UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission file number 1-15285

NORTHWEST AIRLINES CORPORATION

 (Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (612) 726-2111

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   x      No   o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes   o      No   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   x      No   o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   o      No   x

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2008 was $1.6 billion.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes   x      No   o

The registrant is a wholly owned subsidiary of Delta Air Lines, Inc., a Delaware corporation, and there is no market for the registrant’s common stock, par value $0.01 per share.  As of January 31, 2009, there were 1,000 shares of the registrant’s Common Stock outstanding.

The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format permitted by General Instruction I(2).

PART I

Item 1.   BUSINESS

Northwest Airlines Corporation (“NWA Corp.” and, together with its subsidiaries, the “Company”) is the direct parent corporation of Northwest Airlines, Inc. (“Northwest”).  On October 29, 2008 (the “Closing Date”), Nautilus Merger Corporation (“Merger Sub”), a wholly owned subsidiary of Delta Air Lines, Inc. (“Delta”), merged with and into NWA Corp. (the “Merger”) in accordance with the Agreement and Plan of Merger, dated as of April 14, 2008, among Delta, the Merger Sub and NWA Corp. (the “Merger Agreement”).  As a result of the Merger, NWA Corp. and its subsidiaries became wholly-owned subsidiaries of Delta and the shares of NWA Corp., which traded under the symbol “NWA”, ceased trading on, and were delisted from, the New York Stock Exchange (“NYSE”).

As a result of the application of purchase accounting in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations (“SFAS No. 141”), the financial statements prior to October 30, 2008 are not comparable with the financial statements for periods on or after October 30, 2008.  References to “Post-Merger” refer to the Company on or after October 30, 2008, after giving effect to the application of purchase accounting.  References to “Pre-Merger” refer to the Company prior to October 30, 2008.  See “Item 8. Consolidated Financial Statements and Supplementary Data, Note 2 — Business Combinations” for further details.

Unless otherwise indicated, the terms “we,” “us,” and “our” refer to NWA Corp. and all consolidated subsidiaries.  Northwest operates the world’s sixth largest airline, as measured by 2008 revenue passenger miles (“RPMs”), and is engaged in the business of transporting passengers and cargo.  Northwest began operations in 1926.  Northwest’s business focuses on the operation 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 a hub in Tokyo;

·                   a transatlantic joint venture with KLM Royal Dutch Airlines (“KLM”), which operates through a hub in Amsterdam;

·                   a domestic and international alliance with Continental Airlines, Inc. (“Continental”) and Delta. Continental has provided written notice to the Company and Delta of its decision to terminate the two-way alliance agreement with the Company, and the three-way alliance agreement with the Company and Delta effective April 14, 2009 and July 31, 2009, respectively;

·                   membership in SkyTeam, a global airline alliance with KLM, Continental, Delta, Air France, Aeroflot, Aeromexico, Alitalia, China Southern, CSA Czech Airlines, and Korean Air;

·                   agreements with three domestic regional carriers, including Pinnacle Airlines, Inc. (“Pinnacle”),  Mesaba Aviation, Inc. (“Mesaba”), a wholly-owned subsidiary, and Compass Airlines, Inc. (“Compass”),  a wholly-owned subsidiary, all of which operate as Northwest Airlink carriers;

·                   a cargo business that operates a dedicated freighter fleet of aircraft through hubs in Anchorage and Tokyo.

        Northwest’s business strategies are designed to utilize these assets to the Company’s competitive advantage.

        The Company maintains a Web site at http://www.nwa.com .  Information contained on the Company’s Web site is not incorporated into this annual report on Form 10-K.  Annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge through the Securities and Exchange Commission (“SEC”) Web site at http://idea.sec.gov as soon as reasonably practicable after those reports are electronically filed with or furnished to the SEC.

        See “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” for a discussion of trends and factors affecting the Company and the airline industry.  The Company is managed as one cohesive business unit, but employs various strategies specific to the geographic regions in which it operates.  See “Item 8. Consolidated Financial Statements and Supplementary Data, Note 20 — Geographic Regions” for a discussion of Northwest’s operations by geographic region.

Chapter 11 Proceedings

Background and General Bankruptcy Matters.   The following discussion provides general background information regarding the Company’s Chapter 11 cases, and is not intended to be an exhaustive summary.  Detailed information pertaining to the bankruptcy filings may be obtained at http://www.nwa-restructuring.com .  See also “Item 8. Consolidated Financial Statements and Supplementary Data, Note 6 — Voluntary Reorganization Under Chapter 11 Proceedings.”  Information contained on the Company’s Web site is not incorporated into this annual report on Form 10-K.

On September 14, 2005 (the “Petition Date”), NWA Corp. and 12 of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”).  Subsequently, on September 30, 2005, NWA Aircraft Finance, Inc., an indirect subsidiary of NWA Corp., also filed a voluntary petition for relief under Chapter 11. 

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On May 18, 2007, the Bankruptcy Court entered an order approving and confirming the Debtors’ First Amended Joint and Consolidated Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (as confirmed, the “Plan” or “Plan of Reorganization”).  The Plan became effective and the Debtors emerged from bankruptcy protection on May 31, 2007 (the “Effective Date”).  On the Effective Date, the Company implemented fresh-start reporting in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”).

As a result of the application of fresh-start reporting in accordance with SOP 90-7 upon the Company’s emergence from bankruptcy on May 31, 2007, the financial statements prior to June 1, 2007 are not comparable with the financial statements for periods on or after June 1, 2007.  References to “Successor Company” refer to the Company on or after June 1, 2007, after giving effect to the application of fresh-start reporting.  References to “Predecessor Company” refer to the Company prior to June 1, 2007.  See “Item 8. Consolidated Financial Statements and Supplementary Data, Note 7 — Fresh-Start Reporting” for further details.

The Plan generally provided for the full payment or reinstatement of allowed administrative claims, priority claims, and secured claims, and the distribution of new common stock of the Successor Company to the Debtors’ creditors, employees and others in satisfaction of allowed unsecured claims.  The Plan contemplates the issuance of approximately 277 million shares of new common stock by the Successor Company (out of the 400 million shares of new common stock authorized under its amended and restated certificate of incorporation).

Northwest had reserved 6.4 million shares of common stock for future distributions to holders of allowed general, unsecured claims when disputed claims are resolved. Pursuant to the terms of the Merger Agreement, each outstanding share of Northwest common stock (including shares issuable pursuant to Northwest’s Plan of Reorganization) was converted into and became exchangeable for 1.25 shares of Delta common stock. Accordingly, shares issuable pursuant to Northwest’s Plan of Reorganization totaled 8.0 million after being adjusted for the exchange ratio.

In connection with the consummation of the Plan of Reorganization, on the Effective Date, the Company’s existing $1.225 billion Senior Corporate Credit Facility (“Bank Credit Facility”) was converted into exit financing in accordance with its terms.  See “Item 8. Consolidated Financial Statements and Supplementary Data, Note 9 — Long-Term Debt and Short-Term Borrowings” for additional information.

Item 1A.  RISK FACTORS

Our business and results of operations are dependent on the price and availability of aircraft fuel.  High fuel costs or cost increases could have a materially adverse effect on our operating results. Likewise, significant disruptions in the supply of aircraft fuel would materially adversely affect our operations and operating results.

Our operating results are significantly impacted by changes in the price and availability of aircraft fuel. Fuel prices have increased substantially in the last five years and spiked at record high levels in 2008 before falling dramatically during the latter part of the year. In 2008, our average fuel price per gallon rose 76.1% to $3.61, as compared to an average price of $2.05 in 2007, which is significantly higher than our average price of $2.02 in 2006, and significantly higher than our prices in the earlier part of this decade. The fuel costs represented 32.2% and 32.5% of our operating expenses in 2008 and 2007, respectively. These increasing costs have had a significant negative effect on our results of operations and financial condition.

Our ability to pass along the increased costs of fuel to our customers is limited by the competitive nature of the airline industry. We often have not been able to increase our fares to offset the effect of increased fuel costs in the past and we may not be able to do so in the future.

In addition, our aircraft fuel purchase contracts do not provide material protection against price increases or assure the availability of our fuel supplies. We purchase most of our aircraft fuel under contracts that establish the price based on various market indices. We also purchase aircraft fuel on the spot market, from offshore sources and under contracts that permit the refiners to set the price. To attempt to manage our exposure to changes in fuel prices, we use derivative instruments, which are comprised of crude oil, heating oil and jet fuel swap and collar contracts, though we may not be able to successfully manage this exposure. Depending on the type of hedging instrument used, our ability to benefit from declines in fuel prices may be limited.

We are currently able to obtain adequate supplies of aircraft fuel, but it is impossible to predict the future availability or price of aircraft fuel. Weather-related events, natural disasters, political disruptions or wars involving oil-producing countries, changes in governmental policy concerning aircraft fuel production, transportation or marketing, changes in aircraft fuel production capacity, environmental concerns and other unpredictable events may result in additional fuel supply shortages and fuel price increases in the future. Additional increases in fuel costs or disruptions in fuel supplies could have additional negative effects on us.

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The global economic recession has resulted in weaker demand for air travel and may create challenges for us that could have a material adverse effect on our business and results of operations.

As the effects of the global economic recession have been felt in our domestic and international markets, we are experiencing weaker demand for air travel.  Our demand began to slow during the latter part of the year, and we believe the worsening economic conditions could reduce U.S. airline industry revenues by 8-12% in 2009. As a result, Delta has announced plans to further reduce consolidated capacity by 6-8% in 2009 compared to 2008 (which reflects planned consolidated domestic capacity reductions of 8-10% and international capacity reductions of 3-5%), and has offered voluntary workforce reduction programs for eligible employees, including our employees. Demand for air travel could continue to fall if the global economic recession continues, and overall demand may fall much lower than we are able prudently to reduce capacity. The weakness in the United States and international economies could have a significant negative impact on our future results of operations.

The global financial crisis may have an impact on our business and financial condition in ways that we currently cannot predict.

The continued credit crisis and related turmoil in the global financial system has had and may continue to have an impact on our business and our financial condition.  For example, our ability to access the capital markets may be severely restricted at a time when we would like, or need, to do so, which could have an impact on our flexibility to react to changing economic and business conditions.  In addition, the credit crisis could have an impact on our remaining fuel hedging contracts or our interest hedging contracts if counterparties are forced to file for bankruptcy or are otherwise unable to perform their obligations.

Our obligation to post collateral in connection with our fuel hedge contracts may have a substantial impact on our short-term liquidity.

Under fuel hedge contracts that we may enter into from time to time, counterparties to those contracts may require us to fund the margin associated with any loss position on the contracts.  If fuel prices continue to fall, we may be required to post a significant amount of additional collateral, which could have an impact on the level of our unrestricted cash and cash equivalents and short-term investments until those contracts are settled.

Our substantial indebtedness may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs.

We have substantial indebtedness, which could:

·                   require us to dedicate a substantial portion of cash flow from operations to the payment of principal, and interest on, indebtedness, thereby reducing the funds available for other purposes;

·       make us more vulnerable to economic downturns, adverse industry conditions or catastrophic external events;

·       limit our ability to withstand competitive pressures;

·       reduce our flexibility in planning for or responding to changing business and economic conditions; and/or

·       place us at a competitive disadvantage to competitors that have relatively less debt than we have.

In addition, a substantial level of indebtedness, particularly because substantially all of our assets are currently subject to liens, could limit our ability to obtain additional financing on acceptable terms or at all for working capital, capital expenditures and general corporate purposes. We have historically had substantial liquidity needs in the operation of our business. These liquidity needs could vary significantly and may be affected by general economic conditions, industry trends, performance and many other factors not within our control.

Certain of our credit facilities include financial and other covenants that impose restrictions on our financial and business operations.

Our exit facility financing credit agreement and our liquidity facility credit agreement each contain financial covenants that require us to maintain a minimum fixed charge coverage ratio, minimum unrestricted cash reserves and minimum collateral coverage ratios. In addition, each of the credit facilities contains other negative covenants customary for such financings.  These covenants may have a material adverse impact on our operations.  In addition, if we fail to comply with the covenants in any credit facility and are unable to obtain a waiver or amendment, an event of default would result under that facility.

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Each of the credit facilities also contains other events of default customary for such financings.  If an event of default were to occur, the lenders could, among other things, declare outstanding borrowings under the respective credit facilities immediately due and payable. We cannot provide assurance that we would have sufficient liquidity to repay or refinance borrowings under any of the credit facilities if such borrowings were accelerated upon an event of default. In addition, an event of default or declaration of acceleration under any of the credit facilities could also result in an event of default under other financing agreements of Delta and us.

Employee strikes and other labor-related disruptions may adversely affect our operations.

Our business is labor intensive, utilizing large numbers of pilots, flight attendants and other personnel. Approximately 80% of our workforce is unionized. Strikes or labor disputes with our unionized employees may adversely affect our ability to conduct business. Relations between air carriers and labor unions in the U.S. are governed by the Railway Labor Act, which provides that a collective bargaining agreement between an airline and a labor union does not expire, but instead becomes amendable as of a stated date. The Railway Labor Act generally prohibits strikes or other types of self-help actions both before and after a collective bargaining agreement becomes amendable, unless and until the collective bargaining processes required by the Railway Labor Act have been exhausted.

In addition, if we or our affiliates are unable to reach agreement with any of our unionized work groups on future negotiations regarding the terms of their collective bargaining agreements or if additional segments of our workforce become unionized, they may be subject to work interruptions or stoppages, subject to the requirements of the Railway Labor Act. Likewise, if third party regional carriers with whom we have contract carrier agreements are unable to reach agreement with their unionized work groups on current or future negotiations regarding the terms of their collective bargaining agreements, those carriers may be subject to work interruptions or stoppages, subject to the requirements of the Railway Labor Act, which could have a negative impact on our operations.

The ability to realize fully the anticipated benefits of the Merger may depend on the successful integration of the businesses of Delta and Northwest.

The Merger involves the combination of two companies which operated as independent public companies prior to the merger. The combined company will be required to devote significant management attention and resources to integrating its business practices and operations.  It is possible that the integration process could result in the loss of key employees, diversion of each company’s management’s attention, the disruption or interruption of, or the loss of momentum in our ongoing businesses or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers and employees or our ability to achieve the anticipated benefits of the Merger, or could reduce our earnings or otherwise adversely affect our business and financial results.

The integration of the Delta and Northwest workforces will present significant challenges, including the possibility of labor-related disagreements that may adversely affect the combined company’s operations.

Our successful integration with Delta and achievement of the anticipated benefits of the combination depend significantly on integrating our employee groups into Delta and on maintaining productive employee relations. The integration of our workforces will be challenging in part because approximately 80% of the Northwest employees are represented by labor unions while, among U.S. based employees, only the Pre-Merger Delta pilots and flight dispatchers (who combined constitute approximately 17% of the total Pre-Merger Delta employees) are currently represented by labor unions. The integration of the workforces of the two airlines will require the resolution of potentially difficult issues relating to representation of various work groups and the relative seniority of the work groups at each carrier. Unexpected delay, expense or other challenges to integrating the workforces could impact the expected synergies from the combination of Delta and NWA Corp. and affect the financial performance of the combined company.

Interruptions or disruptions in service at one of our hub airports could have a material adverse impact on our operations.

Our business is heavily dependent on our operations at our hub airports in Detroit, Memphis, Minneapolis/St. Paul and Tokyo-Narita. Each of these hub operations includes flights that gather and distribute traffic from markets in the geographic region surrounding the hub to other major cities and to other Delta hubs. A significant interruption or disruption in service at one of our other hubs could have a serious impact on our business, financial condition and results of operations.

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We are increasingly dependent on technology in our operations, and if our technology fails or we are unable to continue to invest in new technology, our business may be adversely affected.

We have become increasingly dependent on technology initiatives to reduce costs and to enhance customer service in order to compete in the current business environment. For example, we have made significant investments in our website, check-in kiosks and related initiatives. The performance and reliability of the technology are critical to our ability to attract and retain customers and our ability to compete effectively. These initiatives will continue to require significant capital investments in our technology infrastructure to deliver these expected benefits. If we are unable to make these investments, our business and operations could be negatively affected.  In addition, we may face challenges associated with integrating complex systems and technologies that support the separate operations of Delta and Northwest.  If we are unable to manage these challenges effectively, our business and results of operation could be negatively affected.

In addition, any internal technology error or failure or large scale external interruption in technology infrastructure we depend on, such as power, telecommunications or the internet, may disrupt our technology network. Any individual, sustained or repeated failure of technology could impact our customer service and result in increased costs. Like all companies, our technology systems and related data may be vulnerable to a variety of sources of interruption due to events beyond our control, including natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues. While we have in place, and continue to invest in, technology security initiatives and disaster recovery plans, these measures may not be adequate or implemented properly to prevent a business disruption and its adverse financial consequences to our business.

If we experience losses of senior management personnel and other key employees, our operating results could be adversely affected.

We are dependent on the experience and industry knowledge of our officers and other key employees to execute our business plans.  If we experience a substantial turnover in our leadership and other key employees, our performance could be materially adversely impacted. Furthermore, we may be unable to attract and retain additional qualified executives as needed in the future.

We are at risk of losses and adverse publicity stemming from any accident involving our aircraft.

An aircraft crash or other accident could expose us to significant tort liability. The insurance we carry to cover damages arising from any future accidents may be inadequate. In the event that the insurance is not adequate, we may be forced to bear substantial losses from an accident. In addition, any accident involving an aircraft that we operate or an aircraft that is operated by an airline that is one of our codeshare partners could create a public perception that our aircraft are not safe or reliable, which could harm our reputation, result in air travelers being reluctant to fly on our aircraft and harm our business.

Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes is subject to limitation and may be further limited as a result of the Merger and the employee equity issuance, together with other equity transactions.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses (“NOLs”), to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years).

As of December 31, 2008, Delta reported approximately $9.2 billion of federal and state NOL carryforwards. As of December 31, 2008, we reported approximately $5.3 billion of federal and state NOL carryforwards.  Both Delta and NWA Corp. experienced an ownership change in 2007 as a result of their respective plans of reorganization under Chapter 11 of the U.S. Bankruptcy Code. Pursuant to the Merger Agreement, Delta and NWA Corp. elected out of Section 382(l)(5) of the Code, in which case Section 382(l)(6) of the Code will be applicable to the ownership changes that occurred pursuant to our respective plans of reorganization. As a result of the Merger, NWA Corp. experienced a subsequent ownership change. Delta also may experience a subsequent ownership change as a result of the Merger and the issuance of equity to employees in connection with the Merger, together with other transactions involving the sale of our common stock within the testing period. Even if the Merger and the employee equity issuance did not result in an ownership change, the Merger and the employee equity issuance has significantly increased the likelihood there will be a subsequent ownership change for Delta as a result of transactions involving sale of our common stock.

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The NWA Corp. ownership change resulting from the Merger and the potential occurrence of a second ownership change for Delta could limit the ability to utilize pre-change NOLs that are not currently subject to limitation, and could further limit the ability to utilize NOLs that are currently subject to limitation. The amount of the annual limitation generally is equal to the value of the stock of the corporation immediately prior to the ownership change multiplied by the adjusted federal tax-exempt rate, set by the Internal Revenue Service. Limitations imposed on the ability to use NOLs to offset future taxable income could cause U.S. federal income taxes to be paid earlier than otherwise would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs. Similar rules and limitations may apply for state income tax purposes.

Risk Factors Relating to the Airline Industry

The airline industry is highly competitive and, if we cannot successfully compete in the marketplace, our business, financial condition and operating results will be materially adversely affected.

We face significant competition with respect to routes, services and fares. Our domestic routes are subject to competition from both new and established carriers, some of which have lower costs than we do and provide service at low fares to destinations served by us. In particular, we face significant competition at several of our hub airports from other carriers. In addition, our operations at our hub airports also compete with operations at the hubs of other airlines that are located in close proximity to our hubs. We also face competition in smaller to medium-sized markets from regional jet operators.

The growth of low-cost carriers, including Southwest, AirTran and JetBlue, in the U.S. has placed significant competitive pressure on network carriers in the domestic market. In addition, other network carriers have also significantly reduced their costs over the last several years. Our ability to compete effectively depends, in part, on our ability to maintain a competitive cost structure. If we cannot maintain our costs at a competitive level, then our business, financial condition and operating results could be materially adversely affected. In light of increased jet fuel costs and other issues in recent years, we expect consolidation to occur in the airline industry. As a result of consolidation, we may face significant competition from larger carriers that may be able to generate higher amounts of revenue and compete more efficiently.

In addition, we compete with foreign carriers, both on interior U.S. routes, due to marketing and codesharing arrangements, and in international markets. International marketing alliances formed by domestic and foreign carriers, including the Star Alliance (among United Airlines, Lufthansa German Airlines and others and which Continental has announced its intention to join in October 2009) and the oneworld Alliance (among American Airlines, British Airways and others) have significantly increased competition in international markets. The adoption of liberalized Open Skies Aviation Agreements with an increasing number of countries around the world, including in particular the Open Skies agreement with the Member States of the European Union, has accelerated this trend. Through marketing and codesharing arrangements with U.S. carriers, foreign carriers have obtained access to interior U.S. passenger traffic. Similarly, U.S. carriers have increased their ability to sell international transportation, such as transatlantic services to and beyond European cities, through alliances with international carriers.

Terrorist attacks or international hostilities may adversely affect our business, financial condition and operating results.

The terrorist attacks of September 11, 2001 caused fundamental and permanent changes in the airline industry, including substantial revenue declines and cost increases, which resulted in industry-wide liquidity issues. Additional terrorist attacks or fear of such attacks, even if not made directly on the airline industry, would negatively affect us and the airline industry. The potential negative effects include increased security, insurance and other costs and lost revenue from increased ticket refunds and decreased ticket sales. Our financial resources might not be sufficient to absorb the adverse effects of any further terrorist attacks or other international hostilities involving the U.S.

The airline industry is subject to extensive government regulation, and new regulations may increase our operating costs.

Airlines are subject to extensive regulatory and legal compliance requirements that result in significant costs. For instance, the FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that necessitate significant expenditures. We expect to continue incurring expenses to comply with the FAA’s regulations.

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Other laws, regulations, taxes and airport rates and charges have also been imposed from time to time that significantly increase the cost of airline operations or reduce revenues. For example, the Aviation and Transportation Security Act, which became law in November 2001, mandates the federalization of certain airport security procedures and imposes additional security requirements on airports and airlines, most of which are funded by a per ticket tax on passengers and a tax on airlines. The federal government has on several occasions proposed a significant increase in the per ticket tax. The proposed ticket tax increase, if implemented, could negatively impact our revenues.

Proposals to address congestion issues at certain airports or in certain airspace, particularly in the Northeast U.S., have included concepts such as “congestion-based” landing fees, “slot auctions” or other alternatives that could impose a significant cost on the airlines operating in those airports or airspace and impact the ability of those airlines to respond to competitive actions by other airlines. Furthermore, events related to extreme weather delays in late 2006 and early 2007 have caused Congress and the Department of Transportation (“DOT”) to consider proposals related to airlines’ handling of lengthy flight delays during extreme weather conditions. The enactment of such proposals could have a significant negative impact on our operations. In addition, some states have also enacted or considered enacting such regulations.

Future regulatory action concerning climate change and aircraft emissions could have a significant effect on the airline industry. For example, the European Commission is seeking to impose an emissions trading scheme applicable to all flights operating in the European Union, including flights to and from the U.S.  Laws or regulations such as this emissions trading scheme or other U.S. or foreign governmental actions may adversely affect our operations and financial results.

We and other U.S. carriers are subject to domestic and foreign laws regarding privacy of passenger and employee data that are not consistent in all countries in which we operate. In addition to the heightened level of concern regarding privacy of passenger data in the U.S., certain European government agencies are initiating inquiries into airline privacy practices. Compliance with these regulatory regimes is expected to result in additional operating costs and could impact our operations and any future expansion.

Our insurance costs have increased substantially as a result of the September 11 terrorist attacks, and further increases in insurance costs or reductions in coverage could have a material adverse impact on our business and operating results.

As a result of the terrorist attacks on September 11, 2001, aviation insurers significantly reduced the maximum amount of insurance coverage available to commercial air carriers for liability to persons (other than employees or passengers) for claims resulting from acts of terrorism, war or similar events. At the same time, aviation insurers significantly increased the premiums for such coverage and for aviation insurance in general. Since September 24, 2001, the U.S. government has been providing U.S. airlines with war-risk insurance to cover losses, including those resulting from terrorism, to passengers, third parties (ground damage) and the aircraft hull. The coverage currently extends through March 31, 2009 and the Secretary of Transportation has discretion to extend coverage through May 31, 2009. The withdrawal of government support of airline war-risk insurance would require us to obtain war-risk insurance coverage commercially, if available. Such commercial insurance could have substantially less desirable coverage than that currently provided by the U.S. government, may not be adequate to protect our risk of loss from future acts of terrorism, may result in a material increase to our operating expenses or may not be obtainable at all, resulting in an interruption to our operations.

Item 1B.  UNRESOLVED STAFF COMMENTS

None .

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Item 2.  PROPERTIES

Flight Equipment

As shown in the following table, Northwest operated a mainline fleet of 312 aircraft at December 31, 2008, consisting of 254 narrow-body and 58 wide-body aircraft.  Northwest’s purchase commitments for aircraft as of December 31, 2008 are also provided:

(1)    The Company has excluded from the table above its order for 18 787-8 aircraft.  The Boeing Company (“Boeing”) has informed the Company that Boeing will be unable to meet the contractual delivery schedule for these aircraft.  The Company is in discussions with Boeing regarding this situation.

(2)    Excluding DC9 aircraft, the average age of Northwest-operated aircraft is 8.9 years.

In total, the Company took delivery of 23 CRJ900 and 27 Embraer 175 aircraft during the twelve months ended December 31, 2008.  One CRJ900 aircraft had not been placed into service before December 31, 2008 and therefore is not included in the table above.  In connection with the acquisition of these 50 aircraft, the Company entered into long-term debt arrangements.  Under such arrangements, the aggregate amount of debt incurred totaled $886 million.

During 2008, the Company sold 31 aircraft including three Boeing 727-200, three Boeing 747-200, two Boeing 747F, four A320 and 19 DC9-30 aircraft.  Proceeds from these sales totaled $23.9 million.

        See “Item 8. Consolidated Financial Statements and Supplementary Data, Note 15 — Commitments” for further information related to the Company’s aircraft and commitments.

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Airport Facilities

        Northwest leases the majority of its airport facilities.  The associated lease terms cover periods up to 30 years and contain provisions for periodic adjustment of lease payments.  At most airports that it serves, Northwest has entered into agreements that provide for the non-exclusive use of runways, taxiways, terminals and other facilities.  Landing fees under these agreements normally are based on the number of landings and weight of the aircraft.

        In certain cases, the Company has constructed facilities on leased land that revert to the lessor upon expiration of the lease.  These facilities include cargo buildings in Boston, Los Angeles, Seattle and Honolulu; support buildings at the Minneapolis/St. Paul International Airport; a line maintenance hangar in Seattle; and several hangars in Detroit.

Other Property and Equipment

        Northwest’s primary offices are located near the Minneapolis/St. Paul International Airport, including its corporate offices located on a 160-acre site east of the airport.  Other owned facilities include reservations centers in Tampa, Florida, Minot, North Dakota and Chisholm, Minnesota, a data processing center in Eagan, Minnesota and a property in Baltimore, Maryland.  The Company also owns property in Tokyo, including a 1.3-acre site in downtown Tokyo, a 33-acre land parcel, 512-room hotel, and flight kitchen located near Tokyo’s Narita International Airport.  In addition, the Company leases reservations centers in or near Minneapolis/St. Paul, Seattle and Sioux City, Iowa.

Item 3.  LEGAL PROCEEDINGS

Northwest Airlines, Inc. v. Filipas, et al (U.S. Dist. Ct. Minnesota, Case 07-CIV-4803 (JNE/JJG)).  On December 12, 2007, Northwest Airlines, Inc. filed a declaratory judgment action against six of its employee pilots seeking a declaration that its recently implemented Target Benefit Pension Plan (collectively bargained for with the Air Line Pilots Association) does not violate any applicable prohibitions against age discrimination, including under ERISA. The court has certified defendant class of all employee pilots who will receive less under the new target plan than they would have received under the predecessor plan that provided benefits to pilots on a “flat percentage” or “pro rata to pay” basis. On January 26, 2009, the District Court granted summary judgment in favor of Northwest on its claim as well as the defendants’ counterclaims.

Chapter 11 Proceedings .  On September 14, 2005, NWA Corp. and 12 of its direct and indirect subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court.  On September 30, 2005, NWA Aircraft Finance, Inc., an indirect subsidiary of NWA Corp., also filed a voluntary petition for relief under Chapter 11.  On May 18, 2007, the Bankruptcy Court entered an order (the “Confirmation Order”) approving and confirming the Debtors’ First Amended Joint and Consolidated Plan of Reorganization under Chapter 11 of the Bankruptcy Code.  On May 31, 2007, the Debtors emerged from bankruptcy.  The reorganization cases were jointly administered under the caption “In re NWA Corp., et al., Case No. 05-17930 (ALG).”  The Confirmation Order provided for the discharge upon the Effective Date of the Debtors from all Claims (as defined in the Plan) based upon acts or omissions that occurred prior to the Effective Date.  In addition, as established by the Confirmation Order, holders of pre-Effective Date claims are enjoined from commencing or continuing any action or proceeding against the Reorganized Debtors with respect to such claims, except as otherwise permitted by the Bankruptcy Court for purposes of determining the amount of their respective claims.  The legal proceedings outstanding against the Company as of the Petition Date are subject to the injunction established by the Confirmation Order.

        In addition, in the ordinary course of its business, the Company is party to various other legal actions which the Company believes are incidental to the operation of its business.  The Company believes that the outcome of the proceedings to which it is currently a party (including those described above) will not have a material adverse effect on the Company’s Consolidated Financial Statements taken as a whole.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Omitted under the reduced disclosure format permitted by General Instruction I(2)(c) of Form 10-K.

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PART II

Item 5.    MARKET FOR REGISTRANT’S COMMON EQUITY , RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

NWA Corp. is a wholly owned subsidiary of Delta, and there is no market for NWA Corp.’s common stock.

Item 6.    SELECTED FINANCIAL DATA

Omitted under the reduced disclosure format permitted by General Instruction I(2)(a) of Form 10-K.

Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        Reduced disclosure permitted by General Instruction I(2)(a) of Form 10-K.

Overview

        Northwest Airlines Corporation (“NWA Corp.” and, together with its subsidiaries, the “Company”) is the direct parent corporation of Northwest Airlines, Inc. (“Northwest”).  The Consolidated Financial Statements include the accounts of NWA Corp. and all consolidated subsidiaries.  Substantially all of the Company’s results of operations are attributable to its operating subsidiary, Northwest, which accounted for approximately 99% of the Company’s 2008 consolidated operating revenues and expenses.  The Company’s results of operations also include other subsidiaries of which MLT Inc. (“MLT”) is the most significant.  MLT develops and markets Worry-Free Vacations that include air transportation, hotel accommodations and car rentals.  In addition to its Worry-Free Vacations charter programs, MLT markets and supports Northwest’s WorldVacations travel packages to destinations throughout the U.S., Canada, Mexico, the Caribbean, Europe and Asia, primarily on Northwest.  These vacation programs, in addition to providing a competitive and quality tour product, increase the sale of Northwest services and promote and support new and existing Northwest destinations. The following discussion pertains primarily to Northwest and, where indicated, MLT.

On October 29, 2008 (the “Closing Date”), Nautilus Merger Corporation (“Merger Sub”), a wholly owned subsidiary of Delta Air Lines, Inc. (“Delta”), merged with and into NWA Corp. (the “Merger”) in accordance with the Agreement and Plan of Merger, dated as of April 14, 2008, among Delta, Merger Sub and NWA Corp. (the “Merger Agreement”).  As a result of the Merger, NWA Corp. and its subsidiaries became wholly-owned subsidiaries of Delta and the shares of NWA Corp., which traded under the symbol “NWA”, ceased trading on, and were delisted from, the New York Stock Exchange (“NYSE”).

As a result of the application of purchase accounting in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations (“SFAS No. 141”), the financial statements prior to October 30, 2008 are not comparable with the financial statements for periods on or after October 30, 2008.  References to “Post-Merger” refer to the Company on or after October 30, 2008, after giving effect to the application of purchase accounting.  References to “Pre-Merger” refer to the Company prior to October 30, 2008.  See “Item 8. Consolidated Financial Statements and Supplementary Data, Note 2 — Business Combinations” for further details.

On September 14, 2005 (the “Petition Date”), NWA Corp. and 12 of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”).  Subsequently, on September 30, 2005, NWA Aircraft Finance, Inc., an indirect subsidiary of NWA Corp., also filed a voluntary petition for relief under Chapter 11.  On May 18, 2007, the Bankruptcy Court entered an order approving and confirming the Debtors’ First Amended Joint and Consolidated Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (as confirmed, the “Plan” or “Plan of Reorganization”).  The Plan became effective and the Debtors emerged from bankruptcy protection on May 31, 2007 (the “Effective Date”).

On the Effective Date, the Company implemented 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”).  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 Pre-Merger 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 Pre-Merger periods are not comparable to the pre-emergence periods.  References to “Successor Company” refer to the Company on or after June 1, 2007, after giving effect to the application of fresh-start reporting.  References to “Predecessor Company” refer to the Company prior to June 1, 2007.

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For discussions on the results of operations, the Company has combined the results for the Pre-Merger Successor Company period with the Post-Merger Successor Company period of 2008 and the five months ended May 31, 2007 with the seven months ended December 31, 2007.  The Company believes that the combined financial results provide management and investors a better perspective of the Company’s core business and on-going operational financial performance and trends for comparative purposes.

Full Year 2008 Results

The Company reported net loss of $6.0 billion for the combined year ended December 31, 2008, compared to net income of $2.1 billion for the combined year ended December 31, 2007.  In 2008, the Company reported an operating loss of $5.6 billion, compared with operating income of $1.1 billion in 2007.

Operating revenues for the full year 2008 increased 8.3 percent versus 2007 to $13.6 billion.  System consolidated passenger revenue increased 6.9 percent to $11.6 billion.  Operating expenses increased 67.5 percent year-over-year to $19.1 billion.  Full year 2008 results included $5.1 billion of net unusual operating and non-operating items, consisting of purchase accounting, merger-related expenses, goodwill impairments, other impairments, and the year-over-year impact of fresh-start accounting.

Full year 2007 results included $1.5 billion of net unusual and reorganization related gains.  Unusual non-operating items included a $1.6 billion of reorganization related gains. See “Item 8. Consolidated Financial Statements and Supplementary Data, Note 8 — Reorganization Related Items” for further information related to the Company’s reorganization items.

Results of Operations—2008 Compared to 2007

Operating Revenues.  Operating revenues increased 8.3 percent ($1.0 billion), as a result of higher passenger revenue, regional carrier revenue and other revenue, partially offset by a reduction in cargo revenue.

System Passenger Revenues.   In the following analysis by region, mainline statistics exclude Northwest Airlink regional carriers, which is consistent with how the Company reports statistics to the Department of Transportation (“DOT”).  The following analysis by region outlines the Company’s year-over-year performance as reported:

Regional Carrier Revenues.   Regional carrier revenues increased 42.3 percent ($595 million) to $2.0 billion, primarily due to a 47.9 percent increase in available seat miles associated with the delivery of new 76 seat regional aircraft, partially offset by a reduction in yield.

Cargo Revenues.   Cargo revenues decreased 9.3 percent ($78 million) to $762 million due primarily to a 20.5 percent decrease in volume, partially offset by a 14.1 percent improvement in yield.  Cargo revenues consisted of freight and mail carried on passenger aircraft and the Company’s dedicated fleet of Boeing 747-200 freighter aircraft.

Other Revenues.   Other revenues, the principal components of which are MLT, other transportation fees, partner revenues, and charter revenues, increased 43.3 percent ($370 million) to $1.2 billion.  The year-over-year increase was due to increased charter and partner revenues, and the portion of payments received from non-airline marketing partners for frequent flyer miles that is now recorded in Other revenues.

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Operating Expenses.   Operating expenses increased 67.5 percent ($7.7 billion) for 2008.  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.  Also, in conjunction with the Merger, the Company recorded purchase accounting adjustments as of October 29, 2008.  Thus, the Company’s Post-Merger financial statements are not comparable to its Pre-Merger financial statements.  At emergence the Company changed its policies pertaining to the accounting for frequent flyer obligations and breakage of passenger tickets.  During 2008, the Company recorded impairment charges associated with goodwill, international routes, other intangibles and aircraft; the impacts are itemized in column (1).  On April 24, 2007, Mesaba Aviation, Inc. (“Mesaba”) was acquired by the Company and became a wholly-owned consolidated subsidiary; year over year impact of partial 2007 ownership is itemized in column (2).  Excluding the items described above, the comparable year-over-year operating performance variances, which include the impact of the Company’s purchase accounting adjustments and the effects of fresh-start reporting, are itemized in column (3).  The following table and notes present operating expenses for the years ended December 31, 2008 and 2007 and describe significant year-over-year variances:

A.            Aircraft fuel and taxes for the 2008 period includes $752.0 million in net fuel derivative contract losses, consisting of $383.5 million in out-of-period mark-to-market losses and $368.5 million of losses for contracts settled in 2008.  Fuel expense for the 2007 period includes $112.9 million in net fuel derivative contract gains, consisting of $18.7 million in out-of-period mark-to-market gains and $94.2 million of gains for contracts settled in 2007.

B.              Regional carrier expenses increased primarily due to higher fuel costs.

C.              See “Item 8. Consolidated Financial Statements and Supplementary Data, Note 3 — Merger Related Expenses” for further details.

Other Income and Expense.  The Company recorded non-operating expense of $649 million in 2008 as compared to non-operating income of $1.2 billion in 2007.  The difference of $1.8 billion year-over-year was primarily due to a net reorganization related gain of $1.5 billion associated with the Company’s emergence from bankruptcy recorded in 2007.  See “Item 8. Consolidated Financial Statements and Supplementary Data, Note 8 — Reorganization Related Items” for additional information related to reorganization items.  In 2008, the Company recorded $51 million in interest expense associated with the amortization of debt discount recorded in conjunction with its purchase accounting.  The Company also recorded a $213 million impairment of its minority ownership interest in Midwest Air Partners, LLC in conjunction with the goodwill impairment test performed during the second quarter of 2008.  See “Item 8. Consolidated Financial Statements and Supplementary Data, Note 5 — Fair Value Measurements” for additional information related to the impairment.

Tax Expense (Benefit).   The Company recorded a non-cash income tax benefit of $212 million for the year ended 2008, primarily related to the impairment charges recorded in conjunction with the goodwill impairment test for certain indefinite-lived intangible assets.  The Company recorded a non-cash income tax expense for the year ended 2007 of $222 million.  See “Item 8. Consolidated Financial Statements and Supplementary Data, Note 14 — Income Taxes” for additional discussion of the Company’s tax accounts.

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Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The risks inherent in the Company’s market-sensitive instruments and positions are the potential losses arising from adverse changes in the price of fuel, foreign currency exchange rates and interest rates, as discussed below.  The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity nor do they consider additional actions management may take to mitigate its exposure to such changes.  Actual results may differ from the outcomes estimated in the analyses due to factors beyond the Company’s control.  See “Item 8. Consolidated Financial Statements and Supplementary Data, Note 18 — Risk Management” for related accounting policies and additional information.

Aircraft Fuel .  The Company’s earnings are affected by changes in the price and availability of aircraft fuel.  From time to time, the Company manages the price risk of fuel costs by utilizing futures contracts traded on regulated futures exchanges, swap agreements and options.  Excluding the impact of fuel hedges, a hypothetical 10% increase in the full year December 31, 2008 cost per gallon of fuel, assuming projected 2009 mainline and regional aircraft fuel usage, would result in an increase to aircraft fuel expense of approximately $584 million in 2009, compared to an estimated $369 million for 2008 measured at December 31, 2007.  The Company, as of January 31, 2009, had hedged the price of approximately 64% and 22% of its estimated 2009 first quarter and full year 2009 fuel requirements, respectively.  In comparison, as of February 29, 2008, the Company had hedged approximately 18% of its estimated 2008 fuel requirements.

Foreign Currency .  The Company is exposed to the effect of foreign exchange rate fluctuations on the U.S. dollar value of foreign currency-denominated operating revenues and expenses.  The Company’s largest exposure comes from the Japanese yen (“yen”), and from time to time, the Company uses financial instruments to hedge its exposure to the yen and other foreign currencies.  Excluding the impact of foreign currency hedges, the result of a uniform 10% strengthening in the value of the U.S. dollar from December 31, 2008 levels relative to each of the currencies in which the Company’s revenues and expenses are denominated would result in a decrease in operating income of approximately $103 million for the year ending December 31, 2009, compared to an estimated decrease of $66 million for 2008 measured at December 31, 2007.  This sensitivity analysis was prepared based upon projected foreign currency-denominated revenues and expenses as of December 31, 2008 and 2007, respectively.  The variance is due to the Company’s foreign currency-denominated revenues exceeding its foreign currency-denominated expenses.

The Company also has foreign currency exposure as a result of changes to balance sheet items.  The Company is currently in a net liability position, as its foreign currency-denominated liabilities exceed its foreign currency-denominated assets.  The result of a 10% weakening in the value of the U.S. dollar would result in a decrease to other income of an estimated $19 million in 2009, caused by the remeasurement of net foreign currency-denominated liabilities as of December 31, 2008. The Company was also in a net liability position in 2007, as its foreign currency-denominated liabilities exceeded its foreign currency-denominated assets.  The result of a 10% weakening in the value of the U.S. dollar would have resulted in a decrease to other income of an estimated $9 million in 2008, caused by the remeasurement of net foreign currency-denominated liabilities as of December 31, 2007.  This sensitivity analysis was prepared based upon foreign currency-denominated assets and liabilities as of December 31, 2008 and 2007, respectively.

The Company’s operating income in 2008 was favorably impacted by a net $104 million due to the average yen being stronger in 2008 compared to 2007 and unfavorably impacted in 2007 by a net $50 million due to the average yen being weaker in 2007 compared to 2006.  In 2008, the Company’s yen-denominated net cash inflow was approximately 79 billion yen (approximately $732 million) and its yen-denominated liabilities exceeded its yen-denominated assets by an average of 12 billion yen (approximately $114 million). In 2007, the Company’s yen-denominated net cash inflow was approximately 86 billion yen (approximately $726 million) and its yen-denominated liabilities exceeded its yen-denominated assets by an average of 10 billion yen (approximately $87 million). In general, each time the yen weakens, the Company’s operating income is unfavorably impacted due to net yen-denominated revenues exceeding expenses.  Additionally, a weakening yen results in recognition of a non-operating foreign currency gain due to the remeasurement of net yen-denominated liabilities.

The average yen to U.S. dollar exchange rate for the years ending December 31, 2008, 2007 and 2006, excluding the impact of any hedging activities, was 105, 118 and 117, respectively. The yen financial instruments utilized to hedge net yen-denominated cash flows from sales resulted in a loss of $29.1 million in 2008. As a result of not having any yen hedges in place in 2007, the Company did not realize a gain or loss. As of December 31, 2008, the Company had hedged approximately 32.1% of its anticipated 2009 yen-denominated sales.  The 2009 yen hedges consist of forward contracts which hedge approximately 25.7% of yen-denominated sales at an average rate of 100.1 yen per U.S. dollar and collar options which hedge approximately 6.4% of yen-denominated sales with a rate range between 99.5 and 103.5 yen per U.S. dollar.   As of December 31, 2007, the Company had hedged approximately 42.6% of its anticipated 2008 yen-denominated sales.  The 2008 yen hedges consisted of forward contracts which hedge approximately 32.7% of yen-denominated sales at an average rate of 109.3 yen per U.S. dollar and collar options which hedge approximately 9.9% of yen-denominated sales with a rate range between 102.4 and 116.4 yen per U.S. dollar.

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The Company’s operating income in 2008 was favorably impacted by a net $17 million due to the average Canadian dollar being stronger in 2008 compared to 2007 and favorably impacted in 2007 by $4 million due to the average Canadian dollar being stronger in 2007 compared to 2006.  In 2008, the Company’s Canadian dollar-denominated net cash inflow was approximately C$525 million (approximately $518 million) and its Canadian dollar-denominated assets exceeded its Canadian dollar-denominated liabilities by an average of C$10.4 million (approximately $9.8 million).  In general, each time the Canadian dollar strengthens, the Company’s operating income is favorably impacted due to net Canadian dollar-denominated revenues exceeding expenses.  Additionally, a weakening Canadian dollar results in recognition of a non-operating foreign currency loss due to the remeasurement of net Canadian dollar-denominated assets.

The average Canadian dollar to U.S. dollar exchange rate for the years ending December 31, 2008, 2007 and 2006, excluding the impact of any hedging activities was 1.06, 1.07 and 1.13, respectively.  As of December 31, 2008, the Company had not hedged any of its 2009 anticipated Canadian dollar denominated cash flows from sales.  The Canadian dollar financial instruments utilized to hedge Canadian dollar-denominated cash flows in 2008 resulted in a realized gain of $22.7 million.  As of December 31, 2007, the Company had hedged approximately 66.4% of its 2008 anticipated Canadian dollar denominated cash flows from sales with forward contracts at an average rate of 1.0008 Canadian dollars per U.S. dollar.

Interest Rates.   The Company’s earnings are also affected by changes in interest rates due to the impact those changes have on its interest income from cash equivalents and short-term investments and its interest expense from floating rate debt instruments.

If short-term interest rates were to increase by 100 basis points for a full year, based on the Company’s cash balance at December 31, 2008 and 2007, the Company’s interest income from cash equivalents and short-term investments would increase by approximately $23 million and $38 million, respectively.  These amounts are determined by considering the impact of the hypothetical interest rate increase on the Company’s cash equivalent and short-term investment balances at December 31, 2008 and 2007.

The Company’s floating rate indebtedness was approximately 42% of its total long-term debt and capital lease obligations as of December 31, 2008.  Excluding the impact of interest rate hedges, if short-term interest rates were to increase by 100 basis points throughout 2009 as measured at December 31, 2008, the Company’s interest expense would increase by approximately $31 million.  This amount is determined by considering the impact of the hypothetical interest rate increase on the Company’s floating rate indebtedness as of December 31, 2008.  The Company had entered into individual interest rate cap hedges related to three floating rate debt instruments, with a total cumulative notional amount of $371 million, as of December 31, 2008. During February 2008, the Company entered into individual interest rate swap hedges related to two floating rate debt instruments. Additionally, during October 2008, the Company entered into ten interest rate swap hedges related to ten floating debt instruments. The interest rate swap hedges had a total cumulative notional amount as of December 31, 2008 of $1.4 billion. The objective of the interest rate cap and swap hedges is to protect the anticipated payments of interest (cash flows) on the designated debt instruments from adverse market interest rate changes.

The Company’s floating rate indebtedness was approximately 70% of its total long-term debt and capital lease obligations as of December 31, 2007.  Excluding the impact of interest rate hedges, if short-term interest rates were to increase by 100 basis points throughout 2008 as measured at December 31, 2007, the Company’s interest expense would increase by approximately $49 million.  This amount is determined by considering the impact of the hypothetical interest rate increase on the Company’s floating rate indebtedness as of December 31, 2007.  The Company had entered into individual interest rate cap hedges related to three floating rate debt instruments, with a total cumulative notional amount of $429 million, as of December 31, 2007.  The objective of the interest rate cap hedges is to protect the anticipated payments of interest (cash flows) on the designated debt instruments from adverse market interest rate changes.

Market risk for fixed-rate indebtedness is estimated as the potential decrease in fair value resulting from a hypothetical 100 basis point increase in interest rates and amounts to approximately $89 million measured at December 31, 2008.  This compares to an estimated $96 million measured at December 31, 2007.

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Item 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Northwest Airlines Corporation

We have audited the accompanying consolidated balance sheets of Northwest Airlines Corporation (the Company) as of December 31, 2008 (Post-merger Successor) and as of December 31, 2007 (Pre-merger Successor), and the related consolidated statements of operations, common stockholders’ equity (deficit), and cash flows for the period from October 30, 2008 to December 31, 2008 (Post-merger Successor), the period from January 1, 2008 to October 29, 2008 (Pre-merger Successor), the seven months ended December 31, 2007 (Pre-merger Successor), the 5 months ended May 31, 2007 (Pre-merger, Predecessor), and for the year ended December 31, 2006 (Pre-merger Predecessor).  Our audit also included the financial statement schedule of the Successor Company and the Predecessor Company for the periods as listed in the index at item 15. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Northwest Airlines Corporation as of December 31, 2008 (Post-merger Successor) and as of December 31, 2007 (Pre-merger Successor), and the consolidated results of its operations and its cash flows for the period from October 30, 2008 to December 31, 2008 (Post-merger Successor), the period from January 1, 2008 to October 29, 2008 (Pre-merger Successor), the seven months ended December 31, 2007 (Pre-merger Successor), the 5 months ended May 31, 2007 (Pre-merger Predecessor), and for the year ended December 31, 2006 (Pre-merger Predecessor), in conformity with U.S. generally accepted accounting principles. Also, in our opinion, such Successor Company financial statement schedule and Predecessor Company financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, on May 18, 2007, the Bankruptcy Court entered an order confirming the plan of reorganization which became effective on May 31, 2007. Accordingly, the accompanying consolidated financial statements have been prepared in conformity with AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, for the Successor Company as a new entity with assets, liabilities, and a capital structure having carrying values not comparable with prior periods as described in Note 1.

As discussed in Note 17 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R) in 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Northwest Airlines Corporation’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2009 expressed an unqualified opinion thereon.

16

NORTHWEST AIRLINES CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions)

The accompanying notes are an integral part of these consolidated financial statements.

17

NORTHWEST AIRLINES CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

The accompanying notes are an integral part of these consolidated financial statements.

18

NORTHWEST AIRLINES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)