Northeast Airlines Annual Report 1943

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Annual Report
OF
NORTHEAST AIRLINES, INC.
Year Ended December 31,
1943
NORTHEAST AIRLINES, INC.
MILTON H. ANDERSON
Boston, Mass.
ROBERT F. BRADFORD
Boston, Mass.
p AUL F. COLLINS
Boston, Mass.
JAMES F. FITZGERALD
Boston, Mass.
SAMUEL J. SOLOMON
PAUL F. COLLINS
MILTON H. ANDERSON!
DAvrn H. Howrn
HOWARD D. INGALLS
H. LEROY SWIMM
ROBERT F. BRADFORD
Directors
Officers
ELY, BRADFORD, THOMPSON & BROWN
LYBRAND, Ross BRos. & MONTGOMERY
OLD COLONY TRUST COMPANY
THE FIRST NATIONAL BANK OF BOSTON
DAVID H. Howrn
Boston, Mass.
RADU IRIMESCU
New York, N. Y.
SAMUEL J. SOLOMON
Washington, D. C.
EUGENE L. VIDAL
New York, N. Y.
Chairman of the Board
President
. Vice Presidents
Treasurer
. Clerk
General Counsel
Auditors
Transfer Agent
Registrar
General Offices, General Logan Airport, East Boston, Mass.
Treasury and Accounting Offices, 1 State Street, Boston, Mass.
NORTHEAST AIRLINES, INC.
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To the Stockholders of NORTHEAST AIRLINES, INC.:
The Board of Directors presents its Annual Report for the fiscal year ended December 31, 1943, in-
cluding a Comparative Balance Sheet of the Company as at December 31, 1943, and 1942, and a Statement
of Profit and Loss and Earned Surplus (Deficit) for the twelve months ended December 31, 1943, together
with the certificate of the Company's independent auditors, Messrs. Lybrand, Ross Bros. & Montgomery.
Operations for the year ended December 31, 1943, resulted in a total loss of $127,801.66, against which
is credited $30,856.71 as a claim for refund of 1942 federal income taxes based on carry-back of 1943 loss,
resulting in a net loss for the year charged to surplus of $96,944.95. The operating loss includes $22,801.51
on acco~nt of the Pilot Training Division at Burlington, Vermont. There has been deducted from operating
revenue a reserve of $35,000 for possible adjustments of claims submitted for reimbursement of certain in-
direct and overhead or other expenses charged to the United States Government under the Company's
contract with the United States Army Air Forces. In addition, there has been deducted from income interest
charges of $34,890.39 on account of the Company's V Loan (which loan was paid in full on January 18,
1944), and all route development expenses, amounting to $17,040.07, incurred during the year in connection
with the Boston-New York and other new route applications. These four deductions aggregated $109,731.97.
Claims have been presented to the Civil Aeronautics Administration in accordance with their request
for expenses arising out of, or in connection with, the conduct and termination of the pilot training con-
tracts which have been discontinued. That agency has not yet finally approved or disapproved these claims.
It is impossible to estimate to what extent, if at all, such claims will be allowed and they have not, therefore,
been included as assets in the Balance Sheet.
Previous statements of Profit and Loss for a portion of 1943, prepared by the Company and furnished
to governmental authorities and others during the course of the year, reflected the management's interpreta-
tions of the allocation of expense under its contract with the Army Air Forces. Subsequently, as a result of
conferences with governmental and army officials and their representatives, it appeared that the Army
intends to construe certain provisions of the contract in a manner differing from the company's interpreta-
tion. The application by the Company of these Army interpretations to the contract in the accompanying
Statement of Profit and Loss has resulted in substantially lower reimbursements than the Company antici-
pated. Discussions are continuing with representatives of the United States Army Air Forces with a view
to having the provisions of the contract in question finally interpreted in such a manner as to result in a
larger reimbursement of charges to the Company than is reflected in the statement submitted herewith.
As already mentioned, provision has been made in the accompanying Profit and Loss Statement for a
reserve of $35,000 against further possible disallowance of indirect and overhead expenses submitted for
reimbursement under the provisions of the contract. The management has no way of knowing under
present circumstances whether or not the final interpretation and adjustment will be more equitable to the
Company or whether the $35,000 reserve referred to above, together with the $15,000 reserve provided in
1942, is excessive or inadequate.
Under the cost-plus-a-fixed-fee type of contract to which the Company's busines
s has been largely
converted, all elements of cost must be finally approved by the Government before the Company's position
can be considered definite and its reimbursement thereunder secure. This does not mean that the Company
may not expect to receive moneys due, but, there is no guarantee that full approval will be granted to any
company in similar circumstances, and it is an indication of the risks involved in an undertaking of the
magnitude of our Army operations.
During the year 1943 the Company operated three types of services at three separate bases:
1. It conducted an air transportation service, including incidental maintenance, modification, communication
and other ground operations, under a cost-plus-a-fixed-fee type of contract for the Air Transport Command
of the United States Army Air Forces. This service was flown with Army cargo ships principally from the
base at Presque Isle, Maine. Trips have been run during the war over the North Atlantic and the Arctic
as far east as Scotland, further north than the magnetic north pole, and further west than the parallel of
longitude which runs through Dallas, Texas.
2. It trained Army personnel for flight activities under contracts with the Civil Aeronautics Administration at
the Pilot Training Division at Burlington, Vermont, and under the Army Air Force contract at both Burling-
ton and Boston. Advanced flight and ground instruction were given in single and multi-motored airplane
operation, instrument flying technique, and radio operation and maintenance.
3. It operated two airplanes in commercial service between Boston and Presque Isle, Maine and between
Boston and Moncton, New Brunswick, with stops at Portland, Augusta, Bangor, and Houlton.
Commercial service between Boston and Montreal was suspended during the entire year 1943 for lack
of equipment. The training of pilots in multi-motored airplane operation under both the CAA and Army
contracts was discontinued in September 1943 by CAA and Army orders. These orders were general
country-wide directives terminating pilot Training programs and resulted in the complete discontinuance
of all training operations of the Company in January, 1944. The major efforts of the Company during 1943
were devoted to service for the Army under the cost-plus-a-fixed-fee contract.
The operations at three widely separated main bases, - Presque Isle, Burlington, and Boston, - and
the operation of only two commercial airplanes was not inherently economical or efficient. In 1944, the
Company was directed to move Army operations from Presque Isle, Maine to Boston, Massachusetts and
since April 1, 1944 has conducted all operations from a single main base at Boston. A few aircraft are
gradually being returned to the airlines of the country and your management looks forward to the time
when sufficient equipment will be available to allow the Company additional aircraft for the resumption
of Boston-Montreal service.
In September, 1943 the Company offered and sold 200,000 shares of its stock and received from such
sales the sum of $1,251,189.76 net after expenses. At the special meeting of the stockholders on October 28,
1943, it was voted to increase the authorized number of shares from 500,000 to 2,000,000, the shares to be
issued at such time and upon such terms as the Board of Directors might determine. In 1943, the First
National Bank of Boston was appointed Registrar of the stock and the stock of the Company was listed on
the New York Curb Exchange on January 2, 1944. Analysis of the list of stockholders as of December 31,
1943 indicates that there were approximately 1,435 shareholders of record and that approximately 60% of
them were registered as being from New England.
After the sale of the stock in September, 1943 the Boston and Maine, and Maine Central Railroads
each held 75,000 shares of the stock of the Company, an aggregate of 150,000 shares, or 30% of the total
outstanding stock. Because these holdings raised some question as to whether the railroads controlled the
airline within the meaning of Section 408 of the Civil Aeronautics Act, and were deemed to jeopardize the
company's prospects of success in its hearings before the Civil Aeronautics Board, and particularly in its
Boston-New York route application, the railroads have sold 100,000 shares of the stock which they held and
they now own 50,000 shares, or 10% of the stock of the Company.
On January 5, 1944 Laurence F. Whittemore resigned as an officer and director of the Company.
On January 11, 1944 S. J. Solomon, who had become Chairman of the Airlines' Committee for United
States Air Policy, resigned as President and became Chairman of the Board of the Company, Robert S.
Swain resigned as Treasurer and later as Director, and H. Danforth Starr resigned as Director. The Board
of Directors elected Milton H. Anderson and Robert F. Bradford directors, and Paul F. Collins to the
office of President and H. LeRoy Swimm to the office of Treasurer.
The Company's application to extend its present route from Boston to New York was heard by the
Civil Aeronautics Board in September, 1943, together with applications of five other companies to establish
new service between the same terminals. In January, 1944 a favorable Examiner's report was issued recom-
mending that Northeast Airlines, and Northeast Airlines alone, be authorized to provide new competitive
service between Boston and New York and Newark and that the Company be authorized to serve as inter-
mediate points Lawrence, Worcester, Providence, New Bedford, and Hartford. The Boston-New York route
is heavily traveled. Traffic studies made by the Civil Aeronautics Board indicate that in normal times more
passengers have travelled between its terminals than between any two cities in the country. The case is now
awaiting final decision by the Civil Aeronautics Board.
In 1943 the Company agreed to purchase for $17,500, subject to the approval of the Civil Aeronautics
Board, the permanent certificate of public convenience and necessity of Mayflower Airlines, Inc. which
authorizes the scheduled air transportation of persons and property but not mail between Boston, Province-
town, Hyannis, Oak Bluffs and Nantucket. Application was filed for approval of the purchase and the matter
was heard by a Civil Aeronautics Board Examiner in January, 1944, who has recommended that the pur-
chase be approved. Final approval of the purchase will advance the Company's objective of providing an
integrated New England air transportation system giving service to communities having a need for it. The
case is now awaiting final decision by the Civil Aeronautics Board.
The Company's applications, filed in 1943, (a) to operate between Boston and European points,
London, Glasgow, Paris, Amsterdam, Oslo, Copenhagen, Stockholm, Leningrad, Prague and Moscow, -
via Newfoundland, Greenland and Iceland, (b) to operate mail and express service by helicopter to 408
cities and towns in New England and southern New York and (c) to operate between New York and Chicago
via certain intermediate points have not yet been heard by the Civil Aeronautics Board.
During the year 1943 a hangar at Burlington was constructed by the Company to house its training
operations there. In connection with the termination of the CAA training program a claim has been made
to the Government for reimbursement of the cost of this hangar. During the year a modern downtown sales
office was established in Boston in the lobby of The Copley Plaza hotel.
Numerous personnel of the Company have received commendation of the military authorities for
meritorious services beyond the call of duty. It is startling to think of our heavily loaded DC-3 and larger
planes, flying through fog, over Arctic wastes, ice, snow crevasses and mountains at altitudes from O to
20,000 feet and at speeds of 100 to 200 miles an hour. Yet such flights have now become routine. There
have also been special accomplishments, rescue missions and survey flights over unexplored northern coun-
try which have drawn the highest praise from the Army. Five of our employees have already received the
Army Air Medal "for meritorious achievement while participating in aerial flight over Arctic regions be-
tween 28 March 1943 and 9 April 1943."
Details of all the accomplishments of the Company cannot be made public at this time for reasons of
military secrecy. The Company has done its best for the War effort. Its success and contribution in that
connection have been notable. It will continue its efforts so long as its services are needed.
Boston, Massachusetts
June 12, 1944
For the directors,
PAUL F. COLLINS
President.
CURRENT ASSETS:
Casb in banks (note A)
Receivables, billed or accrued:
Airlines and agents .
ASSETS
United States Post Office Department (note A)
United States Army Air Force-under operational contracts
(notes A and B), less reserve for adjustments, $50,000-1943,
$15,000-1942
Pilots' training school tuition under government contracts
(notes A and C)
Other receivables, less reserve
Total receivables
Inventories (at average cost or less):
Aviation fuels and oil and returnable containers
Replacement parts and supplies
Training school flight kits
Total inventories
Total current assets
CLAIM FOR REFUND OF 1942 FEDERAL INCOME TAXES BASED ON
CARRY-BACK OF 1943 Loss .
PROPERTY AND EQUIPMENT, AT CosT:
Improvements to real estate not owned:
Hangar for training school
Other .
Flight equipment-passenger, mail and express service
Ground and shop equipment
Training school flight and ground equipment .
Less reserves for depreciation and amortization .
DEPOSIT IN ESCROW UNDER LEASE AGREEMENTS
PREP AID EXPENSES AND DEFERRED CHARGES:
Prepaid insurance
Prepaid rentals
Shop orders in progress
Other deferred charges and prepayments
NORTHEAST AI R LINES, INC.
Comparative Balance Sheet
December 31
1943 1942
$1,621,330.49 $ 272,473.80
'44,087.79 37,290.78
41,126.01 78,550.32
515,612.48 759,052.08
226,280.31 290,498.92
38,472.03 63,268.81
865,578.62 1,228,660.91
1,958.48 4,278.04
112,842.17 69,358.18
5,287.38 6,646.51
120,088.03 80,282.73
2,606,997.14 1,581,417.44
30,856.71
119,996.55
38,983.97 33,287.76
249,331.25 243,855.60
96,429.22 78,110.14
125,315.01 130,121.06
630,056.00 485,374.56
219,553.77 91,193.66
410,502.23 394,180.90
50,000.00 50,000.00
14,338.50 19,584.16
13,066.65 13,031.34
1,671.55 3,249.86
6,721.31 3,396.90
35,798.01 39,262.26
$3,134,154.09 $2,064,860.60
As at December 31, 1943 and 1942

1
l
LIABILITIES
CURRENT LIABILITIES:
Notes payable to bank under loan agreement (note A)
Accounts payable:
Vendors and others
Airlines
Total accounts payable
Accrued salaries and wages
Income and social security taxes withheld
Accrued taxes:
Federal normal tax and surtax
Other federal and state taxes
Other current liabilities
Total current liabilities
DEFERRED INCOME AND LIABILITY
RESERVE FOR TAXATION CONTINGENCIES
COMMON STOCK, PAR VALUE
$ 1.00 per share:
Authorized
Issued and outstanding
CAPITAL
Dec. 31, 1943
2,000,000 shs.
500,000 shs.
CAPITAL SURPLUS (premium on common stock)
SURPLUS (deficit) EARNED SINCE JuLY 1, 1940
Dec. 31, 1942
500,000 shs.
300,000 shs.
$
December 31
1943
900,000.00
107,296.90
22,229.85
129,526.75
80,028.05
25,182.46
16,489.91
6,150.51
1,157,377.68
11,780.72
20,000.00
500,000.00
1,498,547.52
(53,551.83)
$
1942
850,000.00
324,148.29
29,446.88
353,595.17
2,751.94
31,250.00
13,082.53
1,311.69
1,251,991.33
2,118.39
20,000.00
300,000.00
447,357.76
43,393.12
$3,134,154.09 $2,064,860.60
NORTHEAST AIRLINES, IN C.
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STATEMENT OF PROFIT AND LOSS AND EARNED SURPLUS (DEFICIT)
For Year Ended December 31, 1943
OPERATING REVENUE:
Passengers
Air mail .
Operations under Army Air Force contract (less $35,000.00 pro-
vision for adjustments, note B)
Pilots' training school tuition (note C)
Other
Total operating revenue
OPERATING EXPENSES:
Conducting transportation, flying and training operations
Maintenance and repairs (including maintenance of government
owned and training equipment)
Provisions for depreciation and amortization
Traffic and advertising
General and administrative
Taxes other than income taxes
Total operating expenses .
Operating loss .
DEDUCTIONS FROM INCOME:
Extension and development costs
Interest expense
Loss on Canadian exchange
Loss on disposals of capital assets
Other deductions .
Total loss for year
CLAIM FOR REFUND OF 1942 FEDERAL INCOME TAXES BASED ON
CARRY-BACK OF 1943 Loss
Net loss for year
EARNED SURPLUS AT BEGINNING OF YEAR
DEFICIT IN EARNED SURPLUS AT END OF YEAR
$
STATEMENT OF CAPITAL SURPLUS
(Premium on common stock)
For Year Ended December 31, 1943
CAPITAL SURPLUS JANUARY 1, 1943
533,963.28
283,248.96
2,058,710.03
562,539.25
41,839.04
$3,480,300.56
1,955,782.63
983,355.85
137,076.41
64,103.86
339,079.27
65,540.69
3,544,938.71
64,638.15
17,040.07
34,890.39
7,604.69
959.95
2,668.41 63,163.51
127,801.66
30,856.71
96,944.95
43,393.12
$ 53,551.83
$ 447,357.76
EXCESS OF PROCEEDS OVER PAR VALUE OF 200,000 SHARES ISSUED
IN SEPTEMBER, 1943 $1,067,316.00
Less expenses of issue thereof . 16,126.24 1,051,189.76
CAPITAL SURPLUS DECEMBER 31, 1943 $1,498,547.52
NORTHEAST AIRLINES, INC.
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NOTES TO FINANCIAL STATEMENTS
A-The agreement under which the notes payable were issued provides that the company shall
assign to the bank all moneys due and to become due under government war contracts and
that the company shall not permit its net working capital to be at any time less than $100,000.00.
The following assets were pledged as security under the loan at the respective balance sheet dates:
Receivables under government war contracts
Receivable from U. S. Post Office Department
Cash .
The loan was paid in full January 18, 1944.
December 31,
1943
$741,892.79
36,250.32
December 31,
1942
$1,049,551.00
61,189.29
2,078.95
$778,143.11 $1,112,819.24
B -The amount receivable and the revenue under operational contracts with the United States
Army Air Force are subject to possible adjustments which may result from governmental
audits of costs chargeable under the contracts. Interpretation of certain contract provisions
has not been agreed upon between the company and the government. The company has
provided a reserve for such adjustments, but it cannot presently determine whether this
reserve will prove adequate or excessive.
With respect to the Renegotiation Act, the Army Air Force Price Adjustment Board has found
that no excessive profits were realized by the company from its war contract operations in
1942 and the company believes that no excessive profits from such contracts were realized in
1943.
C -The company has made claims for additional compensation under government contracts for
conducting the pilots' training school, which contracts were terminated in January, 1944.
No amounts are included among the receivables nor in operating revenue with respect to
these claims for additional compensation and the amount, if any, which may be realized
therefrom cannot presently be determined.
NORTHEAST AIRLINES, INC.,
Boston, Massachusetts.
AUDITORS' REPORT
We have examined the accompanying comparative balance sheet of Northeast Airlines, Inc. as at December
31, 1943 and 1942, statement of profit and loss and earned surplus (deficit) and statement of capital surplus
(premium on common stock) for the year ended December 31, 1943, 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 appropriate. It was not practicable to obtain from government agencies confirmation of the
amounts owed to the company under the government contracts referred to in notes B and C to the financial
statements. In other respects our examination was made in accordance with generally accepted auditing standards
applicable in the circumstances and included all procedures which we considered necessary.
As indicated in notes B and C to the financial statements the amounts receivable and the revenue under
certain government contracts are subject to possible adjustments which may result from governmental audits of
costs chargeable under contracts and from claims with respect to terminated contracts.
Subject to the foregoing explanation, said financial statements, in our opinion, present fairly the position of
Northeast Airlines, Inc. at December 31, 1943 and 1942 and the results of its operations for the year ended
Dece~ber 31, 1943 in conformity with generally accepted accounting principles applied on a basis consistent
with that of the preceding year.
Boston, Massachusetts
May 10, 1944
LYBRAND, ROSS BROS. & MONTGOMERY