Notes issued under the related
Indenture, including acceleration of such Equipment Notes or foreclosing the
lien on the related Aircraft, by the Controlling Party, subject to the
limitations described below. (Intercreditor Agreement, Section 2.6(a))
Notwithstanding the foregoing, no amendment, modification, consent or waiver
will, without the consent of each Liquidity Provider, reduce the amount of rent,
supplemental rent or termination values payable by Northwest under any Lease or
reduce the amount of principal or interest payable by Northwest under any
Equipment Note issued under any Owned Aircraft Indenture. (Intercreditor
Agreement, Section 9.1(b)) See "Description of the Certificates--Indenture
Defaults and Certain Rights Upon an Indenture Default" for a description of the
rights of the Certificateholders of each Trust to direct the respective
Trustees.
The "CONTROLLING PARTY" will be:
- The Class A Trustee until payment of Final Distributions to the holders of
Class A Certificates; and thereafter,
- The Class B Trustee until payment of Final Distributions to the holders of
Class B Certificates; and thereafter,
- The Class C Trustee; and
- Under certain circumstances, and notwithstanding the foregoing, the
Liquidity Providers holding a majority in interest of unreimbursed
Liquidity Obligations, as discussed in the next paragraph. (Intercreditor
Agreement, Section 2.6(c))
At any time after 18 months from the earliest to occur of (x) the date on
which the entire available amount under any Liquidity Facility has been drawn
(for any reason other than a Downgrade Drawing or a Non-Extension Drawing) and
any amount remains unreimbursed, (y) the date on which
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the entire amount of any Downgrade Drawing or Non-Extension Drawing has been
withdrawn from the relevant Cash Collateral Account to pay interest on the
relevant Class of Certificates and remains unreimbursed and (z) the date on
which all Equipment Notes have been accelerated (provided that if such
acceleration occurs prior to the Delivery Period Termination Date, the aggregate
principal amount thereof exceeds $300,000,000), the Liquidity Provider with the
highest outstanding amount of unreimbursed Liquidity Obligations (so long as
such Liquidity Provider has not defaulted in its obligation to make any advance
under any Liquidity Facility) will have the right to become the Controlling
Party with respect to any Indenture. (Intercreditor Agreement, Section 2.6(c))
For purposes of giving effect to the rights of the Controlling Party, the
Trustees (other than the Controlling Party) will irrevocably agree, and the
Certificateholders (other than the Certificateholders represented by the
Controlling Party) will be deemed to agree by virtue of their purchase of
Certificates, that the Subordination Agent, as record holder of the Equipment
Notes, will exercise its voting rights in respect of the Equipment Notes as
directed by the Controlling Party. (Intercreditor Agreement, Section 2.6(b)) For
a description of certain limitations on the Controlling Party's rights to
exercise remedies, see "Description of the Equipment Notes--Remedies."
"FINAL DISTRIBUTIONS" means, with respect to the Certificates of any Trust
on any Distribution Date, the sum of (x) the aggregate amount of all accrued and
unpaid interest on such Certificates (excluding interest payable, if any, on the
Deposits relating to such Trust) and (y) the Pool Balance of such Certificates
as of the immediately preceding Distribution Date (less the amount of the
Deposits for such Class of Certificates as of such preceding Distribution Date
other than any portion of such Deposits thereafter used to acquire Equipment
Notes pursuant to the Note Purchase Agreement). For purposes of calculating
Final Distributions with respect to the Certificates of any Trust, any premium
paid on the Equipment Notes held in such Trust that has not been distributed to
the Certificateholders of such Trust (other than such premium or a portion
thereof applied to the payment of interest on the Certificates of such Trust or
the reduction of the Pool Balance of such Trust) will be added to the amount of
such Final Distributions. (Intercreditor Agreement, Section 1.1)
SALE OF EQUIPMENT NOTES OR AIRCRAFT
Upon the occurrence and during the continuation of any Indenture Default
under any Indenture, the Controlling Party will be entitled to accelerate and,
subject to the provisions of the immediately following sentence, sell all (but
not less than all) of the Equipment Notes issued under such Indenture to any
person. So long as any Certificates are outstanding, during nine months after
the earlier of (x) the acceleration of the Equipment Notes under any Indenture
or (y) the bankruptcy or insolvency of Northwest, without the consent of each
Trustee, no Aircraft subject to the lien of such Indenture or such Equipment
Notes may be sold, if the net proceeds from such sale would be less than the
Minimum Sale Price for such Aircraft or such Equipment Notes. In addition, with
respect to any Leased Aircraft, the amount and payment dates of rentals payable
by Northwest under the Lease for such Leased Aircraft may not be adjusted, if,
as a result of such adjustment, the discounted present value of all such rentals
would be less than 75% of the discounted present value of the rentals payable by
Northwest under such Lease before giving effect to such adjustment.
"MINIMUM SALE PRICE" means, with respect to any Aircraft or the Equipment
Notes issued in respect of such Aircraft, at any time, the lesser of (x) 75% of
the Appraised Current Market Value of such Aircraft and (y) the aggregate
outstanding principal amount of such Equipment Notes, plus accrued and unpaid
interest thereon.
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PRIORITY OF DISTRIBUTIONS
BEFORE A TRIGGERING EVENT
So long as no Triggering Event has occurred, the payments in respect of the
Equipment Notes and certain other payments received on any Distribution Date
will be promptly distributed by the Subordination Agent on such Distribution
Date in the following order of priority:
- to the Liquidity Provider to the extent required to pay the Liquidity
Expenses;
- to the Liquidity Provider to the extent required to pay interest accrued
on the Liquidity Obligations;
- to the Liquidity Provider to the extent required to pay or reimburse the
Liquidity Provider for the Liquidity Obligations (other than amounts
payable pursuant to the two preceding clauses) and/or, if applicable, to
replenish each Cash Collateral Account up to the Required Amount;
- to the Class A Trustee to the extent required to pay Expected
Distributions on the Class A Certificates;
- to the Class B Trustee to the extent required to pay Expected
Distributions on the Class B Certificates;
- to the Class C Trustee to the extent required to pay Expected
Distributions on the Class C Certificates;
- if Class D Certificates have been issued, to the Class D Trustee to the
extent required to pay "Expected Distributions" (to be defined in a manner
equivalent to the definition below for other Classes of Certificates) on
the Class D Certificates; and
- to the Subordination Agent and each Trustee for the payment of certain
fees and expenses.
"LIQUIDITY EXPENSES" means all amounts owing to the Liquidity Providers
under the Liquidity Facilities or certain other agreements other than any
interest accrued thereon or the principal amount of any drawing under the
Liquidity Facilities.
"LIQUIDITY OBLIGATIONS" means all principal, interest, fees and other
amounts owing to the Liquidity Providers under the Liquidity Facilities or
certain other agreements.
"EXPECTED DISTRIBUTIONS" means, with respect to the Certificates of any
Trust on any Distribution Date (the "CURRENT DISTRIBUTION DATE"), the sum of
(1) accrued and unpaid interest on such Certificates (excluding interest, if
any, payable with respect to the Deposits relating to such Trust) and (2) the
difference between:
(A) the Pool Balance of such Certificates as of the immediately
preceding Distribution Date (or, if the Current Distribution Date is the
first Distribution Date, the original aggregate face amount of the
Certificates of such Trust); and
(B) the Pool Balance of such Certificates as of the Current Distribution
Date calculated on the basis that (i) the principal of the Equipment Notes
held in such Trust has been paid when due (whether at stated maturity, upon
redemption, prepayment, purchase, acceleration or otherwise) and such
payments have been distributed to the holders of such Certificates and
(ii) the principal of any Equipment Notes formerly held in such Trust that
have been sold has been paid in full and such payments have been distributed
to the holders of such Certificates, but without giving effect to any
reduction in the Pool Balance as a result of any distribution attributable
to Deposits occurring after the immediately preceding Distribution Date (or,
if the Current Distribution Date is the first Distribution Date, occurring
after the initial issuance of the Certificates of such Trust).
(Intercreditor Agreement, Section 1.1)
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For purposes of calculating Expected Distributions with respect to the
Certificates of any Trust, any premium paid on the Equipment Notes held in such
Trust that has not been distributed to the Certificateholders of such Trust
(other than such premium or a portion thereof applied to the payment of interest
on the Certificates of such Trust or the reduction of the Pool Balance of such
Trust) shall be added to the amount of such Expected Distributions.
AFTER A TRIGGERING EVENT
Subject to the terms of the Intercreditor Agreement, upon the occurrence of
a Triggering Event and at all times thereafter, all funds received by the
Subordination Agent in respect of the Equipment Notes and certain other payments
will be promptly distributed by the Subordination Agent in the following order
of priority:
- to the Subordination Agent, any Trustee, any Certificateholder and the
Liquidity Provider to the extent required to pay certain out-of-pocket
costs and expenses actually incurred by the Subordination Agent or any
Trustee or to reimburse any Certificateholder or the Liquidity Provider in
respect of payments made to the Subordination Agent or any Trustee in
connection with the protection or realization of the value of the
Equipment Notes or any Trust Indenture Estate (collectively, the
"ADMINISTRATION EXPENSES");
- to the Liquidity Provider to the extent required to pay the Liquidity
Expenses;
- to the Liquidity Provider to the extent required to pay interest accrued
on the Liquidity Obligations;
- (i) subject to the provisions of clause (ii), to the Liquidity Provider to
the extent required to pay the outstanding amount of all Liquidity
Obligations and/or, (ii) if applicable with respect to any particular
Liquidity Facility, to replenish the Cash Collateral Account with respect
to such Liquidity Facility up to the Required Amount for the related Class
of Certificates (less the amount of any repayments of Interest Drawings
under such Liquidity Facility while sub-clause (x) of this clause is
applicable) unless, in the case of this clause (ii), (x) less than 65% of
the aggregate outstanding principal amount of all Equipment Notes are
Performing Equipment Notes and a Liquidity Event of Default has occurred
and is continuing under such Liquidity Facility or (y) a Final Drawing has
occurred under such Liquidity Facility;
- to the Subordination Agent, any Trustee or any Certificateholder to the
extent required to pay certain fees, taxes, charges and other amounts
payable;
- to the Class A Trustee to the extent required to pay Adjusted Expected
Distributions on the Class A Certificates;
- to the Class B Trustee to the extent required to pay Adjusted Expected
Distributions on the Class B Certificates;
- to the Class C Trustee to the extent required to pay Adjusted Expected
Distributions on the Class C Certificates; and
- if Class D Certificates have been issued, to the Class D Trustee to the
extent required to pay "Adjusted Expected Distributions" (to be defined in
a manner equivalent to the definition below for other Classes of
Certificates) on the Class D Certificates.
"ADJUSTED EXPECTED DISTRIBUTIONS" means, with respect to the Certificates of
any Trust on any Current Distribution Date, the sum of (1) accrued and unpaid
interest on such Certificates (excluding interest, if any, payable with respect
to the Deposits relating to such Trust) and (2) the greater of:
(A) the difference between (x) the Pool Balance of such Certificates as
of the immediately preceding Distribution Date (or, if the Current
Distribution Date is the first Distribution Date, the
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original aggregate face amount of the Certificates of such Trust) and
(y) the Pool Balance of such Certificates as of the Current Distribution
Date calculated on the basis that (i) the principal of the Non-Performing
Equipment Notes held in such Trust has been paid in full and such payments
have been distributed to the holders of such Certificates, (ii) the
principal of the Performing Equipment Notes held in such Trust has been paid
when due (but without giving effect to any acceleration of Performing
Equipment Notes except to the extent monies are received as a result of such
acceleration) and such payments have been distributed to the holders of such
Certificates and (iii) the principal of any Equipment Notes formerly held in
such Trust that have been sold has been paid in full and such payments have
been distributed to the holders of such Certificates, but without giving
effect to any reduction in the Pool Balance as a result of any distribution
attributable to Deposits occurring after the immediately preceding
Distribution Date (or, if the Current Distribution Date is the first
Distribution Date, occurring after the initial issuance of the Certificates
of such Trust), and
(B) the amount of the excess, if any, of (i) the Pool Balance of such
Class of Certificates as of the immediately preceding Distribution Date (or,
if the Current Distribution Date is the first Distribution Date, the
original aggregate face amount of the Certificates of such Trust), less the
amount of the Deposits for such Class of Certificates as of such preceding
Distribution Date (or, if the Current Distribution Date is the first
Distribution Date, the original aggregate amount of the Deposits for such
Class of Certificates) other than any portion of such Deposits thereafter
used to acquire Equipment Notes pursuant to the Note Purchase Agreement,
over (ii) the Aggregate LTV Collateral Amount for such Class of Certificates
for the Current Distribution Date;
provided that, until the date of the initial LTV Appraisals, clause (B) will not
apply.
For purposes of calculating Expected Distributions or Adjusted Expected
Distributions with respect to the Certificates of any Trust, any premium paid on
the Equipment Notes held in such Trust that has not been distributed to the
Certificateholders of such Trust (other than such premium or a portion thereof
applied to the payment of interest on the Certificates of such Trust or the
reduction of the Pool Balance of such Trust) will be added to the amount of
Expected Distributions or Adjusted Expected Distributions.
"AGGREGATE LTV COLLATERAL AMOUNT" for any Class of Certificates for any
Distribution Date means (i) the sum of the applicable LTV Collateral Amounts for
each Aircraft, minus (ii) the Pool Balance for each Class of Certificates, if
any, senior to such Class, after giving effect to any distribution of principal
on such Distribution Date with respect to such senior Class or Classes.
"LTV COLLATERAL AMOUNT" of any Aircraft for any Class of Certificates means,
as of any Distribution Date, the lesser of (i) the LTV Ratio for such Class of
Certificates multiplied by the Appraised Current Market Value of such Aircraft
(or with respect to any such Aircraft which has suffered an Event of Loss under
and as defined in the relevant Lease, in the case of a Leased Aircraft, or
relevant Indenture, in the case of an Owned Aircraft, the amount of the
insurance proceeds paid to the related Loan Trustee in respect thereof to the
extent then held by such Loan Trustee (and/or on deposit in the Special Payments
Account) or payable to such Loan Trustee in respect thereof) and (ii) the
outstanding principal amount of the Equipment Notes secured by such Aircraft
after giving effect to any principal payments of such Equipment Notes on or
before such Distribution Date.
"LTV RATIO" means for the Class A Certificates 41%, for the Class B
Certificates 55% and for the Class C Certificates 65%. (Intercreditor Agreement,
Section 1.1)
"APPRAISED CURRENT MARKET VALUE" of any Aircraft means the lower of the
average and the median of the most recent three LTV Appraisals of such Aircraft.
After a Triggering Event occurs and any Equipment Note becomes a Non-Performing
Equipment Note, the Subordination Agent will obtain LTV Appraisals of the
Aircraft securing such Equipment Note as soon as practicable and additional
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LTV Appraisals on or prior to each anniversary of the date of such initial LTV
Appraisals; provided that if the Controlling Party reasonably objects to the
appraised value of the Aircraft shown in such LTV Appraisals, the Controlling
Party has the right to obtain or cause to be obtained substitute LTV Appraisals
(including LTV Appraisals based upon physical inspection of such Aircraft).
"LTV APPRAISAL" means a current fair market value appraisal (which may be a
"desk-top" appraisal) performed by any Appraiser or any other nationally
recognized appraiser on the basis of an arm's-length transaction between an
informed and willing purchaser under no compulsion to buy and an informed and
willing seller under no compulsion to sell and both having knowledge of all
relevant facts.
"NON-PERFORMING EQUIPMENT NOTE" means an Equipment Note that is not a
Performing Equipment Note.
Interest Drawings under the Liquidity Facility and withdrawals from the Cash
Collateral Account, in each case in respect of interest on the Certificates of
any Trust will be distributed to the Trustee for such Trust, notwithstanding the
priority of distributions set forth in the Intercreditor Agreement and otherwise
described herein. All amounts on deposit in the Cash Collateral Account for any
Trust which are in excess of the Required Amount for such Trust and all
investment earnings on such amounts on deposit in the Cash Collateral Account
will be paid to the Liquidity Provider.
VOTING OF EQUIPMENT NOTES
In the event that the Subordination Agent, as the registered holder of any
Equipment Note, receives a request for its consent to any amendment,
modification or waiver under such Equipment Note or other related document, if
no Indenture Default with respect thereto shall have occurred and be continuing,
the Subordination Agent shall request instructions for each Series of Equipment
Notes from the Trustee of the Trust which holds such Series of Equipment Notes.
The Trustee in turn will request directions from Certificateholders of such
Trust. The Trustee is not required to request directions if such consent will
not adversely affect the Certificateholders or an Event of Default shall have
occurred and be continuing under the Pass Through Agreement of such Trust. If
any Indenture Default shall have occurred and be continuing with respect to such
Indenture, the Subordination Agent will exercise its voting rights as directed
by the Controlling Party. (Intercreditor Agreement, Section 9.1(b))
ADDITION OF TRUSTEE FOR CLASS D CERTIFICATES
If the Class D Certificates are issued, the Class D Trustee will be a party
to the Intercreditor Agreement.
THE SUBORDINATION AGENT
State Street Bank and Trust Company, a Massachusetts trust company, will be
the Subordination Agent under the Intercreditor Agreement. Northwest and its
affiliates may from time to time enter into banking and trustee relationships
with the Subordination Agent and its affiliates. The Subordination Agent's
address is 2 International Place, 4(th) Floor, Boston, Massachusetts 02110,
Attention: Corporate Trust Department.
The Subordination Agent may resign at any time, in which event a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. Either the Controlling Party or the Liquidity Provider may remove the
Subordination Agent for cause as provided in the Intercreditor Agreement. In
such circumstances, a successor Subordination Agent will be appointed as
provided in the Intercreditor Agreement. Any resignation or removal of the
Subordination Agent and appointment of a successor Subordination Agent does not
become effective until acceptance of the appointment by the successor
Subordination Agent.
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DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The Aircraft are comprised of 12 new Airbus A319-100 Aircraft are scheduled
for delivery beginning in May 2000 and continuing through June 2001 and 6 Boeing
757-200 Aircraft which were delivered new to Northwest during 1996 (the period
beginning on the date of original issuance of the Certificates and ending on
September 30, 2001, is referred to herein as the "DELIVERY PERIOD"). The
Aircraft are designed to be in compliance with Stage III noise level standards,
which constitute the most restrictive regulatory standards currently in effect
in the United States for aircraft noise abatement.
The Airbus A319-100 Aircraft are narrowbody commercial jet aircraft. Seating
capacity in Northwest's two class configuration is 124 seats. These aircraft are
powered by two CFM56 model commercial jet engines manufactured by CFM
International, Inc. and have a two-person cockpit. These aircraft fly primarily
on Northwest's domestic route system.
The Boeing 757-200 Aircraft are narrowbody commercial jet aircraft. Seating
capacity in Northwest's two class configuration is 194 seats. These aircraft are
powered by two PW2037 model commercial jet engines manufactured by Pratt &
Whitney and have a two-person cockpit. These aircraft fly primarily on
Northwest's domestic route system.
See the Aircraft Appraisals in Appendix II for further information. The
table below sets forth certain additional information concerning the Aircraft.
<TABLE>
<CAPTION>
ACTUAL/
ACTUAL/ EXPECTED DATE APPRAISED BASE VALUE
EXPECTED MANUFACTURER'S DELIVERED OR -------------------------------------
AIRCRAFT REGISTRATION SERIAL SCHEDULED FOR APPRAISED
TYPE NUMBER(1) NUMBER(1) DELIVERY(2) AISI AVSOLUTIONS MBA BASE VALUE(3)
- --------------------- ------------ --------------- ------------------ ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Airbus A319-100 N315NB 1230 May 2000 40,800,000 39,470,000 37,930,000 39,400,000
Airbus A319-100 N316NB 1249 June 2000 40,870,000 39,470,000 38,000,000 39,446,667
Airbus A319-100 N317NB September 2000 41,070,000 39,760,000 38,230,000 39,686,667
Airbus A319-100 N318NB September 2000 41,070,000 39,760,000 38,230,000 39,686,667
Airbus A319-100 N319NB October 2000 41,140,000 40,050,000 38,310,000 39,833,333
Airbus A319-100 N320NB December 2000 41,280,000 40,050,000 38,460,000 39,930,000
Airbus A319-100 N321NB January 2001 41,340,000 40,340,000 38,540,000 40,073,333
Airbus A319-100 N322NB February 2001 41,410,000 40,340,000 38,620,000 40,123,333
Airbus A319-100 N323NB March 2001 41,480,000 40,340,000 38,700,000 40,173,333
Airbus A319-100 N324NB March 2001 41,480,000 40,340,000 38,700,000 40,173,333
Airbus A319-100 N325NB May 2001 41,610,000 40,630,000 38,860,000 40,366,667
Airbus A319-100 N326NB June 2001 41,680,000 40,630,000 38,940,000 40,416,667
Boeing 757-200 N544US 26491 May 1996 46,970,000 45,350,000 47,780,000 46,700,000
Boeing 757-200 N545US 26492 June 1996 46,970,000 45,350,000 47,980,000 46,766,667
Boeing 757-200 N546US 26493 July 1996 46,970,000 45,350,000 48,170,000 46,830,000
Boeing 757-200 N547US 26494 August 1996 46,970,000 45,350,000 48,360,000 46,893,333
Boeing 757-200 N548US 26495 August 1996 46,970,000 45,350,000 48,360,000 46,893,333
Boeing 757-200 N549US 26496 September 1996 46,970,000 45,350,000 48,560,000 46,960,000
</TABLE>
- ----------------------------------
(1) Actual Registration Numbers and Manufacturer's Serial Numbers for each
Boeing 757-200 Aircraft are indicated above. Expected Registration Numbers
and Manufacturer's Serial Numbers are provided for each Airbus A319-100
Aircraft, and expected Manufacturer's Serial Numbers for Airbus A319-100
Aircraft delivered through June 2000 are also indicated above.
Manufacturer's Serial Numbers for all other Airbus A319-100 Aircraft have
not yet been assigned by the manufacturer.
(2) Future dates reflect the scheduled delivery month under Northwest's purchase
agreement with the manufacturer. The actual delivery date for any
undelivered Aircraft may be subject to delay.
(3) The appraised base value of each Aircraft set forth above is based upon the
lesser of the average and median values of each Aircraft, as appraised by
each appraiser.
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APPRAISED VALUE
The appraised base values set forth in the foregoing chart were determined
by Aircraft Information Systems, Inc. ("AISI") as of March 28, 2000, AV
Solutions ("AVS") as of March 23, 2000 and Morten Beyer and Agnew, Inc. ("MBA",
and together with AISI and AVS, the "APPRAISERS") as of March 30, 2000. All
three Appraisers were asked to provide their respective opinion as to the
current appraised base value of each Boeing 757-200 Aircraft and the projected
base value as of the scheduled delivery month of each Airbus A319-100 Aircraft.
Each Appraiser performed a "desk-top" appraisal without any physical inspection
of the Aircraft. The Appraisals are based on various assumptions and
methodologies, which vary among the Appraisals. The Appraisers have delivered
letters summarizing their respective Appraisals, copies of which are annexed to
this prospectus supplement as Appendix II. For a definition of appraised base
value and discussion of the assumptions and methodologies used in preparing each
of the Appraisals, reference is hereby made to such summaries.
An appraisal is only an estimate of value and should not be relied upon as a
measure of realizable value. The proceeds realized upon the sale of any Aircraft
may be less than the appraised value thereof. In addition, the value of the
Aircraft in the event of the exercise of remedies under the applicable Indenture
will depend on market and economic conditions at the time, the availability of
buyers, the condition of the Aircraft, whether the Aircraft are sold separately
or as a block and other factors. Accordingly, there can be no assurance that the
proceeds realized upon any such exercise with respect to the Equipment Notes and
the Aircraft pursuant to the applicable Indenture would be as appraised or
sufficient to satisfy in full payments due on the Equipment Notes issued
thereunder or the Certificates.
DELIVERIES OF AIRCRAFT
The Airbus A319-100 Aircraft are scheduled for delivery from May 2000
through June 2001 under a purchase agreement between Northwest and the
manufacturer. See the table under "--The Aircraft" for the month or scheduled
month of delivery of each Airbus A319-100 Aircraft. Each of the Boeing 757-200
Aircraft was delivered new from the manufacturer between May and September 1996.
The purchase agreement for the Airbus A319-100 Aircraft provides that delivery
of an Aircraft may be delayed due to "EXCUSABLE DELAY," which is defined to
include delays in delivery or failure to deliver or perform due to causes
reasonably beyond Airbus' or any associated contractor's control or not
occasioned by Airbus' or any associated contractor's fault, misconduct or
negligence. Northwest cannot predict whether adjustments in such schedule will
be required.
If delivery of any Aircraft is delayed beyond the Delivery Period
Termination Date there will be unused Deposits that will be distributed to
Certificateholders together with accrued and unpaid interest thereon and, in
certain circumstances, a Deposit Make-Whole Premium. See "Description of the
Deposit Agreements--Unused Deposits."
If delivery of any Aircraft is delayed by more than 30 days after the month
scheduled for delivery, Northwest has the right to replace such Aircraft with a
Substitute Aircraft, subject to certain conditions. See "--Substitute Aircraft."
If delivery of any Aircraft is delayed beyond the Delivery Period Termination
Date and Northwest does not exercise its right to replace such Aircraft with a
Substitute Aircraft, there will be unused Deposits that will be distributed to
Certificateholders together with accrued and unpaid interest thereon but without
a premium. See "Description of the Deposit Agreements--Unused Deposits."
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SUBSTITUTE AIRCRAFT
If the delivery date for any Aircraft is delayed more than 30 days after the
month scheduled for delivery, Northwest may identify for delivery a substitute
aircraft (each, together with the substitute aircraft referred to below, a
"SUBSTITUTE AIRCRAFT" therefor meeting the following conditions:
- A Substitute Aircraft must be substantially the same as the Aircraft for
which delivery was delayed and manufactured after the Issuance Date.
- After giving effect to the substitution the maximum principal amount of
Equipment Notes of each Series issued in respect of the Substitute
Aircraft under the Mandatory Economic Terms would not exceed the maximum
principal amount of the Equipment Notes of each Series that could have
been issued under the Mandatory Economic Terms in respect of the replaced
Aircraft.
- Northwest will be obligated to obtain written confirmation from each
Rating Agency that substituting such Substitute Aircraft for the replaced
Aircraft will not result in a withdrawal, suspension or downgrading of the
ratings of any Class of Certificates.
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DESCRIPTION OF THE EQUIPMENT NOTES
The following description of the terms of the Equipment Notes supplements
(and, to the extent inconsistent therewith, replaces) the description of the
general terms and provisions relating to the Equipment Notes, the Indentures,
the Leases, the Participation Agreements, the trust agreements under which the
Owner Trustees act on behalf of the Owner Participants (the "TRUST AGREEMENT")
and the Note Purchase Agreement set forth in the Prospectus. The summaries make
use of terms defined in and are qualified in their entirety by reference to all
of the provisions of the Equipment Notes, the Indentures, the Leases, the
Participation Agreements, the Trust Agreements and the Note Purchase Agreement,
which will be filed as exhibits to an Annual Report on Form 10-K, a Quarterly
Report on Form 10-Q, or a Current Report on Form 8-K to be filed by NWA Corp.
with the Commission. Except as otherwise indicated, the following summaries
relate to the Equipment Notes, the Indenture, the Lease, the Participation
Agreement and the Trust Agreement that may be applicable to each Aircraft.
GENERAL
The Equipment Notes will be issued in three series: the "SERIES A EQUIPMENT
NOTES," the "SERIES B EQUIPMENT NOTES" and the "SERIES C EQUIPMENT NOTES,"
(together the "EQUIPMENT NOTES") with respect to each Aircraft. The Equipment
Notes with respect to each Leased Aircraft (the "LEASED AIRCRAFT NOTES") will be
issued under a separate Leased Aircraft Indenture between First Security Bank,
National Association, as Owner Trustee of a trust for the benefit of the owner
participant that will be the beneficial owner of such Aircraft (the "OWNER
PARTICIPANT"), and State Street Bank and Trust Company, as Leased Aircraft
Trustee. The Equipment Notes with respect to each Owned Aircraft (the "OWNED
AIRCRAFT NOTES") will be issued under a separate Owned Aircraft Indenture
between Northwest and State Street Bank and Trust Company, as Owned Aircraft
Trustee. The Indentures will not provide for defeasance, or discharge upon
deposit of cash or certain obligations of the United States, notwithstanding the
description of defeasance in the Prospectus.
The related Owner Trustee will lease each Leased Aircraft to Northwest
pursuant to a separate Lease between such Owner Trustee and Northwest with
respect to such Leased Aircraft. Under each Lease, Northwest will be obligated
to make or cause to be made rental and other payments to the related Leased
Aircraft Trustee on behalf of the related Owner Trustee, which rental and other
payments will be at least sufficient to pay in full when due all payments
required to be made on the Equipment Notes issued with respect to such Leased
Aircraft. The Equipment Notes issued with respect to the Leased Aircraft are
not, however, obligations of, or guaranteed by, Northwest. Northwest's rental
obligations under each Lease and obligations under the Equipment Notes issued
with respect to each Owned Aircraft will be general obligations of Northwest.
SUBORDINATION
Series B Equipment Notes issued in respect of an Aircraft will be
subordinated in right of payment to Series A Equipment Notes issued in respect
of such Aircraft; Series C Equipment Notes issued in respect of such Aircraft
will be subordinated in right of payment to such Series B Equipment Notes.
(Indentures, Section 2.15) On each Equipment Note payment date, (i) payments of
interest and principal due on Series A Equipment Notes issued in respect of an
Aircraft will be made prior to payments of interest and principal due on
Series B Equipment Notes issued in respect of such Aircraft; and (ii) payments
of interest and principal due on Series B Equipment Notes issued in respect of
an Aircraft will be made prior to payments of interest and principal due on
Series C Equipment Notes issued in respect of such Aircraft. (Indentures,
Article III)
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PRINCIPAL AND INTEREST PAYMENTS
Subject to the provisions of the Intercreditor Agreement, interest paid on
the Equipment Notes held in each Trust will be passed through to the
Certificateholders of each such Trust on the dates and at the rate per annum set
forth on the cover page of this prospectus supplement until the final expected
Regular Distribution Date for such Trust. Subject to the provisions of the
Intercreditor Agreement, principal paid on the Equipment Notes held in each
Trust will be passed through to the Certificateholders of such Trust in
scheduled amounts until the final expected Regular Distribution Date for such
Trust.
Interest will be payable on the unpaid principal amount of each Equipment
Note at the rate applicable to such Equipment Note on April 1 and October 1, of
each year, commencing on the first such date to occur after initial issuance
thereof. Such interest will be computed on the basis of a 360-day year of twelve
30-day months. Overdue amounts of principal, Make-Whole Premium and interest on
such Series of Equipment Notes will bear interest at a rate equal to at least
1.00% per annum over the applicable rate on such Series of Equipment Notes.
Scheduled principal payments on the Equipment Notes will be made on April 1
and October 1 in certain years, commencing on October 1, 2001 or on the first
Regular Distribution Date to occur after such Aircraft is delivered to the
Company. See "Description of the Certificates--Pool Factors" for a discussion of
the scheduled payments of principal of the Equipment Notes and possible
revisions thereto.
The final payment made under each Equipment Note will be in an amount
sufficient to discharge in full the unpaid principal amount, Make-Whole Premium
(if any) and to the extent permitted by law, interest and any other amounts
payable but unpaid.
If any date scheduled for a payment of principal, premium (if any) or
interest with respect to the Equipment Notes is not a Business Day, such payment
will be made on the next succeeding Business Day with the same force and effect
as if made on such scheduled payment date and without any additional interest.
REDEMPTION
If an Event of Loss occurs with respect to an Aircraft and such Aircraft is
not replaced by Northwest under the related Lease (in the case of a Leased
Aircraft) or under the related Owned Aircraft Indenture (in the case of an Owned
Aircraft), the Equipment Notes issued with respect to such Aircraft will be
redeemed, in whole, in each case at a price equal to the aggregate unpaid
principal amount thereof, together with accrued interest thereon, to the date of
redemption and other amounts payable to the holders of the Equipment Notes under
the applicable Indenture and Participation Agreement, but without premium, on a
Special Distribution Date. (Indentures, Section 2.10(a))
If Northwest exercises its right to terminate a Lease under its voluntary
termination or early buyout options under such Lease, the Equipment Notes
relating to the applicable Leased Aircraft will be redeemed (unless Northwest
elects to assume the Equipment Notes on a full recourse basis), in whole, on a
Special Distribution Date at a price equal to the aggregate unpaid principal
amount thereof, together with accrued interest thereon to, but not including,
the date of redemption, plus a Make-Whole Premium PROVIDED that in lieu of
redeeming the Leased Aircraft Notes in connection with any such purchase of an
Aircraft, Northwest may elect to assume all of the obligations of the relevant
Owner Trustee under the related Leased Aircraft Indenture pursuant to
Section 2.13 of the Leased Aircraft Indenture and Section 8(x) of the relevant
Leased Aircraft Participation Agreement. In connection with any such assumption
of the Owner Trustee's obligations in respect of the Leased Aircraft Notes, the
Leased Aircraft Indenture will be amended and restated to be substantially the
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same as an Owned Aircraft Indenture. In addition, as conditions to any such
assumption, NWA Corp. shall deliver a guaranty of the Leased Aircraft Notes
substantially in the form of the Guaranty and Northwest shall deliver an opinion
of counsel that (i) such assumption has been duly and validly effected and
(ii) holders of such Equipment Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such assumption and will be subject
to federal income tax on the same amount and in the same manner and at the same
time as would have been the case if such assumption had not occurred. Upon the
effectiveness of such assumption, the Owner Trustee and the Owner Participant
will be released from further obligations under the related Leased Aircraft
Indenture and the related Leased Aircraft Participation Agreement. (Leased
Aircraft Indentures, Sections 2.10(b) and 2.13; Leased Aircraft Participation
Agreements, Section 8(x); Leases, Section 19(d)) See "--The Leases and Certain
Provisions of the Owned Aircraft Indentures--Renewal and Purchase Options."
All, but not less than all, of the Equipment Notes issued with respect to a
Leased Aircraft may be redeemed prior to maturity as part of a refunding or
refinancing thereof under Section 17 of the applicable Participation Agreement
or otherwise with the consent of Northwest, and all of the Equipment Notes
issued with respect to the Owned Aircraft may be redeemed in whole prior to
maturity at any time at the option of Northwest, in each case at a price equal
to 100% of the unpaid principal thereof, together with accrued interest thereon
to, but not including, the date of redemption, plus, a Make-Whole Premium.
(Indentures, Section 2.11) If notice of such a redemption is given in connection
with a refinancing of Equipment Notes with respect to a Leased Aircraft or in
connection with the redemption of Equipment Notes with respect to an Owned
Aircraft, such notice may be revoked not later than three days prior to the
proposed redemption date. (Indentures, Section 2.12)
If, with respect to a Leased Aircraft, (i) one or more Lease Events of
Default have occurred and are continuing or (ii) the Equipment Notes with
respect to such Aircraft have been accelerated or the Leased Aircraft Trustee
with respect to such Equipment Notes takes action or notifies the applicable
Owner Trustee that it intends to take action to foreclose the lien of the
related Leased Aircraft Indenture or otherwise commence the exercise of any
significant remedy under such Indenture or the related Lease, then in each case
all, but not less than all, of the Equipment Notes issued with respect to such
Leased Aircraft may be purchased by the related Owner Trustee or Owner
Participant on the applicable purchase date at a price equal to the aggregate
unpaid principal thereof, together with accrued and unpaid interest thereon to,
but not including, the date of purchase, but without any premium (provided that
a Make-Whole Premium is payable if such Equipment Notes are to be purchased
pursuant to clause (i) when a Lease Event of Default has occurred and has been
continuing for less than 180 days). (Leased Aircraft Indentures, Section 2.14)
Northwest, as owner of the Owned Aircraft, has no comparable right under the
Owned Aircraft Indentures to purchase the Equipment Notes under such
circumstances.
"MAKE-WHOLE PREMIUM" means, with respect to any Equipment Note, the amount
(as determined by an independent investment banker selected by Northwest and
reasonably acceptable to the relevant Loan Trustees and, in the case of a Leased
Aircraft Indenture, related Owner Participants) by which (a) the present value
of the remaining scheduled payments of principal and interest from the
redemption date to maturity of such Equipment Note computed by discounting each
payment on a semiannual basis from each payment date under the applicable
Indenture (assuming a 360-day year of twelve 30-day months) using a discount
rate equal to the Treasury Yield exceeds (b) the outstanding principal amount of
such Equipment Note plus accrued interest to the date of determination.
For purposes of determining the Make-Whole Premium, "TREASURY YIELD" means,
at the time of determination with respect to any Equipment Note, the interest
rate (expressed as a semiannual equivalent and as a decimal and, in the case of
United States Treasury bills, converted to a bond equivalent yield) determined
to be the per annum rate equal to the semiannual yield to maturity for United
States Treasury securities maturing on the Average Life Date of such Equipment
Note and
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<PAGE>
trading in the public securities markets either as determined by interpolation
between the most recent weekly average yield to maturity for two series of
United States Treasury securities trading in the public securities markets,
(A) one maturing as close as possible to, but earlier than, the Average Life
Date of such Equipment Note and (B) the other maturing as close as possible to,
but later than, the Average Life Date of such Equipment Note, in each case as
published in the most recent H.15(519) or, if a weekly average yield to maturity
for United States Treasury securities maturing on the Average Life Date of such
Equipment Note is reported in the most recent H.15(519), such weekly average
yield to maturity as published in such H.15(519). "H.15(519)" means the weekly
statistical release designated as such, or any successor publication, published
by the Board of Governors of the Federal Reserve System. The date of
determination of a Make-Whole Premium will be the third Business Day prior to
the applicable payment or redemption date and the "MOST RECENT H.15(519)" means
the H.15(519) published prior to the close of business on the third Business Day
prior to the applicable payment or redemption date.
"AVERAGE LIFE DATE" for any Equipment Note to be redeemed means the date
which follows the redemption date by a period equal to the Remaining Weighted
Average Life at the redemption date of such Equipment Note.
"REMAINING WEIGHTED AVERAGE LIFE" of an Equipment Note, at the redemption
date of such Equipment Note, means the number of days equal to the quotient
obtained by dividing (a) the sum of the products obtained by multiplying
(i) the amount of each then remaining installment of principal of such Equipment
Note, including the payment due on the maturity date of such Equipment Note, by
(ii) the number of days from and including the redemption date to but excluding
the scheduled payment date of such principal installment, by (b) the then unpaid
principal amount of such Equipment Note.
SECURITY
The Equipment Notes issued with respect to each Aircraft will be secured by
a first priority security interest in the Aircraft, the related Lease and all
rent thereunder (with respect to Leased Aircraft), as well as all rents, profits
and other income of such Aircraft, certain rights under the aircraft purchase
agreement between Northwest and the Aircraft manufacturer, all requisition
proceeds with respect to such Aircraft, all insurance proceeds with respect to
the Aircraft (other than proceeds under third party liability policies and under
policies maintained by the Owner Participant), all monies and securities
deposited with the related Loan Trustee, and all proceeds of the foregoing.
(Indentures, Granting Clause) Unless an Indenture Default with respect to an
Aircraft has occurred and is continuing, the related Loan Trustee may not
exercise the Owner Trustee's rights under the related Lease except such Owner
Trustee's right to receive rent. The assignment by the Owner Trustee to the Loan
Trustee of its rights under the related Lease excludes the rights of the Owner
Trustee and the Owner Participant relating to the indemnification by Northwest
for certain matters, certain insurance proceeds payable to the Owner Trustee in
its individual and trust capacities and to the Owner Participant under liability
insurance maintained by Northwest under the Lease or by the Owner Trustee or
such Owner Participant, and certain reimbursement payments made by Northwest to
the Owner Trustee and the Owner Participant. (Leased Aircraft Indentures,
Granting Clause)
The Equipment Notes will not be cross-collateralized and, consequently, the
Equipment Notes issued in respect of any one Aircraft will not be secured by any
of the other Aircraft or the Leases related thereto. There will not be any
cross-default provisions in the Indentures or Leases and, consequently, events
resulting in an event of default under any particular Indenture or Lease may or
may not result in an event of default occurring under any other Indenture or
Lease. If the Equipment Notes issued with respect to one or more Aircraft are in
default and the Equipment Notes issued with respect to the remaining Aircraft
are not in default, no remedies will be exercisable under the Indentures with
respect to such remaining Aircraft.
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<PAGE>
Although the Leased Aircraft Notes are not obligations of, or guaranteed by,
Northwest, the amounts unconditionally payable by Northwest for lease of the
Aircraft will be sufficient to pay in full when due all amounts required to be
paid on the Equipment Notes. See "Description of the Equipment Notes--General."
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
The following tables set forth illustrative loan to Aircraft value ratios
for the Equipment Notes issued in respect of one Airbus A319-100 Leased Aircraft
and one Boeing 757-200 Leased Aircraft as of the October 1 Regular Distribution
Dates that occur after the scheduled date of original issuance of such Equipment
Notes, assuming that the Equipment Notes in the expected principal amount are
issued in respect of each such Aircraft. This example was utilized by Northwest
in preparing the Assumed Amortization Schedule, although the amortization
schedule for the Equipment Notes issued with respect to an Aircraft may vary
from such assumed schedule so long as it complies with the Mandatory Economic
Terms. Accordingly, the schedules set forth below may not be applicable in the
case of any particular Aircraft. See "Description of the Certificates--Pool
Factors." The LTV was obtained by dividing (i) the outstanding balance (assuming
no payment default) of such Equipment Notes determined immediately after giving
effect to the payments scheduled to be made on each such Regular Distribution
Date by (ii) the assumed value (the "ASSUMED AIRCRAFT VALUE") of the Aircraft
securing such Equipment Notes. The table assumes that (i) no prepayments of
interest or principal on the Equipment Notes will occur and (ii) no payment
defaults shall have occurred and be continuing with respect to the Equipment
Notes.
The following table is based on the Depreciation Assumption that the value
of the Aircraft set forth opposite the initial Regular Distribution Date
included in the table depreciates by approximately 3% of the initial appraised
value per year for the first fifteenth years after the year of delivery of such
Aircraft and by approximately 4% of the initial appraised value per year for the
next five years and by approximately 5% per year thereafter. Other rates or
methods of depreciation would result in materially different loan to Aircraft
value ratios, and no assurance can be given (i) that the depreciation rates and
method assumed for the purposes of the tables are the ones most likely to occur
or (ii) as to the actual future value of any Aircraft. Thus the table should not
be considered a forecast or prediction of expected or likely loan to Aircraft
value ratios, but simply a mathematical calculation based on one set of
assumptions.
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<TABLE>
<CAPTION>
AIRBUS A319-100
-----------------------------------------------
EQUIPMENT NOTE ASSUMED LOAN TO
OUTSTANDING BALANCE AIRCRAFT VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO
- ---- ------------------- -------------- --------
<S> <C> <C> <C>
October 1, 2000........................................ $24.52 $39.69 61.8%
October 1, 2001........................................ 23.01 38.50 59.8%
October 1, 2002........................................ 22.54 37.31 60.4%
October 1, 2003........................................ 21.91 36.11 60.7%
October 1, 2004........................................ 21.30 34.92 61.0%
October 1, 2005........................................ 20.60 33.73 61.1%
October 1, 2006........................................ 19.42 32.54 59.7%
October 1, 2007........................................ 18.13 31.35 57.8%
October 1, 2008........................................ 17.19 30.16 57.0%
October 1, 2009........................................ 15.57 28.97 53.8%
October 1, 2010........................................ 14.97 27.78 53.9%
October 1, 2011........................................ 14.34 26.59 53.9%
October 1, 2012........................................ 13.67 25.40 53.8%
October 1, 2013........................................ 11.56 24.21 47.8%
October 1, 2014........................................ 9.58 23.02 41.6%
October 1, 2015........................................ 7.65 21.83 35.0%
October 1, 2016........................................ 5.85 20.24 28.9%
October 1, 2017........................................ 0.79 18.65 4.2%
October 1, 2018........................................ 0.15 17.07 0.9%
October 1, 2019........................................ 0.00 0.00 NA
</TABLE>
<TABLE>
<CAPTION>
BOEING 757-200
-----------------------------------------------
EQUIPMENT NOTE ASSUMED LOAN TO
OUTSTANDING BALANCE AIRCRAFT VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO
- ---- ------------------- -------------- --------
<S> <C> <C> <C>
October 1, 2000........................................ $33.70 $46.83 72.0%
October 1, 2001........................................ 31.66 45.23 70.0%
October 1, 2002........................................ 30.89 43.64 70.8%
October 1, 2003........................................ 30.02 42.04 71.4%
October 1, 2004........................................ 29.09 40.44 71.9%
October 1, 2005........................................ 27.97 38.85 72.0%
October 1, 2006........................................ 26.66 37.25 71.6%
October 1, 2007........................................ 24.23 35.65 68.0%
October 1, 2008........................................ 22.74 34.06 66.8%
October 1, 2009........................................ 18.62 32.46 57.4%
October 1, 2010........................................ 17.50 30.87 56.7%
October 1, 2011........................................ 16.33 29.27 55.8%
October 1, 2012........................................ 15.10 27.14 55.6%
October 1, 2013........................................ 13.77 25.01 55.1%
October 1, 2014........................................ 12.39 22.88 54.1%
October 1, 2015........................................ 8.54 20.75 41.2%
October 1, 2016........................................ 7.07 18.63 37.9%
October 1, 2017........................................ 5.58 15.96 34.9%
October 1, 2018........................................ 2.02 13.30 15.2%
October 1, 2019........................................ 0.00 0.00 NA
</TABLE>
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<PAGE>
LIMITATION OF LIABILITY
The Equipment Notes issued with respect to the Leased Aircraft are not
obligations of, or guaranteed by, Northwest, any Owner Participant or the Leased
Aircraft Trustees or the Owner Trustees in their individual capacities. None of
the Owner Trustees, the Owner Participants or the Leased Aircraft Trustees, or
any affiliates thereof, will be personally liable to any holder of an Equipment
Note or, in the case of the Owner Trustees and the Owner Participants, to the
Leased Aircraft Trustees for any amounts payable under the Equipment Notes or,
except as provided in each Leased Aircraft Indenture, for any liability under
such Leased Aircraft Indenture. All payments of principal of, premium, if any,
and interest on the Equipment Notes issued with respect to any Leased Aircraft
(other than payments made in connection with an optional redemption or purchase
of Equipment Notes issued with respect to a Leased Aircraft by the related Owner
Trustee or the related Owner Participant) will be made only from the assets
subject to the lien of the Indenture with respect to such Leased Aircraft or the
income and proceeds received by the related Leased Aircraft Trustee therefrom
(including rent payable by Northwest under the Lease with respect to such Leased
Aircraft).
The Equipment Notes issued with respect to any Owned Aircraft will be direct
obligations of Northwest.
Except as otherwise provided in the Indentures, no Owner Trustee or Loan
Trustee, in its individual capacity, will be answerable or accountable under the
Indentures or under the Equipment Notes under any circumstances except, among
other things, for its own willful misconduct or gross negligence. None of the
Owner Participants will have any duty or responsibility under any of the Leased
Aircraft Indentures or the Equipment Notes to the Leased Aircraft Trustees or to
any holder of any Equipment Note.
INDENTURE DEFAULTS, NOTICE AND WAIVER
Indenture Defaults under each Indenture include: (a) in the case of a Leased
Aircraft Indenture, the occurrence of any Lease Event of Default under the
related Lease (other than the failure to make certain indemnity payments and
other payments to the related Owner Trustee or Owner Participant unless a notice
is given by such Owner Trustee to the Leased Aircraft Trustee that such failure
will constitute an Indenture Default), (b) the failure by the related Owner
Trustee (other than as a result of a Lease Default or Lease Event of Default) in
the case of a Leased Aircraft Indenture, or Northwest, in the case of an Owned
Aircraft Indenture, to pay any interest or principal or premium, if any, when
due, under such Indenture or under any Equipment Note issued thereunder that
continues for more than 10 Business Days, in the case of principal, interest or
Make-Whole Premium, and, in all other cases, 10 Business Days after the relevant
Owner Trustee or Owner Participant, or Northwest, in the case of an Owned
Aircraft, receives written demand from the related Loan Trustee or holder of an
Equipment Note, (c) the failure by the related Owner Participant or the related
Owner Trustee (in its individual capacity), in the case of a Leased Aircraft, or
Northwest, in the case of an Owned Aircraft, to discharge certain liens that
continue after notice and specified cure periods, (d) any representation or
warranty made by the related Owner Trustee or Owner Participant (in the case of
a Leased Aircraft) or by Northwest (in the case of an Owned Aircraft) in such
Indenture, the related Participation Agreement, or certain related documents
furnished to the Loan Trustee or any holder of an Equipment Note pursuant
thereto being false or incorrect when made in any material respect that
continues to be material and adverse to the interests of the Loan Trustee or
Note Holders and remains unremedied after notice and specified cure periods,
(e) failure by the related Owner Trustee or Owner Participant (in the case of a
Leased Aircraft) to perform or observe, or, in the case of an Owned Aircraft,
failure by Northwest to perform or observe in any material respect, any covenant
or obligation for the benefit of the Loan Trustee or holders of Equipment Notes
under such Indenture or certain related documents that continues after notice
and specified cure periods, (f) the registration of the related Aircraft ceasing
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<PAGE>
to be effective as a result of the Owner Participant (in the case of Leased
Aircraft) not being a citizen of the United States, as defined in Title 49 of
the United States Code relating to aviation (subject to a cure period), or
(g) the occurrence of certain events of bankruptcy, reorganization or insolvency
of the related Owner Trustee or Owner Participant (in the case of a Leased
Aircraft) or Northwest (in the case of the Owned Aircraft). (Leased Aircraft
Indentures, Section 4.02; Owned Aircraft Indentures, Section 4.01) There will
not be any cross-default provisions in the Indentures or in the Leases.
Consequently, events resulting in an Indenture Default under any particular
Indenture may or may not result in an Indenture Default occurring under any
other Indenture, and a Lease Event of Default under any particular Lease may or
may not constitute a Lease Event of Default under any other Lease.
If Northwest fails to make any semiannual basic rental payment due under any
Lease, within a specified period after such failure the applicable Owner Trustee
may furnish to the Leased Aircraft Trustee the amount due on the Equipment Notes
issued with respect to the related Leased Aircraft, together with any interest
thereon on account of the delayed payment thereof, in which event the Leased
Aircraft Trustee and the holders of outstanding Equipment Notes issued under
such Indenture may not exercise any remedies otherwise available under such
Indenture or such Lease as the result of such failure to make such rental
payment, unless such Owner Trustee has previously cured each of the three
immediately preceding semiannual basic rental payment defaults or the Owner
Trustee has cured an aggregate of six previous semiannual basic rental payment
defaults. The applicable Owner Trustee also may cure any other default by
Northwest in the performance of its obligations under any Lease that can be
cured by the payment of money. (Leased Aircraft Indentures, Section 4.03)
The holders of a majority in aggregate unpaid principal amount of the
Equipment Notes outstanding on such date issued with respect to any Aircraft, by
notice to the Loan Trustee, may on behalf of all the holders waive, together
under certain circumstances with the applicable Owner Trustee and applicable
Owner Participant, any existing default and its consequences under the Indenture
with respect to such Aircraft, except a default in the payment of the principal
of, or premium or interest on any such Equipment Notes or a default in respect
of any covenant or provision of such Indenture that cannot be modified or
amended without the consent of each holder of Equipment Notes. (Leased Aircraft
Indentures, Section 4.08; Owned Aircraft Indentures, Section 4.06)
REMEDIES
Each Indenture provides that if an Indenture Default occurs and is
continuing, the related Loan Trustee may, and upon receipt of written demand
from the holders of a majority in principal amount of the Equipment Notes
outstanding under such Indenture will, subject to the applicable Owner
Participant's or Owner Trustee's right to cure in the case of Leased Aircraft
Indentures, as discussed above, declare the principal of all such Equipment
Notes issued thereunder immediately due and payable, together with all accrued
but unpaid interest thereon (without the Make-Whole Premium). The holders of a
majority in principal amount of Equipment Notes outstanding under such Indenture
may rescind any such declaration at any time before the judgment or decree for
the payment of the money so due is entered if (i) there has been paid to the
related Loan Trustee an amount sufficient to pay all principal and interest on
any such Equipment Notes, to the extent such amounts have become due otherwise
than by such declaration of acceleration and (ii) all other Indenture Defaults
and events which with the giving of notice or lapse of time or both would become
Indenture Defaults under such Indenture have been cured or waived. (Leased
Aircraft Indentures, Section 4.04(b); Owned Aircraft Indentures,
Section 4.02(b))
Each Indenture provides that if an Indenture Default under such Indenture
has occurred and is continuing, the related Loan Trustee may exercise certain
rights or remedies available to it under such Indenture or under applicable law,
including (if, in the case of a Leased Aircraft, the corresponding Lease has
been declared in default) one or more of the remedies under such Indenture or
such Lease
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<PAGE>
with respect to the Aircraft subject to such Lease. If an Event of Default has
occurred and is continuing under the corresponding Lease in the case of Leased
Aircraft Indentures, the related Loan Trustee's right to exercise remedies under
such Indenture is subject, with certain exceptions, to its having proceeded to
exercise one or more of the remedies under the Lease to terminate the Lease or
take possession of and/or sell the Aircraft; provided that the requirement to
exercise such remedies under such Lease does not apply in circumstances where
such exercise has been involuntarily stayed or prohibited by applicable law or
court order for a continuous period in excess of the Section 1110 Period (plus
an additional period, if any, resulting from (i) Northwest or its trustee in
such proceeding assuming, or agreeing to perform its obligations under, such
Lease with the approval of the applicable court, (ii) such Loan Trustee's
consent to an extension of such Section 1110 Period, (iii) Lessee's assumption
of the Lease during the Section 1110 Period with the approval of the applicable
court, or (iv) such Loan Trustee's failure to give any requisite notice). See
"--The Leases and Certain Provisions of the Owned Aircraft Indentures--Events of
Default under the Leases." Such remedies may be exercised by the related Loan
Trustee to the exclusion of the related Owner Trustee, subject to certain
conditions specified in such Indenture, and Northwest, subject to the terms of
such Lease. Any Aircraft sold in the exercise of such remedies will be free and
clear of any rights of those parties, including, if a Lease Event of Default has
occurred and is continuing, the rights of Northwest under the Lease with respect
to such Aircraft. No exercise of any remedies by the related Loan Trustee may
affect the rights of Northwest under any Lease unless a Lease Event of Default
has occurred and is continuing. The Owned Aircraft Indentures will not contain
such limitations on the Loan Trustee's ability to exercise remedies upon an
Indenture Event of Default under an Owned Aircraft Indenture. (Leased Aircraft
Indentures, Section 4.04; Leases, Section 15)
If the Equipment Notes issued in respect of one Aircraft are in default, the
Equipment Notes issued in respect of the other Aircraft may not be in default,
and, if not, no remedies will be exercisable under the applicable Indentures
with respect to such other Aircraft.
Section 1110 of the Bankruptcy Code provides that the right of lessors,
conditional vendors and holders of security interests with respect to
"equipment" (as defined in Section 1110 of the Bankruptcy Code) to take
possession of such equipment in compliance with the provisions of a lease,
conditional sale contract or security agreement, as the case may be, is not
affected after 60 days after the filing of petition under Chapter 11 of the
Bankruptcy Code by (a) the automatic stay provision of the Bankruptcy Code,
which provision enjoins creditors' remedies except with the court's approval,
(b) the provision of the Bankruptcy Code allowing the trustee in reorganization
to use property of the debtor during the reorganization period,
(c) Section 1129 of the Bankruptcy Code (which governs the confirmation of plans
of reorganization in Chapter 11 cases) and (d) any power of the bankruptcy court
to enjoin a repossession. Section 1110 provides that the right to take
possession of an aircraft may not be exercised for 60 days following the date of
commencement of the reorganization proceedings and may not be exercised at all
after such 60-day period (or such longer period consented to by the lessor,
conditional vendor or holder of a security interest), if the trustee in
reorganization agrees to perform the debtor's obligations that become due on or
after such date and cures all existing defaults (other than defaults resulting
solely from the financial condition, bankruptcy, insolvency or reorganization of
the debtor, the appointment of a trustee or custodian or the failure to satisfy
any penalty rate or provision relating to a default arising from any failure by
the debtor to perform nonmonetary obligations under the applicable agreement).
"EQUIPMENT" is defined in Section 1110 of the Bankruptcy Code, in part, as "an
aircraft, aircraft engine, propeller, appliance, or spare part (as defined in
section 40102 of title 49) that is subject to a security interest granted by,
leased to, or conditionally sold to a debtor that is a citizen of the United
States (as defined in section 40102 of title 49) holding an air carrier
operating certificate issued by the Secretary of Transportation pursuant to
chapter 447 of title 49 for aircraft capable of carrying 10 or more individuals
or 6,000 pounds or more of cargo."
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<PAGE>
Cadwalader, Wickersham & Taft, special counsel to Northwest, has advised the
Loan Trustees that, if Northwest were to become a debtor under Chapter 11 of the
Bankruptcy Code, (x) if such Aircraft is a Leased Aircraft, the Owner Trustee,
as lessor under each of the Leases, and the Loan Trustee, as assignee of such
Owner Trustee's rights under each of the Leases pursuant to each of the related
Indentures, would be entitled to the benefits of Section 1110 of the Bankruptcy
Code with respect to the airframe and engines comprising the related Aircraft,
or (y) if such Aircraft is an Owned Aircraft, the Loan Trustee would be entitled
to the benefits of Section 1110 of the Bankruptcy Code with respect to the
airframe and engines comprising the related Aircraft, but in each case may not
be entitled to such benefits with respect to any replacement of an Aircraft
after an Event of Loss in the future. The replacement of any Aircraft is
conditioned upon the contemporaneous delivery of an opinion of counsel to the
effect that the related Loan Trustee's entitlement to benefits of Section 1110
of the Bankruptcy Code would not be diminished as a result of such replacement.
This opinion is subject to certain qualifications and assumptions, including the
assumptions that Northwest is and will continue to be a citizen of the United
States holding an air carrier operating certificate issued by the Secretary of
Transportation pursuant to chapter 447 of title 49 of the U.S. Code for aircraft
capable of carrying 10 or more individuals or 6,000 pounds or more of cargo. See
"--The Leases and Certain Provisions of the Owned Aircraft Indentures--Events of
Loss." The opinion of Cadwalader, Wickersham & Taft, does not address the
availability of Section 1110 with respect to the bankruptcy proceedings of any
possible sublessee of a Leased Aircraft, or any possible lessee of Owned
Aircraft, if it is leased by Northwest. For a description of certain limitations
on the Loan Trustee's exercise of rights contained in the Indenture, see
"--Indenture Defaults, Notice and Waiver."
During 1998, opinions issued by the U.S. District Court for the District of
Colorado in the case of WESTERN PACIFIC AIRLINES, INC. V. GATX CAPITAL (IN RE
WESTERN PACIFIC AIRLINES, INC.), 219 B.R. 305, ON REHEARING, 221 B.R. 1 (D.
Colo. 1998), APPEAL DISMISSED AS MOOT SUB NOM., BOUILLIOUN AIRCRAFT HOLDING
CO., INC. V. SMITH MANAGEMENT, Nos. 98-1018, 98-1214, 1999 WL 459469 (10(th)
Cir. July 7, 1999), ruled that Section 1110 of the U.S. Bankruptcy Code does not
apply in a case after the trustee timely makes the agreement specified in
Section 1110(a)(1)(A) of the Bankruptcy Code and timely cures defaults
outstanding as of the date of the Chapter 11 petition or that occur during the
first sixty days of the case, with the result, among others, that the ability of
a lessor to exercise remedies based on a default that occurs after the first
60 days of the Chapter 11 case would be subject to the automatic stay. Northwest
has been advised by its special counsel, Cadwalader, Wickersham & Taft to the
effect that, and accordingly believes that, this decision construes
Section 1110 of the Bankruptcy Code in a manner that is inconsistent with both
the language of Section 1110 of the Bankruptcy Code and the legislative history
explaining the purpose and operation of Section 1110 of the Bankruptcy Code and
accordingly believes that the decision is an incorrect interpretation of
Section 1110 of the Bankruptcy Code.
In the event of bankruptcy, insolvency, receivership or like proceedings
involving an Owner Participant, it is possible that, notwithstanding that the
applicable Aircraft is owned by the related Owner Trustee in trust, such
Aircraft and the related Lease and Equipment Notes might become part of such
proceeding. In such event, payments under such Lease or on such Equipment Notes
may be interrupted and the ability of the related Loan Trustee to exercise its
remedies under the related Indenture might be restricted, though such Loan
Trustee would retain its status as a secured creditor in respect of the related
Lease and the related Aircraft.
MODIFICATION OF INDENTURES AND LEASES
Without the consent of holders of a majority in principal amount of the
Equipment Notes outstanding under any Indenture, the provisions of such
Indenture and the Lease, the Participation Agreement and the Trust Agreement
corresponding thereto may not be amended or modified, except to the extent
indicated below.
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Certain provisions of any Indenture, and of the Lease, the Participation
Agreement, and the Trust Agreement related thereto, may be amended or modified
by the parties thereto without the consent of the relevant Loan Trustee or any
holders of the Equipment Notes outstanding under such Indenture, subject to
certain conditions. In the case of each Lease, such provisions include, among
others, provisions relating to (i) the return to the related Owner Trustee of
the related Aircraft at the end of the term of such Lease, (ii) the voluntary
early termination of such Lease by Northwest, and (iii) the renewal of such
Lease and the option of Northwest at the end of the term of such Lease to
purchase the related Aircraft. (Leased Aircraft Indentures, Section 9.01) In
addition, any Indenture may be amended without the consent of the holders of
Equipment Notes to, among other things, cure any defect or inconsistency in such
Indenture or the Equipment Notes issued thereunder, provided that such change
does not adversely affect the interests of any such holder. (Leased Aircraft
Indentures, Section 9.01(c); Owned Aircraft Indentures, Section 10.01(b))
Without the consent of the holder of each Equipment Note outstanding under
any Indenture affected thereby, no amendment of or supplement to such Indenture
may among other things (a) reduce the principal amount of, or Make-Whole
Premium, if any, or interest payable on, any Equipment Notes issued under such
Indenture or change the date on which any principal or Make-Whole Premium, if
any, or interest is due and payable, (b) create any security interest with
respect to the property subject to the lien of such Indenture, except as
provided in such Indenture, or deprive any holder of an Equipment Note issued
under such Indenture of the benefit of the lien of such Indenture upon the
property subject thereto or (c) reduce the percentage in principal amount of
outstanding Equipment Notes issued under such Indenture necessary to modify or
amend any provision of such Indenture or to waive compliance therewith. (Leased
Aircraft Indentures, Section 9.01(b); Owned Aircraft Indentures,
Section 10.01(a))
INDEMNIFICATION
Northwest will be required to indemnify each Loan Trustee, each Owner
Participant, each Owner Trustee, each Liquidity Provider, the Subordination
Agent, the Escrow Agent, the Paying Agent and each Trustee, but not the holders
of Certificates (unless otherwise expressly agreed to by Northwest), for certain
losses, claims and other matters. Northwest will be required under certain
circumstances to indemnify each Owner Participant against the loss of
depreciation deductions and certain other benefits allowable for certain income
tax purposes with respect to the related Leased Aircraft. Each Owner Trustee
will indemnify the Loan Trustee to the extent not reimbursed by Northwest. Prior
to seeking indemnification from the Indenture Estate, the Loan Trustee will
demand and take necessary action to pursue indemnification under the
Participation Agreement. If necessary, the Loan Trustee will be entitled to
indemnification from the Indenture Estate for any liability, obligation, loss,
damage, penalty, claim or action to the extent not reimbursed by Northwest. The
Loan Trustee will not be indemnified, however, for actions arising from its
gross negligence, willful misconduct or, in the case of handling funds,
negligence, or for the inaccuracy of any representation or warranty made in its
individual capacity under the Indenture.
Each Owner Participant will be required to indemnify the related Loan
Trustee and the holders of the Equipment Notes issued with respect to the
Aircraft in which such Owner Participant has an interest for certain losses that
may be suffered as a result of the failure of such Owner Participant to
discharge certain liens or claims on or against the assets subject to the lien
of the related Indenture. The Loan Trustee will not be under any obligation to
take any action, risk liability or expend its own funds under the Indenture if
it has reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk is not reasonably assured to it.
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THE GUARANTY
NWA Corp. will irrevocably, fully and unconditionally guarantee the payment
and performance of all obligations of Northwest as lessee under the relevant
Lease in the case of a Leased Aircraft and as obligor under the relevant
Equipment Notes in the case of an Owned Aircraft. If Northwest fails to make a
payment or perform a nonfinancial obligation when due for any reason, including
liquidation, bankruptcy or reorganization, NWA Corp. will make the payment and
perform the nonfinancial obligations. Each Guaranty will be an absolute, present
and continuing guaranty of performance and payment rather than collectibility,
and will not be contingent upon any attempt to collect payment from or file suit
against Northwest.
THE LEASES AND CERTAIN PROVISIONS OF THE OWNED AIRCRAFT INDENTURES
Each Leased Aircraft will be leased by the relevant Owner Trustee to
Northwest under the relevant Lease. Each Owned Aircraft will be owned by
Northwest.
LEASE TERMS AND RENTALS
Each Leased Aircraft will be leased separately by the relevant Owner Trustee
to Northwest for a term commencing on the date of the delivery of such Aircraft
to such Owner Trustee and expiring not earlier than the latest maturity date of
the relevant Equipment Notes issued pursuant to the related Indenture. Basic
Rent payments for each Leased Aircraft will be payable semiannually on each
April 1 and October 1 (or, if such date is not a business day, on the next
business day). Such payments will be assigned by the Owner Trustee to the Loan
Trustee under the corresponding Leased Aircraft Indenture to provide the funds
necessary to make scheduled payments of principal and interest due or expected
to be due from the Owner Trustee on the Equipment Notes to be issued under such
Indenture. In certain cases, the Basic Rent payments under the Leases may be
adjusted, but each Lease will provide that under no circumstances will rent
payments by Northwest be less than the scheduled payments on the related
Equipment Notes. (Leases, Section 3) The balance of any such semiannual Basic
Rent payment and such other payments, after payment of amounts due or expected
to be due on the related Equipment Notes and certain other amounts, including
certain amounts owing to the Liquidity Provider, will be paid over to the
related Owner Trustee. (Leased Aircraft Indentures, Section 3.01)
NET LEASE
Under the terms of each Lease, Northwest's obligations in respect of each
Leased Aircraft will be those of a lessee under a "net lease." Accordingly,
Northwest will be obligated under each Lease, among other things and at its
expense, to cause the Aircraft to be duly registered in the name of the relevant
Owner Trustee (or Northwest in connection with the re-registration of the
Aircraft in certain jurisdictions), to pay all costs of operating the Aircraft
and, to the extent set forth in such Lease, to maintain, service, repair and
overhaul the Aircraft (or cause the Aircraft to be maintained, serviced,
repaired and overhauled) so as to keep the Aircraft in as good an operating
condition as delivered to Northwest under the Lease, ordinary wear and tear
excepted, and in such condition as may be necessary to enable the airworthiness
certification of such Aircraft to be maintained in good standing at all times
(a) under the Federal Aviation Act except, subject to certain limitations, when
all aircraft of the same model and type powered by engines of the same type and
registered in the United States have been grounded by the FAA, or (b) subject to
certain limitations, under the applicable laws of any other jurisdiction in
which the Aircraft may be registered. Notwithstanding anything to the contrary
set forth above, Northwest will also be required to cause the Aircraft then
subject to such Leases to be maintained in accordance with maintenance standards
approved by, or substantially equivalent to those required by, the FAA or the
central civil aviation authority of Canada, France, Germany, Japan, the
Netherlands or the United Kingdom. In all cases Northwest will utilize, except
when a sublease is in effect, the same manner and standards of maintenance,
service, repair or overhaul used by Northwest
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with respect to similar aircraft operated by Northwest in similar circumstances
and, during any period that a sublease is in effect, cause the Sublessee
thereunder to agree to utilize the same manner and standards of maintenance,
service, repair or overhaul used by such Sublessee with respect to similar
aircraft operated by such Sublessee in similar circumstances. (Leases,
Section 7(a)) The Owned Aircraft Indentures contain comparable provisions with
respect to the Owned Aircraft. (Owned Aircraft Indentures, Section 7.02(a))
Northwest will not (and will not permit any Sublessee to) maintain, use,
service, repair, overhaul or operate any Aircraft in violation of any law or any
rule, regulation, order or certificate of any government having jurisdiction
over such Aircraft, or in violation of any airworthiness certificate, license or
registration relating to such Aircraft, except to the extent Northwest (or any
Sublessee) is in good faith contesting the validity or application of any such
requirements, in any reasonable manner which, among other things specified in
each Lease, does not materially adversely affect the Owner Trustee. (Leases,
Section 7(a)) The Owned Aircraft Indentures contain comparable provisions with
respect to the Owned Aircraft. (Owned Aircraft Indentures, Section 7.02(a))
Northwest must make (or cause to be made) all alterations, modifications and
additions to each Airframe and Engine necessary to meet the applicable standards
of the FAA or any other applicable governmental authority of another
jurisdiction in which the Aircraft may be registered; PROVIDED, HOWEVER, that
Northwest (or any Sublessee) may in good faith contest the validity or
application of any such standards in any reasonable manner which, among other
things specified in each Lease, does not adversely affect the Owner Trustee or
the relevant Loan Trustee. Northwest (or any Sublessee) may add further parts
and make other alterations, modifications and additions to any Airframe or any
Engine as Northwest (or any Sublessee) may deem desirable in the proper conduct
of its business, including removal of parts determined by Northwest (or any
Sublessee) in its reasonable judgment to be obsolete or no longer suitable or
appropriate for use, so long as such alterations, modifications or additions, do
not, among other things specified in each Lease, (x) materially diminish the
value, utility or remaining useful life of such Airframe or Engine, below the
value, utility or remaining useful life thereof immediately prior to such
alteration, modification, addition or removal (assuming such Airframe or Engine
was maintained in accordance with the Lease), except that the value (but not the
utility or remaining useful life) of any Airframe or Engine may be reduced from
time to time by the value of the obsolete parts which are removed so long as the
aggregate value of such obsolete parts removed and not replaced shall not exceed
$400,000 with respect to the Airbus A319-100 Aircraft and $500,000 with respect
to the Boeing 757-200 Aircraft. Title to parts incorporated or installed in or
added to such Airframe or Engine as a result of such alterations, modifications
or additions vest in the Owner Trustee subject to certain exceptions. In certain
circumstances, Northwest (or any Sublessee) is permitted to remove parts which
were added by Northwest (or any Sublessee) (without replacement) from an
Airframe or Engine so long as certain conditions are met and any such removal
does not, among other things specified in each Lease, diminish or impair the
value, utility, or remaining useful life which such Airframe or Engine would
have had at such time had such addition, alteration or modification not
occurred. (Leases, Section 8) The Owned Aircraft Indentures contain comparable
provisions with respect to the Owned Aircraft. (Owned Aircraft Indentures,
Section 7.03)
Except as set forth above, Northwest will be obligated to replace or cause
to be replaced all parts (other than severable parts added at the option of
Northwest or unsuitable parts that Northwest is permitted to remove to the
extent described above) that are incorporated or installed in or attached to any
Airframe or any Engine and become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use. Any
such replacement parts become subject to the related Lease and the lien of the
related Indenture in lieu of the part replaced. (Leases, Section 8(a)) The Owned
Aircraft Indentures contain comparable provisions with respect to the Owned
Aircraft. (Owned Aircraft Indentures, Section 7.03(a))
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REGISTRATION, SUBLEASING AND POSSESSION
Although Northwest has no current intention to do so, Northwest will be
permitted, under certain circumstances, to register an Aircraft in certain
jurisdictions outside the United States, subject to certain conditions specified
in the related Participation Agreement. These conditions include a requirement
that the lien of the related Indenture will continue as a first priority
security interest in the applicable Aircraft (Leases, Section 7(a); Leased
Aircraft Participation Agreements, Section 8(f)). The Owned Aircraft Indentures
contain comparable provisions with respect to the Owned Aircraft. (Owned
Aircraft Indentures, Section 7.02(a); Owned Aircraft Participation Agreements,
Section 8(f)) Northwest will also be permitted, subject to certain limitations,
to sublease any Aircraft to any United States certificated air carrier or to
certain foreign entities so long as the term of any such sublease does not
extend beyond the term of the Lease applicable to such Aircraft subject to
certain exceptions. In addition, subject to certain limitations, Northwest will
be permitted to transfer possession of any Airframe or any Engine other than by
sublease, including transfers of possession by Northwest or any Sublessee in
connection with certain interchange and pooling arrangements, transfers to the
United States government and any instrumentality or agency thereof, "wet leases"
and transfers in connection with maintenance or modifications. There are no
general geographical restrictions on Northwest's (or any Sublessee's) ability to
operate the Aircraft. The extent to which the relevant Loan Trustee's lien would
be recognized in an Aircraft if such Aircraft were located in certain countries
is uncertain. See "Description of the Equipment Notes--Remedies." In addition,
any exercise of the right to repossess an Aircraft may be difficult, expensive
and time-consuming, particularly when such Aircraft is located outside the
United States and has been registered in a foreign jurisdiction or subleased to
a foreign operator, and may be subject to the limitations and requirements of
applicable law, including the need to obtain consents or approvals for
deregistration or re-export of the Aircraft, which may be subject to delays and
political risk. When a defaulting Sublessee or other permitted transferee is the
subject of a bankruptcy, insolvency or similar event such as protective
administration, additional limitations may apply. (Leases, Section 7(b)) The
Owned Aircraft Indentures contain comparable provisions with respect to the
Owned Aircraft. (Owned Aircraft Indentures, Section 7.02(b))
In addition, at the time of obtaining repossession of the Aircraft under the
related Lease or foreclosing on the lien on the Aircraft under the related
Indenture, an Airframe subject to such Lease may not be equipped with Engines
subject to the same Lease and, in such case, Northwest will be required to
deliver engines attached to such Airframe which have not less than equivalent
value, utility and remaining useful life as the Engines subject to such Lease.
Notwithstanding Northwest's agreement in each Lease, in the event Northwest
fails to transfer title to engines not owned by the Owner Trustee that are
attached on repossessed Aircraft, it could be difficult, expensive and
time-consuming to assemble an Aircraft consisting of an Airframe and Engines
subject to the Lease. See "Risk Factors--Factors Relating to the Certificates
and the Offering--Repossession."
LIENS
Northwest will be required to maintain each Aircraft free of any liens,
other than the respective rights of the applicable Owner Trustee as owner of the
Aircraft (in the case of a Leased Aircraft), and Northwest as provided in the
Lease (in the case of a Leased Aircraft) or as owner of the Aircraft (in the
case of an Owned Aircraft), the lien of the Indenture, and any other rights
existing pursuant to the operative documents related thereto, the rights of
others in possession of the Aircraft in accordance with the terms of the Lease
(in the case of a Leased Aircraft) or the Owned Aircraft Indenture (in the case
of an Owned Aircraft), and other than certain other customary liens permitted
under such documents, including liens for taxes either not yet due or being
contested in good faith by appropriate proceedings so long as such proceedings
do not, among other things as may be specified in each Lease, involve any
material danger of the sale, forfeiture or loss of or any interest therein;
materialmen's, mechanics' and other similar liens arising in the ordinary course
of business securing obligations that
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are not overdue for a period of more than 60 days, or are being contested in
good faith by appropriate proceedings not involving any material danger of the
sale, forfeiture or loss of such Airframe or Engines or any interest therein;
judgment liens so long as such judgment is discharged, vacated or reversed
within 60 days or the execution of such judgment is stayed pending appeal or
discharged, vacated or reversed within 60 days after the expiration of such
stay; any other lien with respect to which Northwest (or any Sublessee, in the
case of a Leased Aircraft, or lessee, in the case of an Owned Aircraft) has
provided a bond or other security adequate in the reasonable opinion of the
relevant Owner Trustee (in the case of a Leased Aircraft) or the Loan Trustee
(in the case of the Owned Aircraft); and any lien approved in writing by the
Owner Trustee (in the case of a Leased Aircraft) or the Loan Trustee (in the
case of the Owned Aircraft). (Leases, Section 6; Owned Aircraft Indentures,
Section 7.01)
INSURANCE
Subject to certain exceptions, Northwest is obligated, at its or any
Sublessee's (in the case of a Leased Aircraft) or lessee's (in the case of an
Owned Aircraft) expense, to maintain or cause to be maintained on each Aircraft,
with insurers of recognized responsibility, public liability and property damage
insurance (exclusive of manufacturer's product liability insurance) and all-risk
aircraft hull insurance, in such amounts, covering such risks and in such form
as Northwest (or, in the case of a Leased Aircraft, if a sublease is then in
effect, as the Sublessee or, in the case of an Owned Aircraft, if a lease is
then in effect, as the lessee) customarily maintains with respect to other
aircraft owned or operated by Northwest (or, in the case of a Leased Aircraft,
if a sublease is then in effect, by the Sublessee or, in the case of an Owned
Aircraft, if a lease is then in effect, by the lessee), in each case similar to
such Aircraft; provided, however, that, except to the extent of any
self-insurance, the all-risk hull insurance shall be at least in an amount equal
to the stipulated loss value (in the case of a Leased Aircraft) or unpaid
principal amount of the related Equipment Notes (in the case of an Owned
Aircraft) and the public liability and property damage insurance shall be in an
amount of not less than (i) $250,000,000 per occurrence with respect to the
Airbus A319-100 Aircraft and (ii) $300,000,000 per occurrence with respect to
the Boeing 757-200 Aircraft. (Leases, Sections 11(a) and 11(b); Owned Aircraft
Indentures, Sections 7.04(a) and 7.04(b))
Subject to certain exceptions, the policies covering loss of or damage to an
Aircraft shall be made payable, up to the stipulated loss value (in the case of
a Leased Aircraft) or unpaid principal amount of the related Equipment Notes
plus all accrued and unpaid interest thereon (in the case of an Owned Aircraft),
to the related Loan Trustee for any loss involving proceeds in excess of
$5,000,000 and the entire amount of any loss involving proceeds of $5,000,000 or
less shall be paid to Northwest so long as the related Owner Trustee or the
related Loan Trustee has not notified the insurers that a Lease Event of Default
(in the case of a Leased Aircraft) or Indenture Default (in the case of an Owned
Aircraft) exists. (Leases, Section 11(b) and 11(g); Owned Aircraft Indentures,
Sections 7.04(b) and 7.04(g))
With respect to any insurance required, Northwest may self-insure by way of
deductible, premium adjustment or otherwise under a program applicable to all
aircraft in Northwest's fleet; provided, that, the aggregate amount of such
self-insurance during any policy year shall not be in excess of the lower of
(a) 50% of the largest replacement value of any single aircraft in Northwest's
fleet or (b) 1 1/2% of the average aggregate insurable value of all aircraft on
which Northwest carries insurance. In addition, Northwest (and any Sublessee)
may self-insure to the extent of any applicable minimum amount of hull or
liability insurance deductible imposed by the aircraft hull or liability
insurers. (Leases, Section 11(d); Owned Aircraft Indentures, Section 7.04(d))
In respect of each Aircraft, Northwest is required to cause the relevant
Owner Trustee (in the case of a Leased Aircraft) and Loan Trustee and certain
other persons to be included as additional insureds as their respective
interests may appear under all insurance policies required by the terms of the
Lease (in the case of a Leased Aircraft) or the Owned Aircraft Indenture (in the
case of an Owned Aircraft)
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with respect to such Aircraft. (Leases, Sections 11(a) and 11(b); Owned Aircraft
Indentures, Sections 7.04(a) and 7.04(b))
Subject to certain customary exceptions, Northwest may not operate (or
permit any Sublessee to operate) any Aircraft in any area that is excluded from
coverage by any insurance policy in effect with respect to such Aircraft and
required by the Lease. (Leases, Section 7(a)). The Owned Aircraft Indentures
contain comparable provisions with respect to the Owned Aircraft. (Owned
Aircraft Indentures, Section 7.02(a))
Northwest's obligation to provide any required insurance shall be satisfied
if indemnification from, or insurance provided by, the United States government
or one of certain other permitted foreign governments or any agency or
instrumentality thereof, against the risks requiring such insurance under such
Lease or Owned Aircraft Indenture is at least equal, when added to the amount of
insurance against such risks otherwise maintained by Northwest (or, in the case
of a Leased Aircraft, any Sublessee or, in the case of an Owned Aircraft, any
lessee), to the amount of insurance against such risks otherwise required.
(Leases, Section 11(f); Owned Aircraft Indentures, Section 7.04(f))
LEASE TERMINATION
Northwest may terminate any Lease on any Lease Payment Date occurring on or
after the fifth anniversary of the lease commencement of the Aircraft subject to
such Lease if it determines that such Aircraft is obsolete or surplus to its
needs and subject to certain other limitations specified in such Lease. Upon
payment of termination value for such Aircraft, which will be in an amount at
least equal to the outstanding principal amount of the related Equipment Notes
and an amount equal to the Make-Whole Premium, if any, payable on such date of
payment, together with certain additional amounts and together with all accrued
and unpaid interest thereon, the lien of the relevant Indenture shall be
released, the relevant Lease shall terminate, and the obligation of Northwest
thereafter to make scheduled rent payments under such Lease shall cease.
(Leases, Section 9; Leased Aircraft Indentures, Sections 2.10(b) and 2.12) See
"--Description of the Equipment Notes--Redemption."
RENEWAL AND PURCHASE OPTIONS
At the end of the term of each Lease after final maturity of the related
Equipment Notes and subject to certain conditions, Northwest will have certain
options to renew such Lease for additional limited periods. In addition,
Northwest will have the right at the end of the term of each Lease to purchase
the Aircraft subject thereto for an amount to be calculated in accordance with
the terms of such Lease. (Leases, Section 19)
Northwest may also have the right to purchase the Aircraft subject to each
Lease on certain Lease Payment Dates occurring in or after the year 2011. In the
event Northwest exercises a purchase option in respect of an Aircraft, the
purchase price therefor shall be calculated in accordance with the provisions of
the related Lease, but in any event shall be sufficient to pay all principal of,
Make-Whole Premium, if any, on and interest on the related Equipment Notes in
full and, upon payment thereof, Northwest shall acquire such Aircraft free of
the lien of the related Indenture, unless upon satisfaction of certain
conditions, Northwest chooses to assume on a full recourse basis all of such
Owner Trustee's obligations in respect of the related Equipment Notes and
acquires the Aircraft subject to the lien of the related Indenture. (Leases,
Section 19; Leased Aircraft Indentures, Sections 2.10(b) and 2.13; Participation
Agreements, Section 8(x)) See "--Description of the Equipment
Notes--Redemption."
EVENTS OF LOSS
If an Event of Loss occurs with respect to any Aircraft, Northwest will be
obligated either (i) to replace such Aircraft or (ii) to pay to the applicable
Owner Trustee the applicable stipulated loss value for such Aircraft (or, in the
case of an Owned Aircraft, pay to the applicable Loan Trustee the
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outstanding principal amount of the Equipment Notes relating to such Aircraft
plus accrued and unpaid interest thereon), together with certain additional
amounts, but, in any case, without any Make-Whole Premium. If Northwest elects
to replace such Aircraft, it must do so no later than the Business Day next
succeeding the 120th day after the related Event of Loss, with an airframe or
airframe and engines of the same or improved make and model free and clear of
all liens (other than certain permitted liens) and having a value, utility and
remaining useful life (without regard to hours or cycles) at least equal to such
Aircraft immediately prior to the Event of Loss, assuming maintenance thereof in
accordance with the related Lease or Owned Aircraft Indenture, as the case may
be. Northwest is also required to provide to the relevant Loan Trustee and (in
the case of a Leased Aircraft) the relevant Owner Trustee and Owner Participant
opinions of counsel to the effect, among other things, that (i) certain
specified documents have been duly filed for recordation and (ii) such Owner
Trustee (in the case of a Leased Aircraft) and Loan Trustee (in the case of a
Leased Aircraft, as assignee of the Owner Trustee's rights and interests under
the Lease), will be entitled to receive the benefits of Section 1110 of the
Bankruptcy Code with respect to any such replacement airframe (unless, as a
result of a change in law or court interpretation, such benefits are not then
available). If Northwest elects to pay the stipulated loss value for such
Aircraft (or, in the case of an Owned Aircraft, pay to the applicable Loan
Trustee the outstanding principal amount of the Equipment Notes relating to such
Aircraft plus accrued and unpaid interest thereon) or elects to replace such
Aircraft but fails to do so within the time periods specified therefor,
Northwest must make such payment not later than the Business Day next succeeding
120 days after the related Event of Loss. Upon the payment of the stipulated
loss value for such Aircraft (in the case of a Leased Aircraft) or the
outstanding principal amount of the Equipment Notes issued with respect to such
Aircraft (in the case of an Owned Aircraft), together with all other amounts
then due and unpaid with respect to such Aircraft, which must be at least
sufficient to pay in full as of the date of payment the principal amount of the
related Equipment Notes and all accrued and unpaid interest due thereon (but
without any Make-Whole Premium), the lien of the Indenture and (in the case of a
Leased Aircraft) the Lease relating to such Aircraft will terminate with respect
to such Aircraft, the obligation of Northwest thereafter to make the scheduled
rent payments (in the case of a Leased Aircraft) or interest and principal
payments (in the case of an Owned Aircraft) with respect to such Equipment Notes
will cease and (in the case of a Leased Aircraft) the related Owner Trustee will
transfer all of its right, title and interest in and to the related Aircraft to
Northwest. The stipulated loss value and other payments made under the Lease by
Northwest will be deposited with the applicable Loan Trustee. Amounts in excess
of the amounts due and owing under the Equipment Notes issued with respect to
such Aircraft will be distributed by such Loan Trustee to the applicable Owner
Trustee or to Northwest, as the case may be. (Leases, Sections 3(d)(v) and
10(a); Leased Aircraft Indentures, Sections 3.02 and 5.06; Owned Aircraft
Indentures, Sections 3.02 and 7.06(a))
If an Event of Loss occurs with respect to an Engine alone, Northwest will
be required to replace such Engine within 60 days from the date of such Event of
Loss with another engine, free and clear of all liens (other than certain
permitted liens), of the same or improved make and model (subject to certain
exceptions) and having a value, utility and remaining useful life (without
regard to hours or cycles) at least equal to the Engine being replaced (assuming
that such Engine had been maintained in accordance with the Lease). (Leases,
Section 10(b); Leased Aircraft Indentures, Section 5.06; Owned Aircraft
Indentures, Section 7.06(b))
An "EVENT OF LOSS" with respect to an Aircraft, Airframe or any Engine means
any of the following events with respect thereto:
(i) loss of such property or its use due to destruction or damage rendering
repair uneconomic or such property permanently unfit for normal use;
(ii) any damage to such property which results in an insurance settlement
with respect to such property on the basis of a total loss or
constructive or compromised total loss;
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(iii) the theft, disappearance, confiscation, condemnation or seizure of, or
requisition of title to or use of, such property (other than a
requisition for use by the United States government or certain other
specified governments of registry of the Aircraft or any agency or
instrumentality thereof), involving, in the case of any event referred
to in this clause (iii) (other than a requisition of title), loss of
possession of such property for a period of more than 180 consecutive
days or, in the case of a requisition of title, such requisition has
not been reversed within 90 days;
(iv) as a result of any law, rule, regulation, order or other action by the
FAA, or any other governmental authority of the country of registry of
such property, the use of such property in the normal course of
business of air transportation shall have been prohibited for 180
consecutive days, unless Northwest (or, in the case of a Leased
Aircraft, any Sublessee or, in the case of an Owned Aircraft, any
lessee), prior to the expiration of such 180-day period, has undertaken
and is diligently carrying forward all steps necessary or desirable to
permit normal use of such property, but in any event (subject to
certain limitations) if such prohibition has continued for a period of
three years;
(v) in the case of a Leased Aircraft the requisition for use by the United
States government or certain other specified governments of registry of
the Aircraft or any instrumentality or agency thereof that continues for
30 days beyond the term of the relevant Lease (unless the Owner Trustee
has elected not to treat such event as an Event of Loss); and
(vi) with respect to any Engine, any divestiture of title to or interest in
an Engine in connection with pooling or certain other arrangements or
any event with respect to an Engine that is deemed to be an Event of
Loss will be an Event of Loss with respect to such Engine.
An Event of Loss with respect to an Aircraft is deemed to have occurred if
an Event of Loss occurs with respect to the Airframe which is a part of such
Aircraft. (Leases, Section 1; Owned Aircraft Indentures, Annex A)
LEASE EVENTS OF DEFAULT
Lease Events of Default include: (i) failure by Northwest to pay any payment
of Basic Rent or stipulated loss value under such Lease within 10 Business Days
after the same shall have become due; (ii) failure by Northwest to pay
Supplemental Rent (other than stipulated loss value) within 10 Business Days
after Northwest's receipt of written demand therefor (provided that failure to
pay any amount that is excluded from the lien of the Indenture shall not
constitute a Lease Event of Default unless notice is given by the Owner
Participant); (iii) failure by Northwest to perform or observe in any material
respect any other covenant or agreement to be performed or observed by it under
such Lease or the related Participation Agreement or certain other related
operative documents (other than the related tax indemnity agreement between
Northwest and the Owner Participant), and such failure shall have continued
unremedied for a period of 30 days after Northwest shall have received written
notice of such failure from the applicable Owner Trustee or the Loan Trustee;
PROVIDED, HOWEVER, that no such failure with respect to covenants in such Lease
pertaining to maintenance, service, repair, alteration, modification and
replacement of parts shall constitute a Lease Event of Default so long as such
failure is curable and Northwest is diligently proceeding to remedy such
failure, and such failure is remedied not later than 365 days after receipt of
such notice; (iv) any representation or warranty made by Northwest under such
Lease, the related Participation Agreement or any other document or certificate
furnished by Northwest in connection therewith (other than in the related tax
indemnity agreement between Northwest and the Owner Participant and other than
in the Underwriting Agreement, the Pass-Through Trust Agreements or the Note
Purchase Agreement), shall prove to have been incorrect in any material respect
when made and shall remain unremedied for a period of 30 days after notice to
Northwest of such incorrectness from the applicable Owner Trustee or the Loan
Trustee; (v) the
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occurrence of certain voluntary events of bankruptcy, reorganization or
insolvency of Northwest or the occurrence of involuntary events of bankruptcy,
reorganization or insolvency of Northwest which continues undismissed, unvacated
or unstayed for a period of ninety (90) days; and (vi) failure by Northwest to
carry and maintain (or cause to be carried and maintained) insurance on or in
respect of any Aircraft in accordance with the provisions of such Lease, subject
to certain exceptions. No event will constitute a Lease Event of Default if such
event is caused solely by reason of an event that constitutes an Event of Loss
and Northwest is complying with the terms relating to an Event of Loss of the
Aircraft set forth in such Lease. (Leases, Section 14)
Indenture Events of Default under the Owned Aircraft Indenture are
comparable and are discussed above under "Indenture Defaults, Notice and
Waiver." (Owned Aircraft Indentures, Section 4.01)
If a Lease Event of Default has occurred and is continuing and the Lease has
been declared to be in default, the applicable Owner Trustee may (or, so long as
the Indenture is in effect, the applicable Loan Trustee may, subject to the
terms of the Indenture), subject to certain limitations relating to aircraft
subject to the Civil Reserve Air Fleet Program, exercise one or more of the
remedies provided in such Lease with respect to the related Aircraft. Such
remedies include the right to repossess and use or operate such Aircraft, to
rescind or terminate such Lease, to sell or re-lease such Aircraft free and
clear of Northwest's rights, except as provided in the Lease, and retain the
proceeds, and to require Northwest to pay as liquidated damages any accrued and
unpaid Basic Rent plus an amount equal to the excess of the stipulated loss
value of such Aircraft over either (i) the fair market sales value or fair
market rental value of such Aircraft (as determined by independent appraisal) or
(ii) if such Aircraft has been sold, the net sale proceeds thereof. (Leases,
Section 15)
CERTAIN DEFINED TERMS UNDER THE LEASES
"BASIC RENT" means, for any Aircraft, the scheduled rent payable
semiannually for the term for such Aircraft pursuant to the related Lease.
"CIVIL RESERVE AIR FLEET PROGRAM" means the Civil Reserve Air Fleet Program
currently administered by the United States Air Force Air Mobility Command
pursuant to Executive Order No. 11490, as amended, or any substantially similar
program of the United States government.
"LEASE DEFAULT" means a default under a Lease.
"LEASE PAYMENT DATES" means, with respect to each Lease, April 1 and
October 1 of each year, so long as Equipment Notes are outstanding under the
related Indenture, commencing on the first Regular Distribution Date to occur
after such Aircraft is leased by the Company.
"SUBLESSEE" means any sublessee under a Lease from time to time.
"SUPPLEMENTAL RENT" means all amounts, liabilities and obligations (other
than Basic Rent) which are owed by Northwest under each Lease and the agreements
related thereto.
TRANSFER OF OWNER PARTICIPANT INTERESTS
Subject to certain restrictions, each Owner Participant may transfer its
interest in the related Leased Aircraft. (Leased Aircraft Participation
Agreements, Section 8(n))
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion represents the opinion of Cadwalader, Wickersham &
Taft as to the principal U.S. federal income tax consequences to
Certificateholders of the purchase, ownership and disposition of the
Certificates. Except as otherwise specified, the discussion is addressed to
beneficial owners of Certificates ("U.S. CERTIFICATEHOLDERS") that are citizens
or residents of the United States, corporations or partnerships (including
entities treated as such for U.S. federal income tax purposes) created or
organized in or under the laws of the United States, any State or the District
of Columbia, estates the income of which is subject to U.S. federal income
taxation regardless of its source or, generally, trusts if a court within the
United States is able to exercise primary supervision over the administration of
such trust, and one or more of the foregoing persons have the authority to
control all substantial decisions of such trust ("U.S. PERSONS") that will hold
the Certificates as capital assets. This discussion does not address the tax
treatment of U.S. Certificateholders that may be subject to special tax rules,
such as banks, insurance companies, dealers in securities or commodities,
tax-exempt entities, holders that will hold Certificates as part of a straddle
or holders that have a "functional currency" other than the U.S. dollar, nor
does it address the tax treatment of U.S. Certificateholders that do not acquire
Certificates as part of the initial offering. This discussion does not describe
any tax consequences arising under the laws of any State, locality or taxing
jurisdiction other than the United States.
This discussion is based upon the tax laws of the United States as in effect
on the date of this prospectus supplement, as well as judicial and
administrative interpretations thereof (in final or proposed form) available on
or before such date. All of the foregoing are subject to change or differing
interpretations, which could apply retroactively. Prospective investors should
note that no rulings have been or will be sought from the IRS with respect to
any of the U.S. federal income tax consequences discussed below, and no
assurance can be given that the IRS will not take contrary positions. This
discussion supplements the discussion in the Prospectus under the heading
"United States Federal Income Tax Consequences" and supersedes it to the extent
inconsistent therewith. Prospective investors should consult their own tax
advisors with respect to the federal, state, local and foreign tax consequences
of the purchase, ownership and disposition of the Certificates.
TAX STATUS OF THE TRUSTS
In the opinion of Cadwalader, Wickersham & Taft, special counsel to
Northwest, each Trust will not be classified as an association or a publicly
traded partnership taxable as a corporation for U.S. federal income tax purposes
and will not be subject to federal income tax. Each Trust will file federal
income tax returns and report to investors on the basis that it is a grantor
trust under Subpart E, Part I of Subchapter J of the Code. If a Trust were
treated as a partnership for U.S. federal income tax purposes rather than as a
grantor trust, in the opinion of Cadwalader, Wickersham & Taft, the consequences
to U.S. Certificateholders and, to the extent described below, Non-U.S.
Certificateholders, would not be materially different. The remainder of this
discussion describes the consequences of the treatment as a grantor trust.
Certificateholders who are not U.S. Persons should consult their own tax
advisors as to the suitability to them of an investment in the Certificates.
TAXATION OF CERTIFICATEHOLDERS GENERALLY
A U.S. Certificateholder will be treated as owning its pro rata undivided
interest in each of the Equipment Notes and any other property held by the
related Trust. Accordingly, each U.S. Certificateholder's share of interest paid
on the Equipment Notes will be taxable as ordinary income, as it is paid or
accrued, in accordance with such owner's method of accounting for U.S. federal
income tax
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purposes and a U.S. Certificateholder's share of Make-Whole Premium, if any,
paid on the Equipment Notes will be treated as capital gain. Each U.S.
Certificateholder's share of interest income on the Deposits will be taxable as
it is paid or accrued, in accordance with such holder's method of accounting for
U.S. federal income tax purposes. In addition, the Deposits may be subject to
the original issue discount rules, with the result that a U.S. Certificateholder
may be required to include any such original issue discount income from a
Deposit using the accrual method of accounting regardless of its normal method.
A U.S. Certificateholder's share of Deposit Make-Whole Premium, if any, paid
with respect to the return of unused Deposits may be treated as ordinary income.
Any amounts received by a Trust from Interest Drawings under the relevant
Liquidity Facility will be treated for U.S. federal income tax purposes as
having the same characteristics as the payments they replace.
Each U.S. Certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding Trust as provided in Section 162 or 212 of the Code.
Certain fees and expenses, including fees paid to the Trustee and the Liquidity
Provider, will be borne by parties other than the Certificateholders. It is
possible that such fees and expenses will be treated as constructively received
by the Trust, in which event a U.S. Certificateholder will be required to
include in income and will be entitled to deduct its pro rata share of such fees
and expenses. If a U.S. Certificateholder is an individual, estate or trust, the
deduction for such holder's share of such fees or expenses will be allowed only
to the extent that all of such holder's miscellaneous itemized deductions,
including such holder's share of such fees and expenses, exceed 2% of such
holder's adjusted gross income. In addition, in the case of U.S.
Certificateholders who are individuals, certain otherwise allowable itemized
deductions will be subject generally to additional limitations on itemized
deductions under the applicable provisions of the Code.
EFFECT OF SUBORDINATION OF SUBORDINATED CERTIFICATEHOLDERS
If either of the Class B Trust or the Class C Trust (such Trusts being the
"SUBORDINATED TRUSTS" and the related Certificates being the "SUBORDINATED
CERTIFICATES") receives less than the full amount of the receipts of principal
or interest paid with respect to the Equipment Notes held by it (any shortfall
in such receipts being the "SHORTFALL AMOUNTS") because of the subordination of
the Equipment Notes held by such Trust under the Intercreditor Agreement, the
corresponding owners of beneficial interests in the Subordinated Certificates
(the "SUBORDINATED CERTIFICATEHOLDERS") would probably be treated for federal
income tax purposes as if they had (1) received as distributions their full
share of such receipts, (2) paid over to the relevant senior class of
Certificateholders an amount equal to their share of such Shortfall Amount, and
(3) retained the right to reimbursement of such amounts to the extent of future
amounts payable to such Subordinated Certificateholders with respect to such
Shortfall Amount.
Under this analysis, (1) Subordinated Certificateholders incurring a
Shortfall Amount would be required to include as current income any interest or
other income of the corresponding Subordinated Trust that was a component of the
Shortfall Amount, even though such amount was in fact paid to the relevant
senior class of Certificateholders, (2) a loss would only be allowed to such
Subordinated Certificateholders when their right to receive reimbursement of
such Shortfall Amount became worthless (i.e., when it becomes clear that funds
will not be available from any source to reimburse such loss), and
(3) reimbursement of such Shortfall Amount prior to such a claim of
worthlessness would not be taxable income to Subordinated Certificateholders
because such amount was previously included in income. These results should not
significantly affect the inclusion of income for Subordinated Certificateholders
on the accrual method of accounting, but could accelerate inclusion of income to
Subordinated Certificateholders on the cash method of accounting by, in effect,
placing them on the accrual method.
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ORIGINAL ISSUE DISCOUNT
It is anticipated that the Equipment Notes will not be issued with original
issue discount ("OID") for U.S. federal income tax purposes. Generally, a holder
of a debt instrument issued with OID that is not DE MINIMIS must include such
OID in income for federal income tax purposes as it accrues, in advance of the
receipt of the cash attributable to such income, under a method that takes into
account the compounding of interest.
SALE OR OTHER DISPOSITION OF THE CERTIFICATES
Upon the sale, exchange or other disposition of a Certificate and the
related Deposit, a U.S. Certificateholder generally will recognize gain or loss
equal to the difference between the amount realized on the disposition (other
than any amount attributable to accrued interest which will be taxable as
ordinary income) allocable to the related Equipment Notes or other Trust
property and the related Deposit and the U.S. Certificateholder's adjusted tax
basis in the related Equipment Notes and any other assets held by the
corresponding Trust or in the related Deposit, respectively. A U.S.
Certificateholder's adjusted tax basis in the Certificate will equal the
holder's cost for its Certificate (other than the portion thereof allocated to
Deposits and not yet applied to the purchase of Equipment Notes or distributed)
less any payments of principal received and any previously recognized losses. A
U.S. Certificateholder's basis allocable to the related Deposit will be the
dollar amount thereof. Any gain or loss will be capital gain or loss if the
Certificate and the Deposit were held as a capital asset. Net long-term capital
gains of individuals generally are taxed at a 20% maximum rate for property held
for more than one year compared to a 39.6% maximum rate for ordinary income and
short-term capital gains.
FOREIGN CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of principal
and interest (including OID) on the Equipment Notes to, or on behalf of, any
beneficial owner of a Certificate that is not a U.S. Person (a "NON-U.S.
CERTIFICATEHOLDER") will not be subject to U.S. federal withholding tax;
PROVIDED, that (i) such Non-U.S. Certificateholder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of the stock of any Owner Participant (in the case of Leased Aircraft Notes) or
of Northwest (in the case of Owned Aircraft Notes), (ii) such Non-U.S.
Certificateholder is not (i) a bank receiving interest pursuant to a loan
agreement entered into in the ordinary course of its trade or business, or
(ii) a controlled foreign corporation for U.S. tax purposes that is related to
an Owner Participant (in the case of Leased Aircraft Notes) or of Northwest (in
the case of Owned Aircraft Notes), and (iii) either (A) the Non-U.S.
Certificateholder certifies, under penalties of perjury, that it is not a U.S.
Person and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Certificate certifies, under penalties of perjury,
that such statement has been received from the Non-U.S. Certificateholder by it
or by another financial institution and furnishes the payor with a copy thereof.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a Certificate or upon receipt of premium paid on an Equipment
Note by a Non-U.S. Certificateholder will not be subject to U.S. federal income
or withholding taxes if (i) such gain is not effectively connected with a U.S.
trade or business of the holder and (ii) in the case of an individual, such
holder is not present in the United States for 183 days or more in the taxable
year of the sale, exchange, retirement or other disposition or receipt.
Any interest or gain described in the two preceding paragraphs will be
subject to regular U.S. federal income tax at graduated rates if it is
effectively connected with the conduct of a U.S. trade or business by a Non-U.S.
Certificateholder.
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BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments within the United States of principal, interest, OID and premium on the
Certificates, and to payments of the proceeds of certain sales of Certificates
made to U.S. Certificateholders other than certain exempt recipients (such as
corporations). A 31% "backup withholding" tax may apply to such payments if the
holder fails or has failed to provide an accurate taxpayer identification number
or otherwise establish an exemption or fails to report in full interest income.
With respect to Non-U.S. Certificateholders, payments made on a Certificate and
proceeds from the sale of a Certificate owned by a Non-U.S. Certificateholder
will generally not be subject to such information reporting requirements or
backup withholding tax if such Non-U.S. Certificateholder provides the
applicable statement as to its non-U.S. status or otherwise establishes an
exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be allowed as a refund or credit against such
holder's U.S. federal income tax liability, if any, provided the required
information is furnished to the IRS.
The Treasury Department has issued final Treasury Regulations (the "FINAL
REGULATIONS") governing withholding, backup withholding and information
reporting requirements. The Final Regulations do not significantly alter the
substantive withholding and information reporting requirements discussed herein;
they unify current certification procedures and forms and clarify reliance
standards. The Final Regulations will generally become effective for payments
made after December 31, 2000.
CERTAIN CONNECTICUT TAXES
The Trustee is a national banking association with its chief executive
office in Hartford, Connecticut. In the opinion of Bingham Dana LLP, counsel to
the Trustee, under currently applicable law, assuming that, for federal tax
purposes, each Trust will not be treated as a corporation, but rather, will be
classified either as a grantor trust under subpart E, Part I of Subchapter J of
Chapter 1 of Subtitle A of the Internal Revenue Code or as a partnership,
(i) the Trusts will not be subject to any tax (including, without limitation,
net or gross income, tangible or intangible property, net worth, capital,
franchise or doing business tax), fee or other governmental charge under the
laws of the State of Connecticut or any political subdivision thereof and
(ii) Certificateholders that are not residents of or otherwise subject to tax in
Connecticut will not be subject to any tax (including, without limitation, net
or gross income, tangible or intangible property, net worth, capital, franchise
or doing business tax), fee or other governmental charge under the laws of the
State of Connecticut or any political subdivision of either thereof as a result
of purchasing, holding (including receiving payments with respect to) or selling
a Certificate.
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ERISA CONSIDERATIONS
IN GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to Title I of
ERISA and on entities which are deemed to hold the assets of such plans ("ERISA
PLANS"), and on those persons who are fiduciaries with respect to ERISA Plans.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including, but not limited to, the requirement of investment
prudence and diversification and the requirement that an ERISA Plan's
investments be made in accordance with the documents governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of an ERISA Plan (or the assets of those plans
and entities that are not subject to ERISA but which are subject to
Section 4975 of the Code, such as individual retirement accounts (together with
ERISA Plans, "PLANS")) and certain persons (referred to as "PARTIES IN INTEREST"
or "DISQUALIFIED PERSONS") having certain relationships to such Plans, unless a
statutory or administrative exemption is applicable to the transaction. A party
in interest or disqualified person who engages in a prohibited transaction may
be subject to excise taxes and other penalties and liabilities under ERISA and
the Code.
Any Plan fiduciary which proposes to cause a Plan to purchase Certificates
should consult with its counsel regarding the applicability of the fiduciary
responsibility and prohibited transaction provisions of ERISA and Section 4975
of the Code to such an investment, and to confirm that such purchase and holding
will not constitute or result in a non-exempt prohibited transaction or any
other violation of an applicable requirement of ERISA.
Governmental plans and certain church plans, while not subject to the
fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of ERISA and Section 4975 of the Code, may nevertheless be subject to
state or other federal laws that are substantially similar to the foregoing
provisions of ERISA and the Code. Fiduciaries of any such plans should consult
with their counsel before purchasing Certificates.
PLAN ASSETS ISSUES
The Department of Labor has promulgated a regulation, 29 CFR
Section 2510.3-101 (the "PLAN ASSET REGULATION"), describing what constitutes
the assets of a Plan with respect to the Plan's investment in an entity for
purposes of ERISA and Section 4975 of the Code. Under the Plan Asset Regulation,
if a Plan invests (directly or indirectly) in a Certificate, the Plan's assets
will include both the Certificate and an undivided interest in each of the
underlying assets of the corresponding Trust, including the Equipment Notes held
by such Trust, unless, it is established that equity participation in the Trust
by "benefit plan investors" is not "significant" within the meaning of the Plan
Asset Regulation. The extent to which there is equity participation in a
particular Trust by, or on behalf of, benefit plan investors will not be
monitored. If the assets of a Trust are deemed to constitute the assets of a
Plan, transactions involving the assets and operations of such Trust could be
subject to fiduciary responsibility and the prohibited transaction provisions of
ERISA and Section 4975 of the Code.
PROHIBITED TRANSACTION EXEMPTIONS
In addition, whether or not the assets of a Trust are deemed to be Plan
assets under the Plan Asset Regulation, the fiduciary of a Plan that proposes to
purchase and hold any Certificates should consider, among other things, whether
such purchase and holding may involve (i) the direct or indirect extension of
credit to a party in interest or a disqualified person, (ii) the sale or
exchange of any
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property between a Plan and a party in interest or a disqualified person, or
(iii) the transfer to, or use by or for the benefit of, a party in interest or a
disqualified person, of Plan assets. Such parties in interest or disqualified
persons could include, without limitation, Northwest and its affiliates, the
Owner Participants, the Underwriters, the Trustees, the Escrow Agent, the
Depositaries, the Owner Trustees and the Liquidity Provider. Moreover, if
Certificates are purchased by a Plan and Certificates of a subordinate Class are
held by a party in interest or a disqualified person with respect to such Plan,
the exercise by the holder of the subordinate Class of Certificates of its right
to purchase the senior Classes of Certificates upon the occurrence and during
the continuation of a Triggering Event could be considered to constitute a
prohibited transaction unless a statutory or administrative exemption were
applicable. Depending on the satisfaction of certain conditions, which may
include the identity of the Plan fiduciary making the decision to acquire or
hold Certificates on behalf of a Plan, Prohibited Transaction Class Exemption
("PTCE") 91-38 (relating to investments by bank collective investment funds),
PTCE 84-14 (relating to transactions effected by a "qualified professional asset
manager"), PTCE 95-60 (relating to investments by an insurance company general
account), PTCE 96-23 (relating to transactions directed by an in-house asset
manager) or PTCE 90-1 (relating to investments by insurance company pooled
separate accounts) (collectively, the "CLASS EXEMPTIONS") could provide an
exemption from the prohibited transaction provisions of ERISA and Section 4975
of the Code. However, there can be no assurance that any of these Class
Exemptions or any other exemption will be available with respect to any
particular transaction involving the Certificates.
Each person who acquires or accepts a Certificate or an interest therein
will be deemed by such acquisition or acceptance to have represented and
warranted that either: (i) no Plan assets have been used to acquire such
Certificate or an interest therein or (ii) the purchase and holding of such
Certificate or interest therein are exempt from the prohibited transaction
restrictions of ERISA and Section 4975 of the Code pursuant to one or more
prohibited transaction statutory or administrative exemptions.
CLASS A CERTIFICATES--POSSIBLE APPLICATION OF UNDERWRITER EXEMPTION
In addition to the Class Exemptions referred to above, an individual
exemption may apply to the purchase, holding and secondary market sale of
Class A Certificates by Plans, provided that certain specified conditions are
met. In particular, the Department of Labor has issued individual administrative
exemptions to the underwriters which are substantially the same as the
administrative exemption issued to Credit Suisse First Boston Corporation,
Prohibited Transaction Exemption 89-90 (54 Fed. Reg. 42,597 (1989)) (the
"UNDERWRITER EXEMPTION"). The Underwriter Exemption generally exempts from the
application of certain, but not all, of the prohibited transaction provisions of
Section 406 of ERISA and Section 4975 of the Code certain transactions relating
to the initial purchase, holding and subsequent secondary market sale of pass
through certificates which represent an interest in a trust that holds secured
credit instruments that bear interest or are purchased at a discount in
transactions by or between business entities (including equipment notes secured
by leases) and certain other assets, provided that certain conditions set forth
in the Underwriter Exemption are satisfied.
The Underwriter Exemption sets forth a number of general and specific
conditions which must be satisfied for a transaction involving the initial
purchase, holding or secondary market sale of certificates representing a
beneficial ownership interest in a trust to be eligible for exemptive relief
thereunder. In particular, the Underwriter Exemption requires that the
acquisition of certificates by a Plan be on terms that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an unrelated
party; the rights and interests evidenced by the certificates not be
subordinated to the rights and interests evidenced by other certificates of the
same trust estate; the certificates at the time of acquisition by the Plan be
rated in one of the three highest generic rating categories by Moody's,
Standard & Poor's, Duff & Phelps Credit Rating Co. or Fitch Investors
Service, Inc.; and the investing
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Plan be an accredited investor as defined in Rule 501(a)(1) of Regulation D of
the Commission under the Securities Act.
In addition, the trust corpus generally must be invested in qualifying
receivables, such as the Equipment Notes, but may not in general include a
pre-funding account (except for a limited amount of pre-funding which is
invested in qualifying receivables within a limited period of time following the
closing not to exceed three months).
In reviewing the potential applicability of the Underwriter Exemption with
their legal advisors, Plans should note that an investment in a Certificate will
evidence both an interest in the respective Trust as well as an interest in the
Deposits held in escrow by an Escrow Agent for the benefit of the
Certificateholder. See "Description of the Deposit Agreements" and "Description
of the Escrow Agreements." Under the terms of the Escrow Agreement, the proceeds
from the offering of the Class A, Class B and Class C Certificates will be paid
over by the Underwriters to the applicable Depositary on behalf of the Escrow
Agent (for the benefit of such Certificateholders as the holders of the Escrow
Receipts) and will not constitute property of the Trusts. Under the terms of
each Escrow Agreement, the Escrow Agent will be irrevocably instructed to enter
into the Deposit Agreements with the applicable Depositary and to effect
withdrawals upon the receipt of appropriate notice from the relevant Trustee so
as to enable such Trustee to purchase the identified Equipment Notes on the
terms and conditions set forth in the Note Purchase Agreement.
There can be no assurance that the Department of Labor would agree that the
Underwriter Exemption will be applicable to Class A Certificates in these
circumstances. In particular, the Department of Labor might assert that the
escrow arrangement is tantamount to an impermissible pre-funding rendering the
Underwriter Exemption inapplicable. In addition, even if all of the conditions
of the Underwriter Exemption are satisfied with respect to the Class A
Certificates, no assurance can be given that the Underwriter Exemption would
apply with respect to all transactions involving the Class A Certificates or the
assets of the Class A Trust. In particular, the Underwriter Exemption may not
apply to the purchase by Class B Certificateholders or Class C
Certificateholders of Class A Certificates in connection with the exercise of
their rights upon the occurrence and during the continuance of a Triggering
Event. See "Description of the Certificates--Purchase Rights of
Certificateholders." Therefore, the fiduciary of a Plan considering the purchase
of a Class A Certificate should consider the availability of the exemptive
relief provided by the Underwriter Exemption, as well as the availability of any
other Class Exemptions that may be applicable. The Underwriter Exemption will
not in any event apply to the Class B or Class C Certificates.
EACH PLAN FIDUCIARY (AND EACH FIDUCIARY FOR A GOVERNMENTAL OR CHURCH PLAN
SUBJECT TO RULES SIMILAR TO THOSE IMPOSED ON PLANS UNDER ERISA) SHOULD CONSULT
WITH ITS LEGAL ADVISOR CONCERNING THE POTENTIAL CONSEQUENCES TO THE PLAN UNDER
ERISA, THE CODE OR SUCH SIMILAR LAWS OF AN INVESTMENT IN ANY OF THE
CERTIFICATES.
S-91
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated April , 2000, the Company and Northwest have agreed to sell to
the underwriters named below, for whom Credit Suisse First Boston is acting as a
representative, the following respective principal amounts of the Class A,
Class B and Class C Certificates.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A CLASS B CLASS C
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES
- ----------- ------------ ------------ ------------
<S> <C> <C> <C>
Credit Suisse First Boston Corporation.............. $ $ $
Morgan Stanley & Co. Incorporated...................
Salomon Smith Barney Inc............................
Chase Securities Inc................................
U.S. Bancorp Piper Jaffray Inc......................
------------ ------------ -----------
Total........................................... $307,116,032 $101,321,514 $91,064,364
============ ============ ===========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the Certificates in the offering if any are purchased. The
underwriting agreement also provides that if an underwriter defaults on its
purchase commitments, the purchase commitments of non-defaulting underwriters
may be increased or the offering of Certificates may be terminated.
Northwest estimates that the expenses associated with the offer and sale of
the Certificates will be approximately $ .
The underwriters propose to offer the Certificates initially at the public
offering prices on the cover page of this prospectus supplement and to selling
group members at those prices less the concessions set forth below. The
underwriters and selling group members may allow a discount to other
broker/dealers set forth below. After the initial public offering, the public
offering prices and concessions and discounts to brokers/dealers may be changed
by the underwriters.
<TABLE>
<CAPTION>
CONCESSION
PASS THROUGH TO SELLING GROUP DISCOUNT TO
CERTIFICATE DESIGNATION MEMBERS BROKERS/ DEALERS
----------------------- ---------------- ----------------
<S> <C> <C>
2000-1A.....................................................
2000-1B.....................................................
2000-1C.....................................................
</TABLE>
The Certificates are a new issue of securities with no established trading
market. One or more of the Underwriters intend to make a secondary market for
the Certificates. However, they are not obligated to do so and may discontinue
any market making at any time without notice. No assurance can be given as to
the liquidity of the trading market for the Certificates.
The Company and Northwest have agreed to indemnify the underwriters against
liabilities under the Securities Act, or contribute to payments which the
underwriters may be required to make in that respect.
Credit Suisse First Boston, New York branch, an affiliate of Credit Suisse
First Boston Corporation, will act as the Liquidity Provider with respect to
Class A, Class B and Class C Trusts. From time to time, several of the
underwriters or their affiliates perform investment banking and advisory
services for, and provide general financing and banking services to, the
Company, Northwest and their affiliates.
S-92
<PAGE>
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the Certificates in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the underwriters to reclaim a selling concession from
a syndicate member when the Certificates originally sold by such syndicate
member are purchased in a syndicate covering transaction to cover
syndicate short positions.
The stabilizing transactions, syndicate covering transactions and penalty
bids may cause the prices of the Certificates to be higher than they would
otherwise be in the absence of such transactions. These transactions, if
commenced, may be discontinued at any time.
Northwest expects that delivery of the Certificates will be made against
payment therefor on or about the closing date specified on the cover page of
this prospectus supplement, which will be the business day following
the date of pricing of the Certificates. Under Rule 15c6-1 of the Commission
under the Exchange Act, trades in the secondary market generally are required to
settle in three business days, unless the parties to any such trade expressly
agree otherwise. Accordingly, purchasers who wish to trade Certificates on the
date of pricing or the next succeeding business days will be required,
by virtue of the fact that the Certificates initially will settle in T+ , to
specify an alternate settlement cycle at the time of any trade to prevent a
failed settlement and should consult their own advisor.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Certificates in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of the Certificates are effected. Accordingly, any resale of the
Certificates in Canada must be made in accordance with applicable securities
laws which will vary depending on the relevant jurisdiction, and which may
require resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the Certificates.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Certificates in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from whom
such purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Certificates without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchase 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
S-93
<PAGE>
must rely on other remedies that may be available, including common law rights
of action for damages or rescission or rights of action under the civil
liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
SECURITIES ACT NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Certificates to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Certificates acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Certificates acquired on the same date
and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Certificates should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the
Certificates in their particular circumstances and with respect to the
eligibility of the Certificates for investment by the purchaser under relevant
Canadian legislation.
LEGAL MATTERS
The validity of the Certificates offered hereby will be passed upon for NWA
Corp. and Northwest by Simpson Thacher & Bartlett, New York, New York, and for
the Underwriters by Shearman & Sterling, New York, New York. Certain federal
income tax matters with respect to the Trust and Certificateholders will be
passed upon by Cadwalader, Wickersham & Taft, special tax counsel to Northwest.
The respective counsel for Northwest and the Underwriters may rely upon Bingham
Dana LLP, Hartford, Connecticut, counsel to State Street Bank and Trust Company
of Connecticut, National Association, as to certain matters relating to the
authorization, execution and delivery of the Basic Agreement, each Trust
Supplement and the issuance of the Certificates. Shearman & Sterling has also
acted on behalf of Credit Suisse First Boston, New York branch, as Liquidity
Provider.
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, 1999, as set forth in their
report, which is incorporated by reference in the prospectus accompanying this
prospectus supplement. NWA Corp.'s consolidated financial statements and
schedule are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
The references to AISI, AVS and MBA, and to their respective appraisal
reports, are included herein in reliance upon the authority of each such firm as
an expert with respect to the matters contained in its appraisal report.
S-94
<PAGE>
APPENDIX I--INDEX OF CERTAIN DEFINED TERMS
The following is an index showing the page in this prospectus supplement
where certain defined terms appear.
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ --------
<S> <C>
Adjusted Expected Distributions............................. S-60
Administration Expenses..................................... S-60
Aggregate LTV Collateral Amount............................. S-61
Aircraft.................................................... S-5
Aircraft Operative Agreements............................... S-42
AISI........................................................ S-64
AMFA........................................................ S-18
AMTNOLs..................................................... S-19
Appraised Current Market Value.............................. S-61
Appraisers.................................................. S-64
ASMs........................................................ S-17
Assumed Aircraft Value...................................... S-70
Assumed Amortization Schedule............................... S-34
Average Life Date........................................... S-69
Aviation Act................................................ S-43
AVS......................................................... S-64
Bankruptcy Code............................................. S-14
Base Rate................................................... S-54
Basic Agreement............................................. S-30
Basic Rent.................................................. S-84
Business Day................................................ S-34
Cash Collateral Account..................................... S-52
Cede........................................................ S-47
Certificate Account......................................... S-33
Certificate Owner........................................... S-47
Certificateholders.......................................... S-31
Certificates................................................ S-30
Civil Reserve Air Fleet Program............................. S-84
Class A Certificates........................................ S-30
Class A Trust............................................... S-30
Class B Certificates........................................ S-30
Class B Trust............................................... S-30
Class C Certificates........................................ S-30
Class C Trust............................................... S-30
Code........................................................ S-19
Company..................................................... S-4
Controlling Party........................................... S-57
Current Distribution Date................................... S-59
Definitive Certificates..................................... S-47
Delivery Period............................................. S-63
Delivery Period Termination Date............................ S-5
Deposit..................................................... S-48
Deposit Account............................................. S-48
Deposit Agreements.......................................... S-48
Deposit Make-Whole Premium.................................. S-49
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ --------
<S> <C>
Depositary.................................................. S-8
Depreciation Assumption..................................... S-6
Distribution Date........................................... S-33
DOT......................................................... S-20
Downgrade Drawing........................................... S-52
DTC......................................................... S-47
DTC Participants............................................ S-47
Equipment................................................... S-74
Equipment Notes............................................. S-66
Escrow Agent................................................ S-50
Escrow Agreements........................................... S-50
Escrow Receipts............................................. S-50
Event of Loss............................................... S-82
Excusable Delay............................................. S-64
Expected Distributions...................................... S-59
Final Distributions......................................... S-58
Final Drawing............................................... S-54
Final Legal Distribution Date............................... S-32
H.15(519)................................................... S-69
Indenture Default........................................... S-37
Indentures.................................................. S-40
Intercreditor Agreement..................................... S-22
Interest Drawings........................................... S-51
IRS......................................................... S-19
Issuance Date............................................... S-53
Lease....................................................... S-13
Lease Event of Default...................................... S-37
Lease Payment Dates......................................... S-84
Leased Aircraft............................................. S-39
Leased Aircraft Indenture................................... S-39
Lease Aircraft Notes........................................ S-66
Leased Participation Agreement.............................. S-39
Lease Default............................................... S-84
LIBOR....................................................... S-54
Liquidity Event of Default.................................. S-55
Liquidity Expenses.......................................... S-59
Liquidity Facility.......................................... S-51
Liquidity Obligations....................................... S-59
Loan Trustee................................................ S-8
LTV Appraisal............................................... S-62
LTV Collateral Amount....................................... S-61
LTV Ratio................................................... S-61
LTVs........................................................ S-6
Make-Whole Premium.......................................... S-68
Mandatory Document Terms.................................... S-42
Mandatory Economic Terms.................................... S-40
Maximum Amount.............................................. S-49
Maximum Available Commitment................................ S-51
MBA......................................................... S-64
Minimum Sale Price.......................................... S-58
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ --------
<S> <C>
Moody's..................................................... S-23
most Recent H.15(519)....................................... S-69
NOLs........................................................ S-19
Non-Extension Drawing....................................... S-53
Non-Performing Equipment Note............................... S-62
Northwest................................................... S-4
Note Holders................................................ S-42
Note Purchase Agreement..................................... S-39
NWA Corp.................................................... S-4
Old NWA Corp................................................ S-29
Owned Aircraft.............................................. S-39
Owned Aircraft Indenture.................................... S-40
Owned Aircraft Notes........................................ S-66
Owned Participation Agreement............................... S-40
Owner Participant........................................... S-66
Owner Trustee............................................... S-30
Participation Agreements.................................... S-40
Pass Through Trust Agreements............................... S-30
Paying Agent................................................ S-50
Paying Agent Account........................................ S-33
Performing Equipment Note................................... S-52
Permitted Investments....................................... S-38
Pool Balance................................................ S-34
Pool Factor................................................. S-34
PTC Event of Default........................................ S-39
Rating Agencies............................................. S-52
Receiptholder............................................... S-50
Regular Distribution Dates.................................. S-32
Remaining Weighted Average Life............................. S-69
Replacement Liquidity Facility.............................. S-52
Required Amount............................................. S-51
RPMs........................................................ S-17
Scheduled Payments.......................................... S-32
Section 1110 Period......................................... S-52
Series A Equipment Notes.................................... S-66
Series B Equipment Notes.................................... S-66
Series C Equipment Notes.................................... S-66
Shortfall Amounts........................................... S-86
Special Distribution Date................................... S-33
Special Payment............................................. S-32
Special Payments Account.................................... S-33
Standard & Poor's........................................... S-23
Stated Interest Rate........................................ S-31
Sublessee................................................... S-84
Subordinated Certificateholders............................. S-86
Subordinated Certificates................................... S-86
Subordinated Trusts......................................... S-86
Subordination Agent......................................... S-8
Substitute Aircraft......................................... S-66
Supplemental Rent........................................... S-84
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ --------
<S> <C>
Termination Notice.......................................... S-55
Threshold Rating............................................ S-53
Treasury Yield.............................................. S-68
Triggering Event............................................ S-39
Trust Agreement............................................. S-66
Trust Indenture Act......................................... S-44
Trust Property.............................................. S-30
Trust Supplement............................................ S-30
Trustee..................................................... S-8
Trusts...................................................... S-30
U.S. Certificateholders..................................... S-85
U.S. Persons................................................ S-85
</TABLE>
I-4
<PAGE>
APPENDIX II--SUMMARY OF AIRCRAFT APPRAISALS
II-1
<PAGE>
[LOGO] AIRCRAFT
INFORMATION
SERVICES, INC.
28 March 2000
Northwest Airlines
Department A4010
5101 Northwest Drive
St. Paul, MN 55111-3034
Subject: AISI Report No.: AOS023BVO
AISI Sight Unseen Base Value Appraisal, Twelve New A319-114 and Six
1996 year of build B757-200 Non ETOP Aircraft.
Reference: (a) Credit Suisse First Boston fax message 21 March 2000.
Dear Ladies and Gentlemen:
Aircraft Information Services, Inc. (AISI) is pleased to offer Northwest
Airlines our opinion of the sight unseen base value of twelve new A319-114
aircraft scheduled to be delivered from the manufacturer to Northwest Airlines
between May 2000 and June 2001 and six 1996 year of build B757-200 non ETOP
aircraft as listed and defined in Table I.
1. Methodology and Definitions
The standard terms of reference for commercial aircraft value are `half-life
base market value' and `half-life current market value' of an average aircraft
condition. AISI value definitions are consistent with the current definitions of
the International Society of Transport Aircraft Trading (ISTAT), those of 01
January 1994. AISI is a member of that organization and employs an ISTAT
Certified and Senior Certified Aircraft Appraiser.
AISI defines a `base value' as that of a transaction between equally willing and
informed buyer and seller, neither under compulsion to buy or sell, for a single
unit cash transaction with no hidden value of liability, and with supply and
demand of the sale item roughly in balance. Base values are typically given for
aircraft in `new' condition, `average half-life' condition, or in a specifically
described condition unique to a single aircraft at a specific time. An `average'
<PAGE>
[LOGO]
28 March 2000
AISI File No. AOS023BVO
Page - 2 -
aircraft is an operable airworthy aircraft in average physical condition and
with average accumulated fight hours and cycles, with clear title and standard
unrestricted certificate of airworthiness, and registered in an authority which
does not represent a penalty to aircraft value or liquidity, with no damage
history and with inventory configuration and level of modification which is
normal for its intended use and age. AISI assumes average condition unless
otherwise specified in this report. `Half-life' condition assumes that every
component or maintenance service which has a prescribed interval that determines
its service life, overhaul interval or interval between maintenance services, is
at a condition which is one-half of the total interval. It should be noted that
AISI and ISTAT value definition apply to a transaction involving a single
aircraft, and that transactions involving more than one aircraft are often
executed at a considerable and highly variable discounts to a single aircraft
price, for a variety of reasons relating to an individual buyer or seller.
AISI defines a `current market value', which is synonymous with the older term
`fair market value' as that value which reflects the real market conditions,
whether at, above or below the base value conditions. Assumption of a single
unit sale and definitions of aircraft condition, buyer/seller qualifications and
type of transaction remain unchanged from that of base value. Current market
value takes into consideration the status of the economy in which the aircraft
is used, the status of supply and demand for the particular aircraft type, the
value of recent transactions and the opinions of informed buyers and sellers.
Current market value assumes that there is no short term time constraint to buy
or sell.
AISI encourages the use of base values to consider historical trends, to
establish a consistent baseline for long term value comparisons and future value
considerations, or to consider how actual market values vary from theoretical
base values. Base values are less volatile than current market values and tend
to diminish regularly with time. Base values are normally inappropriate to
determine near term values. AISI encourages the use of the current market values
to consider the probable near term of an aircraft.
2. Valuation
Following is AISI's opinion of the new base value for the subject A391-114
aircraft on their respective scheduled delivery dates in current US Dollars and
half life base values of the 1996 year of build B757-200 non ETOP aircraft.
Valuations are presented in Table I subject to the assumptions, definitions and
disclaimers herein.
<PAGE>
[LOGO]
28 March 2000
AISI File No. AOS023BVO
Page - 3 -
Table I
- --------------------------------------------------------------------------------
Scheduled Aircraft New Delivery
Manufacturer's Aircraft Serial Registration Base Value Current
Delivery Date Number Number US Dollars
- --------------------------------------------------------------------------------
A319-114, CFM56-5A5 Engines, 154,322lb MTOW
- --------------------------------------------------------------------------------
May-00 1230 N315NB $40,800,000
- --------------------------------------------------------------------------------
Jun-00 1249 N316NB $40,870,000
- --------------------------------------------------------------------------------
Sep-00 na N317NB $41,070,000
- --------------------------------------------------------------------------------
Sep-00 na N318NB $41,070,000
- --------------------------------------------------------------------------------
Oct-00 na N319NB $41,140,000
- --------------------------------------------------------------------------------
Dec-00 na N320NB $41,280,000
- --------------------------------------------------------------------------------
Jan-01 na N321NB $41,340,000
- --------------------------------------------------------------------------------
Feb-01 na N322NB $41,410,000
- --------------------------------------------------------------------------------
Mar-01 na N323NB $41,480,000
- --------------------------------------------------------------------------------
Mar-01 na N324NB $41,480,000
- --------------------------------------------------------------------------------
May-01 na N325NB $41,610,000
- --------------------------------------------------------------------------------
Jun-01 na N326NB $41,680,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Aircraft Half Life Base
Aircraft Serial Registration Value Year 2000
Year of Build Number Number US Dollars
- --------------------------------------------------------------------------------
B757-251 Non ETOP, PW2037 Engines, 227, 500lb MTOW
- --------------------------------------------------------------------------------
1996 26491 N544US $46,970,000
- --------------------------------------------------------------------------------
1996 26492 N545US $46,970,000
- --------------------------------------------------------------------------------
1996 26493 N546US $46,970,000
- --------------------------------------------------------------------------------
1996 26494 N547US $46,970,000
- --------------------------------------------------------------------------------
1996 26495 N548US $46,970,000
- --------------------------------------------------------------------------------
1996 26496 N549US $46,970,000
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
28 March 2000
AISI File No. AOS023BVO
Page - 4 -
Unless otherwise agreed by Aircraft Information Service, Inc. (AISI) in writing
this report shall be for the sole use of the client addressee. This report is
offered as a fair and unbiased assessment of the subject aircraft. AISI has no
past, present or anticipated future interest in the subject aircraft. The
conclusions and opinions expressed in this report are based on calculations
thereof and are given in good faith. Such conclusions and opinions are judgments
that reflect conditions and values which are current at the time of this report.
The values and conditions reported upon are subject to any subsequent change.
AISI shall not be liable to any party for damages arising out of reliance or
alleged reliance on this report, or for any parties action or failure to act as
a result of reliance or alleged reliance on this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
/s/ John D. McNicol
John D. McNicol
Vice President
Appraisals & Forecasts
<PAGE>
AvSOLUTIONS, Inc.
- --------------------------------------------------------------------------------
Aviation Solutions
March 23, 2000
Northwest Airlines, Inc.
Department A4010
5101 Northwest Drive
St. Paul, Minnesota 55111
Ladies and Gentlemen:
AvSOLUTIONS is pleased to provide this opinion on the base value, as of
March 2000, of twelve Airbus Industries A319-100 aircraft and six Boeing 757-200
aircraft (the aircraft) The A319-100 aircraft are powered by CFM International
CFM56-5A5 engines. The Boeing 757-200 aircraft are powered by Pratt & Whitney
PW2037 engines. The total of eighteen aircraft either have already been
delivered or are scheduled to be delivered to Northwest Airlines, Inc. before
the end of the second quarter of 200. A listing of the A319-100 and Boeing
7557-200 aircraft is provided as Attachment 1 of this document.
Set forth below is a summary of the methodology, considerations and
assumptions utilized in this appraisal.
BASE VALUE
Base value is the appraiser's opinion of the underlying economic value of
an aircraft in an open, unrestricted, stable market environment with a
reasonable balance of supply and demand, and assumes full consideration of its
"highest and best use". An aircraft's base value is founded in the historical
trend of values and in the projection of future value trends and presumes an
arm's length cash transaction between willing, able and knowledge parties,
acting prudently, with an absence of duress and with a reasonable period of time
available for marketing.
CURRENT FAIR MARKET VALUE
According to the International Society of Transport Aircraft Trading's
(ISTAT) definition of Fair Market Value (FMV), to which AvSOLUTIONS subscribes,
the quoted FMV is the appraiser's opinion of the most likely trading price that
may be generated for an aircraft under the market circumstances that are
perceived to exist at the time in question. The fair market value assumes that
the aircraft is valued for its highest and best use, that the parties to the
hypothetical sales transactions are willing, able, prudent and knowledgeable,
and under no unusual pressure for a prompt sale, and that the transaction would
be negotiated in an open and unrestricted market on an arm's length basis, for
cash equivalent consideration, and given an adequate amount of time for
effective market exposure to perspective buyers, which AvSOLUTIONS considers to
be ten to twenty months.
10687 Gaskins Way, Suite 200, Manassas, Virginia 20109-2371, USA
Telephone: 703-330-0461 Fax: 703-330-0581
<PAGE>
AvSOLUTIONS, Inc.
- --------------------------------------------------------------------------------
Page 2
Northwest Airlines, Inc.
APPRAISAL METHODOLOGY
The method employed by AvSOLUTIONS to appraise the current values of
aircraft and the associated equipment addresses the factors that influence the
market value of an aircraft such as its age, condition, configuration, the
population of similar aircraft, similar aircraft on the market, operating costs,
cost to acquire a new aircraft, and the state of demand for transportation
services.
To achieve this objective, cross-sectional data concerning the values of
aircraft in each of Several general categories is collected and analyzed.
Cross-sectional data is then postulated and Compared with reported market values
at a specified point in time. Such data reflects the effect of deterioration in
aircraft performance due to usage and exposure to the elements, as well as the
effect of obsolescence due to the evolutionary development and implementation of
new designs and materials.
The product of the analysis identifies the relationship between the value
of each aircraft and its characteristics, such as age, model designation,
service configuration and engine type. Once the Relationship is identified, one
can then postulate the effects of the difference between the economic
circumstances at the time when the cross-sectional data were collected and
current situation. Therefore, if one can determine the current value of an
aircraft in one category, it is possible to estimate the current values of all
aircraft in that category.
The manufacturer and size of the aircraft usually determine the specific
category to which it is assigned. Segregating the world airplane fleet in this
manner accommodates the potential effect of different size and different design
philosophies.
The variability of the data used by AvSOLUTIONS to determine the current
market values implies that the actual value realized will fall within a range of
values. Therefore, if a contemplated value falls within the specified confidence
range, AvSOLUTIONS cannot reject the hypotheses that it as a reasonable
representation of the market situation.
LIMITING CONDITIONS AND ASSUMPTIONS
In order to conduct the valuation, AvSOLUTIONS is solely relying on
information as supplied by Northwest Airlines or Credit Suisse First Boston
Corporation, and from data within AvSOLUTIONS' own database. In determining the
base value of the subject Airbus A319-100 and Boeing 757-200 aricraft, the
following assumptions have been researched and determined:
<PAGE>
AvSOLUTIONS, Inc.
- --------------------------------------------------------------------------------
Page 3
Northwest Airlines, Inc.
1. AvSOLUTIONS has not inspected these aircraft or their maintenance records;
accordingly, AvSOLUTIONS cannot attest to their specific location or condition.
2. The aircraft have either already been delivered or will be delivered to
Northwest Airlines, Inc. by the end of the second quarter of 2001.
3. The aircraft will be certified, maintained and operated under Unites States
Federal Aviation Regulation (FAR) part 121.
4. All mandatory inspections and Airworthiness Directives have been complied
with.
5. The aircraft have no damage history.
6. The aircraft are in good condition.
7. AvSOLUTIONS considers the economic useful life of these aircraft to be at
least 32 years.
Based upon the above methodology, considerations and assumptions, it is
AvSOLUTIONS' opinion that the base values of each aircraft are as listed in
attachment 1.
<PAGE>
AvSOLUTIONS, Inc.
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ATTACHMENT 1
EETC COLLATERAL SUMMARY
AvSOLUTIONS, Inc.
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Page 4
Northwest Airlines, Inc.
STATEMENT OF INDEPENDENCE
This appraisal report represents the opinion of AvSOLUTIONS, and it is
intended to be advisory in nature. Therefore, AvSOLUTIONS assumes no
responsibility or legal liability for actions taken or not taken by the Client
or any other party with regard to the subject aircraft. By accepting this
report, the Client agrees that AvSOLUTIONS shall bear no responsibility or legal
liability regarding this report. Further, this report is prepared for the
exclusive use of the Client and shall not be provided to other parties without
the Client's express consent.
Aviation Solutions Inc. (AvSOLUTIONS) hereby states that this valuation
has been independently prepared and fairly represents the subject aircraft and
AvSOLUTIONS' opinion of their values. Aviation Solutions Inc. (AvSOLUTIONS)
further states that it has no present or contemplated future interest or
association with the subject aircraft.
Signed,
/s/ Quentin R. Brasie
Quentin R. Brasie
Vice President
<PAGE>
<TABLE>
<CAPTION>
Aircraft Tail Delivery Serial MTOW
Number Aircraft Number Mo/Yr Engines Number (pounds) Base Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Airbus A319-100 N315NB May-00 CFM56-5A5 1230 154,322 $39,470,000
2 Airbus A319-100 N316NB Jun-00 CFM56-5A5 1249 154,322 $39,470,000
3 Airbus A319-100 N317NB Sep-00 CFM56-5A5 unknown 154,322 $39,760,000
4 Airbus A319-100 N318NB Sep-00 CFM56-5A5 unknown 154,322 $39,470,000
5 Airbus A319-100 N319NB Oct-00 CFM56-5A5 unknown 154,322 $40,050,000
6 Airbus A319-100 N320NB Dec-00 CFM56-5A5 unknown 154,322 $40,050,000
7 Airbus A319-100 N321NB Jan-01 CFM56-5A5 unknown 154,322 $40,340,000
8 Airbus A319-100 N322NB Feb-01 CFM56-5A5 unknown 154,322 $40,340,000
9 Airbus A319-100 N323NB Mar-01 CFM56-5A5 unknown 154,322 $40,340,000
10 Airbus A319-100 N324NB Mar-01 CFM56-5A5 unknown 154,322 $40,340,000
11 Airbus A319-100 N325NB May-01 CFM56-5A5 unknown 154,322 $40,630,000
12 Airbus A319-100 N326NB Jun-01 CFM56-5A5 unknown 154,322 $40,630,000
Aircraft Tail Delivery Serial MTOW
Number Aircraft Number Mo/Yr Engines Number (pounds) Base Value
- -----------------------------------------------------------------------------------------------------------
1 Boeing 757-200 N544US May-96 PW2037 26491 227,500 $45,350,000
2 Boeing 757-200 N545US Jun-96 PW2037 26492 227,500 $45,350,000
3 Boeing 757-200 N546US Jul-96 PW2037 26493 227,500 $45,350,000
4 Boeing 757-200 N547US Aug-96 PW2037 26494 227,500 $45,350,000
5 Boeing 757-200 N548US Aug-96 PW2037 26495 227,500 $45,350,000
6 Boeing 757-200 N549US Sep-96 PW2037 26496 227,500 $45,350,000
</TABLE>
<PAGE>
MORTEN BEYER & AGNEW
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AVIATION CONSULTING FIRM
Appraisal of
6 Being 757-200 &
12 Airbus A19-100
PREPARED FOR:
Northwest Airlines
MARCH 30, 2000
Washington, D.C. London
8180 Greensboro Drive Lahinch 62; Lashmere
Suite 1000 Copthorne
McLean, Virginia 22102 West Sussex
Phone + 703 847 6598 Phone + 44 1342 716248
Fax + 703 847 1911 Fax + 44 1342 718967
<PAGE>
================================================================================
I. INTRODUCTION AND EXECUTIVE SUMMARY
================================================================================
MORTEN BEYER & AGNEW, INC. (MBA), has been retained by Northwest Airlines to
determine the Current Base Values of (6) Boeing 757-200 and (12) Airbus A19-100
aircraft in their present/future configuration as passenger aircraft. The
aircraft are further identified in Section IV of this report.
In performing this valuation, MBA did not inspect the aircraft or their
historical maintenance documentation, and we relied solely on information
provided to us by Northwest Airlines. Based on the information set forth further
in this report, it is our opinion that the Current Base Value of this portfolio
is $750,730,000 as noted in Section IV.
MBA uses the definition of certain terms, such as Current Market Value and Base
Value, as promulgated by the Appraisal Program or International Society of
Transport Aircraft Trading (ISTAT), a non-profit association of management,
personnel from banks, leasing companies, airlines, manufacturers, brokers, and
others who have established a technical and ethical certification program for
expert appraisers.
ISTAT defines Current Market Value (CMV) as the appraiser's opinion of the most
likely trading price that my be generated for an aircraft under market
conditions that are perceived to exist at the time in question. Current Market
Value assumes that the aircraft is valued for its highest, best use; that the
parties to the hypothetical sale transaction are willing, able, prudent and
knowledgeable and under no unusual pressure for a prompt sale; and that the
transaction would be negotiated in an open and unrestricted market on an arm's
length basis, for cash or equivalent consideration, and given an adequate amount
of time for effective exposure to prospective buyers.
The ISTAT definition of Base Value (BV) has, essentially, the same elements of
Market Value except that the market circumstances are assumed to be in a
reasonable state of equilibrium. Thus, Base Value pertains to an idealize
aircraft and market combination, but will not necessarily reflect the actual
Current Market Value of the aircraft in question. BV is founded in the
historical trend of values and is generally used to analyze historical values or
to project future values.
1
<PAGE>
II. CURRENT MARKET CONDITIONS
[Graphic Omitted]
Boeing 757-200
N549us
The B-757 was conceived in 1978 as the successor to the B-727. First deliveries
took place in late 1982 as B-727 production was terminated. The aircraft was
somewhat slow in penetrating the market, as it came on-line in the depression of
the early 1980's, but has seen accelerating popularity in the late 1980's and
90's. The aircraft is offered in two engine configurations, Rolls Royce and
Pratt & Whitney. The aircraft's popularity has increased as airlines have grown
to appreciate its fuel economy and operating efficiency. As of January 1, 2000,
the Rolls version had the greater market share, with 464 deliveries and 20 on
order, compared with 336 deliveries and 52 orders/options for the P&W version.
Both versions have achieved decent operator bases, with 42 airlines ordering the
RR version and 16 the P&W. A cargo version known as the PF (package freighter)
is also in production with 80 already produced and none on order. Untied Parcel
Service was the major purchaser, ordering 35 P&W powered models, and then 40
more Rolls Royce powered configurations along with 41 options. All B0757-200PFs
currently on order have already been delivered. There has also been one combi
aircraft.
The B-757's capabilities have grown in the 18 years it has been produced, and it
is currently available at much higher gross weights and in an ETOPS version used
by several European carriers in transatlantic operatins. In late 1995 and 1996 a
total of three B-757's were lost in accidents, with crew reactions to emergency
situations was consiedered to be the probable cause. In the prior 15 years only
one had been lost in a hijacking situation in China.
The economic superiority of the B-757 over the smaller narrowbodies (B737 and
MD-80) suggest that the heaviest casualties may befall these latter aircraft,
and that the airlines will tend to move up to the B-757. The jajor competitor to
the B0757 is not the smaller American twins, but rather the Airbus A319/320/321
series (particularly the A321, which is marginally smaller than the B0757) The
Airbus narrwobody series has piled up an impressive order backlog, and is
increaslingly penetrating the U.S. market, as seen by US Airway's recent order
for up to 400--al the expense of the then-exisitng Boeing options. Current
operating costs suggest that the A320 is up to 25 percent more efficient than
the B-737s or MD-80s, and even equal to, or superior to, the B-757, but now
Boeing's own B737-800/-900s also challenge the B-757 from below.
In the final analysis, the B-757 is assured of a frim share of the aircraft
market for many years to come in both passenger and cargo configuration. It has
excellent environmental characteristics has not experienced technical
difficulties, and also should meet Stage 4 the contemplated noise levels.
Economics
The MBS Model shows the B-757 to be one of the most efficient aircraft of any
type, size, or age. Its combination of capacity, low fuel consumption and
reasonable price all contribute to its outstanding economics. We exect that the
B-757 will prove to be one of the strongesst players in the residual value
market for the next two decades.
2 3/30/00
<PAGE>
================================================================================
IV. Valuation
================================================================================
[GRAPHIC] Airbus A319-100
The A320 was Airbus' first all new design since the launch of the original A300
in 1971. The program was initiated in 1983 and logged almost 400 orders prior to
first delivery in 1988. The A320s are now offered with both CFM-56 and the IAE
V-2500 engine, with the CFM version having a long head start, but the V2500
gaining. At 12/31/99. 792 A320s have been delivered and numerous options held by
nine leasing companies. The A320 has achieved a wide market base on all
continents, with a total of 79 current operators. As of the end of 1999, 583
A319s have been ordered, 206 delivered, and there are 977 outstanding orders.
The Northwest and Air Canada situations are significant due to the Airbus family
concept factor, (common type ratings and minimal differences training for pilots
of the A316 through A340 aircraft), which is the core of the manufacturer's goal
to develop entire fleets with major carriers. Air Canada, which operates A320s
already, chose this Airbus concept with both the A319 order and an 13-plane A340
order as well. Northwest Airlines, which operates 70 A320s (and has 12 on order)
ordered 58 A319s and switched their A340 order for 16 A330s for delivery beyond
2000.
Other carriers, including Air France Groupe and Lufthansa, have each ordered six
types of Airbuses, and currently operate 116 and 114 Airbus aircraft
respectively, and other major European operators are Swissair (54) and Iberia
(46). However, the European influence might tilt decision-makers at airlines
such as these. Airbus believes its concept will give its new designs significant
advantages over Boeing aircraft, and the 1999 order books indicate it is doing
just that. MBA believes the combination of extremely efficient designs and the
inherent savings in training and other costs make the Airbus family an
attractive avenue for an entire fleet refurbishment, as US Airways' commitment
for 400-some aircraft (including options) appears to justify.
The A320 family incorporates an increased amount of composites in its secondary
structure compared to older jets, a complete fly-by-wire control system, and a
computerized flight management system which, when engaged, virtually precludes
putting the aircraft into stalls or other extreme conditions. This system has
been blamed by some for two early incidents in which the crews placed the
aircraft in an untenable position close to the ground with the system
disconnected and from which it was unable to recover. These two aircraft were
totally cleared by the airworthiness authorities, as well as one involved in a
third incident in which the crew made a below-minimum approach in bad weather
and struck high ground. This third aircraft had no ground proximity warning
device installed, a device now required by the French government and long
required by many others. In general, all these components have held up well in
service, and the reliability of the aircraft has been excellent.
United's 1994 order for 50 A320s plus options (subsequently increased to 86) was
announced as a B-727 replacement, of which United operated 75 in late 1999.
United has 300 A320s and 19A319s on order. It is obvious that other airlines
will use their large orders to surplus older aircraft as well. Alitalia, with 22
A321s in service and three on order, is replacing its fleet of MD-82s. As
mentioned, Air Canada's commitments for the A319 are rapidly replacing its fleet
of DC-9s. Thus the advent of the A320 family is hastening the retirement of
older, far less efficient jets. The A320s currently in service are operating at
seat mile costs as low as half of that for older aircraft. The combination of
all the above factors leads us to believe the A320 family will enjoy a long
production run and in-service useful life, with strong residual values.
3
<PAGE>
III. VALUATION
In developing the Current Base Value of these aircraft, MBS did not inspect the
aircraft nor their historical maintenance documentation, but relied on partial
information supplied by the Client.
Therefore, we used certain assumptions that are generally accepted industry
practice to calbulate the value of aircraft when more detailed informaton is not
available. The principal assumptions Are as follows for each aircraft.
1. The aircraft is in good overall condition, or delivered new.
2. The overhaul status of the airframe, engines, landing gear and othe major
components are the equivalent of mid-time/mid-life unless otherwise
specified, or delivered new.
3. The historical maintenance documentation has been maintained to acceptable
international standards, where applicable.
4. The specifications of the aircraft are those most common for an aircraft
of its type and vintage.
5. The aircraft is in a standard airline configuration.
6. The aircraft is current as to all Airworthinesss Directives and Service
Bulletins.
7. Its modification status is comparable to that most common for an aircraft
of its type and vintage.
8. Its utilization is comparable to industry averages.
9. There is no history of accident or Incident damage.
10. No accounting is made for lease obligations or terms of ownership.
4
<PAGE>
Page 15
[GRAPHIC OMITTED]
N544U
[ILLEGIBLE]
Registration MSM DELIVERY Current Base Value
N544US 26491 5/96 47.78
N545US 26492 6/96 47.98
N546US 26493 7/96 48.17
N547US 26494 8/96 48.36
N548US 26495 8/96 48.36
N549US 26496 9/96 48.56
[GRAPHIC OMITTED]
[ILLEGIBLE]
NS13NB
Registration MSM DELIVERY Current Base Value
N315NB 1230 5/00 37.93
N316NB 1249 6/00 38.00
N317NB TBD 9/00 38.23
N318NB TBD 9/00 38.23
N319NB TBD 10/00 38.31
N320NB TBD 12/00 38.46
N321NB TBD 1/01 38.54
N322NB TBD 2/01 38.62
N323NB TBD 3/01 38.70
N324NB TBD 3/01 38.70
N325NB TBD 5/01 38.80
N326NB TBD 6/01 38.94
5
<PAGE>
V. COVENANTS
This report has been prepared for the exclusive use of Northwest Airlines and
shall not be provided to other parties by MBA withou the express consent of
Northwest Airlines.
MBS certifies that this report has been independently prepared and that it fully
and accurately reflects MBA's opinion as to the Current Base Value. MBA further
certifies that it does not have. And does not expect to have, any financial or
other interest in the subject or similar aircraft.
This report represents the opinion of MBA as to the Current Base Value of the
subject aircraft and is intended to be advisory only in nature. Therefore, MBSA
assumes no repsonsibility or legal liability for any actions taken or not taken
by Northwest Airlines of any other party with regard to the subject aircraft. By
accepting this report, all parties agree that MBA shall bear no such
repsonsiblility fo legal liability.
PREPARED BY;
/s/ Bryson P Monteleone
Bryson P Monteleone
Director of Operations
REVIEWED BY;
March 30, 2000
Ref#00165
/s/ Morten S. Beyer
Morten S. Beyer, Appraiser Fellow
Chairman and CEO
ISTAT Certified Senior Appraiser
6
<PAGE>
PROSPECTUS
$1,500,000,000
NORTHWEST AIRLINES, INC.
PASS THROUGH CERTIFICATES
------------------
Applicable Underlying Payments Fully and Unconditionally
Guaranteed by
NORTHWEST AIRLINES CORPORATION
---------------
Northwest Airlines, Inc. may from time to time offer pass through
certificates. Pass through certificates may be issued in one or more series in
amounts, at prices and on terms to be determined at the time of the offering.
The pass through certificates will represent interests in the assets of the
pass through trusts formed to finance the acquisition of specified aircraft. The
assets of the pass through trusts will include equipment notes issued
(a) on a nonrecourse basis by one or more owner trustees pursuant to
separate leveraged lease transactions to finance or refinance a portion of
the cost of aircraft which have been or will be leased to Northwest
Airlines, Inc., or
(b) with recourse to Northwest Airlines, Inc. to finance all or a
portion of the cost of, or to purchase all or a portion of the outstanding
debt with respect to, aircraft which have been or will be purchased and
owned by Northwest Airlines, Inc.
The pass through certificates will not represent interests in or obligations
of Northwest Airlines, Inc. or any of its affiliates. Northwest Airlines
Corporation will fully and unconditionally guarantee the lease and recourse
obligations of Northwest Airlines, Inc. referred to above.
When we decide to sell a particular series of pass through certificates, we
will provide the specific terms thereof in a prospectus supplement. You should
read this prospectus and any prospectus supplement carefully before you invest.
This prospectus may not be used to consummate sales of pass through certificates
unless accompanied by a prospectus supplement.
The pass through certificates may be sold to or through underwriters,
through dealers or agents or directly to purchasers. The prospectus supplement
will set forth the names of any underwriters, dealers or agents involved in the
sale of the pass through certificates in respect of which this prospectus is
being delivered, the proposed amounts, if any, to be purchased by underwriters
and the compensation, if any, of such underwriters or agents.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
------------------------
The date of this prospectus is June 7, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
About This Prospectus....................................... 2
Incorporation of Certain Documents by Reference............. 3
Disclosure Regarding Forward-looking Statements............. 3
The Company................................................. 4
General Outline of Trust Structure.......................... 4
Use of Proceeds............................................. 6
Ratio of Earnings to Fixed Charges.......................... 6
Description of the Certificates............................. 7
Description of the Equipment Notes.......................... 20
United States Federal Income Tax Consequences............... 25
ERISA Considerations........................................ 29
Plan of Distribution........................................ 30
Legal Opinions.............................................. 31
Experts..................................................... 31
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED IN THIS PROSPECTUS AND ANY
PROSPECTUS SUPPLEMENT, INCLUDING THE INFORMATION INCORPORATED BY REFERENCE. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. NORTHWEST
AIRLINES, INC. WILL OFFER TO SELL THE SECURITIES AND SEEK OFFERS TO BUY THE
SECURITIES, ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS OR OF ANY SALES OF THE SECURITIES.
ABOUT THIS PROSPECTUS
This prospectus is part of registration statements that we filed with the
Securities and Exchange utilizing a "shelf" registration process. Under this
shelf process, we may sell pass through certificates described in this
prospectus in one or more offerings up to a total dollar amount of
$1,500,000,000 or the equivalent of this amount in foreign currencies or foreign
currency units.
This prospectus provides you with a general description of the pass through
certificates we may offer. Each time we offer pass through certificates, we will
provide you with a prospectus supplement that will describe the specific
amounts, prices and terms of the offered securities. The prospectus supplement
may also add, update or change information contained in this prospectus. You
should read both this prospectus and any prospectus supplement together with
additional information described below under "Incorporation of Certain Documents
by Reference."
This prospectus does not contain all of the information in the registration
statements. Statements we make in this prospectus about the contents of any
contract, agreement or other document are not necessarily complete. If that
contract, agreement or other document has been filed as an exhibit to the
registration statements, we refer you to the exhibit for a more complete
description. The information in this prospectus is accurate only as of the date
of this prospectus, regardless of the time of delivery of this prospectus or any
sale of the securities.
In this prospectus, "Northwest" refers to Northwest Airlines, Inc., "NWA
Corp." to Northwest Airlines Corporation and the "Company," "we," "us" or "our"
to NWA Corp. and its consolidated subsidiaries.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
NWA Corp. files annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
over the internet at the SEC's web site at http://www.sec.gov. Northwest is not
required to file separate reports, proxy and information statements or other
information with the SEC pursuant to the Securities Exchange Act of 1934.
Instead, we have provided information with respect to Northwest, to the extent
required, in filings made by NWA Corp.
The SEC allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until we complete our offering of the securities:
- Annual Report on Form 10-K for the year ended December 31, 1998;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 1999; and
- Current Reports on Form 8-K filed on January 24, 1999, February 24, 1999
and April 19, 1999.
You may request a copy of these filings (other than exhibits to them) at no
cost, by writing or telephoning us at the following address:
Secretary's Office
Northwest Airlines Corporation
5101 Northwest Drive, Dept. A1180
St. Paul, Minnesota 55111-3034
Telephone: (612) 726-2111
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are subject to a number
of risks and uncertainties, all of which are difficult to predict and many of
which are beyond the Company's control. Forward-looking statements are typically
identified by the words "may," "will," "believe," "expect," "anticipate,"
"intend," "estimate" and similar expressions. Actual results could differ
materially from those contemplated by these forward-looking statements as a
result of a number of factors. It is not reasonably possible to itemize all of
the many factors and specific events that could affect the outlook of an airline
operating in the global economy. Some factors that could significantly impact
expected capacity, load factors, revenues, expenses and cash flows include the
airline pricing environment, fuel costs, labor negotiations both at the Company
and other carriers, low-fare carrier expansion, capacity decisions of other
carriers, actions of the U.S. and foreign governments, foreign currency exchange
rate fluctuation, inflation, the general economic environment in the U.S. and
other regions of the world and other factors discussed herein.
In light of these risks and uncertainties, there can be no assurance that
the results and events contemplated by the forward-looking statements contained
in this prospectus will in fact be realize. Potential investors are cautioned
not to place undue reliance on these forward-looking statements. The Company
does not undertake any obligation to update or revise any forward-looking
statements. All subsequent written or oral forward-looking statements
attributable to the Company or persons acting on behalf of the Company are
expressly qualified in their entirety by the factors described above.
3
<PAGE>
THE COMPANY
Northwest, the principal wholly-owned subsidiary of NWA Corp., operates the
world's fourth largest airline (as measured by 1997 revenue passenger miles
("RPMs")) and is engaged in the business of transporting passengers and cargo.
Northwest's business focuses on the development of a global airline network
through its strategic assets that include:
- domestic hubs at Detroit, Minneapolis/St. Paul and Memphis;
- an extensive Pacific route system with hubs at Tokyo and Osaka;
- a transatlantic alliance with KLM Royal Dutch Airlines, which operates
through a hub in Amsterdam and, subject to regulatory approvals, with
Alitalia which operates through hubs in Rome and Milan; and
- a global alliance with Continental Airlines, Inc.
Northwest operates substantial domestic and international route networks and
directly serves more than 150 cities in 21 countries in North America, Asia and
Europe. Northwest had more than 50.5 million enplanements and flew over
66.7 billion RPMs in 1998.
On November 20, 1998 NWA Corp. effected a holding company reorganization. As
a result, Northwest Airlines Holding Corporation (formerly known as Northwest
Airlines Corporation and, prior to the reorganization, the publicly traded
holding company, "Old NWA Corp.") became a direct wholly-owned subsidiary of NWA
Corp. NWA Corp. is now the publicly traded holding company, which owns directly
Old NWA Corp. and indirectly the holding and operating subsidiaries of Old NWA
Corp. References in this prospectus to NWA Corp. for time periods prior to
November 20, 1998 refer to Old NWA Corp.
Our principal executive offices are located at 2700 Lone Oak Parkway, Eagan,
Minnesota 55121; our mailing address is 5101 Northwest Drive, St. Paul,
Minnesota 55111-3034 and our telephone number is (612) 726-2111.
GENERAL OUTLINE OF TRUST STRUCTURE
A separate Northwest Airlines Pass Through Trust (each, a "Trust") will be
formed for each series or class of pass through certificates ("Certificates").
Each Trust will be formed pursuant to the Pass Through Trust Agreement (each, a
"Basic Agreement") and a supplement thereto (a "Trust Supplement") to be entered
into among Northwest, NWA Corp. and State Street Bank and Trust Company of
Connecticut, National Association (the "Trustee"), as trustee under the Trust.
Each Certificate in a series or class will represent a fractional undivided
interest in the related Trust and will have no rights, benefits or interests in
respect of any other Trust. The property of the Trusts (the "Trust Property")
will consist of
- equipment notes issued (a) on a nonrecourse basis by one or more owner
trustees pursuant to separate leveraged lease transactions (the "Leased
Aircraft Notes") to finance or refinance a portion of the equipment cost
of aircraft, including engines (each, a "Leased Aircraft" and,
collectively, the "Leased Aircraft"), which have been or will be leased to
Northwest pursuant to a separate lease agreement (each such lease
agreement, a "Lease") for each Leased Aircraft, or (b) with recourse to
Northwest (the "Owned Aircraft Notes" and, together with any Leased
Aircraft Notes, the "Equipment Notes") to finance all or a portion of the
equipment cost of, or to purchase all or a portion of the outstanding debt
with respect to, aircraft, including engines (each, an "Owned Aircraft"
and, collectively, the "Owned Aircraft"; together with Leased Aircraft,
the "Aircraft"), which have been or will be purchased and owned by
Northwest;
4
<PAGE>
- the rights of such trust to acquire Equipment Notes under the related
note purchase or refunding agreements;
- in the case of a delayed purchase of aircraft, the rights of such Trust in
respect of certain escrowed funds;
- if so specified in the related prospectus supplement, the rights of such
Trust under an intercreditor agreement (the "Intercreditor Agreement")
with respect to cross-subordination or other intercreditor matters;
- if so specified in the related prospectus supplement, monies receivable
under any liquidity facility arrangements for such Trust; and
- funds from time to time deposited with the related Trustee.
Concurrently with the execution and delivery of each Trust Supplement, the
Trustee will enter into one or more note purchase or refunding agreements (each
such agreement being herein referred to as a "Note Purchase Agreement") pursuant
to which it will purchase one or more Equipment Notes relating to one or more of
the Aircraft described in the applicable prospectus supplement. Pursuant to the
applicable Note Purchase Agreements, the Trustee will purchase one or more
Equipment Notes. The Equipment Notes that constitute the property of each Trust
will have identical interest rates (in each case equal to the rate applicable to
the Certificates issued by such Trust). The maturity dates of the Equipment
Notes acquired by each Trust will occur on or before the final distribution date
applicable to the Certificates issued by such Trust. The Trustee will distribute
the amount of payments of principal, premium, if any, and interest received by
it as holder of the Equipment Notes to the Certificateholders of the Trust in
which such Equipment Notes are held. See "Description of the Certificates" and
"Description of the Equipment Notes."
Interest paid on the Equipment Notes held in each Trust will be passed
through to the holders of the Certificates relating to such Trust on the dates
and at the rate per annum set forth in the prospectus supplement relating to
such Certificates until the final distribution date for such Trust. Principal
paid on the Equipment Notes held in each Trust will be passed through to the
holders of the Certificates relating to such Trust in scheduled amounts on the
dates set forth in the prospectus supplement relating to such Certificates until
the final distribution date for such Trust. The Equipment Notes issued with
respect to any Aircraft will be secured by a security interest in such Aircraft
and, in the case of the Leased Aircraft, by a security interest in the related
Lease, including the right to receive rentals payable in respect of such Leased
Aircraft by Northwest.
The Leased Aircraft Notes will be issued under separate trust indentures
(the "Leased Aircraft Indentures") between a bank, trust company or other
institution specified in the related prospectus supplement, as trustee
thereunder (in such capacity, herein referred to as the "Loan Trustee"), and an
institution specified in the related prospectus supplement acting, not in its
individual capacity, but solely as owner trustee (an "Owner Trustee") of a
separate trust for the benefit of one or more institutional investors (each, an
"Owner Participant"). With respect to each Leased Aircraft, the related Owner
Participant will have provided or will provide from sources other than the
Leased Aircraft Notes a portion of the equipment cost of the related Leased
Aircraft. No Owner Participant, however, will be personally liable for any
amount payable under the related Leased Aircraft Indenture or the Leased
Aircraft Notes issued thereunder. Simultaneously with the acquisition of each
Leased Aircraft, the related Owner Trustee leased or will lease such Aircraft to
Northwest pursuant to a separate Lease. The Owned Aircraft Notes will be issued
under separate trust indentures (the "Owned Aircraft Indentures" and, together
with any Leased Aircraft Indentures, the "Indentures") between the applicable
Loan Trustee and Northwest.
Although neither the Certificates nor the Leased Aircraft Notes will be
direct obligations of, or guaranteed by, Northwest, the amounts unconditionally
payable by Northwest for lease of Leased
5
<PAGE>
Aircraft will be sufficient to pay in full when due all payments required to be
made on the corresponding Leased Aircraft Notes.
NWA Corp. will fully and unconditionally guarantee (the "Parent Guaranty")
to the holders from time to time of Certificates (i) with respect to related
Owned Aircraft Notes, the full and prompt payment of principal, premium, if any,
and interest thereon when and as the same shall become due and payable, whether
at maturity, upon redemption or otherwise and (ii) with respect to related
Leased Aircraft Notes, the full and prompt payment of all amounts payable by
Northwest under the related Lease when and as the same shall become due and
payable. The Parent Guaranty will be enforceable without any need first to
enforce the obligations of Northwest against Northwest.
With respect to Equipment Notes of differing payment priorities issued in
respect of one or more Aircraft, the rights of the holders of the related
Certificates will be subject to an intercreditor agreement (the "Intercreditor
Agreeement").
USE OF PROCEEDS
Except as set forth in a prospectus supplement for a specific offering of
Certificates, the proceeds from the sale of the Certificates will be used by the
Trustee on behalf of the applicable Trust or Trusts to purchase either (a)
Leased Aircraft Notes or (b) Owned Aircraft Notes.
Any portion of the proceeds from the sale of Certificates not used by the
Trustee to purchase Equipment Notes on or prior to the date specified therefor
in the applicable prospectus supplement will be distributed on a Special
Distribution Date (as defined below) to the applicable Certificateholders,
together with interest, but without premium. See "Description of Certificates--
Special Distribution Upon Unavailability of Aircraft."
RATIO OF EARNINGS TO FIXED CHARGES
We have set forth below the ratio of earnings to fixed charges for NWA Corp.
and its consolidated subsidiaries for the periods indicated. The ratio of
earnings to fixed charges represents the number of times that fixed charges were
covered by earnings. In computing the ratio, earnings represent consolidated
earnings (loss) before income taxes, cumulative effect of accounting change and
fixed charges (excluding capitalized interest). Fixed charges consist of
interest expense (including capitalized interest), one-third of rental expense,
which is considered representative of the interest factor, and amortization of
debt discount and expense.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
- ----------------------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
- --------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1.88 1.90 2.74 3.05 (a) 2.01 (b)
</TABLE>
- ------------------------
(a) Earnings were inadequate to cover fixed charges by $452 million for the year
ended December 31, 1998.
(b) Earnings were inadequate to cover fixed charges by $69 million for three
months ended March 31, 1999.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
The following description of the Certificates summarizes certain general
terms and provisions of the Certificates to which any prospectus supplement may
relate. This summary relates to the Basic Agreement (the form of which has been
filed as an exhibit to the registration statement of which this prospectus is a
part) and each of the Trust Supplements, the Trusts to be formed thereby and the
Certificates to be issued by each Trust except to the extent, if any, described
in the applicable prospectus supplement. The prospectus supplement that
accompanies this prospectus contains a glossary of the material terms used with
respect to the specific series or class of Certificates being offered thereby.
The Trust Supplement relating to each series or class of Certificates and the
forms of the material operative agreements relating thereto (including, if
applicable, Note Purchase Agreement, Indenture, Lease, Trust Agreement,
participation agreement, Intercreditor Agreement and liquidity arrangement) will
be filed as exhibits to a post-effective amendment to the Registration Statement
of which this prospectus is a part, a Current Report on Form 8-K, a Quarterly
Report on Form 10-Q or an Annual Report on Form 10-K, as applicable, filed by
NWA Corp. with the SEC.
The Certificates offered pursuant to this prospectus will be limited to
$1,500,000,000 aggregate public offering price (or its equivalent (based on the
applicable exchange rate at the time of sale) in one or more foreign currencies
or currency units).
TO THE EXTENT THAT ANY PROVISION IN ANY PROSPECTUS SUPPLEMENT IS
INCONSISTENT WITH ANY PROVISION IN THIS SUMMARY, THE PROVISION OF SUCH
PROSPECTUS SUPPLEMENT WILL CONTROL.
GENERAL
Each Certificate will represent a fractional undivided interest in the Trust
created by the Trust Supplement pursuant to which such Certificate was issued.
All payments and distributions on account of the Certificates will be made only
from the related Trust Property. Each Certificate will represent a pro rata
share of the outstanding principal amount of the Equipment Notes held in the
related Trust. Unless otherwise specified in the applicable prospectus
supplement, each Certificate will be issued in minimum denominations of $1,000
or any integral multiple thereof (except that one Certificate of each Trust may
be issued in an odd amount, due to the fact that the aggregate amount offered by
such Trust may not represent an integral multiple of $1,000).
The Certificates will not represent an interest in or obligation of
Northwest, NWA Corp., the Trustee, any of the Loan Trustees or Owner Trustees in
their individual capacities, any Owner Participant, or any affiliate of any
thereof. Each Certificateholder by its acceptance of a Certificate agrees to
look solely to the income and proceeds from the Trust Property as provided in
the Basic Agreement and the applicable Trust Supplement and to its rights under
the Parent Guaranty.
The Equipment Notes issued under an Indenture may be held in more than one
Trust and one Trust may hold Equipment Notes issued under more than one
Indenture (each Indenture the Equipment Notes of which are held in a Trust, a
"Related Indenture"). Unless otherwise provided in a prospectus supplement, only
Equipment Notes having the same priority of payment (the Equipment Notes of any
such priority, a "class" or "series") may be held in the same Trust.
Interest will be passed through to Certificateholders of each Trust at the
rate per annum payable on the Equipment Notes held in such Trust, as set forth
for such Trust on the cover page of the applicable prospectus supplement.
Reference is made to the prospectus supplement that accompanies this
prospectus for a description of the specific series or class of Certificates
being offered thereby, including:
- the specific designation and title of such Certificates;
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<PAGE>
- the Regular Distribution Dates (as defined below) and Special Distribution
Dates (as defined below) applicable to such Certificates;
- the currency or currencies (including currency units) in which such
Certificates may be denominated;
- the specific form of such Certificates, including whether or not such
Certificates are to be issued in accordance with a book-entry system;
- a description of the Equipment Notes to be purchased by such Trust,
including (a) the period or periods within which, the price or prices at
which, and the terms and conditions upon which such Equipment Notes may or
must be redeemed or defeased in whole or in part, by Northwest or, with
respect to Leased Aircraft Notes, the Owner Trustee, (b) the payment
priority of such Equipment Notes in relation to any other Equipment Notes
issued with respect to the related Aircraft, (c) any additional security
or liquidity enhancements therefor and (d) any intercreditor or other
rights or limitations between or among the holders of Equipment Notes of
different priorities issued by the same Owner Trustee;
- a description of the related Aircraft, including whether such Aircraft is
a Leased Aircraft or an Owned Aircraft;
- a description of the related Note Purchase Agreement and Related
Indentures, including a description of the events of default under the
Related Indentures, the remedies exercisable upon the occurrence of such
events of default and any limitations on the exercise of such remedies
with respect to such Equipment Notes;
- if such Certificates relate to Leased Aircraft, a description of the
related Lease, trust agreement and participation agreement, including (a)
the names of the related Owner Trustees, (b) a description of the events
of default under the related Leases, the remedies exercisable upon the
occurrence of such events of default and any limitations on the exercise
of such remedies with respect to such Leased Aircraft Notes, and (c) the
rights of the related Owner Trustee, if any, and/or Owner Participant, if
any, to cure failures of Northwest to pay rent under the related Lease;
- the extent, if any, to which the provisions of the operative documents
applicable to such Equipment Notes may be amended by the parties thereto
without the consent of the holders of, or only upon the consent of the
holders of a specified percentage of aggregate principal amount of, such
Equipment Notes;
- cross-default or cross-collateralization provisions in the Related
Indentures;
- subordination provisions among the holders of Certificates, including any
cross-subordination provisions among the holders of Certificates in
separate Trusts; and
- any other special terms pertaining to such Certificates.
If any Certificates are denominated in one or more foreign currencies or
currency units, the restrictions, certain United States federal income tax
considerations, specific terms and other information with respect to such
Certificates and such foreign currency or currency units will be set forth in
the applicable prospectus supplement.
BOOK-ENTRY REGISTRATION
GENERAL
If specified in the applicable prospectus supplement, the Certificates will
be subject to the provisions described below and under the caption "--Definitive
Certificates." Upon issuance, each
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<PAGE>
series or class of Certificates will be represented by one fully registered
global certificate. Each global certificate will be deposited with, or on behalf
of, The Depository Trust Company ("DTC") and registered in the name of Cede &
Co. ("Cede"), or its nominee. No person acquiring an interest in such
Certificates ("Certificate Owner") will be entitled to receive a certificate
representing such person's interest in such Certificates, except as set forth
below under "--Definitive Certificates." Unless and until Definitive
Certificates are issued under the limited circumstances described herein, all
references to actions by Certificateholders shall refer to actions taken by DTC
upon instructions from DTC Participants (as defined below), and all references
herein to distributions, notices, reports and statements to Certificateholders
shall refer, as the case may be, to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of such Certificates, or to
DTC Participants for distribution to Certificate Owners in accordance with DTC
procedures.
Northwest has been advised that DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and "clearing agency" registered pursuant to
section 17A of the Exchange Act. DTC was created to hold securities for its
participants ("DTC Participants") and to facilitate the clearance and settlement
of securities transactions between DTC Participants through electronic
book-entries, thereby eliminating the need for physical transfer of
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a DTC Participant
either directly or indirectly ("Indirect Participants").
Certificate Owners that are not DTC Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Certificates may do so only through DTC Participants and
Indirect Participants. In addition, Certificate Owners will receive all
distributions of principal and interest from the Trustee through DTC
Participants or Indirect Participants, as the case may be. Under a book-entry
format, Certificate Owners may experience some delay in their receipt of
payments, because such payments will be forwarded by the Trustee to Cede, as
nominee for DTC. DTC will forward such payments in same-day funds to DTC
Participants who are credited with ownership of the Certificates in amounts
proportionate to the principal amount of each such DTC Participant's respective
holdings of beneficial interests in the Certificates. DTC Participants will
thereafter forward payments to Indirect Participants or Certificate Owners, as
the case may be, in accordance with customary industry practices. The forwarding
of such distributions to the Certificate Owners will be the responsibility of
such DTC Participants. Unless and until the Definitive Certificates are issued
under the limited circumstances described herein, the only "Certificateholder"
will be Cede, as nominee of DTC. Certificate Owners will not be recognized by
the Trustee as Certificateholders, as such term is used in the Basic Agreement,
and Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and DTC Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
the Certificates among DTC Participants on whose behalf it acts with respect to
the Certificates and to receive and transmit distributions of principal,
premium, if any, and interest with respect to the Certificates. DTC Participants
and Indirect Participants with which Certificate Owners have accounts with
respect to the Certificates similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective customers.
Accordingly, although Certificate Owners will not possess the Certificates, the
Rules provide a mechanism by which Certificate Owners will receive payments and
will be able to transfer their interests.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect Participants, the ability of a Certificate Owner to pledge
the Certificates to persons or entities that do
9
<PAGE>
not participate in the DTC system, or to otherwise act with respect to such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
DTC has advised Northwest that it will take any action permitted to be taken
by a Certificateholder under the Basic Agreement only at the direction of one or
more DTC Participants to whose accounts with DTC the Certificates are credited.
Additionally, DTC has advised Northwest that in the event any action requires
approval by Certificateholders of a certain percentage of beneficial interest in
each Trust, DTC will take such action only at the direction of and on behalf of
DTC Participants whose holders include undivided interests that satisfy any such
percentage. DTC may take conflicting actions with respect to other undivided
interests to the extent that such actions are taken on behalf of DTC
Participants whose holders include such undivided interests.
Neither Northwest, NWA Corp. nor the Trustee will have any liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Certificates held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The applicable prospectus supplement will specify any additional book-entry
registration procedures applicable to Certificates denominated in a currency
other than United States dollars.
SAME-DAY SETTLEMENT AND PAYMENT
So long as the Certificates are registered in the name of Cede, as nominee
for DTC, all payments made by Northwest to the Loan Trustee under any Lease or
any Owned Aircraft Indentures will be in immediately available funds. Such
payments, including the final distribution of principal with respect to the
Certificates of any Trust, will be passed through to DTC in immediately
available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, secondary
trading in pass through certificates is generally settled in immediately
available or same-day funds. Any Certificates registered in the name of Cede, as
nominee for DTC, will trade in DTC's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the Certificates will
therefore be required by DTC to settle in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in same-day funds
on trading activity in the Certificates.
DEFINITIVE CERTIFICATES
Unless the applicable prospectus supplement specifies otherwise, if DTC is
at any time unwilling or unable to continue as Depositary and a successor
Depositary is not appointed by Northwest within ninety days, Northwest will
issue those Certificates in definitive certificated form in exchange for that
Registered Global Security. In addition, Northwest may at any time and in its
sole discretion determine not to have any of the Certificates of a series or
class represented by one or more Registered Global Securities and, in that
event, will issue Certificates of that series or class in definitive
certificated form in exchange for all of the Registered Global Securities
representing those Certificates. Further, if Northwest so specifies with respect
to the Certificates of a series or class, an owner of a beneficial interest in a
Registered Global Security representing Certificates of that series or
class may, on terms acceptable to Northwest and DTC, receive Certificates of
that series or class in definitive form registered in the name of that
beneficial owner or its designee.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Certificate Owners through
DTC Participants of the availability of Definitive Certificates. Upon surrender
by DTC of the certificates representing the Certificates and receipt of
instructions for re-registration, the Trustee will reissue the Certificates as
Definitive Certificates to Certificate Owners.
10
<PAGE>
Distributions of principal, premium, if any, and interest with respect to
Certificates will thereafter be made by the Trustee directly in accordance with
the procedures set forth in the Basic Agreement and the applicable Trust
Supplements, to holders in whose names the Definitive Certificates were
registered at the close of business on the applicable record date. Such
distributions will be made by check mailed to the address of such holder as it
appears on the register maintained by the Trustee. The final payment on any
Certificate, however, will be made only upon presentation and surrender of such
Certificate at the office or agency specified in the notice of final
distribution to Certificateholders.
Definitive Certificates will be freely transferable and exchangeable at the
office of the Trustee upon compliance with the requirements set forth in the
Basic Agreement and the applicable Trust Supplements. No service charge will be
imposed for any registration of transfer or exchange, but payment of a sum
sufficient to cover any tax or other governmental charge shall be required.
PAYMENTS AND DISTRIBUTIONS
Payments of principal, premium, if any, and interest with respect to the
Equipment Notes held in each Trust will be distributed by the Trustee, upon
receipt, to Certificateholders of such Trust on the dates and in the currency
specified in the applicable prospectus supplement, except
- in certain cases when some or all of such Equipment Notes are in default
as described in the applicable prospectus supplement and
- that such payments are subject to the effect of any cross-subordination or
other intercreditor provisions set forth in the prospectus supplement for
a series or class of Certificates.
Payments of principal of, and interest on, the unpaid principal amount of
the Equipment Notes held in each Trust will be scheduled to be received by the
Trustee on the dates specified in the applicable prospectus supplement (such
scheduled payments of interest and principal on the Equipment Notes to the
Trustee are herein referred to as "Scheduled Payments," and the dates specified
in the applicable prospectus supplement for distribution of Scheduled Payments
to the Trustee are herein referred to as "Regular Distribution Dates"). See
"Description of the Equipment Notes General." Subject to the effect of any
cross-subordination or other intercreditor provisions set forth in the
prospectus supplement for a series or class of Certificates, each
Certificateholder of each Trust will be entitled to receive a pro rata share of
any distribution in respect of Scheduled Payments of principal and interest made
on the Equipment Notes held in the Trust.
Payments of principal, premium, if any, and interest received by the Trustee
on account of the early redemption, if any, of the Equipment Notes relating to
one or more Aircraft held in a Trust, and payments, other than Scheduled
Payments received on a Regular Distribution Date, received by the Trustee
following default in respect of Equipment Notes held in a Trust relating to one
or more Aircraft ("Special Payments") will be distributed on the date determined
pursuant to the applicable prospectus supplement (a "Special Distribution Date")
except that, unless otherwise specified in the applicable prospectus supplement,
payments received by the Trustee following default in respect of the Equipment
Notes on a Regular Distribution Date as a result of a drawing under any
liquidity facility arrangement specified in the applicable prospectus supplement
(each, a "Liquidity Facility") provided for the benefit of the
Certificateholders shall be distributed on such Regular Distribution Date. The
Trustee will mail notice to the Certificateholders of record of the applicable
Trust not less than 20 days prior to the Special Distribution Date on which any
Special Payment is scheduled to be distributed by the Trustee stating such
anticipated Special Distribution Date.
11
<PAGE>
POOL FACTORS
The Pool Factor (as defined below) for the Trusts will decline in proportion
to the scheduled repayments of principal on the Equipment Notes held in such
Trust as described in the applicable prospectus supplement unless there has been
- an early redemption,
- a purchase of an issue of Equipment Notes by the related Owner Trustee
after an Indenture Default (as defined below),
- a default in the payment of principal in respect of one or more issues of
the Equipment Notes held in a Trust or
- certain actions have been taken following a default thereon, as described
in the applicable prospectus supplement,
in which event the Pool Factor and the Pool Balance (as defined below) of
each Trust so affected will be recomputed after giving effect thereto and notice
thereof will be mailed to the Certificateholders of such Trust. Each Trust will
have a separate Pool Factor.
Unless otherwise described in the applicable prospectus supplement, the
"Pool Balance" for each Trust or for the Certificates issued by any Trust
indicates, as of any date, the original aggregate face amount of the
Certificates of such Trust less the aggregate amount of all payments made in
respect of the Certificates of such Trust other than payments made in respect of
interest or premium thereon or reimbursement of any costs and expenses in
connection therewith. The Pool Balance for each Trust as of any Regular
Distribution Date or Special Distribution Date shall be computed after giving
effect to the payment of principal, if any, on the Equipment Notes or other
Trust Property held in such Trust and the distribution thereof to be made on
that date.
Unless otherwise described in the applicable prospectus supplement, the
"Pool Factor" for each Trust as of any Regular Distribution Date or Special
Distribution Date is the quotient (rounded to the seventh decimal place)
computed by dividing (i) the Pool Balance by (ii) the aggregate original
principal amount of the Equipment Notes held in such Trust. The Pool Factor for
each Trust as of any Regular Distribution Date or Special Distribution Date
shall be computed after giving effect to the payment of principal, if any, on
the Equipment Notes held in such Trust and distribution thereof to be made on
that date. The Pool Factor for each Trust will initially be 1.0000000;
thereafter, the Pool Factor for each Trust will decline as described above to
reflect reductions in the Pool Balance of such Trust. The amount of a
Certificateholder's pro rata share of the Pool Balance of a Trust can be
determined by multiplying the original denomination of the holder's Certificate
of such Trust by the Pool Factor for such Trust as of the applicable Regular
Distribution Date or Special Distribution Date. The Pool Factor and the Pool
Balance for each Trust will be mailed to Certificateholders of such Trust on
each Regular Distribution Date and Special Distribution Date.
REPORTS TO CERTIFICATEHOLDERS
On each Regular Distribution Date and Special Distribution Date, the Trustee
will include with each distribution of a Scheduled Payment or Special Payment to
Certificateholders of the related Trust a statement, giving effect to such
distribution to be made on such Regular Distribution Date or Special
Distribution Date, setting forth the following information (per $1,000 aggregate
principal amount of Certificate for such Trust, as to (i) and (ii) below):
(i) the amount of such distribution allocable to principal and the amount
allocable to premium, if any;
(ii) the amount of such distribution allocable to interest; and
12
<PAGE>
(iii) the Pool Balance and the Pool Factor for such Trust.
If so specified in the related prospectus supplement, the Trustee for a
series or class of Certificates may include in such statement additional
information, such as (i) the aggregate amount of funds distributed on such
payment date and the source of such funds and (ii) in the case of a delayed
purchase, certain information regarding the escrowed funds.
So long as the Certificates are registered in the name of Cede, as nominee
for DTC, on the record date prior to each Regular Distribution Date and Special
Distribution Date, the Trustee will request from DTC a Securities Position
Listing setting forth the names of all DTC Participants reflected on DTC's books
as holding interests in the Certificates on such record date. On each Regular
Distribution Date and Special Distribution Date, the Trustee will mail to each
such DTC Participant the statement described above and will make available
additional copies as requested by such DTC Participant for forwarding to
Certificate Owners.
In addition, after the end of each calendar year, the Trustee will prepare
for each Certificateholder of each Trust at any time during the preceding
calendar year a report containing the sum of the amounts determined pursuant to
clauses (i) and (ii) above with respect to the Trust for such calendar year or,
in the event such person was a Certificateholder during only a portion of such
calendar year, for the applicable portion of such calendar year, and such other
items as are readily available to the Trustee and which a Certificateholder
shall reasonably request as necessary for the purpose of such
Certificateholder's preparation of its federal income tax returns. Such report
and such other items shall be prepared on the basis of information supplied to
the Trustee by the DTC Participants and shall be delivered by the Trustee to
such DTC Participants to be available for forwarding by such DTC Participants to
Certificate Owners in the manner described above.
At such time, if any, as the Certificates are issued in the form of
Definitive Certificates, the Trustee will prepare and deliver the information
described above to each Certificateholder of record of each Trust as the name
and period of beneficial ownership of such Certificateholder appears on the
records of the registrar of the Certificates.
VOTING OF EQUIPMENT NOTES
Subject to the effect of any cross-subordination provisions set forth in the
related prospectus supplement, the Trustee, as holder of the Equipment Notes
held in each Trust, has the right to vote and give consents and waivers with
respect to such Equipment Notes under the Related Indentures. The Basic
Agreement and related Trust Supplement set forth
(i) the circumstances in which the Trustee may direct any action or cast any
vote as the holder of the Equipment Notes held in the applicable Trust
at its own discretion,
(ii) the circumstances in which the Trustee shall seek instructions from the
Certificateholders of such Trust, and
(iii) the percentage of Certificateholders required to direct the Trustee to
take any such action.
If specified in the related prospectus supplement, the right of a Trustee to
vote and give consents and waivers with respect to the Equipment Notes held in
the related Trust may, in the circumstances set forth in an intercreditor
agreement to be executed by such Trustee, be exercisable by another person
specified in such prospectus supplement.
EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
The prospectus supplement related to a series or class of Certificates will
specify the events of default under the Basic Agreement (an "Event of Default")
and the Related Indentures (an "Indenture Default"). With respect to Leased
Aircraft Notes, the Indenture Defaults will include events of default
13
<PAGE>
under the related Leases (a "Lease Event of Default"). With respect to any
Equipment Notes which are supported by a Liquidity Facility the Indenture
Defaults may include events of default under such Liquidity Facility. Unless
otherwise provided in a prospectus supplement, all of the Equipment Notes issued
under the same Indenture will relate to one or more specific Aircraft and there
will be no cross-collateralization or cross-default provisions in the
Indentures. Events resulting in an Indenture Default under any particular
Indenture will not necessarily result in an Indenture Default occurring under
any other Indenture.
As described below under "--Cross-Subordination Issues," a prospectus
supplement may provide the terms of any cross-subordination provisions among
Certificateholders of separate Trusts. If such provisions are so provided,
payments made pursuant to a Related Indenture under which an Indenture Default
(and as to which payments continue to be made as scheduled) has not occurred may
be distributed first to the holders of the Certificates issued under the Trust
which holds the most senior Equipment Notes issued under all Related Indentures.
With respect to Leased Aircraft Notes, the ability of the Owner Trustee or
Owner Participant under the Related Indenture to cure Indenture Defaults,
including Indenture Defaults that result from the occurrence of a Lease Event of
Default under the related Lease, will be described in the prospectus supplement.
Unless otherwise provided in a prospectus supplement, with respect to any
Certificates or Equipment Notes entitled to the benefits of a Liquidity
Facility, a drawing under any such Liquidity Facility for the purpose of making
a payment of interest as a result of the failure by Northwest to have made a
corresponding payment will not cure an Indenture Default related to such failure
by Northwest.
The prospectus supplement related to a series or class of Certificates will
set forth the percentage of Certificateholders of such Trust entitled to direct
the Trustee to take any action with respect to the related Equipment Notes and,
if applicable, Equipment Notes issued under any other Related Indenture. If the
Equipment Notes outstanding under an Indenture are held by more than one Trust,
then the ability of the Certificateholders issued with respect to any one Trust
to cause the Loan Trustee with respect to any Equipment Notes held in such Trust
to accelerate the Equipment Notes under the Related Indenture or to direct the
exercise of remedies by the Loan Trustee under the Related Indenture will
depend, in part, upon the proportion between the aggregate principal amount of
the Equipment Notes outstanding under such Indenture and held in such Trust and
the aggregate principal amount of all Equipment Notes outstanding under such
Indenture. In addition, if cross-subordination provisions are applicable to any
series or class of Certificates, then the ability of the Certificateholders of
any one Trust holding Equipment Notes issued under Related Indentures to cause
the Loan Trustee with respect to any Equipment Notes held in such Trust to
accelerate the Equipment Notes under the Related Indenture or to direct the
exercise of remedies by the Loan Trustee under the Related Indenture will
depend, in part, upon the class or series of Notes held in such Trust. If the
Equipment Notes outstanding under an Indenture are held by more than one Trust,
then each Trust will hold Equipment Notes with different terms from the
Equipment Notes held in the other Trusts and therefore the Certificateholders of
a Trust may have divergent or conflicting interests from those of the
Certificateholders of the other Trusts holding Equipment Notes relating to the
same Indenture. In addition, so long as the same institution acts as Trustee of
each Trust, in the absence of instructions from the Certificateholders of any
such Trust, the Trustee for such Trust could for the same reason be faced with a
potential conflict of interest upon an Indenture Default. In such event, the
Trustee has indicated that it would resign as Trustee of one or all such Trusts,
and a successor trustee would be appointed in accordance with the terms of the
Basic Agreement.
The prospectus supplement for a series or class of Certificates will specify
whether and under what circumstances the Trustee may or shall sell for cash to
any person all or part of the related Equipment Notes. Any proceeds received by
the Trustee upon any such sale shall be deposited in an account established by
the Trustee for the benefit of the Certificateholders of such Trust (the
"Special Payments
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Account"). The market for Equipment Notes in default may be very limited, and
there can be no assurance that they could be sold for a reasonable price.
Furthermore, so long as the same institution acts as Trustee of multiple Trusts,
it may be faced with a conflict in deciding from which Trust to sell Equipment
Notes to available buyers. If the Trustee sells any such Equipment Notes with
respect to which an Indenture Default exists for less than their outstanding
principal amount, the Certificateholders of such Trust will receive a smaller
amount of principal distributions than anticipated and will not have any claim
for the shortfall against Northwest, any Owner Trustee, Owner Participant, the
Trustee or (except for the Parent Guaranty) their affiliates. Furthermore,
neither the Trustee nor the Certificateholders of such Trust could take any
action with respect to any remaining Equipment Notes held in such Trust so long
as no Indenture Defaults exist with respect thereto.
With respect to any Trust, the following amounts shall be deposited into the
Special Payments Account and distributed to the related Certificateholders of
such Trust on a Special Payments Date:
- Any amount, other than Scheduled Payments received on a Regular
Distribution Date, distributed to the Trustee of such Trust by the Loan
Trustee under any Indenture on account of the Equipment Notes held in such
Trust following an Indenture Default under such Indenture.
- If a prospectus supplement provides that the applicable Owner Trustee may,
under circumstances specified therein, redeem or purchase the outstanding
Equipment Notes issued under the Related Indenture, the price paid by such
Owner Trustee to the Trustee of such Trust for the Equipment Notes issued
under such Indenture and held in such Trust.
Any funds representing payments received with respect to any Equipment Notes
held in such Trust in default, or the proceeds from the sale by the Trustee of
any such Equipment Notes, held by the Trustee in the Special Payments Account
for such Trust shall, to the extent practicable, be invested and reinvested by
the Trustee in Permitted Investments pending the distribution of such funds on a
Special Distribution Date. "Permitted Investments" will be specified in the
related prospectus supplement.
The Basic Agreement provides that the Trustee of each Trust shall, within
90 days after the occurrence of a default in respect of such Trust, give to the
Certificateholders of such Trust notice, transmitted by mail, of all uncured or
unwaived defaults with respect to such Trust known to it, provided that, except
in the case of default in the payment of principal, premium, if any, or interest
on any of the Equipment Notes held in such Trust, the Trustee shall be protected
in withholding such notice if it in good faith determines that the withholding
of such notice is in the interests of such Certificateholders. The term
"default" as used in this paragraph only means the occurrence of an Event of
Default with respect to a Trust as described above, except that in determining
whether any such Event of Default has occurred, any grace period or notice in
connection therewith shall be disregarded.
The Basic Agreement contains a provision entitling the Trustee of each
Trust, subject to the duty of the Trustee during a default to act with the
required standard of care, to be offered reasonable security or indemnity by the
Certificateholders of such Trust before proceeding to exercise any right or
power under the Basic Agreement at the request of such Certificateholders.
The prospectus supplement for a series or class of Certificates will specify
the percentage of Certificateholders entitled to waive, or to instruct the
Trustee to waive, any past Event of Default with respect to such Trust and
thereby annul any direction given with respect thereto. The prospectus
supplement for a series or class of Certificates will also specify the
percentage of Certificateholders (and whether of such Trust or of any other
Trust holding Equipment Notes issued under Related Indentures) entitled to
waive, or to instruct the Trustee or the Loan Trustee to waive, any past
Indenture Default with respect to the Equipment Notes held in such Trust and
thereby annul any direction given with respect thereto.
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MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
Northwest will be prohibited from consolidating with or merging into any
other corporation or transferring substantially all of its assets as an entirety
to any other corporation unless
- (i) the surviving successor or transferee corporation shall (a) be a
"citizen of the United States" (as defined in Section 40102(a)(15) of
Title 49 of the United States Code) holding a carrier operating
certificate issued by the Secretary of Transportation pursuant to Chapter
447 of Title 49, United States Code, for aircraft capable of carrying 10
or more individuals or 6,000 pounds or more of cargo and with respect to
which there is in force an air carrier operating certificate issued
pursuant to Part 121 of the regulations under the sections of Title 49,
United States Code, relating to aviation and (b) expressly assume all of
the obligations of Northwest contained in the Basic Agreement and any
Trust Supplement, the Note Purchase Agreements and the Indentures and,
with respect to the Leased Aircraft Notes, the Participation Agreements
and the Leases, and any other operative documents;
- (ii) immediately after giving effect to such transaction, no Indenture
Default (with respect to the Owned Aircraft Notes) or Lease Event of
Default (with respect to the Leased Aircraft Notes) shall have occurred
and be continuing; and
- (iii) Northwest shall have delivered a certificate and an opinion or
opinions of counsel indicating that such transaction, in effect, complies
with such conditions.
MODIFICATIONS OF THE BASIC AGREEMENT
The Basic Agreement contains provisions permitting Northwest, NWA Corp. and
the Trustee of each Trust to enter into a supplemental trust agreement, without
the consent of the holders of any of the Certificates of such Trust,
- to provide for the formation of such Trust and the issuance of a
series or class of Certificates,
- to evidence the succession of another corporation to Northwest or NWA
Corp. and the assumption by such corporation of Northwest's or NWA Corp.'s
obligations under the Basic Agreement and the applicable Trust Supplement,
- to add to the covenants of Northwest or NWA Corp. for the benefit of
holders of such Certificates, or to surrender any right or power in the
Basic Agreement conferred upon Northwest or NWA Corp.,
- to cure any ambiguity or correct or supplement any defective or
inconsistent provision of the Basic Agreement or the applicable Trust
Supplement or to make any other provisions with respect to matters or
questions arising thereunder, provided such action shall not adversely
affect the interests of the holders of such Certificates, or to cure any
ambiguity or correct any mistake,
- to modify, eliminate or add to the provisions of the Basic Agreement to
the extent necessary to continue the qualification of the Basic Agreement
(including any supplemental agreement) under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act") and to add to the Basic
Agreement such other provisions as may be expressly permitted by the Trust
Indenture Act,
- to provide for a successor Trustee or to add to or change any provision of
the Basic Agreement as necessary to facilitate the administration of the
Trusts thereunder by more than one Trustee,
- to add, eliminate or change any provisions under such Basic Agreement that
will not adversely affect the Certificateholders in any material respect,
provided that in each case, such modification does not cause the
corresponding Trust to become taxable as an "association"
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within the meaning of Treasury Regulation Section 301.7701-2 or a
"publicly traded partnership" within the meaning of Section 7704 of the
Code taxable as a corporation and
- to make any other amendments or modifications to the Basic Agreement,
provided such amendments or modifications shall only apply to Certificates
issued thereafter.
The Basic Agreement also contains provisions permitting Northwest, NWA Corp.
and the Trustee of each Trust, with the consent of the Certificateholders of
such Trust evidencing fractional undivided interests aggregating not less than a
majority in interest of such Trust, and, with respect to any Leased Aircraft,
with the consent of the applicable Owner Trustee (such consent not to be
unreasonably withheld), to execute supplemental trust agreements adding any
provisions to or changing or eliminating any of the provisions of the Basic
Agreement, to the extent relating to such Trust, and the applicable Trust
Supplement, or modifying the rights of the Certificateholders, except that no
such supplemental trust agreement may, without the consent of each
Certificateholder so affected thereby,
- reduce in any manner the amount of, or delay the timing of, any receipt by
the Trustee of payments on the Equipment Notes held in such Trust or
distributions in respect of any Certificate related to such Trust, or
change the date or place of any payment in respect of any Certificate, or
make distributions payable in coin or currency other than that provided
for in such Certificates, or impair the right of any Certificateholder of
such Trust to institute suit for the enforcement of any such payment when
due,
- permit the disposition of any Equipment Note held in such Trust, except as
provided in the Basic Agreement or the applicable Trust Supplement, or
otherwise deprive any Certificateholder of the benefit of the ownership of
the applicable Equipment Notes,
- reduce the percentage of the aggregate fractional undivided interests of
the Trust provided for in the Basic Agreement or the applicable Trust
Supplement, the consent of the holders of which is required for any such
supplemental trust agreement or for any waiver provided for in the Basic
Agreement or such Trust Supplement,
- modify any of the provisions relating to the rights of the
Certificateholders in respect of the waiver of events of default or
receipt of payment or
- cause the Trust to become taxable as an "association" within the meaning
of Treasury Regulation Section 301.7701-2 or a "publicly traded
partnership" within the meaning of Section 7704 of the Code taxable as a
corporation.
MODIFICATION OF INDENTURE AND RELATED AGREEMENTS
The prospectus supplement will specify the Trustee's obligations in the
event that the Trustee, as the holder of any Equipment Notes held in a Trust,
receives a request for its consent to any amendment, modification or waiver
under the Indenture or other documents relating to such Equipment Notes
(including any Lease with respect to Leased Aircraft Notes or any Liquidity
Facility).
CROSS-SUBORDINATION ISSUES
The Equipment Notes issued under an Indenture may be held in more than one
Trust and one Trust may hold Equipment Notes issued under more than one Related
Indenture. Unless otherwise provided in a prospectus supplement, only Equipment
Notes of the same class or series may be held in the same Trust. In such event,
payments made on account of a subordinate class or series of Equipment Notes
issued under a Related Indenture may, under circumstances described in the
related prospectus supplement, be subordinated to the prior payment of all
amounts owing to Certificateholders of a Trust which holds senior Equipment
Notes issued under all Related Indentures. The prospectus supplement related to
an issuance of Certificates will describe any such "cross-subordination"
provisions and any
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related terms, including the percentage of Certificateholders under any Trust
which are permitted to (i) grant waivers of defaults under any Related
Indenture, (ii) consent to the amendment or modification of any Related
Indentures or (iii) direct the exercise of remedial actions under any Related
Indentures.
TERMINATION OF THE TRUSTS
The obligations of Northwest, NWA Corp. and the Trustee with respect to a
Trust will terminate upon the distribution to Certificateholders of such Trust
of all amounts required to be distributed to them pursuant to the Basic
Agreement and the applicable Trust Supplement and the disposition of all
property held in such Trust. The Trustee will send to each Certificateholder of
record of such Trust notice of the termination of such Trust, the amount of the
proposed final payment and the proposed date for the distribution of such final
payment for such Trust. The final distribution to any Certificateholder of such
Trust will be made only upon surrender of such Certificateholder's Certificates
at the office or agency of the Trustee specified in such notice of termination.
DELAYED PURCHASE
In the event that, on the delivery date of any Certificates, all of the
proceeds from the sale of such Certificates are not used to purchase the
Equipment Notes contemplated to be held in the related Trust, such Equipment
Notes may be purchased by the Trustee at any time on or prior to a subsequent
date specified in the applicable prospectus supplement. In such event, the
proceeds from the sale of such Certificates not used to purchase Equipment Notes
will be held under an arrangement described in the applicable prospectus
supplement pending the purchase of the Equipment Notes not so purchased. If any
such proceeds are not subsequently used to purchase Equipment Notes by the date
specified in the prospectus supplement, such proceeds will be returned to the
holders of such Certificates.
THE PARENT GUARANTY
NWA Corp. will unconditionally guarantee (i) with respect to related Owned
Aircraft Notes, the full and prompt payment of principal, premium, if any, and
interest thereon when and as the same shall become due and payable, whether at
maturity, upon redemption or otherwise, and (ii) with respect to related Leased
Aircraft Notes, the full and prompt payment of all amounts payable by Northwest
under the related Lease when and as the same shall become due and payable.
The Parent Guaranty will be enforceable without any need first to enforce
any Owned Aircraft Note or Lease against Northwest. The Parent Guaranty will be
an unsecured obligation of NWA Corp.
LIQUIDITY FACILITY
The related prospectus supplement may provide that one or more payments of
interest on the Certificates of one or more series or classes will be supported
by a Liquidity Facility issued by an institution identified in the related
prospectus supplement. The provider of such Liquidity Facility will have a claim
senior to the Certificateholders' as specified in the related prospectus
supplement.
THE TRUSTEE
The Trustee for each series or class of Certificates will be identified in
the prospectus supplement. With certain exceptions, the Trustee will make no
representations as to the validity or sufficiency of the Basic Agreement, the
Trust Supplements, the Certificates, the Equipment Notes, the Indentures, the
Leases or other related documents. With respect to any series or class of
Certificates, the Trustee shall not be liable for any action taken or omitted to
be taken by it in good faith in accordance with the direction of the holders of
a majority in principal amount of outstanding Certificates of such series or
class. Subject to such provisions, such Trustee shall be under no obligation to
exercise any of its rights
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or powers under the Basic Agreement at the request of any holders of
Certificates issued thereunder unless they shall have offered to the Trustee
indemnity satisfactory to it. The Basic Agreement provides that the Indenture
Trustee in its individual or any other capacity may acquire and hold
Certificates issued thereunder and, subject to certain conditions, may otherwise
deal with Northwest, NWA Corp. and, with respect to the Leased Aircraft, with
any Owner Trustee and Owner Participant with the same rights it would have if it
were not the Trustee.
The Trustee may resign with respect to any or all of the Trusts at any time,
in which event Northwest will be obligated to appoint a successor trustee. If
the Trustee
- ceases to be eligible to continue as Trustee with respect to a Trust or
- becomes incapable of acting as Trustee or
- becomes insolvent,
Northwest may remove such Trustee, or any Certificateholder of such Trust
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of such
Trustee and the appointment of a successor trustee. Any resignation or removal
of the Trustee with respect to a Trust and appointment of a successor trustee
for such Trust will not become effective until acceptance of the appointment by
the successor trustee. Pursuant to such resignation and successor trustee
provisions, it is possible that a different trustee could be appointed to act as
the successor trustee with respect to each Trust. All references in this
prospectus to the Trustee should be read to take into account the possibility
that the Trusts could have different successor trustees in the event of such a
resignation or removal.
The Basic Agreement provides that Northwest will pay the Trustee's fees and
expenses and indemnify the Trustee against certain liabilities.
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DESCRIPTION OF THE EQUIPMENT NOTES
The statements made under this caption are summaries and reference is made
to the entire prospectus and detailed information appearing in the applicable
prospectus supplement. Where no distinction is made between the Leased Aircraft
Notes and the Owned Aircraft Notes or between their respective Indentures, such
statements refer to any Equipment Notes and any Indenture.
TO THE EXTENT THAT ANY PROVISION IN ANY PROSPECTUS SUPPLEMENT IS
INCONSISTENT WITH ANY PROVISION IN THIS SUMMARY, THE PROVISION OF SUCH
PROSPECTUS SUPPLEMENT WILL CONTROL.
GENERAL
All Equipment Notes will be issued under a separate Indenture either (a)
between the related Owner Trustee of a trust for the benefit of the Owner
Participant who is the beneficial owner of the related Aircraft, and the related
Loan Trustee, or (b) between Northwest and the related Loan Trustee. The
Equipment Notes issued pursuant to clause (a) of the preceding sentence will be
nonrecourse obligations of the applicable Owner Trust. Each Equipment Note will
be authenticated under an Indenture by the Loan Trustee. All Equipment Notes
issued under the same Indenture will relate to, and be secured by, one or more
Aircraft identified and described in the related prospectus supplement and
which, in the case of Equipment Notes issued as described in such clause (a),
are leased to Northwest pursuant to a Lease between the Owner Trustee under the
applicable Owner Trust and Northwest or, in the case of Equipment Notes issued
as described in clause (b), owned by Northwest.
With respect to each Leased Aircraft, the related Owner Trustee has acquired
or will acquire such Aircraft from Northwest or the manufacturer of such
Aircraft, as the case may be, has granted or will grant a security interest in
such Aircraft to the related Loan Trustee as security for the payments of the
related Leased Aircraft Notes, and has leased or will lease such Aircraft to
Northwest pursuant to the related Lease which has been or will be assigned to
the related Loan Trustee. Pursuant to each such Lease, Northwest will be
obligated to make or cause to be made rental and other payments to the related
Loan Trustee on behalf of the related Owner Trustee in amounts that will be
sufficient to make payments of the principal, interest and premium, if any,
required to be made in respect of such Leased Aircraft Notes when and as due and
payable.
The rental obligations of Northwest under each Lease and the obligations of
Northwest under each Owned Aircraft Indenture and under the Owned Aircraft Notes
will be general obligations of Northwest. Except in certain circumstances
involving Northwest's purchase of a Leased Aircraft and the assumption of the
Leased Aircraft Notes related thereto, the Leased Aircraft Notes are not
obligations of, or guaranteed by, Northwest.
PRINCIPAL AND INTEREST PAYMENTS
Interest received by the Trustee on the Equipment Notes held in each Trust
will be passed through to the Certificateholders of such Trust on the dates and
at the rate per annum set forth in the applicable prospectus supplement until
the final distribution for such Trust. Principal received by the Trustee on the
Equipment Notes held in each Trust will be passed through to the
Certificateholders of such Trust in scheduled amounts on the dates set forth in
the applicable prospectus supplement until the final distribution date for such
Trust.
If any date scheduled for any payment of principal, premium, if any, or
interest with respect to the Equipment Notes is not a Business Day, such payment
will be made on the next succeeding Business Day without any additional
interest.
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REDEMPTION
The applicable prospectus supplement will describe the circumstances,
whether voluntary or involuntary, under which the Equipment Notes may be
redeemed or purchased prior to the stated maturity date thereof, in whole or in
part, the premium, if any, applicable upon certain redemptions or purchases and
other terms applying to the redemptions or purchases of such Equipment Notes.
SECURITY
The Leased Aircraft Notes will be secured by
- an assignment by the related Owner Trustee to the related Loan Trustee of
such Owner Trustee's rights (except for certain rights, including those
described below) under the Lease or Leases with respect to the related
Aircraft, including the right to receive payments of rent thereunder,
- a mortgage granted to such Loan Trustee in such Aircraft, subject to the
rights of Northwest under such Lease or Leases, and
- an assignment to such Loan Trustee of certain of such Owner Trustee's
rights with respect to such Aircraft under the purchase agreement between
Northwest and the related manufacturer.
Under the terms of each Lease, Northwest's obligations in respect of each
Leased Aircraft will be those of a lessee under a "net lease." Accordingly,
Northwest will be obligated, among other things and at its expense, to cause
each Leased Aircraft to be duly registered, to pay all costs of operating such
Aircraft and to maintain, service, repair and overhaul (or cause to be
maintained, serviced, repaired and overhauled) such Aircraft. With respect to
the Leased Aircraft, the assignment by the related Owner Trustee to the related
Loan Trustee of its rights under the related Lease will exclude, among other
things, rights of such Owner Trustee and the related Owner Participant relating
to indemnification by Northwest for certain matters, insurance proceeds payable
to such Owner Trustee in its individual capacity and to such Owner Participant
under liability insurance maintained by Northwest pursuant to such Lease or by
such Owner Trustee or such Owner Participant, insurance proceeds payable to such
Owner Trustee in its individual capacity or to such Owner Participant under
certain casualty insurance maintained by such Owner Trustee or such Owner
Participant pursuant to such Lease and any rights of such Owner Participant or
such Owner Trustee to enforce payment of the foregoing amounts and their
respective rights to the proceeds of the foregoing.
The Owned Aircraft Notes will be secured by
- a mortgage granted to the related Loan Trustee of all of Northwest's
right, title and interest in and to such Owned Aircraft, and
- if so provided in the related prospectus supplement, an assignment to such
Loan Trustee of certain of Northwest's rights with respect to such
Aircraft under the purchase agreement between Northwest and the related
manufacturer.
Under the terms of each Owned Aircraft Indenture, Northwest will be
obligated, among other things and at its expense, to cause each Owned Aircraft
to be duly registered, to pay all costs of operating such Aircraft and to
maintain, service, repair and overhaul (or cause to be maintained, serviced,
repaired and overhauled) such Aircraft.
The prospectus supplement will specify the required insurance coverage with
respect to the Aircraft.
Northwest will be required, except under certain circumstances, to keep each
Aircraft registered under the Federal Aviation Act of 1958, as amended (the
"Federal Aviation Act"), and to record the Indenture and the Lease, if
applicable, among other documents, with respect to each Aircraft under the
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Federal Aviation Act. Such recordation of the Indenture, the Lease, if
applicable, and other documents with respect to each Aircraft will give the
related Loan Trustee a perfected security interest in the related Aircraft
whenever it is located in the United States or any of its territories and
possessions; the Convention on the International Recognition of Rights in
Aircraft (the "Convention") provides that such security will also be recognized,
with certain limited exceptions, in those jurisdictions that have ratified or
adhere to the Convention. Northwest will have the right, subject to certain
conditions, at its own expense to register each Aircraft in countries other than
the United States. Each Aircraft may also be operated by Northwest or under
lease, sublease or interchange arrangements in countries that are not parties to
the Convention. The extent to which the related Loan Trustee's security interest
would be recognized in an Aircraft located in a country that is not a party to
the Convention, and the extent to which such security interest would be
recognized in a jurisdiction adhering to the Convention if the Aircraft is
registered in a jurisdiction not a party to the Convention, is uncertain.
Moreover, in the case of an Indenture Default, the ability of the related Loan
Trustee to realize upon its security interest in an Aircraft could be adversely
affected as a legal or practical matter if such Aircraft were registered or
located outside the United States.
Unless otherwise specified in the applicable prospectus supplement, the
Equipment Notes will not be cross-collateralized and consequently the Equipment
Notes issued in respect of any one Aircraft will not be secured by any other
Aircraft or, in the case of Leased Aircraft Notes, the Lease related thereto.
Unless and until an Indenture Default with respect to a Leased Aircraft has
occurred and is continuing, the related Loan Trustee may exercise only limited
rights of the related Owner Trustee under the related Lease.
Funds, if any, held from time to time by the Loan Trustee with respect to
any Aircraft, prior to the distribution thereof, will be invested and reinvested
by such Loan Trustee. Such investment and reinvestment will be at the direction
of Northwest (except, with respect to a Leased Aircraft, in the case of a Lease
Event of Default under the applicable Lease or, with respect to an Owned
Aircraft, in the case of an Indenture Default under the applicable Indenture),
in certain investments described in the Related Indenture. The net amount of any
loss resulting from any such investments will be paid by Northwest.
Section 1110 of the Bankruptcy Code provides that the right of lessors,
conditional vendors and holders of security interests with respect to
"equipment" (as defined in Section 1110 of the Bankruptcy Code) to take
possession of such equipment in compliance with the provisions of a lease,
conditional sale contract or security agreement, as the case may be, is not
affected after 60 days after the filing of a petition under Chapter 11 of the
Bankruptcy Code by (a) the automatic stay provision of the Bankruptcy Code,
which provision enjoins creditors' remedies except with the court's approval,
(b) the provision of the Bankruptcy Code allowing the trustee in reorganization
to use property of the debtor during the reorganization period, (c)
Section 1129 of the Bankruptcy Code (which governs the confirmation of plans of
reorganization in Chapter 11 cases) and (d) any power of the bankruptcy court to
enjoin a repossession. Section 1110 provides that the right to take possession
of an aircraft may not be exercised for 60 days following the date of
commencement of the reorganization proceedings and may not be exercised at all
after such 60-day period (or such longer period consented to by the lessor,
conditional vendor or holder of a security interest), if the trustee in
reorganization agrees to perform the debtor's obligations that become due on or
after such date and cures all existing defaults (other than defaults resulting
solely from the financial condition, bankruptcy, insolvency or reorganization of
the debtor, the appointment of a trustee or custodian or the failure to satisfy
any penalty rate or provision relating to a default arising from any failure by
the debtor to perform nonmonetary obligations under the applicable agreement).
"Equipment" is defined in Section 1110 of the Bankruptcy Code, in part, as "an
aircraft, aircraft engine, propeller, appliance, or spare part (as defined in
section 40102 of title 49) that is subject to a security interest granted by,
leased to or conditionally sold to a debtor that is a citizen of the United
States (as defined in section 40102 of title 49) holding an air
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carrier operating certificate issued by the Secretary of Transportation pursuant
to chapter 47 of title 49 for aircraft capable of carrying 10 or more
individuals or 6,000 pounds or more of cargo."
Section 1110 does not prevent the trustee or debtor-in-possession from
rejecting a lease (including any Lease) or demanding a renegotiation of such
lease as a condition to not rejecting such lease. In addition, if more than one
aircraft are leased pursuant to a master lease and accompanying lease
supplement, the applicability of Section 1110 would be determined on an
aircraft-by-aircraft basis. Assuming Section 1110 is applicable to all aircraft
subject to a master lease, Section 1110 does not prevent the trustee or
debtor-in-possession from complying with the provisions of Section 1110 with
respect to some lease supplements, and thereby retaining possession of the
related aircraft, and not complying with the provisions of Section 1110 with
respect to other lease supplements, and thereby enabling a repossession of other
aircraft.
In connection with any issuance of Certificates under this prospectus and
the applicable prospectus supplement, Northwest shall have received an opinion
from its counsel to the effect that (i) with respect to any Leased Aircraft, the
related Owner Trustee, as lessor under the related Lease, and the related Loan
Trustee, as assignee of such Owner Trustee's rights under such Lease pursuant to
the Related Indenture, would be entitled to the benefits of Section 1110 of the
Bankruptcy Code with respect to the Aircraft initially delivered under such
Lease and subjected to the Related Indenture or (ii) with respect to any Owned
Aircraft, the related Loan Trustee under the Related Indenture would be entitled
to the benefits of Section 1110 of the Bankruptcy Code with respect to the
Aircraft initially subjected to the Related Indenture. Such opinions will not
address the possible replacement of an Aircraft after an Event of Loss (as
defined in the Indenture) in the future.
RANKING OF EQUIPMENT NOTES
Some of the Equipment Notes related to one or more Aircraft, as described in
the related prospectus supplement, may be subordinated and junior in right of
payment to other Equipment Notes related to the same Aircraft. The terms of such
subordination, if any, will be described in the related prospectus supplement.
PAYMENTS AND LIMITATION OF LIABILITY
Each Leased Aircraft will be leased by the related Owner Trustee to
Northwest for a term commencing on the delivery date thereof to such Owner
Trustee and expiring on a date not earlier than the latest maturity date of the
related Leased Aircraft Notes, unless previously terminated as permitted by the
terms of the related Lease. The basic rent and other payments under each such
Lease will be payable by Northwest in accordance with the terms specified in the
applicable prospectus supplement, and will be assigned by the related Owner
Trustee under the Related Indenture to the Loan Trustee to provide the funds
necessary to pay principal of, premium, if any, and interest due from such Owner
Trustee on the Leased Aircraft Notes issued under such Indenture. In certain
cases, the basic rent payments under a Lease may be adjusted, but each Lease
will provide that under no circumstances will rent payments by Northwest be less
than the scheduled payments on the related Leased Aircraft Notes. The balance of
any basic rent payment under each Lease, after payment of amounts due on the
Leased Aircraft Notes issued under the Indenture corresponding to such Lease,
will be paid over to the applicable Owner Participant. Northwest's obligation to
pay rent and to cause other payments to be made under each Lease will be general
obligations of Northwest.
With respect to the Leased Aircraft Notes, except in certain circumstances
involving Northwest's purchase of a Leased Aircraft and the assumption of the
Leased Aircraft Notes related thereto, the Leased Aircraft Notes will not be
obligations of, or guaranteed by, Northwest or any of its affiliates. With
respect to the Leased Aircraft Notes, none of the Owner Trustees, the Owner
Participants or the Loan Trustees shall be personally liable to any holder of
such Leased Aircraft Notes for amounts
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payable under such Leased Aircraft Notes, or, except as provided in the
Indentures relating thereto in the case of the Owner Trustees and the Loan
Trustees, for any liability under such Indentures. Except in the circumstances
referred to above, all amounts payable under any Leased Aircraft Notes (other
than payments made in connection with an optional redemption or purchase by the
related Owner Trustee or the related Owner Participant) will be made only from
(i) the assets subject to the lien of the Related Indenture with respect to such
Aircraft or the income and proceeds received by the related Loan Trustee
therefrom (including rent payable by Northwest under the related Lease) or (ii)
if so provided in the related prospectus supplement, the applicable Liquidity
Facility.
With respect to the Leased Aircraft Notes, except as otherwise provided in
the Related Indentures, no Owner Trustee shall be personally liable for any
amount payable or for any statements, representations, warranties, agreements or
obligations under such Indentures or under such Leased Aircraft Notes except for
its own willful misconduct or gross negligence. None of the Owner Participants
shall have any duty or responsibility under the Leased Aircraft Indentures or
under such Leased Aircraft Notes to the related Loan Trustee or to any holder of
any such Leased Aircraft Note.
Northwest's obligations under each Owned Aircraft Indenture and under the
Owned Aircraft Notes will be general obligations of Northwest.
DEFEASANCE OF THE INDENTURES AND THE EQUIPMENT NOTES IN CERTAIN CIRCUMSTANCES
Unless otherwise specified in the applicable prospectus supplement, the
applicable Indenture provides that the obligations of the related Loan Trustee
and, with respect to any Leased Aircraft Notes, the related Owner Trustee or,
with respect to any Owned Aircraft Notes, Northwest under the applicable
Indenture shall be deemed to have been discharged and paid in full (except for
certain obligations, including the obligations to register the transfer or
exchange of Equipment Notes, to replace stolen, lost, destroyed or mutilated
Equipment Notes and to maintain paying agencies and hold money for payment in
trust) on the 91st day after the date of irrevocable deposit with the related
Loan Trustee of money or certain obligations of the United States or any agency
or instrumentality thereof the payment of which is backed by the full faith and
credit of the United States which, through the payment of principal and interest
in respect thereof in accordance with their terms, will provide money in an
aggregate amount sufficient to pay when due (including as a consequence of
redemption in respect of which notice is given on or prior to the date of such
deposit) principal of, premium, if any, and interest on all Equipment Notes
issued thereunder in accordance with the terms of such Indenture. Such discharge
may occur only if, among other things, there has been published by the Internal
Revenue Service a ruling to the effect that holders of such Equipment Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit, defeasance and discharge and will be subject to federal income
tax on the same amount and in the same manner and at the same time as would have
been the case if such deposit, defeasance and discharge had not occurred.
Upon such defeasance, or upon payment in full of the principal of, premium,
if any, and interest on all Equipment Notes issued under any Indenture on the
maturity date therefor or deposit with the applicable Loan Trustee of money
sufficient therefor no earlier than one year prior to the date of such maturity,
the holders of such Equipment Notes will have no beneficial interest in or other
rights with respect to the related Aircraft or other assets subject to the lien
of such Indenture and such lien shall terminate.
ASSUMPTION OF LEASE OBLIGATIONS BY NORTHWEST
Unless otherwise specified in the applicable prospectus supplement with
respect to Leased Aircraft, upon the exercise by Northwest of any purchase
options it may have under the related Lease prior to the end of the term of such
Lease, Northwest may assume on a full recourse basis all of the obligations of
the Owner Trustee (other than its obligations in its individual capacity) under
the
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Indenture with respect to such Aircraft, including the obligations to make
payments in respect of the related Leased Aircraft Notes. In such event, certain
relevant provisions of the related Lease, including (among others) provisions
relating to maintenance, possession and use of the related Aircraft, liens,
insurance and events of default will be incorporated into such Indenture, and
the Leased Aircraft Notes issued under such Indenture will not be redeemed and
will continue to be secured by such Aircraft.
LIQUIDITY FACILITY
The related prospectus supplement may provide that one or more payments of
interest on the related Equipment Notes of one or more series or classes or
distributions made by the Trustee of the related Trust will be supported by a
Liquidity Facility issued by an institution identified in the related prospectus
supplement. Unless otherwise provided in the related prospectus supplement, the
provider of the Liquidity Facility will have a senior claim upon the assets
securing the Equipment Notes.
INTERCREDITOR ISSUES
Equipment Notes may be issued in different classes or series, which means
that the Equipment Notes may have different payment priorities even though they
are issued by the same Owner Trustee and relate to the same Aircraft. In such
event, the related prospectus supplement will describe the priority of
distributions among such Equipment Notes (and any Liquidity Facilities
therefor), the ability of any class or series to exercise and/or enforce any or
all remedies with respect to the related Aircraft (and, if the Equipment Notes
are Leased Aircraft Notes, the Lease related thereto) and certain other
intercreditor terms and provisions.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion represents the opinion of Cadwalader, Wickersham &
Taft as to the principal U.S. federal income tax consequences to
Certificateholders of the purchase, ownership and disposition of the
Certificates. Except as otherwise specified, the discussion is addressed to
beneficial owners of Certificates ("U.S. Certificateholders") that are citizens
or residents of the United States, corporations, partnerships or other entities
created or organized in or under the laws of the United States or any State,
estates the income of which is subject to U.S. federal income taxation
regardless of its source or, generally, trusts if a court within the United
States is able to exercise primary supervision over the administration of such
trust, and one or more of the foregoing persons have the authority to control
all substantial decisions of such trust ("U.S. Persons") that will hold the
Certificates as capital assets. This discussion does not address the tax
treatment of U.S. Certificateholders that may be subject to special tax rules,
such as banks, insurance companies, dealers in securities or commodities,
tax-exempt entities, holders that will hold Certificates as part of a straddle
or holders that have a "functional currency" other than the U.S. Dollar, nor
does it address the tax treatment of U.S. Certificateholders that do not acquire
Certificates as part of the initial offering. This discussion does not describe
any tax consequences arising under the laws of any State, locality or taxing
jurisdiction other than the United States.
This discussion is based upon the tax laws of the United States as in effect
on the date of this prospectus, as well as judicial and administrative
interpretations thereof (in final or proposed form) available on or before such
date. All of the foregoing are subject to change or differing interpretations,
which could apply retroactively. Prospective investors should note that no
rulings have been or will be sought from the Internal Revenue Service (the
"IRS") with respect to any of the federal income tax consequences discussed
below, and no assurance can be given the IRS will not take contrary positions.
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PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE CERTIFICATES.
TAX STATUS OF THE TRUSTS
In the opinion of Cadwalader, Wickersham & Taft, special counsel to
Northwest, each Trust will not be classified as an association or a publicly
traded partnership taxable as a corporation for U.S. federal income tax purposes
and will not be subject to federal income tax. Each Trust will file federal
income tax returns and report to investors on the basis that it is a grantor
trust under Subpart E, Part I of Subchapter J of the Code. If a Trust were
treated as a partnership for U.S. federal income tax purposes rather than as a
grantor trust, in the opinion of Cadwalader, Wickersham & Taft, the consequences
to U.S. Certificateholders and, to the extent described below, Non-U.S.
Certificateholders, would not be materially different. The remainder of this
discussion describes the consequences of the treatment as a grantor trust.
Certificateholders who are not U.S. Persons should consult their own tax
advisors as to the suitability to them of an investment in the Certificates.
TAXATION OF CERTIFICATEHOLDERS GENERALLY
A U.S. Certificateholder will be treated as owning its pro rata undivided
interest in each of the Equipment Notes and any other property held by the
related Trust. Accordingly, each U.S. Certificateholder's share of interest paid
on the Equipment Notes will be taxable as ordinary income, as it is paid or
accrued, in accordance with such owner's method of accounting for U.S. federal
income tax purposes and a U.S. Certificateholder's share of premium, if any,
paid on the Equipment Notes will be treated as capital gain. Any amounts
received by a Trust from Interest Drawings under the relevant Liquidity Facility
will be treated for U.S. federal income tax purposes as having the same
characteristics as the payments they replace.
Each U.S. Certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding Trust as provided in Section 162 or 212 of the Code.
Certain fees and expenses, including fees paid to the Trustee and the Liquidity
Provider, will be borne by parties other than the Certificateholders. It is
possible that such fees and expenses will be treated as constructively received
by the Trust, in which event a U.S. Certificateholder will be required to
include in income and will be entitled to deduct its pro rata share of such fees
and expenses. If a U.S. Certificateholder is an individual, estate or trust, the
deduction for such holder's share of such fees or expenses will be allowed only
to the extent that all of such holder's miscellaneous itemized deductions,
including such holder's share of such fees and expenses, exceed 2% of such
holder's adjusted gross income. In addition, in the case of U.S.
Certificateholders who are individuals, certain otherwise allowable itemized
deductions will be subject generally to additional limitations on itemized
deductions under the applicable provisions of the Code.
EFFECT OF SUBORDINATION OF SUBORDINATED CERTIFICATEHOLDERS
If any Trust with respect to a series or class are subordinated with respect
to other Trusts of the same series or class (such Trusts being the "Subordinated
Trusts" and the related Certificates being the "Subordinated Certificates")
receives less than the full amount of the receipts of principal or interest paid
with respect to the Equipment Notes held by it (any shortfall in such receipts
being the "Shortfall Amounts") because of the subordination of the Equipment
Notes held by such Trust under the Intercreditor Agreement, the corresponding
owners of beneficial interests in the Subordinated Certificates (the
"Subordinated Certificateholders") would probably be treated for federal income
tax purposes as if they had (1) received as distributions their full share of
such receipts, (2) paid over to the relevant preferred class of
Certificateholders an amount equal to their share of such Shortfall Amount, and
(3) retained the right to reimbursement of such amounts to the extent of future
amounts payable to such Subordinated Certificateholders with respect to such
Shortfall Amount.
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Under this analysis, (1) Subordinated Certificateholders incurring a
Shortfall Amount would be required to include as current income any interest or
other income of the corresponding Subordinated Trust that was a component of the
Shortfall Amount, even though such amount was in fact paid to the relevant
preferred class of Certificateholders, (2) a loss would only be allowed to such
Subordinated Certificateholders when their right to receive reimbursement of
such Shortfall Amount became worthless (i.e., when it becomes clear that funds
will not be available from any source to reimburse such loss), and (3)
reimbursement of such Shortfall Amount prior to such a claim of worthlessness
would not be taxable income to Subordinated Certificateholders because such
amount was previously included in income. These results should not significantly
affect the inclusion of income for Subordinated Certificateholders on the
accrual method of accounting, but could accelerate inclusion of income to
Subordinated Certificateholders on the cash method of accounting by, in effect,
placing them on the accrual method.
ORIGINAL ISSUE DISCOUNT
The Equipment Notes may be issued with original issue discount ("OID"),
which may require U.S. Certificateholders to include such OID in gross income in
advance of the receipt or accrual of the stated interest on such Equipment
Notes. The prospectus supplement will state whether any Equipment Notes to be
held by the related Trust will be issued with OID. Generally, a holder of a debt
instrument issued with original issue discount that is not DE MINIMIS must
include such original issue discount in income for federal income tax purposes
as it accrues, in advance of the receipt of the cash attributable to such
income, under a method that takes into account the compounding of interest.
MARKET DISCOUNT
Generally, the term "market discount" means the excess of the remaining
principal amount of a Certificate over the holder's tax basis in such
Certificate immediately after its acquisition, subject to a DE MINIMIS
exception.
A holder who acquires a Certificate at a market discount will be required to
treat any gain realized on the disposition of such Certificate, except in
certain nonrecognition transactions, as ordinary income to the extent of the
market discount that accrued during the period that such holder held such
Certificate. Further, a disposition of a Certificate by gift (and in certain
other circumstances) could result in the recognition of market discount income,
computed as if such Certificate had been sold for its fair market value.
In the case of a partial principal payment on indebtedness subject to the
market discount rules, Section 1276 of the Code requires that such payment be
included in gross income as ordinary income to the extent such payment does not
exceed the market discount that has accrued during the period such indebtedness
was held. The amount of any accrued market discount later required to be
included in income upon a disposition, or subsequent partial principal payment,
will be reduced by the amount of accrued market discount previously included in
income.
Until Treasury regulations are issued, the explanatory Conference Committee
Report to the Tax Reform Act of 1986 (the "Conference Report") indicates that
holders of installment obligations (such as the Equipment Notes) with market
discount may elect to accrue market discount either (i) on the basis of a
constant interest rate or (ii) in the ratio to the total amount of remaining
market discount that the amount of stated interest paid in the accrual period
bears to the total amount of stated interest remaining to be paid on the
installment obligation as of the beginning of such period. Under Section 1277 of
the Code, if in any taxable year interest paid or accrued on indebtedness
incurred or continued to purchase or carry indebtedness subject to the market
discount rules exceeds the interest currently includable in income with respect
to such indebtedness, deduction of the excess interest must be deferred to the
extent of the market discount allocable to the taxable year. The deferred
portion of
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any interest expense will generally be deductible when such market discount is
included in income upon the sale or other disposition (including repayment) of
the indebtedness.
A holder of a Certificate acquired at a market discount may elect under
Section 1278 of the Code, in the manner provided by Revenue Procedure 92-67,
1992-34 I.R.B. 6, to include such discount in income as it accrues. The current
inclusion election applies to all market discount obligations acquired on or
after the first day to which the election applies, and may not be revoked
without the consent of the IRS. If a holder of a Certificate elects to include
market discount in income as it accrues, the foregoing rules of Section 1276 and
1277 of the Code with respect to the recognition of ordinary income on a sale or
other disposition of such Certificate and the deferral of interest deductions on
indebtedness related to such Certificate would not apply.
The IRS is authorized to issue regulations to implement the market discount
provisions of the Code. No such regulations have been issued or proposed. It is
impossible to anticipate what effect, if any, such regulations could have on the
Certificateholders.
AMORTIZABLE BOND PREMIUM
A U.S. Certificateholder should generally be considered to have acquired an
interest in an Equipment Note at a premium to the extent the purchaser's tax
basis allocable to such interest exceeds the remaining principal amount of the
Equipment Note allocable to such interest. In that event, a U.S.
Certificateholder who holds a Certificate as a capital asset may elect to
amortize that premium as an offset to interest income under Section 171 of the
Code with corresponding reductions in the U.S. Certificateholder's tax basis in
its Certificate. In the case of installment obligations (such as the Equipment
Notes), the Conference Report indicates a Congressional intent that amortization
will be in accordance with the same rules that will apply to the accrual of
market discount on installment obligations (see discussion above).
Under certain circumstances, amortizable bond premium may be determined by
reference to any early call date. It is unclear how the amortizable bond premium
rules apply where, as in the case with the Equipment Notes, the amount of
redemption premium payable on an early call date is unknown. In addition, the
treatment of any unamortized bond premium remaining at the time of an early call
is unclear. The U.S. Certificateholders are urged to consult their own tax
advisors as to the treatment of any amortizable bond premiums.
SALE OR OTHER DISPOSITION OF THE CERTIFICATES
Upon the sale, exchange or other disposition of a Certificate, a U.S.
Certificateholder generally will recognize capital gain or loss equal to the
difference between the amount realized on the disposition (other than any amount
attributable to accrued interest which will be taxable as ordinary income) and
the U.S. Certificateholder's adjusted tax basis in the related Equipment Notes
and any other assets held by the corresponding Trust. A U.S. Certificateholder's
adjusted tax basis will equal the holder's cost for its Certificate, plus any
accrued OID or market discount previously included in income or less any
amortized bond premium or any previously recognized losses or prior principal
payments. Any gain or loss generally will be capital gain or loss (other than
accrued market discount not previously included in income) if the Certificate
was held as a capital asset.
FOREIGN CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of principal
and interest (including OID) on the Equipment Notes to, or on behalf of, any
beneficial owner of a Certificate that is not a U.S. Person (a "Non-U.S.
Certificateholder") will not be subject to U.S. federal withholding tax;
PROVIDED, in the case of interest, that (i) such Non-U.S. Certificateholder does
not actually or constructively own 10% or more of the total combined voting
power of all classes of the stock of any
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Owner Participant (in the case of Leased Aircraft Notes) or of Northwest (in the
case of Owned Aircraft Notes), (ii) such Non-U.S. Certificateholder is not a
controlled foreign corporation for U.S. tax purposes that is related to an Owner
Participant (in the case of Leased Aircraft Notes) or of Northwest (in the case
of Owned Aircraft Notes), and (iii) either (A) the Non-U.S. Certificateholder
certifies, under penalties of perjury, that it is not a U.S. Person and provides
its name and address or (B) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "financial institution") and holds the Certificate
certifies, under penalties of perjury, that such statement has been received
from the Non-U.S. Certificateholder by it or by another financial institution
and furnishes the payor with a copy thereof.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a Certificate or upon receipt of premium paid on an Equipment
Note by a Non-U.S. Certificateholder will not be subject to U.S. federal income
or withholding taxes if (i) such gain is not effectively connected with a U.S.
trade or business of the holder and (ii) in the case of an individual, such
holder is not present in the United States for 183 days or more in the taxable
year of the sale, exchange, retirement or other disposition or receipt.
Any interest or gain described in the two preceding paragraphs will be
subject to regular U.S. federal income tax at graduated rates if it is
effectively connected with the conduct of a U.S. trade or business by a non-U.S.
Certificateholder.
BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments within the United States of principal, interest, OID and premium on the
Certificates, and to payments of the proceeds of certain sales of Certificates
made to U.S. Certificateholders other than certain exempt recipients (such as
corporations). A 31% "backup withholding" tax may apply to such payments if the
holder fails or has failed to provide an accurate taxpayer identification number
or otherwise establish an exemption or fails to report in full interest income.
With respect to Non-U.S. Certificateholders, payments made on a Certificate and
proceeds from the sale of a Certificate owned by a Non-U.S. Certificateholder
will generally not be subject to such information reporting requirements or
backup withholding tax if such Non-U.S. Certificateholder provides the
applicable statement as to its non-U.S. status or otherwise establishes an
exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be allowed as a refund or credit against such
holder's U.S. federal income tax liability, if any, provided the required
information is furnished to the IRS.
The Treasury Department recently issued final Treasury Regulations (the
"FINAL REGULATIONS") governing withholding, backup withholding and information
reporting requirements. The Final Regulations do not significantly alter the
substantive withholding and information reporting requirements discussed herein;
they unify current certification procedures and forms and clarify reliance
standards. The Final Regulations will generally become effective for payments
made after December 31, 2000.
ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable prospectus supplement, the
Certificates may, subject to certain legal restrictions, be purchased and held
by an employee benefit plan (a "Plan") subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or an individual
retirement account or an employee benefit plan subject to section 4975 of the
Code. A fiduciary of a Plan must determine that the purchase and holding of a
Certificate is consistent with its fiduciary duties under ERISA and does not
result in a non-exempt prohibited transaction as defined in section 406 of ERISA
or section 4975 of the Code. Employee benefit plans which are governmental
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plans (as defined in section 3(32) of ERISA) and certain church plans (as
defined in section 3(33) of ERISA) are not subject to Title I of ERISA or
section 4975 of the Code. The Certificates may, subject to certain legal
restrictions, be purchased and held by such plans.
PLAN OF DISTRIBUTION
Northwest may sell Securities (a) through underwriters, (b) directly to
investors or other persons or (c) through dealers or agents. The applicable
prospectus supplement will name any underwriter, dealer or agent involved in the
offer and sale of the Certificates.
The Certificates may be sold (a) at a fixed price or prices, which may be
changed, (b) from time to time at market prices prevailing at the time of sale,
(c) at prices related to those market prices, or (d) at negotiated prices.
Dealer trading may take place in certain of the Certificates, including
Certificates not listed on any securities exchange.
Northwest may, from time to time, authorize underwriters acting as
Northwest's agents to offer and sell the Certificates upon the terms and
conditions set forth in any prospectus supplement. In connection with the sale
of Certificates, underwriters may be deemed to have received compensation from
Northwest in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of Certificates for whom they may act as
agent. Underwriters may sell Certificates to or through dealers, and those
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions, which may be changed from
time to time, from the purchasers for whom they may act as agent.
If Northwest directly uses a dealer in the sale of Certificates, Northwest
will sell the Certificates to the dealer, as principal. The dealer may then
resell the Certificates to the public at varying prices to be determined by the
dealer at the time of resale. The applicable prospectus supplement will name any
dealer and set forth the terms of any of those sales.
Northwest may offer and sell Certificates through agents designated by
Northwest from time to time. The applicable prospectus supplement will name any
agent involved in the offer or sale of the Certificates and set forth any
commissions payable by Northwest to that agent. Unless the applicable prospectus
indicates otherwise, the agent will be acting on a best efforts basis for the
period of its appointment.
Northwest may directly solicit offers to purchase Certificates and sell them
directly to institutional investors or others who may be deemed to be
underwriters within the meaning of the Securities Act of 1933 with respect to
any resale of the Certificates. The applicable prospectus supplement will
describe the terms of any of those sales. Except as set forth in the applicable
prospectus supplement, no director, officer or employee of Northwest or NWA
Corp. will solicit or receive a commission in connection with direct sales by
Northwest of the Certificates, although these persons may respond to inquiries
by potential purchasers and perform ministerial and clerical work in connection
with any of these direct sales.
The applicable prospectus supplement will set forth any underwriting
compensation paid by Northwest to underwriters, dealers or agents in connection
with the offering of Certificates, and any discounts, concessions or commissions
allowed by underwriters to participating dealers. Underwriters, dealers and
agents participating in the distribution of the Certificates may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the Certificates may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933.
Underwriters, dealers and agents may be entitled, under agreements with
Northwest and NWA Corp., to indemnification against and contribution toward
certain civil liabilities, including liabilities
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under the Securities Act of 1933, and to reimbursement by Northwest and NWA
Corp. for certain expenses.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, NWA Corp., Northwest and NWA Corp.'s other subsidiaries in the
ordinary course of business.
If the applicable prospectus supplement so indicates, subject to existing
market conditions, Northwest will authorize dealers acting as Northwest's agents
to solicit offers by certain institutions to purchase Certificates from
Northwest at the public offering price set forth in the applicable prospectus
supplement pursuant to Delayed Delivery Contracts ("Contracts") that provide for
payment and delivery on the date or dates stated in the applicable prospectus
supplement. Each Contract will be for an amount not less than, and the aggregate
principal amount of Certificates sold pursuant to Contracts shall not be less
nor more than, the respective amounts stated in the applicable prospectus
supplement. Institutions with whom Contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and other institutions, but will in all
cases be subject to the approval of Northwest. Contracts will not be subject to
any conditions, except the purchase by an institution of the Certificates
covered by its Contracts will not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which the institution is
subject. The applicable prospectus supplement will indicate the commission that
will be granted to underwriters and agents soliciting purchases of Certificates
pursuant to Contracts accepted by Northwest. Agents and underwriters will have
no responsibility in respect of the delivery or performance of Contracts.
The Certificates may or may not be listed on a national securities exchange
or a foreign securities exchange. If Northwest uses an underwriter or
underwriters in the sale of any Certificates, the applicable prospectus
supplement will contain a statement as to the underwriters' intention, if any,
at the date of the prospectus supplement to make a market in the Certificates.
No assurances can be given that there will be a market for the Certificates.
The applicable prospectus supplement will set forth the place and time of
delivery for the Certificates. Northwest will issue the Debt Securities that are
issuable upon exercise of Warrants upon payment of the exercise and otherwise in
accordance with the relevant terms applicable to the Warrants and described in
the applicable prospectus supplement.
LEGAL OPINIONS
Unless the applicable prospectus supplement indicates otherwise, the
validity of the Certificates and the Parent Guaranty will be passed upon for
Northwest by Simpson Thacher & Bartlett, New York, New York. Unless the
applicable prospectus supplement indicates otherwise, Simpson Thacher & Bartlett
will rely on the opinion of counsel for the Trustee as to certain matters
relating to the authorization, execution and delivery of such Certificates by,
and the valid and binding effect thereof on, such Trustee. Certain federal
income tax matters will be passed upon by Cadwalader, Wickersham & Taft, New
York, New York, special tax counsel to Northwest.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedule of NWA Corp. included in NWA Corp.'s Annual
Report on Form 10-K for the year ended December 31, 1998, as set forth in their
report on the consolidated financial statements and schedule incorporated in by
reference in this prospectus. Such consolidated financial statements and
schedule are incorporated in this prospectus by reference in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
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