Northeast Airlines Annual Report 1945

~~
OF
NORTHEAST AIRLINES
INC.
FOR THE YEAR
fJ45
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NORTHEAST AIRLINES,
INC.
FOR THE YEAR ENDED DECEMBER 31,
1945
NORTHEAST AIRLINES,
INC.
~oard of "'Directors
PAUL F. COLLINS, Chairman
RA.nu lRIMEscu
New York, N. Y.
jACQ.UELINE COCHRAN
New York, N. Y.
H. LEROY SWIMM
Boston, Mass.
PAUL F. COLLINS .
MILTON H. ANDERSON
H. LEROY SWIMM
RICHARD ELY
ELY, BRADFORD, THOMPSON & BROWN
LYBRAND, Ross BRos. & MONTGOMERY
OLD COLONY TRUST COMPANY .
THE FIRST NATIONAL BANK OF BOSTON
JAMES F. FITZGERALD
Boston, Mass.
EUGENE L. VIDAL
New York, N. Y.
MILTON H. ANDERSON
Boston, Mass.
Officers
*
President and Chairman of Board
Vice President and General Manager
. Treasurer and Assistant Clerk of Corporation
. Clerk of Corporation
General Legal 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 submits its Annual Report for the year ended December 31, 1945
including a Comparative Balance Sheet of the Company as at December 31, 1945 and 1944, and
a statement of Profit and Loss and Deficit for the year ended December 31, 1945, together with
the certificate of the Company's independent auditors, Lybrand, Ross Bros. & Montgomery.
Financial
Operations for the year 1945 resulted in a loss of $166,321. after provision of $213,079. for
depreciation and amortization. The loss is attributed primarily to the nonrecurring expense inci-
dental to the transition from military to commercial operation and expansion of commercial
flying and routes; the reduction of fares on the Boston-New York operation from 5.5 to 4.4 per
mile to meet competitive fares.
The year 1945 was marked by the termination of our military contract and by broad expan-
sion in our domestic flying operations. Percentagewise this expansion was greater than that of
any other domestic carrier. Passenger miles flown increased from 12,848,222 in 1944 to 38,939,107
in 1945 and gross revenues other than from army contracts from $1,080,560. in 1944 to $2,417,753.
in 1945.
Army Contract
At the end of 1944 there remained unsettled many controversial items relative to government
reimbursement of indirect and overhead expenses incurred by the Company during its military
operations. These items have been adjusted to the satisfaction of both the Army and the Company
by new amendments to the war contract clarifying these differences of interpretation. These new
amendments, the Company believes, will aid us in obtaining reimbursement of costs to which the
Company believes it is entitled. A substantial reimbursement of costs has already been received.
Operational services of the Company under the military contract were terminated as of April
15, 1945 and the contract was terminated March 2, 1946. The majority of the Company's per-
sonnel and facilities previously employed for military operations were absorbed by the commercial
operations, thus providing personnel and equipment at a time when it was difficult to obtain
trained personnel or equipment.
We quote the following excerpt from a letter under date of April 17, 1946 from the Assistant
Secretary of War, as a fitting conclusion to our war activities:
"The wholehearted cooperation rendered by Northeast Airlines, Inc., to the Army Air Forces
is very gratifying. Early in 1942 Northeast Airlines inaugurated transport services which
linked the American forces in Canada, Newfoundland, and ultimately Greenland and Ice-
land, with the United States. In one instance it moved the contractor's personnel and sup-
plies which were essential to the construction of an airport. Northeast flew a dangerous
mission to Arctic Bay in the spring of 1943 in order to remove sick personnel from the weather
station there. In the early days of the war it moved combat troops in Iceland in anticipation
of an enemy raid. These servic_
es contributed materially to the success of the Army Air Forces
in meeting the air transportation requirements of our Army, and your company has thus
made a fine contribution to the defense of our country and victory over its enemies.
"The Commanding General, Army Air Forces, joins me in extending to Northeast Airlines,
Inc., and its employees our sincere gratitude and appreciation for the task performed during
the war just ended."
Property and Equipment
On January 1, 1945 flying equipment consisted of three DC-3's, two of 21 passenger capacity
and one of 24 passenger capacity. By the end of the year flying equipment comprised six DC-3's,
five of which were 24 passenger planes, (including four converted in our own shops) and one 21
passenger plane with an adequate supply of spare engines, propellers, and accessories. This equip-
ment increased available passenger capacity by 116%.
During the fall of 1945 the Company constructed a complete engine overhaul shop in Hangar
No. 3, capable of handling sixty engines each month. This new facility should materially reduce
costs of engine overhaul previously done by outside agencies.
* NORTHEAST AIRLINES, I N C *
Reservation and space control facilities were greatly enlarged and improved both in Boston
and New York. Traffic and administration offices were opened at 500 Fifth Avenue, New York,
and Northeast, together with Northwest and Pennsylvania-Central Airlines, opened a most
attractive airlines terminal opposite the Grand Central Station on 42nd Street, New York.
Mail Pay
The Company filed a rate petition with the Civil Aeronautics Board in May, 1945 asking for
the determination of a proper rate of mail pay on the Boston-New York route, then known as
Route No. 65. The Civil Aeronautics Board ordered that a system rate be set instead of a rate
for the one route only, and issued its Tentative Findings on April 1, 1946. This report recom-
mended a rate of 18.65 per airplane mile for the period from May 1 to October 31, 1945; the
same base rate for the period November 1, 1945 through April 30, 1946; and a rate of 14.37
thereafter. Your company filed an answer accepting the rate beginning May 1, 1946 but pro-
tested the rate offered for the previous periods, believing that this rate should have been approxi-
mately 23 per mile. A hearing will be held before an Examiner for the Civil Aeronautics Board
in the near future.
Route Authorizations
The Company's 1944 application for route consolidation resulted in a consolidation of Routes
27, 65 and 70 by the Civil Aeronautics Board's decision which became effective October 18, 1945
with the affixing of President Truman's signature. Route 27 is now composed of three segments,
namely, New York and Newark to the terminal Caribou, Maine, via Waterbury, Worcester,
Boston, Lawrence, Portland, and other intermediates; New York and Newark to the terminal
Boston via New Bedford and four Cape points Provincetown, Hyannis, Martha's Vineyard and
Nantucket; and Boston to Burlington, Vermont. Route No. 27-F covers the foreign segments of
Burlington to Montreal, and Bangor to Moncton, New Brunswick. Alterations and extensions
may be made by the Board to Route No. 27 without the President's signature since it is now only
domestic in scope. Your company is now in a position to secure non-stop service privileges between
any two points on the New York-Caribou segment. This permitted the recent inauguration of the
important Portland-Lawrence-Worcester-Newark schedules, as well as a non-stop Portland-
Newark schedule.
Canada's scheduled air services recently came under the control of the Air Transport Board,
a regulatory body somewhat similar to the Civil Aeronautics Board of the United States. Your
company participated in a hearing before the Air Transport Board in Ottawa on March 11,
1946, and received proper license authorizations in that Board's decision of May 3, 1946. These
licenses were issued in accordance with the terms of the United States-Canada Civil Air Agreement
of February 19, 1945 and by virtue of the nomination of your company by the United States
Government for operation over two of the routes specified in that Agreement.
New Routes
Continuing its policy of expansion and development of new air service, your company filed in
1945 application for an important extension of Route No. 27 from New York and Newark to
Washington, D. C., via Philadelphia and Baltimore, together with authorization to serve Provi-
dence, Rhode Island, Hartford, Connecticut and Springfield, Mass. This application was con-
solidated with others in the so-called Middle Atlantic Area Case and lengthy hearings were con-
cluded in March, 1946. The management believes a strong and logical case was presented by the
Company during this proceeding.
The Company's application for an extension to New Orleans has been amended to cover
Philadelphia, Baltimore, Washington, D. C., Charlottesville, Lynchburg, Winston-Salem, Ashe-
ville, Atlanta, and Montgomery as intermediates. Hearings on this application were held in June
and are continuing at the present time before Examiners of the Civil Aeronautics Board.
The Board denied the Company's application for North Atlantic Routes, ' on the basis that
only the largest carriers were sufficiently strong to weather the formative period and the intense
foreign competition.
* NORTHEAST AIRLINES, I N C *
No action has been taken by the Board as yet to arrange a hearing on your Company's appli-
cations for Boston-Bermuda route nor to provide a new opportunity to hear its New York to Pitts-
burgh and Chicago application.
New Routes Awarded
In a recent decision in the so-called New England Case, the Civil Aeronautics Board author-
ized your company to provide service on a number of new routes, and designated ~uch cities as
Providence, Hartford, Springfield, New London, New Haven, Bridgeport, and many others,
as stops on these routes. Service will be instituted as soon as additional equipment and adequate
airport facilities become available. Northeast Airlines will then serve every large community
in New England.
Merger
After a thorough study your company entered into an agreement to merge with Pennsylvania-
Central Airlines. Terms were 2 shares of Northeast for 1 share of Pennsylvania-Central. Stock-
holders of both companies have approved the merger.
The case was presented before an examiner of the Civil Aeronautics Board in April and Public
Counsel rendered a favorable report. We are awaiting the Examiner's Report which should be
forthcoming in the near future. After oral argument before the Board a final decision should be
handed down sometime this Fall.
Outlook for 1946
Your company has every hope that its increase, percentagewise, over the previous year in
passenger miles flown and gross revenues will again exceed that of any other domestic carrier.
The first five months of 1946 showed an increase in revenue passenger miles flown of 221 %
over 1945. Further increase should be achieved with the operation of three 4-engine 60-passenger
planes flying non-stop between Boston and New York and three additional 30-passenger DC-3's
augmenting schedules on other divisions.
The opening of three large productive areas, namely, the Worcester-Fitchburg-Leominster,
the Lawrence-Haverhill-Lowell, and the New Bedford-Fall River areas, all with excellent air-
ports, provide service for an additional million New Englanders heretofore without air service or
adequate ground transportation.
The Cape Cod and Island service was inaugurated on June 20th and should receive excellent
seasonal patronage.
Our proposed construction of a large hangar and central operating base on the newly con-
structed Logan International Airport, heretofore impossible, should reduce operating costs and
increase overall efficiency.
Although rapid expansion has produced some irregularities of service, there has been no let-
down in observance of rules for safety of flight. Your management believes that within two years,
perfection of new flying techniques and installation and utilization of aids presently becoming
available will provide greatly increased regularity of service without compromise with safety.
Conclusion
The immediate acceptance by the public of our Boston-New York service despite the severest
competition in the industry has been a source of inspiration to your management and any improve-
ments made by your company during this past year should be credited in great part to the loyalty
and ever increasing diligence of our personnel.
The directors and management express their appreciation of the interest and support of our
stockholders, and for the cooperation of our employees. We look forward to further improvements
in our service which will merit the continuing goodwill of the public.
Boston, Massachusetts
June 29, 1946
For the Board of Directors,
PAUL F. COLLINS, President.
ASSETS
CURRENT ASSETS:
Cash in banks
Receivables, billed or accrued:
Airlines and agents .
United States Post OffiGe Department
United States Army Air Forces-under operational con-
tracts (note A) less $86,709 reserve for adjustments at
December 31, 1945 and 1944
Note receivable from sale of hangar due June 1, 1946
Other receivables, less reserve .
Total receivables
Inventories (at average cost or less):
Aviation fuels and oil
Replacement parts and supplies
Total inventories
Total current assets .
Note Receivable from Sale of Hangar, due in 1947
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 (of
which $675,000 was pledged against note payable at Decem-
31, 1945)
Ground and shop equipment
N onoperating property:
Hangar on ]and not owned
Flight and radio equipment
Land .
Less reserves for depreciation and amortization
Property and equipment less reserves
DEPOSITS:
Escrow deposit under lease agreements ($13,800 received in
1946, balance to become available in 1948 or prior) .
For purchase of franchise and land from Mayflower Airlines,
Inc. acquired in January, 1945
Total deposits
PREPAID EXPENSES AND DEFERRED CHARGES:
Unexpired insurance
Prepaid rentals
Work orders in progress
Other deferred charges and prepayments .
Total prepaid expenses and deferred charges
Franchise acquired from Mayflower Airlines, Inc.
NORTHEAST AIRLINES, INC.
Comparative 'Balance Sheet
As at December 31, 1945 and 1944
December 31 I
l
LIABILITIES
CURRENT LIABILITIES:
1945
$ 185,572.05
199,920.92
164,105.30
459,788.80
20,000.00
62,637.75
906,452.77
2,896.34
262,023.37
264,919.71
1,356,944.53
30,000.00
30,856.71
113,014.30
1,128,413.01
221,756.25
35,769.92
8,300.00
1,507,253.48
360,563.84
1,146,689.64
50,000.00
50,000.00
22,967.17
12,914.65
5,286.08
10,852.63
52,020.53
9,200.00
$2,675,71 L41
1944
$ 648,988.54
21,757.28
40,873.84
687,668.37
38,503.65
788,803.14
2,214.83
98,345.10
100,559.93
1,538,351.61
30,856.71
53,414.48
546,037.89
123,202.72
120,211.05
15,451.69
858,317.83
266,483.62
591,834.21
50,000.00
17,500.00
67,500.00
15,258.43
13,016.65
1,910.09
5,176.15
35,361.32
$2,263,903.85
Note payable to bank with chattel mortgage on aircraft and
equipment-instalments payable in 1946
Accounts payable-vend.ors and others
Accrued salaries and wages
Income and social security taxes withheld
Accrued taxes
Unearned transportation revenue
Other current liabilities
Total current liabilities
Note payable to bank with chattel mortgage on aircraft and
equipment-instalments payable in 1947
Reserve for aircraft overhaul .
Reserve for taxation contingencies
Contingent liabilities-refer to note B to financial statements .
CAPITAL
COMMON STOCK, par value $1.00 per share, authorized 2,000,000
shares, issued and outstanding 500,000 shares .
CAPITAL SURPLUS (premium on common stock) .
DEFICIT IN EARNED SURPLUS (since July 1, 1940)
The accompanying notes are an integral part of this statement.
$
December 31
1945
180,000.00
486,557.53
36,827.17
21,403.77
13,227.19
61,672.54
14,777.49
814,465.69
120,000.00
19,612.73
20,000.00
500,000.00
1,498,547.52
(296,914.53)
1944
$ 330,411.30
15,447.19
8,278.31
15,006.09
6,807.16
375,950.05
20,000.00
500,000.00
1,498,547.52
(130,593.72)
$2,675,711.41 $2,263,903.85
* NORTHEAST AIRLINES, I N C
Statement of Profit and Loss and 7Jeficit..J
For Year Ended December 31, 1945
OPERATING REVENUE:
Passengers
Air mail .
Operations under Army Air Force contract (note A)
Other
Total operating revenue
OPERATING EXPENSES:
$1,945,443.76
431,992.76
293,727.26
40,316.76
Conducting transportation and flying operations 1,259,628.47
Maintenance and repairs (including maintenance of govern-
ment owned equipment) . 753,000.58
Provision for depreciation and amortization (note C) 203,078.57
Traffic and advertising . 366,137.02
General and administrative 285,805.34
Taxes other than income taxes 58,503.74
*
$2,711,480.54
Total operating expenses 2,926,153.72
Operating loss . 214,673.18
NET GAINS from sales and retirements of property and equip-
ment .
DEDUCTIONS FROM INCOME:
Extension and development cost .
Expenses of nonoperating property including $10,000.00
amortization of hangar on land not owned
Interest expense
Other deductions
Loss for the year
DEFICIT IN Earned Surplus at Beginning of Year
DEFICIT IN Earned Surplus at End of Year .
8,526.32
15,138.36
812.43
684.13
The accompanying notes are an integral part of this statement.
73,513.61
141,159.57
25,161.24
166,320.81
130,593.72
$ 296,914.53
* NORTHEAST AIRLINES, I N C *
7\[ptes to Financial Statements
A - The amounts receivable and the revenue under operational contracts with the United States
Army Air Forces are subject to possible adjustments which may result from governmental
audit of costs chargeable under the contracts. The company has made provisions in a
reserve for such adjustments in an amount which the. company believes, based on con-
tract amendments agreed upon in 1946, will prove adequate. Operational services under
the Army Air Forces contract were terminated April 15, 1945 and the contract was
terminated March 2, 1946.
B - The Commonwealth of Massachusetts has submitted charges of $24,575 for landing fees at
the East Boston Airport for the period December 1, 1941 to December 31, 1945. The
company disclaims any liability and has made no provision therefor in the accompanying
financial statements.
C - Beginning with the month of September, 1945 depreciation provisions on four Douglas
DC 3 aircraft were at a rate based on an estimated three-year life instead of the estimated
five-year life used from January 1, 1944 to that date, with the result that depreciation
expense for 1945 was approximately $33,000 greater than it would have been had the
rate based on a five-year life been used throughout the year.
D - The company has made arrangements for purchase in 1946 from Pennsylvania-Central
Airlines Corporation on a conditional sales basis of 3 DC 4 type planes and 3 DC 3 type
planes and spare equipment at an estimated aggregate cost of $1,200,000.
* NOR f f H EAST AIRLINES, I N C
J.uditors' 'lv!port..,
NoRTHEAST AIRLINES, lNc.,
Boston, Massachusetts.
We have examined the accompanying comparative balance sheet of North-
east Airlines, Inc. as at December 31, 1945 and 1944 and statement of profit and
loss and deficit for the year ended December 31, 1945, have reviewed the sys-
tem 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 circumstances 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
adjustments 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, 1945 and 1944 and the results of its operations for the year ended December
31, 1945 in conformity with generally accepted accounting principles applied,
except as to changes in depreciation rates described in note C, on a basis con-
sistent with that of the preceding year.
Boston, Massachusetts
May 22, 1946
LYBRAND, Ross BRos. & MONTGOMERY
*
* NORTHEAST AIRLINES, I N C *
Comparative Statistics
1st 5 Mos.
1940 1941 1942 1943 1944 1945 1946
Revenue Miles Flown 887,625 1,268,257 750,278 727,713 1,023,737 2,287,366 1,270,842
Completion of Sched-
uled Miles ......... 84.43% 84.04% 79.45% 79.10% 83.87% 83.61 % 82.88%
Passenger Revenue .... $226,684 $378,569 $309,813 $533,972 $759,623 $1,945,444 $1,207,125
Revenue Passengers
Carried ............ 27,623 42,546 26,446 36,263 53,766 175,608 119,612
Revenue Passenger
Miles .............. 4,112,273 7,074,920 5,383,171 9,090,063 12,848,222 38,939,107 24,410,366
System Load Factor ... 46.38% 38.39% 35.94% 59.52% 59.14% 74.47% 75.33%
Passenger Revenue Per
Plane Mile ......... $.2554 .2985 .4129 .7338 .7420 .8505 .9498
Revenue Per Passenger
Mile .............. $.0503 .0535 .0576 .0587 .0591 .0500 .0495
MONTREAL
,o OTTAWA
ANO llll 1111
TO QUIIIC
_.mlN CANADA AND SAOVINAY
PRESQUE ISLE
<~~-~-
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:;,-~_-:;.
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The Wings of New England, now operates 4-engine
4-mile-a-minute non-stop daily service ... Boston-
New York one hour . in deluxe 60-passenger
Douglas Skymasters.
With the addition of these comfortable ultra-modern airliners
and more DC-3's, Northeast's new and more frequent service
connecting metropolitan New York and Boston with New
England, Montreal and the Maritime Provinces includes:
BOSTON - NEW YORK . frequent daily non - stop
round-trip flights - 65 minutes flying time! More
seats today with NEA.
New daily flights from New York (Newark) to Worcester~
Lawrence and the vacation centers of New England and the
Maritime Provinces.
',<
w_,1ae.A61
Noll I AIRLINE!i?
New daily flights connecting Boston and New York
(Newark) ~ith New Bedford, Nantucket, Martha's
Vineyard and Hyannis.
Boston Ticket Offices
HOTEL STATLER
COPLEY PLAZA
Call EASt Boston 4100
Treasury OfRces
New York Ticket Office
AIRLINES TERMINAL ANNE>l
Call
BOwling Green 9-17 40
1 Stole Street, loston 9
"DO MORE IN LESS TIME" Gn~rol Offices Logan Airport, Boston 28
New Yori Office 500 fifth Avenue
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