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Northwest Extends Credit-Card Agreement

Posted on: Wednesday, 10 August 2005, 18:00 CDT

MINNEAPOLIS - Northwest Airlines Corp. said it has signed a preliminary agreement that will allow it to continue accepting major credit cards through 2008, avoiding a hurdle that tripped up Delta Air Lines Inc. on Tuesday.

Credit card processors act as a go-between for airlines and the banks that issued the credit card. Airlines need the processors so they can accept credit cards. But the deals carry risks for the processors, who can be forced to refund a ticket's cost if the airline stops flying.

Northwest, in a filing late Tuesday, said it signed a "definitive term sheet" in July with its processing bank, with a final agreement expected during the third quarter. The current processing agreement would have expired in April 2006.

On Tuesday, Delta had to delay its quarterly regulatory filing because of uncertainty over its own credit card processing contract, which expires Aug. 29.

The new processor Delta is negotiating with wants a significant cash reserve, deposited when the new contract starts, to cover tickets purchased with Visa or MasterCard but not yet flown.

Eagan-based Northwest, the nation's fourth-largest airline, said the terms of its agreement include a provision that will allow the processing bank to withhold "a certain level of funds" from its receipts to secure its the agreement.

Northwest didn't say which bank processes its credit cards. But it said the same term sheet would extend its branded credit card through 2008, which is with Minneapolis-based U.S. Bancorp. Like most airline frequent-flier cards, the U.S. Bancorp card allows users to earn frequent-flier miles by using the card.

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On the Net:

Northwest Airlines: http://www.nwa.com/

Source: Associated Press/AP Online

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