Northeast Airlines Annual Report 1957

NORTHEAST
AIRLINES
Annual Report
1957
NORTHEAST AIRLINES, me
BOARD OF DIRECTORS
PAUL F. COLLINS, Chairman
President, Fibremold, Inc., Medford, Mass.
JACQUELINE COCHRAN
President, Jacqueline Cochran, Inc., New York
JAMES F. FITZGERALD
President, Fitzgerald Construction Company,
Canton, Mass.
GEORGE E. GARDNER
President and General Manager,
Northeast Airlines, Inc.
RADU IRIMESCU
Asst, to the President, Atlas Corporation, New York
ALBERT C. MCMENIMEN
Financial Vice President, Boston Edison Company
EUGENE L. VIDAL
Gene Vidal Designs and Processes, Darien, Conn.
LAURENCE F. WHITTEMORE
Chairman of the Board of Directors,
The Brown Company, Berlin, N. H.
OFFICERS
GEORGE E. GARDNER
A. A. LANE ....
D. W. H. MACKINNON
HAMILTON HEARD
R. H. KERR ....
R. P. LANE, JR. ...
HENRY E. FOLEY
GERARD E. REED .
J. F. MOLLOY, JR.
WHEATON MIES .
CLARENCE I. PETERSON
H. E. BIXLER
ANN WOOD .
FRED M. KNIGHT
President and General Manager
Vice President -- Operations
Vice President -- Engineering and Maintenance
Vice President -- Administration and Finance
Vice President -- Personnel
T reasurer
Clerk of Corporation
Assistant Treasurer
Assistant Vice President -- Administration and Finance
Assistant Vice President -- Engineering and Maintenance
Assistant Clerk
Assistant to the President
Special Assistant to the President
Director of Public Relations
New additions to management -- JAMES W. AUSTIN and NELSON B. FRY have joined the company
to serve as President and Vice President--Traffic and Sales, respectively.
Transfer Agent
Registrar .
Auditors
General Counsel
. OLD COLONY TRUST COMPANY
THE FIRST NATIONAL BANK OF BOSTON
LYBRAND, ROSS BROS, AND MONTGOMERY
. FOLEY, HOAG & ELIOT
Annual Meeting: Fourth Tuesday of March in Boston at 10 A.M.
General Offices: Logan International Airport, Boston 28, Mass.
Annual Report for 1957
To OUR SHAREHOLDERS, EMPLOYEES AND FRIENDS:
The year 1957 was a transitional one in the
24-year history of Northeast Airlines for it encom
passed an enormous expansion in the scope and
character of our company's operations.
The inauguration of service down the East Coast
to Florida, the acquisition of 10 Douglas DC-6B
aircraft, and the increase in the size and complexity
of our entire organization has transformed North
east from a small regional airline to a company
capable of taking its place among the major air
carriers of the country.
It was hoped that the company's 1957 Florida
operation would produce profits which would offset,
at least in part, the company's traditional New Eng
land losses. This hope, moreover, appeared justified
on the basis of our promising operating results in
the Florida market last summer. In September, how
ever, as we approached completion of delivery of
our DC-6B fleet, we became affected by the gen
erally declining level of business. As the newest of
the three carriers in the East Coast-Florida mar
ket, we were at the greatest disadvantage. The low
load factors which we experienced in our Florida
operation the last four months of the year caused
additional operating losses rather than profits to
offset our New England deficits. At the same time,
the company's subsidy was discontinued as of June
30, 1957 and whether it is to receive subsidy in the
future is still to be determined. The operating loss
before depreciation was $2,725,853. and after de
preciation $4,218,558.
Cost controls during the year were effective and
we did not experience any of the runaway costs
often associated with a swiftly growing business.
We have been extremely fortunate in bringing
Mr. James W. Austin into the top management of
the company. Mr. Austin is one of the outstanding
executives in the airline industry.
At our annual stockholders' meeting, it is pro
posed that Mr. Paul F. Collins, one of the com
pany's founders and current Board Chairman, will
become Chairman of the Advisory Committee, that
Mr. Austin will become President of the company,
and that I, as Chief Executive Officer, will assume
the title of Chairman of the Board of Directors.
Mr. Austin will greatly strengthen our manage
ment, as will the personnel he brings with him into
the Northeast organization.
Northeast carried a total of 763,617 passengers
in 1957. This represents an increase of 29 per cent
for the entire system. On our historic New England
routes alone the increase was 2.3 per cent.
Civil Aeronautics Board statistics report airline
passenger miles flown by the domestic trunk air
lines at approximately 25 billion in 1957, moving
the airlines ahead of both railroads and buslines in
passenger-mile traffic for the first time. No leveling
off is expected in this steady upward trend.
Despite these impressive traffic figures, the in
dustry's 1957 financial results were disappointing
even where the inauguration of new routes was not
involved. The domestic trunklines showed a profit
less than half of that earned in 1952, despite the
fact they flew more than twice the number of pas
senger miles.
To alleviate this situation, the Civil Aeronautics
Board, while still having under consideration the
application of the airlines for a 15 per cent fare
increase, has granted an emergency fare increase of
4 per cent plus $1 per fare. This long overdue in
crease did not become effective until February 10
of this year and hence has no bearing on 1957 re
sults. While this action is a step in the right direc
tion, the industry must be allowed to charge a fare
fully commensurate with the ever-increasing cost
and improved quality of the service.
Your management is confident that a successful
future is ahead for our company. We have all the
elements and implements for a profitable opera
tion. We have a balanced route structure the major
component of which has the greatest passenger den
sity of any market in the world. We have an efficient
and economical fleet of aircraft to provide the finest
possible coach service on our highly competitive
routes. Equally important, we now have, through
months of expansion and reorganization, the ex
perience and know-how in both management and
personnel to meet the challenge confronting us.
On behalf of the Directors and management of
Northeast Airlines, we extend our thanks for the
loyalty and understanding of our stockholders, em
ployees and friends during the past year.
Respectfully submitted,
GEORGE E. GARDNER
President
March 3, 1958
Review of the Tear
OPERATING RESULTS
In the table of statistics at the end of this re
port, many large increases over 1956 are shown.
However, it must be remembered that these in
creases were primarily the result of the change
in character of the company and its expanded
operation, and in order to analyze the financial
results of the year properly, a comparison with
what had been anticipated for revenues and ex
penses is more significant than a comparison
with the year preceding.
Your company had a net operating loss of
$4,218,558 in the fiscal year ended December
31, 1957. After interest of $210,380, less non
operating income of $104,743, the net loss
amounted to $4,324,195.
The heavy losses were sustained largely be
cause revenues failed, in the face of general
business conditions of the last four months, to
build up as rapidly as anticipated. Northeast
actually offered the approximate number of seat
miles that had been predicted a year ago and
did so at less cost than had been envisoned. How
ever, instead of producing passenger revenues
during 1957 of $8 to $9 million and a load factor
of about 60 per cent for our Florida segments,
your company actually had passenger revenues
for 1957 of only about $5 million and a load
factor of slightly over 41 per cent on these new
routes.
The company demonstrated an ability to con
trol costs during the expansion program, and
its unit costs now compare favorably with the
industry. The accompanying graphs of available
seat mile costs for Northeast and for the industry
illustrate this fact.
Northeast made available some 518 million
seat miles last year. This was two-and-a-half
times as many as were available on Northeast
routes in 1956. The total cost of turning out
the 518 million seat miles was less than twice
the expense incurred in the preceding year, even
though our 1957 costs included introduction of
new equipment, opening of new territory and
what would normally be considered an excessive
amount for advertising. Your management con-
TOTAL OPERATING EXPENSE
PER AVAILABLE SEAT MILE
(TEN YEAR COMPARISON)
CENTS
60
^NC RTHE. ST 5.0
'"'E 0MES1 1C TRUNK Al RLINE
4.0
--
3.0
2.0
1.0
19 48 19 9 19 so is: 1 19 52 19 53 19 )4 19 55 19 )6 19 57
TOTAL OPERATING EXPENSE
PER AVAILABLE SEAT MILE
(BY QUARTERS FOR 1956-1957)
E CENTS
\ 6.0
5.0
4.0
--
DOMES IC TRUN K_AIRUN :s_
AN-
3.0
1' Olr. Z1*1
1956
Q*r 3d Otr. 4H Olr I5' air 2TM
1957
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sidered the 1957 advertising expenditure of al
most one and a half million dollars (nearly $2
for every passenger carried) unavoidable in
view of the need to establish Northeast as a
Florida carrier in the public mind.
Your company's available seat-mile cost (the
cost of moving one potential passenger a dis
tance of one mile, which is a recognized measure
of the carrier's efficiency) was reduced on an
annual basis from 5.26 cents in 1956 to 3.88
cents in 1957. More significantly, the cost for
December 1957, the first month with our full
fleet of Sunliners in operation, was 2.98 cents
compared with 6.45 cents in December 1956.
The load factor necessary for Northeast to
cover its total operating expenses without bene
fit of subsidy was reduced from 73.1 per cent
in 1956 to 64.9 per cent in 1957. For the month
of December, the net effect of generating sub
stantially more product at considerably less unit
cost was reflected when your company's break
even load factor, without benefit of subsidy,
dropped to 58 per cent, in contrast to 80 per
cent for the same month the previous year.
ADVERTISING AND PROMOTION
Your management believes your company is
offering East Coast travelers a superior coach
service. This fact is becoming recognized and
will attract load factors of profitable propor
tions to Northeast.
Toward this end, your company has recently
strengthened and solidified its sales and adver
tising staff. For the first time, Northeast has its
own advertising department, as well as its own
public relations department. On October 10,
1957, the company retained the services of both
the J. Walter Thompson Company of New
York, largest advertising agency in the world,
and Dickie-Raymond, Inc. of Boston, sales pro
motion specialists.
EXPANSION OF FACILITIES
On January 9, 1957, your company started,
service between New York and Miami, and
within the first year of operation carried its
100,000th Florida passenger.
On June 27, our Philadelphia station was
opened, and non-stop service to Miami was ini
tiated from there five weeks later. On August
20, Tampa-New York service commenced, and
on September 15, non-stop service from Wash
ington to Miami was added. Philadelphia and
Washington both received their first service to
Tampa on October 1.
Your company presently operates 26 daily
coach flights to and from Florida. These pro
vide service from Boston, New York, Philadel
phia, and Washington to Tampa and Miami,
including the following number of non-stop
flights: between New York-Miami (12) ; New
York-Tampa (4) ; Boston-Miami (2) ; Wash-
ington-Tampa (2) ; Philadelphia-Miami (4) ;
Washington-Miami (2). Sixteen of these flights
operate in and out of Boston.
With our extension into Florida, it became
necessary to expand our downtown ticket facili
ties in our major markets. As a result, we opened
a total of 10 new offices, including four in New
York City and one each in Philadelphia, Wash
ington, Miami Beach, Miami, Tampa and St.
Petersburg.
FLIGHT EQUIPMENT
During 1957, your company's fleet of aircraft
was greatly expanded by the addition of 10
Douglas DC-6B Sunliners. These planes were
delivered periodically from January 16 through
October 15. They represent a total cost, includ
ing spare parts and related ground equipment,
of approximately $16,500,000.
The 10 Sunliners were custom-built by Doug
las Aircraft for Northeast's routes and have
special features, including wide two-abreast seat
ing in coach configuration. They also have 30
per cent more soundproofing than the standard
version of the airplane, and carry dual-scope
radar. They are presently being used on coach
flights to and from Florida.
Northeast started serving Miami, Philadelphia
and Tampa in 1957. The company had hoped
also to begin operations in Baltimore, Jackson
ville and St. Petersburg-Clearwater. However,
a delay in acquiring the five Bristol Britannia
aircraft, originally scheduled for delivery in the
fall of 1957, precluded any further expansion
of service during the past year.
Production delays made it impossible for the
British manufacturer of the Britannia to ac-
quire an American certificate of airworthiness
and to deliver the planes in time for the 1957-
1958 winter season.
Your management still thinks well of the
turbo-prop Britannia, its passenger appeal and
performance characteristics. These planes are
ideally suited for first-class service in the Florida
market and would complement our 10 Sunliners
now operating in coach service. Accordingly,
Northeast's present contract with Bristol Air
craft Limited has been modified and extended to
cover delivery of the planes in the fall of 1958.
Among the terms agreed upon, the manufac
turer has until May 1, 1958 to obtain an Ameri
can certificate, and, if certification is completed
prior to that time, your company has 60 days in
which to arrange the necessary financing and
secure the consent of its lending banks to the
purchase.
Your company meanwhile is continuing to
evaluate additional equipment in order to main
tain its place in the coming jet age. Members
of the company's operations and engineering
staffs are also keeping abreast of aircraft develop
ments in the short-haul field, where there is a
definite need for a more economical airplane
than that currently in service.
IMPROVED FACILITIES
On April 4, 1957, Northeast installed an elec
tronic reservations system, known as the "Mag-
netronic Reservisor", which makes possible the
speedy confirmation of reservations. Today, 13
of the company's cities are using this equipment
and nearly 2i/ million inquiries have already
been handled.
Your management recognized that our old
reservations system was inadequate to provide
the fast, efficient service necessary to compete in
our new markets. The new system which affords
greater speed and efficiency was selected after
careful study and planning.
The company's communication volume in
creased substantially during the year, and on
October 22, 1957, a new teletypewriter system,
commonly referred to as SCATS (Sequentially
Coded Automatic Transmitter Start System),
was installed. The SCATS system provides for
the semi-automatic delivery of messages from
one station to another with a minimum of man
ual operations.
Your company has entered into an agreement
with The Commonwealth of Massachusetts pro
viding for the erection of a $21,4 million hangar
and office building adjacent to the existing
hangar at Logan International Airport, Boston.
The hangar floor has been designed to accom
modate two aircraft of the largest anticipated
transport size. The offices, shops, and storerooms
will connect with the present office building on
all floors and will accommodate the functions
now carried on in other Boston locations where
we are presently paying rent. They will be de
signed to provide a maximum of efficiency with
reasonable comfort. The cost of the building
will be paid for by Northeast in equal annual
instalments over a 25-year period, with interest
on the unpaid balance at the same rate paid by
the State.
Your company is proceeding with plans to
construct a hangar on the land which we are
leasing at the Miami International Airport, and
it is expected that the necessary financing and
related rental contract will be consummated in
1958. The construction of this facility will make
it possible for four-engine equipment to be
maintained in Miami. In this connection, we
have already instituted our DC-6B inspection
program at that station. Your company expects
to be the first occupant in the new multimillion
dollar passenger terminal on the 20th Street side
of the Miami International Airport, and it is
contemplated that we will move into our new
location on or about May 1, 1958.
Northeast moved into New York Interna
tional Airport (Idlewild) on December 15,
1957 with one trip daily to Miami. On January
15, 1958, all New York-Florida flights were
shifted from LaGuardia to Idlewild. The com
pletion of the new International Arrival Build
ing and Wings for the overseas carriers at Idle-
wild made available the space necessary to ac
commodate all of our DC-6B operation in New
York.
Your company is negotiating an agreement
with Northwest Airlines and Braniff Interna
tional Airways, providing for the construction of
a passenger terminal facility at Idlewild. The
Port of New York Authority is requiring domes
tic carriers to provide their own individual ter
minal facilities at Idlewild after the old central
terminal has been abandoned, and our ability to
join two large carriers in this important project
would result in substantially reducing the ex
pense that might otherwise be involved. The
joint terminal will cost approximately $5 million
and should be completed in the spring of 1960.
Your company would occupy 40 per cent of the
available space and would pay for its propor
tionate share under the terms of a 25-year lease.
For many years the passenger and operating
facilities at LaGuardia Airport have been over
crowded. The New York Port Authority re
cently decided to rehabilitate this important
airport. The reconstruction program will add
substantially to passenger handling space, and
will increase NEA's aircraft gate positions from
one to four. Runways will be strengthened and
will permit the handling of aircraft up to 175,000
pounds gross take-off weight.
FINANCIAL CONDITION
The balance sheet, as of December 31, 1957,
shows that from an original loan of $11 million
which your company arranged in 1955 with a
banking syndicate headed by The Chase Man
hattan Bank, there is a balance of $10,503,000
outstanding. This loan was negotiated to finance
the major portion of the DC-6B program. It is
to be repaid in 20 approximately equal quarterly
instalments, commencing March 31, 1958.
In addition to this borrowing, the balance
sheet also reflects a note for $2 million covering
an advance by Atlas Corporation in October
1957. This note is subordinated to the payment
of principal on the company's bank loan. As
soon as the financial climate improves, it is the
intention of your company to refund this note by
an offering of securities to existing stockholders.
Your company's year-end balance sheet showed
cash of $3,410,190 which is the equivalent of
approximately 45 days' operating expenses, and
an equity position of $9,565,054, which includes
the total of net worth and subordinated debt.
REGULATORY PROCEEDINGS
During the fall and winter of 1957, hearings
were held before a Civil Aeronautics Board Ex
aminer in the so-called Northeastern States
Area Investigation Case. Your company is an
active participant in that case. In this proceed
ing, the C. A. B. is reviewing the need of local-
type services by scheduled airlines in the North
eastern portion of the country, including the
entire area served by your company's systems
north of Washington, D. C. Among other
matters, the Board will consider in that proceed
ing many pending applications, by airlines and
local interests for new services of this type, as
well as the possibility of requiring airlines to
serve points not now being served by them.
Your company is taking the position that it
must not, and should not be forced to serve
additional points at which these services are not
required by the public interest and could not be
rendered on an economically sound basis.
Formal hearings in the Gnral Passenger
Fare Investigation were initiated in November
1957. In this case, the domestic trunkline indus
try is attempting to convince the Civil Aero
nautics Board that increased fares are necessary
if the traveling public rather than the govern
ment is going to provide the money to keep
the industry healthy and able to expand into the
jet age. A fare increase is warranted, and the
entire industry's future depends to a large ex
tent on favorable action by the Civil Aero
nautics Board.
SUBSIDY
On February 7, 1957 the Civil Aeronautics
Board instituted a proceeding, reopening your
company's air mail pay rate, to determine the
amount of air mail compensation to be paid to
the company from and after that date. The
company continued until June 30, 1957 to re
ceive mail pay at the subsidy rate previously in
effect, and since that date it has received mail
pay only at the service rate and has received no
subsidy payment.
The total amount received by the company
from and after February 7, 1957 is, however,
subject to adjustment upon final determination
by the Board in the pending proceeding of the
company's "need" under the Civil Aeronautics
Act.
The net effect was that in 1957 the company's
subsidy payments actually received from the
Government amounted to $955,000, as compared
to $1,611,000 in the preceding year, or a de
crease of $656,000. If NE A had operated only in
the short-haul New England territory, a much
larger subsidy would have been justified.
PERSONNEL
Your company's growth during 1957 increased
personnel from 1167 in December 1956 to 2156
this year. Total wages and salaries paid during
1957 amounted to $8,760,411 as compared to
$5,404,014 in 1956. Our pilots increased from
158 to 249. Maintenance personnel rose from
354 to 584, and the Customer Service group
showed the largest numerical increase, from 282
to 605.
Eighteen per cent of our employees have been
with the company for more than ten years, which
gave us an experienced group upon which to
build.
There are six labor unions representing 91
per cent of all employees and agreements were
negotiated with three of these unions during
the year.
At the close of the year, 81.5 per cent of the
Northeast employees were participating in the
company's group insurance benefit plan. During
the year, $75,877 was paid out in benefits for all
classes of coverage under this plan. As of Feb.
1, 1958, a new plan has been offered the em-
TOTAL PERSONNEL
ployees to give them more extensive protection
against hospital and surgical costs, as well as
medical coverage not available under the present
plan.
Northeast's pension plan, to which the com
pany is the sole contributor, covers all employees
after they have been employed for one year and
have reached 25 years of age. In 1957, the com
pany accrued $59,871 for past service and
$175,799 for current service costs. The value of
cash and securities held by the trustee on Decem
ber 31, 1957 for this Pension Plan amounted to
$707,631.18. The pilots also have a contributory
retirement plan of their own supplementing the
company's program. As of December 31, 1957,
the fund amounted to $202,638.40.
During the year, there were additions and
changes in executive personnel, as well as
throughout the organization. All reflected the
company's growth in size and character.
First of the changes in corporate officers came
in June when the Board of Directors established
the new office of Vice President -- Administra
tion and Finance to which they elected Mr.
Hamilton Heard, former Treasurer of the com
pany. Mr. Rembrandt P. Lane, Jr., formerly
Comptroller, was elected Treasurer. Mr. Lane,
a native of Washington, D. C., came with the
company last spring as Comptroller. He was
formerly Assistant Treasurer of The Chase Man
hattan Bank.
In December, the Board of Directors further
expanded the executive organization. As a re
sult, it is proposed that Mr. Collins will become
Chairman of the Advisory Committee. It is pro-
posed dial Mr. Gardner, who has served 10 years
as President, assume the duties of Chairman of
the Board and continue as Chief Executive
Officer.
Succeeding Mr. Gardner as President, in
accordance with the proposed reorganization
plan, will be Mr. Austin who, during the past
12 years, has gained industry-wide recognition
as one of the foremost sales executives in the
transportation field. Mr. Austin was Vice Presi
dent-Traffic and Sales and also a member of
the Board of Directors of Capital Airlines, prior
to joining NEA. Among his important contri
butions to the airline industry was the intro
duction of air coach service in the late 40's. He
also successfully introduced the first turbo-prop
aircraft in domestic passenger service.
Accompanying Mr. Austin to NEA was his
associate of the past 11 years, Mr. Nelson B.
Fry, who has been elected Vice President -- Traf
fic and Sales to fill a vacancy left by the resigna
tion of Mr. Robert L. Turner. Mr. Fry, like Mr.
Austin, is held in highest esteem by his asso
ciates in the airline industry, in which he has
been active since 1935. A native of Philadelphia,
he is a former president of the Air Traffic Con
ference of America.
OUTLOOK FOR 1958
The year 1958, which will be marked by our
25th anniversary, should see the culmination of
the first step in our expansion program which is
designed eventually to bring to fruition all the
benefits anticipated when we sought extension
of our routes to Florida. According to our best
estimates, if we are able to carry to and from
Florida only two-thirds the number of passen
gers normally carried on our New England sys
tem, we will generate profits sufficient to offset
the large losses imposed by the New England
short-haul segment. One of our goals for 1958,
then, is to carry some 400,000 Florida passengers.
We started the year 1958 by carrying 8784
Florida passengers during the first seven days.
Unfortunately, the daily average of 1254 de
creased during the remainder of January, which
in part was attributable to the customary drop
off in the Florida traffic but mostly to the fact
that Florida had the coldest January on record.
The recently-granted passenger fare increase
should improve the financial picture by adding,
in the case of NEA, better than seven per cent
to our 1958 passenger revenues, if we assume no
decrease in the traffic due to the higher fares.
The year 1958 will be marked by airport im
provement programs in the New England area.
Key summer resort areas, such as Nantucket,
Martha's Vineyard, and Hyannis, and also
Lewiston-Auburn, anticipate completion of run
way extensions and/or new terminal buildings
some time during the year.
Our new equipment plans are primarily de
pendent on two factors: (1) Our ability to
attract the load factors necessary to attain profit
able operations and thereby arrange the neces
sary equipment financing, and (2) the success of
the Britannia certification program.
Your management fully recognizes that there
are still many problems ahead, ft is confident
that these problems will be overcome and
that Northeast will develop into a strong, self-
sufficient, and profitable airline.
NORTHEAST AIRLINES, INC.
Balance Sheet
As at December 31, 1957 and December 31, 1956
ASSETS 1957 1956*
Current assets:
Cash in banks $ 3,410,190 $ 4,656,407
Subscriptions to common stock 3,520,004
Receivables:
U. S. Government 246,999 501,650
Airline traffic 1,315,088 626,370
Federal income tax refund 193,082
Other 419,810 201,249
Flight equipment expendable parts, at cost less allowance for obsolescence:
1957, $515,558; 1956, $527,406 943,176 384,075
Prepaid insurance and other expenses 259,502 131,730
Miscellaneous supplies (at average cost) 137,549 166,495
Total current assets 6,732,314 10,381,062
Property and equipment, at cost:
Flight equipment and related spare parts (note B) 19,150,561 4,487,177
Hangar and service building on leased land 702,963 702,963
Ground and shop equipment 1,559,741 783,359
Improvements to rented properties 310,650 184,063
Warehouse and land 83,657 83,657
Construction in progress 186,493 61,953
Nonoperating property 13,575 330,140
22,007,640 6,633,312
Less allowances for depreciation, amortization and aircraft maintenance 5,634,192 4,469,392
Property and equipment less allowances 16,373,448 2,163,920
Advance payments and costs on purchase of flight equipment (note C) . 456,501 3,359,517
Investments in airline service organizations 39,219 37,315
Receivable from officer under stock purchase contract 26,875 26,875
Deferred charges:
Route extension and development 217,893 214,612
Aircraft and station preoperating and training costs 664,866 106,326
Other 133,465 18,487
$24,644,581 $16,308,114
LIABILITIES 1957 1956*
Current liabilities:
Instalments due within one year on 4% notes payable $ 2,200,000
Accounts payable -- general 2,203,483 $ 764,346
Airline traffic accounts payable 478,531 319,611
Collections and withholdings as agent 353,567 166,846
Accrued salaries and wages 655,815 315,968
Accrued social security and other taxes . . . . . . 43,886 24,287
Other accrued liabilities 84,796 61,900
Unearned transportation revenue 685,507 200,869
Total current liabilities 6,705,585 1,853,827
4% notes payable under bank credit agreement (note B)
5i/% subordinated note payable to affiliated company
8,303,000
2,000,000
2,470,000
Reserve for uninsured losses (workmen's compensation) 44,067 68,163
Stock purchase contract (see contra) 26,875 26,875
Commitments (notes C and F)
CAPITAL
Common stock, par value $1.00 per share:
Authorized -- 3,000,000 shares in 1957 (note D)
Issued and outstanding -- fully paid, 1,773,688 shares
Issued under stock purchase contract -- part paid:
1,773,688 1,773,688
10,000 shares at 50 cents per share paid thereon (unpaid balance under
contract, $26,875 shown above) 5,000 5,000
Paid-in surplus 9,279,660 9,279,660
Earned surplus (deficit) (note B) (3,493,294) 830,901
Total capital 7,565,054 11,889,249
$24,644,581 $16,308,114
Certain reclassifications have been made in the 1956 figures above for comparison with the 1957 figures (note A). The accompanying notes are an integral part of the above balance sheet.
NORTHEAST AIRUNES, me.
Statement of Profit and Loss and Earned Surplus {Deficit)
For the Years Ended December 31, 1957 and 1956
1957
Operating revenues:
Passengers $13,964,475
Air mail, including amounts designated as federal subsidy (note G) . . . 1,194,726
Express, freight and excess baggage 591,576
Other, net 143,368
Total operating revenues 15,894,145
Operating expenses*:
Flying operations 5,708,154
Maintenance and repairs 3,550,407
Provisions for depreciation and amortization 1,492,705
Aircraft and traffic servicing 3,854,963 'i
Reservations and sales 1,737,966)
Passenger service 1,195,024
Advertising and publicity 1,483,765
General and administrative 1,089,719
Total operating expenses 20,112,703
Operating loss 4,218,558
Nonoperating charges:
Interest on notes payable (note B) 210,380
Credit from insurance settlement on aircraft (82,170)
Other charges (credits), net (22,573)
Loss before federal income tax 4,324,195
Provision for refund of federal income tax
Net loss for year 4,324,195
Earned surplus at beginning of year 830,901
Earned surplus (deficit) at end of year (note B) ($ 3,493,294)
1956
$ 8,138,375
1,724,466
341,778
95,552
10,300,171
3,113,430
2,276,623
639,469
3,082,773
631,003
310,490
674,783
10,728,571
428,400
19,170
447,570
148,030
299,540
1,130,441
$ 830,901
Operating expenses for 1956 have been reclassified for comparison with 1957 (note A).
The accompanying notes are an integral part of the above statement.
NORTHEAST AIRLINES, INC.
Notes to Financial Statements
Note A -- Uniform System of Accounts:
The accompanying financial statements are pre
pared generally in accordance with the Uniform
System of Accounts for Air Carriers prescribed by
the Civil Aeronautics Board. Revisions of the sys
tem, effective in 1957, did not have a material
effect on the net loss for 1957; the statements for
1956 have been reclassified for comparison.
Note B -- Bank Credit Agreement:
The notes payable to banks under a credit agree
ment dated September 30, 1955 are secured by a
mortgage on the company's flight equipment and
related spare parts. Instalments due in 1958 are
included among current liabilities in the 1957
balance sheet. The balance is payable in quarterly
instalments ending not later than December 31,
1962. However, at December 31, 1957 the company
was in default under provisions of the credit agree
ment requiring the maintenance of minimum
amounts of net worth and of working capital and
as a result the banks may accelerate the due dates.
In addition, the credit agreement restricts the
amount of cash dividends or other payments on
the company's common stock to a portion of net
income accrued subsequent to December 31, 1954.
Interest and commitment fee on these notes, less
estimated federal income tax benefit, totaling
$173,235 at the time the new Douglas Model
DC-6B aircraft were placed in service, has been
capitalized as additional cost of the equipment.
This treatment does not accord with the provisions
of the Uniform System of Accounts for Air Car
riers, but the company has applied for approval
thereof by the Civil Aeronautics Board.
Note C -- Commitment for Purchase of Flight
Equipment:
The company has agreed, if the aircraft are made
suitable for commercial use in this country and
subject to arrangements for satisfactory financing
including the consent of present creditor banks
(note B), to purchase for delivery in 1958 five
Bristol Britannia Model 305 aircraft at a cost, to
gether with related equipment and spare parts, of
approximately $17,500,000. Of the advance pay
ments and other costs for the Britannia aircraft
aggregating $456,501 at December 31, 1957, $375,000
may be recovered if the agreement should be ter
minated.
Note D -- Employee Stock Option and Stock Pur
chase Plans:
At December 31, 1957, 75,000 shares of authorized
and unissued common stock are reserved under the
company's stock option plan for key employees. Op
tions are granted at prices not less than 85% of the
fair market value of the stock on the dates granted.
Options are outstanding at December 31, 1957,
exercisable after various dates in 1958, to purchase
62,000 of these shares at various prices aggregating
$459,500.
In addition to the foregoing plan 90,000 shares of
authorized and unissued common stock are re
served at December 31, 1957 for sale to employees
at a price, payable in instalments, not less than
fair market value thereof at the date of purchase
contract.
Note E -- Retirement Plans:
Provisions under the company's retirement plans
for employees aggregating $285,904 have been
charged to operating expenses for 1957. The amount
unfunded under the plans at December 31, 1957
was approximately $400,000.
Note F -- Long-Term Leases:
In January, 1957, the company leased an electronic
reservations control system at an annual rate of
rental ranging from approximately $100,000 during
1957 to approximately $170,000 after completion
of the system late in 1958. The lease will expire
in 1966. The company has subleased part of the
capacity of the system at an annual rate of rental
ranging from $6,000 initially to approximately
$34,000 in 1958.
The company has agreed to lease a new hangar, to
be constructed at Logan International Airport,
Boston, for occupancy in 1960, for 25 years from
that date at an initial annual rental of approxi
mately $180,000.
Note G -- Air Mail Revenues:
Effective February 7, 1957, the Civil Aeronautics
Board reopened for adjustment the company's mail
pay rates, including the portion designated as sub
sidy. Subsidy payments were continued through
June 30, 1957. Mail subsidy payments received by
the company totaled $1,611,000 for the year 1956
and $955,000 for the six months ended June 30,
1957. The proceeding of the Board remains open,
so that the mail rates in effect between February
7 and June 30, 1957 may be increased or decreased,
and the non-subsidy rates in effect since July 1,
1957 may be revised to include subsidy payments.
LYBRAND, ROSS BROS. G. MONTGOMERY
ACCOUNTANTS AND AUDITORS
BIRMINGHAM
DALLAS
HOUSTON
TULSA
SAN FRANCISCO
LOS ANOELES
SEATTLE
COOPERS LYBRAND
IN AREAS OF THE WORLD
OUTSIDE THE UNITED STATES
Northeast Airlines, Inc.
Boston, Massachusetts
We have examined the balance sheet of Northeast
Airlines, Inc. as at December 31* 1957 and the related
statement of profit and loss and earned surplus (deficit)
for the year then ended. Our examination was made in accord
ance with generally accepted auditing standards, and accordingly
included such tests of the accounting records and such other
auditing procedures as we considered necessary in the circum
stances .
In our opinion, the accompanying statements present
fairly the financial position of Northeast Airlines, Inc. at
December 31>
1957 and the results of its operations for the
year then ended, in conformity with generally accepted
accounting principles applied on a basis consistent with that
of the preceding year.
NEW YORK DETROIT
PHILADELPHIA CLEVELAND
CHICAGO CINCINNATI
BOSTON ROCKFORD
BALTIMORE ST. LOUIS
WASHINGTON LOUISVILLE
PITTSBURGH
Boston, Massachusetts
February 24*
1958
NORTHEAST AIRLINES, INC
Record of Progress
1957 1956 1955 1954 1953 1952 1951 1950 1949 1948
Revenue Miles Flown 10,776,864 6,626,106 6,590,634 6,316,944 5,689,854 4,729,487 4,743,281 4,235,126 4,021,226 3,386,881
Passenger Revenue $13,964,475 $8,138,375 $7,938,798 $7,118,264 $6,227,406 $5,570,124 $5,535,763 $4,440,034 $3,992,450 $3,241,912
Revenue Passengers Carried 763,617 592,967 582,478 523,489 463,712 427,685 454,738 372,497 324,963 272,292
Revenue Passenger Miles 245,181,670 119,252,967 116,450,932 104,226,881 91,398,933 83,675,411 87,507,199 70,468,046 61,957,458 52,091,160
Available Seat Miles 517,729,726 203,843,785 196,635,380 186,418,896 165,220,028 144,157,775 143,677,282 135,975,864 128,126,621 108,468,454
Available Ton Miles 62,115,828 20,661,007 19,767,663 18,863,626 16,314,266 15,081,189 14,439,859 13,741,435 12,948,699 10,808,073
Revenue Ton Miles 25,080,345 11,576,066 11,346,893 10,158,041 8,947,089 8,270,369 8,602,344 7,099,518 6,085,947 5,085,103
Operating Cost per
Available Seat Mile 3.880 5.260 5.070 4.980 4.920 5.130 4.860 4.590 4.470 4.710
Operating Cost per
Available Ton Mile 32.430 51.930 50.450 49.110 49.830 49.020 48.320 45.410 44.230 47.270
Wages and Salaries $8,760,411 $5,404,014 $4,950,000 $4,586,846 $4,032,735 $3,473,776 $3,163,697 $2,750,700 $2,574,010 $2,465,557
Number of Personnel 2,155 1,167 1,016 971 885 802 764 711 673 651
Net Book Value of
Property and Equipment $16,373,448 $2,163,920 $2,648,980 $3,207,584 $2,105,191 $2,403,180 $2,496,476 $2,742,635 $3,326,740 $1,862,372
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