Northeast Airlines Annual Report 1944

OF
NORTHEAST AIRLINES,
. INC.
FOR THE YEAR
1J44

* *~. * * * * * *


NORTHEAST AIRLINES,
INC.
~~
FOR THE YEAR ENDED DECEMBER 31,


NORTHEAST AIRLINES,
INC.
MILTON H. ANDERSON
Boston, Mass.
J ACQVELINE COCHRAN
New York, N. Y.
PAUL F. COLLINS
Boston, Mass.
PAUL F. COLLINS
MILTON H. ANDERSON
l
WILLIAM B. BRIGGS
~
H. LEROY SWIMM
RICHARD ELY
ELY, BRADFORD, THOMPSON & BROWN
LYBRAND, Ross BRos. & MONTGOMERY
OLD COLONY TRUST COMP ANY .
THE FIRST NATIONAL BANK OF BOSTON
'JJireclors
Officers
*
JAMES F. FITZGERALD
Boston, Mass.
RADU lRIMESCU
New York, N. Y.
EUGENE L. VIDAL
New York, N. Y.
President
Vice Presidents
Treasurer and Ass't Clerk
Clerk
General Counsel
Auditors
Transfer Agent
Registrar
General Offices, LOGAN INTERNATIONAL AIRPORT, EAST BOSTON, MAss.
Treasury and Accounting Offices, 1 STATE STREET, BosTON, MAss.




To THE STOCKHOLDERS OF
NORTHEAST AIRLINES, INC.
The Board of Directors presents its Annual Report for the year ended December 31, 1944,
including a Comparative Balance Sheet of the Company as at December 31, 1944 and 1943, and
a Statement of Profit and Loss and Earned Surplus (Deficit) for the twelve months ended Decem-
ber 31, 1944, together with the certificate of the Company's independent auditors, Lybrand, Ross
Bros. & Montgomery.
Financial
Operations for the year ended December 31, 1944 resulted in a loss of $77,041.89 after setting
aside a reserve of $85,000, of which $60,000 represents a provision for possible adjustments of Army
contract receivables and payments for years 1942 and 1943 and $25,000 for a similar reserve for the
year 1944. Extension and route development costs amounting to $26,293.27 and expenses of non-
operating property amounting to $27,784.84 have been charged against income for the year 1944.
During the year, the Company revised its estimates of the life of certain equipment and
facilities for depreciation purposes. The rate of amortization of the hangar at the Training School
was changed from ten to twenty per cent per annum. The estimated life of the Company's
airplanes, engines and certain associated equipment was changed from thirty-eight months from
the date of acquisition to sixty months because it became apparent that the useful life of these
assets would extend beyond August 31, 1945, at which date most of such equipment being operated
at the time of the change would be completely charged off under the former depreciation policy.
AV-Loan of $900,000 was paid in full on January 18, 1944, thereby eliminating substantial
interest charges.
Army Contract
After three years of operation for the Army, pioneering all phases of operations and com-
munications through Labrador, Newfoundland, Greenland, Iceland, Scotland, Arctic Bay and as
far as 400 miles north of the Magnetic Pole, the military activities of the Company were termimrted
on April 15, 1945. In a letter to the Commanding General, Air Transport Command, on the sub-
ject of termination of the contract, the Commanding General of the North Atlantic Division wrote:
"In the execution of the Contract, Northeast Airlines have rendered a commendable service.
Their flight operation has been excellent and they can boast the enviable record of no loss
of life or major damage to aircraft during their contract operations. The purpose for which
this contract was entered into has been accomplished and it will be to mutual advantage to
have it terminated at this time. Such termination will no in way jeopardize the mission of
this Division."
On April 1, 1944, your company, pursuant to Army directives, moved its main Army opera-
tions base from Presque Isle, Maine to Boston and from that time until April 15, 1945, when
Army operations were terminated, conducted its Army services from its home base.
Most of the Company's personnel and facilities employed for military operations have been
absorbed by its commercial operations with the opening of the Boston-New York Route. The
cessation of our military activities was timely as proved by subsequent events and it eased certain
personnel and equipment procurement problems which otherwise would have faced the Company
in the opening of its new service.
There remain unsettled sontroversies with regard to Government reimbursement of expendi-
tures, principally indirect and overhead expenses incurred by the Company during its military oper-
ations. The reserves mentioned above have been provided to cover possible adverse adjustments.
The Company cannot presently determine whether these reserves will prove adequate or excessive.
New Routes - Developments and Expansions
Due to the requirements of the Army Air Forces for transport type aircraft which resulted in
all air lines giving up to the government many of their airplanes, your company entered 1944 with
* NORTHEAST AIRLINES, I N C *
only two DC-3 typ~ aircraft. In June the Company was successful in obtaining from the Army
one additional transport airplane which it immediately had converted for commercial use. After
completion of the conversion, this airplane was used to resume service on October 24, 1944 with
two round-trips daily between Boston and Montreal, with stops at Concord, New Hampshire,
Montpelier and Burlington, Vt. An additional airplane was obtained from the government in
October which was converted in the Company's shops and entered service in April, 1945. The third
airplane obtained from the government was received in January, 1945 and became available for
commercial service in May, 1945. With the addition of the latter two airplanes it became possible
to realize an ambition of many years standing- opening of service between Boston and New
York. The certificate to operate this route was granted your company by the Civil Aeronautics
Board in June, 1944 (after a hearing by that Board in September, 1943 of the Company's original
application filed in 1938). Service was commenced on May 1, 1945 with nine round trips daily
leaving the airports at both New York and Boston on every even hour from 8 A.M. to 12 midnight
( except that the last flight leaves Boston at 11 P .M.) Volume of traffic on the Boston - New York
service has been highly gratifying.
A fourth airplane was received from the government in April, 1945 and is being co:r:iverted in
the Company's shops. The completion of this airplane will provide a total of six DC-3 type air-
planes for service over the Company's presently certificated routes. As additional airplanes are
obtained more schedules and new route mileage already certified will be added to that presently
operated.
In anticipation of greatly expanded commercial operations, considerable effort and energy
during the year 1944 was devoted to effecting reorganizations within the Company and to com-
pleting arrangements for the Boston-New York operation. The traffic, sales, advertising, public
reJations, and maintenance departments, as well as other minor departments, have been reorgan.:
iz~d and enlarged. A new office on Airlines Row in the Statler Hotel in Boston designed and
refurbished for complete sales and passenger services, was opened to the public on March 1, 1945.
The modern office in the Copley-Plaza Hotel in Boston is necessary for service to this area and will
be retained. Negotiations were begun in 1944 and concluded in 1945 for the use and occupancy
by your company of space and facilities at LaGuardia Field in New York. Having been officially
notified that no space was available in the Airlines Terminal at New York, we have established a
modern passenger service office in that dty at Park Avenue and 42nd Street, directly across from
the Grand Central Station. This new facility will be occupied and operated jointly by your
company, Pennsylvania-Central Airlines, and Northwest Airlines. This terminal handles all the
ticketing, baggage checking, limousine, and other services customarily provided airline passengers.
In co-operation with all other airlines authorized to operate into New York, preliminary
negotiations were conducted during 1944 for an operating base at New York's new ldlewild Air-
port, now under construction.
In its decision granting your company authorization to operate between Boston and New
York, the Civil Aeronautics Board also authorized stops at New Bedford-Fall River, Worcester,
Waterbury and Newark. On September 29, 1944 Board authorization was secured to operate into
Lawrence, Massachusetts. The Worcester-Fitchburg, New Bedford-Fall River, and Lawrence-
Haverhill-Lowell metropolitan areas are the three largest in the country without air transportation,
and Northeast Airlines, Inc. is the only airline company presently authorized to serve those areas.
On January 5, 1945, the Civil Aeronautics Board issued a certificate to your company to
operate between Boston, Provincetown, Hyannis, Oak Bluffs, and Nantucket. This certificate
together with certain land adjoining the present airport at Nantucket was acquired from May-
flower Airlines, Inc., and schedules over the route will be operated when equipment is available.
During the year, the Company's application, together with those of other applicants to operate
scheduled commercial trans-Atlantic service to numerous North European countries was heard by
the Civil Aeronautics Board. The Company was able to place before the Broad its pioneering




* NORTHEAST AIRLINES, I N C *
achievement.
s in North Atlantic operations as an argument in favor of the award to it of the
certification applied for. The Examiner, without suggesting that Northeast be certificated, recom-
mended to the Board that a northern route to Russia through Labrador, Greenland, Iceland,
Norway and Sweden, for which Northeast had applied, should be certificated. The case is still
pending before the Board and decision is expected sh.ortly.
The Company's application to provide a network of services to 408 communities in the New
England area was amended to include nine new routes not theretofore specifically named and this
application also was heard during the year. On September 22, 1944, the Company applied to the
Board for consolidation of its routes in order to operate, upon compliance with the Board's
regulations, directly between Portland and New York, via Lawrence and Worcester; between
Concord and New York, via Manchester and Worcester; and between Cape Cod and New York.
This application was heard in January, 1945 and was reported favorably by the Examiner in
April,' 1945. No final decision has been rendered in this case.
Continuing its policy of expansion and development of new air routes for the greater conven-
ience of the New England and Canadian flying public, your company filed with the Civil Aero-
nautics Board during 1944, an application seeking authorization to operate between Boston and
Bermuda, a distance of 770 miles, with the hope of linking New England and Eastern Canada
with this winter playground.
Your Company has more recently made application for a route between Boston and New
Orleans, via Philadelphia, Baltimore, Washington, Richmond, Winston-Salem, Charlotte, Green-
ville~ Atlanta, and Montgomery.
New Equipment
A purchase order has been placed with Douglas Aircraft Company for three new four-engine
Douglas DC-4, 56-passenger airplanes with option on six additional. These are ordered for
delivery eleV'en to thirteen months after government restrictions allow the resumption of com-
mercial airplane production.
Pilot Training School
As previously reported, the Civil Aeronautics Administration terminated all contracts for the
training of flight and ground personnel at our Pilot Training School at Burlington, Vermont, as
it did at all schools of this type. Final settlement was made during 1944 of all claims against the
government for our Pilot Training Division. Many of the personnel employed at Burlington were
absorbed into your Company's commercial and military operations. The management of the
Company was successful during the year in selling all school airplanes (except one Stinson), main-
tenance materials, spare parts and airplane equipment of the school at a price exceeding the
total depreciated value.
General
During 1944 the primary aim of the directors, management and employees of your company
has been to aid the war effort. Theoperation over the North Atlantic and Arctic during the last
three years has been fraught with difficulties and uncertainties in respect not only to financial
reimbursement but also to manpower, supplies and equipment. Our contributions to aeronautical
science and our conduct of flying operations during this period have been commended.
Our attention is now devoted to expansion and development of the Company along new routes
and the progressive improvement of our gross and net revenues by providing the best possible
service in our old and new territories.
Boston, Massachusetts
June 6, 1945
For the Directors,
PAUL F. COLLINS, President.
CURRENT ASSETS:
Cash in banks
Receivables, billed or accrued:
Air lines and a gen ts
United States Post Office Department
ASSETS
United States Army Air Force-under operational con-
tracts (note A), less reserve for adjustments, $86,709,
1944; $50,000, 1943 .
Pilots' training school tuition under government contracts
Other receivables, less reserve
Total receivables .
Inventories (at average cost or less):
Aviation fuels and oil and returnable containers
Replacement parts and supplies
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-operating property
Flight equipment-passenger, mail and express service (1944
amount includes aircraft and engines at estimated cost of
$156,100 and cost of aircraft in process of reconversion
$84,119) .
Ground and shop equipment .
Training school property (non-operating at December 31,
1944):
Hangar on land not owned
Flight equipment .
Less reserves for depreciation and amortization
DEPOSITS:
Under lease agreements
For purchase of franchise and land of Mayflower Airlines,
Inc. (acquired in January, 1945).
PREPAID EXPENSES AND DEFERRED CHARGES:
Prepaid insurance
Prepaid rentals
Other .
$
NORTHEAV AIRijNES, INC.
Comparative ~alance SheeL
As at December 31, 1944 and 194 3
December 31
LIABILITIES
1944 1943
648,988.54 $1,621,330.49(B)
21,757.28 44,087.79
40,873.84 41,126.01
687,668.37 515,612.48 (B)
226,280.31 (B)
38,503.65 38,472.03
788,803.14 865,578.62
2,214.83 1,958.48
98,345.10 118,129.55
100,559.93 120,088.03
1,538,351.61 2,606,997.14
30,856.71 30,856.71
53,414.48 38,983.97

i
1

CURRENT LIABILITIES:
Notes payable to bank under loan agreement (note B)
Accounts payable vendors and others
Accrued salaries and wages .
Income and social security taxes withheld
Accrued taxes
Other current liabilities
Total current liabilities
DEFERRED INCOME AND LIABILITY .
RESERVE FOR TAXATION CONTINGENCIES
CAPITAL
COMMON STOCK, par value $1.00 per share, authorized 2,000,000
Decemh,r 31
1944 1943
$ 900,000.00
$ 330,411.30 129,526.75
80,028.05
15,447.19 25,182.46
8,278.31 16,489.91
6,807.16 6,150.51
360,943.96 1,157,377.68
15,006.09 11,780.72
20,000.00 20,000.00
shares, issued and outstanding 500,000 shares 500,000.00 500,000.00
CAPITAL SURPLUS (premium on common stock) 1,498,547.52 1,498,547.52
546,037.89 249,331.25
123,202.72 96,429.22 DEFICIT IN EARNED SURPLUS (since July 1, 1940) (130,593.72) (53,551.83)
120,211.05 119,996.55
15,451.69 125,315.01
858,317.83 630,056.00
266,483.62 219,553.77
591,834.21 410,502.23
50,000.00 50,000.00
17,500.00 2,500.00
67,500.00 52,500.00
j~
15,258.43 14,338.50
~
13,016.65 13,066.65
7,086.24 5,892.86
35,361.32 33,298.01
$2,263,903.85 $3,134,154.09 $2.263,903.85 $3,134,154.09
' The accompanying notes
a
rf J integra. of this statement.
* NORTHEAST AIRLINES, I N C
Statement of Profit and Loss and 'J)eficiL
For Year Ended December 31, 1944
OPERATING REVENUE:
Passengers $ 742,978.06
Air Mail . 316,437.70
Operations under Army Air Force contract (less $25,000.00 pro-
vision for adjustments, note A) . 1,283,898.74
Pilots' training school operations and termination settlement
(contract terminated January 15, 1944) 61,465.58
Other 21,144.11
*
Total operating revenue $2,425,924.19
OPERATING EXPENSES:
Conducting transportation, flying and training operations
Maintenance and repairs (including maintenance of govern-
ment owned and training equipment)
Provision for depreciation and amortization (note C)
Traffic and advertising .
General and administrative .
Taxes other than income taxes
Total operating expenses
Operating profit .
D:r;;PoSALS OF Training School Equipment and Other Capital
Assets in Excess of Depreciated Book Amounts
ADJUSTMENT OF 1943 PILOTS' TRAINING SCHOOL REVENUE
DEDUC'l'IONS FROM INCOME:
Extension and development cost
Additional reserve for adjustments of prior years revenue under
operational contracts (note A) .
Expenses of nonoperating property including $23,000.00
amortization of hangar on land not owned (note C).
Interest expense
Other deductions
Loss for the year .
DEFICIT IN Earned Surplus at Beginning of Year
DEFICIT IN Earned Surplus at End of Year
1,119,754.99
767,740.59
69,978.47
95,493.55
306,537.50
53,776.70
26,293.27
60,000.00
27,784.84
1,341.93
1,299.14
The accompanying notes are an integral part of this statement.
2,413,281.80
12,642.39
11,245.01
15,789.89
39,677.29
116,719.18
77,041.89
53,551.83
$ 130,593.72



* NORTH- EA 5 T AIRLINES, I N C *
7\/ptes to Financial Statements
A-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 1943
and the company believes that no excessive profits from such contracts were realized in 1944.
The company has received orders terminating its operational services under the Army Air Force con-
tract at April 15, 1945.
B -At December 31, 1943 cash $36,250.32 and receivables uhder government war contracts $741,892.79
were pledged as security for notes payable to bank under loan agreement. The loan was paid in
full January 18, 1944.
C - Based on estimates ~f remaining useful life, the company reduced the rates of depreciation for certain
aircraft and equipment effective January 1, 1944, with the result that depreciation expense for 1944 on
this equipment was approximately $34,000 less than it would have been under the rates previously
used. The rate of amortization of the hangar for training school (nonoperating property as at De-
cember 31, 1944) was changed from 10% to 20% per annum effective January 1, 1944 with the
result that amortization for 1944, $24,000.00, was $12,000.00 greater than it would have been if
accrued at the rate used in 1943.
D - In 1945 the company has purchased additional flight equipment at estimated cost reconverted of
$200,000 and has entered orders for new aircraft at prices aggregating not over $1,200,000 .
* NORTHEAST AIRLINES,
NORTHEAST AIRLINES, lNc.,
Boston, Massachusetts.
J.uditors' 'lv!port.,
I N C *
We have examined the accompanying comparative balance sheet of Northeast Airlines, Inc. as at
December 31, 1944 and 1943 and statement of profit and loss and deficit for the year ended December 31,
1944, 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 note A to the financial statements. In other respects our
examination was made in accordance with generally accepted auditing standards applicable in the cir-
cumstances and included all procedures which we considered necessary.
As indicated in note A to the financial statements the amounts receivable and the revenue under
certain government contracts are subject to possible adjustme~ts which may result from governmental audits
of costs chargeable under contracts.
Subject to the foregoing explanation, said financial statements, in our opinion, present fairly the position
of Northeast Airlines, Inc. at December 31, 1944 and 1943 and the results of its operations for the year ended
December 31, 1944 in conformity with generally accepted accounting principles applied, except as to changes
in depreciation and amortization rates described in note C, on a basis consistent with that of the preceding
year.
LYBRAND, ROSS BROS. & MONTGOMERY
Boston, Massachusetts
March 14, 1945