Fitch Ratings: Northwest Airlines Off Rating Watch Negative.

Business Editors

CHICAGO--(BUSINESS WIRE)--Feb. 14, 2002

Fitch Ratings has removed the debt of Northwest Airlines, Inc. (Northwest) from Rating Watch Negative, while affirming the current ratings of 'B+' for Northwest's senior unsecured debt securities. The current Rating Outlook for Northwest is Negative.

Fitch's rating action reflects the latest signs of stabilization in Northwest's cash flow position that have begun to appear over the last several weeks. Following the unprecedented collapse in air travel demand that resulted from the events of September 11, Northwest's revenue per available seat mile (RASM) performance has improved steadily. RASM, which represents the product of passenger load factor and yield, showed a year-over-year decline of 16% (in line with industry norms) in the fourth quarter, with sequential improvements seen in each month since September. Northwest continues to enjoy a RASM premium over the U.S. industry as a whole, due in large part to its strong competitive position at the Minneapolis-St. Paul and Detroit hubs. Although yields remain very weak as a result of a less favorable business/leisure passenger mix and continued discounting, booked load factors in the first quarter appear to be improving. More normal load factors (71% system wide in January) and unit revenue comparisons suggest that the foundation has been laid for a return to positive operating cash flow in the second and third quarters, when seasonal demand patterns are strong. Fitch believes that the risk of a further weakening in Northwest's operating cash flow position is unlikely given the more positive demand outlook for the rest of 2002.

In spite of these encouraging developments, Northwest continues to face a high degree of financial risk as it seeks to recover from the post-September 11 demand shock. Adjusted leverage, reflecting both on-balance sheet debt and off-balance sheet aircraft and facilities lease obligations, remains extremely high (greater than 95% of gross lease-adjusted capitalization). After drawing down its bank credit facility following September 11 and completing financing for a large number of new aircraft deliveries, Northwest's fixed financing charges will rise in 2002.

Northwest entered the current crisis with a commitment to controlling operating expenses, and had successfully lowered its cost per available seat mile (CASM) beginning in the first quarter of 2001. With all major labor contract issues settled and little risk of additional wage shocks, Northwest finds itself in a reasonably strong position as it fights to keep CASM increases down in 2002. For the fourth quarter of 2001, CASM increased by 3.5% over the prior year period. Large declines in fuel expenses (down 31%) and commissions (down 46%) offset higher insurance premiums and security expenses. With most of the quick cost control measures related to the schedule reduction already completed, Northwest is likely to see higher CASM levels in 2002. This results from the high level of fixed costs in the airline's operating budget and the need to spread those fixed costs over a smaller capacity base.

With respect to capital spending and the fleet plan, Northwest is embarking upon a major fleet overhaul that involves the replacement of older, high operating cost aircraft such as Boeing 727s and DC10s with Airbus A319/320 and Boeing 757-300 narrowbodies, as well as Airbus A330 and Boeing 747-400 widebodies. In 2002, the company is scheduled to take delivery of 38 mainline jets and 23 Bombardier regional jets to be operated by Northwest Airlink regional carriers. All new aircraft deliveries have been financed through completed enhanced equipment trust certificate (EETC) transactions or manufacturer financing deals. Total capital spending for Northwest is projected to reach $2.0 billion in 2002.

Northwest's liquidity position remains quite strong relative to its competitors, with a year-ending 2001 cash balance of $2.6 billion. This figure includes the $461 million (pretax) in government stabilization grants, as well as deferred federal excise taxes that were paid on January 15. An additional $51 million in government grants is expected in the first quarter. The company has amended the terms of its bank facilities to relax financial covenants. While the company has not ruled out any future loan guarantee application to the U.S. Government, it has no immediate plans to make such an application.