YEAR ENDED JUNE 30, 1942 NORTHEAST AIRLINES Mission for America Short months ago, these silver wings, these roaring motors were yours to command. You could speed from city to city, from state to state, even from nation to nation. You were a king with a magic steed; you were an American, enjoying the best of everything. Northeast Airlines was privileged to provide that service for you, eager always to serve you better. But now we are on a special mission - a mission for America. Today America's military needs come first. More planes, more pilots, more me- chanics must be at the beck and call of our Nation. Naturally, that means curtailed service for civilians. It means that our regular flights from Boston to Portland, Bangor, Presque Isle and Moncton must be reduced in number, and flights to Montreal and Burlington eliminated completely. It means that there are fewer seats available for people who are not directly engaged in war work which requires them to travel by air. However, airline service will be con- tinued and will be available to all in proportion to their needs - Uncle Sam coming first and the rest of us second. The highest standards will be maintained on all flights. Experienced pilots and co-pilots will fly every plane. Experienced and able mechanics will keep these planes at the peak of operat- ing ability. Experienced technical men will be on constant duty, as always, for greater safety. W e are all on a mission for America. NORTHIAIT AIRLINES NORTHEAST AIRLINES We are serving America fl}~ Annal ~ YEAR ENDED JUNE 30, 1942 NORTHEAST AIRLINH HARRY A. CARSON, St. Albans, Vt. PAUL F. COLLINS, Winchester, Mass. DANA c. DOUGLASS, Portland, Me. GEORGE F. GLACY, Boston, Mass. DAVID H. HOWIE, Boston, Mass. s. J. SOLOMON, Silver Spring, Md. ROBERT s. SWAIN, Boston, Mass. EUGENE L. VID~L, Washington, D. C. LAURENCE F. WHITTEMORE, Pembroke, N. H. President, s. J. SOLOMON Vice President, LAURENCE F. WHITTEMORE Vice President, DA YID H. HOWIE Vice President and Treasurer, ROBERT s. SWAIN Vice President, MIL TON H. ANDERSON Clerk of Corporation, ARTHUR B. NICHOLS General Traffic Manager, DONALD A. DUFF Counsel, WILLIAM A. COLE General O !fices Trans/ er Agent * . COMMONWEALTH AIRPORT, BOSTON, MASS. OLD COLONY TRUST COMPANY, BOSTON, MASS. BOSTON, MASS., NOVEMBER 1, 1942 To the Stockholders of Northeast Airlines, Inc: There is submitted herewith the balance sheet of our Company as at June 30, 1942, together with a statement of profit and loss for the twelve months ended June 30, 1942. These are as audited by Messrs. Lybrand, Ross Bros. & Montgomery and their certificate is also included. Operations of our Company for the year ending June 30, 1942, resulted in a loss of $50,986.30. There was a non-recurring profit of .$114,901.69 arising from the sale of certain aircraft, engines, equipment, and parts after provision for possible Federal Income Taxes and a non-recurring refund of gasoline tax totalling $10,939.69. This non-recurring income totalled $125,841.38, or $74,855.08 in excess of the operating loss for the year. This amount when carried to surplus was suffi- cient to eliminate the deficit of $56,208.42 which existed at the beginning of the year and to establish a surplus as at June 30, 1942, of $18,646.66. Passenger revenues amounted to $401,888.19, an increase of 48.7% over the total of $270,133 for the previous fiscal year. This was the first year in the history of the Company and its predecessors in which passenger revenue exceeded mail revenue. Mail revenue for the past . fiscal year amounted to $393,403.16 compared with $299,200.66 in the previous year, an increase of 31.5% . Mail revenue includes the amount established for air mail compensation as a result of the decision of the Civil Aeronautics Board dated August 24th, made retro- active to January 1, 1942. The balance sheet of the Company as at June 30, 1942, shows current assets of $1,026,804.43 with current liabilities of $729,547.68. On June 30, 1941, current assets equalled $384,276.46; and current liabilities, $290,695.06. 3 ~ In fulfilment of plans approved in the Spring of 1941, our Com- pany expanded its transportation facilities with the inauguration of new 24-passenger Douglas DC3 plane service on July 1, 1941. These planes replaced IO-passenger Lockheeds on most schedules, and rep- resented the finest in standard air transport equipment. To present the improved service to the public, the Traffic Depart- ment was enlarged to provide for traffic supervision of station and reservation personnel. Additional traffic solicitors and stewardesses were employed. Advertising and sales promotion were increased. Public response to this improved service was reflected in an increase of 68 % in the number of passengers carried and an increase of 73 % in passenger miles, necessitating an increase of 38 % in revenue plane miles flown over the previous period. Revenue increased from $8.00 per passenger to the present average of $13.00. Pearl Harbor marked a turning point in our Company's oper- ations with a necessary shift in emphasis from commercial to National Defense objectives. In keeping with the national trends, sales promo- tion and advertising have been curtailed. The four flights of a year ago between Boston and Bangor now number two, Bangor-Moncton serv- ice has been halved, and Boston-Montreal passenger service has been replaced by a daily mail and express flight with single-engine Stinson equipment. Due to National Defense developments, the Bangor- Presque Isle route is now served by two daily schedules. Flights no longer operate to and from Manchester, Concord, Lewiston-Auburn, Waterville, and Millinocket. Our Company was prompt to enlist with the War Department for effective participation in the National Defense program, filing a new route application in November, 1941, for service to United States military and naval bases then under construction in Newfoundland. Later in that same month, the management offered and the Govern- ment accepted the services of the Pilot Training School for the train- ing of special pilots for commercial ferry service overseas. On December 26, 1941, anticipating the mounting need for mili- tary air transport service, the management advised the Air Corps 4 Ferrying Command that, within the limits of available facilities and personnel, our Company stood ready to extend military transport service to any point designated by the War Department, and to train such additional personnel as might be required. The War Depart- ment and our Company consummated a formal contract on J anu- ary 31, 1942, for services and supplies on a cost-plus-a-fixed-fee basis, and shortly thereafter regular service was instituted for the transportation of military personnel and material. This pioneering venture was complicated by severe winter flight conditions in sub-zero temperatures ( as low as 55 degrees below zero) and the absence of organized communication. facilities. The War Department, late in May, requisitioned a large number of airline planes, including six from our Company, which curtailed commercial services. This curtailment of service made it possible for our Company to divert more pilots to the military contract operations and to reduce the staff of ground personnel at various stations. It is the belief of the management that the best means of pre- serving the present ownership of airlines is in the efficient performance of military assignments. Seventeen domestic airlines are working with the Government as a unit through the agency of the Air Transport Association, which group is in constant touch with military officials charged with coordi- nation between the Government and the airlines. To meet the required expansion of military contract services by air lines in the face of diminishing personnel, the President has been selected to head the important training program which the airlines are undertaking at the request of the War Department. The Government purchased all of our Company's IO-passenger Lockheed Electra planes during the past year, taking delivery of four during November, 1941, and the remaining one in May, 1942. Passenger service was operated principally with three 24-passenger Douglas DC3 planes from July 1, 1941, until April, 1942. At that time, to provide additional units of equipment for better flexibility in view of curtailments of new equipment, our Company exchanged these 5 three DC3 planes with Transcontinental & Western Air, Inc. for five 14-passenger Douglas DC2 planes and $220,000 cash. During May, 1942, the Military Director of Civil Aviation directed our Company to sell its DC2 planes to the Government for National Defense purposes, and to purchase two 21-passenger Douglas DC3 planes from American Airlines, Inc. for curtailed passenger service on the eastern routes to Presque Isle and Moncton. These transfers took place during June, 1942, the DC3 planes being received on .June 2, and placed in regular service shortly thereafter. A total of 16 single-engine Stinson planes are presently owned, three of which are Wright powered and the remainder Lycoming pow- ered. In the interest of standardization our Company is in the process of disposing of its Wright Stinsons while purchasing Lycoming Stin- sons. One Stinson is used in mail and express service between Boston and Montreal, the remaining planes for the Pilot Training School. Extensive airport construction and betterments are under way in our Company's territory as part of the war prosecution effort. This new construction work has caused interruptions in our regular pas- senger plane service, and while the loss of passenger revenue from such interruptions is to be regretted, it is felt that the improvements to the airport facilities will enable our Company to furnish more ?ependable and complete air transportation service i:v the future. In order to meet the increasing need for additional hangar space at the Commonwealth Airport at Boston, our Company leased two hangars from the Inter-City Aviation Corporation at an annual rental of $16,000.00. In August, 1942, one hangar was leased to the Massa- chusetts Institute of Technology at an annual rental of $10,000.00. There is a new passenger terminal under construction at Presque Isle, and two small buildings at the Bangor Airport are being remod- eled for passenger and customs service use. Preliminary work is in progress for the construction of a hangar at Burlington, Vermont, to provide additional space for the storage, maintenance, and over- haul of equipment used by the Pilot Training Division. 6 The Atlantic Division operation, enlargement of the trammg- school staff, and improvement of our Company's operations have increased the number of employees to 410 on August 20, 1942. Cer- tain personnel, pre iously required for sales effort and passenger handling, have been transferred to other assignmei:its with our Com- pany. Others have left our employ due to the curtailment in passenger service resulting from Army directives in May, 1942. Our Company has lost some experienced personnel to the armed services and to other employers, and expects that it may lose more. However, increased wage scales and Selective Service deferments have kept these losses at a reasonably low level to date. Our Company has undertaken a training program to provide itself with additional pilots and instructors, competent graduates of which are now in our service. A Navigation School is being established to train navigators for the Atlantic Division. It may become necessary shortly to train radio operators and me.chanics likewise. The national shortage of aviation maintenance mechanics has caused the Company to employ auto mechanics, machinists, and metal workers in certain instances, and this trend is expected to continue. Proper supervision and training permit the use of such men without impairment of safety. Notice has been given to the Air Line Pilots' Association, Inter- national, of our Company's wish for a clarification of certain por- tions of the agreement between the Association and our Company. The Civil Aeronautics Act of 1938 provides that air carriers shall be entitled to receive compensation for transporting the mail, and sets forth certain factors to be considered in fixing and determining fair and reasonable rates of compensation. In accordance with the pro- visions of this Act, our Company, in 1939, petitioned for an increase in its rate of 33.33 per plane mile. As a result of this petition, a rate of 36 was granted as of March 1, 1940, plus a rate of 35, retroactive to April 7, 1939. The subsequent route extension to Moncton was at the 36 rate. By supplemental order, effective November l, 1941, and with the designation of two additional mail schedules between Boston and {Continued on Page 10) 7 OUR COMPANY ... in Uniform Most of our Company's transport planes have changed from sparkling silver to Uncle Sam's olive drab; and on the sides and on the wing tips, these planes wear this star that says, "In the service of America's armed forces." Northeast Airlines' pilots, personnel and equipment are devoted unstintedly to winning the war. In this work they are pioneering into new areas, gathering new knowledge and abilities - all of which will contribute in great measure to the progress of our Company and our Country when the war is won. Bangor, the rate was amended to 28.69 per plane mile. On December 30, 1941, our Company filed a petition for increased mail pay, and amended same April 1, 1942. The Civil Aeronautics Board issued a supplemental rate order, effective May 1, 1942, providing a base rate of 36 per plane mile, when the average designated mail mile- ages did not exceed 2,496 miles on the Boston-Montreal and Boston- Caribou portions of Route 27, and 884 miles for the Bangor-Moncton portion of same, with an automatic rate adjustment provision to decrease that rate proportionately to the increases in daily designated mileages above 2,496 and 884 miles, respectively. On August 24, 1942, the Board set a rate of 4 7 .30 for the period, January 1, to June 30, 1942, and thereafter a rate of 43.15 for an average daily designated mileage of not to exceed 2,506 miles, with an automatic rate adjustment provision when that mileage is exceeded. Our Company, for several years past, has been operating an advanced pilot training school at which tuition was charged, and early in 1941, the school facilities were enlarged and cross-country flight instruction established which included courses paid for by the Government under the Civilian Pilot Training Program. The school was farther enlarged in December, 1941, to provide training for a large group of especially selected CPT graduates in what was known as the Flight Officer Training Course under a new Civilian Pilot Training Program, the graduates of which are compe- tent to operate multi-engine aircraft, and are assigned by the Govern- ment to service overseas or activities connected with National Defense. Anticipating the July, 1942, order of Lieutenant General Hugh A. Drum, embodying restrictions on non-scheduled flying along the Atlantic Coast, our Company moved the school from Boston to Bur- ling.ton, Vermont, during March, 1942. Burlington, Vermont, is out- side of the immediate defense zone on the present NEA route, and has University facilities available to the conduct of the school. Aca- demic training is given in the excellent new Waterman Memorial Building of the University of Vermont, while flight training activities are centered at the Burlington Airport. The number of new students accepted each week was doubled recently, including men assigned by the Navy. Multi-engined train- ing is provided in Lockheed 10-A aircraft supplied by the Government. Single-engine training is in Company-owned Stinson aircraft. The operation of this school has constituted a major contribution to the National Defense and the war effort, and contributes substan- tial benefits to our Company. On November 12, 1938, our Company applied for a certificate authorizing operation between Boston and New York City. On Novem- ber 29, 1941, this application was amended to include New Bedford, Worcester ( two of the largest cities in the country without air service), Lawrence and Hartford, and to name Boston as an intermediate point on the eastern leg of Route 27 between Caribou and New York City. Only one air carrier now operates between Boston and New York though others have filed. The Civil Aeronautics Board suspended hearings on pending applications except those important to National Defense. No hearing has been held as yet. On April 24, 1940, our Company applied for a certificate over a route between Portland and New York City via Lawrence, Worces- ter, Hartford and Meriden. No hearing has been set on this appli- cation. On November 14, 1941, our Company applied for a foreign air transportation certificate between Bangor and St. John's, Newfound- land, via Moncton and Stephenville, Newfoundland, Airport and Argentia, Newfoundland, and amended same December 26, 1941, to name Northwest River, Labrador, as the terminal in lieu of St. John's. A hearing was held December 31, 1941. Decision has not been rendered yet. For the duration of the war, the accomplishments of Northeast Air- lines must be measured in terms of our contribution to the war effort. It is the sincere belief of the management that the work our Company is doing, and the organization it is developing in aid of the war effort will prove invaluable in the post-war expansion of air transportation. s. J. SOLOMON. 11 IN COA.PORATED ~u.n.,M,d, 1912-- '.::::zt J1ational Organi~ation TurotQrt to Socuri115 -:lncrQas~ Safu9' to Jfuman t'1fa'.' (Urrfifiratt nf jafr ,prration YEAR 1941 --pr<2-SQ.,ntcul to Nnnheasr Airlinl'$,)nr. 1n.. recognition, of its hauing op12.ra..ted th..,c, ent1r12- ._Q.,Qr u,irh...ou .. t a., fa..ta.li..tJZ.._ to pass'2..n_gm- or cr'2..W. 12 BOSTON . MASSACHUSETTS Northeast Airlines, Inc., Boston, Massachusetts. NORTHEAST AIRLINES, INC. We have examined the balance sheet of Northeast Airlines, Inc. as at June 30, 1942 and the statement of profit and loss for the year then 1 ended, have reviewed the system of internal control and the accounting procedures of the company 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 ap- propriate. Our examination was ma.de in accordance with generally accepted auditing standards applicable in the circumstances and included all pro- cedures which we considered necessary. In our opinion, the accompanying balance sheet and related statement of profit and lose present fairly the position of Northeast Air- lines, Inc. at June 30, 1942 and the results of its operations for the year in conformity with generally accepted accounting principles maintained by the company on a baeie consistent with that of the preceding year. Boston, Massachusetts October 15, 1942 13 NORTHEAST AIRLINES, INC. ~ Current assets: Cash in banks . Receivables, billed or accrued: Airlines aIJ.d agents . . United States Post Office Department From sales of aircraft and equipment Pilots' training school tuition: $89,465.90 billed to Civil Aeronautics Authority, $27,860.68 accrued not yet billed (note A) . United States Army Air Force-under operational contract: $231,210.84 less $83,813.60 advances received (note B) Other receivables, less $2,540.00 reserve for doubt- ful accounts . Inventories ( at average cost or less) : Aviation fuels and oil . Replacement parts and supplies . . . . . Training school flight kits . . . . . Total current assets . . . . . Property and equipment, at cost: .. $ $ 54,605.75 104,994.18 287,419.57 $ 117,326.58 147,397.24 31,650.34 BALANCE SHEET 205,550.73 743,393.66 1,368.69 65,312.84 11,178.51 77,860.04 $1,026,804.43 Improvements to real estate not owned . $ 6,201.75 Aircraft, engines, propellors and communication equipment: Passenger, mail and express service Training school . Shop and miscellaneous equipment . . Total Less reserves for depreciation . . Property and equipment acquisition adjustment - bal- ance being amortized ratabl y over the period ending June 30, 1951 . . . . . Deposit in escrow under lease agreements . . . . . Prepaid expenses and deferred charges: 246,195.37 59,416.97 60,i40.91 $371,955.00 51,448.23 Prepaid rentals . . . . . Prepaid insurance . . . $ 13,305.62 6,138.57 Cost of developing routes, being amortized ratably over period ending December 31, 1945 . Costs of developing proposed routes . . . . . . Shop orders in process for plant improvement . . Other deferred charges and prepayments 14 3,665.57 13,331.40 2,466.77 4,641.46 320,506.77 59,664.33 50,000.00 43,549.39 $1,500,524.92 ]UNE 30, 1942 NORTHEAST AIRLINES, INC. ~ Current liabilities: Notes payable to banks (note A) . . Accounts payable: Equipment and spare parts purchases . Other purchases Airlines Salaries and wages . Employee war bond deductions . Accrued taxes . Provision for federal income taxes Other current liabilities . Total current liabilities . Deferred income and liability CAPITAL Common stock, par value $1 per share, authorized . . . $ 145,495.75 $238,417.86 219,576.07 . 41,811.43 39,866.42 2,803.23 542,475.01 $ 7,018.16 32,000.00 2,558.76 729,547.68 4,972.82 500,000 shares, issued and outstanding 300,000 shares $300,000.00 Premium on common stock ( excess over par value of proceeds of stock issued in 1941, less expenses of issue) . 447,357.76 Surplus earned since July 1, 1940. 18,646.66 766,004.42 $1,500,524.92 NOTES: A - Amounts due or to become due from the Civil Aeronautics Authority for tuition at the pilots' training school have been assigned as security for the notes payable to hanks. B - The amount receivable and operating revenue under operational contract with the United State~ Army Air Force are subject to adjustments which may result from governmental audit of costs chargeable under the contract or from possible renegotiation of the contract price under the War Profits Control Act approved April 28, 1942. 15 NORTHEAST AIRLINES, INC. foR YEAR ENDED Jl!NE 30, 1942 Operating revenue: Passengers $401,888.19 Air mail . 393,403.16 Training school tuition . . . . . . . . . 267,390.17 Other (including operations under Air Force con- tract, see balance sheet note B) . 263,397.78 Total operating revenue . Operating expenses: Conducting transportation and flying instruction . Maintenance and repairs . . Provisions for depreciation and amortization Traffic and advertising . . . . . . . General and administrative . . Taxes other than income taxes . Total operating expenses . Operating loss . . . . Deductions from income: $782,760.67 302,859.45 82,302.60 77,337.08 109,257.33 15,857.69 . $ 4,800.09 . $1,326,079.30 1,370,374.82 . $ 44,295.52 Interest . . . . . Other deductions . 1,890.69 6,690.78 Net loss for period Direct credits to earned surplus: Gains on sales of certain aircraft, engines, equipment and parts, less $32,000 provision for federal in- come taxes Federal gasoline tax refunds applicable to years ended June 30, 1939, 1940 and 1941 . . . . Deficit in earned surplus at beginning of year . Earned surplus at end of year . 16 . $ 50,986.30 $114,901.69 10,939.69 . . $ 125,841.38 56,208.42 18,646.66 These are the things we do to make our patrons comfortable HELLO, NORTHEAST .. l'D LIKE A RESERVATION! A telephone call to any Northeast Airlines ticket office is the begin- ning of a friendly trip. Northeast personnel is carefully selected for friendliness and efficiency. JUST GIVE YOUR NAME .. WE'LL DO THE REST! When a patron gives his name at the Northeast ticket counter, he can relax and start enjoying his trip by Northeast Airlines. Baggage is han- dled quickly, all helpful informa- tion is given by Northeast personnel. WELCOME ABOARD Any traveler is off to a good start when a smiling, attractive Northeast stewardess greets him as he comes aboard. That's an important part of Northeast Airlines' hospitality. YOUR COAT, PLEASE Every passenger is treated as if he were a guest in our home. The Northeast stewardess helps with wraps, helps our passengers get set- tled for a pleasant flight. COMFORTABLE? Little things help make traveling pleasant. Northeast stewardesses are thoughtful-see that passengers have every little thing to make them comfortable. They provide pillows, adjust seats- all with a winning smile. BEST AIR IN THE WORLD The patron has his choice of the best air in the world when he rides in a plane. And he, individually, can have just as much or just as little of it as he likes, simply by regulating the vent which is next to his seat. SOMETHING TO READ? Soon after the plane has taken off, passengers are invited to read their favorite magazines and newspapers -all from the Northeast Airlines "library" on board. LIGHT UP IF YOU WISH In keeping with Northeast Airlines' hospitality, passengers are invited to smoke en route. Adequate ventila- tion prevents the smoke from inter- fering with the comfort of other passengers. COFFEE .... AND .... ? Refreshments are served in flight to Northeast passengers. Regular patrons have come to regard this service as a welcome interlude. New passengers always smile in surprise and then lean back in contentment. WE HOPE THE TRIP WAS PLEASANT The flight is over. Standing at the doorway, the Northeast stewardess bids each passenger a pleasant good- bye. Hospitality from start to finish! NORTHEAST AIRLINES MONTREAL i) TWIN CITIES BURLINGTON BARRE- MONTPELIER CONCORD MANCHESTER I BALTIMORE / WASHINGTO N' CARIBOU i) PRESQUE ISLE HOULTON MILLINOCKET HALI FAX ~ ~ MONCTON BANGOR@) WATERVILLE AUGUSTA LEWISTON- AUBURN PORTLAND STON