Northwest Airlines Annual Report 1943

nnual Report to Shareholders
NORTHWEST AIRLINES, INc.
Year ended June 30} 1943
frr.~
DIRECTORS
S. ~I. AR HER. Chairman
I~. H. FERG . ox
n. u. HARDY
CnOJL HUNTER
T. E. fonxE
CROJL H NTER -
E. I. " HYATT
K . R. FERG OK
A. E. FLOAN
L. . HOLSTAD
C .UJTLLE L. TEI. .
JosEPH T. JoH~ o.
L. l\I. LEFFJ:\'(;\\'ELL
YVrLLIA::\I .._ TERi\
EDWIN
,v HITE
E. I. WHYATT
OFFICERS
President
l'ice President and Treasurer
rice President-Operatio11s
ecretary
As istant Treastlrer
As ist.ant ecretary
Gt>neral Office : 1885 niYersily :-\ yenu~. Sl. Paul. ~Iinne ola.
The Chase Xational Bank of Th
Cit"
Principal ReO'i' lrar
Bankers Trust Company. X e" York Cit~-
Principal Tran fer .\gen l
Cit.Y "N"ational Bank and Tru l ompan." o[ Chicago. Chicago.
Iilinois
o-R egi trar
Continental Illinoi Xalional Bank and Tru , l Company of 'h icago,
Chi ago. Illinoi
Co-Transfer A.gen l
.\ nnual meeting of . hareholder- la t ~Ion la~ Ill .... ep lember.
NORTHWEST AIRLINES, INC.
* * *
t . Paul. Minnesota
X onrnber 1'2. rn-t:1
To th ha.r hold r of i\ ortlucest AirlinC's. In
Financial R port
For th fi al y ar nd d Jun 30. 1 -!' . y ur mpany earned :1 net in om
of 6H . 1 01 aft r d du ti n f inconP . xc ' S profits and other bur . Thi -
amount t 2.61 f r a h -har outstanding. A.t the nd of the year .\our om-
pany - ~ mplus was 1.-! '9.--1 D.
T i . d with mpanymg finan cial stat m nl, n rep rt of
untants. o, rino the in ome statement.
Ern t 1 rtifi d pt
, urplu t and balnn
1e r -ult ~ of th y nr ju 't ended ,Yit h
th ft imm cdino. In reading th in om c -t ntem ' nt
it ld nind Ol t the fi - al .\en r just clo ed .\om
\Y y ab u th m er of a irpla n in commcrcia I
th d th .\ a 2) b) far th gr atcr part of t h
1 1y' 1g th . c, t its lnrge and Yita I "ar job, .
' a redt fl t of :1 ircrn ft in ommcrcia l
r hat " 2.16 3 mil 1 ss in omm rein l scn ice
dr 6l. r du tion wa s minimiz d b,\ im-
111c. o- lane . h b,\ fl)ing ca h :ship m r hours
ov ating and maint nan pr c <lures. and b,\
f t cng r scats ,n-ailablc. An additional f:wor-
c
tion on Jul/1. lD--12. of discounts p r ,io anted
on on a r und-trip ba i~ or bought und r th :'rav l
a o n arly offs t the r du tion in th nu f nir-
ph ... e, nues of lL1 (i-l'.'2Dl wcr (_ <'< of the p year.
ar ituati n xi t , ard t ma . BY fhin o rn re mi le-
d 1ip ::ind by arr.\ in l,\ in r as ~ f ~nail " ith r su lting
b n ent . w arn d -tl mail which is noc< of t he
p ar.
Expr
c _ ba oo-ag
y ar.
1 ad arried al o in r a cd h ,wily. and r venue from cxpr s. ex-
and mi, llaneou transportation ur cs wa s 17:3< < of the preYiou,
0th r op ratino- inc m e. n t after hnrg s. wa, 20 2.7H. which is 25:3o/t of
th previou -y ar pr fit from t his - urce. Th incrrase i:-i hHg ly made up of
1
f c on the oTeally incrca. ed volume of war on tract , le. item charged aoain. t
u hf e .
It hould b noted that total operating revenue (tran portation revenue
plu war contract f e income and mi cellaneou income from other operatin
ource ) amount to $4,719,148, or 95% of la t year, in pite of the 50% reduction
in our fleet of commercial airplane .
Operating expen e declined 21 % under the previous year as a re ult of
curtailed operation . P er mile co ts increased a a natural re ult of the eriou
reduction of chedule , of cost attributable to wartime operating conditions,
and of the increase in revenue-producing loads.
It hould be noted that thi y ar' profit from disposal of depreciable as ets
i $28,015 while the previou year' figure of $398,646 included the book profit
on eight airplane old for war purpo e at the request of the United State
Government. No uch ale were made thi year.
Your company' end-of-the-year urplu of $1,469,489 repre ent an increa e
of $496,841 during the year. Also at the end of the year current as et exceeded
current liabilitie by $1,391,363, an improvement of $322,948 during the year.
A dividend of fifty cents per share was declared on August 3, 1943, payable
September 1, 1943.
Equipment
Throughout the year your co1npany owned and operated seven Dougla
DC-3 21-pa senger plane in commercial service and owned and operated various
mall hip for training. After the clo e of the year, on August 4, 1943, the Army
return d to us one of the Douglas DC-3's old to the government by us la t
yeaJ. We are making every effort to have additional ships returned to us so as to
further meet traffic demands and to re tore service to citie where we ,;
vere forced
to di continue ervice temporarily.
Financing
At the beginning of the year, $142,500 was owed to bank , representing the
balance till out tanding of money borrowed to purcha e aircraft. This amount
wa paid off, and no loans were out tanding on June 30, 1943. During the year,
ubstantial bank borrowing ,vere made to finance war contracts. The e were
sup equentl.) paid, and the contracts are now _ financed by advance payment
received from the Army.
A shown in the proxy tatement which this report accompanie the man-
agement propo e that the company' authorized capital tock be increa ed from
300,000 shares to 600,000 share and that the director be authorized to i sue
uch amount of the uni ued common hare at such prices and terms as may
be fixed by the Board. The management believe that future development in
the company's busirie to be rea onably anticipated will require ubstantial
amount of additional capital.
Personnel
The year' operation. have been of uch a. character and macrnitude a to
2
call for a net increa e in employment of 371 % during the year. Thi fact, to-
gether with other , ha. re ulted in variou change in previou ly exi ting labor
agreement . There are three such labor agreement -one with pilots, one with
radio operators and one "ith maintenance and other mechanical and ground
ervice per onnel.
egotiation invoh ed in labor aureement change during the ) ear have
been conducted in a pirit of mutual confidence and re pon ibility.
During the year a branch of the A W-CIO petitioned the National Labor
Relations Board to certif} it as the authorized bargaining ag nt for certain em-
plo.) ee covered b.) an agreement between the company and the Air Line
Mechanic A sociation, International. The NLRB declined juri diction on the
ground that the matter involved employee of an air carrier ubject to the
Railway Labor Act and therefor wa properly a matter \\ ithin the juri diction
of the National Mediation Board.
Operations in Wartime
Co1mnercial Operations
\i'\ have carried much heavier a, rage pa.) loads than ever befor . A,ail-
able pa enger, mail and expre bu ine , mo t of it of great importance to our
countr.) 's "ar effort , ha exceeded the capacity of our fleet. Thi ha called for
our best effort to utiliz equipment to the full extent allowed by af ty.
War Contract Operations
We have carried on vital "ar job under contract with the U. . Army to
the point where our war work a m a ured by mployment exceed that of any
other dome tic airline. A anticipated in my la t year' report to } ou. our em-
ployment at June 30, 1943, wa 8 369 and ha ince pa ed 10,000. Our highe t
peak of employment for strictly commercial operation wa 881.
One of our large war job i the operation of a military car0
o airline aero
western Canada to Ala ka. Thi important work ha demanded our be t effort
in developing quickly an airline organization which has been proven capable of
conducting vital operations under adver e and changinu condition .
At St. Paul, Niinnesota, your compan) i operatino the largest aircraft modi-
fication center under airline manag ment. Here we have had the re pon ibility
of recruiting and training thou and of worker for thi key ta k.
At , andalia. Ohio, (adjoining the Dayton Municipal Airport) "e are
operating an accelerated en ice te ting center in collaboration with the S.
Army. Thi is relat d to the Army's aircraft modification program and i a
valuable part of the Air Corp program.
\!\Te al o conduct variou trainino. experimental, re earch and oth r aviation
activitie for the Army and avy.
Throughout the accompanying financial report "ill be found e, idence of
the cope and ize of our " ar contract operation . Behind the figure i the
work of thou and of m n and , omen engaoed in complex and demanding jobs.
3
Applications for Route Extensions
In furtherance of it plan for expan ion both during the war and in the
po t-war period, your company ha filed the following application for route
exten ion :
(a) From l\Iinneapolis, Minne ota, to Iew York, New York, via Mil-
waukee, V\ i con in D etroit, Michigan, and Cleveland, Ohio;
(b) From Chicago, Illinois, to Wa hington, D. C., via Dayton, Ohio;
( c) From Seattle, Washington, to Portland, Oregon;
( d) From Chicago, Illinoi , to the Twin Citie via Rockford, Illinois, Beloit,
Wi consin. Dubuque, Iowa, and LaCros e Wi con in;
( e) From 1inneapoli -St. Paul, Minnesota, to Billings, Montana, via Aber-
deen, South Dakota;
(f) From Seattle, Wa hington, to Victoria, B. C., via Port Angeles, Wash-
ington;
(g) From Seattle, Wa hington, to Honolulu, Hawaii;
(h) From 1:inneapolis-St. Paul, 1innesota, to Nome, Alaska, via Fargo,
North Dakota, and Fairbank , Ala ka, or in the alternative from Minneapoli -
St. Paul, Minnesota, to ome, Ala ka, via Mc 1urray, Alberta, orman Wells,
Nortlrn~ t T erritory, and Fort Yukon, Ala ka;
(i) From Seattle,,, a hington, to Nome, Alaska, via Anchorage, Ala ka;
(j) From I ome, Ala ka, to Calcutta, India, via Peiping and Chungking,
China;
(k) From Nome, Ala ka, to Manila, Philippine Island , via Peiping and
Shanghai, China;
(1) From Seattle, Wa hington, to Calcutta, India, via Anchorage, Ala ka,
Kiska and Attu, Aleutian I lands, Tokyo, Japan, Peiping and Chungking, China;
(m) From Seattle, Wa hington, to Manila, Philippine I lands, via Anchor-
age, Ala ka, Kiska and Attu, Aleutian I lands, Tokyo, Japan, and Shanghai,
China.
A pre-hearing conference on our New York application has been set for
D ecember 6, 1943, and we anticipate early action by the Civil Aeronautic Board
on our other application involving domestic service only. Hearing on applica-
tion involving foreign ervice will await further determination of policy by our
government. Your company joined with 15 other don1estic airlines urging the
adoption by our government of a policy which would allow privately owned
American carrier to conduct international air tran port operations under the
American sy tern of regulated competition.
Air Mail Rates
Asi hown in the accompanying financial reports, the Civil Aeronautic
Board is con idering a reduction in our mail rates. A shmv cause order ha been
i ued and a hearing held. Under the order it i po sible that our mail rate may
be reduced to a low a .3 mill per pound mile a of farch 1, 1943, or any later date.
Thi maximum reduction would reduce our mail revenue for the past :fi cal year
by $294,209. The effect of the maximum reduction for the :fi cal year beginning
July 1, 1943, cannot rea onably be e timated because it depend upon the
volume of mail carried.
4
The Future
long a th nation' war need r quire it, we tand r ady to continue
to erYe th armed force through the performanc of a, iation ta k for which
our experience fit u . " e will con tantly tri, e to improYe the efficiency and
producti, ity of uch work entru ted to u .
V
"'\"'\ will continue to exert e, er , effort to carrv the maximum amount of the
pa enger, mail and expre load who e peedy tran portation i e ential to
the nation' war effort.
We ,,ill plan and work for the deYelopment of our place in the expanding
air tran port field, both dom tic and international.
Your company ha , during the pa t year and a half, gained exten iYe ex-
perience in operating int rnational air route , in the management of large num-
ber of employee , and in the operation of man new technique and t} pe of
equipment. Thi and our accumulated experience of 17 year form a olid founda-
tion on which we ,,ill build our future in a world where a via ti on ,,_.ill be a
powerful in trument for commercial and ocial progre
"'\ er} trul your
~/~
Pre ident
*
ACCOUNTANTS' REPORT
BOARD OF DIRE TOR .
K ORTR\YE T ... IRLI~ E . Ix ..
Saint Paul, Minne ota
We haYe examined the balance sheet of NORTH"'\, EST IRLI E . I~C.
a of June 30, 19-:b3, and the tatement of income and urplu for the three
year then ended, have review d the y tern of internal control and the account-
ing procedure of the Compan} and, without making a detailed audit of the
tran action , haYe examined or te ted accounting record of the Compan and
other upporting evidence bJ method and to the extent we deemed appro-
priate. Our examination wa made in accordance with generally accepted audit-
ing tandard applicable in the circum tance and included all procedure which
we con id red nece ary. It wa found impracticable to confirm b direct com-
munication the amount receiYable from nit d tate Government depart-
ment a to which we ati fied our ehe by other auditing procedure .
In our opinion, the accompanying balance heet and related tatement of
incom and urplu , pre ent fairl the po ition of N ORT!fn E T IRLINES.
INC. at June 30. 1943. and the re ult of it operation for the three year
then nded in conformity with generally accept d accounting principl applied
on a con i tent ba i .
aint Paul. 1\Iinne ota
~ ov mber 8, 1943
ER T
T & ERX T,
Certified Public ccountant
BALANCE SHEET
NORTHWEST AIRLINES, INC.
June 30, 1943
ASSETS
urrent as et :
ash (including pecial depo ils of $1,542,066 to be u ed on United
State- Government con tract ) ----------------------------------------------------------
l , n i led States Trea ury bonds-at cost ----------------------------------------------------
Trade accounts rec ivable. including nited State Government ac-
counts of fW6, 104 ----------------------------------------------------------------------------------
U nreirn bur ed costs and accrued fee under United States Govem-
men t co -t-p 1 u -fixed-fee con tract ------------------------------------------------ $10 .207 .034
Less adya11ce applicable to co t ------------------------------------------------------------- 8.786.723
naJl{}('ated advance by the Company for costs and expenses. less
reserve of $2-" ,000 ---------------------------------------------------------------------------------
11 billed job order cost . le s reserve of $5,000 ------------------------------------
Inventorie -at the lower of cost or market:
Part . material , and upplie ----------------------------------------------------- ___ _
TOTAL CURRENT ASSETS ------------------ ---
Other a et :
In urance depo it , claim and premium ad,iu tment --------------------------
Depo it in e crow ------------------------------------------------------------------------------------- _
undry a coun ls. deposits. etc. ---------------------------------------------------------------
Account receivable from employee , le re ene of $5,000 ---------------
Property, plant, and equipment--011 the ba is of co t to the Company
or its predece or :
Land ------------------------------------------------------------------------- $
Aircraft and reserve equipment ----------------------------
Buildincrs on leased ground -----------------------------------
Other building and equipment __________________________ _
Improvement to leased property ______________________ _
Cost
10.494
1.339,877
472,085
1,051 ,942
85,015
$2,959.413
Intancrible:
Cost of nited late Government air mail route
Deferred charges:
nexpired in urance ------------------------------------------------------------------------------------
Other prepaid and deferred expenses, upplies, etc. -------------------------------
6
Reserves
$1,034,839
206,660
424,637
20,984
$1,687,120
$1,420,311
130,460
$ 20.542
10,000
24,741
.-51 ,333
Balance
$ 10,494
305,038
265 425
627,305
64,031
$1,272,293
$ 51,044
53,963
$3,029,892
25,000
1,247,897
1,550,771
74,141
368,580
$6,296,281
106,616
1.272,293
48,737
105,007
$7,828,934
BALANCE SHEET
NORTHWEST AIRLINES, INC.
June 30, 1943
LIABILITIES
Current liabilities:
Accounts payable
Air travel con tract deposits-gross ---------------------------------------------------------
Wages and salaries and payroll taxe ---------------------------------------------------------
Employees' war bond deduction ---------------------------------------------
Accrued taxes -------------------------------------------------------------------------------------------------
Federal and state taxes on income of the year ended June 30, 1943,
plus additional provisions for prior year ----------------------------------
Unliquidated advance on United State Government contract ______ _
Le s amounts applied against unreimbursed cost -------------------------------
TOTAL C RREI\"T LIABILITIES _________________ _
Deferred income:
Un u ed transportation, etc. ----------------------------------------------------------------------
R eserve for possible inventory obsolescence ---------------------------------------------------
Capital tock and surplus:
Common stock-no par value:
Authorized 300,000 hare ; uni:,sued 65 ,080 shares (of which
10 000 share are reserved for options at $14.00 per share);
outstanding 234,920 sh.ares at aggregate tated capital amount _____ _
Surplus:
Paid-in surplus _______ : ________________
______________________________________________ $ 41,799
Earned surplu ------------------------------------------------------------------------------------- 1,427,690
7
$2,171,723
96,172
938,160
174,922
$9,631,691
8,786,723
$1,359,200
1,469,489
$3,380,977
161,973
517,000
844,968
$4,904,918
25,32?
70,000
2,828,689
$7,828,934
COMPARATIVE STATEMENT OF INCOME
NORTHWEST AIRLINES, INC.
Years ended June 30, 1943, 1942, and 194 1
Operating revenue:
Transportation:
Passengers --------------------------------------------------------------------------
Mail ---------------------------------------------------------------------------------------
Express, freight, etc. -------------------------------------------------------
Net fees, repair and service income, rents, etc.-Note B __ _
Operating expenses:
Maintenance and repairs ------------------------------------
Provision for depreciation and amortization- ote C ________ _
Taxes (other than income and excess profits taxes) ___________ _
Rents ---------------------------------------------------------------
Compensation and expenses of aircraft crews, radio opera-
tors, superintendents, clerks, airport and hangar
employees ----------------------------------------------------------------------
Aircraft fuel and supplies ----------------------------------------
Insurance ------------------------------------------------------------------------
Other transportation expenses ------------------------------------------------
Traffic, sales and advertising ---------------------------------------------
Administrative and general ------------------------------------------------------
1943
$2,364,9Wl
1,789,241
362,897
202,714
$,1,719,143
$ 692,878
267,842
96,961
97,417
1,106,172
309,406
182,645
238,396
439,424
113,742
$3,544,883
OPERATING INCOME ---------------- $1,174,260
Other income and credits:
Profit from disposal of aircraft and other depreciable a set $ 28,015
Discount and interest earned ------------------------------
Credits applicable to prior years-net ------------------------------------
Sundry ---------------------------------------------------------------------------------------
Other deductions:
1,918
11,404
11,581
$ 52,918
$1 ,227,178
Additions to reserve for possible inventory obsolescence ____ $ 28,000
Interest expense --------------------------------------------------------- 27,214
Provision for doubtful accounts, adjustments, etc. ----------- 32,500
Sundry --------------------------------------------------------------------------------------- 5,978
$ 93,692
INCOME BEFORE TAXES THEREON $1,133,486
Taxes on income-Note A:
Provision for the year--estimated:
Federal income and surtax ----------------------------------------------- $ 465.500
Declared value excess profits taxes ---------------------------------- 11,500
State income taxes -------------------- 30,000
$ 507,000
Under &r over* provision for prior year ------------------------- 12,185
$ 519,185
NET INCOivfE ----------------- $ 614,301
8
1942
$2,663,126
1,971,214
209,137
79,977
$4,923,454
$ 815,621
461,587
183,839
82,203
1,254,501
440,578
313,186
254,186
517,243
200,047
$4,522,991
$ 400,463
$ 398,646
5,995
3,641
6,249
$ 414,531
$ 814,994
$ 27,600
5,648
1,500
2,330
$ 37,078
$ 777,916
$ 250,000
35,000
15,000
$ 300,000
7.184*
$ 292 816
$ 485,100
1941
$2,324,004
1,852,333
116,824
44,748
$4,337,909
$ 645,350
499,213
132,314
65,317
1,100,735
395,404
262,369
224,059
379,786
196,453
$3,901,000
$ 436,909
$ 1,186
6,786
17,430
5,809
$ 31,211
$ 468,120
$ 14,400
12,864
250
12,808
$ 40,322
$ 427,798
$ 100,000
4,500
7,500
$ 112.000
11,697*
$ 100,303
$ 327,495
STATEMENT OF SURPLUS
NORTHWEST AIRLINES~ INC.
Years Ended June 30~ 1943 1942, and 1941
1943 1942 1941
Paid-in surplu' :
Bal,rnce at beginnin of year ... 41.799 $ -!1.799 -!l. 11
Premium on pr ferr d sl k red med ....... .. . l'2
,; 41.799 -!1.799 -11.799
am d , urplus:
Balanc at beainning of y ar
t income for the year
930. -!9
614.301
H5.7-!9 " 119.665
-! 5.100 327A95
~ 1.5-t5.150 $ 930., 4D $ -l--l:7.160
Deducl diYidend paid in cash on:
TOTE
_ - >TF
Preferred tock (at th rate of '5 per har )
ommon tock S.50 per ' hare -
Earned urplu at end f year .............. .
TOTAL ~CRPLL"S
*
117.460
* *
~OTES TO FINANCIAL STATEMENTS
NORTHWEST AIRLINES, INC.
June 30 1943
1.-!ll
A-X et incom oriaina!Jy reported for lh ~- ar nded June 30. 1942. has b n incr ased in the accornpai1Yu10- -tat m nl
by eliminating the unu ed special proyiion of 55.000 mad in that year to oYer anlicipat d additio1;al tax liability
under legi lation ,Yhich wa' then und r con id ration.
B--The Compau~- ha not included among it as t a part of income amounts aggr gating approximate]~-
3-!0.000 (of which ~300.000 applie to th year end d Jun 30. 19-!3) claim d as r imbursable cosl und r con-
tracts ,,,-ith the -United tate Go,ernm nt. The claim are r ceiYing consideration b~- :\.rmy authoriti s but ha,,-
not a ~-et been approYed. While th ultimat di -pa ition of the malter i, nol now d terminable. it is th opinion
of the ompan., that a sub-tan ti al portion of the amount ,,,-ill b recmer d.
The CiYil .-\.eronautics Board ha issued an order to the ompan~- lo . how cau e as t win- it - mail rat s should
not be reduced a of :\larch 1. 19-!3. and a hearina on the matter ha b n held. The nrnxin;um am unt b,- which
the mail r Yenue of the ompany for the ~
-ear ended Jun 30. HH3. might be reduced is npproximat ly ~295.000.
The ompany i oppo' ing th propo ed reduction and ha pr ~ented data on incr n d operating cost' in supp rt
of it, po ition.
Both of the afor m ntioned matter anse from 'enice to the nited .__ lat G Yernm nt. and the ompany feel
that their ultimate ettl ment "ill nol ad,- r-eh- aff ct lh financial po' ilion at J une 30. 19-!3. r net incom
for the year then ended.
_ ' oTE -It i th polic., of the Company lo proYicle for d pr cial1on and amortizalion of prop rly. plant. and equipm nt
b~- annual charge to operalions computed at rate calculaled to xtingui h the o t ratabl.,- OY r the slimaled u e-
ful ]iYes th r of. In general. rate of d pre iation in ue are th ame or bin-her than lhose which hay been
&.llow d for Federal incom tax purpo ' . R ates applicabl to major clasificalion of a"" l are as follow : .Aircraft
20Cf,. building -! to '20%. aircraft cornmunicalion quipm nt '20 to 25%. stalion communication equipment 50% .
molorized " hi l 331 :1Cr. and all other quiprnent (with minor xception ) 10%. X o a sets are being amorlized
under c rlifica1..e, of nece" it). pon the retirem nt. ale. or other di po0
al of prop rt). th ompanr charrre
op rations ,,-iLh th profit or lo' th r on and r lieYes lhe a, sel and r lat d rs tTe acc-ounl' for cosl nnd accumu-
lated depr cialion. r 'pectiYely.
~OTE D-Profils of lhe ompan~- include Lhoe from lran-aclions which ma~- b ubj ct lo th proYision of the ,Yar I rofits
ontrol .-\.cl proYiding for th r caplur of an) profils found a a r suit of r n ootiation to be xce ' iY . IL i.
belieYed b.,- lhe ompan~- lhal lhe profit r alizecl on , uch tran, aclions " ill not be f und xc ssiYe and no proYi-
_ ion for r fund ha be 11 r A clecl in lhe accompanyinf( . ld menL.
9
r