NWAC Northwest Airlines (MM)

Northwest Airlines Reports Second Quarter 2005 Results EAGAN, Minn., July 26 /PRNewswire-FirstCall/ -- Northwest Airlines Corporation (NASDAQ:NWAC), the parent of Northwest Airlines, today reported a second quarter net loss of $225 million or $2.59 per common share, including unusual items. This compares to the 2004 second quarter when the company reported a net loss of $182 million or $2.11 per common share, including unusual items. Excluding $54 million in net unusual items, the second quarter net loss was $279 million or $3.21 per common share, compared to the 2004 second quarter net loss of $78 million or $0.90 per common share, excluding unusual items. "We need to rapidly achieve at least $1.1 billion in labor cost savings and resolve our pension plan challenges by freezing our defined benefit pension plans and obtaining federal legislation that addresses existing problems in the pension laws. Failing to do so will force Northwest to consider other alternatives, including filing under Chapter 11 of the U.S. Bankruptcy Code," said Doug Steenland, president and chief executive officer. "Many of our major competitors have significantly lowered their labor costs, both in and outside of bankruptcy, leaving Northwest with the highest labor costs in the industry. Moreover, low cost carriers continue to grow and represent a significant competitive challenge. It is imperative that we reach labor agreements with all of our unions as quickly as possible." Steenland continued, "We are also working diligently with union leaders to address our defined benefit pension plans' shortfalls. We are freezing our salaried workers retirement plan and replacing it with a new defined contribution plan. We are also negotiating with the unions representing our contract employees regarding pension plan freezes." "Along with several of our unions, we have asked Congress to enact legislation that allows a longer time period for airlines to pay off the unfunded liabilities in their pension plans. We remain hopeful that we will be able to address this issue quickly," he added. "While we have serious near term issues that must be addressed, we have been continuing our efforts to improve operating efficiencies while reducing cost. Together with our renewed aircraft fleet, unconstrained hub airport facilities and a strong global route system, Northwest is positioned for long- term success, once we address the key challenges we now face." "Despite high load factors and inclement weather, our employees are continuing to put customers first and I wish to thank them for their efforts. Year-to-date, Northwest's departure and arrival performance and completion factor have been strong," Steenland concluded. Operating Results Operating revenues in the second quarter increased by 11.3% versus the second quarter of 2004 to $3.2 billion. Passenger revenue per available seat mile increased by 3.1% on 4.4% more available seat miles (ASMs). Operating expenses in the quarter, excluding unusual items, increased 18% versus a year ago to $3.33 billion. Unit costs, excluding fuel and unusual items, were 1.1 % higher. Fuel prices averaged 164.2 cents per gallon, excluding taxes, up 52.2% versus the second quarter of 2004. Neal Cohen, executive vice president and chief financial officer, said, "Losses of this magnitude are not sustainable. During the first six months of 2005, Northwest has been averaging losses of $4 million per day. The company needs to reduce costs and achieve positive results by, in particular, addressing labor expenses and pension funding." "In addition, the company continues to review market conditions to better match supply with demand. Northwest now anticipates reducing its mainline system capacity by three to four percent in the fourth quarter." Cohen continued, "With no reduction in near-term fuel prices expected, it is imperative that we act quickly." Other: The National Mediation Board released Northwest on July 20 from mediated talks with The Aircraft Mechanics Fraternal Association (AMFA) union. Under terms of the federal Railway Labor Act, a thirty-day "cooling off" period has begun. The company is hopeful that both parties will reach a new agreement in advance of an August 20 deadline. While Northwest wants to reach an expedited consensual agreement with AMFA, whatever the outcome of negotiations, Northwest customers should continue to depend on Northwest to meet their travel needs. If no agreement is reached, the airline has developed comprehensive contingency plans, including expanded vendor relationships and the augmentation of airline staff, to ensure that Northwest continues to operate its full schedule. Northwest remains in federal mediation with The International Association of Machinists and Aerospace Workers (IAM) and The Professional Flight Attendants Association (PFAA). In addition, it is continuing contract negotiations with representatives of its other unions. A key business development issue is the airline's request for antitrust immunity with other SkyTeam members. Northwest believes that approval of the request, currently before the U.S. Department of Transportation (DOT), involving Air France, Alitalia, CSA Czech Airlines, Delta Air Lines, KLM Royal Dutch Airlines and Northwest Airlines is necessary to both preserve and expand the benefits that the alliance offers consumers, communities and the carriers involved. Northwest believes that to preserve fully the efficiencies and consumer benefits of the existing airlines alliances, it is necessary to bridge the immunities held by Northwest/KLM and SkyTeam. Linking the Northwest/KLM and SkyTeam alliance networks will generate substantial benefits including: new and expanded trans-Atlantic nonstop service, new online connecting service in almost 9,000 markets not currently served by either of the alliances, increased pathway options benefiting 16,280 city pairs that account for almost 80 percent of trans-Atlantic travel and greater discount opportunities by allowing passengers to choose from numerous itineraries, among other benefits. During the second quarter, Northwest Airlines paid more than $296 million in fees and non-income related taxes, representing an overall tax burden not faced by other industries. Northwest Airlines will webcast its second quarter results conference call at 11:30 a.m. Eastern Daylight Time (10:30 a.m. Central) today. Investors are invited to listen to the call through the company's investor relations Web site at http://ir.nwa.com/. Statements in this news release 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 future level of air travel demand, the company's future load factors and yields, the airline 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 aftermath of 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 negotiations both at other carriers and the company, low fare carrier expansion, capacity decisions of other carriers, actions of the U.S. and foreign governments, foreign currency exchange rate fluctuation and inflation. 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, 2004. We undertake no obligation to update any forward-looking statements to reflect events or circumstances that may arise after the date of this release. Northwest Airlines is the world's fourth largest airline with hubs at Detroit, Minneapolis/St. Paul, Memphis, Tokyo and Amsterdam, and approximately 1,600 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 900 cities in excess of 160 countries on six continents. For more information pertaining to Northwest, media inquiries can be directed to Northwest Media Relations at (612) 726-2331 or to Northwest's Web site at http://www.nwa.com/ . Note To Editors: A table of Selected Financial and Statistical Data is attached to this release. For more information pertaining to Northwest, media inquiries can be directed to Northwest Media Relations at (612) 726-2331. Investor inquiries can be directed to Northwest Airlines Investor Relations at (800) 953-3332 NORTHWEST AIRLINES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in millions except per share amounts) Three Months Ended Six Months Ended June 30 Percent June 30 Percent 2005 2004 Change 2005 2004 Change OPERATING REVENUES Passenger $2,347 $2,180 7.7 $4,382 $4,143 5.8 Regional carrier revenues 344 274 25.5 620 491 26.3 Cargo 239 193 23.8 445 376 18.4 Other 265 224 18.3 546 464 17.7 Total operating revenues 3,195 2,871 11.3 5,993 5,474 9.5 OPERATING EXPENSES Salaries, wages and benefits 959 964 (0.5) 1,914 1,901 0.7 Aircraft fuel and taxes 790 499 58.3 1,420 949 49.6 Selling and marketing 223 204 9.3 428 379 12.9 Other rentals and landing fees 168 149 12.8 324 295 9.8 Aircraft maintenance materials and repairs 149 109 36.7 293 220 33.2 Depreciation and amortization 134 133 0.8 272 274 (0.7) Aircraft rentals 103 115 (10.4) 207 229 (9.6) Regional carrier expenses 392 288 36.1 748 544 37.5 Other 409 358 14.2 811 739 9.7 Aircraft and aircraft related write-downs (a) 48 104 (53.8) 48 104 (53.8) Total operating expenses 3,375 2,923 15.5 6,465 5,634 14.7 OPERATING INCOME (LOSS) (180) (52) n/m (472) (160) n/m Operating margin (5.6%) (1.8%) (3.8)pts. (7.9%) (2.9%) (5.0)pts. OTHER INCOME (EXPENSE) Interest expense, net (159) (125) (27.2) (310) (257) (20.6) Investment income 22 13 69.2 38 26 46.2 Foreign currency gain (loss) (2) (8) 75.0 (7) (4) (75.0) Other unusual items (b) 102 - n/m 84 - n/m Other - (3) 100.0 5 (3) n/m Total other income (expense) (37) (123) 69.9 (190) (238) 20.2 INCOME (LOSS) BEFORE INCOME TAXES (217) (175) (24.0) (662) (398) (66.3) Income tax expense (benefit) - - 5 - NET INCOME (LOSS) (217) (175) (667) (398) Preferred stock requirements (8) (7) (16) (14) NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $(225) $(182) $(683) $(412) Earnings (Loss) per common share: Basic and Diluted $(2.59) $(2.11) $(7.87) $(4.77) Average shares used in computation: Basic and Diluted 87 86 87 86 NOTES: (a) During the quarter ended June 30, 2005, the Company recorded aircraft and aircraft related write-downs of $48 million on 9 owned and 2 leased aircraft across multiple aircraft fleets. During the quarter ended June 30, 2004, the Company recorded aircraft and aircraft related write-downs of $104 million. (b) During the quarter ended June 30, 2005, the Company sold approximately 1.5 million shares of Prudential Financial, Inc. common stock, which was distributed to Northwest in connection with Prudential's demutualization. Proceeds of the sale resulted in a $102 million gain. On February 1, 2005, the Company agreed to sell the Pinnacle Airlines note to Pinnacle Airlines Corp. The outstanding balance on the note at the time of the sale was $120 million, and the purchase price was $102 million, inclusive of accrued interest. As a result of the sale of this note, the Company recognized a loss of $18 million. NORTHWEST AIRLINES CORPORATION OPERATING STATISTICS (1) (Unaudited) Three Months Ended Six Months Ended June 30 Percent June 30 Percent 2005 2004 Change 2005 2004 Change Scheduled Service: Available seat miles (ASM) (millions) 23,772 22,764 4.4 46,537 44,595 4.4 Revenue passenger miles (RPM) (millions) 20,020 18,775 6.6 38,187 35,480 7.6 Passenger load factor 84.2% 82.5% 1.7pts. 82.1% 79.6% 2.5pts. Revenue passengers (thousands) 15,145 14,289 6.0 28,647 26,801 6.9 Passenger revenue per RPM (yield) (in cents) 11.73 11.61 1.0 11.48 11.68 (1.7) Passenger revenue per ASM (RASM) (in cents) 9.88 9.58 3.1 9.42 9.29 1.4 Total operating ASM (millions) 23,805 22,791 4.4 46,630 44,685 4.4 Passenger service operating expense per total ASM (2) (3) (in cents) 11.42 10.61 7.6 11.20 10.43 7.4 Aircraft and aircraft related write-downs per total ASM (in cents) 0.20 0.45 (55.6) 0.10 0.23 (56.5) Mainline fuel expense per total ASM (in cents) 2.90 1.93 50.3 2.69 1.89 42.3 Cargo ton miles (CTM) (millions) 616 577 6.8 1,158 1,117 3.7 Cargo revenue per ton mile (in cents) 38.65 33.46 15.5 38.39 33.62 14.2 Fuel gallons consumed (millions) 455 441 3.2 887 863 2.8 Average fuel cost per gallon, excluding fuel taxes (in cents) 164.23 107.93 52.2 151.41 104.13 45.4 Number of operating aircraft at end of period 433 436 (0.7) Full-time equivalent employees at end of period 38,348 39,154 (2.1) (1) All statistics exclude Northwest Airlink regional carriers, which is consistent with how the Company reports statistics to the Department of Transportation ("DOT") and is comparable to statistics reported by other major network airlines. (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: Three Months Ended Six Months Ended June 30 June 30 2005 2004 2005 2004 (in millions) Freighter operations $200 $152 $355 $291 MLT Inc. - net of intercompany eliminations 51 49 115 109 Regional carriers 392 288 748 544 Other 13 15 25 29 SELECTED BALANCE SHEET DATA (Unaudited) June 30, 2005 December 31, 2004 (in millions) Cash, cash equivalents and unrestricted short-term investments $2,144 $2,459 Restricted cash, cash equivalents and short-term investments 496 156 Total cash, cash equivalents and short-term investments 2,640 2,615 Total assets 14,352 14,042 Long-term debt, including current maturities 8,590 8,411 Long-term obligations under capital leases, including current obligations 359 361 Common stockholders' deficit (3,752) (3,087) NORTHWEST AIRLINES CORPORATION UNUSUAL ITEMS (Unaudited) Three Months Ended Six Months Ended June 30, 2005 June 30, 2005 Earnings (Loss) Earnings (Loss) Income per Share Income per Share (Loss) Basic Diluted (Loss) Basic Diluted Unusual Items: Gain on Sale of Prudential Shares $102 $1.17 $1.17 $102 $1.18 $1.18 Aircraft and Aircraft Related Write-Downs (48) (0.55) (0.55) (48) (0.55) (0.55) Loss on Sale of Note to Pinnacle Airlines - - - (18) (0.21) (0.21) Three Months Ended Six Months Ended June 30, 2004 June 30, 2004 Earnings (Loss) Earnings (Loss) Income per Share Income per Share (Loss) Basic Diluted (Loss) Basic Diluted Unusual Items: Aircraft and Aircraft Related Write-Downs $(104) $(1.21) $(1.21) $(104) $(1.21) $(1.21) NORTHWEST AIRLINES CORPORATION PASSENGER REVENUES (Unaudited) The following analysis by region is based on information reported to the Department of Transportation and excludes regional carriers: System Domestic Pacific Atlantic Second Quarter 2005 Passenger revenues (in millions) $2,347 $1,539 $496 $312 Increase (Decrease) from Second Quarter 2004: Passenger revenues 7.7% 3.6% 15.6% 17.3% Scheduled service ASMs (capacity) 4.4% 2.7% 5.6% 10.2% Scheduled service RPMs (traffic) 6.6% 5.4% 5.5% 13.4% Passenger load factor 1.7pts. 2.1pts. - pts. 2.6pts. Yield 1.0% (1.6)% 9.5% 3.5% Passenger RASM 3.1% 0.9% 9.4% 6.5% DATASOURCE: Northwest Airlines CONTACT: Northwest Airlines Media Relations, +1-612-726-2331 Web site: http://www.nwa.com/

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