Delta Air Lines annual report 1954

~~
OF THE YEAR
\---
lill
'
ENDED JUNE 30, 1954
ACTUAL integration of the Delta and C&S systems was substantially
accomplished, following the merger of Chicago and Southern Air
Lines, Inc. with and into Delta Air Lines, Inc. on May 1, 1953.
Four Douglas DC-7 aircraft and 13 Convair 340 aircraft were
placed in service, and 16 older-type aircraft were sold. Seat miles
operated with modern, pressurized airplanes increased 71 % over
the preceding year for the combined Delta and C&S operations,
and constituted 85% of total seat miles flown during the year.
Off-hour aircoach service was extended to six additional cities,
and 103 million more seat miles of this reduced-fare service was
offered the public.
Four quarterly dividends of 30 cents each were paid to the
common stockholders.
Common stock book value increased almost $1.00 a share after
payment of $1.20 a share in dividends, notwithstanding the sub-
stantial extraordinary expenses of consummating the merger and
introducing new equipment, and with no mail pay subsidies for
either domestic or international operations. In addition, the in-
tangible account arising from the merger was reduced $1,668,000,
or $2.78 a share.
The Supreme Court decision in the C&S mail rate case released
February 1, 1954, involving the so-called "off-set" issue, raised
substantial questions which have not yet been answered concern-
ing the availability of governmental subsidy support for our in-
ternational operations and for those of other U. S. carriers with
both domestic and foreign routes.
The number of employees remained approximately the same
during the year even though seat miles increased 20% over the
total for the Delta and C&S systems for the preceding year. This
reflects both the realization of improved efficiencies anticipated
because of the merger and the increased productivity of the
newer flight equipment.
TO THE STOCKHOLDERS
DELTA AIR LINES, INC.
June 30, 1954 marked the completion of the
first full year of combined operations of Delta-
C&S. It was a highly significant year in which
notable progress was achieved. Total operating
revenues were increased during the year, and
gains were scored in every phase of operations.
Simultaneously with the harmonious and suc-
cessful integration of the two systems, an exten-
sive aircraft modernization program was ef-
fected. A firm foundation has been laid for the
continued development of your Company and
Operating revenues
Operating expenses (excluding depreciation)
Depreciation expense
Operating Income .
Non-operating cash charges-net
(excluding costs of capital)
Capital costs-
Interest on debentures
Interest on bank loans
entry into the nation's major travel mark,ets so
important to the communities it serves.
EARNINGS-Operations for the fiscal year
ended June 30, 1954, resulted in operating in-
come of $2,037,571, total profits of $2,106,949
, before taxes on income, and net profits after
taxes of $1,305,949 (equivalent to $2.18 per
share of outstanding common stock). A formal
statement of income is presented on page 14
of this report, but a summary of these earnings
1s shown below.
$50,333,882
43,021,159
7,312,723
5,275,152
2,037,571
76,785
594,647
388,812
$2,114,356
983,459
1,130,897
Amortization of Property Acquisition Adjustment
account charged against income 453,313
677,584
Profits from flight equipment sales (after applying
$1,226,000 of sale proceeds against the Property
Acquisition Account)
Total Profits before taxes on income
Accrual for taxes on income
Net earnings after taxes on income
1,429,365
2,106,949
801,000
$1,305,949
2
SOURCES OF THE 1954 REVENUE DOLLAR
40.000,000
DELTA AIR LINES, INC. EXPRESS & FREIGHT
'45 '46 '47 '48 '49
SOURCE OF OPERATING REVENUES
REVENUES-Total operating revenues of $50,-
333,882 were $2,078,572 above the preceding
year for the Delta and C&S systems combined.
Passenger revenues increased $2,967,845, from
$42,177,104 to $45,144,949, with a 7.74% in-
crease in revenue passenger miles to 769,654
million. Available seat miles operated increased
19.9%, however, and the passenger load factor
dropped from 63.76% the preceding year to
57.26%. This decline in load factor is due
largely to the time required for the develop-
ment of additional traffic commensurate with
the increased seating capacities of the new air-
craft placed in service.
The entire domestic Delta-C&S system was
operated under compensatory (subsidy-free)
mail rates during the year; the Civil Aeronau-
tics Board estimated that the merger therefore
resulted in savings to the Government of
$539,000 which would otherwise have been
payable as subsidy support for the C&S domes-
tic routes. The elimination of domestic subsidy
coupled with the absence of final action upon
our request for international mail pay subsidy
resulted in a decrease in mail revenue from the
preceding year of $909,728, exclusive of such
additional international mail revenue as may
ultimately be forthcoming. Recorded mail reve-
---
'50 '51 '52 '53 '54
FOR YEARS ENDING JUNE 30
nue of $1,723,703 for the year represents only
3.42% of total revenues.
Air freight revenues increased 10.17%, to
$1,766,266, and represented 3.51 % of total reve-
nues. Following the nation-wide trend, revenue
from air express dropped slightly, from $887,-
923 the preceding year to $844,483. Revenues
from charters and incidental sources were
$236,697, representing a decrease of $150,760
from the preceding year.
30 .000.000
20.000.000
10.000.000
Four DC.7's already in service and six more on order will enable
Delta-C&S to offer the finest, fastest transportation in the U. S.
EXPENSES- Operating expenses of $48,296,311
for the year represent an increase of 12.28%
for the combined Delta and C&S systems over
the preceding year. Increases of I 9.97% in
available seat miles and 18.23% in available
ton miles resulted in lowered capacity unit
costs, however; the cost per available ton mile
declined from 31.32 to 29.75.
The total dollar increase in operating ex-
penses of $5,283,732 is made up of the follow-
ing principal items, representing 82.22% of the
total increase:
Depreciation, reflecting the new
flight equipment placed in
service . . $1,673,017
Gasoline, because of the increase
in volume of operations and
price increases during the year 1,497,528
Salaries, primarily attributable
to a general wage and salary
increase effective in August
1953 1,173,897
$4,344,442
Financing-Capitalization
BANK LOANS -An additional $11,600,000
was borrowed under the Credit Agreement of
September 2, 1952, in connection with the pur-
chase of new flight equipment, bringing total
Attentive service, speed and comfort attract customers to the popu-
lar Delta-C&S flights operated with four-engined DC-6 equipment.
REVENUE PASSENGER MILES
MILLIONS COMBINED DEL TA -C&S SYSTEMS
72 --,----,--F
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70 -+- -+--+----+-- -+----+- -+-- +---
66
58
54
50
46
42
38
1954
1953
1952
1951
JUL AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN
borrowings thereunder to $14,000,000 of the
$20,000,000 made available by the Agreement.
This Credit Agreement provides for borrowing
a maximum of $20,000,000 on unsecured notes
at 3% interest, with each individual loan
payable in quarterly installments over a four-
year period beginning 15 months after the bor-
rowing date. Its original expiration date of
From Chicago to the Caribbean, the pressurized comfort of the
Super Convair is winning new passenger acclaim for Delta-C&S.
3
August 1, 1954, has been extended to May 1,
1955, in recognition of the additional new flight
equipment being delivered in early 1955. It is
not presently anticipated that the entire
$20,000,000 credit will be used; in any event,
loan repayments will not exceed depreciation
charges during the repayment period.
The Credit Agreement also provides that no
cash dividends on common stock shall be paid
which would reduce earned surplus below
$3,700,000, and that working capital of not less
than $1,500,000 must be maintained. On June
30, 1954, earned surplus was $8,760,791, and
working capital as defined in the loan agree-
ment was approximately $5,000,000 above the
specified minimum.
DEBENTURES-On May 1, 1953, there were
issued to former C&S stockholders $10,695,846
of 5% Convertible Debentures (subordinated)
maturing May 1, 1973. Since that date $162,700
face value of debentures have been issued
against options held by former officers of C&S,
bringing total debentures issued at June 30,
1954, to $10,858,546. There remain outstanding
options which when exercised will require the
issuance of an additional $84,000 of debentures.
Earnings for the fiscal year ended June 30,
1954, were not sufficient to bring into operation
the Purchase Fund provision of the Indenture
covering these debentures, which requires that
From this Automatic Switching Center at Delta-C&S headquarters in
Atlanta, teletype messages are flashed simultaneously to all stations.
4
REVENUE PASSENGER MILES
DELTA AIR LINES, INC.
'45 '46 '47 '48 '49 '50 '51 '52 '53 '54 MILLIONS
FOR YE.t.RS ENDING JUNE 30
under certain conditions a maximum of
$250,000 a year be set aside for the purchase of
debentures on the open market at not more
than face value.
COMMON STOCKHOLDER EQUITY-The
difference of $585,949 between net earnings for
the year and dividends paid common stockhold-
ers increased the book value of the stockholder
equity to $16,233,227 at June 30, 1954, a record
high and equivalent to $27.06 per share.
Round the clock orerators man the switchboard in new Atlanta Reser-
vations Office. Flight board shows seat availibility over entire System.
In addition, the intangible asset "Property
Acquisition Adjustment" (representing the
amount by which the face value of debentures
exceeded the book value of C&S assets) was
reduced by $1,668,012 during the year, from
$2,661,603 at the beginning of the year to
$993,591 at the end of the year. This total
reduction was provided by (a) amortization
charges against income of $453,313 and (b) a
portion of the proceeds from the sale of former
C&S flight equipment of $1,214,699.
Mail Rates
DOMESTIC-Delta has operated under sub-
sidy-free, compensatory mail rates since Octo-
ber 1951; the C&S system required subsidy
support up to the May 1, 1953, date of the
merger. Since that date compensatory mail
revenue only for the entire Delta-C&S system
has been assumed, although the final proce-
dural action establishing such rates has not
in some instances occurred.
Revenue for mail carried in the months of
January, February, and March has been re-
corded at rates proposed by the CAB in a case
designed to eliminate any differentials in serv-
ice rates of different airlines between the same
cities. Effective April 1, 1954, the compensatory
mail rates for the domestic operations of all
U. S. carriers were opened for investigation
and review by the CAB; mail revenue
A pleasant air journey begins for Shreveport travelers in new air-
conditioned Delta-C&S City Tide+ Office in Captain Shreve Hotel.
since that date has been recorded on a tempo-
rary basis, but it is not expected that the rates
finally established retroactively to April 1, 1954,
will require a material adjustment in recorded
mail revenue since that date.
INTERNATIONAL -Prior to the merger,
C&S received mail pay subsidy support for its
international operations. In a proceeding begun
as of the merger date, the CAB on September
21, 1953, proposed a new rate for international
operations which provided for the continuation
TON MILES and PLANE MILES
FOR YEARS ENDING JUNE 30
DEL TA AIR LINES. INC.
rt
o - - - - - - - - - - - + - - - - + - - - - - + - - - - - - - - 170
60
40
20
of subsidy support (but in a reduced amount)
in recognition of the losses being incurred in
that operation. This proposal never became
effective because of the then pending judicial
review of a Post Office Department objection to
a C&S mail rate decision. The final decision in
that case, as described below, requires a re-
examination of our international mail pay re-
quirements from May 1, 1953, forward by the
CAB. This re-examination is currently in proc-
ess. Only compensatory (or service) mail pay on
international operations has been recorded
since May 1, 1953, so that the approval of any
portion of our claim for subsidy will result in
an upward adjustment of revenues.
The compensatory mail rates for all U. S.
5
Flag carrier international routes were opened
for CAB review effective April 8, 1954, and in-
ternational mail revenue since that date has
been recorded at a temporary service rate.
Again, it is not expected that the final rate will
require a material adjustment of revenue.
OFF-SET ISSUE-In 1952 the Post Office De-
partment filed a petition requiring judicial
review of a CAB rate order of October 1951
establishing international mail pay rates for
C&S, contending that the CAB erred in refusing
NET BOOK VALUE PER SHARE
OF COMMON STOCK AS OF JUNE 30
DOLLARS PER SHARE DELTA AIR LINES, INC .
2s~~-~-~-~-~-~--r--r---.----,
26--1-----1-----1---+----+---l----1----!----+--
24--1-----1-----1---+----+---1----1----l----+--
22...___,_ _ __,__ _ ___.__---+-_ _.__-+-_-+--_+--
20...___,_ _ __,__ _ ___.__---+-_ _.__-+-_-+-_+--
18-+-----+-----1------+---+----+---1--+-
16 --1-----1-------l---+----+---1---+--
14-'-----1-------L--_._ _ _,_____,_
12-+----+------1-----+--
10
8
6
4
2
6
to take into consideration certain profits earned
on the C&S domestic operations in determining
the mail pay requirements of its international
operations. In May 1953 the Circuit Court of
Appeals for the District of Columbia ruled in
favor of the Post Office Department, and this
ruling was upheld by U. S. Supreme Court
decision issued February 1, 1954.
This decision requires the CAB to redeter-
mine the mail pay requirements of the C&S
system for the years 1948-1950 ( and possibly for
a portion of 1951) in accordance with the prin-
ciple that the entire operations of the carrier
must be considered in making that determina-
tion. The Post Office Department originally
contended that C&S was overpaid $654,000 for
the years in question, and we will endeavor to
sustain our position that the "need" of C&S
for that period does not warrant any reduction.
This case is now before the CAB, and it is im-
possible to predict when final action may be
expected.
In May 1954 legislation was introduced in
Congress which, if adopted, would reestablish
the divisional rate-making procedure followed
by the CAB before the Su pre me Court decision
with respect to all pending rate matters.
Equipment and Facilities
ADDITIONS-Continued progress was made
toward the replacement of older types of flight
equipment with the most modern aircraft avail-
able, and our re-equipment program was sub-
stantially complete at the end of the year.
The 13 Super-Convair 340 planes received
during the year brought our total of this type
to 20 and completed the order. These 44-passen-
ger, pressurized planes have replaced all DC-4's
and a large number of DC-3's on semi-express
flights. Four of the 10 Douglas DC-7's on order
were delivered in the latter part of the year and
were placed in scheduled service on April 1,
1954. Your company is one of the five domestic
carriers who are operating or have ordered
DC-7's which are the most modern transport
SYMBOL OF SUPREMACY
aircraft offered by American manufacturers.
They have a cruising speed of 367 miles an
hour and seating capacity for 69 passengers, and
have been very well received by the traveling
public. These airplanes insure for Delta-C&S
competitive equality in equipment for some
years ahead.
The six DC-7's still on order are scheduled
for delivery between November 1954 and April
1955; their delivery will complete the major
re-equipment program begun over two years
ago. The amount of $2,587,200 shown on the
Balance Sheet as "Advance payments on new
flight equipment" applies to these aircraft and
related spares; the additional capital require-
ments of approximately $10,000,000 in connec-
tion with the conclusion of the program will
come primarily from general corporate funds
and, to a lesser extent, from additional borrow-
ings under the Credit Agreement.
1\f aintenance and office facilities at the At-
lanta Airport General Offices were materially
enlarged during the year to accommodate head-
quarters of the merged system. A portion of the
maintenance facilities at the Memphis base no
longer required for airline operations has been
leased, and negotiations are currently in process
with prospective tenants o( additional space
there as it becomes available.
RETIRElVCENTS-In furtherance of the over-
all program, one "Delta" and 12 "C&S" DC-3's
and three "C&S" Constellations were sold dur-
ing the year for an aggregate sales price of
$3,715,000, which produced a net profit of
$1,022,365, after applying $1,214,699 of the
sales price to reduce the "Property Acquisition
Adjustment" account and after reserving
$407,000 for taxes.
Sales-Advertising
A substantial portion of . the sales and adver-
tising effort during the year was directed to the
introduction of new flight equipment and
the inauguration of new services.
- - - - - - - - - - - - - - - - - - - ---40
FLIGHT
EQUIPMENT
AS OF JUNE 30, 1953 AND 1954
NET
BOOK
VALUE
DE PRE
CIATION
1953
NET
BOOK
VALUE
DEPRE
CIATION
1954
As a result of the new aircraft placed in
service and the retirement of older types, 85%
. of total seat miles were operated with modern,
pressurized aircraft, and currently this per-
centage stands at 92%-
Increasing emphasis within the industry is
being placed on reduced fare air coach service.
Notwithstanding our general position that the
price differential between regular and coach
fares is not justified by the service differential,
your Company recognized the prevailing trend
and broadened its pattern of air coach service.
This service was extended to six additional
cities during the year, and it constituted 18%
of total seat miles operated domestically.
30
20
10
MILLIONS
AMERICA'S FASTEST AND FINEST AIRLINER
8
A vigorous and aggressive advertising pro-
gram was carried on, with 3.24% of commercial
revenues being applied to advertising and pro-
motional activities.
Safety-Dependability
Your Company completed another year with-
out an accident resulting in death or serious
injury of passengers or flight ~rews.
Notwithstanding the operating problems at-
tendant upon the inauguration of service with
two new types of flight equipment, the com-
pletion factor (percentage of scheduled miles
actually operated) of 98.29% compares satis-
factorily with the industry average.
Route Extensions and Modifications
The several new route applications which
Delta and C&S as individual companies filed
before the merger have been revised to better
serve the needs of the Delta-C&S system. The
status of current proceedings and the principal
applications are shown below.
The hearing before a CAB Examiner in the
Southwest-Northeast route case began Septem-
ber 8, 1954. This is probably the most impor-
tant route case in which your Company has ever
participated, involving as it does our request
to provide vital new and competitive services
between the South and Southwest areas and
the New York/ Washington areas. This appli-
cation also provides for the closing of the gaps
in our present route structure between New
Orleans and Houston and between Memphis
and Birmingham/ Atlanta. The tremendous im-
provement in air service for the South and
Southwest that v.rould result from the granting
of the requested authority is shown in the map
on pages 10-11 of this Report.
Also on file but not a part of the current
proceedings are applications to provide service
between Florida and the New York/ Washing-
ton area. Included in these applications is a
proposal for a Havana-Miami route extension
which would connect all present operations
north of Miami with the Caribbean operations
through Havana.
Other applications, on file with the Civil
Aeronautics Board and awaiting action, include:
An extension of service from Chicago to Mil-
waukee, Rochester and Minneapolis/ St.
Paul.
The substitution of Ft. Wayne for Ander-
son/ Muncie/ Newcastle as a junction point
for Routes 8 and 54, which will permit
service between Detroit, Cincinnati and
points south.
The bridging of the gap between Memphis
and Cincinnati.
The improvement of east-west service through
the extension of the Dallas-Atlanta route
sou th to Miami by way of Tampa.
West coast extensions from Memphis, Ft.
Worth and Houston.
Two cases not yet finally decided will deter-
mine whether Terre Haute, Longview / Kil-
gore/ Gladewater and Tyler would be served
better by local service carriers than by the
trunkline operations of the Company.
No further procedural steps looking toward
CAB approval have occurred in the proposed
Northeast Airlines merger, which is contingent
upon a connection between the two route sys-
tems, nor is there any present indication of
when this matter may again acquire an active
status.
Equipment Interchanges
Your Company continues its operation of sev-
eral equipment interchange services, in conjunc-
tion with other airlines, providing the benefits
DOLLARS
7
6
5
EARNINGS and-------~
DIVIDENDS
PER SHARE
DELTA AIR LINES . INC .
FOR YEARS
ENDING JUNE 30
4 1------,,,
,N=
c,u
=o1N
=G...,.,
PR=
oF1=
TS =
FRo
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- - - - - -
SALES OF EQUIPMENT
5 Y E A R T O T A L
IIIIZI:II 4.20
EARN I NGS D IVIDENDS
PERSONNEL
BY LENGTH OF SERVICE
AS OF JWNE 30, 1953 AND 1954
OVER 20
j 15-20
f 10-15
YEARS YEARS
- 17 84 414
1953 6 85 390
of through-plane service to substantial num-
bers of the traveling public. These are-
a) Between the Southeast and the West Coast,
via Dallas as the interchange point, with
American Airlines.
b) Between Florida and California, via Dal-
las as the interchange point, with Ameri-
can Airlines and National Air Lines.
c) Between the Southeast and Detroit, via
Cincinnati as the interchange point, with
Trans World Airlines.
d) Between the Southwest and New York,
via Indianapolis as the interchange point,
with Trans World Airlines.
There is also before the CAB for approval
an agreement between Delta-C&S and Pan
American Airways to provide through-plane
service between Chicago and Mexico City with
Houston as the interchange point.
Personnel
One of the brightest spots in the sometimes
difficult periods experienced in the integration
of two such large organizations as Delta and
C&S has been the splendid cooperation received
from the personnel of both companies. In rec-
ognition of this, every possible step has been
taken to make this merger desirable for the
employees too.
A general wage and salary increase was
granted in August 1953 in order to maintain
rates in line with general industry levels. The
retirement income program begun July 1, 1942,
was substantially modified and modernized on
July 1, 1953, with no change in accrued benefits
for service prior to that date. Continued in
force were such employee benefits as a liberal
1,510
1.472
1,586
1,571
LESS THAN
1 YEAR
646
767
TOTAL
4,257
4,281
group insurance plan, paid vacations, sick leave,
and free transportation; in addition, the Com-
pany sponsors an Employees' Credit Union
and numerous recreational programs.
. The increasing number of employees with
several years of service is indeed gratifying and
comforting, for it is upon those employees that
the continued growth of the Company will be
built.
Looking Ahead
The steady annual gain of traffic stemming
from the increasing public acceptance of air
transportation, the unprecedented rate of
growth of the areas we serve, and the possibili-
ties inherent in current applications for route
extensions afford substantial reasons for your
Company to look to the future with confidence.
A tremendous potential for further develop-
ment exists in the Great New South and the
Southwest. In this area Delta-C&S was born
and developed its present route pattern. And
it is for this area that Delta-C&S seeks CAB
permission to provide direct service linking it
to Main Street America.
Your Company's sound financial condition,
the support of the communities we are priv-
ileged to serve, and the loyalty of employees
and stockholders form the basis for our full
participation in the continuing development of
the nation's air transportation system.
President and General Manager
September 16, 1954
9
THE DELTA-C&S SYSTEM TODAY
Delta-C&S Air Lines today serves 16 states and seven countries. Your
Company's scheduled services link 56 cities located in the Great Golden
Triangle of America and in the Caribbean. Our domestic routes cover
nearly 6,500 miles, while our international rou_
tes extend just over
3,000 miles.
PROPOSED ROUTE EXTENSION
The current Southwest-Northeast route case before the CAB is the
most important in your Company's history, involving as it does pro-
posals for additional air service from the South and Southwest to the
industrial and financial centers of the Northeast. In this case, Delta-C&S
is seeking to provide vitally needed competitive service from 26 cities of
the South and Southwest to Washington, Baltimore, Philadelphia, and
New York, as shown on this map.
Certification of this extension would create a new airline route for 29
cities with a total population of 26,116,411 in an area whose sound and
rapidly expanding economy demands additional air service. For 12 of
these cities, we would provide their first direct service to Northeastern
points. They include Austin and Jackson, the only two major state cap-
itals currently lacking direct air service to Washington and New York.
Exactly 44.8 per cent of all the nation's air passengers begin or end
their trips in just four cities: New York, Washington, Philadelphia, and
Baltimore. Delta-C&S is the only major trunk airline operating east of
the Mississippi which does not have access to this prime air travel mar-
ket. This is the market your Company has always needed, and which it
now needs more than ever to provide the economic stability and finan-
cial strength upon which its future growth depends.
What type of service is Delta-C&S in position to provide? If author-
ized to do so by the CAB, we will operate new non-stop flights from
both ends of the line, new one-stop and express flights, both standard
and coach services.
Additional new services which we propose to furnish include: non-
stop flights between New York and Houston; Washington and Mem-
phis; Washington and New Orleans; New York and Dallas; Washington
and Dallas; New York and New Orleans; Washington and Atlanta; and
New York and Atlanta.
Delta-C&S is willing and able also to provide service to Tulsa and
Oklahoma City on an extension of its routes from Memphis, and to
serve Chattanooga, Nashville, Knoxville, and Pittsburgh on routes to
the Northeast if the CAB should determine that such service is required.
The well-being of the South and Southwest depends heavily on the
provision of adequate, competitive air transportation. Delta-C&S is the
carrier best fitted to close this existing gap in the airline pattern of
the United States, and to do so without governmental subsidy. All of
our documented exhibits in the case seek to establish this fact clearly.
Your Company stands ready to provide that service, as it has since it
first sought certification by the Civil Aeronautics Board to do so a
decade ago.
- Delta-C&S Present Airline Routes
Through Plane Service with
American Airlines =-:a:11:::aE TWA
National Airlines Proposed New Services
PHI LAD EL
BALTIMOR..,,.
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WASHINGTON

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~

XVILLE
f'
VILLE ~CHARLOTTE
SONVILLE
12
ASSETS
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . .
Marketable securities, at cost which approximates market-
U. S. Government securities . . . . . .
Federal Land Bank and Horne Loan Bonds . . . . .
Accounts receivable-
Traffic (net) . . . . . . . . . . . . . . . . .
U. S. Post Office Department, for carrying mail (Note 4)
Refundable 1952 Federal excess profits tax . . . . .
Other . . . . . . . . . . . . . . . . . . .
Maintenance and operating supplies, at average cost or less
Other current assets . . . .
Total current assets
OTHER ASSETS:
Advance paym~nts for new flight equipment (Note 5)
Net assets of dusting division
Miscellaneous . . . . . . . . . . . . . . .
OPERATING PROPER TY AND EQUIPMENT (Including
$3,974,097 and $4,782,471 fully depreciated in 1954 and
1953, respectively):
Cost-
Flight
Equipment
In Service
1954 $34,245,171
1953 22,290,074
Reserve for depreciation-
1954 11,345,275
1953 . . . . . . 10,324,775
Other
Property and
Equipment
$6,028,542
5,469,753
2,852,358
2,502,646
PROPERTY ACQUISITION ADJUSTMENT (Note 3)
DEFERRED CHARGES:
Unamortized DC-7 and Convair preinaugural expense
Advances for leased facilities, being amortized .
Other deferred charges . . . . . . . . . . .
DELTA AIR LINES. INC.
ATLANTA, GEORGIA
BALANCE SHEETS- JU NE 30.1954 AND 1953 LIABILITIES
1954
$ 6,403,316
3,298,683
1,002,293
2,985,946
186,657
1,012,764
2,424,648
278,632
$17,592,939
$ 2,587,200
149,049
118,189
$ 2,854,438
$40,273, 7 I 3
14,197,633
$26,076,080
$ 993,591
$ 222,036
104,886
246,027
$ 572,949
$48,089,997
1953
$ 7,038,496
1,768,902
730,000
2,713,014
409,687
370,000
547,614
2,342,012
443,076
$16,362,801
$ 3,381,798
141,051
119,814
$ 3,642,663
$27,759,827
12,827,421
$14,932,406
$ 2,661,603
$ 124,442
107,962
134,592
$ 366,996
$37,966,469
The accompanying notes are an
CURRENT LIABILITIES:
Current maturities of notes payable
Accounts payable and accrued liabilities .
Advance sales of tickets for transportation
Accrued Federal and state taxes on income
Air travel plan deposits . . . .
Total current liabilities . . .
NOTES PAYABLE TO BANKS (less current maturities
above)-Note 6 . . . . . . . . . . .
5% CONVERTIBLE DEBENTURES (SUBORDINATED)
due May 1, 1973 (convertible into common stock at $35.00
per share) . . . . . . . . . . . . . . . . . .
DEFERRED FEDERAL INCOME TAXES (Note 2) . . .
RESERVE FOR AIRCRAFT OVERHAUL . . . . . .
CAPITAL STOCK AND SURPLUS:
Common stock, par value $3.00 per share,
Authorized 1,500,000 shares, of which 312,646 shares are
reserved for conversion of Debentures
Issued and outstanding 600,000 shares . . . . . . .
Capital surplus, no change during 1954 . . . . . . .
Earned surplus (of which $3,700,000 is not available for cash
dividends under terms of credit agreement and indenture)
PURCHASE COMMITMENTS AND CONTINGENT
LIABILITY (Note 5)
integral part of these statements.
1954
$ 2,150,000
4,441,961
1,020,156
662,919
586,075
$ 8,861,111
$11,700,000
$10,858,546
$ 335,000
$ 102,113
$ 1,800,000
5,672,436
8,760,791
$16,233,227
$48,089,997
1953
$ 450,000
4,368,424
990,469
2,856,998
526,150
$ 9,192,041
$ 2,250,000
$10,758,846
$
$ 118,304
$ 1,800,000
5,672,436
8,174,842
$15,647.278
$37,966,469
13
STATEMENTS of INCOME FOR THE YEARS ENDED JUNE 30, 1954 AND 1953
14
OPERATING REVENUES:
Passenger . . . .
U. S. Mail (Note 4)
Freight . . . . .
Express . . . . .
Excess baggage
Other operating revenue- net
Total operating revenues
OPERATING EXPENSES:
Flying operations . . . .
Direct maintenance-flight equipment
Depreciation-flight equipment . .
Total direct aircraft operating expenses
Ground operations . . . . . .
Ground and indirect maintenance
Passenger service . . . .
Traffic and sales . . . . . . .
Advertising and publicity . . .
General and administrative . . .
Depreciation-ground equipment .
Total operating expenses .
Net income from operations before income taxes
and rental payments for leased flight equipment
RENTAL PAYMENTS FOR LEASED FLIGHT EQUIPMENT
OTHER EXPENSE (INCOME):
Interest on notes payable . . . . . . . .
Interest on debentures . . . . . . . . . .
Amortization of property acquisition adjustment
Net loss (profit) of dusting division .. .
Other income-net . . . . . . . .
Total other expense (income)
Net income before income taxes
PROVISION FOR TAXES ON INCOME:
(Note 3)
Federal and state taxes on income (no excess profits tax pay-
able, including deferred taxes of $335,000 in I 954- Note 2)
Refundable 1952 Federal excess profits tax . . . . . . .
Net income . . . . . . . . . . . . . .
SPECIAL ITEM-Profit on disposition of flight equipment (less
applicable income taxes of $407,000 in 1954 and $1,066,000
in 1953) . . . . . . . . . . . .
Net income and special item . . . . . . . .
1954
$45,144,949
1,723,703
1,766,266
844,483
602,579
251,902
$50,333,882
$15,229,008
5,210,545
4,879,128
$25,318,681
6,591,262
3,410,455
3,375,200
4,871,386
1,574,364
2,758,939
396,024
$48,296,311
$ 2,037,571
$
$ 388,812
594,647
453,313
23,252)
53,533)
$ 1,359,987
$ 677,584
$ 394,000
$ 394,000
$ 283,584
1,022,365
$ 1,305,949
1953
( NOTE 1 )
$28,946,479
1,131,578
1,044,338
550,305
380,298
284,804
$32,337,802
$ 8,558,952
3,903,396
2,003,577
$14,465,925
3,949,720
2,258,382
2,024,778
3,085,461
1,021,002
1,840,253
256,207
$28,901,728
$ 3,436,074
$ 1,067,800
$ 125,238
98,547
91,778
31,337
68,743)
$ 278,157
$ 2,090,117
$ 1,058,000
( 370,000)
$ 688,000
$ 1,402,117
2,756,561
$ 4,158,678
The accompanying notes are an
ARTHUR ANDERSEN & Co.
ACCOUNTANTS AND AUDITORS
To the Board of Directors,
Delta Air Lines, Inc.:
THE WILLIAM-OLIVER BUILDING
ATLANTA 3
We have examined the balance sheet of Delta Air Lines, Inc. (a Louisiana
corporation) as of June 30, 1954, and the related statements of
income and surplus for the year then ended. Our examination was made in
accordance with generally accepted auditing standards, and accordingly
included such tests of the accounting records and such other auditing
procedures as we considered necessary in the circumstances .
In our opinion, the accompanying balance sheet and statements of income
and surplus present fairly the financial position of Delta Air Lines, Inc.
as of June 30, 1954, and the results of its operations for the year then
ended, and were prepared in conformity with generally accepted accounting
principles applied on a basis consistent with that of the preceding year.
Atlanta, Georgia,
August 13, 1954.
AUDITOR'S CERTIFICATE
EARNED SURPLUS FOR THE YEARS ENDED JUNE 30, 1954 AND 1953
Balance at beginning of year
Add:
Net income. . . . . .
Special item-Profit on disposition of flight equipment
(less applicable income taxes of $407,000 in 1954 and
$1,066,000 in 1953) . . . . . . . . . . . . . .
Deduct:
Cash dividends on common stock . . . . . . . . .
Balance at end of year ($3,700,000 of earned surplus is re-
stricted as indicated on balance sheet) . . . . . . . .
integral part of these statements.
1954
$8,174,842
283,584
1,022,365
$9,480,791
720,000
$8,760,791
1953
$4,591,164
1,402,117
2,756,561
$8,749,842
575,000
$8,174,842
15
NOTES to FINANCIAL STATEMENTS
16
1. MERGER WITH CHICAGO AND SOUTHERN AIR LINES, INC.:
On May I, 1953, Chicago and Southern Air Lines, Inc. (C&S) was merged with and into
Delta Air Lines, Inc. Consequently, the accompanying statement of income for the year
ended June 30, 1953 reflects the operations of the merged system only since May 1, 1953.
2. DEPRECIATION RATES AND EMERGENCY AMORTIZATION:
The Company's 3 Model 649 Constellations are being depreciated to a residual value of
$50,000 each from the dates placed in service ( I in 1950 and 2 in 1951) to December 31,
1955. The 7 DC-6's are being depreciated to a residual_ value of 10% of cost from the
dates placed in service (4 in 1948, 2 in 1949 and I in 1951) to December 31, 1955. The 16
DC-3's have been fully depreciated to a residual value of 10% of cost.
The 4 DC-7's and 20 Model 340 Convairs are being depreciated for book purposes to
residual values (10% of cost of DC-7's and 2% of cost of Convairs) over a period of seven
years from the dates placed in service (Convairs in 1953 and 1954 and DC-7's in 1954).
For Federal income tax purposes, 80% of the cost of these aircraft and related spare parts
is being amortized under Certificates of Necessity over a 60-month period from the dates
placed in service.
The reduction of current Federal income taxes of $335,000, resulting from this accel-
erated amortization, has been charged to income and set up in a special deferred tax re-
serve to provide for the estimated Federal income taxes which may arise in later years
when the depreciation which is taken on the books for this flight equipment is no longer
deductible for tax purposes. The effect of such accounting is to prevent the tax deferments
resulting from accelerated amortization from distorting annual net income during the
period of accelerated amortization or in subsequent periods.
3. PROPERTY ACQUISITION ADJUSTMENT:
The original amount in this account was recorded at the time of the merger referred to
in Note I and is approximately equivalent to the excess of the fair market value of the
flight equipment acquired from C&S over the net book value thereof at the merger date
(May 1, 1953). Transactions in the account since the merger date are summarized as follows:
Total Flight Equipment Intangibles
Original amount of acquisition ad-
justment . $2,753,381 $2,655,597 $97,784
Less-Amortization to June 30, 1953 91,778 88,520 3,258
Balance, June 30, 1953 $2,661,603 $2,567,077 $94,526
Less-
Amortization for year ended June
30, 1954 453,313 433,765 19,548
Credits for equipment sales 1,214,699 1,214,699
- - -
Balance, June 30, 1954 $ 993,591 $ 918,613 $74,978
This account is being amortized as a nonoperating deduction from income over a 60-
month period commencing with the month of May 1953. In addition, the account has
been credited with the amount by which the proceeds from the sale of flight equipment
acquired in the merger exceeded its net book value (including the unamortized portion
of the acquisition adjustment applicable to such equipment at the date of sale); the same
procedure will be followed with respect to any sales of the remaining aircraft acquired in
the merger.
NOTES to FINANCIAL STATEMENTS
I
4. MAIL REVENUES:
Mail revenues from the U. S. Government since May 1, 1953, have been accrued at com-
pensatory rates and include no elements of subsidy. The Civil Aeronautics Board instituted
an investigation of domestic service mail rates for the industry effective April 1, 1954, and
the rates ultimately established in this proceeding may be retroactive to that date. Simi-
larly, international service mail rates are subject to redetermination from April 8, 1954,
forward. The Company's domestic service mail rate between January 1, 1954, and April 1,
1954, is also subject to final determination in a proceeding involving it and three other
carriers. It is not believed that the conclusion of these proceedings will require a material
adjustment in the estimated mail revenues recorded to June 30, 1954.
The Company's request for mail pay subsidy support for its international operations
from May 1, 1953, forward is still pending before the Civil Aeronautics Board.
5. PURCHASE COMMITMENTS AND CONTINGENT LIABILITY:
The Company has outstanding commitments for six DC-7 aircraft (to be delivered in
1954 and 1955). It is estimated that the acquisition of these aircraft and related spare parts
and accessories will require a total capital outlay of approximately $11,500,000. Advances
to manufacturers in connection with these commitments amounted to $2,587,200 at June
30, 1954.
The Supreme Court of the United States by decision dated February 1, 1954, sustained
the Post Office Department's objection to a C&S international mail rate order issued by the
CAB in October 1951 (the so-called "offset" case). The Department contended that the en-
tire operations of a carrier with both domestic and international divisions should be taken
into consideration in determining the mail pay requirements of either division, and that
accordingly the rate order in question provided excess mail revenue of $654,000 for the
calendar years 1948-1950. The Supreme Court decision requires the CAB to review its orig-
inal order and redetermine the mail pay requirements for the C&S international operations
for the periods involved in accordance with the principles therein established. The amount
of mail pay refund, if any, that Delta may be required to pay as successor of C&S cannot
now be determined.
6. BANK LOAN AGREEMENT:
On September 2, 1952, Delta entered into a Credit Agreement with twenty-five banks
under which $20,000,000 may be borrowed at any time prior to August 1, 1954 (now ex-
tended to May 1, 1955), on unsecured notes bearing interest at 3% repayable in 16 quar-
terly installments commencing 15 months after the date of each loan. Under terms of the
agreement a commitment fee of of 1 % per annum is payable on the unused portion of
the commitment. At June 30, 1954, $14,000,000 (repayable serially to March 1959) had
been borrowed under the agreement.
7. OPTIONS HELD BY FORMER OFFICERS:
The merger agreement referred to in Note 1 provides that options granted to certain
officers of C&S for the purchase of the ll,750 shares of common stock of C&S for $10 per
share shall be honored by Delta by selling to holders of the options at $10 per share the
amount ($21.00) of 5% Convertible Debentures (Subordinated) which stockholders of
C&S may receive in exchange for each share of their common stock. As of June 30, 1954,
holders of these options had paid in $77,476 and received therefor $162,700 in Debentures,
the difference being charged to expense ($33,000 in 1953 and $52,224 in 1954). The remain-
ing options to acquire $84,000 of Debentures for $40,000 expire August 21, 1956.
17
18
DELTA AIR LINES. INC.-A DECADE OF GROWTH
CURRENT ASSETS
Current Liabilities
Net Working Capital
Total Assets .
Stockholders' Equity .
Stockholder Equity Per Share
Shares of Common Stock Outstand-
ing at Close of Year .
OPERATING REVENUES:
Passenger .
Mail
Express
Freight
All Other.
Total Revenues
Operating Expenses (Excluding
Depreciation)
Depreciation
Total Operating Expenses
Operating Profit, Before
Income Taxes . . .
Non-Operating Revenue or (Expense)
Net Income Before Taxes
Federal and State Taxes on Income
Net Income Before Aircraft
Sale Profits
Profit from Major Aircraft Sales
(after taxes) .
Total Profits
Profit Per Share of Stock Outstanding
at Close of Year . . . . . . .
REVENUE PLANE MILES (000)
Available Seat Miles (000)
Revenue Passenger Miles (000)
Passenger Load Factor .
Available Ton Miles (000)
Revenue Ton Miles (000) . . .
% of Scheduled Mileage Completed
1954
$17,592,939
8,861,111
8,731,828
48,089,997
16,233,227
27.06
600,000
$45,144,949
1,723,703
844,483
1,766,266
854,481
50,333,882
43,021,159
5,275,152
48,296,311
2,037,571
(1,359,987)
677,584
394,000
283,584
1,022,365
1,305,949
2.18
31,916
1,344,069
769,654
57.26%
162,345
87,251
98.29%
1953
$16,362,801
9,192,041
7,170,760
37,966,469
15,647,278
26.08
600,000
$28,946,479
1,131,578
550,305
1,044,338
665,102
32,337,802
26,641,944
2,259,784
28,901,728
3,436,074
(1,345,957)
2,090,117
688,000
1,402,117
2,756,561
4,158,678
6.93
20,672
776,157
507,714
65.41 %
94,045
57,565
98.83%
1952
$ 9,027,490
6,618,627
2,408,863
16,836,905
9,808,493
19.61
500,000
$23,995,938
1,035,599
431,240
827,927
727,417
27,018,121
21,155,513
1,485,556
22,641,069
4,377,052
12,398
4,389,450
2,739,000
1,650,450
1,650,450
3.30
17,531
653,121
427,534
65.46%
80,089
48,093
98.98%
These data refiect operations of Delta Air Lines, Inc., and
do not include the C&S system prior to May 1, 1953.
1951
$ 7,184,532
4,541,282
2,6-43,250
14,402,050
8,658,043
17.32
500,000
$19,006,936
1,306,752
374,480
720,719
812,112
22,220,999
17,499,480
1,389,721
18,889;201
3,331,798
(75,000)
3,256,798
1,625,000
1,631,798
1,631,798
3.26
15,698
541,038
345,246
63.81%
71,987
40,480
98.91%
1950 1949 1948 1947 1946 1945
$ 5,170,591 $ 5,310,482 $ 4,682,029 $ 5,630,338 $2,765,210 $4,573,035
2,950,443 2,751,859 2,180,988 2,253,963 1,638,948 1,451,981
2,220,148 2,558,623 2,501,041 3,376,375 1,126,262 3,121,054
12,371,851 12,629,268 9,352,827 9,306,766 6,034,364 5,537,587
7,401,245 6,710,494 6,l-96,053 5,789,701 4,220,770 4,085,606
14.80 13.42 12.39 11.58 10.55 10.21
500,000 500,000 500,000 500,000 400,000 400,000
$13,761,453 $11,987,246 $10,079,272 $10,558,559 $6,944,162 $4,193,214
2,373,213 2,434,888 2,010,668 423,292 680,359 752,719
238,441 244,859 273,099 242,978 137,540 97,286
478,537 358,503 303,115 109,603
333,651 202,349 152,815 154,404 97,955 113,063
17,185,295 15,227,845 12,818,969 11,488,836 7,860,016 5,156,282
14,568,386 13,096,091 11,605,990 10,837,709 6,694,265 3,360,400
1,206,755 1,185,865 1,012,954 944,659 609,888 289,687
15,775,141 14,281,956 12,618,944 11,782,368 7,304,153 3,650,087
1,410,154 945,889 200,025 (293,532) 555,863 1,506,195
(5,403) (52,603) (50,845) (67,302) (12,793) (57,279)
1,404,751 893,286 149,180 (360,834) 543,070 1,448,916
589,000 336,000 56,343 127,459* 232,835 910,221
815,751 557,286 92,837 (233,375) 310,235 538,695
82,154 111,893
815,751 639,440 204,730 (233,375) 310,235 538,695
1.63 1.28 .41 (.47) .78 1.34
13,804 12,921 12,803 11,822 8,195 4,676
437,209 361,199 349,235 335,630 186,650 96,927
238,335 201,711 188,293 222,704 150,072 84,877
54.51% 55.84% 53.92% 66.35% 80.04% 87.57%
59.532 49,544 46,562 42,716 21,981 11,221
27,259 22,805 19,966 22,799 15,860 9,741
97.90% 97.69% 94.22% 94.71% 96.63% 95.55%
* Credit ) Loss
19
20
ALEXANDRIA . . . . . . Alexandria Air Base
ASHEVILLE . . . . Battery Park Hotel
ATLANTA . . . . Piedmont and Biltmore Hotels
AUGUSTA . . . . . . . . . Richmond Hotel
BATON ROUGE . . . Heidelberg Hotel
BEAUMONT . . Jefferson County Airport
BIRMINGHAM . . . 2002 Fifth Ave., North
BRUNSWICK . . Malcolm-McKinnon Airport
CARACAS, Venez. . Edificio Paris, Plaza Candelaria
CHARLESTON . . . . . Francis Marion Hotel
CHATTANOOGA . . . . . . . Hotel Patten
CHICAGO . 67 East Monroe & Conrad Hilton Hotel
1649 Orrington, Evanston, Illinois
CINCINNATI . . . . Sheraton-Gibson Hotel and
Netherland Plaza
CIUDAD TRUJILLO, D. R., Arz. Nouel esq. Sanchez
COLUMBIA . . . . . Hotel Wade Hampton
COLUMBUS, GA. . . . . . . . Ralston Hotel
DALLAS . . 214 S. Akard St. (Baker Hotel)
DETROIT . . 1235 Washington Blvd.
EVANSVILLE . . . McCurdy Hotel
FORT WAYNE . . Baer Field Airport
FORT WORTH . . . . . Hotel Texas
GLADEWATER Gregg County Airport
GREENVILLE Municipal Airport
GREENWOOD Municipal Airport
HATTIESBURG Municipal Airport
HAVANA, Cuba . . . Prado 301
HENDERSONVILLE Asheville-Hendersonville
Airport
HOT SPRINGS . . Hot Springs Memorial Airport
HOUSTON . . Mellie-Esperson Bldg. & Rice Hotel
INDIANAPOLIS . . . . . . . Claypool Hotel
JACKSON . . . . . Heidelberg Hotel
JACKSONVILLE . . . . . 226 West Forsyth St.
KANSAS CITY . . . . . . . Muehlebach Hotel
KILGORE . . . Gregg County Airport
KNOXVILLE . . Farragut Hotel
LEXINGTON . . . Blue Grass Airport
LITTLE ROCK . . . . Marion Hotel
LONGVIEW . . . . . . Gregg County Airport
MACON . Hotel Dempsey
MEMPHIS . . . . . . . . Peabody Hotel
MERIDIAN . . . . . . . . . . Key Field
MIAMI . . . . 300 N. E. First (Columbus Hotel)
MIAMI BEACH . . . . . 1636 Collins Avenue
A vigorous and aggressive advertising program attracts customers
for Delta-C&S, plays an important role in Company's success.
TICKET OFFICES
MONROE . . . . . . . . . . Frances Hotel
MONTEGO BAY, Jamaica . Montego Bay Airport
MONTGOMERY . . . . . Jefferson Davis Hotel
NEW ORLEANS, 708 Common St. (St. Charles Hotel)
and Roosevelt Hotel
PADUCAH . . . . . . . . . . Barkley Field
PORT AR THUR . . . Jefferson County Airport
PORT-AU-PRINCE, Haiti . . . c/o Nadal & Co.
SAN JU AN, Puerto Rico . Cari be Hilton Hotel
SAVANNAH . . . Hotel Savannah
SELMA . . . . . . . . . Selfield Airport
SHREVEPORT . . . . Captain Shreve Hotel
SPARTANBURG . . . . . . Memorial Airport
SPRINGFIELD . . . . . . Municipal Airport
ST. LOUIS . . . . . . . . . . Statler Hotel
TERRE HAUTE
TOLEDO
TYLER . . . .
. . . . H ulman Airport
. Commodore Perry Arcade
. . . . . Pounds Field
C the
ar1
~;:0':~J- 4
::.:....-:..-:.-::.,.=:.:-
-
~-...... ..--.-
-
-w. ...... ....-- -
:::::-.:.-::.::.~.: .. ,
R.
w. COURTS
Atlanta
R ..
w. FREEMAN
New Orleans
EDWARD H. GERRY
New York City
JOHN R. LONGMIRE
St. Louis
LAIGH C. p ARKER
Vice President - Traffic and Sales
CHARLES H. DOLSON
Vice President - Operations
w. T. ARTHUR
Asst. Vice President - Operations
Transfer Agent for Common Stock
CARLETON PUTNAM, Chairman
Washington, D. C.
R.
s. MAURER
Atlanta
C. H. McHENRY
Monroe, La.
LAIGH C. PARKER
Atlanta
WINSHIP NUNNALLY
Atlanta
C. E.
w OOLMAN
President and General Manager
ToDD G. CoLE
Vice President - Comptroller
and Assistant Secretary
R.
s. MAURER
Vice President - Legal
T. M. MILLER
Asst. Vice President - Traffic
and Sales
CATHERINE FITZGERALD
Assistant Treasurer
Trustee for Debentures
The Citizens & Southern National Bank
Atlanta, Georgia
The First National Bank of Atlanta
Atlanta, Georgia
TRAVIS OLIVER
Monroe, La.
R. J. REYNOLDS
Winston-Salem, N. C.
D. Y. SMITH
Monroe, La.
C. E.
w OOLMAN
Atlanta
w. T. BEEBE
Vice President - Personnel
TRAVIS OLIVER
Treasurer
C.H. McHENRY
Secretary
Registrar for Common Stock
Trust Company of Georgia
Atlanta, Georgia
Auditors - Arthur Andersen & Co. Annual Meeting - October 19, 1954, Monroe, Louisiana