ANNUAL REPORT ~t~ YEAR ENDED JUNE 30, 1941 DIRECTORS HARRY R ON, t. lbans, Vt. P L F. COLLIN , Winche ter Mass. DA C. Do GL I Portland, M . GE RGE F. GL Y Bo ton, Mass. D vrn H. H wrn Bo ton, Mas . M EL J. OLOMO ilv r pring Md. E GE E L. Vrn L, w York, . Y. L URE CE F. WHITTEMORE, Pembrok . H. OFFICERS President, M EL J. LO MON Vice-Pre ident, LA REN E F. WHITTEMORE General Sales and Traffic Manager, Do ALD A. DUFF Clerk of Corporation, ARTH R B. ICHOLS Treasurer, GEORGE F. GLACY Counsel, WILLIAM . COLE General Offices: Boston Municipal Airport Boston, Mass. Transfer Agent: O ld Colony Tru t Company Bo ton, M as. To the Stockholders of the Northeast Airlines, Inc.: On behalf of the Board of Directors, there is submitted herewith a report for the year ended June 30, 1941: OPERATIONS Th operations of your Company durin ~ year ended------=? June 30, 1941, resulted in a deficit of $56,20b :. Earnings - 20~. increased $158,980.23 over the year 1940, while expenses in- creased $224,915.79. The following Condensed Comparative Income State- ment is submitted for your further information: Years Ended June 30 1941 1940 Increase or (Decrease) Operating Revenue .... $607,649.22 Operating Expenses. . . . 660,097 .66 $448,668.99 $158,980.23 435,181.87 224,915.79 Net R evenue or (Loss) from Operations ... . . Deductions .......... . Net Income or (Deficit) - before Federal In- ($52,448.44) $ 13,487.12 4,659. 98 2,937.69 ($65,935. 56) 1,722.29 come Taxes ........ ($57,108 .42) $ 10,549.43 ($67,657.85) Provision for Federal In- COJTle Taxes* ....... . ($900.00) $ 900.00 ($1,800. 00) Net Income or (Deficit). ($56,208.42) $ 9,649.43 ($65,857.85) * The provision in the year ended June 30, 1940 was not required and was restored to income in the following year. 1 ( Revenue Miles Flown. . 1,085,907 Per Cent of Scheduled Miles Flown . . . . . . . . 8 5 . 24 780,284 87.30 305,623 (2. 06) The opera ting revenues for the year ended June 30, 1941, while $158,980 greater than in the previous year, were af- fected by abnormal conditions, such as restrictions placed on Canadian residents desiring to travel to the United States and by unusually poor flying conditions last winter. The increase in expenses resulted from the fact that the year was one of expansion and improvement of service and from a payroll increase of $110, 164 occasioned by necessary additions to personnel and new wage agreements with our employees. NEW FINANCING On November 19, 1940, the Compa~y's corporate name was changed from BosTON-MAINE AIRWAYS, INC. to NoRTH- EAST AIRLINES, INC. On December 10, 1940, the stockholders authorized a recapitalization, whereby the authorized capital stock was changed to consist solely of 500,000 shares of com- mon stock of $1.00 par value. Of the new stock 171,108 shares were issued in exchange for the outstanding preferred and common stock on the basis of 22 shares of new common for each pref erred share, and 8 6 shares of new common for each share of old common stock. The sale of 128,892 additional shares of the new stock was completed on January 10, 1941; 101,796 shares were sold to five underwriters for public offering, and 27,096 shares were sold to the Boston & Maine and Maine Central R ailroads. The proceeds of these sales were used: (A) To defray expenses in connection with sale of stock. . . . . . . . . . . . . . . . . . . . . . $16,653.44 (B) To reduce outstanding bank loans pre- viously made in connection with the purchase of Lockheed Aircraft. . . . . . 47,222.56 2 (C) To purchase three 24-passenger Doug- las DC3 Aircraft, together with neces- sary instruments, radio equipment, shop equipment, spare parts and ac- cessories, including two spare Pratt & Whitney motors. . . . . . . . . . . . . . . . . . 456,286.00 (D) Added to general funds of the Com- pany ...... .. . ...... . ........ . ... 72,741.20 $592,903.20 On April 23, 1941, an unsecured loan of $150,000 was made to be repaid in instalments of $5,000 per month and carrying interest at the rate of 4 per cent. The proceeds from this loan were used to discharge outstanding loans carry- ing a higher interest rate, purchase additional radio equip- ment, spare parts for planes and motors and increase working capital. NEW EQUIPMENT In May, 1941, delivery was received of three Douglas DC3 passenger airplanes, each equipped with two Pratt & Whitney motors, purchased from the funds realized from the sale of the capital stock referred to above. These air liners, the largest in service in New England and seating 24 passengers, were placed in revenue service between Boston and Bangor, and Boston and Montreal on July 1, 1941. Four Stinson air- planes were purchased during the year for use in connection with the Company's pilot training school. AIRPORTS The extensive airport development program for North- ern New England in the interest of National Defense, totalling in excess of $5,000,000 was undertaken late in 1940, and while not yet completed, has already increased the number of air- 3 ports in the Company's routes capable of accommodating the Douglas equipment. Upon completion of work now under way, or provided for by appropriations already made, it is expected that all airports which the Company has served with smaller equipment will be suitable for use by the Douglas equipment. At present, operations into White River Junction, Montpelier-Barre, Augusta, Millinocket, Houlton, and Cari- bou are suspended, while at different periods during the year airport construction has made it impossible to use the Man- chester and Concord airports. The suspension of service and limitations on landings have caused the Company some loss of revenue, but upon completion of the airport developments the Company will be able to furnish a more complete and dependable service than has heretofore been possible. PILOT TRAINING SCHOOL For several years the Company has been operating an advanced training school for prospective airline pilots, for which tuition is charged. Income from this source contributes substantially toward offsetting cost to the company of pilot flight checks and simulated flight practice, and the training of its first officers for captaincies. In the early part of 1941, school facilities were enlarged and courses of instruction in cross country flights established. Under government contract in connection with the Civilian Pilot Training program, students are assigned to the school and their tuition paid by the government. An intensive course of instruction is followed to train the students to become in- structors of similar courses given in various parts of the coun- try, and many graduates of the school are now instructors at their respective bases. Through the operation of this school, the company is con- tributing substantially to the National Defense training pro- gram of the country. 4 NEW ROUTE APPLICATIONS On November 19, 1940, the Civil Aeronautics Board amended the Company's Certificate of Public Convenience and Necessity by authorizing service between Bangor and Moncton, New Brunswick, a distance of 21 7 miles. This service was commenced on January 3, 1941, by the operation of two round-trips daily, carrying passengers and mail. The develop- ment of passenger business on this line has been slow, but is showing definite improvement. On November 12, 1938, the Company applied for a Certificate authorizing operation between Boston and New York City. Only one air carrier now operates in this area. On April 24, 1940, the Company applied for a Certificate over a 273-mile route between Portland and New York City, with intermediate stops at Lawrence and Worcester, Mass., and Hartford and Meriden, Conn. The important cities of Law- rence, Worcester and Meriden and their adjacent territories are now without air transport service. The Company has been advised that on or about December 1, 1941, hearings will be conducted by an Examiner of the Civil Aeronautics Board on these two applications. PERSONNEL The extension and improvement of the Company's oper- ations, traffic development efforts, and enlarged training school staff have increased the number of employees to 249 on August 20, 1941. Competition for experienced personnel, particularly from the Government and National Defense industries, has been felt, although thus far we have made suitable and satisfactory replacements, and it is hoped that by reason of present policies and new wage scales, personnel turnover will be low in the future. On September 1, 1940, the Company signed an agree- s ment with the Air Line Pilots Association, International, re- lating to wages, hours of work, working conditions and meth- ods for the orderly settlement of disputes. SAFETY The management and its entire personnel take satisfac- tion in the fact that from the beginning of the company's operations its service has been conducted without casualty or injury to any passenger, and they will strive to continue the excellent record in this matter of paramount importance. CONCLUSION The management is mindful of its obligation to operate efficient air transport service in the interest of the commerce and defense of the nation and to do so at a reasonable profit to its owners. Much depends upon the energetic development of passenger traffic and such economy in operations as is con- sistent with safety and good service to our patrons. Efforts to meet fully all responsibilities will be vigorously continued. On their part the stockholders can materially assist by their pa- tronage of the service and in urging its use by others. The officers would welcome suggestions from them as to any steps which can be taken to improve the service or increase the revenues. By order of the Board of Directors, August 27, 1941. 6 :!.111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111! I I - NORTHEAST AIRLINES, INC. Boston, Massachusetts We have examined the balance sheet of Northeast Airlines, Inc., as at June 30, 1941, and the comparative statement of profit and loss and the statement of capital surplus for the years ended June 30, 1940 and 1941, have reviewed the system of internal control and the accounting procedures of the com- pany and, without making a detailed audit of the transactions, have examined or tested accounting records of the company and other supporting evidence by methods and to the extent we deemed appropriate. In our opinion, said financial statements present fairly the position of Northeast Airlines, Inc., as at June 30, 1941, and the results of its operations for the years ended June 30, 1940 and 1941, in conformity with gen er ally ac- cept d accounting principles maintained by the company on a consistent basis during the years under review. LYBRAND, Ross BRos. & MoNTGOMERY Boston, Massachusetts August 27, 1941 ~.1111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111r. 7 BALANCE SHEET AS AT JUNE 30, 1941 ASSETS Current assets: Cash in banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 168,887. 63 Accounts receivable: Airlines and agents.......... $ 51,745.36 United States Post Office De- partment ................ . Other, less $700.00 reserve for doubtful accounts ........ . Inventories (at average cost or less) : 37,901.70 41,072.30 Aviation fuels and oil . . . . . . . . $ Replacement parts and supplies 2,580.45 82,089.02 Total current assets .. . ................. . Property and equipment: Unamortized improvements to real estate not owned . . . . . . . . . $ 5,402. 14 Aircraft, engines and communica- tion equipment: Passenger, mail and express service .................. . Training school .. ... . ...... . Shop and miscellaneous equip- ment . . . ....... ......... .. . *Total ... ..... ........... . Less reserves for depreciation .. Property and equipment acquisition adjustment-to be amortized over the period of ten years beginning 655,414.92 37,358. 19 31,119.30 $729,294.55 165,166 .77 July 1, 1941 . ... ... ....... ....... ......... . Prepaid expenses and def erred charges: Prepaid insurance. . . . . . . . . . . . . $ 24,804. 09 Unamortized costs of developing routes .................... . Shop orders in process for plant improvements .......... .. .. . Other deferred charges and pre- 11,679 .95 7,616.82 130,719 .36 84,669.47 $ 384,276. 46 564,127.78 66,293. 73 payments ......... .. ...... . 6,328 . 02 $ 50,428 . 88 $1,065,126.85 * $600,000 represents cost and the remainder is based on depreciated original cost of tangible assets acquired from National Airways, Inc., March 1, 1937. 8 BALANCE SHEET AS AT JUNE 30, 1941 LIABILITIES Current liabiliti s: Notes payable to banks (instal- ments due within one year) .. . . ... .. ... .. . Accounts payable: Purchases. . . . . . . . . . . . . . . . . . $176,969.06 Airlines ... . .... ... .. .. ... . Salaries and wages .. . . .. . . . . 24,111. 75 24,164 .67 Accrued taxes . . .. . ... ...... .......... . . . . . . Other currentliabilities . .. .... .. . . .. .. .. . . .. . $ 60,000.00 225,245 .48 5,063.16 386.42 Total current liabilities. . . . . . . . . . . . . . . . . . $ 290,695 . 06 Notes payable to banks, 4,' per cent, due in equal monthly in- stalments to October 23, 194 3 . . . . $140,000 . 00 Less instalments due within one year, included in current liabilities ... .... ......... . Deferred income and liability .. . .. . CAPITAL Common stock, par value $1 per share, authorized 500,000 shares, issued and outstanding 300,000 60,000.00 shares. . . . . . . . . . . . . . . . . . . . . . . $300,000.00 Premium on common stock ( excess over par value of proceeds of stock issued in 1941, less ex- penses of issue) . ....... ... .... . Deficit in earned surplus since July 1, 447,357.76 80,000.00 3,282 .45 1940 . . . ... .. . . . . .. ...... .. .. . (56,208.42) 691,149.34 $1,065,126 .85 9 r/orfheadf Airfined, !Jnc. COMPARATIVE STATEMENT OF PROFIT AND LOSS For the Years Ended June 30, 1940 and 1941 Opera ting revenue: Passengers . . . . . . . ... ... . Air mail .. .. . ..... . .... . Express and excess baggage Gross profit from training school ....... .. ...... . O ther ............... . . . Total operating revenue. O perating expenses: Conducting transportation Maintenance and repairs .. Provisions for depreciation Traffic and advertising . .. . General and administrative Taxes, other than income taxes . . .... . .... . .... . Total operating expenses Operating income or (loss) Deductions from income: Interest ..... .. . .. .. . .. . Other deductions .. . .. .. . Total deductions from in- Years Ended June 30 1941 1940 $270,1 33. 62 299,200 .66 4,332 .90 24,493 .86 9,488.18 $607,649. 22 $370,455 . 96 154,804 .50 50,237 .29 27,272 .75 44,238 .75 13,088 .41 $660,097 . 66 ($52,448 . 44) $ 3,876 .80 783 . 18 $182,258 .31 245,843 .99 3,241 .28 9,865 .14 7,460 .27 $448,668 . 99 $243,195 .33 84,805 .79 39,543 .51 22,607 .25 35,535 .22 9,494.77 $435,181.87 $ 13,487 .12 $ 2,735 .28 202 .41 Increase or (Decrease) $ 87,875 .31 53,356.67 1,091.62 14,628 .72 2,027 .91 $158,980 .23 $127,260 . 63 69,998 .71 10,693.78 4,665 .50 8,703.53 3,593 .64 $224,915.79 ($65,935. 56) $ 1,141 .52 580 .77 come. . ... ... .... . . . $ 4,659 .98 $ 2,937 .69 $ 1,722 .29 Profit or (loss) before federal income taxes.. ($57, 108 .42) $ 10,549 .43 ($67,657.85) Provision for federal income taxes t . . . . . . . . . . . . . . . . . (900.00) 900 . 00 (1,800.00) Net profit or (loss) for year .......... . .... ($56,208.42) $ 9,649.43 ($65,857.85) Deficit in earned surplus at beginning of year . . . . . . . . See * (108,771 .58) Deficit in earned surplus at end of year. . . . . . . . . . . . . ($56,208.42) ($99,122 . 15*) * The deficit in earned surplus as at June 30, 1940 was charged to capital surplus pursuant to plan of recapitalization adopted by stockholders in December, 1940. t The provision in the year ended June 30, 1940 was not required and was restored to income in the following year. 10 STATEMENT OF CAPITAL SURPLUS Years Ended June 30, 1940 and 1941 Capital surplus at July 1, 1939 . .... ... . . ....... . Amount paid in March, 1940 . . ..... .. .... . . . .. . Capital surplus at June 30, 1940 ................. . Capital surplus resulting from ex- changes of capital stocks, pursuant to plan of recapitalization adopted by the stockholders in December, 1940: Par value ($100. per share) of stocks canceled : Pref erred stock . . .......... . Common stock . . ....... .. . . Par value ($1 per share) of com- mon stock issued . . . . . . . .... Amounts written off in connection with said plan of recapitalization: Deficit in earned surplus at June $191,400 .00 150,000 .00 $341,400.00 171,108 .00 30, 1940.. ............ .... $ 99,122.15 $ 14,706.34 1,397.56 $16,103.90 170,292.00 $186,395.90 Portion of property and equip- ment acquisition adjustment .. 87,273.75 $186,395.90 11 NORTHEAST AIRLINES, INC., STATISTICS Years ended June 30 Increase or (Decrease) 1941 1940 Amount Per Cent PLANE MILES SCHEDULED ........ 1,273,990 893,768 380,222 42 .54 PLANE MILES FLOWN Revenue Miles Flown Scheduled Service 1,085,907 780,284 305,623 39 . 17 Other Revenue Miles .. . . .. ... .... ... . 2,774 2,482 292 11. 76 T otal Revenue Miles ............... 1,088,681 782,766 305,915 39.08 Non-Revenue Miles ................. . 112,850 102,381 10,469 10 .23 Total Plane Miles Flown ... . ........ 1,201 ,531* 885,147t 316,384 35 . 74 Per Cent of Scheduled Service Performed .. 85 .24 87 .30 (2 .06) (2 .36) PASSENGERS CARRIED R evenue . . . ... .......... . .. ...... ... 31,947 21,605 10,342 47 .87 Non-Revenue .. .. .... . ....... . . .. . . . 4,669 2,614 2,055 78 .62 Total Passengers Carried . . .. . ... .. . 36,616 24,219 12,397 51.19 PASSENGER MILES Revenue .. . .. .......... ..... ........ 4,908,354 3,325,058 1,583,296 47 .62 Non-Revenue ..... .......... . .. . ... . 648,696 357,971 290,725 81. 21 Total Passenger Miles . . ..... .. .. ... 5,55 7,050 3,683,029 1,874,021 50 .88 Revenue Seat Miles Operated ........... 11,068,994 7,816,356 3,252,638 41 . 61 Revenue Passenger Load Factor ........ . 44 .34 42 .54 1.80 4.23 Average Length of Passenger Trip (Miles) 154 154 MAIL Pounds Carried . ... .. .......... ... ... 115,748 95,552 20,196 21.14 Pound Miles ........................ 18,836,873 13,719,997 5,116,876 37 .30 EXPRESS and FREIGHT Pounds Carried ... . ...... . 46,684 34,506 12,178 35 .29 Pound Miles ... 6,309,182 4,580,975 1,728,207 37 . 73 EXCESS BAGGAGE Pounds Carried . .......... . .. 23,202 7,196 16,006 222 .43 Pound Miles .... 3,352,707 1,288,510 2,064,197 160 .20 OPERATING REVENUES PER REVENUE MILE FLOWN (cents) Passenger ......... . ..... .. .. ... .. ... . . Mail ........ . ................. .... . All Other . ..... . . ... ... .. ... .... . .... . Total . Years ended June 30 1941 1940 24.81 27 . 48 3 .52 55 .81 23.28 31 . 41 2.63 57 .32 Increase or (Dec;ease) A mount Per Cent 1 .53 6 .57 (3 .93) (12 .51) .89 33 .84 (1 .51) (2 .63) OPERATING EXPENSES PER TOTAL MILES FLOWN (cents) Conducting Transportation ............ . Maintenance and Repairs ...... .. ...... . Depreciation . . . . . . ........ . Traffic and Advertising ..... . .... ... .. . . General and Administrative ... . ........ . Taxes (other than Federal Income) ...... . T otal Operating Expenses .... Years ended June 30 1941 1940 30 .83 12 .88 4.18 2 .27 3 .67 1 .09 54 .92 27 .48 9.58 4 .47 2 .55 4 .01 1.07 49 . 16 * Does not include 402,340 miles flown in school operation. t Does not include 4,644 miles flown in school operation. 12 Increase or (Decrease) Amount Per Cent 3 .35 3 .30 ( .29) (.28) (.34) .02 5 . 76 12 . 19 34.45 (6 .49) (10 .98) (8 .48) 1 .87 11. 72 MONTREAL I 8UALINr:T0H -~~ ~-,, BARR e MONTPfLl(R .~JHH:;~:'~':; T. NEW-, ufLH WHIT( N.H. YORK . RIY(RJtT 0 KUN CONCORD\ GULF OF ST. LAWRENCE I NE w 'tO HWFOU NOLAM8 BRUNSWIC ~s~ SH PRESQUE ISLE \