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Rating Action:

MOODY'S DOWNGRADES RATINGS OF NORTHWEST AIRLINES, INC. SENIOR IMPLIED TO B2 FROM B1

10 Apr 2003
MOODY'S DOWNGRADES RATINGS OF NORTHWEST AIRLINES, INC. SENIOR IMPLIED TO B2 FROM B1

Approximately $5.9 Billion of Debt Securities Affected.

New York, April 10, 2003 -- Moody's Investor's Service lowered the debt ratings of NWA Corp and its primary operating subsidiary Northwest Airlines, Inc. (Senior Implied B2 from B1); the Senior Unsecured rating was downgraded to Caa1 from B2. The outlook is Negative.

The downgrade reflects the increased financial risks to debt holders due to a reduction in demand and a resulting expectation of weaker cash flow that could continue for the foreseeable future. Weak cash flow in the second and third quarter, generally a period of strong positive cash flow for Northwest, would place additional strain on the company as it enters the fourth and first calendar quarters which are more traditionally cash flow negative. Acknowledged in the ratings is Northwest's highly proactive approach to cost cutting and liquidity management, the probability of government assistance to the airline industry including Northwest, the possibility of an increase in demand as the most active period of the war in Iraq comes to a close, and the adverse implications for airlines of current concerns related to SARS. The ratings action completes a review begun on March 17, 2003.

The rating outlook is Negative reflecting the significant operating and financial challenges facing Northwest in the near term. Increased passenger traffic is dependent on a quick return of consumer and business confidence which have been stalled by a weak economic outlook and concerns related to the war in Iraq. Pricing is expected to remain very competitive, even with an increase in demand, as financial pressures could prompt some carriers to set fares to generate short-term cash rather than longer term profits. The high degree of uncertainty regarding near term cash flow presents the possibility that Northwest may not be able to sustain sufficient liquidity over the next two quarters to warrant maintaining the current ratings as it enters the weaker portion of its seasonal cycle.

Although Northwest has one of the strongest liquidity position among US airlines, the financial strength of the company has been eroded by continued cash flow deficits and increased borrowings. Balance sheet liquidity remains strong (Moody's estimates unrestricted cash will be approximately $2.1 billion at quarter end) but could face erosion if the typical seasonal strength seen in the second and third calendar quarters does not materialize. Several factors could lead to this outcome. The war in Iraq did not begin until late in the first quarter and is expected to substantially affect demand (particularly on trans-Atlantic routes) through the second quarter or longer. Northwest, with an extensive Pacific route system may also be affected by passenger concerns regarding SARS. Moody's notes that the company's trans-Pacific flights are to Tokyo and that Northwest uses Tokyo as a hub for its Pacific operations. Traffic to Tokyo has not been as negatively affected as non-stop routes between the US and SARS affected destinations such as Hong Kong. Trans-Atlantic markets remain affected by the war in Iraq and are highly sensitive to summer tourist travel which would be negatively affected by continued geopolitical uncertainty. Moody's anticipates that a sustained reduction in demand would lead to further cost cutting efforts which could help to mitigate the impact on cash flow.

The company's cash position could benefit from the finalization of the announced sale of Worldspan (cash proceeds to Northwest of approximately $270 million), an approval by the IRS of Northwest's request for a waiver to defer cash contributions to its pension plans and the potential government reimbursement of security costs. Capital expenditures are primarily aircraft acquisition related as the company continues to take delivery of new Airbus aircraft for replacement of less efficient equipment. These aircraft all have committed financing with Northwest responsible for a small (approximately $100 million for the remainder of 2003) equity portion. Debt maturities for the remainder of the year are estimated to be approximately $300 million.

The company's unsecured debt rating was lowered two notches while the senior implied rating was reduced by one. The majority of the company's assets have been pledged to secured debt holders and unsecured debt holders, effectively subordinated, could face a substantial loss of principal in liquidation due to this effective subordination of their position.

The company's Equipment Trust Certificate and Enhanced Equipment Trust Certificate transactions have been reviewed and the ratings adjusted based on Moody's view of the underlying collateral. Because of the precipitous decline in aircraft values, particularly for certain older models, certain transactions have been more significantly affected than others. Junior tranches have also been negatively affected due to the continued weakening of the secondary market for aircraft. Moody's anticipates that this trend will continue for the intermediate term as there is no indication of a resurgence of demand or a scrapping of capacity that would meaningfully bring supply and demand back into balance.

Ratings affected are as follows:

Northwest Airlines Corporation:

Issuer Rating: to Caa2 from B3

Senior Implied Rating: to B2 from B1

Northwest Airlines, Inc.

Senior Unsecured: to Caa1 from B2

Senior Unsecured Debt Shelf: to (P)Caa1 from (P)B2

Senior Subordinated Debt Shelf: to (P)Caa3 from (P)B3

Secured Revolving Credit Facility: to B1 from Ba3

Industrial Revenue Bond Series 1997: to Caa1 from B2

NWA Trust #1

Enhanced Equipment Notes Ser. A: to Ba2 from Ba1

Enhanced Equipment Notes Ser. B: to B1 from Ba2

NWA Trust #2

Enhanced Equipment Notes, Class A: confirmed at Baa2

Enhanced Equipment Notes, Class B: confirmed at Baa3

Enhanced Equipment Notes, Class C: confirmed at Ba2

Enhanced Equipment Notes, Class D: confirmed at Ba3

Enhanced Equipment Trust Certificates, Series 1996-1, Class A: to Ba2 from Baa2

Enhanced Equipment Trust Certificates, Series 1996-1, Class B: to B2 from Ba1

Enhanced Equipment Trust Certificates, Series 1996-1, Class C: to Caa1 from Ba2

Enhanced Equipment Trust Certificates, Series 1996-1, Class D: to Caa2 from Ba3

Enhanced Equipment Trust Certificates, Series 1997-1, Class G: Aaa

Enhanced Equipment Trust Certificates, Series 1997-1, Class A: to Ba2 from Baa3

Enhanced Equipment Trust Certificates, Series 1997-1, Class B: to B2 from Ba2

Enhanced Equipment Trust Certificates, Series 1997-1, Class C: to Caa1 from Ba3

Enhanced Equipment Trust Certificates, Series 1999-1, Class A: to Baa3 from A3

Enhanced Equipment Trust Certificates, Series 1999-1, Class B: to Ba3 from Baa2

Enhanced Equipment Trust Certificates, Series 1999-1, Class C: to B3 from Ba2

Enhanced Equipment Trust Certificates, Series 1999-2, Class A: to Baa2 from A3

Enhanced Equipment Trust Certificates, Series 1999-2, Class B: to Ba1 from Baa2

Enhanced Equipment Trust Certificates, Series 1999-2, Class C: to B1 from Ba2

Enhanced Equipment Trust Certificates, Series 1999-3, Class G*: Aaa

Enhanced Equipment Trust Certificates, Series 1999-3, Class B: to B1 from Ba2

Enhanced Equipment Trust Certificates, Series 1999-3, Class C: to B3 from Ba3

Enhanced Equipment Trust Certificates, Series 2000-1, Class G*: Aaa

Enhanced Equipment Trust Certificates, Series 2000-1, Class C: to B3 from Ba2

Enhanced Equipment Trust Certificates, Series 2001-1, Class A: to Baa3 from A3

Enhanced Equipment Trust Certificates, Series 2001-1, Class B: to Ba2 from Baa2

Enhanced Equipment Trust Certificates, Series 2001-1, Class C: to B2 from Ba2

Enhanced Equipment Trust Certificates, Series 2001-2, Class A: to Baa1 from A1

Enhanced Equipment Trust Certificates, Series 2001-2, Class B: to Ba1 from Baa3

Enhanced Equipment Trust Certificates, Series 2002-1, Class G*: Aaa

Enhanced Equipment Trust Certificates, Series 2002-1, Class C: to B1 from Ba1

* Enhanced Equipment Trust Certificates supported by monoline insurance policies remain rated Aaa.

NWA Corporation and Northwest Airlines, Inc. are headquartered in Eagan, MN.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Richard Bittenbender
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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