Northwest Airlines Annual Report 1948

, INC.
nual efi~11I
h 8Aa/leAdl/e/ls
1
2
NORTHWEST AIRLINES, INC.
Board of Directors
Wm. Tudor Gardincr. ............. Chairman, Board of Directors, Incorporated Inv stor::;
Boston, Mass.
Robert M. Hardy ... ......................... President, Sunshine Mining Co., Yakima, Wash.
Croil Hunter. .............................................. .............. . President, orthwest Airlines, Inc.
Thomas E. Irvine .................................... President, FI Products Co., St. Paul, Minn.
Joseph T. John on ........................... . President, The Milwaukee Co., Milwaukee, Wis.
Malcolm S. Mackay .......................................... Special Partner, Laidlaw & Co., . Y.
Dr. Charles W. Mayo .............................................. ........ Mayo Clinic, Rochester, Minn.
Alonzo Petteys ............................. ... Vice President and Director, Farmers State Bank
Brush, Colorado
William Stern ...................................... President, Dakota National Bank, Fargo, N. D.
Edwin White ..... ............................................. President, Kalman & Co., St. Paul, Minn.
E. I. Whyatt. ...................... .Vice President and Comptroller, orthwest Airlines, Inc.
Officers
Croil Hunter .......................................... .............................................................. President
E. I. Whyatt ... ................................... .......... ...... .......... .Vice President and Comptroller
K. R. Ferguson ....................................... Vice President- Operations and Engineering
Linus C. Glotzbach .............................. .Vice President and Assistant to the President
R. 0. Bullwinkel... ....................................................................... .Vice President- Traffic
A. E. Floan ................... ...................................................... Vice President and Secretary
L. S. Holstad ................. ........ .. .. .......................................................................... Treasurer
Frank C. Judd ............................................... Regional Vice President- Western Region
D. J. King ........................... ....... ..................... Regional Vice President- Orient Region
Wm. J. Eiden ....................................... ................................................ Assistant Treasurer
Charles Stearns ....................... ............. ................ ................................. Assistant Secretary
General Offices : 1885 University Avenue, St. Paul 4, Minnesota
The Chase ational Bank of The City of ew York, New York, N. Y.
Principal Registrar
Bankers Trust Company, New York, N. Y.
Principal Transfer Agent
Harris Trust and Savings Bank, Chicago, Illinois
Co-Registrar
The First National Bank of Chicago, Chicago, Illinois
Co-Transfer Agent
-XAnnual meeting of shareholders third Monday in April
PRESIDENT 'S REPORT
THE operating results of your company for
the year 1948, hereafter shown, reflect many
factors which have adversely affected the
earnings of most air transportation companies
during the past everal years.
The airlines have not been able to pass on to
the public the sharply increased operating costs
and, although total operating revenues of your
company increased from $26,579,398 in 1947 to
$35,145,955 in 1948, operating costs increased
from $28,264,501 in 1947 to $36,475,477 in 1948,
resulting in a net loss of $787,474. It should be
noted that this loss is after depreciation charges
amounting to $6,077,853 in 1948.
The international operations of the company
showed an encouraging trend and contributed a
profit in 1948 of $1,278,342 which partially offset
the deficit incurred in the domestic operations of
$2,065,815. On the international system, passenger
revenue increased from $3,090,778 in 1947 to
$5,653,789 in 1948 and cargo revenue increased
from $175,804 in 1947 to $901,958 in 1948. On
the domestic system, passenger revenue increased
from $17,429,853 in 1947 to $18,420,989 in 1948
and cargo revenue increased from $843,693 in
1947 to $1,170,404 in 1948.
Passenger load factors on the international sys-
tem increased from 43.62% in 1947 to 57.93%
in 1948. Passenger load factors on the domestic
system decreased from 69% in 1947 to 56.31%
in 1948. This drop reflects to .a large extent the
increased capacity afforded by the addition of
larger aircraft on the domestic system during
1948 and the consequent increase in available seat
miles operated. Mail revenue on the international
system in 1948 remained ,at about the same level
as in the period operated in 1947 but increased on
the domestic system to a total of $3,425,077 from
$1,254,058. This was largely due to increased
temporary rates of mail compensation recently
granted by the Civil Aeronautics Board.
Improvement Seen
While the industry and this company have been
faced with many difficult problems which have
stubbornly resisted solution, many indications of
improvement now appear.
In attempting to bring revenues and costs into
line, the management of your company has made
progress in the development of additional revenues
and in effecting reductions in costs.
Exploring cargo rate structure anctl traffic re-
turns, the company has developed a substantial
and steadily increasing air cargo busine~s and has
3
PRESIDENT'S REPORT
inaugurated all-cargo flight . Thus air freight
rapid! becoming a major ource of revenue.
New Service
In order to obtain air freight in large volume
pa t xperi n e ha hown that it was necessary
to redu e tariff to a point where cargo-only
operation " ere generally not profitable with avail-
able equipment. Thi wa due to the high co t of
operating the aircraft converted from pa senger
to cargo operation and also to the difficulty of
obtaining ati factory load factors in both direc-
tion . De pite the e handicap , it has been found
profitable to operate all-cargo flights between the
Twin Citie and Chicago and from ew York to
the Twin Citie . In other area , experiments are
beinrr onducted with a new type of service which
promi e to olve to ome xtent the problem of
the directional unbalance of cargo movements.
For ome tim the company has been flying be-
tween Seattle and Anchorage 4-engine equipment
which by u e of foldinrr type seats, makes it po -
ible to carry either pa enger or cargo exclusively
or a combination of both. This provides a flexible
service which ha pro en o successful that other
planes are being equipped for similar operations
on the dome tic system.
The development of this combined pa enger-
cargo market potential has resulted from tudy of
4
market potentials at vanous levels of rate and
charges. The danger that any medium of trans-
portation m.ay price itself out of business because
of high rates was stressed by the Interstate Com-
merce Commission in its recent report to Congress
on the railroads, whose car loadings were 11.2 %
below tho e of la t year. "R ate increases," said the
ICC, "may be carried to a point where they are
self-defeating."
Thi principle applies with equal force to the
airlines. It is true that your company did, as did
the other airlines, in the early part of the year,
put into effect some fare increases; but recently it
has become convincingly clear that lower rates
are not only economically feasible, but must be of-
fered if the airline are to develop mas -market
transportation.
Types of Service
In addition, studies of the passenger fare struc-
ture have led to the conclusion that your com-
pany mu t offer different types of ervice at dif-
ferent rates, not only to attract various classes of
traffic from competitive form of tran portation,
but al o to stimulate new traffic.
It presently contemplates offering three classes
of passenger service:
( 1) De luxe non-stop or limited-stop service
with the Boeing Stratocrui ers;
( 2) A standard service uch as that now offered
by the DC-4 and Martin 2-0-2 equipment and
( 3) A o- alled touri t or coach rvice* , ithou t
the pa senger ervice refinement characteri tic of
the tandard service.
Approval of the Civil Aeronautics Board will be
sought to establish fare for the various da se of
service at level which will produce higher load
factor and result in great r revenue .
Mail Pay Increases
The company ha sought mcrea e m rate of
compen ation for carriage of mail and the Civil
Aeronautic Board has recently granted increased
temporary rate pending its determination of final
rate expected to be made during the latter part
of 1949. Such increases are entirely con i tent
with the expre sed purposes of the Civil Aeronau-
tic Act, and the Civil Aeronautic Board as pre -
ently constituted, as well as other governmental
authorities ha e recognized the need for prompt
and material a i tance in the form of hi a her air-
mail rate .
e, Routes
During 1948 your company completed it ba i
route pattern with two exten ion one from De-
troit to Wahington, D. C., by way of Cleveland
*Your company inaugurated Tran continental Coach enice
11arch 24, 1949.
PRESIDENT'S REPORT
and Pitt burgh, and the other to Honolulu through
the mainland gate, ay of Seattle-Tacoma and
Portland. Both of the e route however are
directl competitive with tho e of other air carriers.
Capital irline which , a alread flying into
V a hinaton , a granted an exten ion from Mil-
waukee to the Twin Citie , thus paralleling our
company' operation from the T, in Citie to
v\ a hington. Pan Ameri an Airway wa granted
a parall 1 route to H onolulu from Seattle-Tacoma
and Portland and nm operate tv o flight weekly,
in addition to the three , eekl flights operated b
our compan over that route.
Operation on the Honolulu route were tarted
December 2, 1948 and traffi indi ation are that
thi route hould hm a profit during it fir t
e::i.r of opern tion.
Route Fit Pattern
The exten ion to "\ a hington and to H onolulu
marked th culmination of plan mad b th com-
pan ome year ago. Each ha it place in the
compan ' overall pattern. One pro id a direct
route into the nation's apital ,, here mu h traffic
to the northwe tern portion of the Unit d State as
well as to Ala ka and the Orient, originate the
other give acce to a ear-around vacation land
whi h i e pecially popular during winter month
wh n there i a letdown in touri t bu ine in other
part of the compan ' s stem.
PRESIDENT'S REPORT
The company now ha a network of 20,454
certificated mile : 12,458 on the Orient system;
5,314 on the dome tic and 2,682 to Honolulu.
Fly Martin 2-0-2s
During the year 1948 the company put into
operation a fleet of modern twin-engine Martin
2-0-2 airplanes and experience with this equipment
confirms the high rating given it by company
engineer from the beginning. I ts special features,
such as integral steps and under-wing fueling,
have ub tantially reduced ramp service routine
and ground delays. Its size and speed ( 36 seats
and 245-mile per hour cruising speed) make
possible a higher utility than can be realized from
the use of the slower, mall er DC-3 aircraft, which
it i replacing on most of the company's runs.
Delivery of the first of the fleet of ten Boeing
Stratocruisers is expected within a few weeks. It
is expected that the remaining planes on order will
be delivered in rapid succession after the first has
been accepted, and that all of them will be in
scheduled service in 1949.
These planes will be operated on services to the
Orient, Alaska, and Hawaii and on our domestic
tran continental schedules.
The double-deck 75 passenger Boeing Strato-
crmser is the finest and most modern transport
6
airplane built and will make possible faster sched-
ules than ever before flown. With this plane it
will be possible to operate either a very high
density standard service or a super-de luxe pas-
senger service. Some seats will be berthable if a
demand for sleeper service is indicated. It is also
designed to carry large cargo loads in combination
with passenger service, and when in full operation,
this fleet will produce ton miles or seat miles at a
lower cost than is now possible with other air-
craft.
Navigation Aids
The past year has seen important developments
in aids to navigation, as well as in aircraft. In-
strument Landing System installations have re-
sulted in a lowering of minimum requirements for
landings. Minimum ceilings have been lowered
from 400 to as low as 250 feet and visibility re-
quirements from a mile to three-quarters of a
mile. This has materially increased operating ef-
ficiency and has marked another advance toward
all-weather flying. The new-type high intensity
runway lights which have been of great assistance
in facilitating landings, have been installed at
more airports along the sy tern. Looking ahead to
scientific developments in prospect, your company
is planning aircraft installations for the omni-
directional range system which the Government is
developing to replace the present system of radio
navigation.
Selling Service
As your company has rounded out its pattern of
service, it has also expanded its efforts to sell its
service. Agreements have been made with many
travel agencies throughout the world, as well as
with other U. S. Flag Carriers and foreign car-
riers. An air-sea agreement has been effected with
Matson Navigation Company operating to Hono-
lulu, in addition to that with the American Presi-
dent Lines operating throughout the Pacific.
Agreements have been made to provide truck-plane
cargo service covering on-line and off-line cities.
Progress has been made in the development of
all-expense tours to H awaii, Alaska and to the
Orient. Orient traffic has been stimulated by the
start of tourist travel to Japan. A plan of opening
that country, originally approved for a limited
number of persons for seven-day all-expense tours,
has been expanded so that the number of persons
has been increased and tour time-limits extended
to 21 days.
With its modern equipment, its improved
facilities and operating procedures, the company
is more than ever in a position to offer a most
dependable and attractive service to the public.
This, coupled with its aggressive sales develop-
PRESIDENT'S REPORT
ment program, should produce a broad public
respon e.
A number of measures have been introduced in
the Congress which will improve the airlines'
ituation. M ost immediate and beneficial would
be the repeal of the present tax on transportation
of passengers and property, a wartime measure
which is now penalizing and retarding the proper
development of peacetime traffic. In the case of
your company, this tax produced during 1948 an
amount equal to 81 p r cent of all the money re-
ceived for mail pay on the domestic system.
CAB Program
The Statement of Policy released by the Civil
Aeronautics Board on February 26, 1949, an-
nounces a comprehensive program for strengthen-
ing and insuring a sound air transportation system
for the nation. Your company proposes to submit
to the Board plans designed to implement and
effectuate the Board's program in a manner which
will greatly strengthen your company's position
in the national and international air transportation
system.
In making this report to our stockholders, I
wish to acknowledge and express my appreciation
for the hard work and co-operation of the com-
pany's employes, officers and directors.
President and General Manager
7
NORTHWEST 0.,_1,e,14t AIRLINES
SYSTEM MAP
t-
NORTHWEST AIRLINES OFFERS WORLD SERVICE
orthwest Airlines, which obse,ves its ilver anniversary in 1951, ha expanded from a local mail
carri,er with a route of Jes than 400 mile into an international network of 20,454 certificated
mile . Its tran continental route have been extended to Ala ka, the Far East and Honolulu.
During the pa t year it rounded out it dome tic system with an ext n ion to Washington, D. C.,
by way of Cleveland and Pittsburgh. In addition to the vast travel area oITered by its own flights,
orthwe t Airline has entered into inter-line agreement with other international carrier , so that
passenger along it route can fly to almost any p art of the world. The dark line how orthwe t
Airline ' rout pattern, and the light Jines tho e of other carrier with which it connect . In addi-
tion the airline has an agreement for ca-air . er ice.
On it dome tic system, orthwest Airlines has begun coa t-to-coa t tourist flights, at reduced
fare , between New York on the Atlantic eaboard and eattle on the Pacific coast. It also ha
inaugurated all-cargo flights both ways between the Twin Cities and Chicago and from New York
to the Twin Cities. Specially modified Dougla DC-4 Airplane are being u ed in the tran conti-
nental touri t ervice.
\
\
RECORD
Calendar Mail Pas enger
Year Revenue Revenue
1948 .......................... $8 ,4-4-4, 106 $24,074,778
1947 ........................ .. 4,018,340 20,520,63 1
1946 ....................... J ,254,257 18,062,492
1945 .......................... J ,649,575 10,060,619
1944 .......................... 1,500,874 6,073,967
194 ................. ......... 1,353,822 3,139,7 13
1942 .......................... 1,850,601 2,410,5 12
194 1 .... 1,955,826 2,526,72-1
1940 .............. ....... , .... 1,769,735 2,151 ,3 11
l 939 .......................... 1,763,288 1,324,728
1938 ..................... ..... 1,286,549 829,554
1937 .......................... 1,076,293 761,839
1936 .......................... 1,050,639 759,981
1935 .......................... 629,724 481,528
1934 .......... ................ 251,133 199,074
1933 .......................... 762,208 188,966
! 9'.52 .......................... 384,719 200,984
193 L. ........ 9 17,635 205 ,164
1930 .......................... 648,799 119,349
1929 .......................... 495,708 121,075
1928 .......................... 195,315 24,890
1927 ...................... .... 76,029 8,663
3 Months, 1926 ........ 11,790 - 0 -
OF PROGRESS
Total
Expres Revcnu ~fail Plan
and Freight Passenger Pound file
Rev nue Mi le ~Iii Flown
$2,072,362 386,509,809 8 052,148 614 22 288 002
1,0 19,497 382,54-4-,382 5,473,873,894 20824,912
553,875 385 858,47 3 4,099,317 2 8 19 30-1 ,2J4
409,613 2 18,469,773 5,396,757,098 1287071-1
246,030 120,834 2 6 4, 00 802, 4 7 7 523 14
297,941 63,787,683 4,005,180,807 + 58--1- 766
24-0,800 52,0 1 159 2,528,042, 5+ 4,931 815
118,885 59,659, l45 1,871,311,1 1 6,353,659
79,53 1 51, 175,254 1,370,076 043 6 079,) 9
61,186 34,749,246 1 166,513,244 5,39 ,02--1-
4 1,625 21, 153,258 1,116,975,430 5 310,0 15
33,768 16,685,852 841,27--1-,933 4,4 )2,439
27,3 18 16,528,401 67 1 011789 3, 99,818
12,388 I 0,342,834 3 15,817 803 2841, 198
4, 19 4,301,145 44 034 248 I -1:~ ,I 27
1,873 4,108,31 3 82,61 3 032 I 823,850
343 4,127,800 77,8 7 566 1, '.~9,015
575 3,934,0 3 89,70 ,330 1,1 34,555
146 2, 129,600 ot vail. 1 032 340
ot vail. 1,956,400 736 664
402 400 314 196
126,000 211 67
- o - 47 ,397
FINANCIAL
THE net lo s of $787,474 sustained by
your company represents $0.96 for each of
the 820,755 shares of common stock of the
par value of $10 per share outstanding at the end
of the year.
Total operating revenues of $35,145,955 were
32.23 o above 1947, for an all time high.
Passenger revenue of $24,074,778 exceeded the
pre iou year by 17.32%, even though revenue
pa senger miles flown were up only 1.04% . This
results from a full year's operation of the Orient
route, and two fare increases on our domestic
ystem. During the year 56.56 o of all the soots
flown on the system were filled. It is interesting
to note that 58.25% of the available eats on the
Orient route were filled, compared with 56.31 %
occupancy on the domestic system.
Mail revenue of $8,444,106 exceeded last year
by $4,425,766 resulting from a full year of opera-
tion of our Orient route and increased temporary
rate of mail compensation granted by the CAB
over our dome tic system. The average domestic
mail load was 261.52 pounds compared with
251.17 pounds in 1947.
Express, Freight and Excess Baggage revenues
totaled $2 332,453 and exceeded last year by
93. 73 o. Freight revenue totaled $1,442,274 com-
pared with $385,583 in the previous year, while
expres revenue dropped slightly.
Charter and other operating revenue of $282,770
was $503,972 under the previous year, in which
numerous charter flights were operated inter-
nationally prior to the inauguration of our sched-
uled ervice.
Available ton miles in scheduled service were
90 531,952 compared with 73,970,282 for 1947,
while ton miles sold were 48,240,510 compared
with 42 744,821 for 1947. Thus, in the year just
10
REPORT
passed your company sold 53.29% of its capacity
offered for sale, while in 1947 it sold 57.79%.
Total operating revenue per ton mile sold in-
creased from 62.18 cents in 1947 to 72.85 cents in
1948.
The average operating cost of making available
a ton mile of transportation in scheduled operation
increased from 38.21 cents in 1947 to 40.29 cents
in 1948.
As of the end of 1948 your company owed $9,-
000,000 to the group of fourteen banks who are
parties to the bank credit agreement of April 21,
1947. It is not anticipated that any additional
borrowing will be made under this agreement
since such borrowings would be available only for
the acquisition of flight equipment prior to April
30, 1949. Our new Boeings will not be delivered
until after this date. Therefore, arrangements are
now being made to obtain the amount of cash
necessary to pay the balance of the purchase price
of the aircraft and related equipment.
Your company has regularly paid since its issue
in May, 1947, all of the quarterly dividends due
on the 390,000 shares of $25 par value 4.6%
Cumulative Preference Stock outstanding. Divi-
dends paid on May 1, August 1 and November 1,
1948 were charged to capital surplus as permitted
by provisions of Minnesota statutes. All prior
dividends were paid out of earned surplus.
As of December 31, 1948 current assets exceeded
current liabilities by $6,431,520, compared with
$2,207,305 as of the end of 1947. Net investment
in Property, Plant and Equipment increased $2,-
650,938, primarily due to the acquisition of air-
craft.
Our investment, at cost, in Property, Plant and
Equipment totaled $31,836,591 as compared with
$24,417,158 as of December 31, 1947.
COMPARATIVE STATEMENT OF
PROFIT AND LOSS
Years ended December 31, 1948, and December 31, 1947
1948
Operating revenues:
Transportation:
Passenger ................... ............................................................................................... $24,074,778
Mail- Note D .......................................................................................................... 8,444,106
Express, freight, and excess baggage...................................... ................................. . 2,332,453
Charter and other................................................................................. ................. .. 282,770
R epair and service income, rents, etc.-net. ............................................................... 11,848
TOTAL OPERATING REVEN UES ...... ..... .... ........ .... .... .... ...... ....... .... ....... $35,145,955
Operating expenses:
Flying operations ................................. ......................................................................... $
Ground operations ................................... ........................ .......... .................................. .
Maintenance and repairs ............................................................................................. .
Passenger service ......................................................................................................... .
Traffic and sales ..................................... ...................................................................... .
Advertising and publicity .. ........................ ................................................................. .
Administrative and general, pay roll taxes, property taxes, etc .............................. .
Provision for depreciation and amortization ........................... .................................. .
Provision for doubtful accounts, adjustments, recoveries, etc ................................. .
8,583,862
5,467,114
7,329,050
2,052,536
3,187,786
882,114
2,878,999
6,077,853
16,163
1947
$20,520,631
4,018,340
1,203,948
786,742
49,737
$26,579,398
$ 6,512,077
4,359,264
5,2-77,201
1,770,163
2,706,866
593,506
2,530,743
4,496,239
18,442
$36,475,477 $28,264,501
0PERATI c Loss .......................................... ........................ ............. ...:$ 1,329,522 ) ($ 1,685,103)
Other income and credits:
Profit from disposal of depreciable assets ................................................. ................. .
Profit from sale of surplus inventories ....................................................................... .
Discounts and interest earned ..................... .............. ............................ ...................... .
R eduction in reserve resulting from payments received on U . S. Government war
contracts less applicable recoverable income taxes of $102,000 ........................... .
nemployment tax credits for prior years ...................................... .......................... .
Sundry ............................................................. ..................................... ...................... .
($
Other deductions:
Interest and loan commitment expense ........................................................................ $
Route extension and development ...................... ......................................................... .
Retroactive pay adjustments applicable to prior periods ......................................... .
Sundry ............................. ............................................... .......................................... .
$
421,224
76,036
53,960
167,006
68,227
543,069 )
195,158
34,753
14,494
244,405
($
$
85,25 7
38,249
62,307
21,041
1,478,249 )
81,928
123,638
109,955
21,459
336,980
Loss BEFORE I COME T.u CREDIT ........................... .. .... ........ ........ ..: $ 787,474 ) ($ 1,815,229 )
Income tax credit:
Taxes recoverable on operating loss carry-back ....................................................... .. 673,889
ET Loss .............................................................................................. .f$ 787,474) ($ 1,141,340 )
( ) Indicates red figures.
See accompanying notes to financial statements.
11
BALANCE
ASSETS
RRE T ' ET
i;a . h .......... ....... .......... ........ ................................... . ............................. ................................... .... ...... $ 4,719,879
U. crtificatc of Ind btedne - at co t plu accrued
intcrc t (substan ti al! qui val 'nt to market) .................................. ......... .................................. .
. \ coun t rec ivablc:
For trnnsportation (including . . ov rnment
account of $3 258,882) ............ ................. ..... ......................................... $4,559,088
thcr urrent a counts.............................................. .................... ......... ..... 361,558 $ 4,920,646
Le re crv ................ .. ................................................. ..... ..... ............ ...... .. ..
Inv ntoric. at lower of co t (fir t-in, fir t-out) or
r placemt:nt mark ' t:
10,000
Rep, ir matrrial and op rating supplies.. ............... .... .................. ..... ..... ................ $ 639,804
130,572
" . olinr and oil. ................ ........... ........................ ...... .. .
TTL URRE T ET ................................. ....... .. .... .. ............... , ................ ..... .
TJIER ET
Unrcimbur d cost. on war contracts with the U. . Government:
nreirnbur cd co t ................. ................................. ..... . .............................. $ 571,831
L r re crvc.................................................................... .............. .. ............... 57 1,831
Rcco crab! . income tax upon utilization of reservc- c timatcd 103,000
undq r lat 'd indu try inv stm nt (at co t-no
quoted market) deposits, and note..... .. .. .......... ......... .. .......................... ..... ................. ..
PROPERTY, PLA.1 T, A D EQUCPl\lENT- On th basis of co t
(including as ct. of $9,200,098 comp! tcly amorLized
to r idual amount of $309,671)
$ 103 000
118, 55
Cot
$
Re erve Balanc
Land ........................... .. ................................. .................... .
.\ ircraft a nd reserve equipment ........................................ ..
Conversion costs on lea ed airciaft .......................... .......... ..
Buildings on land not owned ......... , ................................... .
ther buildin and equipment. ... .. .. ................................. .
Improvements to lea. ed property ...................................... ..
Co. t of a ir raft, building , and quipment in prog1 c ;
prcliminar)' co. ts of new aircraft fleet ........................ ..
on-operating propntv ..................................................... ..
32,8 [5
2 1,550,21 3 $
2,088,654
2,008,718
4,368,566
66,2:rn
9,023,564
1,6 2,675
3 5,640
1,592,883
652,846
792,919
28,468
$31,836,591
25,080
$13,352,688
Ca h dcpo. its in connection with acquisition of new aircraft ......................... ..
DEFERRED II RGE .
$ 32,8 15
12,526,649
395,979
1,64 ,078
2,775,683
'.113,392
792,919
3,388
$18,48 ,903
3,390, 1 l 6
Prepaid in. u1anct, r nt taxc , a nd othrr service ........................... ........................... .......... . $ 602,065
30,739
13,272
Deferred training in onnection with new aircraft fleet .... ....... .......... ..
).fi cclbncous d [err d expense ................................. ......................... ...... ......................... .
1,807,131
4,910,646
770,376
$12,208,032
22 1,955
2 1,874,019
646,076
$34 950,082
December
SHEET
31 , 1948
LIABILITIES
CURRENT LIABILITIES
Note payabl ....... .. .. ........ ......... ........ .. ... ....... ............... ...... ................................... ..... ..... ............... ..... ........... $ 22,222
Accounts payabl and accru d expens :
Trade accounts ...... ............ ......................................... .. ......... ....... ..... ..... ..... ... ..... .............. $
Salaries, wag s, and vacation compensation .. ... ........... .. .................................... ............ . .
Air travel contract deposits- gross .............. ..... ...... .... ... ............ ............... .......... ........... .
Pay roll tax s and taxes withheld from employees ......................................................... .
R etirement plan contributions including amounts withheld from employee ............. .
avings bond and other deduction from employees' wages .............. .......... .. ... .......... .
Accru d local taxe ... ................... .................... .......... ... ........... ..... ..... .. .......... .................
Accru d r nt .................. ..... ............... ..... ..... ........ .. ..... ........ .................. ................ .... ........ .
Income taxes of prior years ...................... ............... .. ... ............. ........................................ .
U ncarned transportation rev en uc- e timated ............. ... ..................... .. ... .......... ..... ... ...... ..
Curr nl maturity of long term debt .. .. .. ..... ......... ...... ..... ....................... .......... ............. ..... .
TOTAL CURRENT LIABJLITIE
LoNc TERM DEBT- otc A
2,099,092
1,276,733
432,225
266,060
51,761
36,298
143,057
112,960
5,122
Bank credit agreement dated April 21 1947; maximum
credit $18,000,000 r funding dat to April 30, 1949,
when th balance outstanding b comes payable in
20 equal quarterly paym nts b ginning July 1, 1949:
Balanc December 31, 1948 ........................ .. .......... . "" ............. ........ $ 9,000,000
L curr nt maturitie (based on pre ent out-
stand in g rrdit ) includ d as urrcnt liability .. .. ..
CAPITAL ST CK ND SuRPLU - ot A
apital sto le:
4.6 % cumulativ pr fcrcnce tock, par valu $25
p r share; enti tl d upon liquidation or redemption
to $26.75 per hare at D cemb r 31, 1948, to
$25.25 per hare aft r May 1, 1953; onvertible
into ommon tock to De cmb r 3 1, 1956, at th
rate of one share of common lo k for each $16 1/3
of th par value of the 4.6% cumulative preference
stock:
900,000
Authoriz d 600,000 har ; issued and outstand-
ing 390,000 share ..... .......... ............. .. .. .......... ..... ................... ............................. $ 9,750,000
ommon stock, par value $10 per share:
Authoriz d 3,000,000 shares; uni u d 2,179,195
shar s of which 585,000 hare arc rcserv d for
conver ion of 4.6% cumulative prcf crence tock,
10,000 share arc re rv d for option at $14
p r hare (the option expired February 8, 1949)
and 20,000 'hare ar re crved for i suance in
connection with future option which may b
gr, n t d to officer and mployee (5,200 share
were alloted J anuary 10, 1949); in treasury 50
shares; out landing 820,755 shares.
Capital urplus ...... .. ................... .
8,207,550
3,007,242
$20,964,792
Earned urplus ........... .................................. ......... ........ ... ....................... ... ............ ............. . 108,778
CONTINGENT LIABILITIE
CoMMITME T - Not C
ot B
cc a ompanying not to financial statements.
4,423,308
430,982
900,000
$ 5,776,512
8,100,000
21,073,570
$34,950,082
13
14
NOTES TO
FINANCIAL STATEMENTS
December 31, 1948
Note -The bank credit agreement contains certain restrictions relating to mortgage or other borrowings, divi-
dends on or repurchase of common stock, mai,ntenance of net current assets, commitment limits, ratio
of notes under agreement to book value of flight equipment, expenditure for facilities other than flight
equipment outside of the United States, investments or loans, and merger or disposition of substantially
all of its assets. The terms of the cumulative preference stock also contain certain restrictions relating
to dividends on and repurchase of common stock.
Under terms of the bank credit agreement, none of the Company's capital or earned surplus is avail-
able for common dividends. Under Minnesota statute, dividends on preference stock may be declared
from capital surplus.
B-The Company is involved m a number of lawsuits which are outlined as follows: (a) those in which
any claims paid by the Company will be fully reimbursed by the United States Government under
various war contracts, including wage and hour suits at the St. Paul Modification Center and aircraft
accidents at Mt. McKinley, Alaska, and Billings, Montana; (b) those in which any claims paid by
the Company will be fully reimbursed under insurance contracts, including aircraft accidents at Mt.
Sanford, Alaska, and Fountain City, Wisconsin, and an accident to a passenger riding in a taxicab;
( c) as to other matters not covered by insurance or other indemnification, the Company believes that
uch amounts are not material. In view of the circumstances outlined, no provision has been made for
any portion of the amounts involved.
As part of its insurance coverage, the Company assumes a maximum loss of $100,000 on each accident or
occurrence involving passenger and public liability, property damage, and aircraft damage and carries
excess coverage on these risks for an aggregate amount of $6,000,000 for each accident or occurrence.
C-The Company's expansion program for the calendar year 1949, exclusive of normal replacement re-
quirements, calls for expenditures for the purchase of flight and other equipment in the amount of
approximately $17,120,000 which requires additional financing now in the process of negotiation.
D- The Company has included in its financial statements all temporary adjustments of domestic and for-
eign air mail compensation which have been fixed by the Civil Aeronautics Board. The Company has
pen<ling before the Civil Aeronautics Board claims for additional mail pay affecting 1948 and prior
periods.
STATEMENT OF SURPLUS
Year ended December 31, 1948
CAP IT AL SURPLUS
Balance at January 1, 1948 ...................... .................................................. ................................................ .. $ 3,343,617
D educt cash dividends on 4.6 % cumulative preference
stock declared and charged to capital surplus as per-
mitted by provisions of Minnesota statutes-86.25
cents per share for the three quarters ending No-
vember 1, 1948 ( dividends payable February 1, 1949,
were declared from capital surplus on J anuary 10,
1949 ) ... .... 336,375
Balance D ecember 31, 1948 .............................. $ 3,007,242
EAR ED SURPLUS
Balance at January 1, 1948 .. ................................ ................. .... .......... ..... ............................. ...................... $ 896,252
787,474
Deduct net loss for the year ... ......................................... ..... ................... ... ... ....................................... ..... .
Board of Directors
orthwest Airlines, Inc.
Saint Paul, Minnesota
Balance D ecember 31, 1948 ................ ... .......... =$==1=0=8=
,7=7=8
See accompanying notes to financial statements.
ACCOU TA 1TS' REPORT
We have examined the balance sheet of ORTHWEST AIRLI ES, I C., as of D ecember 31, 1948,
and the related statements of profit and loss and surplus for the year then ended. Our examination was made
in accordance with generally accepted auditing standard , and accordingly included such tests of accounting
records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the accompanying balance sheet and statements of profit and loss and surplu present fairly
the financial position of ORTHWEST AIRLI ES, I C., at December 31, 1948, and the results of its opera-
tions for the year then ended, in conformity with generally accepted accounting principles applied on a basis
con istent with that of the preceding year.
Saint Paul, Minnesota
March 10, 1949
ER ST & ER ST
Certified Public Accountants
15
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