North Central Airlines Annual Report 1965

North. Central Airlines
ANNUAL REPORT
1965
NORTH CENTRAL AIRLINES, INC
GENERAL OFFICES: 6201 Thirty-Fourth Avenue South, Minneapolis, Minnesota 55450
BOARD OF DIRECTORS
HAL N. CARR* Chairman A. JAMES MUELLER
D. E. CROOKER JOSEPH E. RAPKIN*
G. F. DECOURSIN*
* Executive Committee
H. P. SKOGLUND
KENNETH B. WILLETT
ROBERT G. ZELLER
OFFICERS
HAL N. CARR
R. H. BENDIO
FRANK N. BUTTOMER . .
L. J. KEELY
T. M. NEEDHAM ....
A. D. NIEMEYER ....
ARTHUR E. SCHWANDT. .
BERNARD SWEET ....
G. F. WALLIS
D. F. MAY
JOHN P. DOW
JERROLD SCOUTT, JR. . .
CHARLOTTE G. WESTBERG
. . Chairman oj the Board and President
Vice President
. . . . Vice President-Traffic and Sales
Vice President-Maintenance and Engineering
. . . . Vice President-Ground Operations
Vice President
. . . Vice President-Industrial Relations
Vice President-Finance
. . . . Vice President-Flight Operations
Treasurer
Secretary
Assistant Secretary
Assistant Secretary
STOCK TRANSFER AGENTS
Northwestern National Bank of Minneapolis; Minneapolis, Minnesota
Irving Trust Company; New York, New York
March 11, 1966
To our stockholders, employees, and friends:
In 1965, North Central achieved the greatest year of growth in the company's history.
With record traffic and revenues, the airline earned its largest profit.
On revenues of $33,891,000, net earnings were $1,139,000--35 per cent greater than
1964. This profit, together with depreciation charges of $1,997,000, developed cash flow
of $3,136,000.
The Northliners carried 1,616,900 passengers in 1965 -- almost 20 per cent ahead of 1964.
The 263,599 increase in passengers was the largest in the history of the airline. The
40,982,000 pounds of cargo flown--including air freight, express, and mail--was 31 per
cent over 1964, the best previous year.
While carrying record traffic, the company continued its excellent operating perfor
mance, and completed 98 per cent of its 15,600,000 scheduled miles in 1965. Besides
achieving this enviable performance factor, North Central also maintained its perfect
18-year safety record.
In July, a 10-jet program was announced by the company. The airline has ordered
Douglas DC-9 jet aircraft for inauguration of service on its system early in 1967. The
agreement with the Douglas Aircraft Company includes an initial purchase of five of
the new 100-passenger twin-jets, including parts, at a cost of $20 million and an option
for five additional aircraft.
In line with the company's equipment modernization program, six more pressurized
Convair 440 aircraft were added during the year and one early in 1966, bringing the
fleet to 30 Convairs and 16 DC-3's. Over 90 per cent of the airline's seat miles are now
flown with Convairs.
The company continued to pursue its program of route development. During 1965,
the airline petitioned the Civil Aeronautics Board for a route from Sioux Falls, South
Dakota, to Chicago via Rochester, Minnesota. The Board approved North Central's
application to remove operating restrictions on its route between Duluth/Superior and
Chicago. This action allows the company greater flexibility in scheduling and will
improve service between these points and many Wisconsin communities.
In reviewing the growth of North Central in 1965, we would like to acknowledge the
loyalty of our employees and their contribution to the airline. To our stockholders, we
extend our gratitude for their confidence in the company. To our Northliner passengers,
we want to express our sincere appreciation for their continued support.
We believe that the company's prospects for the future have never been more prom
ising. North Central can look forward in 1966 to another year of record traffic, revenues,
and profits.
Sincerely,
HAL N. CARR
Chairman of the Board and President
Annual Report 1965
Financial review
R
ECORD PROFITS of $1,138,752 were attained
by North Central in 1965--35 per cent ahead
^ of 1964. Revenues reached an all-time high
of $33,891,031, compared with $29,714,777 in the pre
vious year.
With operating expenses for 1965 of $31,324,601,
including $1,997,488 in depreciation charges, the com
pany realized an operating profit of $2,566,430. The net
profit was $1,138,752, after income taxes of $1,013,765.
It is significant that the net earnings, together with the
$1,997,488 in depreciation, resulted in cash flow of
$3,136,240.
The company earned the profit of $1,138,752 despite
the fact that $760,000 in excess profits were returned to
the Federal Government under the class rate for re
gional airlines. North Central's record commercial
revenues combined with its effective cost control pro
gram placed the company in this profit-sharing position
for the fifth consecutive year.
During 1965, a $17-million line of credit for financing
the airline's jet acquisition program was established
with a group of 15 banks at an interest rate of 5^ per
cent. This extremely favorable rate was obtained be
cause of North Central's strong financial position--the
best in its 18-year history.
REVENUES (MILLIONS OF DOLLARS)
SUMMARY OF DECISIONS RENDERED IY THE C. A.R.
AFFECTING NORTH CENTRAL DURING THE YEAR
AND STATUS OF APPLICATIONS PENDING
Route
development
N
ORTH CENTRAL
continued to
advance its route development
program during 1965. The
company made applications to the
Civil Aeronautics Board for
new routes and for the lifting
of operating restrictions on
existing segments. At present,
the company serves 90 cities
in 10 Midwest states and Canada
over a 7,000-mile route system.
The Northliner fleet of 30 Convairs and 16
DC-3's serves 90 cities in 10 Midwest states
and Canada.
TORONTO SERVICE
Settlement of the Bilateral Air Transport
Agreement between the United States and
Canada was announced by President Johnson
in December 1965 and signed by both parties
on January 17, 1966. Among other things,
the agreement provides for a Detroit-Toronto
route to be operated by a United States local
service carrier. The C.A.B. will consider
North Central's application for this route
sometime in 1966. In addition, the airline has
applications on file for three other nonstop
routes to the Canadian city: Cleveland-
Toronto, Milwaukee-Toronto, and Chicago-
Toronto, as well as a one-stop route to Tor
onto from Chicago via Detroit.
DETROIT-BAETIMORE
North Central's application for authority to
operate between Detroit and Baltimore, with
intermediate cities of Cleveland and Pitts
burgh, is still pending. This segment of 415
miles would improve the eastern portion of
the system by adding the two major cities of
Baltimore and Pittsburgh.
SIOUX CITY-DENVER
During 1965, a prehearing conference was
held on the company's application for a 480-
mile route segment between the terminals of
Sioux City, Iowa, and Denver. A formal
hearing on this route has been scheduled by
the C.A.B. for March 1966. Approval of
North Central's application for this route
would give new strength to the western seg
ment of the system, and the company would
have its first service to the State of Colorado.
OMAHA-ST. LOUIS
North Central has an application on file for
authority to operate a 400-mile segment from
Omaha to St. Louis, via the intermediate
cities of Chillicothe and Moberly, Missouri.
If approved, it would bring a new major
terminal--St. Louis--to the system and give
the company its first entry into Missouri.
OMAHA-KANSAS CITY
Service to three new cities has been proposed
in the company's application for a 169-mile
segment south of Omaha. They are: Falls
City, Nebraska; Atchison and Kansas City,
Kansas. This would add the State of Kansas
to North Central's system.
RAPID CITY-OMAHA
North Central's amendment to its Omaha-
Kansas City application is still pending before
the C.A.B. Authorization has been requested
between Norfolk, Nebraska, and Rapid City,
South Dakota, with nonstop service between
Rapid City and Omaha.
SIOUX FALLS-ROCHESTER-CHICAGO
In December 1965, the company applied for
a route between Sioux Falls, South Dakota,
and Chicago--with one intermediate stop at
Rochester, Minnesota. This new route would
facilitate air travel from the Dakotas to Roch
ester and Chicago by making single carrier
service available to several cities in these
states. It would also add Rochester to North
Centyal's system.
"USE IT OR LOSE IT" PROCEEDINGS
In February 1965, the C.A.B. rendered its
decision on the company's service to Pontiac,
Cadillac/Reed City, and Port Huron, Mich
igan. Under its "use it or lose it" policy, the
Board permitted North Central to suspend
service to these communities. In May, the
C.A.B. stayed the effective date of this order,
as it pertains to Pontiac and Cadillac/Reed
City, pending judicial review which is now
in progress. A decision by the Sixth Circuit
Court of Appeals is expected in 1966.
OPERATING FLEXIBILITY APPLICATIONS
During 1965, the company petitioned the
C.A.B. for the lifting of operating restrictions
on flights between Duluth/Superior and Chi
cago. This request for a change in service
pattern was granted by the Board in Novem
ber. It permits North Central to overfly any
intermediate point between Duluth/Superior
and Chicago, as well as between Duluth/
Superior and Madison, Wisconsin. Nonstop
flights can now be scheduled between the
Twin Ports and Wisconsin cities. This ap
proval allows the company to provide im
proved service to these communities.
The Board's action is in accordance with
its policy of strengthening the regional air
lines by relaxing operating restrictions to per
mit nonstop and skipstop authority. The
company has also requested authority to op
erate between Minneapolis/St. Paul and
Chicago with: 1) nonstop service; 2) one
stop, Milwaukee; 3) one stop, Madison; and
4) three stops -- La Crosse, Madison, and
Milwaukee, Wisconsin.
TRANSFER INVESTIGATIONS
In line with the C.A.B.'s plan to strengthen
regional carriers through transfer of segments
and cities from trunk carriers to regional air
lines, North Central has an application on
file for suspension of United Air Lines at
Saginaw/Bay City/Midland, Flint, Lansing,
and Muskegon, Michigan. If the Board acts
favorably on this application, the company
will provide improved replacement service.
REGIONAL AIRPORT INVESTIGATIONS
The North Central Area Airport Investiga
tion, concerned with combining service to
eight cities at regional airports, was com
pleted in 1964 to be effective January 25,
1965.
The Board ruled that, in Wisconsin, Marsh
field would be served through the Wausau
airport and Wisconsin Rapids, through Stev
ens Point until a suitable regional airport can
be constructed to accommodate these four
communities.
The Board also ordered that Appleton will
receive its service through the Oshkosh air
port and Clintonville through Green Bay.
Ashland, Wisconsin will be served through
Ironwood, Michigan.
On January 15, 1965, the Board stayed the
effective date of this order as it pertained to
Ashland, Appleton, and Clintonville, pend
ing judicial review of the Board's decision.
On January 18, 1966, the Seventh Circuit
Court of Appeals in Chicago affirmed the
previous decision of the C.A.B. In accordance
with this ruling, North Central consolidated
its service to these points as ordered by the
Board.
3
Traffic growth
Passenger traffic increased nearly 20 per
cent in 1965 as 1,616,900 persons flew the
Route of the Northliners.
I
N 1965, North Central broke all traffic records as pas
senger boardings exceeded 1964 by almost 20 per cent
and cargo increased 31 per cent. Some 263,599 more
passengers were flown during the year than in 1964. This is
the highest passenger increase ever achieved by the airline.
The Northliners carried a record 1,616,900 passengers in
1965. The company flew 273,209,300 passenger miles, a
gain of 19 per cent over the previous year.
Two daily records were set on July 2 when 6,330 passen
gers were carried over the system, and 1,831 of these persons
boarded at Chicago--an all-time high for a single station.
In August, the company established a new monthly mark
for the regional airline industry, with 166,697 passengers
carried.
This was the first full year the company offered half-fares
to military standby passengers on a space available basis.
Nearly 71,000 servicemen and women took advantage of
this special fare to fly with North Central. For many, this
was their first airline trip.
The company also flew 280 charters and 74 scenics during
1965, and 265,467 additional plane miles were operated.
Some 14,483 charter passengers were flown and 6,123 peo
ple took scenic trips.
Substantial gains in cargo were also achieved by the com
pany in 1965 as a record 40,982,213 pounds of air freight,
express, and mail were carried--a 31 per cent increase over
the previous year.
Total cargo ton miles flown were 3,807,677, an increase
of 32 per cent over 1964. Air freight ton miles reached
2,073,559--37 per cent ahead; and air express was 1,023,685,
a 32 per cent gain. Mail increased 21 per cent during 1965,
with 710,433 ton miles flown.
While carrying a record number of passengers in 1965
and the greatest volume of cargo in the airline's history,
North Central maintained its perfect 18-year safety record.
Since inaugurating service in 1948, the company has flown
nearly 12 million passengers 1,918,000,000 passenger miles
without a single fatality or injury to passengers or crew
members.
Operating; performance
T
HE COMPANY achieved an outstanding per
formance record in 1965, as 98 per cent of its
15,611,988 scheduled miles were flown.
The weather conditions in North Central's area during
the winter months were unusually severe and prolonged
during 1965. In spite of this, the company again recorded
an excellent completion factor, while handling the substan
tial increase in passengers and cargo.
Exacting maintenance was one of the major factors in
this high level of performance. In 1965, only 134 of the
company's 180,957 departures--less than one-tenth of one
per cent--were cancelled for mechanical reasons, and less
than one per cent were delayed.
Again this year, the company's winterization program,
"Operation Cold Front", was put into effect. This plan
assures that personnel are properly trained and all ground
equipment is in a ready condition for winter operations.
New procedures were added to the program in 1965 so that
the airline's operating performance would again be signifi
cant despite the sub-zero conditions which exist over much
of the system.
The company's impressive performance record is a tribute
to North Central's employees and their dedication to the
task of keeping the Northliners flying.
Besides the scheduled flights, 843 extra sections were op
erated to provide additional service to the traveling public
during peak periods. This represents another 118,145 miles
flown by the company in 1965.
4
Improved services
N
ORTH CENTRAL increased its services to the
traveling public by providing additional seat miles
with the purchase of six more Convair 440 aircraft
during 1965, and one in January 1966. This is in accordance
with the airline's continuing equipment modernization pro
gram to replace its DC-3's with Convairs.
Some 586,492,415 seat miles were flown this year--a 14
per cent increase over 1964. Presently, over 90 per cent of
the company's seat miles are operated with pressurized
Convairs. North Central's fleet now consists of 30 Convairs
and 16 DC-3's.
Northliner Cargo Service was initiated by North Central
in April, featuring all-cargo trips to 12 Midwest cities. The
specialized flights assure shippers of overnight delivery to
these cities. The new service operates in addition to North
Central's regularly scheduled flights, which also carry cargo.
The Cargoliner Service uses DC-3 aircraft specially equipped
for handling 7,000 pounds of cargo in a variety of sizes.
To improve passenger handling, additional teletype
equipment was installed at the Chicago, Minneapolis,
Madison, and Duluth city ticket offices. This permits the
reservations agent to have immediate access to all ticketing
information regarding the passenger. Similar units were
placed at major airport ticket offices.
Another new service to the traveling public was the in
stallation of television monitors at the airport ticket counters
in Milwaukee and Green Bay, like the ones at O'Hare Air
port. These monitors allow passengers to determine, at a
glance, flight arrival and departure times and gate assign
ments. This monitor system was also added to North Cen
tral's Reservations Center at Milwaukee so that telephone
sales agents will have current flight information available
to passengers who call in.
Thejoint airlines' reservations Electronic Switching System
was expanded substantially in 1965. North Central was the
fourth airline to share this message relay system which per
mits "instant" exchange of teletype messages on interline
reservations.
Now that all the 24 domestic airlines and most foreign
carriers are participants in this program, North Central
reservations agents can communicate directly with every
"airline city" in the United States and those in most foreign
countries. It has also been programmed to handle messages
on air cargo and flight operations, as well as administrative
business information.
Baggage allowance for North Central's passengers was
increased from 40 pounds to 50 pounds in 1965. Also, a new
tag is now being used to improve baggage handling.
North Central expanded its credit program in 1965 to
include the use of American Express credit cards for on-line
transportation. This is in addition to the Universal Air
Travel Plan and the company's own credit card.
More than 18,000 personal sales calls were made on North
Central customers by the company's traffic and sales repre
sentatives. In addition, some 150 speeches were given to
further tell the North Central story, and the company's
color movie, "The Northliner", was shown to 75 civic,
educational, and airline groups.
During the year, North Central launched an extensive
advertising program. Newspaper and television coverage
was expanded. For the first time a specialized series of
advertisements designed to emphasize the advantages of busi
ness travel by air appeared in Fortune magazine. Unique,
colorful travel posters were developed to focus attention
on North Central's vacation areas, and over 7,500 were
distributed to travel agencies, ski and sports shops by sales
personnel.
To further promote vacation and weekend travel, the
airline offered several package tours to popular ski resorts
on its system and advertised the program widely in The
Wall Street Journal and ski magazines.
Three new airport terminal buildings were added to North
Central's system in 1965 for Green Bay, Wisconsin; Hibbing/
Chisholm, Minnesota; and Port Arthur/Fort William,
Ontario, Canada. Remodeling of airport accommodations
was accomplished at Minot, North Dakota; La Crosse,
Wisconsin; and South Bend, Indiana. Lrnder construction are
new terminals for Benton Harbor/St. Joseph and Saginaw/
Bay City/Midland, Michigan; Madison, Wisconsin; and
Bismarck/Mandan, North Dakota and enlarged facilities at
Detroit Metropolitan Airport.
North Central and several other airlines will move from
Willow Run Airport at Ypsilanti to the expanded Detroit
Metropolitan when it is completed in the Spring of 1966.
This is North Central s new hangar at Detroit Metropolitan Airport which will be ready for use in April 1966.
6
In conjunction with this move, the company has con
structed a new $1,725,000 maintenance base at Metropoli
tan to replace the hangar formerly leased at Willow Run.
This base is used to serve the eastern portion of the airline's
system.
The telephone answering service at the company's
Milwaukee Reservations Center will be greatly improved
early in 1966 when a new Call Distributor system is installed.
This facility will make 200 telephone lines available to the
Milwaukee center, which handles 60 per cent of North
Central's reservations, and will speed up the transmission
of reservations information. The system will also be used to
handle communications concerning baggage, cargo, and
flight operations.
In December 1965 the company announced that an
agreement had been made to share Eastern Air Lines'
computer system which will provide North Central pas
sengers with improved reservations and flight information.
The combined operation, using Eastern's Univac 490 com
puter, will begin in April 1966. The system makes immediate
reservations information, as well as arrival and departure
times, on North Central available to nearly 70 per cent of
the passengers. Also, this same data will be obtainable on
1,300 Eastern flights and those of the three other participat
ing airlines.
In addition, through an "interline availability" arrange
ment, immediate confirmation can be received on 11 other
airlines. This represents 90 per cent of North Central's inter
line requests. Likewise, immediate reservations information
on North Central's 175 daily flights will be available to
these airlines.
North Central passengers will be able to receive informa
tion concerning reservations, arrival and departure times,
number of stops, type of equipment, days of operation, and
meal service more quickly by utilization of the Univac
computer system.
Advantages for reservations personnel include: improved
0 North Central will utilize these two Real-Time Univac 490 computers
starting in April 1966 by agreement with Eastern Air Lines. The combined
operation will improve reservations and flight information services to
Northliner passengers.
quick reference material, reduced telephone time, better
utilization of airline seats by immediate resale of cancella
tions, rapid dissemination of flight information, and im
proved passenger handling when irregular operations occur.
The reservations computer system to be shared by North
Central has a capability of processing 100,000 transactions
an hour.
A $10-million general office and main operations base--
as modern as the DC-9 jets that the company has ordered
--will be built at the Minneapolis/St. Paul International
Airport. This expansion plan, which has been under study
for over a year, was approved by the Board of Directors in
July 1965.
The new complex will replace all of the company's pres
ent facilities located in several buildings on the west side of
the airport and will be completed within four or five years.
The plan will meet North Central's space requirements for
the next 20 years as it moves ahead in the jet age.
Management development
AT ITS MARCH MEETING, North Central's Board
/ of Directors elected Hal N. Carr as Chairman of
m. the Board to fill the vacancy created by the death
of Arthur E. A. Mueller, Chairman since 1952. Mr. Carr
assumed the duties of Chairman in addition to his positions
as President and General Manager.
Joseph E. Rapkin of Milwaukee was elected a director to
fill Mr. Mueller's unexpired term on the Board. Mr. Rapkin
is a partner in the law firm of Foley, Sammond and Lardner
of Milwaukee.
Robert G. Zeller of New York was elected to North
Central's Board at the December meeting. He is a general
partner in the investment banking firm, F. Eberstadt & Co.,
New York.
The extensive business background which both Mr. Rapkin
and Mr. Zeller bring to North Central will be an important
contribution to the company.
In 1965, the airline continued its program of developing,
within the organization, managerial personnel qualified to
meet the company's future growth demands.
In line with this policy, three North Central department
heads were named officers of the company by the Board of
Directors at its April meeting. L. J. Keely was elected Vice
President-Maintenance and Engineering; T. M. Needham,
Vice President-Ground Operations; and G. F. Wallis,
Vice President-Flight Operations.
During the year, three positions in the Traffic and Sales
Department were created to improve and promote North
Central's service to its passengers and shippers. A Regional
Traffic and Sales Manager was appointed for the central
area of the airline and another for the eastern. Also added
was the position of Manager-Advertising and Promotion.
Jet program

Signing the agreement for North Central's
10-jet program is President Hal N. Carr.
Also participating are John L. Burton, left.
Regional Sales Manager for Douglas Air
craft, and Bernard Sweet, North Central's
Vice President-Finance.
ORTH CENTRAL'S decision on jet aircraft was
made in July, when the company announced its
10-jet Douglas DC-9 program. Through an agree
ment with the Douglas Aircraft Company, the airline pur
chased five of the new 100-passenger twin-jets, including
parts, at a cost of $20 million and has an option for five
additional aircraft.
For several years the company made an extensive evalua
tion study of the jets that could meet North Central's partic
ular requirements. The factors which had to be considered
were capacity, speed, range, and design features of the air
craft; operating costs and purchasing price; and adaptability
of the plane to the airline's route system and airport runways.
The study indicated that the DC-9 is the most suitable jet
aircraft for North Central's operation.
The DC-9 has two Pratt & Whitney fan jet engines which
produce 14,000 pounds of thrust each during take-off. It
cruises at 560 miles an hour. Wingspan of the new jet is
93.4 feet. The overall length of the aircraft is 119.3 feet.
The trim jetliner will bring a new look to many airports
served by North Central. Distinctive physical features are
the high-level "T" tail and the two engines mounted at the
rear of the fuselage. This positioning of the engines produces
an even quieter ride for the passenger.
The company will offer all first-class service on its jets,
with two stewardesses in attendance. The DC-9 features
"big jet" roominess, outstanding climate control comfort,
interior beauty, and a smooth ride. Travelers will enjoy all
the luxury expected in the jet age.
Seating facilities for 100 passengers in the spacious cabin
have exceptional head, shoulder, and leg room. Another
feature of the new jet is its unexcelled lighting and window
During 1965, North Central supervisory personnel from
all departments completed classes in jet familiarization.
Training has also been started by maintenance employees.
The company will inaugurate jet service early in 1967,
thus bringing the speed and comfort of jet travel to North
Central passengers.
The future
N
ORTH CENTRAL is looking forward to a greater
year of growth in 1966. With anticipated improve
ments in the airline's route structure and pas
senger service, as well as the scheduling of more Convairs,
the company expects record earnings in the coming year.
Considerable time and effort will be expended during
1966 to prepare North Central for its entry into the jet age.
Extensive personnel training will be accomplished; special
ized equipment, acquired; and facilities upgraded through
out the system, to make the airline's transition to jets an
efficient one.
Several pending C.A.B. cases pertaining to North Central
will be completed in the next year, and the company is
optimistic about these decisions. Favorable Board action will
strengthen the airline's route system.
As the company looks ahead to 1966, a substantial in
crease in passenger and cargo traffic is anticipated. This will
result from the additional capacity produced when more
Convairs are placed in service and from aggressive sales pro
motion. Corresponding record revenues are forecast. With
a continuation of the company's intensive cost control pro
gram, management is projecting even larger profits for 1966.
8
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Present routes
Proposed routes
Five years of
record progress
N
ORTH CENTRAL achieved new records in all
categories of traffic during 1965, as it has every
year since beginning scheduled operations in
1948. The 1,616,900 passengers carried was nearly 20 per
cent ahead of 1964. The 263,599 increase in passengers was
the largest for any year in the company's history. Passenger
traffic since 1961 has shown a 56 per cent gain.
Air cargo, which includes freight, express, and mail,
increased even more. Over the past five years, cargo has
grown 130 per cent and, in 1965, 31 per cent. This year's
gain was due, in part, to the company's new Cargoliner
Service inaugurated in April. In addition, with more Con-
vairs in service during 1965, cargo capacity on the regularly
scheduled flights was increased.
North Central's available seat miles have risen 50 per
cent in the last five years, in line with the company's con
tinuing program to increase service to the traveling public.
In 1965, some 586,492,415 seat miles were offered--14 per
cent more than in the previous year.
With the advancement of the airline's equipment modern
ization program, even greater traffic increases are anti
cipated in 1966.
12
NORTH CENTRAL AIRLINES, INC.
Assets
CURRENT ASSETS 1965 1964
Cash
Accounts receivable
Public service revenue (Note 1)
Traffic
Other
Flight equipment parts, at average cost (less deterioration
reserves of $369,592 and $276,041)
Maintenance and operating supplies
Prepaid expenses and sundry deposits
Total current assets
$ 1,593,962 $ 1,253,874
992,374 863,163
2,755,168 2,499,066
476,387 451,037
4,223,929 3,813,266
1,183,017 951,414
293,529 277,354
846,238 786,610
8,140,675 7,082,518
OPERATING PROPERTY AND EQUIPMENT-at cost (Note 2)
Flight equipment
Ground equipment
Hangar buildings and improvements to leased property
Furniture and fixtures
16,780,907
1,500,631
2,255,154
389,289
14,285,169
1,376,434
626,950
357,418
Less accumulated depreciation
20,925,981
8,291,930
16,645,971
7,215,851
Advance payments on flight equipment (Note 5)
12,634,051
2,551,645
9,430,120
15,185,696 9,430,120
DEFERRED CHARGES
Unamortized route development costs
Unamortized discount and expense on debt ...
Rentals and other
72,123
68,088
245,223
127,648
70,593
261,626
385,434 459,867
$23,711,805 $16,972,505
The accompanying notes are an integral part of this statement.
Comparative
Balance
Sheet
December 31,
1965 and 1964
Liabilities
CURRENT LIABILITIES 1965
Current maturities of long-term debt $ 1,458,553
Accounts payable 3,533,392
Tickets outstanding 165,752
Taxes withheld or collected as agents 433,357
Income taxes (Note 8) 299,192
Accrued liabilities
Salaries and wages 1,065,876
Payroll and property taxes 141,438
Other 437,568
Total current liabilities 7,535,128
LONG-TERM DEBT (Note 2)
Notes payable to banks .
Other notes payable .
Subordinated debentures
Less current maturities
9,691,000
2,093,483
851,500
12,635,983
1,458,553
11,177,430
STOCKHOLDERS' EQUITY
Common stock--authorized, 10,000,000 shares of $.20 par value;
issued and outstanding, 8,732,038 shares (Notes 2 and 7) . 1,745,408
Paid in capital 295,246
2,041,654
Retained earnings 2,957,593
4,999,247
COMMITMENTS AND CONTINGENT LIABILITY (Notes 5 and 6) -
$23,711,805
1964
$ 1,348,065
2,775,408
161,465
368,792
538,777
737,180
122,866
594,907
6,647,460
6,631,000
330,115
851,500
7,812,615
1,348,065
6,464,550
1,745,408
295,246
2,041,654
1,818,841
3,860,495
$16,972,505
15
NORTH CENTRAL AIRLINES, INC.
Comparative Statement of Earnings
Years ended December 31, 1965 and 1964
OPERATING REVENUES
Passenger
Mail
Public service revenue (after excluding $760,000 and $600,000
respectively of profit-sharing to government) (Notes 1 and 3)
Freight and express
Excess baggage
Non-scheduled transport service
Other
Total operating revenues
OPERATING EXPENSES
Flying operations
Maintenance
Passenger service
Aircraft and traffic servicing
Promotion and sales
General and administrative
Depreciation and amortization
Total operating expenses
Operating profit
OTHER EXPENSE (INCOME)
Interest
Sundry (net)
Total other expense (income)
Earnings before income taxes
INCOME TAXES (Note 8)
States
Federal, less investment credits of $56,974
and $47,201 respectively
NET EARNINGS (Note 3)
The accompanying notes are an integral part of this statement.
1965 1964
$23,720,203 $20,002,281
571,921 476,454
7,199,418 7,274,370
1,811,578 1,370,356
125,531 140,315
357,515 358,200
104,865 92,801
33,891,031 29,714,777
8,362,924 7,456,027
6,993,952 6,210,115
1,684,747 1,440,949
8,156,746 7,358,512
2,773,774 2,297,751
1,354,970 1,206,389
1,997,488 1,712,800
31,324,601 27,682,543
2,566,430 2,032,234
437,064
(23,151)
413,605
(112,234)
413,913 301,371
2,152,517 1,730,863
37,000 46,500
976,765 839,799
1,013,765 886,299
$ 1,138,752 $ 844,564
Comparative Statement of Retained Earnings
Years ended December 31, 1965 and 1964
Retained earnings--beginning of year (note 3)
Net earnings for the year (note 3)
Retained earnings--end of year
The accompanying notes are an integral part of this statement.
1965 1964
$ 1,818,841 $ 974,277
1,138,752 844,564
$ 2,957,593 $ 1,818,841
16
Notes to financial statements
December 31,1965
Auditor's Opinion
1. PUBLIC SERVICE REVENUE--Public service revenue received from the Federal
Government is subject to review and adjustment by the Civil Aeronautics Board.
Settlement has been completed through the year 1963. The year 1964 is presently
under review with provision having been made for all known adjustments.
2. LONG TERM DEBT--Notes payable to banks consist of three 51/2% notes having
an unpaid balance of $6,391,000, and three 5%% notes totaling $3,300,000. The
51/2% notes are due in varying installments with the final payment due in 1970. The
5V4% notes are part of a $17,000,000 loan commitment with installments payable
from 1967 through 1976.
A commitment fee of 14 of 1% per year is payable on the unused portion of the
$17,000,000. Of the $3,300,000 drawn to date, an amount of $2,444,031 was depos
ited on five Douglas DC-9 aircraft to be delivered in 1967 and 1968.
Among other things, the bank agreements require that working capital be main
tained at an increasing level beginning with $1,500,000 prior to July 1, 1966 to
$2,000,000 on July 1,1968, exclusive of amounts due noteholders.The notes payable
to banks are secured by all aircraft and related spare parts owned or to be acquired.
Other notes payable include $1,725,000 of bonds for airport facilities at Wayne
County, Michigan. Interest ranges from 3.25% to 5%, with annual payments of
approximately $110,000 from 1966 to 1990.
The 5y2
% convertible debentures are subject to redemption in whole or in part at
the election of the Company at any time prior to June 1, 1978. The holders have the
option to convert the principal into common stock at rates ranging from $6.50 per
share to June 1, 1966, to $10.00 per share from June 2, 1971--1978. The debentures
are subordinated to other long term debt.
3. RESTATED NET EARNINGS FOR 1964--Net earnings for the year ended December
31, 1964 have been restated to reflect a net adjustment resulting from settlement of
public service revenue for the years 1961, 1962 and 1963. The net adjustment, after
tax credits, of $225,205 increases previously reported net earnings for 1964 from
$617,359 to $844,564.
4. PENSION PLANS--The Company has non-contributory pension plans covering a
majority of its employees. Costs for the year 1965 approximated $834,000 as com
pared with $418,000 for 1964. Estimated past service liability as of December 31,
1965 was $1,055,000.
5. COMMITMENTS--A purchase commitment exists for five Douglas DC-9 jet aircraft
including spare parts at a cost of approximately $20,000,000. Delivery of three is
scheduled for early 1967 and two for early 1968. The company is also committed for
delivery of two used Corivair 440's in 1966 along with spare parts at a cost of approxi
mately $1,000,000.
Major lease facilities exist at airports in Minneapolis/St. Paul, Chicago, Detroit and
Milwaukee. Annual rentals at these locations, including landing fees, approximate
$825,000.
6. VACATION PAY--The Company records vacation pay as a period charge. The un
recorded obligation as of December 31, 1965 was estimated at $260,000, net of
income tax credits.
7. STOCK OPTION PLAN --During the year a total of 250,000 shares of authorized
but unissued common stock were reserved under a qualified stock option plan for
officers and key employees of the company. A total of 220,000 of the reserved shares
were granted prior to the year end at a price of $3.05208 per share. Options expire
five years after the date of grant. The plan is subject to stockholder approval.
8. INCOME TAXES--Federal income tax returns have been examined and settled
through 1963.
ALEXANDER GRANT & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Directors
North Central Airlines, Inc.
We have examined the balance sheet of
NORTH CENTRAL AIRLINES, INC. (a Wiscon
sin corporation) as of December 31, 1965 and
1964 and the related statements of earnings
and retained earnings for the years then
ended. Our examination was made in ac
cordance with generally accepted auditing
standards and accordingly includes such tests
of the accounting records and such other
auditing procedures as we considered neces
sary in the circumstances. Since it was not
practicable to confirm receivables from
United States Government departments and
agencies, we satisfied ourselves with respect
to such receivables by means of other audit
ing procedures.
In our opinion, the accompanying balance
sheet and statements of earnings and retained
earnings present fairly the financial position
of North Central Airlines, Inc. at December
31, 1965 and 1964 and the results of its op
erations for the two years then ended, in
conformity with generally accepted account
ing principles applied on a basis consistent
with that of the preceding year.
Alexander Grant & Company
Milwaukee, Wisconsin
February 9, 1966
Five-year financial summary
OPERATING REVENUES 1965 1964 1963 1962 1961
Passenger $23,720,203 $20,002,281 $18,064,524 $16,750,086 $15,681,163
Public Service Revenue 7,199,418 7,274,370 7,644,080 8,286,733 7,613,159
Other 2,971,410 2,438,126 2,168,100 1,833,426 1,546,429
TOTAL $33,891,031 $29,714,777 $27,876,704 $26,870,245 $24,840,751
OPERATING EXPENSES
Direct Expenses $15,356,876 $13,666,142 $13,076,180 $12,858,386 $12,394,337
Indirect Expenses 13,970,237 12,303,601 11,812,690 11,561,629 10,741,476
Depreciation and Amortization 1,997,488 1,712,800 1,541,857 1,183,464 1,072,902
TOTAL $31,324,601 $27,682,543 $26,430,727 $25,603,479 $24,208,715
Operating Profit
Non-operating Income and
2,566,430 2,032,234 1,445,977 1,266,766 632,036
Expenses, Net (413,913) (301,371) (403,549) (335,014) (269,483)
Net Profit Before Taxes $ 2,152,517 $ 1,730,863 $ 1,042,428 $ 931,752 $ 362,553
Income Taxes 1,013,765 886,299 520,715 491,812 158,253
Net Profit After Taxes $ 1,138,752 $ 844,564 $ 521,713 $ 439,940 $ 204,300
See Note 3 above for explanation of Restated Net Earnings.
Advertising
program
N
ORTH CENTRAL'S progressive advertising pro
gram received wide coverage in 1965. The addi
tion of a colorful series of contemporary travel
posters focused attention on the vacation areas of the Route
of the Northliners.
Television, newspaper, and magazine advertising was
expanded considerably during the year.
Radio advertising took a sports turn in 1965. North
Central co-sponsored broadcasts of the Minnesota Vikings
football games which were carried on 19 stations in a three-
state area. The airline also scheduled spot commercials
throughout the Minnesota Twins baseball season.
All-expense ski package tours were developed by the
company in 1965, in cooperation with Pine Mountain and
Big Powderhorn Mountain Lodges, in the Upper Peninsula
of Michigan; and Terry Peak Lodge, in the Black Hills of
South Dakota. Attractive brochures were widely distributed
to promote weekend and vacation travel to these ski areas.
NORTNCEIHMl
a Mat iki -aotio* Ao&datf
BIG POWDERHORN
MOUNTAIN
WtWUN BtSStMf ft IRONWOOO W1W
NORTH CtHTRAL AfRUNES
NORTflCENIRAl
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TERRY PEAK
If AO -- Df. ATWOOD S OAK
NORTH CENTRAL A/RLINES
PINE
MOUNTAIN
IRON MOUNTAIN MICHIGAN
NORTH CENTRAL AIRLINES
FOB A REAL SKI-ACTION HOLIDAY
NORTHCENM
FLY NORTH CENTRAL AIRLINES
18
OHIO MICHIGAN INDIANA ILLINOIS WISCONSIN MINNESOTA IOWA NEBRASKA SOUTH DAKOTA NORTH DAKOTA CANADA
N
ORTH CENTRAL AIRLINES has maintained
a perfect safety record during its 18 years of
scheduled operation.
The company again received an award from the National
Safety Council for having no fatal accidents during the
previous year.
In 1965, North Central was also presented with a special
certificate from the Oshkosh, Wisconsin Safety Council.
This award recognizes the company's safety record as one
of the finest for all types of industry in the Oshkosh area.
The Tri-County Safety Award from Oconto and Mari
nette, Wisconsin and Menominee, Michigan was given to
the airline during 1965 for leadership in the field of safety.
Since inaugurating service on Eebruary 24, 1948, North
Central has carried nearly 12 million passengers and flown
1,918,000,000 passenger miles without a single fatality or
injury to passengers or crew members.
This outstanding record demonstrates dramatically the
dedication of the company's employees to performing their
daily work efficiently and their conscientious efforts to
assure passenger safety and comfort.
Safety
OSHKOSH INDUSTRIAL SAFETY COUNCIL
AWARD OF MERIT
FOR OUTSTANDING ACHIEVEMENT IN SAFETY
presented to
NORTH CENTRAL AIRLINES, INC
20
i-.
North Central Airlines, Inc.
6201 TMrty-Fourti Avenu South
MINNEAPOLIS, MINNESOTA 55450