UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

	x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-15285

NORTHWEST AIRLINES CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		41-1905580
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2700 Lone Oak Parkway, Eagan, Minnesota		55121
(Address of principal executive offices)		(Zip Code)

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.

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller Reporting Company o

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 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.

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.

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.

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.

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.

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.

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:

		In Service
						Average		Aircraft
	Seating		Capital	Operating		Age		on Firm
Aircraft Type	Capacity	Owned	Lease	Lease	Total	(Years)		Order (1)

Passenger Aircraft
Airbus:
A319	124	55	—	2	57	6.8		5
A320	148	41	—	28	69	13.7		2
A330-200	243	11	—	—	11	3.7		—
A330-300	298	21	—	—	21	3.3		—

Boeing:
757-200	160-184	30	—	15	45	16.2		—
757-300	224	16	—	—	16	5.8		—
747-400	403	4	—	12	16	15.1		—

McDonnell Douglas:
DC9	100-125	67	—	—	67	35.2		—
		245	—	57	302			7

Freighter Aircraft
Boeing 747F		7	—	3	10	24.5		—

Total Northwest Operated Aircraft		252	—	60	312		(2)	7

Regional Aircraft
CRJ200	50	—	—	141	141	5.5		—
Saab 340	34	—	—	49	49	11.1		—
CRJ900	76	35	—	—	35	0.9		—
Embraer 175	76	36	—	—	36	0.7		—
Total Airlink Operated Aircraft		71	—	190	261			—

Total Aircraft		323	—	250	573			7

(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.

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.

PART II

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”).

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.

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:

	Mainline									Total
As reported:	Domestic			Pacific			Atlantic			Mainline			Consolidated
2008
Passenger revenues (in millions)	$	5,636		$	2,340		$	1,609		$	9,585		$	11,585

Increase (Decrease) from 2007:
Passenger revenues (in millions)	$	(231	)	$	154		$	234		$	157		$	752
Percent	(3.9		) %	7.0		%	17.0		%	1.7		%	6.9		%

Scheduled service ASMs (capacity)	(9.3		) %	(0.2		) %	18.0		%	(2.6		) %	1.3		%
Scheduled service RPMs (traffic)	(7.6		) %	(0.5		) %	13.6		%	(2.3		) %	1.1		%
Passenger load factor	1.5		pts	(0.3		) pts	(3.2		) pts	0.2		pts	(0.1		) pts
Yield	4.0		%	7.7		%	3.0		%	4.1		%	5.8		%
Passenger RASM	5.9		%	7.3		%	(0.9		) %	4.5		%	5.6		%

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.

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:

	Year Ended				(1)		(2)			(3)
	Combined		Combined				Mesaba						Total
	December 31,		December 31,		Impairment		Net of						Incr (Decr)
(In millions)	2008		2007		Charges		Elim			Operations			from 2007
OPERATING EXPENSES
Aircraft fuel and taxes	$	5,670	$	3,378	$	—	$	1		$	2,291	A	$	2,292
Salaries, wages and benefits	2,698		2,568		—		47			83			130
Aircraft maintenance materials and repairs	772		811		—		13			(52		)	(39		)
Selling and marketing	778		751		—		—			27			27
Other rentals and landing fees	592		539		—		6			47			53
Depreciation and amortization	1,145		495		642		3			5			650
Aircraft rentals	370		378		—		—			(8		)	(8		)
Regional carrier expenses	880		776		—		(75		)	179		B	104
Goodwill and other indefinite-lived intangibles	3,841		—		3,841		—			—			3,841
Merger related	557		—		—		—			557		C	557
Other	1,833		1,728		—		13			92			105
Total operating expenses	$	19,136	$	11,424	$	4,483	$	8		$	3,221		$	7,712

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.

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.

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.

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.


Minneapolis, Minnesota March 2, 2009

NORTHWEST AIRLINES CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions)

	Post-Merger		Pre-Merger
	Successor		Successor
	December 31,		December 31,
	2008		2007

ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	2,068	$	2,939
Unrestricted short-term investments	49		95
Restricted cash, cash equivalents and short-term investments	196		725
Accounts receivable, less allowance (2008—$6; 2007—$4)	659		776
Hedge margin receivable	526		—
Flight equipment spare parts, less allowance (2008—$3; 2007—$10)	130		135
Deferred income taxes	131		72
Maintenance and operating supplies	108		180
Prepaid expenses and other	146		187
Total current assets	4,013		5,109

PROPERTY AND EQUIPMENT
Flight equipment - owned, less accumulated depreciation (2008—$63; 2007—$197)	7,990		7,520
Flight equipment - capital lease, less accumulated amortization (2008—$0; 2007—$1)	—		8
Other property and equipment, less accumulated depreciation (2008—$8; 2007—$36)	597		558
Total property and equipment	8,587		8,086

OTHER ASSETS
Goodwill	4,572		6,035
International routes, less accumulated amortization (2008—$0; 2007—$2)	2,140		2,976
Other intangibles, less accumulated amortization (2008—$8; 2007—$54)	554		2,136
Investments in affiliated companies	3		24
Other, less accumulated depreciation and amortization (2008—$3; 2007—$8)	329		223
Total other assets	7,598		11,394
Total Assets	$	20,198	$	24,589

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

NORTHWEST AIRLINES CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

	Post-Merger			Pre-Merger
	Successor			Successor
	December 31,			December 31,
	2008			2007

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES
Air traffic liability/deferred frequent flyer liability	$	2,002		$	2,004
Accrued compensation and benefits	393			459
Accounts payable	723			706
Hedge derivatives liability	560			3
Due to parent company	200			—
Other accrued liabilities	524			483
Current maturities of long-term debt and capital lease obligations	384			449
Total current liabilities	4,786			4,104

LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES	5,382			6,639

DEFERRED CREDITS AND OTHER LIABILITIES
Long-term pension, other postretirement, and disability benefits	5,476			3,638
Deferred frequent flyer liability	1,500			1,490
Deferred income taxes	1,094			1,203
Other	533			138
Total deferred credits and other liabilities	8,603			6,469

COMMITMENTS AND CONTINGENCIES

COMMON STOCKHOLDERS’ EQUITY
Pre-Merger Successor Company common stock, $0.01 par value; shares authorized—400,000,000; shares issued—233,187,998 at December 31, 2007	—			2
Post-Merger Successor Company common stock, $0.01 par value; shares issued—1,000 at December 31, 2008	—			—
Additional paid-in capital	3,605			7,235
Retained earnings (accumulated deficit)	(539		)	342
Accumulated other comprehensive income (loss)	(1,639		)	(202		)
Pre-Merger Successor Company treasury stock—1,684 at December 31, 2007	—			—
Total common stockholders’ equity	1,427			7,377
Total Liabilities and Stockholders’ Equity	$	20,198		$	24,589

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

NORTHWEST AIRLINES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

	Post-Merger			Pre-Merger
	Successor			Successor						Predecessor
	Period From			Period From			Period From			Period From
	October 30 to			January 1 to			June 1 to			January 1 to			Year Ended
	December 31,			October 29,			December 31,			May 31,			December 31,
	2008			2008			2007			2007			2006
OPERATING REVENUES
Passenger	$	1,348		$	8,237		$	5,660		$	3,768		$	9,230
Regional carrier revenues	338			1,662			884			521			1,399
Cargo	95			667			522			318			946
Other	241			984			538			317			993
Total operating revenues	2,022			11,550			7,604			4,924			12,568

OPERATING EXPENSES
Aircraft fuel and taxes	718			4,952			2,089			1,289			3,386
Salaries, wages and benefits	468			2,230			1,541			1,027			2,662
Aircraft maintenance materials and repairs	121			651			508			303			796
Selling and marketing	126			652			436			315			759
Other rentals and landing fees	107			485			304			235			562
Depreciation and amortization	91			1,054			289			206			519
Aircraft rentals	61			309			218			160			226
Regional carrier expenses	114			766			434			342			1,406
Goodwill and other indefinite-lived intangibles impairment	—			3,841			—			—			—
Merger related	333			224			—			—			—
Other	288			1,545			1,044			684			1,512
Total operating expenses	2,427			16,709			6,863			4,561			11,828
OPERATING INCOME (LOSS)	(405		)	(5,159		)	741			363			740

OTHER INCOME (EXPENSE)
Interest expense	(131		)	(373		)	(273		)	(219		)	(555		)
Investment income	7			83			105			56			109
Reorganization items, net	—			—			—			1,551			(3,165		)
Other, net	(11		)	(224		)	(7		)	(2		)	7
Total other income (expense)	(135		)	(514		)	(175		)	1,386			(3,604		)

INCOME (LOSS) BEFORE INCOME TAXES	(540		)	(5,673		)	566			1,749			(2,864		)

Income tax expense (benefit)	(1		)	(211		)	224			(2		)	(29		)

NET INCOME (LOSS)	$	(539	)	$	(5,462	)	$	342		$	1,751		$	(2,835	)

EARNINGS (LOSS) PER COMMON SHARE:
Basic	N/A			$	(20.72	)	$	1.30		$	20.03		$	(32.48	)
Diluted	N/A			$	(20.72	)	$	1.30		$	14.28		$	(32.48	)

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

NORTHWEST AIRLINES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

	Post-Merger			Pre-Merger
	Successor			Successor						Predecessor
	Period From			Period From			Period From			Period From
	October 30 to			January 1 to			June 1 to			January 1 to			Year Ended
	December 31,			October 29,			December 31,			May 31,			December 31,
	2008			2008			2007			2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(539	)	$	(5,462	)	$	342		$	1,751		$	(2,835	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Reorganization items, net	—			—			—			(1,551		)	3,165
Non-cash merger related expense	309			187			—			—			—
Amortization of debt discount (premium)	52			13			(7		)	6			12
Depreciation and amortization	91			1,054			289			206			519
Income tax expense (benefit)	(1		)	(211		)	224			(2		)	(29		)
Net receipts (payments) of income taxes	(1		)	(2		)	(1		)	—			2
Pension and other postretirement benefit contributions (greater) less than expense	30			(12		)	(13		)	(2		)	261
Stock-based compensation	3			89			76			—			2
Goodwill and other indefinite-lived intangibles impairment	—			3,841			—			—			—
Investment impairment	—			213			—			—			—
Net loss (gain) on disposition of property, equipment and other	1			2			10			4			16
Increase (decrease) in cash flows from operating assets and liabilities, excluding the effects of the acquisition of Mesaba Aviation, Inc.:
Post-emergence reorganization payments	(1		)	(8		)	(164		)	—			—
Changes in certain assets and liabilities:
Decrease (increase) in accounts receivable	(72		)	(353		)	(176		)	16			(3		)
Decrease (increase) in operating restricted cash	35			(36		)	—			—			—
Decrease (increase) in vendor deposits/holdbacks	—			—			162			163			(35		)
Decrease (increase) in supplies, prepaid expenses and other	77			5			(74		)	28			67
Increase (decrease) in air traffic liability/deferred frequent flyer liability	(326		)	233			(317		)	448			(33		)
Increase (decrease) in accounts payable	99			(22		)	(21		)	19			287
Increase (decrease) in other liabilities	(539		)	621			(1		)	(51		)	(164		)
Other, net	183			29			(4		)	11			(8		)
Net cash provided by (used in) operating activities	(599		)	181			325			1,046			1,224

NET CASH PROVIDED BY (USED IN) REORGANIZATION ACTIVITIES	—			—			—			5			21

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(136		)	(1,118		)	(739		)	(312		)	(527		)
Purchases of short-term investments	—			—			—			(44		)	(21		)
Proceeds from sales of short-term investments	—			55			542			15			28
Transfers (to) from short-term investments (from) to cash and cash equivalents	70			(120		)	—			—			—
Proceeds from sale of investment in affiliates	—			20			130			—			—
Decrease (increase) in restricted cash, cash equivalents and short-term investments	607			(84		)	(196		)	(74		)	176
Cash and cash equivalents acquired in acquisition of Mesaba Aviation, Inc.	—			—			—			16			—
Proceeds from sale of property, equipment and other assets	23			17			264			—			7
Investments in affiliated companies	—			(213		)	—			—			—
Other, net	—			—			1			1			9
Net cash provided by (used in) investing activities	564			(1,443		)	2			(398		)	(328		)

CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt	(323		)	(697		)	(645		)	(609		)	(2,372		)
Proceeds from long-term debt	86			1,183			710			326			2,281
Payment of capital lease obligations	—			(8		)	(1		)	(1		)	(14		)
Payment of short-term borrowings	(300		)	(18		)	—			—			—
Proceeds from short-term borrowings	—			300			—			—			—
Proceeds from equity rights offering	—			—			750			—			—
Proceeds from intercompany loan	200			—			—			—			—
Other, net	(1		)	4			(9		)	(23		)	(35		)
Net cash provided by (used in) financing activities	(338		)	764			805			(307		)	(140		)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(373		)	(498		)	1,132			346			777
Cash and cash equivalents at beginning of period	2,441			2,939			1,807			1,461			684
Cash and cash equivalents at end of period	$	2,068		$	2,441		$	2,939		$	1,807		$	1,461

Available to be borrowed under credit facilities	$	600		$	5		$	101		$	127		$	—

Cash and cash equivalents and unrestricted short-term investments at end of period	$	2,117		$	2,601		$	3,034		$	2,445		$	2,058

Supplemental Cash Flow Information:
Interest paid	$	87		$	352		$	304		$	208		$	569

Investing and Financing Activities Not Affecting Cash:
Manufacturer financing of aircraft and other non-cash transactions	$	—		$	—		$	335		$	167		$	280

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

NORTHWEST AIRLINES CORPORATION

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS’ EQUITY (DEFICIT)

(In millions)

									Retained			Accumulated
						Additional			Earnings			Other
	Common Stock					Paid-In			(Accumulated			Comprehensive			Treasury
	Shares		Amount			Capital			Deficit)			Income (Loss)			Stock			Total

Balance at January 1, 2006	111.3		$	1		$	1,500		$	(4,548	)	$	(1,568	)	$	(1,013	)	$	(5,628	)
(Pre-Merger Predecessor Company)

Net income (loss)	—		—			—			(2,835		)	—			—			(2,835		)
Other comprehensive income (loss)
Deferred gain/(loss) from hedging activities	—		—			—			—			(10		)	—			(10		)
Unrealized gain/(loss) on investments	—		—			—			—			3			—			3
Pension, other postretirement, and long-term disability benefits	—		—			—			—			699			—			699
Total comprehensive income (loss)																		692

Series C Preferred Stock converted to Common Stock	0.1		—			3			—			—			—			3
Stock options expensing	—		—			2			—			—			—			2
Other	—		—			—			(1		)	—			—			(1		)
Adjustment to Adopt SFAS No. 158	—		—			—			—			(224		)	—			(224		)

Balance at December 31, 2006	111.4		1			1,505			(7,384		)	(1,100		)	(1,013		)	(7,991		)
(Pre-Merger Predecessor Company)

Series C Preferred Stock converted to Common Stock	—		—			2			—			—			—			2

Net income (loss) from January 1 to May 31, 2007	—		—			—			1,751			—			—			1,751

Other comprehensive income (loss)
Foreign currency	—		—			—			—			(1		)	—			(1		)
Unrealized gain/(loss) on investments	—		—			—			—			1			—			1
Total comprehensive income (loss)																		—
Balance at May 31, 2007	111.4		1			1,507			(5,633		)	(1,100		)	(1,013		)	(6,238		)
(Pre-Merger Predecessor Company)

Fresh-start adjustments:
Cancellation of the Predecessor Company’s preferred and common stock	(111.4	)	(1		)	(1,507		)	—			—			1,013			(495		)

Elimination of the Predecessor Company’s accumulated deficit and accumulated other comprehensive income	—		—			—			5,633			1,100			—			6,733

Reorganization value ascribed to the Successor Company	167.4		2			6,448			—			—			—			6,450

Issuance of new equity interests in connection with emergence from Chapter 11	27.8		—			728			—			—			—			728
Balance at June 1, 2007	195.2		2			7,176			—			—			—			7,178
(Pre-Merger Successor Company)

Net income (loss) from June 1 to December 31, 2007	—		—			—			342			—			—			342
Other comprehensive income (loss)
Deferred gain/(loss) from hedging activities	—		—			—			—			(3		)	—			(3		)
Pension, other postretirement, and long-term disability benefits	—		—			—			—			(199		)	—			(199		)
Total comprehensive income (loss)																		(202		)

Compensation expense associated with equity awards	—		—			59			—			—			—			59
Equity distributions - claims	38		—			—			—			—			—			—
Balance at December 31, 2007	233.2		2			7,235			342			(202		)	—			7,377
(Pre-Merger Successor Company)

NORTHWEST AIRLINES CORPORATION

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS’ EQUITY (DEFICIT)

(In millions)

									Retained			Accumulated
						Additional			Earnings			Other
	Common Stock					Paid-In			(Accumulated			Comprehensive			Treasury
	Shares		Amount			Capital			Deficit)			Income (Loss)			Stock		Total

Balance at December 31, 2007	233.2		2			7,235			342			(202		)	—		7,377
(Pre-Merger Successor Company)

Net income (loss) from January 1 to October 29, 2008	—		—			—			(5,462		)	—			—		(5,462		)
Other comprehensive income (loss)
Deferred gain/(loss) from hedging activities	—		—			—			—			(11		)	—		(11		)
Pension, other postretirement, and long-term disability benefits	—		—			—			—			71			—		71
Total comprehensive income (loss)																	60

Compensation expense associated with equity awards	—		—			237			—			—			—		237
Equity distributions - claims	24.6		—			—			—			—			—		—
Balance at October 29, 2008	257.8		2			7,472			(5,120		)	(142		)	—		2,212
(Pre-Merger Successor Company)

Purchase accounting adjustments:
Cancellation of the Successor Company’s common stock (1)	(257.8	)	(2		)	(7,472		)	—			—			—		(7,474		)
Elimination of the Successor Company’s accumulated deficit and accumulated other comprehensive income	—		—			—			5,120			142			—		5,262
Issuance of new stock in connection with the Merger with Delta (1)	—		—			3,353			—			—			—		3,353

Balance at October 30, 2008	—		—			3,353			—			—			—		3,353
(Post-Merger Successor Company)

Net income (loss) from October 30 to December 31, 2008	—		—			—			(539		)	—			—		(539		)
Other comprehensive income (loss)
Deferred gain/(loss) from hedging activities	—		—			—			—			(199		)	—		(199		)
Unrealized gain/(loss) on investments	—		—			—			—			(7		)	—		(7		)
Pension, other postretirement, and long-term disability benefits	—		—			—			—			(1,433		)	—		(1,433		)
Total comprehensive income (loss)																	(1,639		)

Compensation expense associated with equity awards	—		—			252			—			—			—		252
Balance at December 31, 2008	—		$	—		$	3,605		$	(539	)	$	(1,639	)	$	—	$	1,427
(Post-Merger Successor Company)

(1) On the Closing Date, 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”). In connection with the Merger, 1,000 shares of NWA Corp. common stock, par value $0.01, were issued and held by Delta.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies

Business. Northwest Airlines Corporation (“NWA Corp.” and, together with its subsidiaries, the “Company”) is the direct parent corporation of Northwest Airlines, Inc. (“Northwest”). Northwest’s operations account for approximately 99% of the Company’s consolidated operating revenues and expenses. Northwest is a major air carrier engaged principally in the commercial transportation of passengers and cargo, directly serving as many as 252 cities in 25 countries in North America, Asia and Europe. Northwest’s global airline network includes 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, membership in SkyTeam, a global airline alliance with KLM, Continental, Delta, Air France, Aeroflot, Aeromexico, Alitalia, China Southern, CSA Czech Airlines, and Korean Air, exclusive marketing agreements with three domestic regional carriers, Pinnacle Airlines, Inc. (“Pinnacle”), Mesaba Aviation, Inc. (“Mesaba”) and Compass Airlines, Inc. (“Compass”), which operate as Northwest Airlink carriers, and a cargo business that includes a dedicated fleet of freighter aircraft that operate through hubs in Anchorage and Tokyo.

Financial Statement Presentation. 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 Financial Accounting Standards Board (“FASB”) 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. For additional information regarding purchase accounting, see “Note 2 — Business Combinations”.

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 “Note 7 — Fresh-Start Reporting” for further details.

In preparing our Consolidated Financial Statements for the Pre-Merger Predecessor Company, we applied SOP 90-7, which requires that the financial statements for periods subsequent to the Chapter 11 filing distinguish transactions and events that were directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses, realized gains and losses and provisions for losses that were realized or incurred in the bankruptcy proceedings were recorded in reorganization items, net on the accompanying Consolidated Statements of Operations.

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company has eliminated all intercompany balances in its Consolidated Financial Statements.

Use of Estimates. We are required to make estimates and assumptions when preparing our Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the amounts reported in our Consolidated Financial Statements and the accompanying notes. Actual results could differ materially from those estimates.

New Accounting Standards. In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS No. 141(R)”). SFAS No. 141(R) provides guidance for recognizing and measuring goodwill acquired in a business combination and requires disclosure of information to enable users of the financial statements to evaluate the nature and financial effects of a business combination. It also revises the treatment of valuation allowance adjustments related to income tax benefits in existence prior to a business combination. Under SFAS No. 141, any reduction in the valuation allowance, as a result of the recognition of deferred tax assets, are adjusted through goodwill, followed by other indefinite-lived intangible assets until the net carrying costs of these assets is zero. By contrast, SFAS No. 141(R) requires that any reduction in this valuation allowance be reflected through the income tax provision. SFAS No. 141(R) is effective for fiscal years beginning on January 1, 2009.

Effective January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. FIN 48 is intended to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The adoption of FIN 48 did not have a material impact on the Company’s financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). This statement, among other things, defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value measurements. SFAS No. 157 is intended to eliminate the diversity in practice associated with measuring fair value under existing accounting pronouncements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We were required to adopt SFAS No. 157 on May 31, 2007 in connection with the adoption of fresh start reporting. For additional information regarding recurring and nonrecurring fair value measurements, see “Note 5 — Fair Value Measurements”.

In June 2006, the FASB ratified the Emerging Issues Task Force (“EITF”) consensus on Issue No. 06-03, How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (“EITF 06-03”). The scope of EITF 06-03 includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer, and provides that a company may adopt a policy of presenting taxes either gross within revenue or on a net basis. For any such taxes that are reported on a gross basis, a company should disclose the amounts of those taxes for each period for which an income statement is presented if those amounts are significant. This statement is effective for interim and annual reporting periods beginning after December 15, 2006. We adopted EITF 06-03 on January 1, 2007. Various taxes and fees on the sale of tickets to customers are collected by us as an agent and remitted to the respective taxing authority. These taxes and fees have been presented on a net basis in the accompanying Consolidated Statements of Operations and recorded as a liability until remitted to the respective taxing authority.

Cash and Cash Equivalents. We classify short-term, highly liquid investments with maturities of three months or less when purchased as cash and cash equivalents. These investments are recorded at cost, which approximates fair value.

Unrestricted short-term investments. At December 31, 2008, our short-term investment was completely comprised of our investment in The Reserve Primary Fund (“the Primary Fund”). In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities (“SFAS No. 115”), we record these investments as available for sale securities at fair value on our Consolidated Balance Sheets.

At December 31, 2008, the fair value of our investment in the Primary Fund was $49 million. The cost of this investment was $53 million. In mid-September, the net asset value of the Primary Fund decreased below $1 per share as a result of the Primary Fund’s valuing at zero its holdings of debt securities issued by Lehman Brothers Holdings, Inc. (“Lehman Brothers”), which filed for bankruptcy on September 15, 2008. Accordingly, we recognized an other than temporary impairment of $3.75 million to recognize our pro rata share of the Primary Fund’s overall investment attributable to the Lehman Brothers securities. For additional information about our measurement of this investment, see “Note 5 — Fair Value Measurements”.

Restricted Cash. Restricted cash, cash equivalents and short-term investments included in current assets on our Consolidated Balance Sheets totaled $196 million and $725 million at December 31, 2008 and 2007, respectively. Restricted cash, cash equivalents and short-term investments are recorded at fair value.

At December 31, 2008, our restricted cash, cash equivalents and short-term investments balance primarily related to (1) cash held to meet certain projected self-insurance obligations, (2) a Voluntary Employee Beneficiary Association (“VEBA”) trust, (3) short-term investments pledged as collateral for certain obligations of the Company and (4) an irrevocable trust that contains funds collected from passengers and withholdings from employees that are required to be paid to various taxing authorities, in addition to certain taxes that are self assessed. These collections include U.S. transportation taxes, passenger facility charges, and fuel taxes, which are collected in the capacity of an agent and are presented on a net basis. Withholdings include the employee portion of payroll taxes, among others.

The Company held $22 million and $321 million in the irrevocable tax trust, as outlined above, as of December 31, 2008 and December 31, 2007, respectively. Cash equivalents and short-term investments of $147 million and $160 million as of December 31, 2008 and December 31, 2007, respectively, were pledged as collateral for certain obligations of the Company.

On December 31, 2007, a $213 million deposit in an escrow account was classified as restricted cash related to Northwest’s pending investment in Midwest Air Group, LLC, a company formed by Northwest, TPG Midwest US V, LLC, and TPG Midwest International V, LLC for purposes of acquiring Midwest Air Group, Inc (“Midwest”). The deposit was subsequently withdrawn upon the closing of the transaction in January 2008.

Auction Rate Securities. Northwest reclassified its auction rate securities from short-term investments and current restricted investments to other noncurrent assets on our Consolidated Balance Sheets in December 2008. Auction rate securities categorized as noncurrent investments were $34 million as of December 31, 2008. Auction rate securities categorized as noncurrent restricted investments were $4 million as of December 31, 2008. There were no similar investments or restricted investments classified as noncurrent assets as of December 31, 2007. Auction rate securities are recorded at fair value in accordance with SFAS No. 115. See “Note 5 — Fair Value Measurements” for further information about the Company’s auction rate securities.

Margin Receivables. The cash margin we provide to counterparties is recorded in Hedge margin receivable or Restricted cash. All cash flows associated with purchasing and selling fuel hedge contracts are classified as operating cash flows on our Consolidated Statements of Cash Flows.

Presentation of Regional Carrier Related Revenue and Expense Items. Compass has been a wholly-owned consolidated subsidiary of the Company since its inception in 2006. Mesaba was acquired by the Company on April 24, 2007 and became a wholly-owned consolidated subsidiary. Northwest and Pinnacle, an unconsolidated regional carrier, have entered into an airline services agreement (“ASA”), under which Northwest determines Pinnacle’s commuter aircraft scheduling. This agreement is structured as a capacity purchase agreement whereby Northwest pays Pinnacle to operate the flights on Northwest’s behalf and Northwest is entitled to all revenues associated with those flights. Ticket revenues generated on flights operated by Compass, Mesaba and Pinnacle are recorded in Regional carrier revenue. Since the inception of Compass and the acquisition of Mesaba, operating expenses of these subsidiaries have been presented on the applicable lines of the Consolidated Statements of Operations. Amounts presented in Regional carrier expenses represent ASA payments to Pinnacle and other Pinnacle-related expenses. In conjunction with the effectiveness of an amended and restated Airline Services Agreement (“Amended Pinnacle ASA”) and the Stock Purchase and Reorganization Agreement with Mesaba, the Company changed its presentation of certain regional carrier related revenue and expense items effective January 1, 2007. This change in presentation had no impact on the Company’s 2007 operating income.

If this change in presentation was retroactively applied to prior year financial statements for the year ended December 31, 2006, Other operating revenues would have decreased $209 million, Depreciation and amortization expense would have increased by $3 million, Aircraft rentals expense would have increased $188 million, Regional carrier expenses would have decreased $400 million, and Operating income would have been unchanged.

Operating Revenues. The value of unused passenger tickets, miscellaneous change orders (“MCO’s”) and travel credit vouchers (“TCV’s”) are included in current liabilities as air traffic liability. Passenger and Cargo revenues are recognized when the transportation is provided or when the ticket expires, unused, reducing air traffic liability. Unused domestic passenger tickets generally expire one year from scheduled travel. Unused international passenger tickets generally expire one year from ticket issuance. On the Effective Date, the Company revised the accounting method used to recognize revenue for unused tickets, adopting the delayed recognition approach. Under the delayed recognition approach, no revenue is recognized on an unused ticket until the validity period has expired and the ticket can no longer be used. Prior to the Effective Date, the Pre-Merger Predecessor Company recognized breakage associated with unused passenger tickets based on estimates of future breakage developed using historical breakage trends.

Taxes and Fees. We are required to charge certain taxes and fees on our passenger tickets. These taxes and fees include U.S. federal transportation taxes, federal security charges, airport passenger facility charges and foreign arrival and departure taxes. These taxes and fees are legal assessments on the customer, for which we have an obligation to act as a collection agent. Because we are not entitled to retain these taxes and fees, we do not include such amounts in passenger revenue. We record a liability when the amounts are collected and reduce the liability when payments are made to the applicable government agency or operating carrier.

Frequent Flyer Program. Northwest operates a frequent flyer loyalty program known as “WorldPerks.” WorldPerks is designed to retain and increase traveler loyalty by offering incentives to travelers for their continued patronage. Under the WorldPerks program, miles are earned by flying on Northwest or its alliance partners and by using the services of program partners for such things as credit card use, hotel stays, car rentals and other activities. Northwest sells mileage credits to the program and alliance partners. WorldPerks members accumulate mileage in their accounts and later redeem mileage for free or upgraded travel on Northwest and alliance partners. WorldPerks members that achieve certain mileage thresholds also receive enhanced service benefits from Northwest such as special service lines, advance flight boarding and upgrades.

The Company adopted a deferred revenue method to recognize frequent flyer revenues on the Effective Date. The Company uses the residual method for recognition of mileage credits. Under this method, we account for miles earned and sold as separate deliverables in a multiple element arrangement as prescribed by EITF No. 00-21, Revenue Arrangements with Multiple Deliverables (“EITF No. 00-21”). Therefore, mileage credits earned on or after June 1, 2007 are now deferred based upon the price for which we sell mileage credits to other airlines (“deferred mileage credits”), which we believe represents the best evidence of their fair value in accordance with EITF No. 00-21. The revenue on deferred frequent flyer miles will be recognized when the miles are estimated to be redeemed through flight, upgrades or other means, or when it becomes remote that the miles will ever be used. Also in conjunction with the adoption of the new accounting policy on the Effective Date, Northwest began recording a component of the payments received from non-airline marketing partners in Other operating revenue rather than in Passenger revenue. This component, which is recognized immediately as Other operating revenue, is the portion of the payment received that represents the amount paid by the marketing partner in excess of the value of the deferred mileage credits. Estimating deferred mileage credits that will not be redeemed requires significant management judgment. Based on current program rules and historical redemption trends, the Company records passenger revenue associated with deferred mileage credits if the mile is unredeemed seven years after issuance. The amounts expected to be recognized in the next year based on historical redemption patterns are recorded as a component of current liabilities, while the remaining amount expected to be redeemed in years two through seven are recorded in deferred credits and other liabilities on the Consolidated Balance Sheets.

As a result of applying SFAS No. 141 on the Closing Date, the WorldPerks frequent flyer obligation was revalued to reflect the estimated fair value of miles to be redeemed in the future. Outstanding miles earned by flying Northwest or its partner carriers were revalued using a weighted-average per-mile equivalent ticket value, taking into account such factors as class of service and domestic and international ticket itineraries, which can be reflected in awards flown by WorldPerks members.

We previously accounted for frequent flyer miles earned on Northwest flights on an incremental cost basis as an accrued liability and as operating expense, while miles sold to airline and non-airline businesses were accounted for on a deferred revenue basis.

The Company recorded deferred revenue for its frequent flyer program of $2.0 billion as of both December 31, 2008 and December 31, 2007.

Property, Equipment and Depreciation. We record owned property and equipment at cost and depreciate or amortize these assets on a straight-line basis to their estimated salvage values over their respective estimated useful lives. Property and equipment under capital lease, and related obligations for future lease payments, are recorded at amounts equal to the initial present value of those lease payments. Leasehold improvements are amortized over the remaining term of the lease, including estimated renewal options when renewal is reasonably assured, or the estimated useful life of the related asset, whichever is less.

In connection with the closing of the Merger, Northwest adjusted the salvage values on airframes and engines to comply with Delta’s accounting policy. Additionally, we adjusted the net book values of property and equipment to their estimated fair values and adjusted the estimated useful lives of flight equipment to correspond to those of Delta. Future purchases of aircraft will be depreciated to estimated salvage values, over lives of 25 to 30 years; buildings and leasehold improvements will be depreciated up to 40 years; and other property and equipment will be depreciated over lives of three to 25 years.

The Company accounts for certain airport leases under EITF Issue No. 99-13, Application of EITF Issue No. 97-10, The Effect of Lessee Involvement in Asset Construction, and FASB Interpretation No. 23, Leases of Certain Property Owned by a Government Unit or Authority to Entities that Enter into Leases with Government Entities, which requires the financing related to certain guaranteed airport construction projects committed to after September 23, 1999, be recorded on the balance sheet. Airport improvements at Memphis, Knoxville and Seattle totaling $83.4 million were recorded in other property and equipment, with the corresponding obligations included in long-term obligations under capital leases as of December 31, 2008. Capital expenditures associated with a construction project at the Detroit airport were also reflected in other property and equipment with a corresponding liability on the balance sheet. This amount totaled $51.8 million at December 31, 2008.

Goodwill and Intangibles. Post-Merger Successor Company goodwill represents the excess of the purchase price over the fair value of net tangible assets and identifiable intangible assets acquired and liabilities assumed resulting from the application of SFAS No. 141 on the Closing Date. Pre-Merger Successor Company goodwill represents the excess of the reorganization value of the Pre-Merger Successor Company over the fair value of tangible assets and liabilities and identifiable intangible assets assumed resulting from the application of SOP 90-7 on the Effective Date.

Identifiable intangible assets consist primarily of international route authorities, trade names, the WorldPerks customer database, airport slots/airport operating rights, certain partner contracts and other items. International route authorities, certain airport slots/airport operating rights and certain SkyTeam alliance relationships are indefinite-lived and, as such, are not amortized. The Company’s definite-lived intangible assets are amortized on a straight-line basis over the estimated lives of the related assets, which span periods of one to 18 years, as of December 31, 2008. Refer to “Note 4 — Goodwill and Intangibles” for further information about changes to Northwest’s intangible asset lives and policies as a result of applying purchase accounting on the Closing Date.

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), we apply a fair value-based impairment test to the net book value of goodwill and indefinite-lived intangible assets on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. Northwest performed an interim impairment test in conjunction with the announcement of the Merger between Northwest and Delta on April 14, 2008 (“the Announcement Date”) and recorded impairments on goodwill and certain intangible assets in conjunction with that interim test. The annual impairment test date for our goodwill and indefinite-lived intangible assets is October 1. The Company passed Step 1 of the goodwill impairment test. See “Note 4 — Goodwill and Intangibles” for further information about Northwest’s intangibles, goodwill, and impairment testing process.

Changes in assumptions or circumstances could result in an additional impairment in the period in which the change occurs and in future years. Factors which could cause impairment include, but are not limited to, (1) high fuel prices, (2) declining passenger mile yields, (3) lower demand as a result of the weakening U.S. economy, (4) interruption to our operations due to an employee strike, terrorist attack, or other reasons and (5) consolidation of competitors within the industry.

Impairment of Long-Lived Assets. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”), we record impairment losses on long-lived assets used in operations when events and circumstances indicate the assets may be impaired and the estimated future cash flows generated by those assets are less than their carrying amounts.

To determine impairments for aircraft used in operations, we group assets at the fleet-type level (the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of capacity, passenger yield, fuel costs, labor costs and other relevant factors. If impairment occurs, the impairment loss recognized is the amount by which the aircraft’s carrying amount exceeds its estimated fair value. We estimate aircraft fair values using published sources, appraisals, and bids received from third parties, as available. Impairment charges are recorded in Depreciation and amortization expense. If there are subsequent changes in these estimates, or if actual results differ from these estimates, additional impairment charges may be recognized.

The Company’s aircraft were subject to recoverability tests to determine if a loss in fair value measured in the goodwill Step 2 test would result in an impairment charge. As a result, the Company recorded, as additional Depreciation and amortization expense, impairment charges of $35.9 million related to the Boeing 747F fleet and related spare engines during the second quarter of 2008. See “Note 5 — Fair Value Measurements” for further information on these impairment charges.

In March 2008, as part of a revised fleet plan, the Company determined that it would remove three Boeing 747F aircraft and two DC9-30 aircraft from scheduled service during the remainder of 2008 and the first quarter of 2009. As a result, the Company recorded, as additional Depreciation expense, impairment charges of $17.2 million associated with these aircraft and related inventory.

In the first quarter of 2007, the Company recorded $13.3 million related to the impairment of three owned aircraft which were permanently removed from service. These charges reflect the Company’s decision to park three DC9-30 aircraft permanently, consistent with the Company’s ongoing review of its aircraft fleet plan in conjunction with its overall route structure and capacity requirements. The first quarter 2007 impairment charges were recorded as Reorganization expenses.

Flight Equipment Spare Parts. On the Closing Date and on the Effective Date, flight equipment spare parts were remeasured at current replacement cost in accordance with SFAS No. 141. Inventories are expensed when consumed in operations or scrapped. An allowance for obsolescence is provided based on calculations defined by the type of spare part. This obsolescence reserve is recorded over the useful life of the associated aircraft.

Airframe and Engine Maintenance. We record maintenance costs in aircraft maintenance materials and repairs in our Consolidated Statements of Operations as they are incurred or accrued when a contractual obligation exists, such as induction of an asset at a vendor for service or on the basis of hours flown for certain costs covered by power-by-the-hour type agreements. Modifications that enhance the operating performance or extend the useful lives of airframes or engines are capitalized and amortized over the remaining estimated useful life of the asset.

Advertising. Advertising costs, included in Selling and marketing expenses, are expensed as incurred and were $12 million for the period from October 30 to December 31, 2008, $47 million for the period from January 1 to October 29, 2008, $51 million for the seven months ended December 31, 2007, $20 million for the five months ended May 31, 2007 and $63 million for the year ended December 31, 2006.

Stock-Based Compensation. On the Effective Date, the Management Equity Plan (“the 2007 Plan”) of the Pre-Merger Successor Company provided for in the Plan of Reorganization became effective. On the Closing Date, vesting on all outstanding stock-based awards was accelerated and each share was converted into 1.25 shares of Delta stock and each option was converted into 1.25 options in Delta stock. In connection with the closing of the Merger, an equity-based program sponsored by Delta was adopted under the Delta Air Lines, Inc. 2007 Performance Compensation Plan. This Merger Award Program included grants to employees of Northwest in the form of unrestricted common stock, restricted shares of common stock, and/or non-qualified stock options that will settle in Delta common shares with an expense allocation to Northwest. See “Note 12 — Stock-Based Compensation” for additional information.

Effective January 1, 2006, we adopted the fair value provisions of SFAS No. 123 (revised 2004), Share Based Payments (“SFAS No. 123(R)”). This standard requires companies to measure the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award. The fair value is estimated using option-pricing models. The resulting cost is recognized over the period during which an employee is required to provide service in exchange for the awards (usually the vesting period of the awards). The Company uses straight-line recognition for awards subject to graded vesting. SFAS No. 123(R) also requires the Company to estimate forfeitures of stock compensation awards as of the grant date of the award.

Foreign Currency. Assets and liabilities denominated in foreign currency are remeasured at current exchange rates with resulting gains and losses included in net income.

Income Taxes. In accordance with SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”), we account for deferred income taxes under the liability method. Under this method, we recognize deferred tax assets and liabilities based on the tax effects of temporary differences between the financial statement and tax bases of assets and liabilities, as measured by current enacted tax rates. A valuation allowance is recorded to reduce deferred tax assets when necessary. Deferred tax assets and liabilities are recorded net as current and noncurrent deferred income taxes on our Consolidated Balance Sheets. The Company has reclassified its December 31, 2007 beginning balance sheet to adjust its allocation of net current and noncurrent deferred income taxes. This reclassification conforms the allocation to the methodology used by Delta.

Under the Provisions of SFAS No. 109, the realization of the future tax benefits of a deferred tax asset is dependent on future taxable income against which such tax benefits can be applied. All available evidence must be considered in the determination of whether sufficient future taxable income will exist. Such evidence includes, but is not limited to, the Company’s financial performance, the market environment in which the company operates, the utilization of past tax credits, and the length of relevant carryback and carryforward periods. Sufficient negative evidence, such as cumulative net losses during a three-year period that includes the current year and the prior two years, may require that a valuation allowance be established with respect to existing and future deferred tax assets. As a result, it is more likely than not that future deferred tax assets will require a valuation allowance to be recorded to fully reserve against the uncertainty that those assets would be realized. On the Closing Date and on the Effective Date, the Company accounted for deferred taxes based on the remeasured values of the Post-Merger Successor Company and the Pre-Merger Successor Company, respectively, and in accordance with SFAS No. 109. Use of deferred tax assets from the Pre-Merger Successor Company and the Pre-Merger Predecessor Company that require valuation allowances under SFAS No. 109 are recognized as adjustments to goodwill followed by other indefinite-lived intangible assets until the net carrying value of these assets is zero. Beginning January 1, 2009, any adjustments to Pre-Merger Successor and Pre-Merger Predecessor tax positions will be made through the income tax provision pursuant to SFAS No. 141(R).

Note 2 — Business Combinations

Under the terms of the Merger Agreement, each outstanding share of Northwest’s common stock was converted into 1.25 shares of Delta common stock. Stock options and other equity awards granted under the 2007 Plan converted into stock options and equity awards with respect to Delta common stock, after giving effect to the exchange ratio. The purchase price is calculated in accordance with EITF 99-12, Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in Purchase Business Combination (“EITF 99-12”), which outlines that the purchase price be determined based on the price of the acquirer’s common stock for a reasonable period before and after the Announcement Date. Based on the 5-day average closing price of Delta’s common stock around the Announcement Date, the right to receive 1.25 shares of Delta stock for each share of the Company’s common stock, and the number of shares converted into Delta common stock on the Closing Date, the purchase price was $3.35 billion.

Under purchase accounting, the excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired and liabilities assumed was recorded as Goodwill in the accompanying Consolidated Balance Sheet. Deferred taxes are determined in conformity with SFAS No. 109.

In accordance with SFAS No. 141, the allocation of purchase price is subject to adjustment for up to one year after the Closing Date when additional information on asset and liability valuations becomes available. Any changes to the initial estimates of the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to Goodwill.

The effects of the Merger on the Company’s Condensed Consolidated Balance Sheet are as follows:

	Pre-Merger						Post-Merger
	Successor			Purchase			Successor
	October 29,			Accounting			October 29,
(Unaudited, in millions)	2008			Adjustments			2008		Reference

Assets

Current Assets
Cash and cash equivalents	$	2,441		$	—		$	2,441
Unrestricted short-term investments	159			—			159
Restricted cash, cash equivalents and short-term investments	844			—			844
Accounts receivable, net	1,146			—			1,146
Flight equipment spare parts, net	131			—			131
Maintenance and operating supplies	172			—			172
Current deferred tax assets	—			150			150		(a)
Prepaid expenses and other	171			(17		)	154
Total current assets	5,064			133			5,197

Property and Equipment
Property and equipment, net	8,667			(115		)	8,552		(b)

Other Assets
Goodwill	2,873			1,699			4,572
International routes and other intangibles	3,882			(1,180		)	2,702		(c)
Investments in affiliated companies	3			—			3
Other	450			(161		)	289		(d)
Total Assets	$	20,939		$	376		$	21,315

Liabilities and Stockholders’ Equity (Deficit)

Current Liabilities
Air traffic liability/deferred frequent flyer liability	$	2,303		$	1		$	2,304
Accounts payable and other liabilities	2,263			104			2,367		(e)
Current maturities of long-term debt and capital lease obligations	934			(277		)	657		(f)
Total current liabilities	5,500			(172		)	5,328

Long-Term Debt and Obligations Under Capital Leases	7,067			(1,485		)	5,582		(f)

Deferred Credits and Other Liabilities
Long-term pension and postretirement benefits	3,640			370			4,010		(g)
Deferred frequent flyer liability	1,422			101			1,523		(h)
Deferred income taxes	913			200			1,113		(i)
Other	185			221			406		(j)
Total deferred credits and other liabilities	6,160			892			7,052

Common Stockholders’ Equity (Deficit)
Pre-Merger Successor Company common stock and additional paid-in capital	7,474			(7,474		)	—		(k)
Retained earnings (Accumulated deficit)	(5,120		)	5,120			—		(k)
Accumulated other comprehensive income (loss)	(142		)	142			—		(k)
Post-Merger Successor Company common stock and additional paid-in capital	—			3,353			3,353		(k)
Total common stockholders’ equity (deficit)	2,212			1,141			3,353
Total Liabilities and Stockholders’ Equity (Deficit)	$	20,939		$	376		$	21,315

Purchase Accounting Adjustments. Purchase accounting adjustments were recorded on the Closing Date to reflect asset values at their estimated fair values and liabilities at their estimated fair values or the present value of amounts to be paid, including the following:

(a) $0.2 billion was reclassified as a current deferred tax asset in association with adopting Delta’s accounting policy for presentation of deferred tax assets and liabilities;

(b) The balance of the Company’s flight equipment was decreased by $0.1 billion to its estimated fair value;

(c) A reduction of $1.2 billion was recorded to intangible assets in conjunction with the estimated fair value of the Company’s international route authorities, slots and other intangible assets;

(d) The balance of the Company’s other assets was reduced by $0.2 billion, primarily related to writing off deferred debt issuance costs that have no value to the Post-Merger Successor Company;

(e) An increase of $0.1 billion in accounts payable and other liabilities, primarily related to recording severance expected to be paid to Northwest employees, officers and directors and to an increase in property tax accruals to conform to Delta’s accounting policy;

(f) A reduction of $1.8 billion was recorded to adjust debt and capital lease obligations to fair value primarily due to a widening of interest rate spreads in the market;

(g) The pension and other postretirement benefits liability balances were increased by $0.4 billion due to the required remeasurement on the Closing Date;

(h) The Company’s deferred frequent flyer liability balance was increased by $0.1 billion to its estimated fair value;

(i) The Company’s deferred tax liability balance was increased by $0.2 billion in conjunction with recording the estimated fair value of certain indefinite-lived intangible assets;

(j) The Company recorded $0.2 billion in additional other deferred credits and other liabilities primarily to record the fair value of certain above-market aircraft operating leases; and

(k) Entries were recorded to eliminate the Pre-Merger Successor Company’s equity balances and establish the opening equity balances of the Post-Merger Successor Company based on the purchase price associated with the Merger.

Additionally, goodwill of $4.6 billion was recorded to reflect the excess of the purchase price over the value of net tangible and identifiable intangible assets acquired and liabilities assumed. Additional changes in the fair values of these assets and liabilities from the current estimated values, as well as changes in other assumptions, could significantly impact the reported value of goodwill. Accordingly, there can be no assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially. Refer to “Note 5 — Fair Value Measurements” for further information about the valuation methodologies used in estimating the fair values.

Included in the liabilities valued on the Closing Date were severance and related costs of $62 million, all of which will be paid in cash, and restructuring of facility leases and other charges of $32 million. The following table shows the balances for these liabilities as of December 31, 2008, and the activity for the year then ended:

	Balance at		Purchase					Balance at
	December 31,		Accounting					December 31,
(In millions)	2007		Adjustments		Payments			2008
Severance and related costs	$	—	$	62	$	(15	)	$	47
Facilities and other	—		32		—			32
Total	$	—	$	94	$	(15	)	$	79

Note 3 — Merger Related Expenses

In connection with the Merger, the Company recorded the following largely non-cash merger related expenses:

	Post-Merger		Pre-Merger
	Successor		Successor
	Period From		Period From
	October 30 to		January 1 to
	December 31,		October 29,
(In millions)	2008		2008
Stock compensation (1)	$	307	$	165
Other payroll related charges	18		16
Professional fees	2		39
Other	6		4
Merger related expenses	$	333	$

NORTHWEST AIRLINES CORP 10-K