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Northwest Airlines Reports Second Quarter 2008 Financial Results

Posted on: Wednesday, 23 July 2008, 09:00 CDT

Northwest Airlines Corporation (NYSE:NWA) today reported a second quarter 2008 net loss of $377 million, or $1.43 per share. Reported results include a net non-cash impairment charge of $547 million and a $250 million gain associated with marking-to-market out-of-period fuel hedges. These results compare to the second quarter of 2007 when Northwest reported net income of $2.1 billion, which included $1.9 billion related to reorganization items.

Excluding the net non-cash impairment charge, Northwest reported second quarter 2008 net income of $170 million versus the second quarter of 2007 when the airline reported net income of $205 million before the impact of reorganization items.

Excluding taxes and out-of-period mark-to-market adjustments on fuel hedges, Northwest paid $3.45 per gallon for jet fuel in the second quarter compared to $2.04 a gallon in the second quarter of 2007, an increase of 69.3 percent. Northwest's total fuel costs, excluding out-of-period hedge gains, increased by $637 million versus the prior year.

In commenting on second quarter results, Doug Steenland, Northwest's president and chief executive officer said, "The unprecedented run-up in oil prices continues to pose great challenges for Northwest Airlines and the entire airline industry. In response, we have acted swiftly to reduce capacity, preserve liquidity, aggressively manage our costs and grow revenue through fare actions and additional fees and charges."

Northwest and Delta Progress Toward DOJ Approval and Integration; Merger Expected to Close in 4th Quarter 2008

In April, Northwest announced an agreement to merge with Delta Air Lines. This merger is even more compelling in the current environment and brings together two airlines that have both successfully restructured and have unique and non-replicable assets.

Since the merger announcement, integration planning teams comprised of leaders from both Northwest and Delta have been created. These teams are making significant progress in the efforts to integrate the two carriers after the merger closes, which is expected to occur in the 4th quarter of 2008.

Since the merger announcement in April, the following progress has been made:

-- Joint pilot contract. Northwest and Delta announced that, subject to ratification, a joint pilot agreement that includes full seniority integration will be in place by the close of the merger.

-- Combined Corporate Leadership Team. Northwest and Delta recently announced the Senior Leadership team that will lead the new combined carrier when the merger is closed. Additionally, key Northwest and Delta leaders were identified who will continue to lead the two teams as the two airlines transition to a single operating certificate over the next 18-24 months.

-- Shareholder approval vote. It was announced that the shareholder approval vote for the merger will take place at Northwest's annual meeting on September 25th.

-- Increased annual synergies estimate. Northwest and Delta increased to $2.0 billion the estimate of annualized steady-state synergies created by the merger.

-- Decreased one-time transition costs. The estimated one-time transition costs of the merger have been reduced to approximately $600 million.

Steenland said, "When we first contemplated this merger at the end of 2007, as oil was approaching $100 a barrel, we knew then that the right transaction would better position us to cope with the fuel challenges that lay ahead. Based on our due diligence, this deal met all the tests of the right transaction - one that would benefit our employees, customers, shareholders and communities over the long-term. Now, given the current fuel environment, the merger makes even more sense as the resulting synergies and cost-savings will better allow the combined carrier to manage through these challenges as a stronger, global competitor."

Upon completion of the transaction, the merged carrier will benefit from among the following competitive advantages: a global, end-to-end network with little overlap; proven joint venture relationships across the Trans-Atlantic; a strong balance sheet and competitive cost structure; significant revenue and cost synergies; manageable integration costs and the harmonious integration of employee groups.

Steenland concluded, "Unlike previous airline mergers, Northwest-Delta is a merger of choice. Northwest and Delta are the two strongest network airlines, with the strongest balance sheets, liquidity positions and best-in-class cost structures in the industry."

Second Quarter Financial Overview

Operating Revenues

Northwest's operating revenues for the second quarter rose to $3.6 billion, up 12.4 percent from last year. Consolidated passenger revenue increased by 10.0 percent versus the second quarter 2007 to $3.1 billion on 3.6 percent more available seat miles (ASMs), resulting in a 6.1 percent improvement in revenue per available seat mile (RASM). This revenue growth was among the best in the industry during the quarter. Excluding the impact of fresh-start accounting, consolidated RASM increased 4.7 percent.

Mainline passenger revenue increased by 5.4 percent versus the second quarter 2007 to $2.6 billion on 0.1 percent more mainline available seat miles (ASMs), resulting in a 5.3 percent improvement in revenue per available seat mile (RASM) and a 0.1 percentage point increase in load factor. Excluding the impact of fresh-start accounting, mainline RASM increased 3.8 percent.

Second Quarter 2008 vs. Second Quarter 2007 - Inc/(Dec) ------------------------------------------------------- Domestic Pacific Atlantic Mainline Consolidated ----------- -------- ---------- ---------- ------------ Passenger Revenue (1.2%) 9.7% 28.0% 5.4% 10.0% Passenger Unit Revenue 5.9% 10.8% (0.2%) 5.3% 6.1% Yield 5.0% 9.1% 4.8% 5.3% 6.6% Capacity (6.7%) (0.9%) 28.1% 0.1% 3.6% Load Factor 0.7 pts 1.4 pts (4.2) pts 0.1 pts (0.4) pts

Commenting on the airline's revenue performance, Tim Griffin, Northwest's executive vice president of marketing and distribution said, "Northwest continues to deliver strong revenue performance. The airline achieved a length-of-haul adjusted domestic RASM that is 111.4 percent of the industry average based on the most recent comparative data available." Griffin added, "We are encouraged by the unit revenue growth we experienced during the quarter. Additional unit revenue growth is expected due in part to the capacity reductions previously announced, which will help to offset higher fuel expenses."

Operating Expenses

Second quarter operating expenses of $3.3 billion, excluding the net non-cash impairment charge, were up $504 million, or 17.8 percent year-over-year as the result of the $637 million increase in year-over-year fuel expense. Excluding fuel costs, the gain associated with marking-to-market out-of-period fuel hedges, and the net non-cash impairment charge, operating expenses increased by $123 million year-over-year. For the quarter, Northwest's mainline unit costs per available seat mile (CASM), excluding fuel and non-recurring items, increased 4.7 percent year-over-year, which was favorable to prior guidance. The increase was primarily due to the continued impact of non-cash emergence-related items and integration expenses related to the merger with Delta. Excluding the impact of these items, second quarter CASM excluding fuel increased 1.0 percent.

Dave Davis, Northwest's executive vice-president and chief financial officer, said, "Our strong second quarter ex-fuel CASM performance demonstrates Northwest's continued focus on prudent cost control."

Fuel continues to be Northwest's single largest cost, representing 43.7 percent of the company's second quarter operating expenses, excluding the net non-cash impairment charge and out-of-period mark-to-market adjustments on fuel hedges. Northwest had previously hedged approximately 40 percent of its fuel exposure for the quarter and realized $43 million in value from settled fuel hedge contracts during the quarter. As of July 21st, Northwest has hedged approximately 63 percent of its third quarter requirements, 56 percent of its fourth quarter requirements and 21 percent of its first quarter 2009 fuel requirements.

$547 Million Non-cash Accounting Charge

Northwest finalized the goodwill impairment testing that resulted in the $3.9 billion charge reflected in the first quarter of 2008. As a result, it was determined that an additional net non-cash impairment charge of $547 million was required.

Strong Total Cash Position of $3.7 billion

Northwest ended the quarter with $3.3 billion in unrestricted cash and $424 million in restricted cash. The restricted cash balance includes a funded tax trust of $255 million that was established in 2002. On July 15th, Northwest closed a financing of unencumbered aircraft and engines that generated approximately $180 million in additional liquidity. These proceeds will be reflected in Northwest's third quarter ending cash balance.

In addressing Northwest's liquidity, Davis said, "Despite the significant year-over-year increase in fuel related expenses during the quarter, Northwest has maintained among the strongest liquidity positions in the industry. Including the value of Northwest's funded tax trust that was established in 2002, the airline's quarter ending liquidity was $3.5 billion, or 26.6 percent of trailing 12 months revenue."

Northwest's Continued Response to Extraordinary Fuel Costs

In response to the record increases in fuel-related costs, during the second quarter, Northwest announced the following initiatives:

1. Fourth Quarter 2008 Capacity, Fleet and Personnel Reductions

-- Capacity Reductions. Northwest will reduce its fourth quarter 2008 system mainline capacity (domestic and international) 8.5 percent - 9.5 percent versus the fourth quarter of 2007.

-- Fleet Changes. As a result of the reduced capacity, Northwest is removing a combination of 14 B757s and Airbus narrowbody aircraft from the fleet. In addition, the DC9 fleet will be reduced from 94 aircraft at the start of 2008 to 61 aircraft (20 DC9-30s and 41 DC9-40s/50s) by year-end. The airline also continues to take delivery of its 76-seat regional aircraft. The 76-seat fleet, which will grow to 36 Embraer EMB-175s and 36 Bombardier CRJ900s by year-end, is approximately 30 percent more fuel efficient than the DC9s.

-- Personnel Reductions. As a result of the fuel price driven flight reductions, Northwest is reducing its frontline and management personnel by 2,500. All Northwest employee groups will be affected. The reductions are being achieved first through a variety of voluntary programs including early-out programs, voluntary leaves, work rule modifications and attrition. Furloughs will be employed if voluntary means fail to achieve the targeted reductions.

2. Revenue Enhancements/Fees Expect to Generate $250 million to $300 million annually

-- Fees for Checked Bags. Northwest matched competitors' plans to charge $15 for the customer's first checked bag. The new policy applies to tickets sold on or after July 10, for travel starting August 28, throughout the United States as well as travel between the U.S. and Canada. Northwest also charges $25 for a second checked bag and $100 for the third and subsequent additional checked bags. Frequent flier elites are exempt from the policy, along with full-fare coach passengers.

-- Fees for Award Tickets. Northwest also implemented a fuel-related service fee for WorldPerks(R) award tickets. For WorldPerks(R) Award tickets issued in North America on or after September 15, 2008, Northwest will charge $25 for domestic tickets, $50 for Trans-Atlantic tickets, and $100 for Trans-Pacific travel.

-- Fees for Ticket Changes. Northwest also increased fees for ticket changes. Starting July 9, the fee for domestic non-refundable ticket changes increased from $100 to $150. International ticket change fees increased by an additional $50 to $150 per ticket, depending on class of service and other restrictions.

FORWARD-LOOKING STATEMENTS

Statements in this presentation that are not purely historical facts, including statements regarding our beliefs, expectations, intentions or strategies for the future, may be "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. Such risks and uncertainties include, among others, the ability of the company to operate pursuant to the terms of its financing facilities (particularly the related financial covenants), the ability of the company to attract, motivate and/or retain key executives and associates, the future level of air travel demand, the company's future passenger traffic and yields, the airline industry pricing environment, increased costs for security, the cost and availability of aviation insurance coverage and war risk coverage, the general economic condition of the U.S. and other regions of the world, the price and availability of jet fuel, the war in Iraq, the possibility of additional terrorist attacks or the fear of such attacks, concerns about Severe Acute Respiratory Syndrome (SARS) and other influenza or contagious illnesses, labor strikes, work disruptions, labor negotiations both at other carriers and the company, difficulties in integrating the operations of the company and Delta following the merger, low cost carrier expansion, capacity decisions of other carriers, actions of the U.S. and foreign governments (including conditions imposed by U.S. or foreign governments to obtain regulatory approval for the merger), foreign currency exchange rate fluctuations and inflation. Other factors include the possibility that the merger may not close, including due to the failure to receive required stockholder or regulatory approvals, or the failure of other closing conditions. Northwest cautions that the foregoing list of factors is not exclusive. Additional information with respect to the factors and events that could cause differences between forward-looking statements and future actual results is contained in the company's Securities and Exchange Commission filings, including the company's Annual Report on Form 10-K for the year ended December 31, 2007 and subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K. We undertake no obligation to update any forward-looking statements to reflect events or circumstances that may arise after the date of this presentation.

Additional Information about the Merger and Where to Find It

In connection with the proposed merger, Delta filed with the Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4 that includes a joint proxy statement of Delta and Northwest, which also constitutes a prospectus of Delta. Delta and Northwest will mail the joint proxy statement/prospectus to their stockholders. Delta and Northwest urge investors and security holders to read the joint proxy statement/prospectus regarding the proposed merger when it becomes available because it will contain important information. You may obtain copies of all documents filed with the SEC regarding this transaction, free of charge, at the SEC's website (www.sec.gov). You may also obtain these documents, free of charge, from Delta's website (www.delta.com) under the tab "About Delta" and then under the heading "Investor Relations" and then under the item "SEC Filings." You may also obtain these documents, free of charge, from Northwest's website (www.nwa.com) under the tab "About Northwest" and then under the heading "Investor Relations" and then under the item "SEC Filings and Section 16 Filings."

Delta, Northwest and their respective directors, executive officers and certain other members of management and employees may be soliciting proxies from Delta and Northwest stockholders in favor of the merger. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of Delta and Northwest stockholders in connection with the proposed merger will be set forth in the final proxy statement/prospectus when it is filed with the SEC. You can find information about Delta's executive officers and directors in its Annual Reports on Form 10-K (including any amendments thereto), Current Reports on Form 8-K and other documents subsequently filed with the SEC, as well as in its definitive proxy statement filed with the SEC in connection with Delta's 2008 Annual Meeting of Stockholders. You can find information about Northwest's executive officers and directors in its Annual Reports on Form 10-K (including any amendments thereto), Current Reports on Form 8-K and other documents subsequently filed with the SEC, as well as in its definitive proxy statement to be filed with the SEC related to Northwest's 2008 Annual Meeting of Stockholders. You can obtain free copies of these documents from Delta and Northwest using the contact information above.

Northwest Airlines is one of the world's largest airlines with hubs at Detroit, Minneapolis/St. Paul, Memphis, Tokyo and Amsterdam, and approximately 1,400 daily departures. Northwest is a member of SkyTeam, an airline alliance that offers customers one of the world's most extensive global networks. Northwest and its travel partners serve more than 1,000 cities in excess of 160 countries on six continents.

Further details regarding the Northwest / Delta merger can be found at www.newglobalairline.com.

NORTHWEST AIRLINES CORPORATION ---------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ---------------------------------------------------------------------- (Unaudited, in millions except per share amounts) Successor (a) Predecessor Combined -------------------- ----------- -------- Three Three Months Period from Period from Months Ended June 1 to April 1 to Ended % June 30, June 30, May 31, June 30, Incr 2008 2007 2007 2007 (Decr) -------- ----------------------- -------- ------ OPERATING REVENUES Passenger $ 2,558 $ 861 $ 1,566 $ 2,427 5.4 Regional carrier revenues 512 135 229 364 40.7 Cargo 212 69 129 198 7.1 Other 294 65 127 192 53.1 -------- ----------------------- -------- Total operating revenues 3,576 1,130 2,051 3,181 12.4 OPERATING EXPENSES Aircraft fuel and taxes (b) 1,207 270 585 855 41.2 Salaries, wages and benefits 685 205 412 617 11.0 Aircraft maintenance materials and repairs 197 64 119 183 7.7 Selling and marketing 197 65 124 189 4.2 Other rentals and landing fees 153 46 94 140 9.3 Depreciation and amortization 121 39 85 124 (2.4) Aircraft rentals 94 31 64 95 (1.1) Regional carrier expenses 207 60 131 191 8.4 Other unusual items (c) 548 - - - n/m Other 467 155 275 430 8.6 -------- ----------------------- -------- Total operating expenses 3,876 935 1,889 2,824 37.3 OPERATING INCOME (LOSS) (300) 195 162 357 Operating margin (8.4)% 17.3% 7.9% 11.2% OTHER INCOME (EXPENSE) Interest expense, net (108) (40) (87) (127) Investment income 24 17 25 42 Foreign currency gain (loss) 8 1 - 1 Other unusual items (c) (213) - - - Other (2) 2 (2) - -------- ----------------------- -------- Total other income (expense) (291) (20) (64) (84) -------- ----------------------- -------- INCOME (LOSS) BEFORE REORGANIZATION ITEMS AND INCOME TAXES (591) 175 98 273 Reorganization items, net (d) - - 1,944 1,944 -------- ----------------------- -------- INCOME (LOSS) BEFORE INCOME TAXES (591) 175 2,042 2,217 Income tax expense (benefit) (c) (e) (214) 69 (1) 68 -------- ----------------------- -------- NET INCOME (LOSS) $ (377) $ 106 $ 2,043 $ 2,149 ======== ======================= ======== Earnings (Loss) per common share: (f) Basic $ (1.43) $ 0.41 $ 23.37 Diluted $ (1.43) $ 0.41 $ 16.87 Average shares used in computation: Basic 263 262 87 Diluted 263 262 113 See accompanying consolidated notes.

NORTHWEST AIRLINES CORPORATION ---------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ---------------------------------------------------------------------- (Unaudited, in millions except per share amounts) Successor (a) Predecessor Combined ---------------------- ------------ ---------- Six Months Period From Period From Six Months Ended June 1 to January 1 to Ended % June 30, June 30, May 31, June 30, Incr 2008 2007 2007 2007 (Decr) ---------- ------------------------ ---------- ------ OPERATING REVENUES Passenger $ 4,797 $ 861 $ 3,768 $ 4,629 3.6 Regional carrier revenues 922 135 521 656 40.5 Cargo 410 69 318 387 5.9 Other 574 65 317 382 50.3 ---------- ------------------------ ---------- Total operating revenues 6,703 1,130 4,924 6,054 10.7 OPERATING EXPENSES Aircraft fuel and taxes (b) 2,321 270 1,289 1,559 48.9 Salaries, wages and benefits 1,355 205 1,027 1,232 10.0 Aircraft maintenance materials and repairs 418 64 303 367 13.9 Selling and marketing 390 65 315 380 2.6 Other rentals and landing fees 291 46 235 281 3.6 Depreciation and amortization 252 39 206 245 2.9 Aircraft rentals 187 31 160 191 (2.1) Regional carrier expenses 412 60 342 402 2.5 Other unusual items (c) 4,483 - - - n/m Other 947 155 684 839 12.9 ---------- ------------------------ ---------- Total operating expenses 11,056 935 4,561 5,496 101.2 OPERATING INCOME (LOSS) (4,353) 195 363 558 Operating margin (64.9)% 17.3% 7.4% 9.2% OTHER INCOME (EXPENSE) Interest expense, net (222) (40) (219) (259) Investment income 61 17 56 73 Foreign currency gain (loss) - 1 - 1 Other unusual items (c) (213) - - - Other (3) 2 (2) - ---------- ------------------------ ---------- Total other income (expense) (377) (20) (165) (185) ---------- ------------------------ ---------- INCOME (LOSS) BEFORE REORGANIZATION ITEMS AND INCOME TAXES (4,730) 175 198 373 Reorganization items, net (d) - - 1,551 1,551 ---------- ------------------------ ---------- INCOME (LOSS) BEFORE INCOME TAXES (4,730) 175 1,749 1,924 Income tax expense (benefit) (c) (e) (214) 69 (2) 67 ---------- ------------------------ ---------- NET INCOME (LOSS) $ (4,516) $ 106 $ 1,751 $ 1,857 ========== ======================== ========== Earnings (Loss) per common share: (f) Basic $ (17.19) $ 0.41 $ 20.03 Diluted $ (17.19) $ 0.41 $ 14.28 Average shares used in computation: Basic 263 262 87 Diluted 263 262 113 See accompanying consolidated notes.

NORTHWEST AIRLINES CORPORATION CONSOLIDATED NOTES ---------------------------------------------------------------------- (Unaudited) (a) Northwest Airlines Corporation ("NWA Corp." or the "Company") is a holding company whose operating subsidiary is Northwest Airlines, Inc. ("Northwest"). In September 2005, NWA Corp. and Northwest, along with certain direct and indirect subsidiaries filed Chapter 11 petitions for relief in the U.S. Bankruptcy Court for the Southern District of New York. On May 31, 2007, the Company emerged from Chapter 11. In connection with its emergence from Chapter 11, the Company adopted fresh-start reporting in accordance with American Institute of Certified Public Accountants' Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code ("SOP 90-7"). References to "Successor" refer to NWA Corp. on or after June 1, 2007, after giving effect to the application of fresh-start reporting. References to "Predecessor" refer to NWA Corp. prior to June 1, 2007. Thus, the consolidated financial statements prior to June 1, 2007 reflect results based upon the historical cost basis of the Company while the post- emergence consolidated financial statements reflect the new basis of accounting incorporating the fair value adjustments made in recording the effects of fresh-start reporting. Therefore, the post-emergence periods are not comparable to the pre-emergence periods. However, for discussions on the results of operations, the Company has compared the Successor Company's results for the three months ended June 30, 2008 to the Predecessor Company's results for two months ended May 31, 2007 and the Successor Company's results for one month ended June 30, 2007. In addition to the fair value adjustments required for fresh-start reporting, the Company changed its policies pertaining to the accounting for frequent flyer obligations and breakage of passenger tickets. Additionally, on April 24, 2007, Mesaba Aviation, Inc. was acquired by the Company and became a wholly- owned consolidated subsidiary. See the table of Reconciliation of Year-over-Year Variances for further details. (b) During the three and six months ended June 30, 2008, the Company recorded $250 million in mark-to-market gains and $237 million in mark-to-market gains, respectively, related to fuel derivative contracts that will settle during the remainder of 2008. During the three and six months ended June 30, 2007, the Company recorded $6 million in mark-to-market losses and $22 million in mark-to-market gains, respectively, related to fuel derivative contracts that settled in subsequent periods during 2007. (c) During the first quarter of 2008, the Company recorded a non-cash goodwill impairment charge of $3.9 billion to reduce the book value of Northwest's equity to its implied fair value as of the merger announcement date. This goodwill impairment charge was a preliminary estimate. During the second quarter, the Company completed Step 2 of its goodwill impairment test by measuring the fair value of its assets and liabilities in order to compute the implied fair value of its goodwill as described in SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"). As a result of this analysis, the Company recorded a net non-cash charge of $547 million. Included in this net non-cash charge are $0.6 million in impairment charges related to spare engines. See the table of Reconciliation of Goodwill and Other Impairment Step 2 Adjustments for further details. (d) In connection with its bankruptcy proceedings and adoption of fresh-start reporting, the Company recorded largely non-cash reorganization income (expense) and, in accordance with GAAP, these items are separately classified in the Condensed Consolidated Statements of Operations. (e) Generally, the Company would not record a tax benefit related to a quarterly net loss unless it had a high degree of confidence that it would record a full-year profit. A tax benefit of $214 million was recorded during the second quarter of 2008 to decrease the deferred tax liability associated with the impairment of an indefinite-lived intangible asset. (f) Successor EPS. For the three and six months ended June 30, 2008, approximately 12 million restricted stock units and stock options to purchase shares of the Successor Company's common stock were outstanding but excluded from the computation of diluted earnings per share because the Company reported a net loss for these periods. For the period June 1 to June 30, 2007, approximately 13 million restricted stock units and stock options to purchase shares of the Successor Company's common stock were outstanding but excluded from the computation of diluted earnings per share because the effect of including the shares would have been anti- dilutive. Predecessor EPS. Predecessor basic earnings per share was computed based on the Predecessor's weighted average shares outstanding. Dilutive earnings per share included securities related to the Company's Series C Preferred Stock and convertible debt. At May 31, 2007, stock options to purchase approximately 7 million shares of common stock were outstanding but excluded from the computation of diluted earnings per share because the effect of including the shares would have been anti-dilutive.

NORTHWEST AIRLINES CORPORATION ---------------------------------------------------------------------- RECONCILIATION OF YEAR-OVER-YEAR VARIANCES ---------------------------------------------------------------------- (Unaudited, in millions) As a result of the adoption of fresh-start reporting, the Company's financial statements on or after June 1, 2007 are not comparable with its pre-emergence financial statements because they are, in effect, those of a new entity. In addition to the fair value adjustments required for fresh-start reporting, the Company changed its policies pertaining to the accounting for frequent flyer obligations and breakage of passenger tickets. The effects of fresh- start reporting, the policy changes and the impact of exit-related stock compensation expense on the Company's Condensed Consolidated Statement of Operations are itemized below in column (A). During the first quarter of 2008, the Company recorded a non-cash goodwill impairment charge of $3.9 billion to reduce the book value of Northwest's equity to its implied fair value as of the merger announcement date. This goodwill impairment charge was a preliminary estimate. During the second quarter, the Company completed Step 2 of its goodwill impairment test by measuring the fair value of its assets and liabilities in order to compute the implied fair value of its goodwill as described in SFAS No. 142. As a result of this analysis, the Company recorded a net non-cash charge of $547 million. Included in this net non-cash charge are $0.6 million in impairment charges related to spare engines. The impact on the Company's year-over-year variance as a result of these charges is itemized in column (B). On April 24, 2007, Mesaba Aviation, Inc. was acquired by the Company and became a wholly-owned consolidated subsidiary. The impact on the Company's year-over-year variance as a result of this consolidation is itemized in column (C). Excluding the items listed above, the comparable year-over-year operating performance variances are itemized in column (D).

Successor Combined ------------- ------------- Three Months Three Months Total Ended Ended Incr June 30, 2008 June 30, 2007 (Decr) ------------- ------------- ------- OPERATING REVENUES Passenger $2,558 $2,427 $ 131 Regional carrier revenues 512 364 148 Cargo 212 198 14 Other 294 192 102 ------------- ------------- ------- Total operating revenues 3,576 3,181 395 OPERATING EXPENSES Aircraft fuel and taxes 1,207 855 352 Salaries, wages and benefits 685 617 68 Aircraft maintenance materials and repairs 197 183 14 Selling and marketing 197 189 8 Other rentals and landing fees 153 140 13 Depreciation and amortization 121 124 (3) Aircraft rentals 94 95 (1) Regional carrier expenses 207 191 16 Other unusual items 548 - 548 Other 467 430 37 ------------- ------------- ------- Total operating expenses 3,876 2,824 1,052 OPERATING INCOME (LOSS) (300) 357 (657) Operating margin (8.4)% 11.2% (19.6)pts. (A) (B) (C) (D) ------------------------------------------- Increase (Decrease) Due To: ------------------------------------------- Fresh-Start/ Mesaba Total Exit-Related Impairment Net of Incr Stk Comp. Exp. Charges Elim Operations (Decr) ------------------------------------------- ------- OPERATING REVENUES Passenger $ (7) $ - $ - $ 138 $ 131 Regional carrier revenues 4 - - 144 148 Cargo - - - 14 14 Other 16 - - 86 102 ------------------------------------------- ------- Total operating revenues 13 - - 382 395 OPERATING EXPENSES Aircraft fuel and taxes - - - 352 352 Salaries, wages and benefits 13 - 12 43 68 Aircraft maintenance materials and repairs - - 4 10 14 Selling and marketing - - - 8 8 Other rentals and landing fees - - 2 11 13 Depreciation and amortization (1) - 1 (3) (3) Aircraft rentals - - - (1) (1) Regional carrier expenses - - (20) 36 16 Other unusual items - 548 - - 548 Other - - - 37 37 ------------------------------------------- ------- Total operating expenses 12 548 (1) 493 1,052 OPERATING INCOME (LOSS) 1 (548) 1 (111) (657) Operating margin ---------------------------------------------------------------------- RECONCILIATION OF YEAR-OVER-YEAR OPERATING EXPENSE VARIANCES ---------------------------------------------------------------------- (Unaudited, in millions) Total operating expenses $3,876 $2,824 $ 1,052 Excluding: Goodwill and other impairment Step 2 adjustments 548 - 548 Mainline fuel 1,207 855 352 Regional carrier expenses - fuel only 109 80 29 ------- ------- -------- $2,012 $1,889 $ 123 ======= ======= ========

NORTHWEST AIRLINES CORPORATION ---------------------------------------------------------------------- REPORTED NET INCOME / (LOSS) EXCLUDING NON-RECURRING ITEMS ---------------------------------------------------------------------- (Unaudited, in millions) Successor Combined ------------------ ------------------ Three Months Ended Three Months Ended June 30, 2008 June 30, 2007 ------------------ ------------------ Net income / (loss) $ (377) $2,149 Excluding unusual items: Reorganization items, net - 1,944 Goodwill and other impairment Step 2 adjustments (547) - ------------------ ------------------ Net income / (loss) excluding unusual items 170 205 Excluding: Mark-to-market on fuel derivative contracts to be settled in future periods 250 (6) ------------------ ------------------ Adjusted net income / (loss) $ (80) $ 211 ================== ================== ---------------------------------------------------------------------- RECONCILIATION OF GOODWILL AND OTHER IMPAIRMENT STEP 2 ADJUSTMENTS ---------------------------------------------------------------------- (Unaudited, in millions) Successor -------------------------------------------------- Three Months Ended June 30, 2008 Excluding Three Months Ended Goodwill and Other Goodwill and Other June 30, 2008 Impairment Step 2 Impairment Step 2 (as reported) Adjustments Adjustments ------------------ ------------------ ------------ Operating revenues $3,576 $ - $3,576 Operating expenses 3,876 548 3,328 ------------------ ------------------ ------------ Operating income (loss) (300) (548) 248 Operating margin (8.4)% 6.9% Other income (expense) (291) (213) (78) ------------------ ------------------ ------------ Income (loss) before income taxes (591) (761) 170 Income tax expense (benefit) (214) (214) - ------------------ ------------------ ------------ Net income (loss) $ (377) $ (547) $ 170 ================== ================== ============

NORTHWEST AIRLINES CORPORATION ---------------------------------------------------------------------- PASSENGER AND REGIONAL CARRIER REVENUES AND STATISTICAL RESULTS ---------------------------------------------------------------------- (Unaudited) Three Months Ended Percent June 30, Change ---------------------- ------- 2008 2007 -------- -------- Scheduled Service - Consolidated: (1) Available seat miles (ASM) (millions) 24,519 23,656 3.6 Revenue passenger miles (RPM) (millions) 20,852 20,192 3.3 Passenger load factor 85.0 % 85.4 % (0.4)pts. Revenue passengers (millions) 17.5 17.4 0.6 Passenger revenue per RPM (yield) 14.73 cents 13.82 cents 6.6 Passenger revenue per RPM (yield) excluding fresh- start 14.70 cents 13.98 cents 5.2 Passenger revenue per ASM (RASM) 12.52 cents 11.80 cents 6.1 Passenger revenue per ASM (RASM) excluding fresh-start 12.50 cents 11.94 cents 4.7 Fuel gallons consumed - Consolidated (millions) (1) 436 433 0.7 Scheduled Service - Mainline: (2) Available seat miles (ASM) (millions) 21,913 21,897 0.1 Revenue passenger miles (RPM) (millions) 18,839 18,811 0.1 Passenger load factor 86.0 % 85.9 % 0.1 pts. Revenue passengers (millions) 13.3 14.1 (5.7) Passenger revenue per RPM (yield) 13.58 cents 12.90 cents 5.3 Passenger revenue per RPM (yield) excluding fresh- start 13.58 cents 13.08 cents 3.8 Passenger revenue per ASM (RASM) 11.67 cents 11.08 cents 5.3 Passenger revenue per ASM (RASM) excluding fresh-start 11.67 cents 11.24 cents 3.8 Fuel gallons consumed - Mainline (millions) (2) 376 390 (3.6) Six Months Ended Percent June 30, Change ---------------------- ------- 2008 2007 ------- -------- Scheduled Service - Consolidated: (1) Available seat miles (ASM) (millions) 47,878 46,549 2.9 Revenue passenger miles (RPM) (millions) 40,067 38,810 3.2 Passenger load factor 83.7 % 83.4 % 0.3 pts. Revenue passengers (millions) 33.3 33.0 0.9 Passenger revenue per RPM (yield) 14.27 cents 13.62 cents 4.8 Passenger revenue per RPM (yield) excluding fresh- start 14.32 cents 13.70 cents 4.5 Passenger revenue per ASM (RASM) 11.95 cents 11.35 cents 5.3 Passenger revenue per ASM (RASM) excluding fresh-start 11.98 cents 11.42 cents 4.9 Fuel gallons consumed - Consolidated (millions) (1) 856 851 0.6 Scheduled Service - Mainline: (2) Available seat miles (ASM) (millions) 43,058 43,148 (0.2) Revenue passenger miles (RPM) (millions) 36,459 36,303 0.4 Passenger load factor 84.7 % 84.1 % 0.6 pts. Revenue passengers (millions) 25.6 27.0 (5.2) Passenger revenue per RPM (yield) 13.16 cents 12.75 cents 3.2 Passenger revenue per RPM (yield) excluding fresh- start 13.23 cents 12.84 cents 3.0 Passenger revenue per ASM (RASM) 11.14 cents 10.73 cents 3.8 Passenger revenue per ASM (RASM) excluding fresh-start 11.20 cents 10.81 cents 3.6 Fuel gallons consumed - Mainline (millions) (2) 743 769 (3.4) ---------------------------------------------------------------------- PASSENGER AND REGIONAL CARRIER REVENUES ---------------------------------------------------------------------- (Unaudited) Domestic Pacific Atlantic -------- ------- -------- As reported: ----------------------------- Second Quarter 2008 Passenger revenues (in millions) $ 1,529 $ 576 $ 453 Increase (Decrease) from 2007: Passenger revenues (1.2)% 9.7 % 28.0 % Scheduled service ASMs (capacity) (6.7)% (0.9)% 28.1 % Scheduled service RPMs (traffic) (5.9)% 0.6 % 22.0 % Passenger load factor 0.7 pts. 1.4 pts. (4.2)pts. Yield 5.0 % 9.1 % 4.8 % Passenger RASM 5.9 % 10.8 % (0.2)% Excluding fresh-start: ----------------------------- Second Quarter 2008 Passenger revenues (in millions) $ 1,524 $ 582 $ 451 Increase (Decrease) from 2007: Passenger revenues (3.5)% 10.0 % 27.8 % Yield 2.6 % 9.2 % 4.8 % Passenger RASM 3.5 % 10.9 % (0.2)% Mainline Consolidated -------- ------------ As reported: -------------------------------------- Second Quarter 2008 Passenger revenues (in millions) $ 2,558 $ 3,070 Increase (Decrease) from 2007: Passenger revenues 5.4 % 10.0 % Scheduled service ASMs (capacity) 0.1 % 3.6 % Scheduled service RPMs (traffic) 0.1 % 3.3 % Passenger load factor 0.1 pts. (0.4)pts. Yield 5.3 % 6.6 % Passenger RASM 5.3 % 6.1 % Excluding fresh-start: -------------------------------------- Second Quarter 2008 Passenger revenues (in millions) $ 2,557 $ 3,065 Increase (Decrease) from 2007: Passenger revenues 3.9 % 8.5 % Yield 3.8 % 5.2 % Passenger RASM 3.8 % 4.7 % (1) Consolidated statistics include Northwest Airlink regional carriers. (2) Mainline statistics exclude Northwest Airlink regional carriers, which is consistent with how the Company reports statistics to the Department of Transportation ("DOT").

NORTHWEST AIRLINES CORPORATION ---------------------------------------------------------------------- MAINLINE OPERATING STATISTICAL RESULTS (1) ---------------------------------------------------------------------- (Unaudited) Three Months Ended Percent June 30, Change ------------------- ------- 2008 2007 ------ ------ Total operating ASM (millions) 22,058 21,921 0.6 Passenger service operating expense per total ASM (2) (3) 12.04 cents 10.47 cents 15.0 Mainline fuel expense per total ASM 4.66 cents 3.42 cents 36.3 Mainline fuel expense per total ASM, excluding mark-to-market adjustments related to fuel derivative contracts that settle in future periods 5.56 cents 3.39 cents 64.0 Cargo ton miles (CTM) (millions) 459 505 (9.1) Cargo revenue per ton mile 46.27 cents 39.19 cents 18.1 Fuel gallons consumed (millions) 376 390 (3.6) Average fuel cost per gallon, excluding fuel taxes 287.80 cents 205.89 cents 39.8 Average fuel cost per gallon, excluding fuel taxes and mark-to- market adjustments related to fuel derivative contracts that settle in future periods 345.10 cents 203.88 cents 69.3 Number of operating aircraft at end of period Full-time equivalent employees at end of period Six Months Ended Percent June 30, Change ------------------- ------- 2008 2007 ------ ------ Total operating ASM (millions) 43,327 43,188 0.3 Passenger service operating expense per total ASM (2) (3) 12.14 cents 10.39 cents 16.8 Mainline fuel expense per total ASM 4.60 cents 3.19 cents 44.2 Mainline fuel expense per total ASM, excluding mark-to-market adjustments related to fuel derivative contracts that settle in future periods 5.04 cents 3.23 cents 56.0 Cargo ton miles (CTM) (millions) 917 962 (4.7) Cargo revenue per ton mile 44.69 cents 40.24 cents 11.1 Fuel gallons consumed (millions) 743 769 (3.4) Average fuel cost per gallon, excluding fuel taxes 283.82 cents 191.74 cents 48.0 Average fuel cost per gallon, excluding fuel taxes and mark-to- market adjustments related to fuel derivative contracts that settle in future periods 311.24 cents 194.44 cents 60.1 Number of operating aircraft at end of period 339 372 (8.9) Full-time equivalent employees at end of period 29,674 29,589 0.3

(1) Mainline statistics exclude Northwest Airlink regional carriers, which is consistent with how the Company reports statistics to the DOT.

(2) This financial measure excludes non-passenger service expenses. The Company believes that providing financial measures directly related to passenger service operations allows investors to evaluate and compare the Company's core operating results to those of the industry.

(3) Passenger service operating expense excludes the following items unrelated to passenger service operations, net of eliminations where applicable:

Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ (In millions) 2008 2007 2008 2007 --------- -------- --------- -------- Goodwill and other impairment Step 2 adjustments $ 548 $ - $ 4,483 $ - Regional carrier expenses 446 305 859 579 Freighter operations 157 154 323 288 MLT Inc. 39 50 84 105 Other 29 19 48 35

NORTHWEST AIRLINES CORPORATION ---------------------------------------------------------------------- SELECTED BALANCE SHEET DATA ---------------------------------------------------------------------- (Unaudited, in millions) Successor Successor ---------------- --------------- June 30, December 31, 2008 2007 ---------------- --------------- Cash and cash equivalents $ 3,216 $ 2,939 Unrestricted short-term investments 40 95 Restricted cash, cash equivalents and short-term investments 424 725 Total assets 20,867 24,517 Total debt and capital leases, including current maturities 7,490 7,088 Total liabilities 17,843 17,140 Total common stockholders' equity (deficit) 3,024 7,377 ---------------------------------------------------------------------- THIRD QUARTER 2008 AND 2008 FULL YEAR GUIDANCE ---------------------------------------------------------------------- 3Q 2008 Forecast 2008 Forecast (year-over-year (year-over-year change) change) -------------------------------- Scheduled service ASMs (capacity) Domestic (1) (10%) - (11%) (9%) - (10%) International 9% - 10% 6% - 7% Mainline (1) (1.5%) - (2.5%) (2.5%) - (3.5%) Regional 50% - 55% 45% - 50% Consolidated (2) 2% - 3% 0.5% - 1.5% Passenger service operating expense per total ASM excluding fuel (1) 1.5% - 2.5% 3% - 4% 3Q 2008 Forecast 2008 Forecast ---------------- --------------- Average fuel cost per gallon, excluding fuel taxes (1) (3) $4.06 $3.45 Fuel gallons consumed (millions) 375 1,452 (1) Mainline statistics exclude Northwest Airlink regional carriers, which is consistent with how the Company reports statistics to the DOT. (2) Consolidated statistics include Northwest Airlink regional carriers. (3) Average fuel cost per gallon, based on the forward fuel curve as of July 21, 2008 excluding fuel taxes and mark-to-market adjustments related to fuel derivative contracts that settle in future periods.

Source: Business Wire

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