Northeast Airlines Annual Report 1958

NORTHEAST AIRLINES ANNUAL REPORT 19S8
BOARD OF DIRECTORS*
GEORGE E. GARDNER
Chairman
Northeast Airlines, Inc.
JAMES W. AUSTIN
President
Northeast Airlines, Inc.
JACQUELINE COCHRAN
President
Jacqueline Cochran, Inc.
New York
PAUL F. COLLINS
President
Fibremold, Inc.
Woburn, Mass.
JAMES F. FITZGERALD
President
Fitzgerald Construction Company
Canton, Mass.
RADU IRIMESCU
Vice President
Atlas Corporation
New York
ALBERT C. McMENIMEN
Financial Vice President
Boston Edison Company
EUGENE L. VIDAL
Gene Vidal Designs and Processes
Avon, Conn.
LAURENCE F. WHITTEMORE
Chairman of the Board of Directors
The Brown Company, Berlin, N. H.
OFFICERS*
GEORGE E. GARDNER
Chairman and General Manager
JAMES W. AUSTIN
President
NELSON B. FRY
Vice President
Traffic and Sales
HAMILTON HEARD
Vice President
Administration and Finance
R. H. KERR
Vice President-Personnel
A. A. LANE
Vice President-Operations
R. P. LANE, JR.
Treasurer
D. W. H. MacKINNON
Vice President
Engineering and Maintenance
A. S. WALKER
Vice President-Services
HENRY E. FOLEY
Clerk of Corporation
J. S. DANIELS, JR.
Assistant Vice President
Advertising and Promotion
WHEATON W. MIES
Assistant Vice President
Engineering and Maintenance
H. F. ZIMMERMAN
Assistant Treasurer
CLARENCE I. PETERSON
Assistant Clerk
TRANSFER AGENT
Old Colony Trust Company
REGISTRAR
The First National Bank
of Boston
AUDITORS
Lybrand, Ross Bros,
and Montgomery
GENERAL COUNSEL
Foley, Hoag & Eliot
GENERAL OFFICES:
Logan International Airport
Boston 28, Mass.
*For changes in management in 1959,
see section headed "Management".
TO THE SHAREHOLDERS
OF NORTHEAST AIRLINES, INC.:
HE YEAR 1958 marked the twenty-fifth
anniversary of your Company as a scheduled trunk
line air carrier. For the second successive year,
Northeast showed the largest proportionate increase
in passenger revenues of the entire domestic air
transport industry. While financial results were
disappointing, the year nevertheless saw many
significant developments in our expanded operations.
Foremost among our achievements was the
acquisition of a fleet of 10 Rolls Royce turbine-
powered Viscounts from Vickers-Armstrongs
(Aircraft) Limited. These jet-prop aircraft were
successfully introduced into the high-density traffic
markets of Boston-New York, New York-
Washington, Boston-Washington, Boston-
Philadelphia and Boston-Montreal. The wide and
enthusiastic acceptance of the jet-prop Viscounts in
these markets has greatly enhanced the prestige of
Northeast Airlines in the minds of
the traveling public.
On the other hand, while passenger miles
generated from our Florida coach service increased
147% over the 1957 level, this was not enough to
sustain the Florida operation on a self-sufficient
basis, not to mention the deficit for the
short-haul New England operation.
Determination of a final mail rate from
February 7, 1957 to December 31, 1958 was
concluded in 1958, and an additional $3,356,000 of
subsidy was awarded to the Company for this
period. Of this amount, approximately $970,000 was
attributable to 1957. When the full amount of the
additional subsidy is taken into consideration in the
1958 results, the net loss before depreciation amounts
to $730,391 and after depreciation to $3,669,637.
During the month of December, Northeast
carried more than 160,000 passengers, grossed
$3,294,000 in passenger revenue and reported a net
operating profit in excess of $600,000. Although
labor difficulties experienced by other carriers
undoubtedly had a significant bearing on increased
traffic during December, the results of that month's
operations demonstrate, nevertheless, the ability
of the Company to generate substantial
earnings on its existing route structure.
The Company carried a record total of 955,955
passengers in 1958, or 25.2% more than in 1957.
Passengers enplaned and deplaned at our Florida
stations aggregated 226,226, or 109% more than the
preceding year.
The improving character of your Company's
operation is perhaps well demonstrated by the fact
that at four of our major cities--Boston, New York,
Philadelphia and Washington--the number of
passengers increased nearly 40%. The year 1959 will
mark the first full year of Viscount operation, and we
confidently expect an even greater rate of
growth in these four important cities.
Since the year end, the number of passengers
using the high quality coach service on the East
Coast route to Florida has increased significantly
over comparable months of 1958. The ten DC-6B's
engaged in this service were designed with a seating
plan which approaches first-class service and yet can
be operated at reduced fares. Increasing public
acceptance of this service, as well as of our
first-class Viscount service which was extended to
Florida in February of 1959, gives us confidence that
operating results for 1959 will show substantial
improvement over the year just ended.
On February 6, 1959, the Company announced
the election of David A. Stretch, President of
Atlas Corporation, as Chairman of the Board of
Directors. Mr. Stretch succeeds George E. Gardner,
who retired as Chairman. Mr. Gardner remains
on the Northeast Board and becomes a Vice
President of Atlas Corporation, the Company's
majority stockholder. The President's responsibilities
were enlarged to encompass operations,
in addition to sales and administrative matters.
On behalf of the Directors, management, and all
employees, I wish to express the Company's
appreciation to Mr. Gardner for his many
contributions to the growth and development
of Northeast Airlines during the past decade.
We were confronted with many serious problems
this past year and while we face the challenge of
resolving many more in the months ahead, I have
every confidence that with our present routes,
equipment and facilities, together with the experience
and loyalty of Northeast employees, we can--and
will--attain the success which we all desire.
We urge our Shareholders to take advantage of
our fine services up and down the entire East Coast,
and suggest that you encourage your family and
friends to FLY NORTHEAST at every opportunity.
Call our reservations department to help you
whenever you plan to travel!
Respectfully submitted,
JAMES W. AUSTIN
President
By Order of the Board of Directors.
REVIEW OF THE YEAR
PERATING REVENUES (exclusive of subsidy) for 1958 were
$24,352,341, compared with $14,938,899 in 1957, an increase
of 63.1%.
Revenues by sources were as follows:
1958 1957
Passenger Revenue $22,803,445 $13,964,475
Mail (excluding subsidy) 393,892 239,480
Freight and Express 582,500 398,484
Excess Baggage and Other Revenue 572,502 336,460
For the second successive year* Northeast showed the greatest
relative growth in traffic and revenues in the domestic air transport
industry.
Northeast flew 15,079,659 miles in revenue service with an
average of about 57 seats available for sale on each mile flown. This
is an aggregate productive capacity of 860,689,541 available seat
miles compared with 517,729,726 seat miles produced in 1957,
an increase of 66.2%.
Although operating costs aggregated $30,485,726, an increase
of $10,373,023 over 1957, the cost of producing each seat mile
declined from 3.88c in 1957 to 3.54c in 1958.
Operating Revenue & Expense Distribution
Revenue Expenses
Passenger 93.6% Labor Costs 42.3%
Freight & Express 2-4% Fuel & Oil 15.1%
Mail 1-6% Depreciation 9-6%
Other 2.4% Material & Supplies
Rentals and other services
Landing fees, utilities,
7-4%
5.6%
insurance, advertising,
sales promotion and
miscellaneous 20.0%
HE REPORTED net operating loss for the year was $3,747,130.
After interest expense of $814,890 and taking into consideration
non-operating income, including subsidy attributable to 1957 results,
the net loss before depreciation amounted to $730,391 and after
depreciation to $3,669,637.
During 1958 the beneficial effects of the acquisition of new flight
equipment were not felt until the latter months of the year. Other
factors contributing to the 1958 loss were the severe Florida weather
during the peak of the vacation season and general economic condi
tions which reduced the entire air transport industry's rate of growth
to the lowest level for many years.
REVENUES AND EXPENSES
TOTAL OPERATING COST PER AVAILABLE SEAT MILE
NORTHEAST vs INDUSTRY
12 Months Ended September
1954 1958
DOMESTIC TRUNK AIRLINES
-.030
-.025
-.020
.000
1954 1955 1956 1957 1958
OPERATING RESULTS
FINANCIAL CONDITION
FLIGHT EQUIPMENT
T YEAR'S END, total assets amounted to $35,576,377, of
which property and equipment, less depreciation, were carried at
$25,311,614. Of this amount, $12,057,258 represents the DC-6B
fleet and related spare parts, and $10,830,091 the eight Viscounts
and related equipment then owned. The ninth and tenth Viscounts
were delivered in 1959.
During the year, $2,200,000 of principal payments were made
on the bank loan through which the DC-6B acquisition was financed.
On December 31, 1958, the debt had been reduced to $8,303,000
from its original level of $11,000,000.
N JULY 15, 1958, your Company signed a contract with Vickers-
Armstrongs (Aircraft) limited and Rolls Royce Limited for the
delivery of nine turbine-powered Viscount 745 aircraft. A tenth
Viscount was added by a supplement to the original agreement.
The acquisition of these jet-prop aircraft marked a major step in the
Company's history.
Northeast's first two Viscounts arrived in Boston August 11,
1958, which was the Company's 25th anniversary. Service from
Boston to New York, Philadelphia, Washington and Montreal
started August 21. By October 26, the Company had six Viscounts
in scheduled service. Arrival of the eighth and ninth Viscounts made
it possible to extend Viscount service into Florida and also north to
Portland by February 1, 1959. The tenth Viscount was delivered in
Boston March 3, 1959.
From August 21 to December 31, a period of 19 weeks, the
Viscounts achieved a load factor of 60.6%, a most gratifying result
for a new service. This new service was well received from the outset,
and passenger acceptance increased with the expansion of schedules.
By mid-March of 1959, with the full fleet in service, the Viscounts
were scheduled to fly a total of approximately 21,000 miles per day.
Your Company's management believed that Northeast Airlines
needed attractive and appealing equipment to generate passenger
acceptance and increase Northeast's stature as a major airline by
exercising more fully its traffic rights in high density markets such as
New-York-Boston and New York-Washington with a high degree
of frequency. Success of the Viscounts in these heavily-traveled
commuter markets should insure more Florida traffic as a result of
the public becoming more aware of Northeast's over-all service.
The Viscounts were obtained through an equipment trust
arrangement which provided payment over a seven-year period on
reasonable interest terms. The large spare parts depot which
Vickers maintains in this country insures a minimum investment
in spare parts.
Penetration by the Viscounts of the high density markets, men
tioned earlier, which are especially busy during the spring and fall,
help alleviate the Company's traffic imbalance between Florida's
peak winter season and New England's concentrated summer
vacation period. The Viscounts also provide first-class service to
Florida with equipment of proven public acceptance, thus enabling
Northeast to put additional DC-6B Sunliner frequency in major
coach markets.
PASSENGER REVENUE GROWTH
IN MILLIONS $
-25
o
n -
__
1954 1955 1956 1957 1958
HE VISCOUNT
program contemplated the ultimate disposition of SALE OF EQUIPMENT
the Company's Convair 240 fleet, as it was not deemed economical
for a carrier of Northeast's size to operate four different types of
equipment. To the extent that Convair equipment served New York,
Boston, Philadelphia, Washington, Montreal and Portland, it was
replaced by the Viscounts. To date, all but one of the Convairs
have been sold; one in December 1958; two in January 1959; and
one in February 1959, all at book profits. It is expected that the one
remaining airplane will be sold in the near future.
AJOR IMPROVEMENTS
were made during 1958 in the Company's
terminal facilities in the three important cities of Miami, Wash
ington and New York. On December 15, 1958, Northeast became
the first occupant in the new 16 million dollar passenger terminal
at Miami International Airport. Recently, other carriers moved
from their old facilities on 36th Street to the new terminal. At pre
sent 22 of the 23 air carriers operating out of Miami are now lo
cated on the 20th Street side, which makes Northeast truly com
petitive in Miami for the first time.
In the late fall of 1958, the new North Terminal at Washington's
National Airport was opened and Northeast became located in the
new facility which features quicker and more convenient taxi and
IMPROVEMENT OF FACILITIES
PASSENGERS CARRIED
1954 1955 1956 1958
limousine service, better baggage handling, and quicker access to
boarding planes.
The year also saw the completion of the move of the Com
pany's New York facilities for Florida service from LaGuardia
Airport to New York International (Idlewild) Airport, the estab
lished New York departure point for Florida air travel. In 1958,
Northeast carried 184,689 passengers in and out of Idlewild, bringing
this station up among the Company's most active.
Ground was broken January 13, 1959, for the Company's new
$2,500,000 hangar and office building at Logan International Air
port, Boston. This facility will be adjacent to the Company's existing
hangar and is expected to be ready for occupancy early in 1960,
enabling the Company to centralize many of its activities, particularly
in the maintenance area, and should result in a more efficient
operation.
Ticket office facilities were expanded, particularly in Philadel
phia, New York, and Boston. Northeast recently opened a ticket
office in the new Robert Meyer Hotel in Jacksonville, Florida.
In late 1958, your Company obtained permission from the Civil
Aeronautics Board to serve Fort Lauderdale as a co-terminal with
Miami. A substantial number of Miami passengers are destined for
areas to the north of Miami and can be more conveniently served
through Broward County International Airport at Fort Lauderdale.
Service was inaugurated on December 13, 1958 and public reception
to this development has been enthusiastic. After operating out of
temporary quarters for more than two months, Northeast moved
into Broward County Airport's new modern terminal on Sunday,
March 1, 1959.
SUBSIDY N
1958, the question of subsidy, in respect of the years 1957 and
1958, was resolved, and an additional $3,356,000, representing the
Company's subsidy requirements for its New England route structure,
was paid to the Company near the end of the year. Of this amount,
$970,000 was actually attributable to 1957 operations, and when
added to payments already received, brought the total subsidy for
1957 to approximately $1,925,000. Subsidy attributable to 1958
results amounted to approximately $2,386,000. The Civil Aero
nautics Board order fixed these amounts as the final subsidy com
pensation through December 31, 1958.
In its opinion accompanying the order, the Board expressed its
belief that successful penetration of the long-haul Florida market
would make Northeast self-sufficient and eliminate the need for
subsidy support necessary to compensate for the inherent losses
prevailing on the New England route structure. Accordingly, North
east was placed on a service (or non-subsidy) mail rate effective
January 1, 1959.
PERSONNEL
T
COMPANY'S continued growth in 1958 increased personnel
from 2155 in December, 1957, to 2411 this year. Our pilots increased
from 249 to 327. Maintenance personnel rose from 584 to 695,
while the stewardess list went up from 155 to 170.
Your Company negotiated with six labor unions, representing
over 90 % of all employees, and signed new agreements with five of
these unions during 1958.
Term agreements were concluded with the International Associ
ation of Machinists, the Airline Pilots Association, Transport
Workers Union, Airline Stewards and Stewardesses Association, and
Radio Operators Union, assuring your Company of stability for the
coming year as far as negotiations with these unions are concerned.
At the close of the year, 90.8% of Northeast employees were
participating in the Company's new group insurance benefit plan.
This new plan, instituted February 1, 1958, gives the employees
more protection against rising hospital and surgical costs, as well
as medical coverage.
EARINGS before a Civil Aeronautics Board Examiner in the so- REGULATORY PROCEEDINGS
called Northeastern States Area Investigation were concluded in
early 1958. This is one of a number of area proceedings in which the
CAB is investigating the need for local type scheduled airline
service in various regions of the country, and is concerned with the
AVAILABLE SEAT MILES
IN MILLIONS
1 nnn .. _
800 - - -
Ann - - -
. 200 ~ - - - m-m- r
.
1954 1955
PASSENGER MILES FLOWN
IN MILLIONS
-500
1954 1955 1956 1957 1958
1956 1957 1958
entire area served by your Company north of Washington, D. C.
Consolidated in the proceeding are many applications by airlines
and local interests.
Your Company has taken the position that it must not and
should not be forced to serve additional points at which its services
are not required by the public interest and could not be rendered
on an economically sound basis. The Examiner's Initial Decision
issued on November 12, 1958, is in substantial agreement with the
Company's position. The Board has received briefs and heard oral
argument, and final decision is expected within the year.
Hearings in the General Passenger Fare Investigation con
tinued in 1958 and were concluded in August, 1958, after an ex
haustive investigation into facts upon the basis of which the Civil
Aeronautics Board must determine whether increases in passenger
fares are necessary. In the opinion of your management and that of
other scheduled air carriers, such increases are essential to the
production of revenues which will permit the industry to maintain
its economic health and to continue to provide the satisfactory and
expanding service the public demands. Briefs were filed by the
parties in the case, including your Company, in October 1958.
Initial Decision by a CAB Hearing Examiner is now pending.
During the course of the hearings, in February 1958, the Board
permitted the carriers to increase fares by 4% plus $1.00 per ticket
during the pendency of the proceeding. Your Company has taken
the position that in its final decision, the Board should authorize a
substantial further increase in fares. Operating costs of all airlines
continue to climb. Except for Coach fares and the temporary in
creases permitted in 1958, the airline industry has been operating
under a fare structure substantially unchanged since 1938.
MANAGEMENT N ADDITION to the election of Mr. David A. Stretch as Chairman
of the Board, to succeed Mr. Gardner, the following other changes
in management have occurred since the year-end:
Thomas L. Grace, former President of Slick Airways and more
recently Executive Vice President of American Airmotive Corpora
tion of Miami, was elected Vice President of Operations on April
7, 1959.
Edmund O. Schroeder, who for the past three years has been
the Vice President of Maintenance, Supply and Overhaul of Seaboard
and Western Airlines, was elected Vice President of Engineering and
Maintenance, also at the meeting of the Board of Directors held
April 7, 1959.
Together, Grace and Schroeder have spent a total of 62 years
in aviation. Grace started flying in his native Omaha in 1927, giving
him a total of 32 years in and around airplanes. Schroeder, who
spent 12 years with United Airlines and 11 years with American
Airlines before joining Seaboard and Western in 1956, has been
actively engaged in all phases of airlines maintenance, overhaul,
industrial engineering and administration for the past 30 years. Both
men had outstanding service records during World War II.
Grace was named to succeed A. A. Lane, who several months
ago asked to be relieved of his executive responsibilities as Opera
tions Vice President but agreed to continue in office until his suc
cessor was named. Schroeder filled the vacancy left by the recent
resignation of D. W. H. MacKinnon.
HE FIRST QUARTER of 1959 has shown a substantial traffic in- OUTLOOK FOR 1959
crease in the long-haul Florida market. During January, February
and March, the Company carried 93,380 passengers in and out of
its Florida stations, or an increase of 27.5% over the corresponding
period of last year. Although Northeast must capture a larger share
of this market to insure over-all profitable results, the progress in the
early part of 1959 has been encouraging.
The confidence of your management in the future of Northeast
Airlines has been reaffirmed by the actual experience of December
1958. The year was concluded with the best month in the airline's
history, and while it must be conceded that the strike experienced
by our principal long-haul competition was in part responsible for
increasing our system load factor to an all-time high of 70 %, the
month's results indicate that the climate for profits does exist pro
vided a sufficient number of passengers can be encouraged to use
our service. Gross passenger revenues for the month aggregated a
record $3,294,000, generated by 120,000 passengers, and the opera
ting profit before interest charges amounted to $612,000.
We expect to carry over one and one-quarter million passengers
in 1959. During the year, we also hope to attain more efficient
utilization of our equipment.
Straight jet service to Florida is presently in the planning stage,
and it is hoped that this service will be introduced by the late Fall
of 1959. Northeast actually entered the jet age in 1958 with the
jet-prop Viscount acquisition. The Company is fully aware that to
insure success, Northeast Airlines must be competitive in terms of
equipment and quality of service.
Your Company confidently faces the challenges of the in
creased tempo of a jet-minded industry in the months and years
ahead.
LYBRAND, ROSS BROS. L MONTGOMERY
ACCOUNTANTS AND AUDITORS
NEW YORK
PHILADELPHIA
CHICAGO
BOSTON
BALTIMORE
WASHINGTON
PITTSBURGH
DETROIT
CLEVELAND
CINCINNATI
ROCKFORD
ST. LOUIS
LOUISVILLE
HARTFORD
BIRMINGHAM
DALLAS
HOUSTON
TULSA
SAN FRANCISCO
LOS ANGELES
SEATTLE
COOPERS L 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* 1958 and the related
statement of profit and loss and deficit for the year then
ended. Our examination was made in accordance 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 circumstances.
In our opinion, the accompanying statements
present fairly the financial position of Northeast Airlines,
Inc. at December 31* 1958 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.
Boston, Massachusetts
February 27* 1959
NORTHEAST AIRLINES, INC.
ASSETS
Current assets:
Cash in banks
Deposit under bank credit agreement
(restricted--see note B)
Receivables:
U. S. Government
Airline traffic
Recoverable under terminated Britannia
aircraft purchase contract
Other
Flight equipment expendable parts, at cost
less allowance for obsolescence
Prepaid insurance and other expenses
Miscellaneous supplies (at average cost)
Total current assets
Property and equipment, at cost:
Flight equipment and related spare parts
(notes B and C)
Ground property and equipment
Construction in progress and nonoperating property
$ 1,167,807
560,000
807,343
2,666,390
244,538
723,871
1,304,882
810,826
173,158
8,458,815
29,793,427
3,206,921
266,565
33,266,913
Less allowances for depreciation, amortization
and aircraft maintenance ; 7,955,299
Property and equipment less allowances 25,311,614
Deferred charges less amortization:
Route extension and development 162,257
Aircraft and station preoperating and training costs 1,367,509
Other 105,368
Other assets 170,814
BALANCE SHEET As at December 31, 1958
LIABILITIES
Current liabilities:
Current portion of 4%% notes payable (note B) $ 2,760,000
Equipment trust instalments due within one year 1,339,387
Accounts payable--general 2,948,514
Airline traffic accounts payable t? 613,961
Collections and withholdings as agent If 859,002
Accrued salaries, wages and vacations t 1,000,895
Accrued pension plan contributions f, 481,771
Other current and accrued liabilities jsf 301,927
Unearned transportation revenue 1,134,375
Total current liabilities s 11,439,832
4%% notes payable under bank credit agreement (note B) 5,543,000
Equipment trust certificates (note C) . . 8,874,443
5%% subordinated notes payable to affiliated company 5,823,685
Commitments (note F)
CAPITAL
Common stock, par value $1.00 per share:
Authorized--3,000,000 shares (note D)
Issued and outstanding--fully paid, 1,773,688 shares 1,773,688
Issued under stock purchase contract--10,000 shares at
50 cents per share paid (unpaid balance, $26,875) 5,000
Paid-in surplus 9,279,660
Deficit I (7,162,931)
Total capital (note B) 3,895,417
$35,576,377
The accompanying notes are an integral part of the above balance sheet.
DISTRIBUTION OF THE EXPENSE DOLLAR
SALARIES & WAGES
42.3%
FUEL & OIL
15.1%
LANDING FEES, UTILITIES, INSURANCE, ADVERTISING
SALES PROMOTION AND MISCELLANEOUS
20.0%
DEPRECIATION & AMORTIZATION
9.6%
MATERIALS & SUPPLIES
7.4%
RENTALS AND OTHER SERVICES
5.6%
NORTHEAST AIRLINES, INC-
STATEMENT OF PROFIT AND LOSS AND DEFICIT
For the Year Ended December 31, 1958
Operating revenues:
Passengers $22,803,445
Air mail, including $2,386,257 designated as
federal subsidy (note G) 2,780,149
Express, freight and excess baggage 945,990
Other, net 209,012
Total operating revenues 26,738,596
Operating expenses:
Flying operations 8,339,484
Maintenance and repairs 5,201,644
Provisions for depreciation and amortization 2,939,246
Aircraft and traffic servicing 5,778,324
Reservations and sales 2,853,312
Passenger service 1,897,238
Advertising and publicity 2,058,329
General and administrative 1,418,149
Total operating expenses 30,485,726
Operating loss 3,747,130
Nonoperating charges:
Interest expense 814,890
Unrecoverable expenses of terminated Britannia
aircraft purchase contract 257,297
Gain on sale and insurance settlement of aircraft (363,356)
Othercharges.net 184,051
Net loss 4,640,012
Special credit--air mail subsidy received
applicable to 1957 970,375
Net loss less special credit 3,669,637
Deficit at beginning of year 3,493,294
Deficit at end of year $ 7,162,931
The accompanying notes are an integral part of the above statement.
A -- Uniform System of Accounts:
The accompanying financial statements are prepared generally
in accordance with the Uniform System of Accounts for Air Carriers
prescribed by the Civil Aeronautics Board.
B -- Bank Credit Agreement:
The notes payable to banks under credit agreement are secured
by a mortgage on the company's flight equipment and related spare
parts, subject to prior rights of the trustee under equipment trust
certificates in Vickers Viscount aircraft and Rolls Royce engines
(note C). The notes are payable in quarterly instalments ending not
later than December 31, 1962. However, the company is in default
under provisions of the credit agreement requiring the maintenance
of minimum amounts of net worth and of working capital and as a
result the banks have the right to accelerate the due dates. The
credit agreement also requires with certain exceptions that proceeds
from the disposition of mortgaged property be applied to pre
payment of the last instalments of the notes. Such proceeds in the
amount of $560,000 are deposited in a cash collateral account at
December 31, 1958. The balance sheet reflects the 1959 note instal
ments plus $560,000 as the current portion of 434% notes payable.
At present no cash dividends or other payments may be made
on the company's common stock, because the credit agreement
limits such payments to a portion of net income accrued after
December 31, 1954.
C -- Equipment Trust Certificates:
Equipment trust certificates are secured by legal title to eight
Vickers Viscount aircraft and related Rolls Royce engines and by a
second mortgage on the company's other flight equipment and
related spare parts. Series A certificates, aggregating $9,731,490 at
December 31, 1958 are payable over seven years in monthly instal
ments of $144,000, applied first to interest at 5.237 % and the balance
to principal. Series B certificates, aggregating $482,340 at December
31, 1958, are payable over five years in equal monthly instalments of
$10,200 including interest at 7%. Instalments due in 1959 are in
cluded among current liabilities in the 1958 balance sheet. Additional
Series A certificates for $2,502,200 have been issued in 1959 upon
the purchase of two more Viscount aircraft.
D -- Employee Stock Option and Stock Purchase Plans:
At December 31, 1958, 75,000 shares of authorized and un
issued common stock are reserved under the company's stock
option plan for key employees. Options are granted at prices not
less than 85% of the fair market value of the stock on the dates
granted. At December 31, 1958, options to purchase 62,000 of these
shares are outstanding and exercisable at various prices aggregating
$459,500.
In addition to the foregoing plan 90,000 shares of authorized
and unissued common stock are reserved at December 31, 1958 for
sale to employees at a price, payable in instalments, not less than
fair market value thereof at the date of purchase contract.
E -- Retirement Plans:
Provisions under the company's retirement plans for employees
aggregating $395,706 have been charged to operating expenses for
1958. The amount unfunded under the plans at December 31, 1958
is approximately $375,000.
F -- Commitments:
The company is committed to the following major long-term
leases:
Boston hangar, to be occupied in 1960 for 25 years at a re
ducing annual rental of approximately $180,000 initially;
Idlewild, New York, hangar, presently occupied under a lease
expiring in 1968, at an annual rental of $117,000;
Idlewild, New York, terminal building to be constructed for
occupancy in 1960, for 25 years at an annual rental of approximately
$190,000;
Electronic reservations control system, leased until 1966 at an
annual rate of rental, less subleased capacity, of approximately
$140,000.
Two additional Viscount aircraft have been purchased early in
1959 under equipment trust certificates (note C).
G -- Air Mail Subsidy:
Air mail rates without subsidy are in effect from January 1,
1959. The company or the Civil Aeronautics Board has the right to
reopen mail rates for possible adjustment for periods subsequent
to such reopening.
PRINTED IN U.S.A.
MONTREAL
NOTES TO FINANCIAL STATEMENTS
A -- Uniform System of Accounts:
The accompanying financial statements are prepared generally
in accordance with the Uniform System of Accounts for Air Carriers
prescribed by the Civil Aeronautics Board.
B -- Bank Credit Agreement:
The notes payable to banks under credit agreement are secured
by a mortgage on the company's flight equipment and related spare
parts, subject to prior rights of the trustee under equipment trust
certificates in Vickers Viscount aircraft and Rolls Royce engines
(note C). The notes are payable in quarterly instalments ending not
later than December 31, 1962. However, the company is in default
under provisions of the credit agreement requiring the maintenance
of minimum amounts of net worth and of working capital and as a
result the banks have the right to accelerate the due dates. The
credit agreement also requires with certain exceptions that proceeds
from the disposition of mortgaged property be applied to pre
payment of the last instalments of the notes. Such proceeds in the
amount of $560,000 are deposited in a cash collateral account at
December 31, 1958. The balance sheet reflects the 1959 note instal
ments plus $560,000 as the current portion of 43^ % notes payable.
At present no cash dividends or other payments may be made
on the company's common stock, because the credit agreement
limits such payments to a portion of net income accrued after
December 31, 1954.
C -- Equipment Trust Certificates:
Equipment trust certificates are secured by legal title to eight
Vickers Viscount aircraft and related Rolls Royce engines and by a
second mortgage on the company's other flight equipment and
related spare parts. Series A certificates, aggregating $9,731,490 at
December 31, 1958 are payable over seven years in monthly instal
ments of $144,000, applied first to interest at 5.237 % and the balance
to principal. Series B certificates, aggregating $482,340 at December
31, 1958, are payable over five years in equal monthly instalments of
$10,200 including interest at 7%. Instalments due in 1959 are in
cluded among current liabilities in the 1958 balance sheet. Additional
Series A certificates for $2,502,200 have been issued in 1959 upon
the purchase of two more Viscount aircraft.
D -- Employee Stock Option and Stock Purchase Plans:
At December 31, 1958, 75,000 shares of authorized and un
issued common stock are reserved under the company's stock
option plan for key employees. Options are granted at prices not
less than 85% of the fair market value of the stock on the dates
granted. At December 31, 1958, options to purchase 62,000 of these
shares are outstanding and exercisable at various prices aggregating
$459,500.
In addition to the foregoing plan 90,000 shares of authorized
and unissued common stock are reserved at December 31, 1958 for
sale to employees at a price, payable in instalments, not less than
fair market value thereof at the date of purchase contract.
E -- Retirement Plans:
Provisions under the company's retirement plans for employees
aggregating $395,706 have been charged to operating expenses for
1958. The amount unfunded under the plans at December 31, 1958
is approximately $375,000.
F -- Commitments:
The company is committed to the following major long-term
leases:
Boston hangar, to be occupied in 1960 for 25 years at a re
ducing annual rental of approximately $180,000 initially;
Idlewild, New York, hangar, presently occupied under a lease
expiring in 1968, at an annual rental of $117,000;
Idlewild, New York, terminal building to be constructed for
occupancy in 1960, for 25 years at an annual rental of approximately
$190,000;
Electronic reservations control system, leased until 1966 at an
annual rate of rental, less subleased capacity, of approximately
$140,000.
Two additional Viscount aircraft have been purchased early in
1959 under equipment trust certificates (note C).
G -- Air Mail Subsidy:
Air mail rates without subsidy are in effect from January 1,
1959. The company or the Civil Aeronautics Board has the right to
reopen mail rates for possible adjustment for periods subsequent
to such reopening.
REVENUE MILES FLOWN
PASSENGER REVENUE
REVENUE PASSENGERS
CARRIED
AVAILABLE SEAT MILES
PASSENGER LOAD FACTOR
REVENUE PASSENGER MILES
AVAILABLE TON MILES
REVENUE TON MILES
OPERATING COST PER
AVAILABLE SEAT MILE
OPERATING COST PER
AVAILABLE TON MILE
WAGES AND SALARIES
NUMBER OF PERSONNEL
NET BOOK VALUE OF
PROPERTY AND EQUIPMENT
1958 1957 1956 1955
15,079,659 10,776,864 6,626,106 6,590,634
$22,803,445 $13,964,475 $8,138,375 $7,938,798
955,955 763,617 592,967 582,478
860,689,541 517,729,726 203,843,785 196,635,380
47.30% 47.36% 58.50% 59.22%
407,116,418 245,181,670 119,252,967 116,450,932
106,722,236 62,115,828 20,661,007 19,767,663
41,890,682 25,080,345 11,576,066 11,346,893
3.54?! 3.88?! 5.26?! 5.07?!
28.57?! 32.43?! 51.93?! 50.45?!
$12,664,019 $8,760,411 $5,404,014 $4,950,000
2,411 2,155 1,167 1,016
$25,311,614 $16,373,448 $2,163,920 $2,648,980
$7,118,264
523,489
186,418.896
55.91%
104,226,881
18,863,626
10,158,041
4.98?!
49.11?!
$4,586,846
971
$3,207,584
OVER 25 YEARS OF SCHEDULED AIRLINE SERVICE
NORTHEAST
AIRLINES