North Central Airlines Annual Report 1966

ANNUAL REPORT
NORTH CENTRAL AIRLINE
NORTH CENTRAL AIRLINES, INC.
GENERAL OFFICES: 6201 Thirty-Fourth Avenue South, Minneapolis, Minnesota 55450
BOARD OF DIRECTORS
*HAL N. CARR, Chairman CHAN GURNEY
D. E. CROOKER *SAMUEL H. MASLON
*G. F. DECOURSIN A. JAMES MUELLER
*Executive Committee
JAY PHILLIPS
MORTON B. PHILLIPS
JOSEPH E. RAPKIN
H. P. SKOGLUND
KENNETH B. WILLETT
ROBERT G. ZELLER
MANAGEMENT
HAL N. CARR Chairman of the Board and President
R. H. BENDIO Vice President
L. J. KEELY .... Vice President - Maintenance-Engineering
T. M. NEEDHAM Vice President - Ground Operations
ARTHUR E. SCHWANDT Vice President - Industrial Relations
BERNARD SWEET Vice President - Finance
G. F. WALLIS
D. F. MAY
JOHN P. DOW
G. J. MILLER
CHARLOTTE G. WESTBERG
DAVID E. MORAN . . . .
Vice President - Flight Operations
Treasurer
Secretary
Assistant Secretary
Assistant Secretary
. . Director - Traffic and Sales
STOCK TRANSFER AGENTS
Northwestern National Bank of Minneapolis; Minneapolis, Minnesota
Irving Trust Company; New York, New York
To our stockholders,
employees, and friends:
March 3, 1967
We are pleased to report that 1966 was an exceptional year of growth for North Central Airlines.
The company achieved the largest profit in its 19-year history on record revenues, and led the
entire regional airline industry in passenger traffic.
Net earnings of $1,155,000 were attained on gross revenues of $39,613,000. This was accomplished
in spite of a $1,432,000 reduction in public service revenues. Earnings, along with depreciation
charges of $2,253,000, developed cash flow of $3,408,000.
North Central reached the all-time high for regional airlines by enplaning 2,056,209 passengers
in 1966. This reflects a gain of 27 per cent over 1965 which was the company's best previous
year. Cargo--including air freight, express, and mail--was up 28 per cent as 52,278,000 pounds
were flown.
The airline continued its excellent operating performance and maintained its perfect safety record
while carrying this greatly increased passenger and cargo traffic. In 1966, North Central com
pleted over 98.4 per cent of its 17,200,000 scheduled miles.
In August 1966, the company took another step forward in its equipment modernization program
by announcing that its Convair 440 aircraft would be converted to 580 prop-jets. The 31-aircraft
plan calls for the initial conversion of 20 Convairs, with an option on the other 11. Two Convair
580's have already been delivered in 1967 to be put in operation April 1, and Douglas DC-9 fan jet
service will be inaugurated in the Summer. North Central has 10 of the 100-passenger jets on order,
and has secured an option for five more. By 1968, the airline will have an all jet-powered fleet.
North Central continued its aggressive route development program by applying for several new
routes and the lifting of operating restrictions on existing segments. In December, the Civil
Aeronautics Board issued notice of a proposed policy change which would permit North Central
and the other regional airlines to operate nonstop flights between previously restricted points.
This proposal is one of the most important decisions ever made by the Board regarding the regional
carriers and would strengthen the company's applications for changes in service pattern.
As management reviews the company's success in 1966, we want to express our appreciation to
our employees for their dedicated efforts in serving the traveling public, to our stockholders for
their loyal support, and to our many passengers for flying the "Route of the Northliners."
We are all looking forward to 1967--the year of the airline's entry into the jet age. Anticipated
record traffic and revenues, along with the favorable effect of jet operating economies, should
yield the greatest profits in the company's history and make 1967 the most successful year for
North Central.
Sincerely,
HAL N. CARR
Chairman of the Board and President
REVENUES (MILLIONS OF DOLLARS)
^

Annual Report 1966
$35
Financial
review
$25
N
ORTH CENTRAL AIRLINES attained record revenues of
$39,612,671 in 1966--a 17 per cent increase over 1965. The
$5,721,640 gain in revenues was the greatest in the company's
19-year history.
Operating expenses were $37,296,439, and included $2,253,361 in
depreciation charges. As a result, the company had an operating profit of
$2,316,232. The net profit of $1,154,611, after income taxes of $744,792,
was the largest yet recorded by the airline. These net earnings, together
with the $2,253,361 of depreciation, produced cash flow of $3,407,972
in 1966.
The company earned the $1,154,611 profit although its public service
revenues were reduced by $1,431,530. This profit was made possible by
developing record commercial revenues and intensifying the company's
cost control program. For the sixth consecutive year, North Central was
in a profit-sharing position with the Federal Government under the class
rate for regional airlines.
With the favorable results of 1966, the company enters its jet age in a
strong financial position.
2
Traffic
growth
I
N 1966, North Central led the entire regional airline
industry in traffic when it enplaned 2,056,209 pas
sengers. This was a 27 per cent increase over the
1,616,900 passengers carried in 1965. The 439,309
passenger gain was the highest the company has ever
achieved in a year.
The Northliner fleet flew 354,632,977 passenger miles
-- 30 per cent ahead of 1965.
Three other regional airline milestones were reached
during the year. On August 19, the company carried
9,343 passengers, for a single-day record. During August,
230,215 passengers flew on North Central for a monthly
industry record. The Chicago station alone boarded 66,539
passengers in August, to become the first regional airline
station to pass the 60,000 mark in one month.
Some 88,500 military standby passengers took advan
tage of the company's special half-fare, space available
plan. In this second full year for the reduced rate, a
passenger increase of 25 per cent was reached.
North Central also operated 350 charters and 116
scenic flights, which added 310,892 more plane miles. The
17,602 charter passengers flew to 31 states and three
Canadian provinces, while 4,325 people took scenic flights
over cities on the airline's system.
Excellent cargo gains were achieved in 1966 as the
company carried a record 52,278,042 pounds of air freight,
express, and mail--28 per cent ahead of the previous year.
Total cargo ton miles flown were 4,884,937, also 28 per
cent over 1965. Mail ton miles of 1,031,765 showed a
substantial increase of 45 per cent, and freight and express
were both up 24 per cent. Freight reached 2,579,716 ton
miles flown, and express, 1,273,456.
Besides setting new passenger records for the industry
and carrying the largest cargo volume in its history, North
Central maintained its perfect 19-year safety record. Since
inaugurating service in 1948, the company has carried
13,734,586 passengers and flown 2,272,368,240 passenger
miles without a single fatality or injury to passengers or
crew members.
Operating
performance
T
HE COMPANY maintained its outstanding op
erating performance in 1966, as 98.4 per cent of
its 17,235,294 scheduled miles were flown. This
completion factor again places North Central among
the leaders of the 24 domestic airlines in operating
performance.
This enviable achievement was accomplished while
the company handled the largest passenger and cargo
traffic in its history, and experienced many months of
severe weather conditions over the system.
A major factor in this high level of performance was the
company's continuous and exacting maintenance. In
1966, North Central made 191,523 actual departures.
Only 166 departures, or less than one-tenth of one per
cent, were cancelled for mechanical reasons, and less
than one per cent of the departures were delayed for
mechanical reasons.
"Operation Cold Front," the company's winterization
program, was effective again in 1966. Station and main
tenance personnel carried out a comprehensive prepara
tory plan to convert ground support equipment to winter
operating conditions. Cold weather operational techniques
were reviewed at all of North Central's stations. To
further improve the program, the latest type of mobile
aircraft-deicing units were added this winter at strategic
points on the system.
North Central's operating performance during the win
ter months has been so impressive that a five-man team
from Linjeflyg Airlines in Sweden visited the company's
general office and main operations base in Minneapolis/
St. Paul to study "Operation Cold Front." Linjeflyg
operates under climate conditions similar to those that
confront North Central.
To supplement the scheduled flights during peak
periods, 1,674 extra sections were operated in 1966 to
meet the needs of the traveling public. An additional
672,315 plane miles were flown on these trips.
The company's high standard of performance reflects
the dedication of all North Central's employees to their
job of providing scheduled airline service.
North Central carried over two million passengers in 1966 to lead the regional airline industry. At O'Hare International
Airport (pictured above). North Central also set a monthly record by boarding 67,000 passengers in August.
3
Jet program
E
XTENSIVE PLANNING and preparations have been
made for North Central's 1967 entry into the jet age.
The company will take on a "New Look" with the
inauguration of Douglas DC-9 fan jet and Convair 580 prop-jet
service on its 7,000-mile route system.
Ten of the 100-passenger fan jets are on order. In 1966, an
option was obtained for five more DC-9's. North Central's
equipment program also calls for the conversion of 20 of the
company's 31 Convair 440's to 580 prop-jets, with an option
on the other 11.
The company will benefit financially from this flight equip
ment program due to the traffic-generating ability of the jets
and the corresponding reduction in unit costs which result from
jet operating efficiencies.
With the addition of the DC-9 and 580 aircraft, Northliner
passengers will receive the finest regional airline service.
Convair 580
prop-jets
Convair 580 prop-jet service will
be inaugurated on April 1.
PROGRESSIVE STEP in North Central's equipment
/ modernization program was taken in August 1966,
jk_ when the company announced plans to convert 20 of
its 31 Convair 440 aircraft to 580 prop-jets, with an option on
the other 11.
The Convair 580, equipped with two Allison prop-jet engines
of 3,750-horsepower each, will fly 100 miles an hour faster than
the Convair 440. The 580 reaches a comfortable cruising altitude
of 10,000 feet in only five minutes and gives a smooth, quiet ride.
The jet-powered Convair 580's, like the DC-9's, will have the
latest solid state radio and navigational equipment. Also, the
jet "New Look" will be featured with an aqua, blue, and gold
exterior design and an interior with alternating aqua and gold
seats accented by beige walls and ceiling.
The Allison turbine engine has been in scheduled airline
operation for several years, and more than 7,000 are in use
today. These engines have logged more than 22 million hours
of flying time, with an extremely high reliability record. Also,
because of its efficiency, this turbine engine will substantially
reduce operating costs per mile.
Two of the Allison-powered Convairs will go into scheduled
service on April 1, two more on April 30, and two in June.
Thereafter, the prop-jets will be added at an approximate rate
of one a month until the program is completed. The 580 aircraft
allows North Central to increase its available seat miles and
provide improved schedules for its passengers.
The Convair 580's, combined with the DC-9 fan jets and the
phase-out of the DC-3's, will give the airline an all jet-powered
fleet in 1968.
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T
HE INTRODUCTION of Douglas DC-9 fan jets in
1967 will bring a new dimension of speed and comfort
to the airline's passengers. The company announced its
10-jet program in July 1965 and indicated that the DC-9 was
the most suitable jet aircraft for North Central's operation.
The factors considered were capacity, speed, range, and design
features; operating costs and purchase price; and adaptability
of the plane to the airline's route system and airport runways.
During 1966, the company secured an option on five more of
the DC-9 Series 30.
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 and
overall length is 119.3 feet.
North Central's "New Look" will be apparent when the sleek
jetliner appears at airports across the system. In addition to the
distinctive high-level T-tail and the two rear-mounted engines,
the DC-9 will have a new aqua, blue, and gold exterior color
scheme. The striking and unique interior will feature alternat
ing aqua and gold seats, with beige walls and ceiling.
All first-class service will be offered on the jets, with two
stewardesses in attendance. The DC-9 features "big jet" roomi
ness, outstanding climate control comfort, and a smooth ride.
Seating facilities for 100 passengers in the spacious cabin
have exceptional head, shoulder, and leg room. Another feature
of the new jet is the unexcelled lighting and window view.
Travelers will enjoy all the luxury expected in the jet age.
During 1966, North Central employees have received intensive
training in jet operations. When DC-9 service is inaugurated
in the Summer of 1967, every phase of the airline's operation
will be ready for a smooth and efficient transition.
Douglas DC-9 100-passenger fan jets will be
joining the Northliner fleet in 1967.
Douglas DC-9
fan jets
Improved services
N
ORTH CENTRAL'S service to the traveling
public was increased in 1966 by the addition
of two more Convair 440's to replace Douglas
DC-3's and by improved utilization of all flight equipment.
The 736,044,776 seat miles flown during 1966 was 25
per cent ahead of 1965. Of these seat miles, over 90 per
cent were operated with pressurized Convairs. There
are 31 Convairs and 15 DC-3's in North Central's fleet.
A second "Cargoliner" went into operation in 1966,
extending all-cargo flights to eight new cities. This spe
cialized service provides overnight delivery of cargo to 20
cities on the airline's system. The Cargoliners, equipped
to carry 7,000 pounds of air freight, express, and mail,
supplement the cargo capacity on North Central's regu
larly scheduled flights.
North Central's service to the shipping public was also
improved when the company acquired space in TWA's
air cargo building at O'Hare International Airport,
Chicago. Included are a customer service counter, office
facilities, warehouse space, and dock area. North Central
personnel staff the cargo office, handle customers and
interline transfers to other carriers, and load and unload
company aircraft, while TWA moves all freight within
the air cargo building.
1966 marked the culmination of North Central's five-
year program to establish a Reservations Center capable
of handling the company's phenomenal growth and an
electronic reservations system adequate for meeting future
expansion. The completion of this program became even
more important with plans to add jet aircraft so that
experience could be gained in the new reservations sys
tem before the company moved into its jet age.
The program began with a series of consolidations of
reservations offices into Milwaukee. Then new quarters
were acquired and facilities expanded to handle the trans
fer of the consolidated Chicago office to the Milwaukee
Reservations Center. Next came the company's early tie-
in with the Electronic Switching System--a cooperative
industry effort to speed interline teletype messages--and
the consolidation of additional cities. Early in 1966, a new
Call Distributor System was installed at the Reservations
Center to improve telephone answering service by greatly
increasing the available telephone lines and automatically
directing calls to an available agent. Also, reservations
service for six more cities was added to the Center.
In April 1966, North Central's electronic reservations
system became a reality, as the company was linked to
Eastern Air Lines UNIVAC 490 computer. The Center
now provides instantaneous reservations and flight infor
mation to nearly 70 per cent of North Central's passengers
and 90 per cent of the Center's interline requests, repre
sented by 11 airlines. In addition, these 11 airlines can
obtain immediate reservations information on all North
Central flights.
In its first eight months of computerized operation, the
Reservations Center processed 4,662,000 "agent trans
actions" for the 1,465,000 passengers carried. The Center
itself, by handling 1,031,000 incoming telephone calls
and 1,866,000 North Central and interline teletype
messages, produced 913,000 passengers in this period.
The new electronic reservations system will continue to
be improved and expanded to handle the increased seat
availability which jet service will bring.
To speed up ticketing services at airport and city ticket
offices, special teletype equipment was installed. Four
regional passenger service manager positions were created
for better supervision of ticket counter and gate operations.
To emphasize North Central's "New Look" in 1967,
stewardesses and senior passenger service agents were
outfitted with newly designed uniforms in corporate colors.
The high-fashion suit for stewardesses is in turquoise, with
white piping and button trim. Senior passenger service
agents are now easily identifiable in their new gold sport
coats and black trousers.
Services offered by North Central have been given ex
tensive coverage with the traveling and shipping public.
Some 18,000 personal sales calls were made during the
Stewardesses and Senior Passenger Service Agents have
taken on North Central's "New Look" for the jet age.
6
Five "speedways" will permit second-level loading
for jet operation at O'Hare International Airport.
year, and over 200 speeches and group tours were given
to tell the North Central story. The company's color
movie, "The Northliner," was shown to more than 100
civic, educational, and airline groups. Several new sales
positions were established, bringing North Central's sales
staff up to four regional managers, an agency/interline
manager, and 17 district managers and representatives.
The airline expanded its in-flight service, as dinner and
luncheon menus were completely changed to include a
greater variety of foods and beverages. During the summer
months, complimentary beer was served on more flights.
New ground service equipment was purchased during
the year to improve the Northliners' reliability and com
fort. Four new mobile air conditioning units, along with
existing ones, are used to cool aircraft on the ground
between flights, at the company's larger stations.
Hydraulically-operated deicing units are now in opera
tion at several points on North Central's system to help
keep winter flights on schedule by quickly deicing air
craft. Bought for jet operations, these larger units can
also be used for washing and servicing the planes.
In line with the company's policy of using the most
efficient and economical equipment, a new IBM System/
360, Model 40 data processing installation was placed in
service in May. This system now processes payroll; ticket,
cargo, and mail billings; financial statements; statistical
reports; inventory control records; and maintenance in
formation. It consists of a central processor, a paper tape
reader, a card reader and punch, high speed printer, two
magnetic tape units, and three disk drive units.
In maintenance and engineering, aircraft records, blue
prints, and other departmental information have been
transferred to microfilm. This process permits greatly re
duced storage area and efficient retrieval of the thousands
of documents on aircraft maintenance.
Construction and modernization of facilities have been
accomplished at many stations on North Central's system.
During 1966, new terminal buildings were completed and
put into operation at airports serving Bismarck/Mandan,
North Dakota; Detroit, Benton Harbor/St. Joseph, Mich
igan; and Madison, Wisconsin. In addition, work has
started on a new terminal building for Saginaw/Bay City/
Midland, Michigan.
Extensive terminal remodeling was completed at air
ports serving Kalamazoo and Hancock/Houghton, Mich
igan; Menominee, Michigan/Marinette, Wisconsin;
Oshkosh/Appleton and Rhinelander, Wisconsin; and
South Bend, Indiana. Other stations with remodeling
projects scheduled to be completed in 1967 are: Inter
national Falls, Bemidji, and Brainerd, Minnesota; Rapid
City and Watertown, South Dakota; Omaha, Nebraska;
and Chicago.
New passenger loading facilities are being constructed
by the company at Chicago's O'Hare International Air
port to add second-level gates and holding areas. These
will be completed when jet operations begin. Featured are
five "speedways," which are ramps that will extend
from the gates to DC-9 aircraft and permit passengers
to be protected from the weather as they enter and leave
the planes.
North Central and several other airlines moved their
operations from Willow Run Airport at Ypsilanti, Mich
igan, to expanded terminal facilities at Detroit Metro
politan Airport in 1966. North Central's new $1,725,000
Detroit maintenance base also became operational. The
new facility, which can accommodate three DC-9 fan jets
simultaneously, serves the eastern portion of the airline's
system. It is the only airline hangar in the world with a
High Expansion Foam System for fire extinguishing.
With the tremendous growth North Central has
experienced, new headquarters facilities have become a
necessity. In December 1966, the Metropolitan Airports
Commission approved a new $15-million general office
and main operations base for North Central at the
Minneapolis-St. Paul International Airport. Construction
is scheduled to begin in the Spring of 1967, and be
completed in 1968.
The new complex will replace all of the company's
present facilities now located in seven buildings at the
airport. In addition to permitting greater efficiency, the
structures are designed for expansion to meet North
Central's space requirements for the next 20 years as the
airline moves ahead in the jet age.
North Central will continue to make improvements in
service, equipment, and facilities in 1967 to provide the
best regional airline service possible.
North Central's new maintenance base at Detroit Metropolitan Airport
is now operational. It can accommodate three DC-9's simultaneously.
7
Route
development
D
URING THE YEAR, significant applications
were made by North Central to the Civil Aero
nautics Board for new routes and the lifting of
operating restrictions on existing segments. These appli
cations could add four new states and one Canadian
province to the company's system.
In one of the most important decisions the C.A.B. has
made regarding the regional airlines, the Board issued
notice in December 1966 of a proposed policy change
which would permit these carriers to operate nonstop
flights between previously restricted points. This program
would greatly increase the operating authority of the
regionals and strengthen North Central's applications for
changes in service pattern.
At present, North Central serves 90 cities in 10 Midwest
states and Canada over a 7,000-mile route system.
NORTH CENTRAL IS CURRENTLY
INVOLVED IN THE FOLLOWING
ROUTE PROCEEDINGS:
OPERATING FLEXIBILITY APPLICATIONS
The C.A.B. issued notice in December of a proposed policy
change which would permit North Central and the other local
service carriers to operate nonstop flights between previously
restricted points on their systems. Under the policy change, the
local airlines could receive nonstop authority between points
where competitive trunk line services are involved.
In making the announcement, the C.A.B. noted that "it is
appropriate to adopt a more liberal policy in approving changes
in service patterns. It is clear," the C.A.B. statement continued,
"that the present operational limitations in the local service
carriers' route systems do not offer sufficient opportunities to
take advantage of the lower unit direct operating cost charac
teristics of the new jet technology, and thereby reduce subsidy."
Subsequent to that announcement, North Central applied for
nonstop service between Minneapolis/St. Paul and Omaha and
between Milwaukee and Detroit.
Earlier in the year the company requested authorization for
shuttle service between Detroit and Cleveland. An application
has also been filed to operate between Minneapolis/St. Paul and
Chicago with two stops, Milwaukee with one stop, and Madison
with one stop. There would be no reduction in the service now
provided by North Central to intermediate cities on this segment.
TORONTO SERVICE
The Bilateral Air Transport Agreement between the United
States and Canada was 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.
North Central has applications on file to operate Detroit-
Toronto and Chicago-Toronto nonstop service. Following public
hearings and initial decisions by the C.A.B. examiners in both
the Detroit-Toronto and Los ngeles-Chicago-Toronto cases,
the parties involved filed briefs and presented oral arguments
to the Board. Final decisions in both cases are expected to be
made early in 1967.
CLEVELAND-BALTIMORE
During 1966, North Central applied for authority to operate
between Cleveland and Baltimore, via the intermediate city of
Pittsburgh. This segment of 316 miles would improve the eastern
portion of the system by adding the two major cities of Balti
more and Pittsburgh.
A North Central Convair 440 is serviced at Green Bay, one of the
90 cities on the airline's 7,000-mile route system.
OMAHA-ST. LOUIS
North Central filed an application for authority to operate a
341-mile segment from Omaha to St. Louis nonstop. 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
The company has applied for a 165-mile route between Omaha
and Kansas City, Missouri. If approved, this would give the
company authority to provide nonstop service between the two
terminals.
RAPID CITY-OMAHA
North Central has requested authorization to operate nonstop
flights between Rapid City and Omaha. Both cities are now
served by the company, but there is no authority for direct
flights. The new route would provide faster air transportation
between the two cities.
SIOUX FALLS-ROCHESTER-CHICAGO
The airline has filed an application for a route between Sioux
Falls, South Dakota, and Chicago--with one intermediate stop
at Rochester, Minnesota. This new route of 484 miles would
facilitate air travel from the Dakotas to Rochester and Chicago
by making single carrier service available to several cities in
these states. It would also add Rochester to North Central's
system.
MINNEAPOLIS/ST. PAUL-DENVER
A petition by North Central was filed with the C.A.B. in
September 1966, asking that the Twin Cities-California service
investigation be revised to include the matter of nonstop
Minneapolis/St. Paul-Denver authority. Early in 1967 the Board
denied this petition. However, the company has a separate
application on file for nonstop service between the Twin Cities
and Denver which would add 694 miles to the company's sys
tem. If approved, North Central would make its first entry into
Colorado and add the major terminal of Denver.
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 airlines, North Central has applied for a new segment
between Saginaw/Bay City/Midland, Michigan, and Chicago,
via Muskegon, Michigan. At the same time, the company re
filed its application requesting that United Air Lines' certificate
be amended to delete Flint, Saginaw/Bay City/Midland,
Lansing, and Muskegon. If the Board acts favorably on this
application, the company will provide improved replacement
service.
8
Management development
I
N APRIL, North Central Airlines' stockholders
amended the company's bylaws to enlarge the Board
of Directors to 12 members.
In addition to the re-election of the eight incumbent
directors, the following new members were added to the
Board: Chan Gurney, Yankton, South Dakota, and
Samuel H. Maslon, Jay Phillips, and Morton B. Phillips
of Minneapolis, Minnesota. Their backgrounds of gov
ernment service and extensive business experience will be
important to North Central's further growth.
During 1966, North Central continued its program of
developing personnel from within the organization to
meet expanding management needs. In accordance with
this policy, Gowan J. Miller, Staff Assistant to the Vice
President-Industrial Relations, was elected an Assistant
Secretary. David E. Moran, formerly Manager-Adver
The future
ORTH CENTRAL looks forward to 1967 with,
great enthusiasm as the airline prepares to enter
the jet age. With the introduction of Convair
580 prop-jets in April 1967 and 100-passenger DC-9 fan
jets in the Summer, Northliner passengers will be pro
vided with faster, more comfortable service, and increased
seat availability.
Extensive personnel training, acquisition of specialized
equipment, and improvements of facilities over the system
will make the airline's transition to jets an efficient one.
An accelerated advertising and sales program is already
underway to promote the jet age "New Look" at North
Central.
The Civil Aeronautics Board's proposed policy change
tising and Promotion, was named Director-Traffic and
Sales, following the death of Frank N. Buttomer, Vice
President-Traffic and Sales.
In the Maintenance and Engineering Department, the
position of Manager-Plant Equipment was established,
while the Treasury Department added a Supervisor of
Credit and Collections to handle the company's expanded
credit program. To further promote North Central's serv
ices, a Chicago Regional Traffic and Sales Manager and
a Western Regional Manager were appointed in the
Traffic and Sales Department; and a Regional Fleet
Service Manager, in the Ground Operations Department.
A. D. Niemeyer, North Central Vice President, retired
in August 1966 after serving the company for over 12
years in the Flight Operations Department.
to permit the regional airlines to operate nonstop flights
between previously restricted points on their systems was
one of the most important decisions made by the Board in
1966. Under this proposal, North Central's operating
authority would be greatly increased, by allowing service
to additional high-density traffic markets, and the effec
tiveness of the new DC-9's and Convair 580's improved.
With jet flight equipment, anticipated route changes,
and an aggressive sales program, the company expects
substantial increases in passenger and cargo traffic for
1967. The additional revenues generated by this traffic,
along with the operating efficiencies of jet aircraft, should
result in record profits for North Central again in 1967--
as the company enters a new era in its history.
Construction is scheduled to begin this Spring on North Central's new $15-million
general office and main operations base at the Minneapolis-St. Paul International Airport.
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LAND
O'LAKES
PELLSTON
BRAINERD
ICANABA
RHINELANDER
ABERDEEN IENOMII
toRINET
ALPENA
JRAVERSE CITY
WAUSAU
rATERTOWN GREEN BAY
LINTONVILLE
fi-EVE^S POINT
\lS. mAPIDS
'MANISTEE
d-UDINGTON
BROOKIN'
SAGINAW
BAY CITY
VDLAND
PIERRE HURON hANITOVTO
IHEBOYGAN
OSHKOH
APPLETaN
WINONA'
MITCHELL
FLINT
siou;
MILYVAUKI
LANSING
IARBOR,
BENTON,
ST. /OSEPH.
YANKTON
BATTLE CREEK
BELO?
KALAMAZOI
'SIOUX CITY
CLEVELANI
CHICAG1 SOUTH BEI
PinSBURGH
DENVER
KANSAS CITY
Routes of tlie Nortliliners
Present routes
Proposed routes
Nonstop routes
PRIMARY NONSTOPS which might be
authorized under C.A.B. Docket No. 18022
10 11
-
NORTH CENTRAL AIRLINES, INC.
Assets
1966 1965
CURRENT ASSETS
Cash $ 1,479,809 $ 1,593,962
Accounts receivable
United States Government (Note 1) 1,174,220 1,279,910
Traffic (Note 2) 2,888,877 2,467,632
Other 418,210 476,387
4,481,307 4,223,929
Flight equipment parts, at average cost (less deterioration
reserves of $408,577 and $369,592) 1,213,486 1,183,017
Maintenance and operating supplies 308,532 293,529
Prepaid expenses and sundry deposits 977,152 846,238
Total current assets 8,460,286 8,140,675
OPERATING PROPERTY AND EQUIPMENT-at cost (Note 2)
Flight equipment 18,970,282 16,780,907
Ground equipment 2,587,820 1,500,631
Hangar buildings and improvements to leased property (Note 4) 2,590,410 2,255,154
Furniture and data processing equipment 1,040,482 389,289
25,188,994 20,925,981
Less accumulated depreciation 9,732,414 8,291,930
15,456,580 12,634,051
Advance payments on flight equipment (Notes 4 and 7) 8,483,793 2,551,645
23,940,373 15,185,696
DEFERRED CHARGES
Unamortized development costs 218,139 72,123
Unamortized discount and expense on debt 104,275 68,088
Rentals and other 222,572 245,223
544,986 385,434
$32,945,645 $23,711,805
The accompanying notes are an integral part of this statement.
12
Liabilities
CURRENT LIABILITIES
1966 1965
Short-term borrowing (Note 2) $ 400,000 $
Current maturities of long-term debt 2,497,153 1,458,553
Accounts payable 4,784,136 3,533,392
Tickets outstanding 232,018 165,752
Taxes withheld or collected as agents 309,321 433,357
Income taxes (Note 8) (73,683) 299,192
Accrued liabilities
Salaries and wages 928,054 1,065,876
Payroll and property taxes 160,177 141,438
Other 622,942 437,568
Total current liabilities 9,860,118 7,535,128
LONG-TERM DEBT (Note 2)
Notes payable to banks 13,851,000 9,691,000
Other notes payable 4,694,926 2,093,483
Subordinated debentures 763,000 851,500
19,308,926 12,635,983
Less current maturities 2,497,153 1,458,553
16,811,773 11,177,430
STOCKHOLDERS' EQUITY
Common stock--authorized, 10,000,000 shares of $.20 par value;
issued and outstanding, 8,755,513 and 8,732,038 shares
respectively (Notes 2 and 6) 1,751,103 1,746,408
Paid-in capital (Note 6) 410,447 295,246
2,161,550 2,041,654
Retained earnings (Note 2) 4,112,204 2,957,593
6,273,754 4,999,247
COMMITMENTS AND CONTINGENT LIABILITY (Notes 4 and 5) -- --
$32,945,645 $23,711,805
13
te-
NORTH
CENTRAL
AIRLINES, INC.
Comparative
Statement of
Earnings
Years ended
December 31,1966 and 1965
1966 1965
OPERATING REVENUES
Passenger $30,261,479 $23,720,203
Freight and express 2,215,862 1,811,578
Mail 743,075 571,921
Public service revenue (after excluding $300,000 and $760,000
respectively of profit sharing to government) (Note 1) 5,767,888 7,199,418
Non-scheduled transport service 432,842 357,515
Other, including excess baggage 191,525 230,396
Total operating revenues 39,612,671 33,891,031
OPERATING EXPENSES
Flying operations 9,868,343 8,362,924
Maintenance 8,112,192 6,993,952
Passenger service 2,130,920 1,684,747
Aircraft and traffic servicing 9,790,463 8,156,746
Promotion and sales 3,304,216 2,773,774
General and administrative 1,836,944 1,354,970
Depreciation and amortization 2,253,361 1,997,488
Total operating expenses 37,296,439 31,324,601
Operating profit 2,316,232 2,566,430
OTHER EXPENSE (INCOME)
Interest (Note 7) 485,671 437,064
Sundry (net) (68,842) (23,151)
Total other expense (income) 416,829 413,913
Earnings before income taxes 1,899,403 2,152,517
INCOME TAXES (Note 8)
States 37,000 37,000
Federal, less investment credits of $160,075 and
$56,974 respectively 707,792 976,765
744,792 1,013,765
NET EARNINGS $ 1,154,611 $ 1,138,752
The accompanying notes are an integral part of this statement.
Comparative Statements of Retained Earnings and Paid-in Capital
Years ended December 31,1966 and 1965
1966 1965
RETAINED EARNINGS
Retained earnings--beginning of year (Note 2) $2,957,593 $1,818,841
Net earnings for the year 1,154,611 1,138,752
Retained earnings--end of year (Note 2) $4,112,204 $2,957,593
PAID-IN CAPITAL
Paid-in capital--beginning of year $ 295,246 $ 295,246
Excess of proceeds over par value of common stock issued
upon conversion of debentures (Note 2) 86,680
Excess of proceeds over par value of common stock issued
under option (Note 6) 28,521
_
Paid-in capital--end of year $ 410,447 $ 295,246
The accompanying notes are an integral part of this statement.
14
Notes to financial statements December 31, 1966
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 years 1964 and 1965
are presently under review with provision having been made for all known adjust
ments.
2. LONG-TERM DEBT AND TEMPORARY BORROWING-Notes payable to banks as
of December 31, 1966 are as follows: Current Fjna|
Outstanding
Maturity Payment Balance
5%% Notes payable $ 450,000 1976 $ 6,700,000
5y2
% Notes payable 1,350,000 1970 5,151,000
6% Notes payable 350,000 1970 2,000,000
$2,150,000 $13,851,000
The 5Vi% and 6% notes are part of a $21,000,000 loan agreement with banks, the
proceeds to be used principally for the acquisition of DC-9 aircraft. Of the $8,700,000
drawn to date, $5,989,070 was placed on deposit for future delivery of jet equip
ment. A fee of Va of 1% per annum is payable on the unused portion of the commit
ment. Final maturity on the last borrowing under this agreement will be in 1976. The
notes are currently secured by all aircraft and related parts owned and to be ac
quired (See Note 4).
Among other things, the bank agreements require a minimum defined working
capital and contain certain restrictions regarding the payment of cash dividends
and capital expenditures.
Other notes payable consist of (1) $2,207,870 due Douglas Aircraft Company in
1968 at 6y2% per annum; (2) $1,685,000 on 3.25 to 5% Wayne County Airport bonds
repayable at approximately $110,000 per year including interest to 1990; and
(3) miscellaneous equipment purchase notes of $802,056.
The 5yz
% 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. Conversion rights
to common stock exist at rates of $8.00 per share to June 1, 1971 and $10.00 per
share thereafter to maturity. Conversion rights were exercised for 12,975 shares at
$6.50 and 500 shares at $8.00 during the year. The debentures are subordinated
to other long-term debt, and contain certain restrictions as to the payment of cash
dividends.
Temporary borrowing of $400,000 is collateralized by certain receivables.
3. PENSION PLAN--The company has non-contributory pension plans covering
most of its employees. The total pension expense for the year was $920,000, which,
in the opinion of the company's actuaries, will result in the development of ade
quate reserves for the requirements of the plans.
4. COMMITMENTS--Ten DC-9 aircraft and related spare parts at a cost of approxi
mately $39,000,000 are on order. Five are scheduled for delivery in 1967 and five
in 1968. Financing on the second five aircraft has not been completed. The company
has an option to purchase five additional DC-9's.
The company has a contract to convert a minimum of 20 of its Convair 440 aircraft
to Allison 580 turbo-prop configuration, with an option to convert up to 11 more. The
conversions will be accomplished during 1967 and 1968 at a cost of approximately
$17,000,000 for the first 20. Financing is to be provided by six per cent notes due
upon completion of the final conversion. The converted Convairs will become
security for these notes as well as those mentioned in Note 2.
Construction commitments at O'Hare International Airport aggregate $1,700,000
of which $460,000 is reflected in the balance sheet. Minimum rentals under other
major lease agreements at Minneapolis-St. Paul, Chicago, Detroit and Milwaukee
approximate $920,000 annually.
The company is obligated for up to $500,000 in engineering fees for a proposed
new office building and operational facilities at the Minneapolis-St. Paul Airport.
This amount is expected to be included in the cost of a long-term lease to be exe
cuted in 1967.
5. VACATION PAY--The company records vacation pay as a period charge. The
unrecorded obligation as of December 31, 1966 was estimated at $282,000 net of
income tax credits.
6. STOCK OPTIONS--A total of 250,000 authorized but unissued shares of common
stock were reserved for officers and key employees of the company under a quali
fied stock option plan. A total of 220,000 of the reserved shares were granted prior
to 1966 at a price of $3.05208 per share. Options expire five years after the date of
grant. During the year, an option was exercised on 10,000 shares.
7. CAPITALIZED INTEREST--Interest expense for 1966 was reduced by $267,000
and capitalized principally as aircraft acquisition costs. This compares with $119,000
for the prior year.
8. INCOME TAXES--Federal income tax returns have been examined and settled
through 1963. The balance sheet reflects an overpayment of 1966 Federal income
taxes of $89,000, less applicable states' taxes due.
Auditor's Opinion
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
Wisconsin corporation) as of December
31, 1966 and the related statements of
earnings, retained earnings and paid-in
capital for the year then ended. Our
examination was made in accordance
with generally accepted auditing stand
ards and accordingly included such tests
of the accounting records and such other
auditing procedures as we considered
necessary in the circumstances. We made
a similar examination for the preceding
year.
In our opinion, the accompanying
balance sheet and statements of earnings,
retained earnings and paid-in capital pre
sent fairly the financial position of North
Central Airlines, Inc. at December 31,
1966 and the results of its operations for
the year then ended, in conformity with
generally accepted accounting principles
applied on a basis consistent with that of
the preceding year.
Alexander Grant & Company
Milwaukee, Wisconsin
February 3, 1967
Five-year earnings summary
OPERATING REVENUES 1966 1965 1964 1963 1962
Passenger $30,261,479 $23,720,203 $20,002,281 $18,064,524 $16,750,086
Public Service Revenue 5,767,888 7,199,418 7,274,370 7,644,080 8,286,733
Other 3,583,304 2,971,410 2,438,126 2,168,100 1,833,426
TOTAL
OPERATING EXPENSES
$39,612,671 $33,891,031 $29,714,777 $27,876,704 $26,870,245
Direct Expenses $17,980,535 $15,356,876 $13,666,142 $13,076,180 $12,858,386
Indirect Expenses 17,062,543 13,970,237 12,303,601 11,812,690 11,561,629
Depreciation and Amortization . . . 2,253,361 1,997,488 1,712,800 1,541,857 1,183,464
TOTAL $37,296,439 $31,324,601 $27,682,543 $26,430,727 $25,603,479
Operating Profit
Non-operating Income and
2,316,232 2,566,430 2,032,234 1,445,977 1,266,766
Expenses, Net (416,829) (413,913) (301,371) (403,549) (335,014)
Earnings Before Taxes $ 1,899,403 $ 2,152,517 $ 1,730,863 $ 1,042,428 $ 931,752
Income Taxes 744,792 1,013,765 886,299 520,715 491,812
Net Earnings $ 1,154,611 $ 1,138,752 $ 844,564 $ 521,713 $ 439,940
15
PASSENGERS CARGO
Five years
of record
progress
for North
Central
SEAT MILES 1962 '63 '64 '65 '66
MILLIONS (POUNDS)
50
45
40
35
30
25
20
15
1962 '63 '64 '65 '66
700
650
600
550
500
450
400
350
300
MILLIONS
E
VERY YEAR since North Central began sched
uled operations in 1948, new passenger records
have been established. Some 2,056,209 passengers
were carried in 1966 -- 27 per cent more than in 1965--
and 88 per cent greater than five years ago. The passenger
increase in 1966 was 439,309 over the previous year--the
largest in the company's 19-year history.
Aided by the addition of a second Cargoliner last year,
North Central carried 52,278,042 pounds of cargo, includ
ing mail, freight, and express. This was 28 per cent ahead
of 1965. Air cargo has increased 133 per cent during the
last five years.
During 1966, 736,044,776 seat miles were flown--25
per cent ahead of 1965. Compared with five years ago,
this is a 69 per cent increase.
With the inauguration of service by DC-9 fan jets and
Convair 580 prop-jets during 1967, North Central will
substantially increase its available seats and cargo capac
ity. As a result, 1967 should be another year of notable
traffic growth for the company.
16
1966 REGIONAL AIRLINE PASSENGER TRAFFIC
OOGOQOOOO 000
o NORTH CENTRAL . . . .2,056,209
e Allegheny. 2,031,776
o Trans-Texas . . .1,116,278 Bonanza 848,063
e Mohawk. . 2,010,285
o Southern . . .1,051,554
Lake Central 708,043
o Piedmont. 1,606,772
o Frontier . . .1,031,617
West Coast 698,737
e Ozark. . . . 1,478,455
e Pacific ... 856,014
Central 558,434
1966
regional airline
passenger traffic
T
HE regional airline industry car
ried 16,052,237 passengers in 1966.
This was a 23 per cent increase
over the previous year.
During 1966, North Central led all the
regional carriers by enplaning a record
2,056,209 passengers, for an increase of 27
per cent. In addition, the company set two
other all-time industry highs--a monthly
record of 230,215 passengers in August,
and a daily mark of 9,343 on August 19.
17
The "new look"
In jet-age
equipment
Safety
T
HE Air Transport Association
recently noted that 1966 was the
safest year for air travel since
record-keeping began in 1938, and
North Central takes great pride in con
tributing to that achievement. During
1966, while carrying record-breaking
passenger and cargo traffic over its
7,000-mile route system, the company
extended its perfect safety record to 19
years.
This achievement demonstrates the
dedication of the airline's employees in
performing their work efficiently and
the continuing efforts of the company
to assure passenger safety and comfort.
North Central has been awarded a
National Safety Council citation every
year of its operation.
Since inaugurating scheduled service
on February 24, 1948, the airline has
carried over 13,700,000 passengers and
flown 2,272,400,000 passenger miles
without a single fatality or injury to
passengers or crew members.
Many new training aids were purchased to
prepare flight crews for North Central's
entry into the jet age. Among those in use
are a DC-9 cockpit procedure trainer (pic
tured), a Transdyne navigational flight di
rector trainer, and a Convair 580 cockpit
trainer.
Passenger service agents at North Central's
Reservations Center in Milwaukee now use
UNIVAC "agent sets", which are part of
the company's new electronic reservations
system, providing passengers with
instantaneous reservations and flight
information.
Four new Yankee-Walter mobile aircraft
deicing units have been put into operation
this year to help combat the severe winter
weather conditions on North Central's
system.
Microfilm equipment has vastly reduced
the amount of storage space needed for
aircraft maintenance records, and the
80,000 special blueprints that detail parts
of the new DC-9 fan jets.
The company's new IBM System/360
Model 40 data processing computer was
put in operation during 1966. The system
processes and produces payrolls; ticket,
air freight, and mail billings; financial
statements; statistical reports; inventory
control records; and maintenance records.
18
19
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Advertising
' VERTISING was once again directed to the business and vaca
tion travel markets. North Central's image, as one of the
- -A- nation's leading regional air carriers, received greater exposure
during 1966 as the company expanded its advertising program to
include national media.
Newspaper advertising was carried in all cities on North Central's
system. Attractive ads were also placed in The Wall Street Journal and
in Fortune, Newsweek, and Ski magazines.
Radio and television were used to dramatize to the traveling public
the story of North Central's service. Radio commercials were heard in
over 55 cities on the system. The company also sponsored a television
weather show and a weekly aviation program. Outdoor advertising, in
the form of billboard displays, attracted attention in many of the key
cities served by the company.
An aggressive advertising campaign is being developed for 1967
featuring the DC-9 fan jets and Convair prop-jets to inform travelers of
North Central's "New Look" as it enters the jet age.
Promotions
S
PECIAL PROMOTIONS were developed and carried out
by North Central during 1966 to highlight the airline's service.
North Central's all-expense ski package tours were expanded
to include five major ski areas. A comprehensive ski promotion bro
chure, describing the five tours and the 27 ski areas across North
Central's system in North Dakota, South Dakota, Minnesota, Wis
consin, Michigan, and Canada, was developed. Over 50 ski resorts are
only "minutes away" from cities served by the airline.
To feature its ski program, the company created a special display
which was used at ski shows in Detroit, Chicago, and Minneapolis.
The display emphasized to ski enthusiasts the convenience of air travel
on North Central for ski holidays.
One of the most successful new developments during the year was
the distribution of a colorful brochure, "Welcome Aboard North
Central." The brochure is used in the seat packet on the airplanes
and promotes the recreational and vacation opportunities in the air
line's territory. It also includes tips and information on air travel.
A new field of promotion was entered in 1966 when the company
began its merchandising program. Some 14 items with North Central
identification are available for purchase by the public. Included are
such articles as flight bags, luggage tags, sets of glasses, and flight valets.
An attractive brochure, including a mail order form, is now carried in
the seat packets aboard all Northliner flights.
In 1967, North Central's "New Look" will receive special promotion
as new equipment facilities, and services are offered by the company.
North. Central Airlines, Inc.
0201 Thirty-Fourth Avenue South
MINNEAPOLIS, MINNESOTA 55450