Northeast Airlines Annual Report 1946

NORTHEAST AIRLINES,
INC .
. Jnnual 'Jv!port
FOR THE YEAR ENDED DECEMBER 31,
1946
NORTHEAST AIRLINES,
INC.
'Board of 'Directors
PAUL F. COLLINS, Chairman
RADU lRIMESCU
New York, N. Y.
J ACQ,UELINE COCHRAN
New York, N. Y.
H. LEROY SWIMM
Boston, Mass.
PAUL F. COLLINS .
MILTON H. ANDERSON
H. LEROY SWIMM.
RICHARD ELY
FOLEY, HOAG AND ELIOT
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, BosTON 28, MAss.
Treasury and Accounting Offices, 1 STATE STREET, BosTON 9, MASS.
l
I,
'
To THE STOCKHOLDERS OF
NORTHEAST AIRLINES, INC.
The Board of Directors submits its Annual Report for the year ended December 31, 1946.
Financial
Your company, for the year 1946, showed an overall profit after taxes of $190,707.53. There
was a loss of $67,564.99 as a result of operations, which however was more than made up as a
result of other income including tentative retroactive mail pay for the year 1945. The results for
the year as above reported were after provision for depreciation and amortization of $643,187.68.
Herewith you will find as a part of this Director's report for the year ended December 31,
1946, comparative balance sheets as of December 31, 1946 and December 31, 1945; and a state-
ment of profit and loss for the year ended December 31, 1946, which includes therein a statement
of the deficit in earned surplus at the beginning of the year and the reduced amount thereof as
of the end of the year. Included is the certificate of the Company's auditor, Lybrand, Ross
Bros. & Montgomery.
Passenger revenues in 1946 were $4,256,115 compared with $1,945,444 in the prior year.
However, expenses increased substantially during the year due to the general rise in prices of
material, wages and services.
In common with the industry, your company experienced a decJine in demand for its
services in the fourth quarter of 1946. During the same period weather conditions were
abnormally poor, leading to many flight cancellations.
Army Contract
Your company executed a termination agreement with the Army Air Forces in connection
with their War Contracts which were in effect during the years, 1942, 1943, 1944, and 1945,
and the Company has received satisfactory reimbursement of costs.
Property and Equipment
On January 1, 1946, flying equipment consisted of six DC-3's, five of which were 24-passenger
planes, including four converted in our own shops, and one 21-passenger plane, all with an
adequate supply of spare engines, propellers, and accessories. During 1946, the Company sold
the 21-passenger DC-3 plane and replacetj. it with a 24-passenger plane converted in our own
shops. In addition, three DC-4 Deluxe four-engine Douglas Skymasters were purchased, each
having sixty passenger seats. The Company also purchased five DC-3's of 29 passenger capacity,
bringing our fleet to a total of fourteen planes at the end of 1946, consisting of six DC-3 twenty-
four passenger, five DC-3 twenty-nine passenger, and three DC-4 Douglas Skymasters of sixty
passenger capacity.
During 1946 the Company entered into an agreement for the loan of sums up to but not in
excess of $1,250,000 to provide money for the construction of a modern hangar at the East Boston
Airport; the purchase of two planes, together with engines and equipment; the tepay,ment of loans
held by a Boston bank; and the furnishing of additional working capital.
Mail Pay
On April 1, 1946, the Civil Aeronautics Board, in a proceeding commenced on petition of
Northeast and, on order of the Board, issued an order proposing an increase in your company's
mail compensation retroactive to May 1, 1945. The rates tentatively established by the Board
were, in the opinion of the management, inadequate to meet the requirements of the statute.
* NORTHEAST AIRLINES, INC. *
The Company therefore filed notice of objections with the Civil Aeronautics Board, and on
December 31, 1946, after some interim proceedings, it filed a substitute answer to accompany
its notice of objections, requesting higher rates.
Meanwhile, Northeast's effective mail pay rate continued until December 6, 1946, at the
old, comparatively low level that had been in effect immediately prior to the issuance of the order.
On July 11, 1946, the Company filed a motion which, in effect, asked that during the pendency
of the proceedings payment be made at the proposed rates set forth in the order. This motion was
at first denied by the Board, but was subsequently reconsidered. On December 6, 1946, the Board
ordered that the rates proposed in the April 1 order should (subject to later adjustment, and
tentatively) be the basis of current payments and be treated as having been in effect since May
1, 1945, while the proceedings remain open pending the determination of a permanent rate.
Subsequent to the close of the year, the Board, on Northeast's motion and by order dated March
18, 1947, directed a substantial increase in these temporary tentative rates subject to similar later
adjustment.
Merger with Pennsylvania-Central
The agreement dated November 9th, 1945 relating to a merger between Northeast Airlines,
Inc. and Pennsylvania-Central Airlines Corporation was terminated and voided by mutual
consent. The passage of time incident to carrying out the merger brought about changed con-
ditions not only in the air transport industry generally but also in the different relative positions
of thetwo companies and their securities. As shown by this Report, your Company succeeded
in pretty well preserving its capital and surplus. As a consequence, the terms of the merger would
have had to be renegotiated, and this in turn would have had to await the working out of the
financial plans of the respective companies. Now your Company is free to develop its financial
plans without considering the restrictive provisions of this merger a~eement.
Routes
The Company continues to operate over Routes No. 27 and No. 27-F. Route No. 27 is
composed of five segments, namely, (1) between the co-terminals New York, New York, and
Newark, New Jersey, and the terminal Caribou, Maine, via Waterbury, Connecticut; Worcester,
Boston and Lawrence, Massachusetts; Portland, Maine, and other intermediate points; (2)
between the co-terminals New York, New York, and Newark, New Jersey, and the terminal
Boston, Massachusetts, via New ,London, Connecticut, and Providence, Rhode Island, and
between Providence and Boston, either direct or via New Bedford, Massachusetts, and Cape
points; (3) between the terminal Boston, Massachusetts, and Burlington, Vermont, via various
intermediates; (4) between the co-terminals New York, New York, and Newark, New Jersey,
and the terminal White River Junction, Vermont, via New Haven, Connecticut; Springfield,
Massachusetts; Keene, New Hampshire, and other intermediates; and (5) between Portland,
Maine, and Burlington, Vermont, via Lewiston-Auburn, Maine; Berlin, New Hampshire;
Montpelier, Vermont, and other intermediates. Route No. 27-F runs between Burlington,
Vermont, and Montreal, Canada, and between Bangor, Maine, and Moncton, New Brunswick.
Certain of these segments are flown and cities served as a result of the Civil Aeronautics
Board's decision in the so-called New England Case, in which, as indicated in last year's report,
the Board in June, 1946 authorized the Company to provide numerous new services. Other of
the Company's new services in 1946 had been authorized in earlier proceedings but could not be
inaugurated sooner because flight equipment was not obtainable. Accordingly, the Company's
operations and service were increased during the year 1946 as follows: Resumption of service
at Lewiston-Auburn, and Waterville, Maine; inauguration of service at Lawrence (serving
Lowell and Haverhill), and Worcester, Massachusetts, Newark, New Jersey, and Portsmouth,
* NORTHEAST AIRLINES, INC. *
New Hampshire; inauguration of service to the heavily travelled vacation areas of Hyannis,
Nantucket, and Martha's Vineyard, Massachusetts, subsequently adding Providence, Rhode
Island, and New Bedford, Massachusetts to this service; and inauguration of service over a new
route between New York, Springfield, Massachusetts, and Keene, New Hampshire.
The Company's application for extension of its route system to Washington was heard before
Examiners
of the Civil Aeronautics Board during 1946, and a brief was filed on behalf of the
Company before the end of the year; and the same is true of the Company's application for ~:q
extension of its route system . .to New Orleans. Examiners' reports have Tecently been issued . in
these two proceedings recommending denial of the Company's applications. Exceptions have
been taken and the matter is now pending before the Board.
No action has been taken by the Board with respect to the Company's applications for a
route between Boston and Bermuda, and for a route between New York and Chicago.
During the year the Company filed an application for routes between Boston and Quebec
and New York and Quebec but no hearing .has yet been held.
Conclusion
The past year which was one of industry-wide readjustment was marked by a broad expansion
in operations of Northeast. Passengers carried, passenger miles, and revenue miles more than
doubled.
As previously mentioned, mounting costs were one of our major problems in 1946. Your
Company's position, however, improved, due in part to expense reduction achieved through
budgetary control and should continue to improve as a result of concentration of presently-
scattered operations into the new hangar and service building now under construction at the
Logan International Airport.
The Directors and Management again wish to express their appreciation for the interesl
and support of the stockholders and for the cooperation of our employees, which has made it
possible to fly 180,293,458 passenger miles since Northeast Airlines was established in 1933
without passenger injury.
It is expected that the Company's financial plan can be placed before the stockholders at
an early date, at which time the business will also be transacted that normally is laid before the
stockholders at their annual meeting.
Boston, Massachusetts
June 2, 1947
For the Board of Directors,
PAUL F. COLLINS, President.
CURRENT ASSETS:
Cash in banks .
Receivables:
Airlines and agents
ASSETS
United States Post Office Department (note A)
United States Army Air Forces under operational con-
tracts, less reserve
Note receivable
Other receivables
Total receivables
Inventories of supplies and replacement parts (at average
cost or less)
Total current assets
Account receivable from United States Post Office Department,
determined March 18, 1947 by order of the Civil Aeronautics
Board on that date, for increase in air mail revenue for the
years 1945 and 1946 (note A)
Total current assets as they would have appeared if
the foregoing retroactive increase in air mail revenue
had been receivable at December 31, 1946 (note A)
Note receivable, due in 1947 ($25,000 paid in 1946)
Claim for refund of 1942 federal income taxes
PROPERTY AND EQUIPMENT, AT CosT:
Improvements to real estate not owned-operating property
Flight equipment (of which $1,850,000 at December 31, 1946
and $675,000 at December 31, 1945 were pledged against
notes payable)
Flight equipment spare parts
Ground and shop equipment
Construction in progress
Nonoperating property (including land, $8,300)
Less reserves for depreciation and amortization
Escrow deposit under lease agreement ($32,000 receivable in
1947)
Unexpired insurance and other prepaid expenses and deferred
charges
Franchise and route extension costs, less amortization
NORTHEAST AIRLINES, INC.
Comparative 'Balance Sheet
As at December 31, 1946 (note A)
and
December 31, 1945
December 31
LIABILITIES
CURRENT LIABILITIES:
1946
$ 166,664.05
247,468.04
347,218.32
5,000.00
126,090.59
725,776.95
117,696.36
1,010,137.36
576,090.20
1,586,227.56
137,789.22
2,393,475.88
317,349.91
366,663.58
92,350.03
8,300.00
3,315,928.62
899,975.47
2,415,953.15
36,200.00
53,910.45
20,924.10
$4,113,215.26
1945
$ 185,572.05
199,920.92
164,105.30
459,788.80
20,000.00
62,637.75
906,452.77
82,243.58
1,174,268.40
1,174,268.40
30,000.00
30,856.71
113,014.30
1,128,413.01
182,676.13
221,756.25
5,286.08
44,069.92
1,695,215.69
360,563.84
1,334,651.85
50,000.00
46,734.45
9,200.00
$2,675,711.41
Notes payable with liens on flight equipment:
Held by bank
Held by others (note B)
Accounts payable-vendors and others
Accrued salaries and wages .
Taxes withheld from employees, not yet remitted
Accrued payroll and other taxes .
Unearned transportation revenue
Total current liabilities
Note payable to bank, due in 1947
Reserve for aircraft overhaul .
Provision for possible federal income taxes (note A)
Contingent liabilities (note C)
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), giving effect as
of December 31, 1946 to retroactive increase in air mail
revenue determined March 18, 1947 ($576,090.20 less
$25,000.00 tax provision, note A)
The accompanying notes are an integral part of this statement.
December 31
1946 1945
$ 120,000.00 $ 180,000.00
919,445.00
974,973.46 501,335.02
80,763.13 36,827.17
20,707.69 21,403.77
24,302.07 13,227.19
54,673.32 61,672.54
2,194,864.67 814,465.69
120,000.00
1,010.07 19,612.73
25,000.00 20,000.00
500,000.00 500,000.00
1,498,547.52 - 1,498,547.52
(106,207.00) (296,914.53)
$4,113,215.26 $2,675,711.41
* N O R. T H E A S T A I R L I N E S , I N C .
Statement of Profit and o(oss and '7Jeficit..,
For the Year Ended December 31, 1946 ( note A)
OPERA TING REVENUE:
Passengers
Air mail:
Revenue under rate in effect during year
Increase in revenue for the year under rate adjustment
ordered March 18, 1947 (note A)
Express and freight
Other
Total operating revenue
OPERATING EXPENSES:
Conducting transportation
Maintenance and repairs
Provision for depreciation and amortization
Traffic and advertising .
General and administrative .
Taxes other than income taxes
Total opera ting expenses
Operating loss
NET GAINS from sales and retirements of property and equipment
Other income
Less interest ($31,191) and other charges
PROVISION for possible federal income tax (note A)
Loss for the year after giving effect to the retroactive
increase in air mail revenue explained in note A
CREDITS in respect of prior years:
Increased air mail revenue for the year 1945 under rate ad-
justment ordered March 18, 1947 (note A) .
U nrequired portion of reserves provided in prior years against
revenues under Army Air Forces operational contracts, less
$9,486 related federal income tax .
Unrequired reserve for prior year taxation contingencies
Net reduction of deficit
DEFICIT IN EARNED SURPLUS at .Beginning of Year
DEFICIT IN EARNED SURPLUS at End of Year .
$ 451,323.14
472,212.36
2,210,591.61
1,304,886.57
643,187.68
642,582.39
423,560.23
107,272.38
75,696.96
7,711.39
83,408.35
34,789.59
103,877.84
110,775.92
20,000.00
The accompanying notes are an integral part of this statement.
*
$4,256,115.72
923,535.50
71,299.90
13,564.75
5,264,515.87
5,332,080.86
67,564.99
48,618.76
18,946.23
25,000.00
43,946.23
234,653.76
190,707.53
296,914.53
$ 106,207.00
* NORTHEAST AIRLINES, INC. *
1\[otes to Financial Statements
A - EFFECT OF RETROACTIVE INCREASE IN AIR MAIL REVENUES
The financial statements as at December 31, 1946 give effect to increased compensation
receivable from the United States Post Office Department for air mail carried by the
company during the period from May 1, 1945 to December 31, 1946 computed at the
temporary rate fixed by the Civil Aeronautics Board by its order dated March 18, 194 7.
The Board's proceedings remain open pending an order fixing a final rate retroactive to
May 1, 1945.
Of the $576,090.20 additional air mail revenue computed on the basis of the increased tempo-
rary rate and given effect in the financial statements, $103,877.84 is in respect of 1945
operations and $472,212.36 is in respect of 1946 operations.
Effect has also been given in the accompanying financial statements to $25,000 provision for
federal income tax which might be payable in 1948 as a result of the retroactive increase in
air mail revenue.
B-NOTES PAYABLE AND CREDIT AGREEMENT
Notes payable held by others at December 31, 1946 comprise $143,800 notes payable due
October 7, 1947 to Salta Holding Corporation, a subsidiary of Atlas Corporation; and
$775,645 notes payable which have since been acquired by Salta Holding Corporation
and which since December 1; 1946 have been in default with respect to payment of monthly
instalments of principal. Title to flight equipment acquired by the company from issue
of these riotes is retained by the holder of the notes as security therefor.
At December 31, 1946 the company entered into a loan agreement under which Atlas
Corporation, a stockholder, will lend to the company sums not to exceed $1,250,000 to
be evidenced by 3% notes payable over a period of one year or less with liens on aircraft
and on certain property and equipment (including the hangar) to be acquired in 194 7.
Proceeds from borrowings are to be used, under the terms of this credit agreement, for
construction of a hangar on leased land, for purchase of two aircraft, for payment of the
note held by bank December 31, 1946 and for additional working capital.
C - CONTINGENT LIABILITIES
The Commonwealth of Massachusetts has submitted charges of $27,100 for landing fees at
Logan International Airport, East Boston for the period December 1, 1941 to February
28, 1946. The company disclaims this liability and has made no provision therefor in the
accompanying financial statements. Landing fees for periods subsequent to February 28,
1946 have been paid or accrued.
The accompanying financial statements do not reflect a possible liability, amounting to
$17,332.57, subject to legal dispute as the result of insurance policy cancellations.
D-MERGER AGREEMENT
The company has entered into an agreement with Pennsylvania-Central Airlines Corporation
which provides, subject to certain conditions, for the merger of that company with North-
east Airlines, Inc. on the basis of an exchange of stock of the two companies.' The stock-
holders of both companies have voted to approve the agreement. Before the merger may
become effective, however, the merger must be approved, under the Civil Aeronautics
Act, by the Civil Aeronautics Board and, under Massachusetts law, by further confirmatory
vote of the stockholders of Northeast Airlines, Inc. Prior to consummation of the merger,
the agreement may be voided at the election of the Board of Directors of either corporation.
While a hearing has been held on application for approval of the merger before Examiners
of the Civil Aeronautics Board, argument has not been held before the Board and the matter
is pending.
* NORTHEAST AIRLINES, INC.
NORTHEAST AIRLINES, INC.,
Boston, Massachusetts.
c.A.uditors' 'lv!porl.J
We have examined the accompanying balance sheet of Northeast Airlines,
Inc. as at December 31, 1946 and statement of profit and loss and deficit for
the year then 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
appropriate. Our examination was made in accordance with generally
accepted auditing standards applicable in the circumstances and included all
procedures which we considered necessary.
In our opinion, the accompanying financial statements present fairly the
position of Northeast Airlines, Inc. at December 31, 1946 and the results of its
operations for the year then ended, (after giving effect to the retroactive increase
in air mail revenue explained in note A), in conformity with generally accepted
accounting principles applied on a basis consistent with that of the preceding
year.
LYBRAND, Ross BRos. & MONTGOMERY
Boston, Massachusetts
April 28, 1947
*
* NORTHEAST A.IRLINES, INC. *
Comparative Statistics
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 4,177,375
Completion of Sched-
uled Miles .......... . 84.43% 84.04% 79.45% 79.10% 83.87% 83.61% 82.46%
Passenger Revenue ..... $226,684 $378,569 $309,813 $533,972 $759,623 $1,945,444 $4,256,115
Revenue Passengers
Carried ........... . 27,623 42,546 26,446 36,263 53,766 175,608 417,095
Revenue Passenger
Miles ............. . 4,112,273 7,074,920 5,383,171 9,090,063 12,848,222 38,939,107 83,848,737
System Load Factor .... 46.38% 38.39% 35.94% 59.52% 59.14% 74.47% 65.76%
Passenger Revenue Per
Plane Mile ........ . $.2554 .2985 .4129 .7338 .7420 .8505 1.0189
Revenue Per Passenger
Mile ............. . $.0503 .0535 .0576 .0587 .0591 .0500 .0507
MONTREAL
1111 1111
10 OJ'JAWA ANO TO OUUlC
W01tllN CANADA
MONTPELIER
KEENE
CONCORD
SPRINGFIElD
Ou O TO NlWtOUl'f0LANO
H LT N TO,., .. ,(
~
f0w,oo ISlA"'O
~
..
~
MONCTON E ,,,~~.., O'ON(\"
~~
HALIIAI(
AUGUSTA
AUBURN-lEWISTON The Wings of New Ensland now offers frequent 4-mile-a-minute non
stop flights only 65 minutes from Boston to New Yorlc in deluxe
4-engine Douglas Slcymasten. Convenient supplementary DC-3 service
also non-stop.
PORTLAND
ALSO
New daily Boston-Montreal 99-minute non-stop flight, and return.
Additional service to Moncton and the Maritimes.
Additional service to Houlton and Presque Isle.
PLUS
MANY MORE SEATS AVAILABLE DAILY ON ALL NORTHEAST
FLIGHTS . serving Maine, Montreal and Eastern Canada, and the Mari
time Provinces industrial and recreational centers of New England.
NEW YORK
'<, ~,/a1Alf
Jl11R I AIRLINE!i?
Boston Ticket Offices
HOTEL STATLER
COPLEY PLAZA
EASt Boston 41 00
New York Ticket Offices
AIRLINES TERMINAL
ANNEX
BOwling Green 9-1740
General Offices . Logan Airport, Boston 28
New York Offices 500 fifth Avenue
"SAVE TIME TO DO MORE"