NORTHEAST A/Rl/1/ES ANNUAL REPORT - 1959 
 NORTHEAST AIRLINES 
ANNUAL REPORT 
for year ending December 31, 
1959 
MONTREAL 
PHILADELPHIA 
WASHINGTON 
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BOARD OF DIRECTORS 
DAVID A. STRETCH 
President 
Atlas Corporation, New York 
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. 
GEORGE E. GARDNER 
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. 
 DAVID A. STRETCH 
Chairman of the Board 
JAMES W. AUSTIN 
President and General Manager 
THOMAS L. GRACE 
Vice President 
Operations 
HAMILTON HEARD 
Vice President 
Administration 
R. P. LANE, JR. 
Vice President 
Finance and Treasurer 
E. 0. SCHROEDER 
Vice President 
Technical Services 
A. s. WALKER 
Vice President 
Ground Operations 
TRANSFER AGENT 
Old Colony Trust Company 
REGISTRAR 
The First National Bank of Boston 
OFFICERS 
GENERAL OFFICES: Logan International Airport, Boston 28, Massachusetts 
HENRY E. FOLEY 
Clerk of Corporation 
J. S. DANIELS, JR. 
Assistant Vice President 
Advertising and Promotion 
M. WILLSON OFFUTT III 
Assistant Vice President 
Sales 
WHEATON W. MIES 
Assistant Vice President 
Production 
H.F. ZIMMERMAN 
Assistant Treasurer 
CLARENCE I. PETERSON 
Assistant Clerk 
AUDITORS 
Lybrand, Ross J3ros. 
and Montgomery 
GENERAL COUNSEL 
Foley, Hoag & Eliot 
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TO THE SHAREHOLDERS OF NORTHEAST AIRLINES, INC.: 
Your Airline made substantial progress during the past 
year. In 1959, for the first time, Northeast carried over 
1,000,000 passengers in a single year. The 1,239,309 
passengers boarded in 1959 represent an increase of nearly 
300,000 passengers over 1958. Over one billion seat miles 
were produced for sale by Northeast in 1959, an increase 
of nearly 20 % over 1958. Of these extra seat miles 
produced, 65 % were sold, which constituted an overall 
increase of 27.5 % in total passenger traffic generated. 
This compares with the domestic trunk line industry's 
growth of 15.1 % during 1959 and marks the third 
consecutive year in which the traffic gains of Northeast 
exceeded the industry average. 
Passenger revenues during the year increased by 29.8 % 
and the cost of producing the additional seat miles 
generated raised operating expenses by 21.9 %. The cost of 
producing each seat mile for sale in 1959 was 3.60 cents, 
an increase of .06 cents, or 1.8 % over 1958. The domestic 
trunk line industry's seat mile costs, on the other hand, 
climbed to 3.75 cents, which represents an increase of 
.24 cents or 6.8 % over 1958. The year 1959 was the first 
in which your Company's unit cost structure was under 
the trunk line average. Unit seat mile costs are one of the 
recognized measures of the efficiency of airline operations. 
Maintenance of such costs at or below the industry average 
- notwithstanding the short-haul nature of a large part 
of your Company's operations - will continue to be 
a major objective of your management. 
Significant growth was registered during the year in the 
all-important Florida markets. Your Company enplaned 
and deplaned 280,226 passengers at its Florida stations, 
compared with 226,226 in 1958 and 97,108 in 1957. 
Considerable progress was also made in the penetration 
of the so-called commuter markets in the large 
Northeastern cities served primarily with Viscount jet-prop 
aircraft. Northeast's participation in these markets is 
substantial and has continued to increase notwithstanding 
intense competition from major airlines. In the Boston/ 
New York, New York/ Washington, Boston/ Washington 
and Boston/ Philadelphia markets, the number of 
passengers carried in 1959 was 115 % more than in 1958 
and 413 % more than in 1957. 
On December 17, 1959, Northeast inaugurated its jet 
service between New York and Miami with the Boeing 707 
Intercontinental jet. This jet, which is leased from TWA 
but operated by your airline, will seat 138 passengers. 
For the first four months of service, the load factor 
(percentage of available seats sold) on the daily round trip 
has averaged better than 80 %. This is the equivalent of 
111 passengers each mile the aircraft flew during that 
period. The performance factor (percentage of scheduled 
trips completed) was 100 %. Management believes that 
these high performance and load factors demonstrate 
the ability of your airline to compete effectively. 
On January 30 of this year, Northeast set a speed record 
from Miami to New York. The Boeing Intercontinental 707 
made the run in one hour and forty-five minutes with 152 
people aboard, including eight crew members and 
six infants. It is believed that the. 152 people aboard this 
record-making flight were the greatest number to be 
carried at one time in commercial transport service. 
Your Company's DC-6B aircraft, providing coach service 
to Florida with two abreast seating, represents in your 
management's opinion the best bargain in the coach 
market. On the average, however, the load factors achieved 
on the Florida coaches have not been sufficient to enable 
the Florida service as a whole or the airline as a whole to 
operate profitably. Despite the substantial increase in the 
number of Florida passengers during 1959 (24 % higher 
than 1958), revenues from the Florida coach service were 
only slightly higher than the previous year, thus reflecting 
the effect of the low coach fares which prevailed in the 
Florida market from April to December of 1959. These low 
fares (initiated by other carriers and reluctantly adopted 
by Northeast), required very high load factors merely to 
recover costs. On the basis of these results it is questionable 
whether the additional traffic generated by the low fares 
compensated for the diversion of passengers who might 
otherwise have traveled at regular fares. 
 Your Company's cash loss from operations in 1959, 
before providing for depreciation and amortization, 
was $1,723,461. This compares with $3,194,141 in 1958 
(after adjustment to a comparable subsidy-free basis), 
or an improvement of about one and a half million dollars 
over the preceding year. The net operating loss in 1959, 
after depreciation and amortization, was $5,707,915 as 
compared with $6,133,387 (before subsidy) in 1958. 
The Corporation's net loss, after interest and all other 
charges, amounted in 1959 to $7,061,984. The year 1959 
was the first in the Company's history in which it was 
completely without subsidy support from the Government, 
Northeast having been placed on a service (or non-subsidy) 
mail pay rate effective January 1, 1959. 
In 1959 the average passenger ticket was $23.88 which was 
about the same as the preceding year. The expense of 
carrying each passenger was reduced from $31.89 to $29.98, 
a reduction of almost $2 per passenger. At the cost and 
fare levels prevailing during 1959, your Company needed 
about 19 % more passenger revenue - to cover its 
operating expenses - than it actually obtained. The 
number of passengers carried by Northeast in 1959 would 
have been sufficient to cover operating expenses had the 
average price per ticket been about $6.00 greater. In 1959 
your Company received 5.7 cents on the average for each 
passenger mile sold, which is nearly 10 % less than the 
average return per passenger mile received by the airline 
ten years ago. In part, this reflects the change in the nature 
of the airline's operations brought about by the coach 
service to Florida. It also emphasizes, in the opinion of 
your management, the need for higher fares in the industry 
as a whole. On April 29, the Civil Aeroriautics Board 
announced the adoption of new rate-making standards for 
use in determining the level of airline fares. The amount 
of the actual fare increases that may be permitted under 
the new standards has not yet been decided and, 
accordingly, it is not possible to estimate the effect 
of this action on your Company's operations. 
It is apparent that any fare increase emanating from the 
Board's recent action will not alone insure profitable . 
operations. Future success depends in large part upon 
the acquisition by Northeast of a sufficient number of 
competitive jet aircraft for use on its long haul routes along 
the East Coast to Florida. To this end, your management 
is negotiating final arrangements for the acquisition and 
financing of Northeast's own jet fleet of six Convair 880 
aircraft. These negotiations are progressing well and 
management believes that satisfactory arrangements will be 
concluded soon. 
The Convair 880 will be the fastest jet in airline service 
and has the operating flexibility which should enable your 
Company to perform most efficiently on its present route 
structure. Even with only a moderate increase in your 
Company's participation in the Florida market over 
present levels and at the existing fare structure, these 
jets should produce substantial profits for Northeast. 
Additional funds will probably be required in connection 
with placing these jets in service. Although your Company 
has no specific proposal at the present time, financing 
plans under general consideration include public offerings 
to stockholders and others, private placements or exchange 
of debt for stock. 
During April of 1960 your Company had a small net 
operating profit, this being the first net operating profit 
earned in the month of April in the Company's history. 
Your management appreciates the hard work and 
cooperation of its many employees during this period of 
transition. In the years ahead the loyalty and enthusiasm 
of our employees will continue to be a valuable asset. 
The growing public acceptance of the services of 
Northeast Airlines augurs well for the,future. 
RESPECTFULLY SUBMITTED 
CHAIRMAN OF THE BOARD 
L u . ~ 
PRESIDENT AND GENERAL MANAGER 
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ASSETS 
CURRENT ASSETS: 
Cash 
Restricted bank deposits (note B) 
Accounts receivable . 
Flight equipment expendable parts, at cost 
less allowance for obsolescence 
Prepaid insurance and other expenses . 
Miscellaneous supplies, at average cost 
TOT AL CURRENT ASSETS 
Special deposits and other assets 
Property and equipment, at cost: 
Flight equipment and related spare parts 
(notes B and C) . 
Ground property and equipment 
Less allowances for depreciation, amortization 
and aircraft maintenance 
Deferred charges less amortization: 
Route extension and development 
Aircraft and station preoperating and 
training costs . 
Other 
NORTHEAST AIRLINES, INC. BALANCE SHEET As at December 31, 1959 
f 
$ 684,832 
1,260,000 
3,335,008 
1,740,120 
1,037,279 
204,796 
$ 8,262,035 
183,181 
31,328,884 
3,673,156 
$35,002,040 
10,384,397 
$24,617,643 
106,626 
2,277,227 
122,148 
$35,568,860 
{ 
LIABILITIES 
CURRENT LIABILITIES: 
4% notes due within one year, including amounts subject 
to prepayment (note B) 
Equipment trust certificates due within one year (note C) 
Collections as agent and trade accounts payable . 
Accrued compensation and vacation pay 
Accrued pension costs (note E) 
Unearned transportation revenue 
TOTAL CURRENT LIABILITIES 
4% notes payable under bank credit agreement (note B) 
Equipment trust certificates (note C) . 
Commitments and contingent liabilities (note F) 
5% subordinated notes payable to affiliated company 
CAPITAL 
Common stock, par value $1.00 per share: 
Authorized - 3,000,000 shares (note D); 
Issued and outstanding - fully paid, 1,783,688 shares 
Paid-in surplus 
Deficit 
The accompanying notes are an integral part of this balance sheet. 
$ 3,340,000 
1,735,879 
6,565,699 
891,213 
719,570 
879,702 
$14,132,063 
2,763,000 
9,371,680 
12,441,809 
1,783,688 
9,301,535 
(14,224,915) 
$35,568,860 
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NORTHEAST AIRLINES, INC., STATEMENT OF PROFIT AND LOSS AND DEFICIT 
For the Year Ended December 31, 1959 
OPERATING REVENUES: 
Passengers 
Air mail 
Express, freight and baggage 
Other 
TOTAL OPERATING REVENUES 
OPERA TING EXPENSES: 
Flying operations 
Maintenance and repairs 
Depreciation and amortization . 
Aircraft anq traffic servicing 
Reservations, sales, advertising and publicity 
Passenger service . 
General and administrative . 
TOTAL OPERATING EXPENSES . 
OPERATING Loss 
NONOPERATING CHARGES: 
Interest expense 
Gain on sale of flight equipment and 
other property 
Other charges 
NET Loss 
Deficit at beginning of year 
Deficit at end of year . 
The accompanying notes are an integral part of this statement. 
$29,595,435 
469,097 
1,136,939 
248,763 
$31,450,234 
$10,427,125 
6,705,181 
3,984,454 
6,999,002 
4,845,114 
2,664,002 
1,533,271 
$37,158,149 
$ 5,707,915 
1,464,434 
(252,111) 
141,746 
$ 7,061,984 
7,162,931 
$14,224,915 
 LYBRAND, Ross BRos. r,__, MoNTGOMERY 
ACCOUNTANTS AND AUDITORS 
Northeast Airlines, Inc. 
Boston, Massachusetts  
NEW YORK DETROIT l!IIRMINGHAM 
PHILADELPHIA CLEVELAND DALLAS 
CHICAGO CINCINNATI HOUSTON 
l!IOSTON ROCKFORD TULSA 
l!IALTIMORE ST. LOUIS SAN FRANCISCO 
WASHINGTON LOUISVILLE LOS ANGELES 
PITTSl!IURGH HARTF"ORO SEATTLE 
COOPERS U. LYBRAND 
IN AREAS OF THE WORLD 
OUTSIDE THE UNITED STATES 
We have examined the balance sheet of Northeast 
Airlines, Inc. as at December 31, 1959 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 pro- 
cedures 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, 1959 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. 
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M~~6~chusetts ~ 
1 
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NOTES TO FINANCIAL STATEMENTS 
A - UNIFORM SYSTEM OF ACCOUNTS: 
The accompanying financial statements are prepared gener~lly 
in accordance with the Uniform System of Accounts for Air Car- 
riers prescribed by the Civil Aeronautics Board. 
B -BANK CREDIT AGREEMENT: 
The notes payable to banks under credit agreement are se- 
cured by a mortgage on the company's flight equipment and re- 
lated spare parts, subject to prior rights of the trustee under equip~ 
ment 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. The company has main- 
tained its principal and interest payments, but it is in default under 
certain other provisions of the credit agreement, including the 
maintenance of minimum amounts 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 pro- 
ceeds from the disposition of mortgaged property be applied to 
prepayment of the last instalments of the notes and $1,260,000 
has been deposited for this purpose. 
C - EQUIPMENT TRUST CERTIFICATES: 
Equipment trust certificates are secured by legal title to ten 
Vickers Viscount aircraft and related Rolls Royce engines and by 
a second mortgage on the company's other flight equipment and 
related spare parts. The principal and interest of the trust certifi- 
cates are payable at the rate of $190,200 per month until September, 
1963 and thereafter in declining amounts until the final payment 
in February, 1966. 
D - EMPLOYEE STOCK OPTION AND 
STOCK PURCHASE PLANS: 
At December 31, 1959, 75,000 shares of authorized and unis- 
sued common stock were 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, 1959 options to purchase all 75,000 
shares were outstanding with options as to 62,000 shares presently 
exercisable at various prices aggregating $459,500 and options as 
to 13,000 shares becoming exercisable in 1960 at various prices 
aggregating $94,250. 
E - RETIREMENT PLANS: 
Provisions under the company's retirement plans for em- 
ployees aggregating $582,828 have been charged to operating ex- 
penses for 1959. The amount unfunded under the plans at Decem- 
ber 31, 1959 was approximately $360,000. 
F - COMMITMENTS AND CONTINGENT LIABILITIES: 
The company is committed to pay annual rentals approximat- 
ing $950,000 under long-term leases for hangar, terminal and 
reservation facilities presently in use or to be occupied soon. 
Under certain circumstances the company is obligated to make 
additional payments to employees upon termination of employ- 
ment; these amounts are charged to expense when paid. 
 5 YEAR STATISTICAL 
RECORD OF PROGRESS 
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 
1959 1958 
18,634,712 15,079,659 
$29,595,435 $22,803,445 
1,239,309 955,955 
. 1,031,545,734 860,689,541 
50.32% 47.30% 
519,122,839 407,116,418 
120,512,961 106,722,236 
52,875,577 41,890,682 
3.60 3.54 
30.83 28.57 
$15,463,760 $12,664,019 
2,553 2,411 
$24,617,643 $25,311,614 
1957 1956 1955 
10,776,864 6,626,106 6,590,634 
$13,964,475 $ 8,138,375 $ 7,938,798 
763,617 592,967 582,478 
517,729,726 203,843,785 196,635,380 
47.36% 58.50% 59.22% 
245,181,670 119,252,967 116,450,932 
62,115,828 20,661,006 19,767,663 
25,080,345 11,576,066 11,346,893 
3.88 5.26 5.07 
32.43 51.93 50.45 
$ 8,760,411 $ 5,404,014 $ 4,950,000 
2,155 1,167 1,016 
$16,373,448 $ 2,163,920 $ 2,648,980 
 OVER 26 YEARS OF SCHEDULED AIRLINE SERVICE 
1111/THEAST 
AIRLINES