UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

Commission File Number: 0-23642

NORTHWEST AIRLINES CORPORATION

(Exact name of registrant as specified in its charter)

(612) 726-2111

(Registrant’s telephone number, including area code)

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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definitions of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 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

As of April 11, 2008, there were 243,903,924 shares of the registrant’s Common Stock outstanding.

NORTHWEST AIRLINES CORPORATION

2

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements.

NORTHWEST AIRLINES CORPORATION

See accompanying notes.

3

NORTHWEST AIRLINES CORPORATION

See accompanying notes.

4

NORTHWEST AIRLINES CORPORATION

See accompanying notes.

5

NORTHWEST AIRLINES CORPORATION

Note 1 – Basis of Presentation

The condensed consolidated financial statements of Northwest Airlines Corporation (“NWA Corp.”), the direct parent corporation of Northwest Airlines, Inc. (“Northwest”), include the accounts of NWA Corp. and all consolidated subsidiaries (collectively, the “Company”).  Unless otherwise indicated, the terms “we,” “us,” and “our” refer to NWA Corp. and all consolidated subsidiaries.  The condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  The information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes included in the Company’s audited consolidated financial statements, which are provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, as amended by the Form 10-K/A filing dated April 29, 2008 (collectively, the “2007 Form 10-K”).

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 243 cities in 22 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 Air Lines, Inc. (“Delta”), membership in SkyTeam, a global airline alliance with KLM, Continental, Delta, Air France, Aeroflot, Alitalia, Aeromexico, China Southern, CSA Czech Airlines and Korean Air, exclusive marketing agreements with three domestic regional carriers, Pinnacle Airlines, Inc. (“Pinnacle”), Mesaba Aviation, Inc. (“Mesaba”), a wholly-owned subsidiary, and Compass Airlines, Inc. (“Compass”), a wholly-owned subsidiary, which currently 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.

As a result of the application of 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”) 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 3 – Fresh-Start Reporting” for further details.

The Company maintains a Web site at http://www.nwa.com .  Information contained on the Company’s Web site is not incorporated into this quarterly report on Form 10-Q.  Annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, all amendments to those reports and other information about the Company are available free of charge through this Web site at http://ir.nwa.com as soon as reasonably practicable after those reports are electronically filed with or furnished to the SEC.

In the opinion of management, the interim financial statements reflect adjustments, consisting of normal recurring accruals, unless otherwise noted, which are necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods indicated.

The Company’s results of operations for interim periods are not necessarily indicative of the results for an entire year due to seasonal factors as well as competitive and general economic conditions.  The Company’s second and third quarter operating results have historically been more favorable due to increased leisure travel on domestic and international routes during the spring and summer months.

Merger Announcement.   On April 14, 2008, the Company and Delta entered into an Agreement and Plan of Merger (the “Merger Agreement”) that provides, among other things, for the Company to be merged with a wholly-owned subsidiary of Delta (the “Merger”).

6

Consummation of the Merger is subject to customary closing conditions, including shareholder approval by holders of common stock of NWA Corp. and Delta and receiving certain domestic and foreign regulatory and antitrust approvals (including from the Federal Aviation Administration and the United States Department of Transportation, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and pursuant to Council Regulation (EEC) 139/2004 of the European Commission).  The Merger Agreement contains certain termination rights for both NWA Corp. and Delta.  The Merger Agreement further provides that, upon termination of the Merger Agreement under specified circumstances, the Company may be required to pay to Delta, or Delta may be required to pay to the Company, a termination fee of $165 million.

Under the terms of the Merger Agreement, each outstanding share of the Company’s common stock will be converted into the right to receive 1.25 shares of Delta common stock.  Stock options and other equity awards granted under the Company’s 2007 Management Equity Plan will convert into stock options and equity awards with respect to Delta common stock, after giving effect to the exchange ratio.

Certain contracts, employee benefit arrangements and debt instruments of the Company contain change in control provisions that may be triggered by the Merger, resulting in changes to the terms or settlement amounts of the contracts, arrangements or instruments.

We currently expect the Merger to close by the end of 2008.  However, factors outside of our control could require us to complete the Merger at a later time or not to complete it at all.

Stockholder Rights Plan.   Pursuant to the Stockholder Rights Plan (the “Rights Plan”), each share of common stock has attached to it a right and, until the rights expire or are redeemed, each new share of common stock issued by NWA Corp., will include one right.  Once exercisable, each right entitles the holder (other than the acquiring person or group) to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock at an exercise price of $120, subject to adjustment.  The rights become exercisable upon the occurrence of certain events, including the acquisition by any air carrier with passenger revenues in excess of approximately $1 billion per year (as such amount may be increased based on increases in the Consumer Price Index from 2000) (a “Major Carrier”), a holding company of a Major Carrier or any of their respective affiliates acquires beneficial ownership of 20% or more of NWA Corp.’s outstanding common stock or commences a tender or exchange offer that would result in such person or group acquiring beneficial ownership of 20% or more of NWA Corp.’s outstanding common stock.  The rights expire on May 31, 2017, and may be redeemed by NWA Corp. at a price of $.01 per right prior to the time they become exercisable.

On April 14, 2008, prior to the execution of the Merger Agreement, the Company amended the Rights Plan to provide, among other things, that neither the approval, execution, delivery, announcement or performance of the Merger Agreement or the consummation of the Merger or any other transactions contemplated thereby will cause a triggering event under which the rights would become exercisable.  The amendment also provides that the Rights Plan and the rights established thereby will terminate in all respects immediately prior to the Merger becoming effective.

Restrictions on the Transfer of Common Stock.  To reduce the risk of a limitation under Section 382 of the Internal Revenue Code on the Company’s ability to use its net operating loss carryforwards (“NOLs”), the Amended and Restated Certificate of Incorporation restricts certain transfers of common stock for two years after the Company’s emergence from bankruptcy.  Such restrictions can be extended thereafter for three consecutive one year periods (to June 2012) upon, each time, the affirmative vote of the Company’s stockholders.  During the two year period, these restrictions generally provide that any attempted transfer of common stock prior to the expiration of the term of the transfer restrictions will be prohibited and void if such transfer would cause the transferee’s ownership interest in the Company to increase to 4.95% or above, including an increase in a transferee’s ownership interest from 4.95% or above to a greater ownership interest, unless approved by the Board of Directors on the basis that the transfer does not increase the risk of an ownership change.  In the event that these restrictions are extended beyond the two year period, the Board of Directors will approve proposed transfers that, taking into account all prior transfers, do not result in an aggregate owner shift under Section 382 of more than 30%.  If the aggregate owner shift as of any date after the two year period exceeds 30%, the Board of Directors has the discretion to approve any subsequent transfers subject to the standards applicable during the two year period until the earlier of the date on which the aggregate owner shift no longer exceeds 30%, or the restriction is no longer in effect.

Note 2 – Voluntary Reorganization Under Chapter 11

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 .

7

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 SOP 90-7.

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.

The new common stock is listed on the New York Stock Exchange (the “NYSE”) and began trading under the symbol “NWA” on May 31, 2007.  Pursuant to the Plan of Reorganization, stockholders of NWA Corp. prior to the Effective Date received no distributions and their stock was cancelled.

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 “Note 10 – Long-Term Debt” for additional information.

Claims Resolution Process .  Pursuant to terms of the Plan of Reorganization, approximately 234.4 million shares of the Successor Company’s common stock will be issued to holders of allowed general unsecured and guaranty claims of the Debtors.  Once a claim is allowed consistent with the claims resolution process, the claimant is entitled to a distribution of new common stock.  Approximately 216.1 million shares of new common stock have been issued and distributed through April 2008, in respect of valid unsecured and guaranty claims.  In total, there are approximately 18.3 million remaining shares of new common stock held in reserve under the terms of the Plan of Reorganization.  The Merger Agreement contemplates that following the Merger the right to receive shares held in the reserves will become the right to receive shares of Delta common stock adjusted for the exchange ratio.

The Company estimates that the probable range of unsecured claims to be allowed will be between $8.0 and $8.4 billion.  Differences between claim amounts filed and the Company’s estimates are being investigated and will be resolved in connection with the claims resolution process. However, there will be no further financial impact to the Company associated with the settlement of such unsecured claims, as the holders of all allowed unsecured claims against the Predecessor Company will receive under the Plan of Reorganization only their pro rata share of the distribution of the newly issued Common Stock of the Successor Company.  Secured claims were deemed unimpaired under the Plan of Reorganization and were satisfied upon either reinstatement of the obligations in the Successor Company, surrendering the collateral to the secured party, or by making full payment in cash.

Note 3 – Fresh-Start Reporting

Upon emergence from its Chapter 11 proceedings on May 31, 2007, the Company adopted fresh-start reporting in accordance with SOP 90-7.  The Company’s emergence from Chapter 11 resulted in a new reporting entity with no retained earnings or accumulated deficit.  Accordingly, the Company’s consolidated financial statements for periods prior to June 1, 2007 are not comparable to consolidated financial statements presented on or after June 1, 2007.

Fresh-start reporting reflects the value of the Company as determined in the confirmed Plan of Reorganization. Under fresh-start reporting, the Company’s asset values are remeasured and allocated in conformity with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations (“SFAS No. 141”). The excess of reorganization value over the fair value of tangible and identifiable intangible assets was recorded as goodwill in the accompanying Condensed Consolidated Balance Sheets. In addition, fresh-start reporting also required that all liabilities, other than deferred taxes and pension and other postretirement benefit obligations, be stated at fair value or at the present values of the amounts to be paid using appropriate market interest rates. Deferred taxes were determined in conformity with SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”).  As part of the provisions of SOP 90-7, on June 1, 2007 we were required to adopt all accounting guidance that was going to be effective within the subsequent twelve-month period.  See “Note 5 – Fair Value Measurements” for additional information.

Estimates of fair value represented the Company’s best estimates based on its valuation models which incorporated industry data and trends and relevant market rates and transactions.

8

To facilitate the calculation of the enterprise value of the Successor Company, Northwest’s financial advisors assisted management in the preparation of a valuation analysis for the Successor Company’s common stock to be distributed as of the Effective Date to the unsecured creditors.  The enterprise valuation included (i) a 40% weighting towards a comparable company analysis based on financial ratios and multiples of comparable companies, which were then applied to the financial projections developed by the Company to arrive at an enterprise value; and (ii) a 60% weighting towards a discounted cash flow analysis which measures the projected multi-year, un-levered free cash flows of the Company to arrive at an enterprise value.

        The estimated enterprise value and corresponding equity value in fresh-start reporting were highly dependent upon achieving the future financial results set forth in the five-year financial projections included in the Company’s Plan of Reorganization, as well as the realization of certain other assumptions.  The equity value of the Company in fresh-start reporting was calculated to be a range of approximately $6.45 billion to $7.55 billion.  Based on claims trading prior to the Company’s Effective Date and the trading value of the Company’s common stock post emergence, the equity value of the Company was estimated to be $6.45 billion for purposes of preparing the Company’s financial statements.  The estimates and assumptions made in this valuation were inherently subject to significant uncertainties and the resolution of contingencies beyond the reasonable control of the Company.  See “Note 4 – Goodwill and Intangibles” for a description of the $3.9 billion goodwill impairment charge recorded in the first quarter of 2008.

Note 4 – Goodwill and Intangibles

  Goodwill represents the excess of the reorganization value of the Successor Company over the fair value of tangible assets and identifiable intangible assets resulting from the application of SOP 90-7.  Northwest’s goodwill mainly consists of three components:

·                   A valuation allowance recorded against our net deferred tax assets, as required by SFAS No. 109; this valuation allowance will be reversed against goodwill when the Company reports income in future periods.

·                   Revenue-generating intangibles that do not meet the contractual or separable criteria of SFAS No. 141, including our flight network and international routes to open skies countries.

·                   The value inherent in future customer relationships due to Northwest’s ability to attract new customers.

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 trade names 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 four to 30 years.

The following table presents information about our intangible assets, including goodwill, at March 31, 2008 and December 31, 2007:

9

Total amortization expense recognized was approximately $23.9 million and $0.4 million for the three month periods ended March 31, 2008 and March 31, 2007, respectively.  We expect to record amortization expense of $95.5 million per year from 2008 through 2010, $93.7 million in 2011 and $90.6 million in 2012.

The Company tests the carrying amount of goodwill and other indefinite-lived intangible assets annually as of October 1 or whenever events or circumstances indicate that impairment may have occurred.  Impairment testing is performed in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”).  The Company is annually required to complete Step 1 (determining and comparing the fair value of the Company’s reporting unit to its carrying value) of the impairment test.  Step 2 is required to be completed if Step 1 indicates that the carrying value of the reporting unit exceeds the fair value and involves the calculation of the implied fair value of goodwill.

The Company determined that the announced Merger with Delta was a triggering event under SFAS No. 142, requiring the Company to further evaluate the carrying value of its goodwill.  As a result of this evaluation, the Company recorded an impairment charge to reduce the book value of Northwest’s equity to its implied fair value as of the Merger announcement date.  Based on the 5-day average closing price of Delta’s common stock around the Merger announcement date, the right to receive 1.25 shares of Delta stock for each share of the Company’s common stock, and the projected number of the Company’s common shares to be converted into Delta common stock on the transaction close date, the implied fair value of the Company’s equity on the announcement date was $3.3 billion.  This implied fair value calculation resulted in the Company recording a goodwill impairment charge of $3.9 billion as of March 31, 2008 because we believe the conditions that caused our implied fair value to decline existed as of March 31.

Due to the limited time available between the Merger announcement date and the Company’s Form 10-Q filing date, there was insufficient time to complete Step 2 of the goodwill impairment test and calculate the implied fair value of goodwill as described in SFAS No. 142.  Once Step 2 of the goodwill impairment test is completed during the second quarter, the amount of impairment recorded could increase or decrease.

In accordance with SOP 90-7, a reduction in the valuation allowance associated with the realization of pre-emergence deferred tax assets in future periods will sequentially reduce the value of recorded goodwill followed by other indefinite-lived assets until the net carrying cost of these assets is zero.  Adjustments to goodwill during the quarter ended March 31, 2008 are shown in the table below:

Note 5 – Fair Value Measurements

The Company adopted SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), on the Effective Date in accordance with SOP 90-7. SFAS No. 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. SFAS No. 157 requires, among other things, the Company’s valuation techniques used to measure fair value to maximize the use of observable inputs and minimize the use of unobservable inputs.  This standard was applied prospectively to the valuation of assets and liabilities on and after the Effective Date.

There are three general valuation techniques that may be used to measure fair value, as described below:

(A)   Market approach – Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

(B)   Cost approach – Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and

(C)   Income approach – Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (includes present value techniques, option-pricing models, and excess earnings method).  Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate.  Excess earnings method is a variation of the income approach where the value of a specific asset is isolated from its contributory assets.

10

Measured on a Recurring Basis.    For assets and liabilities measured at fair value on a recurring basis during the period, SFAS No. 157 requires quantitative disclosures about the fair value measurements separately for each major category.  There were no changes in the valuation techniques used to measure the fair values of assets measured on a recurring basis during the period.  Assets and liabilities itemized below were measured at fair value on a recurring basis during the period using the market and income approaches:

Measured on a Non-Recurring Basis.  For assets and liabilities measured on a non-recurring basis during the period, SFAS No. 157 requires quantitative disclosures about the fair value measurements separately for each major category. The Company impaired certain aircraft, engines and inventory during the first quarter of 2008 related to the planned early retirement of certain Boeing 747F and DC9-30 aircraft, as described further in “Note 12 – Aircraft Impairments.” The losses related to these impairments were recorded in depreciation and amortization on the Condensed Consolidated Statement of Operations based on the fair value of the impaired assets.

The Company also recorded a goodwill impairment charge in other operating expense to reduce the book value of Northwest’s equity to its implied fair value as of the Merger announcement date.  The goodwill measurement is an estimate and will be adjusted based on the completion of Step 2 of the goodwill impairment test during the second quarter, as described more fully in “Note 4 – Goodwill and Intangibles.”  The assets itemized below were measured at fair value on a non-recurring basis during the period using a market approach:

11

Note 6 – Geographic Regions

        The Company is managed as one cohesive business unit, of which revenues are derived primarily from the commercial transportation of passengers and cargo.  Operating revenues from flight segments serving a foreign destination are classified into the Pacific or Atlantic regions, as appropriate.  The following table shows the operating revenues for each region:

        The Company’s tangible assets consist primarily of flight equipment, which are utilized across geographic markets and therefore have not been allocated.

Note 7 – Reorganization Related Items

In accordance with SOP 90-7, the condensed consolidated financial statements for the Predecessor period distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the Company.  In connection with our bankruptcy proceedings, the Company recorded the following largely non-cash reorganization income/(expense) items:

        Reorganization items recorded during the three months ended March 31, 2007 largely consisted of charges associated with the Company’s implementation of an amended Airline Services Agreement with Pinnacle Airlines, Inc., charges associated with the Company’s Stock Purchase and Reorganization Agreement with Mesaba Aviation, Inc., abandonment of aircraft and buildings, and professional fees.

Note 8 – Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109, which requires that deferred tax assets and liabilities are recognized using enacted tax rates, for the tax effect of temporary differences between the financial reporting and tax bases of recorded assets and liabilities.  SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized.  Based on the consideration of all available evidence, the Company has provided a valuation allowance on deferred tax assets recorded beginning in the first quarter 2003.  The Company continues to maintain a full valuation allowance against its deferred tax assets due to the uncertainty regarding the ultimate realization of those assets.

An ownership change under Internal Revenue Code Section 382 occurred in connection with the Company’s bankruptcy Plan of Reorganization.  However, the Company does not believe that such change has any material impact on the Company’s ability to use its NOL carryforwards and other tax attributes.

The Company did not record a tax benefit related to our reported first quarter 2008 net loss; to record a tax benefit, the Company would be required to have a high degree of confidence that it would record a full year profit.

12

Note 9 – Earnings (Loss) Per Share Data

Successor EPS .   In accordance with SFAS No. 128, Earnings per Share (“SFAS No. 128”), basic and diluted earnings per share were computed by dividing the net loss by the weighted-average number of shares of common stock outstanding for the three months ended March 31, 2008.  SFAS No. 128 requires that the entire 234 million shares to be issued to holders of unsecured and guaranty claims pursuant to the Plan of Reorganization be considered outstanding for purposes of calculating earnings per share as these shares will ultimately be issued to unsecured creditors once the allocation of disputed unsecured claims is completed.

At March 31, 2008, approximately 16 million in restricted stock units and stock options to purchase shares of the Successor Company’s common stock were outstanding but excluded from the computation of diluted earnings per share because the effect of including the shares would have been anti-dilutive.

Predecessor EPS.   Predecessor basic and diluted earnings per share were computed based on the Predecessor’s final weighted-average shares outstanding.

For the three months ended March 31, 2007, approximately 19 million incremental shares related to dilutive securities were not included in the diluted earnings per share calculation because the Company reported a net loss for this period.

Additionally, approximately 6 million shares of Series C Preferred Stock were excluded from the effect of dilutive securities for the three months ended March 31, 2007 because the Company reported a net loss for this period.

At March 31, 2007, employee stock options to purchase approximately 7 million shares were outstanding but not included in diluted securities because the Company reported a net loss for the three months ended March 31, 2007.

13

Note 10 - Long-Term Debt

As of March 31, 2008, maturities of long-term debt, excluding capital lease obligations, through December 31, 2012 were as follows (in millions):

On August 21, 2006, the Predecessor Company entered into a $1.225 billion Senior Corporate Credit Facility (“Bank Credit Facility”), formerly called the DIP/Exit Facility, consisting of a $1.05 billion term loan facility and a $175 million revolving credit facility which has been fully drawn since the inception of the Bank Credit Facility.  The final maturity date of the Bank Credit Facility is August 21, 2013.  Principal on the term loan portion of the Bank Credit Facility will be repaid at 1.0% per year with the balance (94%) due at maturity.  The first such principal repayment was made on August 21, 2007.  Loans drawn under the $175 million revolving credit facility may be borrowed and repaid at the Company’s discretion.  Up to $75 million of the revolving credit facility may be utilized by the Company as a letter of credit facility.  As amended in March 2007, both loan facilities under the Bank Credit Facility bear interest at LIBOR plus 2.00%.  Letter of credit fees will be charged at the same credit spread as on the borrowings plus 12.5 basis points.  To the extent that the revolving credit facility is not utilized, the Company is required to pay an undrawn commitment fee of 50 basis points per annum.  The Bank Credit Facility received a credit rating of BB from Standard & Poor’s Rating Services (“S&P”) and a Ba3 from Moody’s Investors Service, Inc. (“Moody’s”) and is secured by a first lien on the Company’s Pacific Route authorities.  The March 2007 amendment also allowed the Company to grant pari-passu liens in the Pacific Route authorities to secure up to $150 million of exposure arising from hedging trades entered into with Bank Credit Facility lenders.  The interest rate as of March 31, 2008 was 4.87% on both the term loan facility and the revolving credit facility.

The Bank Credit Facility requires ongoing compliance with financial covenants requiring the Company to maintain unrestricted cash of at least $750 million, a collateral coverage ratio of at least 1.50 to 1.0 and a minimum ratio of EBITDAR to consolidated fixed charges (“Fixed Charge Coverage Ratio”).  Under a recent amendment to the Bank Credit Facility completed in April 2008, compliance by the Company with the Fixed Charge Coverage Ratio has been waived from April 1, 2008 through March 31, 2009 and thereafter is determined as set forth below: