Pacific Air Lines Annual Report 1959

SAN FRANCISCO
OAKLAND
EATTLE
IPASHJNGTON
OREGON
LEGEND
- = Routes
Non stop
Service
New Routes
-Pending
CAB Action
DENVER
----------_.o
---
~RAND JUNCTtON
COLORADO
Pacific Air Line's
San Francisco base
(top right) at the new
International Airport
serves the exploding
industrial and
population growth
of the West.


President's
Letter


TO OUR STOCKHOLDERS, EMPLOYEES AND PATRONS
It is gratifying to report that for the year ended December 31, 1959,
your Company reached new highs in Miles Flown, Passengers Carried,
Available Seat Miles, and Passenger Miles Traveled. Without excep-
tion, these records achieved in 1959 were the highest in the Company's
history. Despite the fact that there were considerably more available
seats for passengers, the load factor was higher than that of 1958. The
table shown below will illustrate these gains:
Miles Passengers Available Passenger Load
Flown Carried Seat Miles Miles Factor
1959 6,010,324 421,813 170,226,042 93,635,632 55.0%
1958 5,384,049 351,982 147,312,486 78,331,650 53.2
1957 4,551,716 319,276 124,398,543 69,999,789 56.3
1956 4,048,797 259,522 107,084,154 55,917,208 52.2
1955 3,316,457 236,083 79,005,186 47,131,928 59.7
1949 2,419,695 114,573 50,399,055 20,947,484 41.6
Revenues from the transportation of passengers, freight, and mail,
were the highest in the Company's history. Although operating income
was the largest ever achieved by PACIFIC AIR LINES, expenses and
income taxes were heavy, reducing net income appreciably. Cash flow
per share was the greatest ever achieved. The Company is vigorously
endeavoring to lengthen and strengthen its routes and, also, to upgrade
its fleet of aircraft.
These achievements would not have been possible without the con-
tinued counsel, guidance and assistance of the directors, officers, and
employees. Needless to say, no efforts are being spared to develop
more passenger, charter, and freight traffic.
I can safely state to you that the outlook for the Company is better than
it has ever been, and that we of management are anticipating a larger
and more profitable operation in the years ahead.
Respectfully,
John H. Connelly,
President
Revenues:
Revenue and Expense
Revenues from transporting passengers, freight, and mail in 1959
amounted to $6,705,000, a 30% increase over the $5,r44,000
recorded in 1958. Also in 1959, despite the substantial increase in
service offered to the public, Mail Pay, received from the Govern-
ment, increased only 6% to $2,507,000 from $2,358,000 in the
preceding yea.i;. Total revenues climbed to an all-time high of
$9,212,000, a 22% increase over the $7,502,000 which was re-
corded in 1958.
Following is a summary of the income accounts for the past three
years: ,
1959 1958 1957
From passenger, freight, mail, etc. ....................... . $6,705,000 $5,144,000 $4,217,000
2,057,000
6,274,000
6,045,000
Mail Pay ................................................................. . 2,507,000
Total 9,212,000
Operating expenses ..................................................... . 8,952,000
Operating income ....................................................... . 260,000
Other expense, net .............................. , ........................ . 208,000
52,000
Estimated federal income tax ..................................... . 32,000
Net earnings ............................................................... . 20,000
Special credit* ........................................................... . 44,000*
$ 64,000#
2,358,000
7,502,000
7,264,000
238,000
82,000
156,000
93,000
63,000
$ 63,000
229,000
123,000
106,000
65,000
41,000
$ 41,000
* This item is the excess of insurance proceeds over carrying value of aircraft destroyed, net of income
tax paid.
# Does not include a $12,000 credit arising from unredeemed passenger tickets.
As reported last year, a final Mail Rate had been established,
effective October 1, 1958. This Mail Rate was based upon an
assumed operation of Douglas DC-3 and Martin 202 aircraft
which the Company was operating at that time.
During the second and third quarters of 1959, six Fairchild,
jet powered F-27 aircraft were placed in revenue service, which
increased the capital investment of the Company to approximately
$7,000,000.





Mail Rates are presently established on the basis of operating
breakeven-need plus a return of 9.5% on recognized investment,
after income taxes.
The October 1, 1958, Mail Rate was insufficient to cover cur-
rent breakeven-need plus the 9.5% return on the increased in-
vestment base. Therefore, a petition was filed with the Civil
Aeronautics Board to establish a new, adequate rate to cover the
current operation and investment.
According to its present schedule, the Civil Aeronautics Board
will establish a new final Mail Rate during the fourth quarter of
1960. This will be retroactive to November 1, 1959, the date upon
which PACIFIC AIR LINES filed a petition for the then new
rate .
The revenues shown above ( see note B to the financial state-
ments) include $140,000 for November and December, which fig-
ure, subject to the Civil Aeronautics Board's review of the opera-
ting expenses for the period, is estimated to be only about two
thirds of the total amount due for the two months.
Passengers
First Class
Passengers
Coach
1959 REVENUE DOLLAR
Fuel and Oil
For Aircraft
38.7
1955
1956
1957
1958
1959
1955
1956
1957
1958
1959
40
PASSENGERS CARRIED
(Thousands)
PASSENGER MILES
(Millions)
60
Parts
and Supplies
/
70 80
Other Goods
and Services
90
Source
~
Disposition
'-- Depreciation
3.3 Insurance
3.2 Taxes
2.0 Interest
0.8 Retained in Business
100
Flight Equipment
The Company's fleet of aircraft now includes as its most mod-
ern units, six F-27 aircraft, the first three of which were placed
in revenue service in April, 1959, and the remaining three in
July of the same year.
This program of modernizing the Company's fleet of aircraft,
to keep pace with the demands of adequate and efficient service,
was further extended when negotiations were completed in 1959
to purchase eight pressurized Martin 404 aircraft in exchange for
cash and five of the Company's seven non-pressurized Martin 202
aircraft.
Financing was arranged through the Bank of America for a
total amount of $686,000, and, in accordance with Public Law
No. 85-307, a portion of this loan is guaranteed by the United
States Government.
Six of the newly purchased pressurized and air conditioned air-
craft have been received and placed in service. The balance of
two planes will be delivered later this year.
Your Company's aircraft fleet will soon consist of 6 F-27,
44-passenger jet powered, pressurized aircraft; 8 Martin 404 pres-
surized aircraft; 2 Martin 202 non-pressurized aircraft; 7 Douglas
DC-3 aircraft; 1 Lockheed Executive 6-place aircraft; and 1 PBY
28-place amphibian. The Lockheed, PBY, and one DC-3 are
presently being offered for cash sale.
Route Developments
Route applications filed with the Civil Aeronautics Board by
PACIFIC AIR LINES are designed to improve and strengthen
the present system and provide a service required in the public
interest.
Decision in the PACIFIC NORTHWEST CASE in 1959, re-
sulted in extending service to Portland, Oregon, and this service
was inaugurated on September 1, 1959 . . A petition has been filed
with the Board requesting that the case be re-opened in respect



to the issue of service to Reno, Nevada. A decision should be
rendered by the Board in the latter part of 1960.
Decision is expected this year in the PACIFIC SOUTHWEST
CASE in which a substantial improvement in service is sought
through non-stop authority between San Francisco-Los Angeles;
San Francisco-Las Vegas; Burbank-Las Vegas; and Los Angeles-
Las Vegas. Authority is also requested to serve Fresno, Modesto
and Visalia, as well as San Diego, Palm Springs and Long Beach.
Final decision by the Civil Aeronautics Board on the petition
for reconsideration in the SERVICE TO CATALINA CASE re-
sulted in denial. Temporary service offered during the summer
of 1959 was terminated on October 15, 1959.
Extensive route applications have been filed in the SOUTHERN
ROCKY MOUNTAIN AREA LOCAL SERVICE CASE. Final
decision in this case is not expected until 1961.
Personnel
The growth of the Company, as described in this annual re-
port, could not have been accomplished without the continued
enthusiastic support and hard work of all the people who make
up PACIFIC AIR LINES.
Total employees now number 775 of whom 120 are pilots.
Our personnel department staff has been expanded to handle all
union contracts, wage administration, training, welfare, and the
proper supervision of the Company's extensive operating man-
uals. The Company has, in addition to a pension program, a
group .Ii e and health insurance program. The pilots are covered
under two plans, the "A" plan which became effective in April,
1956, and a "B'' plan with somewhat wider benefits which will
become effective in July, 1960. There is a pension plan for all
other employees after they have served in the Company for a stip-
ulated period of years.
1959 was a year of expansion and growth, and your manage-
ment is pleased to advise of the outstanding efforts put forth by
the employees of your Company. .
Balance Sheet
Assets
Current Assets:
Cash
Accounts receivable:
United States Government- mail, pas-
sengers and other (Note B) ----------------
T raffic and agents ___
___
_______________________________ _
Miscellaneous, less allowance for possi-
ble losses ( 1959 - $3,678; 1958-
$8,306) -----------------------------------------------
Employees ------------------------------------------------
Inventories of materials and supplies, at
approximate cost, not in excess of mar-
ket _______________________
___
___________________
_
-----------_
. _
Prepaid expenses ------------------------------------------
Property and Equipment, at cost:
Flight equipment - pledged under notes
payable ----------------------------------------------------
Ground and other equipment _________
_
___________ _
Less-Accumulated depreciation _
_
_____________ _
Construction in progress ____________________
_________ _
Deposit on purchase of flight equipment ___ _
Investments, at cost
Funds set aside for replacement of flight
equipment
Deferred Charges:
Extension and development expense _________ _
Introductory cost of new flight equipment,
less amortization (Note C) --------------------
Other ------------------------------------------------------------
December 31
1959 1958
61,930
$ 577,074
584,677
431,022
66,355
7,503
272,496
244,179
2,183,306
9,288,267
850,554
10,138,821
3,549,040
6,589,781
14,831
9,694
6,614,306
4,321
43,767
57,584
94,070
11,769
163,423
$ 9,009,123
$
1,672,273
211,461
74,806
7,672
248,315
41,064
2,317,521
4,215,728
725,778
4,941,506
2,750,206
2,191,300
156,296
385,786
2,733,382
4,321
32,802
32,802
$5,088,026



Liabilities
Current Liabilities:
Notes payable - current instalments on
long-term debt__ _______
_
______
________
__________
_______ _
Accounts payable ----------------------------------------
Taxes collected or withheld from others ___
_
Accrued expenses ----------------------------------------
Transportation sold, not yet used or re-
funded ------------------------------------------------------
Estimated federal income taxes _________
__________
_
Long-Term Debt (Note A):
5% note payable to bank-secured by
chattel mortgage on flight equipment _
__ _
51/4% notes payable to bank-secured by
chattel mortgage on flight equipment __
Conditional sales contract__ ____
_____________________ _
Provision For Federal Income Taxes of Future
Years
Capital Stock and Surplus:
Common stock:
Authorized, 40,000,000 shares of 50c
par value per share
Issued, 671,410 shares _
____
___
_____
___________
_____
_
Paid-in surplus --------------------------------------------
Earnings retained for use in the business,
per accompanying statement (Note A)
December 31
$
1959
663,000
1,148,961
150,439
227,256
44,894
438,753
2,673,303
599,20.0
3,837,100
4,436,300
44,142
335,705
246,324
1,273,349
1,855,378
$9,009,123
$
1958
349,415
1,439,901
131,182
193,334
30,390
349,820
2,494,042
735,387
6,274
741,661
72,775
335,705
246,324
1,197,519
1,779,548
$5,088,026
Statement of Earnings
Operating revenues:
Passenger --------------------------------------------------------------------------------
Mail _
____
___________
_________________________
____
______
______
------------------- ---------_
_
Charter and contract operations ____
____
_
__________
___
_____________
_
_
____
__ _
Express, freight and excess baggage _______
____ c ____________ ______ __ ____ _ _
Other ----------. --------------------------------------------------------------------------.
Federal subsidy (Note B ) ------------------------------------------------------
Operating expenses (Note C):
Flying operations --------------~
-------------------------"-------------------------
Maintenance --------------------------------------------------------------------------
Passenger service --------------------------------------------------------------------
Aircraft and traffic servicing _
_
______________
_
___
_
________________
_
___________ _
Promotion and sales _
______
________________________
_
_
_
_
________
____
_______________
_
_
General and administrative ______
_
___
______
___
_
___
_______
_
_
______
_
____
________ _
Depreciation and amortization ______
___________________________
_
_______
____
_
Operating income
Other (income) and expenses:
Interest (Note C) ------------------------------------------------------------------
Extension and development _
______
_____
______
_
_
________________
_____
______
____ _
Net loss on disposition of assets ____________
_
_
_________
____
_
_______
_
_
_
____
_
_
Other, net ------------------------------------------------------------------------------
Estimated federal income taxes
Net earnings for the year (Note C) ------
Special credits ( net of federal income taxes thereon) :
Excess of insurance proceeds over carrying value of air-
craft destroyed ------------------------------------------------------------------
Amounts provided in prior years for unredeemed passenger
tickets determined to be in excess of requirements _
_____
_
_
_
_
Earnings retained for use in the business:
Balance, beginning of year__ ______
_
_
_
_
_
_______
__________
_
~
--------------------
Balance, end of year__ ________
____________
_
_
________ _
Year ended December 31
1959
$5,764,854
134,919
655,128
124,644
26,164
6,705,709
2,506,588
9,212,297
2,789,462
2,039,088
426,630
1,983,907
511,807
536,023
665,495
8,952,412
259,885
183,982
17,558
7,083
(412)
208,211
51,674
(31,611)
20,063
43,767
12,000
1,197,519
$1,273,349
1958
$4,603,419
122,400
289,475
113,321
15,335
5,143,950
2,357,763
7,501,713
2,372,282
1,759,628
287,117
1,544,420
412,561
429,872
458,117
7,263,997
237,716
61,798
14,377
10,129
(4,754)
81,550
156,166
(93,000)
63,166
1,134,353
$1,197,519



Notes to Financial Statements
NOTE A:
Notes payable at December 31, 1959 comprised
the following:
5 % bank loan, payable in monthly
instalments of $16,700 to Decem-
ber 15, 1963, serured by the Com-
pany's DC-3 and M-202 type flight
equipment ...................................... $ 799,600
5 % bank loans, payable in monthly
instalments of $38,550 to February
15, 1969, serured by the Com-
pany's Fairchild F-27 aircraft and
equipment ...................................... 4,299,700
$5,099,300
The Civil Aeronautics , Board, under agreement
dated November 17 1958, guaranteed 90% of the
principal amount and ,100% of the interest on the
5% loans.
Under the terms of the bank loan agreements,
the Company has agreed that ( 1) it will not, with-
out the prior written consent of the bank, pay any
dividends ( except in stock) or purchase, redeem or
otherwise acquire for value any of its outstanding
shares, and ( 2) maintain current assets at least equal
to rurrent liabilities; for the purpose of this com-
putation, current instalments under the loan agree-
ments may be excluded from rurrent liabilities and
60-75% of any claims for retroactive subsidy pend-
ing before the Civil Aeronautics Board, less provi-
sion for taxes? may be included in current assets.
NOTE B:
Because of increased operating costs due to use
of new type flight equipment, the Company has
petitioned the Civil Aeronautics Board for an in-
crease in mail pay, effective November 1, 1959. In
the opinion of management the estimate of addi-
tional compensation for this period, determined in
accordance with airline subsidy practices and pro-
cedures, is reasonable. However, in order to provide
for possible disallowances by the Civil Aeronautics
Board, and in conformity with past practices, only
66 2/3% of the estimated additional compensation
is included in the accompanying financial statements;
this amount for the period November 1 through
December 31, 1959 is $140,000.
NO TE C:
Net income for 1959 is approximately $55,000
greater than it would have been under former meth-
ods as a result of the following changes in account-
mg practice which were adopted during the year:
Deferral to fuhue years of introductory
costs of new flight equipment ................ $45,000
Capitalization of interest charges on
borrowed funds advanced to manufactu-
rers
NO TE D:
10,000
$55,000
The Company has entered into a purchase agree-
ment dated November 30, 1959, with another air
line for the purchase of eight ( 8) Martin Model
404 aircraft for the aggregate amount of $1,600,000,
of which $1,100,000 is to be paid in cash on vari-
ous delivery dates of the aircraft throughout 1960.
The balance of $500,000 is to be liquidated by the
delivery of five ( 5) of the Company's Martin Model
202 aircraft to the other air line. This agreement to
purchase is contingent upon the prior approval and
guaranty by the Civil Aeronautics Board of a pro-
posed aircraft purchase loan between the Company
and Bank of America.
NOTE E:
As at December 31, 1959 the estimated unfunded
portion of past service costs under the retirement
plan for pilots, payable over the next seven years,
amounted to approximately $134,000.
;~~::)~\}~~1f:\{1-}~1J}f/r;~~\~~.~::.,s~~~~ /;;~Gr. ~~~~.:~"Pf'".-..-, .. ,,_l~,'~~,_ - f; .
~~:~~'/l~11r:f~:~,j~JJ~1.;~~t1;~;}t~~lj:1;~i1{~'.\~,1 \ ]~, , :, '\ I ! , j I
PRICE WATERHOUSE & Co.
To the Board o~ Directors of
Pacific Air Lines, Inc.
120 MONTGOMERY STREET
SAN FRANCISCO 4
April 20 1960
In our opinion, the accompanying statements present
fairly the financial position of Pacific Air Lines, Inc. at
December 31 1959 and the results of its operations for the
year, in conformity with generally accepted accounting prin-
ciples. These principles have been applied on a basis con-
sistent with that of the preceding year, excep t for the changes,
which we approve, as described in Note C to the financial state-
ments. Our examination of these statements was made in accord-
ance 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 circum-
stances. Certain receivables from the United States Government
selected for tests were not confirmed by direct correspondence,
but we satisfied ourselves as to these amounts by means of oiher
auditing procedures.




Board
of
Directors
John H. Connelly
William Goetz
Floyd Hendrickson
R. E. Costello
BOARD OF DIRECTORS
Leland Hayward, Chairman
GENERAL OFFICES
San Francisco International Airport
San Francisco 28, California
OFFICER.
S
T. R. Mitchell
Harry White
Walter Roche
C. A. Myhre
John H. Connelly .............................. President and General Manager
T. R. Mitchell... ........................................... Executive Vice President
C. A. Myhre .................................................... Vice President-Finance
R. E. Costello .................................................... Vice President-Traffic
Max A. King .......................... ............................ Vice President-Sale.
E. Roger Dahl ...................................................................... Treasurer
Walter Roche ....................................................................... .Secretary
Floyd Hendrickson ................................................ Assistant Secretary
AUDITORS
PRICE WATERHOUSE & CO.
120 Montgomery Street, San Francisco, California
REGISTRAR
Bank of America
300 Montgomery Street
San Francisco
TRANSFER AGENT
Crocker-Anglo National Bank
1 Montgomery Street
San Francisco
Night drilling operation,
Bakersfield, California.
In addition to
providing water
for agriculture and
power for industry,
Shasta Dam
has created a ma;or
water sports area.
The architecturally distinctive IBM plant
at San Jose symbolizes the spectacular growth
of the electronics industry in the West.


Skiing has become a major sport
:,;L
."1,~. , in Western snow country,
r.h, "1
t :r
1
~~~l, at .. tractf thousand
. s yearly.
" ff,:~_ <'
,~ ti. .,,.,. ~ .... ~
.. q,/
... - .,~.,.., ,,
-W.C:j;,,
-i
Serving an area with the
most rapidly expanding economy
in the nation
New industries-new techniques and
materials to create more industries-
seem to spring up daily in the
Western states as people, and still
more people, continue to pour in
from across the nation. Pacific Air Lines
is proud to serve this new West
. . . and to grow along with it.
Shipping and lumber,
two of the West's
major industries.
Large liquid fuel rocket
engines for the Air Force
Titan ICBM undergo captive
firing at the Sacramento,
California test facility
of the Aerojet Corp.
~CIFI