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NORTHEAST AIRLINES ANNUAL REPORT 1967
- -
I a I I I 1 -
1 I I I I I I I I I I I I I I I I I I I I I I I
I I I I I I I
With thirty-five planes in service, twenty-two new in 1967 and 1968, and none more than 29 months old, the Northeast fleet is one of the industry's most modern.
Northeast received the first Boeing 727-200 delivered to any airline, and six of the first twelve
such aircraft to go into service. Addition of the 141-passenger super-jets on its long-haul routes
greatly improves the Company's competitive position and operating efficiency.
With these additions in 1967 and early 1968, Northeast accomplished an almost complete turnover
of flight equipment. The Company introduced twenty-two new aircraft and phased out eighteen,
In addition to its six Boeing 727-200's, the Yellowbird fleet now numbers eight regular Boeing
727's, fourteen Douglas DC-9's and seven Fairchild-Hiller FH-227 propjets. With retirement of
the final DC-6 and Convair 880 aircraft, Northeast now has one of the most modern fleets in the
industry.
1
2
1967
AT A GLANCE
Highlights
CAB awards Northeast permanent Florida cer-
tificate.
Northeast gets Montreal - Florida non - stop
service.
CAB examiner recommends Northeast for Ba-
hamas service.*
Northeast resumes service to Tampa, Jackson-
ville and Hartford.
Northeast launches major new advertising pro-
gram.
*Non-stop Bahamas-Boston and Bahamas-New
York routes were confirmed by CAB in February,
1968.
Operations
Passengers carried .. . . .. ............ ....... . .. .. .
Revenue Passenger Miles . ....... ........ ... ... .. .
Revenue Plane Miles ...... .......... .. . .. .. . . . .. .
Available Seat Miles .. ..... ....... . . . . ..... ..... .
Operating Revenues
F. C. Wiser, Jr., President
1967 1966 Change
2,399,015 2,047,384 +17.2%
1,186,300,000 940,300,000 +26.2%
23,536,200 19,546,100 +20.4%
2,234,200,000 1,614,600,000 +38.4%
$78,580,301 $62,271,610 +26.2%
The overall strength of our Company at the be-
ginning of 1968 is the greatest in its history,
reflecting a year of widespread activity and sub-
stantial advances during 1967.
Our route structure was expanded and consoli-
dated. In March the Civil Aeronautics Board
granted Northeast its long-awaited permanent
authority to serve Florida. The non-stop route
between Montreal, Miami and Tampa was
awarded to the Company, and service was in-
augurated in November. The Company also
scheduled new services between Washington
and Miami, Boston and Tampa, New York and
Tampa, New York and Jacksonville, and Hart-
ford and Miami. With these schedules, the
Company, at the end of 1967, was competing in
every market for which it held certificates. Ad-
ditionally, in early 1968, the CAB awarded the
Company non-stop routes between Boston,
New York and the Bahamas, and this service
is expected to be operational in May, 1968.
The ultimate objective of our intensive route
development plan, discussed in detail later in
this report, is to compete for any new route
which, when combined with our present sys-
tem, will give us a better balance between
short-haul markets and high density medium-
to-long-haul markets, and between routes of a
highly seasonal nature and those with more
stable characteristics.
During 1967 and early 1968, Northeast virtu-
ally completed its fleet transition program, as
detailed earlier in this report, and in record
time. Climaxed by addition of our six Boeing
727-200's, the Yellowbird fleet is now one of
the most modern in the industry.
Of course, there were delays and disappoint-
ments, attributable largely to "growing pains."
Aircraft delivery delays prevented much of our
new equipment from being fully effective dur-
ing the important Florida winter season. Delays
in delivery of Douglas DC-9 equipment im-
paired our profit potential in the Boston-New
York "commuter" service, but by year's end we
had recovered our share of this market lost to
a competitor who entered it earlier in the year.
In addition, the constant rescheduling of air-
craft and personnel resulting from the above
delays made it impossible to realize the full
efficiency of our new equipment. Under the
circumstances our reduction in operating cost
per available seat mile from 3.83 to 3.65, and
increase in seat miles offered from 1,614,600,000
to 2,234,200,000 must be considered very satis-
factory.
Operating revenues were improved substan-
tially from $62,271,000 in 1966 to $78,580,000
in 1967. However, the adverse factors noted
above and the costly final phases of the overall
rehabilitation program resulted in a net loss
of $6,527,000. This loss included an extraor-
dinary loss of $1,300,000 resulting from esti-
mated loss on disposal of aircraft retired from
service and spare parts. Although substantial
losses were inevitable in 1967, the major steps
necessary to prepare our airline for a profitable
future have been taken and the outlook is
bright both from the standpoint of improved
opera ting efficiency and increased revenues.
During the year there were some important
executive appointments. Mr. D. A. Colussy
was named Vice President-Sales. Mr. P. J.
Dunphy was named Vice President-finance.
Major General Lewis E. Lyle joined the Com-
pany in August as Vice President-Operations
Administration and was named Senior Vice
President-Operations on January 15, 1968.
With the award of permanent Florida route
authority, Northeast has finally acquired a
route base which can support expansion. Cur-
rently, the Company is an applicant for six ad-
ditional major routes, and is prepared to pursue
any and all other suitable opportunities which
may develop. Aggressive advertising and pro-
motional programs during 1967 set the stage
for further broadening of the Company's sales
and marketing activities during 1968.
It is management's sincere belief that, while
there will continue to be problems, the major
and most costly phases of our rehabilitation
program are behind us. With continued excel-
lent performance by all of our employees, we
feel justified in now expressing cautious opti-
mism for 1968 and the years ahead.
Respectfully submitted,
March 15, 1968 F. C. Wiser, President
TO OUR
STOCKHOLDERS
3
4
Marketing-The Yellowbirds Corne of Age.
New sales and promotional programs during
1967 have set the stage for further broadening
the Company's revenue sources in 1968. The
Yellowbird theme, which has captured the pub-
lic fancy as one of the industry's most effec-
tive, took on a strong new personality late in
the year, with advertising emphasis on a whole
new " package" of passenger comfort items and
improved food service. The challenging theme,
with subtle suggestions of route expansion, as-
sures the prospective customer, "You'll wish we
flew everywhere!"
In support of this effort, Northeast placed all
catering under a single contract to the highly
regarded Marriott Corporation in October,
1967. Formal training programs were imple-
mented in the area of reservations, ticketing,
tour sales and other public contacts. Reserva-
tions capacity was considerably expanded, and
an IBM 360 Model 20 computer was put into
service to provide greatly improved seat con-
trol. A computerized sales information system
was developed and implemented to provide ac-
curate and timely data on sales performance in
all markets. A sales quota system was devel-
oped so that sales productivity could be mea-
sured in all sales districts.
Meanwhile, imaginative innovations were in-
troduced to further broaden revenue sources.
Beginning in October, a full time aircraft was
committed to charter service in an effort to
maximize revenues during the off-peak periods.
Other programs were developed to focus at-
tention on convention, military, credit, travel
agent, package tours and interline sales. Addi-
tional emphasis was placed on developing cargo
sales by combining the sales and service func-
PHOTOS-Top Left: Flight personnel is care-
fully selected, thoroughly trained, completely
responsible. Top Right: Passenger handling fa-
cilities have been modernized and streamlined
at all terminals. Center: Improved equipment
aids ground personnel in matching increased
efficiency of fl.ight operations. Lower Left: Ex-
panded schedules require expanded facilities for
processing reservations. Training of new per-
sonnel in proper handling of public contacts is
a continuing concern. Lower Right: New com-
puter center at Andover, Mass. not only helps
in financial matters, scheduling, operations, mar-
ket analysis and similar functions, but speeds
the fl.ow of information essential to fast and
effective management decisions.
tions under one department. In addition, plans
were made to commence late night cargo flights
both north and southbound in the Florida mar-
kets for implementation early in 1968.
A special effort was made to stimulate weekend
traffic in the commuter and New England mar-
kets by the introduction of a promotional fare
which consisted of one-way fare plus $5 for a
round trip during off-peak weekend hours.
Additionally, a fare adjustment in August re-
sulted in an overall increase in New England
fares to bring revenues in line with the cost of
serving these short-haul markets.
As a result of these considerable management
efforts, substantial progress was made in 1967
in expanding our traffic in all markets. If the
two strike months of July and August, 1966 are
excluded from the totals, our Florida traffic
grew by 60%, our commuter traffic by 4% and
New England by 22%, for an overall passenger
growth of 22%. We were pleased by the im-
provement of our competitive position in our
Florida markets. We were able to make signifi-
cant gains in every Florida city we serve.
Our performance in the commuter markets was
hampered materially by delays in aircraft de-
liveries. The major problem experienced in this
area was in the Boston/ LaGuardia market. Due
to the late deliveries of DC-9 aircraft, all-jet
service was not started until May 15. Dur-
ing this interim period, a third carrier entered
the market with hourly jet service on Febru-
ary 14, 1967 when Northeast was operating
DC-6 equipment only. This new jet competi-
tion caused Northeast to lose a large share of
the market. It was not possible to provide com-
petitive jet schedules until May 15. Since that
time, we have made steady progress in improv-
ing our competitive position. By the end of
1967, our share of the total market was greater
than it had been prior to the entry of the addi-
tional carrier. This achievement again illus-
trates our improved competitive ability.
Since the noted aircraft delivery delays and
other factors prevented many of these activities
from gaining momentum until the later part of
1967, it is expected that they will assure even
better marketing performance for 1968.
Maintenance cost improvements
Maintenance cost factors for 1967 were sub-
stantially below 1966 levels. Maintenance cost
per available ton mile decreased from 6.35 in
1966 to 5.47 in 1967. This is particularly im-
pressive in that it reflects only partially the full
PROGRESS
REPORT 1967
5
6
effects of the rehabilitation program. During
a large part of the year the Company was still
faced with the abnormal expense and ineffi-
ciency of maintaining both piston and jet air-
craft of seven different types.
Maintenance personnel numbered 1128 as of
December 31, 1967 compared to 1057 the previ-
ous year, and maintenance cost per available
seat mile was .70 for 1967 compared to.81 in
1966. Engine reliability on the basic engine in
the fleet, the Pratt and Whitney JT8D, ex-
ceeded anticipated standards.
Phase-out of the DC-6B and CV880 aircraft
should permit the Company to realize fully in
1968 the improved reliability and maintenance
efficiency which are major objectives of the
rehabilitation program.
Management controls
In keeping with the growth of its operations,
the Company has brought in experienced man-
agement and planning personnel and is supply-
ing them with advanced equipment to imple-
ment their scientifically designed management
control program.
Significant progress is being made in electronic
data processing systems to improve efficiency
in inventory control, crew planning and flight
planning, as well as to speed the flow of essen-
tial information to management. An extensive
cost control program is also contributing sub-
stantially to reduced operating expenses.
The Financial Division has instituted compre-
hensive planning programs designed to speed
operations and facilitate management decisions,
while two of the most advanced multi-purpose
computers available are on order to fill the
needs of a truly efficient real time reservation
system.
PHOTOS-Facing Page, Top Left: Detailed in-
doctrination in new aircraft and, top right,
"Ground School" for pilots parallel the com-
plete modernization of th e Y ellowbird fl-eet.
Center Left: Even qualified stewardesses under-
go additional training to meet Northeast's high
standards. Center Right, and Lower Left and
Right: Maintenance crews have improved per-
formance and help lower costs in every phase
of operation. This Page, Right: New non-stop
schedules between Florida and Montrec.l, above;
and recently granted authority to serve the
Bahamas, below, direct from New York and
Boston, have materially strengthened the Com-
pany' s route structure.
7
Seattle
Portland
San Francisco
8
ROUTE
DEVELOPMENT
Minneapolis St. Paul
Milwaukee
The ability of Northeast Airlines to fulfill its
public service obligations, to provide a high
standard of service to its markets, and to realize
its profit opportunities depends on a strong
network of route authority. Permanent certi-
fication for Florida, the new Miami-Montreal
service and the Bahamas routes are major
improvements.
However, the Company faces a continuing task
in fully developing its present routes and ob-
taining new route authority. The new authority
is needed to provide a market opportunity of
sufficient size to enable Northeast to earn a re-
turn on investment consistent with that of
other trunk carriers.
As of January 1, 1968, Northeast is an applicant
in six major route expansion opportunities de-
signed to give the Company a better balance
in such essentials as route length, market dens-
ity, seasonality and competitive pressure.
Hearings have been held and exhibits presented
on the Bermuda, Great Lakes and Southern Tier
services. Others are in preliminary stages :
Bermuda The application proposes to provide
new service between Bermuda and Chicago,
Detroit, Boston, Baltimore, Washington, and
Philadelphia.
Presque Isle
Montego Bay
Kingston
Northern New England-Great Lakes Northeast
proposes to provide new service needed be-
tween Maine, New Hampshire, and Vermont in
the East, and Albany, Cleveland, Detroit, and
Chicago.
Twin Cities-Milwaukee Long Haul Services
Application has been made to provide service
from Boston, New York, Philadelphia, Wash-
ington, D.C. and Baltimore to Milwaukee,
Minneapolis, St. Paul, Seattle, and Portland,
Oregon.
Southern Tier Service Authority is being sought
to provide competitive service between Miami,
Tampa, New Orleans, Houston, Dallas/ Fort
Worth, Los Angeles, and San Francisco.
Caribbean Service Northeast is proposing to
provide competitive vacation market service be-
tween Boston, Philadelphia, Washington, D.C.,
Baltimore and such points in the Caribbean as
Jamaica, Puerto Rico and the Virgin Islands.
East Coast Points to Europe Application has
been made to provide new trans-Atlantic ser-
vice between Miami and London and between
other East Coast cities and points in Europe.
/
London
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/VORT~/.:AST
ROUTE
DEVELOPMENT
New England/ Great Lakes Service - - -
T wir:ities/ Mdwaukee Long Haul Service
Southern Tier - - -
Bermuda - - -
London/ Florida
Bahamas - - -
Caribbean _ _ _
Barbados
SOURCE AND
USE OF FUNDS
(WORKING
CAPITAL)
Y ears Ended
December 31, 1967 and 1966
5-YEAR COMPARISON
Passenger Revenue
Other Revenue
%
Increase
1967
vs.
1966
+ 26.81%
+ 20.23%
- --
1967
$71,491,586
7,088,715
Total Revenue + 26.19% $78,580,301
Revenue Passengers Carried
Revenue Plane Miles
Available Seat Miles (000)
Load Factor
+ 17.17%
+ 20.41%
+ 38.37%
+ 26.15%
+ 4.78%
2,399,015
23,536,165
2,234,209
53.09%
1,186,321
50.40
Revenue Psgr. Miles (000)
Average Psgrs. per Mile
Available Ton Miles
Revenue Ton Miles
Operating Cost per
+ 39.34% 287,920,297
+ 24.56% 120,374,899
Available Ton Mile
Operating Cost per
Available Seat Mile
-5.30%
-4.70%
28.34
3 .65
Payroll Total Wages &
Salaries + 29.01% $31,514,927
Number of Personnel + 17.94% 3,629
Source of funds:
Operations:
Net income (loss)
Charges not requiring funds currently:
Depreciation and amortization
Other
Disposal of property and equipment, and
transfer to current assets of certain items
held for sale (note A)
Issuance of:
Long-term debt, net
Common stock
Use of funds:
Property and equipment:
Aircraft and parts, including deposits
Ground property and equipment
Jet aircraft integration costs
Route development costs
Other, net
Increase (decrease) in working capital
1966 1965 1964 1963
$56,375,713 $41,708,467 $36,819,403 $39,888,763
5,895,897 6,500,982 5,884,572 4,026,042
$62,271,610 $48,209,449 $42,703,975 $43,914,805
2,047,384 1,648,788 1,411,783 1,371,030
19,546,134 15,856,856 14,290,315 16,948,778
1,614,615 1,235,933 1,128,659 1,291,063
58.23% 54.50% 52.77% 50.21%
940,337 673,648 595,634 648,362
48.10 42.48 41.68 38.25
206,632,468 155,544,052 142,770,650 160,835,808
96,634,219 69,034,617 61,193,858 66,754,323
29.939' 31.10 30.60 32.689'
3.83 3.92 3.87 4 .07
$24,428,640 $18,766,007 $16,282,843 $18,196,945
3,077 2,341 2,062 2,025
1967 1966
($ 6,526,541) $ 127,402
2,625,733 923,772
805,402 432,729
(3,095,406) 1,483,903
2,650,800 781,796
15,055,732 22,459,874
44,633 171,525
14,655,759 24,897,098
13,337,879 14,703,807
9
1,696,324 2,327,588
4,575,937 1,878,224
146,368 241,498
10,871 621,186
19,767,379 19,772,303
($ 5,111,620) $ 5,124,795
The accompanying notes are an integral part of these statements.
ASSETS
10
NORTHEAST AIRLINES, INC.
BALANCE SHEET
DECEMBER 31, 1967 and 1966
Current assets:
Cash
Certificates of deposit
Note receivable
Accounts receivable
Inventories of aircraft parts and supplies, at cost, and items
held for sale (note A)
Prepaid expenses
Total current assets
Deposits under equipment program
Property and equipment, at cost (notes A and B):
Flight equipment and related spare parts
Ground property and equipment
Less allowances for depreciation and amortization
Leased flight equipment (note A)
Deferred charges and other assets:
Jet aircraft integration costs (note A)
Route development costs
Unamortized debt expenses
Other
1967 1966
$ 7,443,301 $ 1,172,002
6,033,840
3,000,000
8,809,803 6,166,259
4,247,514 3,070,796
1,492,557 1,007,153
21,993,175 20,450,050
2,239,701 3,549,653
26,713,300 27,156,462
8,055,031 7,028,953
34,768,331 34,185,415
6,228,759 16,470,647
28,539,572 17,714,768
6,443,289 2,357,288
471,799 325,431
865,450 725,485
445,198 467,306
8,225,736 3,875,510
$60,998,184 $45,589,981
LIABILITIES
STOCKHOLDERS'
EQUITY
Current liabilities:
Current maturities of long-term debt
Accounts payable
Accrued s~laries and wages
Accrued vacation pay
Contributions to employee pension plans
Unearned transportation
Collections as agent
Total current liabilities
Estimated employee termination liability
Convertible subordinated debentures and long-term debt, less
current maturities (note B)
Commitments and contingencies (notes A and F)
Common stock, par value $1.00 per share
Authorized 7,500,000 shares (notes Band D)
Issued 6,369,283 shares and 6,364,783 shares including 500 and
1,004 treasury shares
Additional paid-in capital
Retained earnings (deficit) since January 1, 1966 (note B)
Total stockholders' equity
The accompanying notes are an integral part of these statements.
1967 1966
$ 2,556,155
7,024,039 $ 5,291,462
1,111,236 577,953
1,448,598 1,213,784
885,349 640,993
2,851,600 2,035,604
2,692,522 2,154,958
18,569,499 11,914,754
556,292 560,249
38,439,323 23,200,000
6,369,283 6,364,783
3,462,926 3,422,793
(6,399,139) 127,402
3,433,070 9,914,978
$60,998,184 $45,589,981
11
STATEMENT OF Operating revenues: 1967 1966
INCOME Passenger $71,491,586 $56,375,713
Express, freight and baggage 1,918,059 1,901,883
Y ears Ended
Mail 597,916 762,971
December 31, 1967 and 1966
Federal subsidy (note E) 2,823,000 2,200,000
Other, net 1,749,740 1,031,043
Total operating revenues 78,580,301 62,271,610
Operating expenses:
Flying operations, including direct maintenance
of flight equipment 34,030,772 26,346,276
Other maintenance and repairs 7,319,588 5,499,458
Aircraft and traffic servicing 14,367,303 11,669,158
Promotion and sales 11,547,241 8,979,832
Depreciation and amortization 2,625,733 923,772
Passenger service 7,217,308 5,400,979
General and administrative 4,505,679 3,023,407
Total operating expenses 81,613,624 61,842,882
Operating income (loss) (3,033,323) 428,728
Nonoperating charges:
Interest expense 1,778,729 599,850
Other, net 414,489 (298,524)
Net income (loss) before extraordinary item (5,226,541) 127,402
Estimated loss on disposal of aircraft and parts (note A) 1,300,000
Net income (loss) ($ 6,526,541) $ 127,402
STATEMENT OF Balance at beginning of year $ 127,402
RETAINED Net income (loss) per statement of income (6,526,541) $ 127,402
EARNINGS Balance at end of year ($ 6,399,139) $ 127,402
STATEMENT OF Balance at beginning of year $ 3,422,793 $ 3,143,859
ADDITIONAL Amounts applicable to stock issued under employee stock
PAID-IN CAPITAL option plans (note D) 16,250 119,375
Fair market value of stock distributed to employees as bonus 103 142,209
Amount applicable to stock sold to an officer with resale
restrictions 23,780 17,350
Balance at end of year $ 3,462,926 $ 3,422,793
The accompanying notes are an integral part of these statements.
12
NOTES TO FINANCIAL
STATEMENTS
A-Equipment program and lease
commitments:
At December 31, 1967 Northeast is leasing
or is committed to lease twelve Boeing 727
and ten Douglas DC 9-30 aircraft and
related spare parts from Storer Leasing
Corporation (a subsidiary of Storer Broad-
casting Company, majority owner of
Northeast's stock) for a thirteen-year pe-
riod from dates of delivery of respective
equipment. All aircraft have been received
and are in operation except for three Boe-
ing Model 727-200 aircraft. Lease rental
expense, which approximated $4,400,000 in
1967, is expected to approximate $9,600,000
in 1968 and $9,800,000 aruwally thereafter.
Northeast has contracts to purchase three
Douglas Model DC 9-30 aircraft and re-
lated spare parts which are scheduled for
delivery in 1968 at an approximate cost of
$10,000,000. At December 31, 1967 approxi-
mately $2,200,000 had been deposited by
Northeast with Douglas in conjunction
with these contracts. The balance of the
purchase price will be financed, in part, by
the aircraft manufacturers and in part
through borrowings from institutional
lenders for which Northeast has commit-
ments of up to $7,700,000 at December 31,
1967.
Training and other aircraft integration
costs incurred in conjunction with the pres-
ent equipment program are being amor-
tized over a ten-year period.
In 1967, Northeast disposed of five Douglas
DC-6B aircraft, and in 1968 anticipates dis-
posing of its two remaining DC-6B aircraft,
terminating its lease of four Convair 880
aircraft, and disposing of related spare
parts. The two DC-6B aircraft, spare en-
gines and parts relating to these owned and
leased aircraft have been included in cur-
rent assets at their estimated realizable
value.
Rentals under long-term leases in effect at
December 31, 1967 for hangar, terminal
and reservations facilities approximate
$2,000,000 on an annual basis.
B-Convertible subordinated debentures
and long-term debt:
Long-term debt at December 31, 1967 was
as follows (excluding installments due in
1968):
Series A Secured Notes, 6J~%
,
due quarterly through 1973
Series B Secured Notes, 7%
,
due semi-annually from
1974 through 1979
Subordinated Notes to Air-
craft Manufacturers, 6)~%
and 6?-t%
, due quarterly
through 1979
Convertible subordinated
debentures, 63f% (no change
since December 31, 1966)
$11,647,770
2,299,000
2,492,553
22,000,000
$38,439,323
The 63f% convertible subordinated deben-
tures due August 1, 1986 are convertible
into common stock at $25 per share, sub-
ject to adjustment in certain events, and
880,000 shares of common stock are re-
served for such conversion. The debentures
are redeemable in whole or in part on and
after August 1, 1968 at 105Jl% during the
year beginning August 1, 1968 and at de-
creasing prices thereafter. Northeast is re-
quired to provide $1,100,000 annually from
1976 to 1985 for sinking fund redemptions.
The debentures impose certain restrictions
on cash dividends and stock repurchases,
but these are less restrictive than those
provided under certain loan agreements,
which are noted below.
So long as certain indebtedness (with ma-
turities extending to 1979) is outstanding
under loan agreements between Storer
Broadcasting Company and Northeast Air-
lines, respectively, and certain banks and
institutional investors in conjunction with
financing the acquisitions of jet flight
equipment leased to or purchased by
Northeast, the Broadcasting Company and
Northeast have respectively warranted that,
without prior consent of the lenders,
Northeast will not pay dividends in excess
of 25% of net earnings from January 1, 1966
to December 31, 1968 and 50% of net earn-
ings thereafter.
Substantially all of Northeast's owned
flight equipment and related spare parts
are pledged as collateral for the secured
notes and the subordinated notes to air-
. craft manufacturers.
C-Retirement plans:
Northeast's policy is to accrue in its ac-
counts and to fund the current service cost
of the noncontributory trusteed retirement
plan for employees and supplementary
contributory retirement plan for pilots
which approximated $1,300,000 in 1967.
Amounts so funded and accrued exceed the
actuarially estimated present value of
vested benefits.
0-Employee stock option plan:
At December 31, 1967 111,000 shares of
authorized and unissued common stock
were reserved under Northeast's Qualified
Stock Option Plan for key employees
adopted in 1964 under which options are
granted at prices not less than fair market
value on dates granted. At December 31,
1967, options were outstanding and exer-
cisable to purchase 4,750 shares at $4.125,
2,500 shares at $18.50, 15,000 shares at
$18.6875, 12,500 shares at $32.875 and
22,500 shares at $20.1875, aggregating
57,250 shares and $1,211,313; and options
were outstanding exercisable in 1968, to
purchase 17,500 shares at $26.125 aggre-
gating $457,188.
Also at December 31, 1967 options were
outstanding and exercisable for key em-
ployees to purchase 500 shares of treasury
stock at $4.375 per share (fair market value
on date granted), aggregating $2,187.
During 1967 options were exercised for
4,500 shares at $4.125 per share and 500
treasury shares at $4.375 per share, aggre-
gating $20,750.
I-Federal subsidy:
The Civil Aeronautics Board has estab-
lished a federal subsidy for Northeast of
$5,023,000 for the two-year period ended
December 31, 1967, of which $2,200,000 is
reflected in the income statement in 1966
and $2,823,000 in 1967. The Civil Aero-
nautics Board order places Northeast on a
subsidy-free b-asis beginning January 1,
1968.
F-Contingencies:
Other assets include $200,000 deposited in
connection with injunctions obtained by
Northeast in 1964 against certain alleged
illegal charter operations. Return of the de-
posit has been deferred pending judicial
determination of the proper scope of the
injunctions. Hearings have recently been
concluded on this issue in connection with
which possible damages have been limited
to the $200,000 deposit. Counterclaims
alleging anti-trust violations and seeking
substantial damages are pending, but in
view of the rulings in favor of Northeast
in the case to date, counsel for Northeast
advise that, in their opinion, the counter-
claims are without merit, but that the out-
come of litigation cannot be predicted.
LYBRAXD, Ross BROS. [,__ >'!ONTGOMERY
CE RTIFIED PUBLIC ACCOUNTANTS
Northeast Airlines, Inc. COOPERS C LYBRA:-D
Boston, Massachusetts
We have examined the accompanying balance sheet of Northeast Airlines, Inc. as
at December 31, 1967 and the related statements of income, retained earnings and
additional paid-in capital and the statement of source and use of funds (working
capital) 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. We previously examined and reported upon the financial
statements of the company for the year ended December 31, 1966.
In our opinion, the aforementioned financial statements present fairly the financial
position. of Northeast Airlines, Inc. at December 31, 1967 and 1966, and the results
of its operations and source and use of fund., (working capital) for the years then
ended, in conformity with generally accepted accounting principles applied on a
consistent basis.
~ d / CJ
~~
Boston, Massachusetts ~ /Jirl /)
February 19, 1968
13
EXECUTIVE
COMMITTEE
George B. Storer
Chairman
F. C. Wiser
Leonard Dalsemer
A. D. Davis
Stuart W. Patton
James W. Austin
Bill Michaels
DIRECTORS
James W. Austin
Chairman of the Board
Jacqueline Cochran
Leonard Dalsemer
Executive Vice President
International Paper Co.
A. D. Davis, Chairman
Executive Committee,
Winn-Dixie Stores
James F. Fitzgerald,
J. F. Fitzgerald Construction Co.
Robert C. Hill, Consultant
Curtis Hutchins, Chairman,
Dead River Co.
Stanton P. Kettler,
Vice Chairman,
Storer Broadcasting Co.
Bill Michaels, President,
Storer Broadcasting Co.
Stuart W. Patton,
Vice President-Law
Harry M. Stevens II,
H. M. Stevens, Inc.
George B. Storer, Chairman,
Executive Committee
George B. Storer Jr.
Peter Storer,
Executive Vice President,
Storer Broadcasting Co.
David A. Stretch, Chairman,
Executive Committee,
Texas Industries, Inc.
Francis W. Sullivan,
Attorney at Law
Eugene L. Vidal, Consultant
F. C. Wiser, President
NORTHEAST AIRLINES, INC.
LOGAN INTERNATIONAL AIRPORT
BOSTON, MASS. 02128
OFFICERS
F. C. Wiser
President and
Chief Executive Officer
George B. Storer
Chairman,
Executive Committee
James W. Austin
Chairman of the Board
James 0. Leet
Senior Vice President-
Marketing and
Customer Services
Lewis E. Lyle
Senior Vice President-
Operations
Arthur A. Brennan
Vice President-
Industrial Relations
Dan A. Colussy
Vice President-Sales
Paul J. Dunphy
Vice President-Finance
G. Ward Hobbs
Vice President-
Customer Services
Roger J. Hoy
Vice President-
Operational Standards
Wheaton W. Mies
Vice President-
T echnical Services
Stuart W. Patton
Vice President-Law
Joseph W. Cannon
Treasurer
Arthur E. Fairbanks
Vice President-
Northern Region
Edward E. Swofford
Vice President-
Mid-Atlantic Region
Edwin H. Bishop
Vice President-
South ern Region
Henry E. Foley
Clerk
Registrars
Presque Isle/ Houlton o
Augusla/Waler
MONTREAL Ne~porl Ba, Ha,bor
Burhn Be rim l<land
Mo~tr ell rn/Lew1slon
Hanover lebanj j Wh,t nco,o
/ / wor
SPRINGFIELD
TAR
NE
PHILA
WASHING
BAL
The First National Bank of Boston, Boston, Mass.
The Chase Manhattan Bank, New York, N. Y.
Transfer Agents Old Colony Trust Company, Boston, Mass.
The Chase Manhattan Bank, New York, N. Y.
General Counsel Foley, Hoag & Eliot, Boston, Mass.