N inetee hundred sixty-five 
annual r.eport 
marking twenty-six years 
of service 
Pacific Air Lines 727 Jet Service 
sets a new World Standard 
for Local Air Travel 
Contents 
Directors and Officers 
Chairman's Letter 
Financial Highlights 
Balance Sheet . . . 
Statement of Earnings . 
Notes to Financial Statement . 
Page 
2 
4 
7 
10 
12 
13 
 DIRECTORS AND OFFICERS 
MATTHEW E. McCARTHY, Chairman of the Board 
and Chief Executive Officer, Member of the 
Executive Committee 
DAVID R. GRACE, Director and Member of the 
Executive Committee 
General Partner, Sterling, Grace & Co., New York 
RICHARD E. LANG, Director and Member of the 
Executive Committee 
Chairman of the Board of Lang & Co., Seattle 
JOSEPH MARTIN, JR., Director 
Partner in the Law Firm of Allan, Miller, 
Groezinger, Keesling & Martin, San Francisco 
LLOYD W MARTIN, Director 
President of Reed & Martin, Inc., Honolulu 
IAN G. THOMSON, Director 
President of The Chartered Bank of London, San Francisco 
MAX H. WYMAN, Director 
Partner-M. A. Wyman Lumber Co., Seattle 
HARRY S. WHITE, Director and President 
ROBERT SETRAKIAN, Director 
President of Setrakian and Company, San Francisco 
Chairman of the Board of the Valley National Bank 
C. A. MYHRE, Director and Executive Vice President 
JAMES T. KILBRETH, JR., Senior Vice President, Marketing 
R. C. COUK, Vice President, Flight Operations 
DARROL G. DAVISON, Vice President, 
Engineering and Maintenance 
R. E. COSTELLO, Vice President, Traffic 
E. R. DAHL, Secretary Treasurer 
2 
 Matthew E. McCa1thy Davicl R. Grnce Rich a1d E. Lang 
Ha11y S. White Jos eph Martin, Jr. Lloycl W Martin 
Ian G. Thomson Max H. Wyman Robert Setrakian 
C. A. Myhre James T. Kilbreth, Jr. R. E. Costello 
Darrol G. Davison R. C. Couk E. R. Dahl 
 Matthew E. McCarthy, seated, 
Pacific's Board Chairman 
and Chief Executive Officer, with 
William M. Allen, President of 
The Boeing Company, after affixing 
his signature to the agreement for 
727 and 737 pure jet aircraft. 
DEAR STOCKHOLDER: The year 1965 surpassed 1964, the previous high in gross revenues 
and net operating earnings for Pacific Air Lines. Sharing proportionately in the general gains in 
the aviation industry, your company's gross revenues were $14,684,589 in 1965, compared to 
$13,446,890 in 1964. Net income in 1965 was $700,337, compared to $583,504 in the previous year, 
which, on an adjusted share basis, represented $0.70 a share in 1965, compared with $0.62 a share 
in 1964.  The year 1965 was highlighted by major policy moves. After careful evaluation, 
your company purchased four Boeing 737's for delivery in late 1967 and early 1968 and secured 
options for four additional Boeing 737's. Two Boeing 727's were leased for delivery in June and 
July 1966, and options for two additional 727's for delivery in early 1967 were obtained. Based on 
present and projected traffic, we believe that the pure jet equipment under contract meets our needs 
and provides adequate flexibility for growth potential. During 1965 a long term lease was negotiated 
for 16 acres at San Francisco International Airport whereon our new, up-to-date administration 
building and maintenance base will be completed in October 1966. Our computer installation (IBM 
360) will be in operation in our new administration building in 1966, and much needed consolidation 
of our personnel will be obtained. These acquisitions will entail personnel training and other intro- 
ductory costs which will add to the 1966 operational expenses. In late 1965 the company's outstanding 
4 
 convertible debentures were called and practically all were converted to capital stock, thus increasing 
our net worth and eliminating interest and reserve requirements. Your company, recognizing in 
1965 that aviation's expanding market and the addition of jet equipment would require an aggressive, 
new marketing philosophy, reorganized its marketing department and new promotion programs are 
underway .  During the year, Mr. James T. Kilbreth, Jr., was appointed senior vice president in 
charge of marketing, Mr. R. C. Couk was advanced to vice president in charge of flight operations 
and Mr. Darrol G. Davison was advanced to vice president in charge of engineering and maintenance . 
 The Civil Aeronautics Board hearings in the transfer of United Air Lines' route in the San 
Joaquin Valley to Pacific Air Lines were completed in 1965, and we are awaiting the Board's decision. 
We believe that it will be favorable, and we anticipate a large passenger increase through this 
transfer .  Your company's relations with the unions representing our employees have continued 
on a friendly, cooperative basis. In view of increasing competition and rising costs, it is pleasant to 
acknowledge again the excellent 
cooperation of stockholders, man- 
agement, the staff and employees. 
In behalf of the Board of Directors 
5 
 Const1uction is underway for occupancy in Octobe1 of a new general office and .iet-age maintenance 
base, including installation of IBM compute?' equipment for greate1 effi ciency. 
 FINANCIAL HIGHLIGHTS 
FINANCIAL 
1965 1964 
Total revenues $14,684,589 $13,446,890 9 o/o 
Operating income $ 1,462,036 $ 1,291,343 13 % 
- 
Net earnings $ 700,337 $ 583,504 20 % 
Earnings per share-based upon average number of 
shares outstanding during the year . $ 0.70 $ 0.62 13 % 
Long-term debt . $ 2,518,405 $ 4,980,253 49 o/o 
Working capital . $ 837,833 $ 903,593 (7 % ) 
Stockholders' equity $ 6,237,502 $ 4,391,818 42 % 
Shares outstanding at end of year. 1,186,580 978,598 21 o/o 
Book value per share $ 5.26 $ 4.49 17 % 
STATISTICAL 
Revenue miles flown 6,302,180 5,766,794 9 o/o 
Available seat miles ( 000) 261,311 239,802 9 o/o 
Revenue passenger miles ( 000) 138,379 128,386 8 o/o 
Revenue passengers 695,131 612,539 13 % 
Passenger load factor . 53.0 o/o 53.5 % 
Passenger revenues per passenger mile . 7.3 7.0 4 % 
Number of airports served 30 30 
Number of aircraft . 18 18 
Number of employees at end of year . 802 768 4 % 
7 
 "We Fly to the Nicest Places" is the theme 
of an intensive nationwide sales p?'omotion campaign, 
designed to encourage local residents and visito1s 
to the West from all over the world to travel the 
enti?'e Wonde?'land served by Pacific. 
MONTEREY/CARMEL 
HOLIDAY 3DAYS 2NIGHTS 
YOSEMITE HOLIDAY 
3 DAY TOUR FROM FRESNO 
1 NIGHT in both Fresno and Yosemite 
LAl<E TAHOE 
HOLIDAY 3DAYS 2NIGHTS 
 RENO 
HOLIDAY 3DAYS 2NIGHTS 
OREGON HOLIDAY 
3 DAYS 2 NIGHTS 
LAl<E SHASTA 
HOUSEBOAT HOLIDAY 
BDAYS ?NIGHTS 
GIANT REDWOODS 
HOLIDAY 3DAYS 2NIGHTS 
SAN FRANCISCO 
HOLIDAY 3DAYS 2NIGHTS . 
LOS ANGELES/ 
HOLLYWOOD HOLIDAY 
3 DAYS 2 NIGHTS 
 Assets 
CURRENT ASSETS: 
Cash (including time deposits, 1965- 
$1,000,000; 1964-$1,200,000) 
Accounts receivable : 
United States Government- 
mail, passenger and other 
Traffic and agents . . . . . 
Miscellaneous, less allowance for 
doubtful a,ccounts ( 1965 and 1964-$8,000) 
Expendable parts and supplies, at 
approximate cost, less reserves 
Prepaid expenses . . . . 
Total current assets 
PROPERTY AND EQUIPMENT, at cost-pledged 
under notes payable (Note 1) : 
Flight equipment 
Ground and other equipment 
Less-Accumulated depreciation and amortization 
Advance payments on flight equipment (Note 6) 
OTHER ASSETS: 
Unamortized debt discount and expense (Note 4) 
Route extension and development expense, less amortization . 
Preoperating cost of new flight equipment, less amortization 
Other . . . . . . . . . . . . . . . 
PACIFIC AIR LINES, INC. 
DPcernber 31 
1965 1964 
$ 2,230,168 $ 2,198,215 
614,807 563,883 
475,396 423,823 
60,270 66,231 
545,745 678,457 
193,222 102,184 
4,119,608 4,032,793 
11,780,154 11,722,732 
1,124,358 1,145,726 
12,904,512 12,868,458 
5,296,604 4,451,345 
7,607,908 8,417,113 
288,855 
7,896,763 8,417,113 
14,632 127,007 
120,323 38,510 
65,977 46,743 
48,006 5,971 
248,938 218,231 
$12,265,309 $12,668,137 
BALANCE SHEET  
Liabilities 
CURRENT LIABILITIES: 
Notes payable-current instalments (Note 1) 
Accounts payable . . . . . . 
Taxes collected or withheld from others 
Accrued expenses 
Unearned transportation revenue . . 
Federal income taxes (Note 3) . . . 
6 o/o convertible subordinated debentures, 
redeemed in January, 1966 (Note 2) 
Total current liabilities 
LONG-TERM DEBT: 
Notes payable to bank (Note 1) . . . . . . . 
6 o/o convertible subordinated debentures (Note 2) 
FEDERAL INCOME TAXES DEFERRED TO FUTURE YEARS 
STOCKHOLDERS' EQUITY (Notes 1, 2 and 4): 
Common stock : 
Authorized, 40,000,000 shares of 50 par value per share 
Outstanding, 1965-1,186,580; 1964-978,598 shares . . 
Paid-in surplus . . . . . . . . . . . . . . . . 
Earnings retained for use in the business, per accompanying statement 
COMMITMENTS AND CONTINGENT LIABILITIES (Note 6) 
$ 
D ecember 31 
1965 
986,448 
1,224,401 
238,049 
316,080 
211,265 
178,754 
126,778 
3,281,775 
2,518,405 
2,518,405 
227,627 
593,290 
2,438,079 
3,206,133 
6,237,502 
$ 
1964 
1,053,448 
1,013,550 
173,267 
352,443 
202,492 
334,000 
3,129,200 
3,605,353 
1,374,900 
4,980,253 
166,866 
489,299 
1,396,723 
2,505,796 
4,391,818 
$12,265,309 $12,668,137 
10 11 
 STATEMENT OF EARNINGS 
D ecembe1 31 
Opera ting revenues : 1965 1964 
Passenger. $10,134,450 $ 8,940,197 
Mail. 266,622 233,271 
Express, freight and excess baggage . 394,977 342,707 
Other 193,857 236,565 
10,989,906 9,752,740 
Public service revenue. 3,694,683 3,694,150 
Operating expenses: 
14,684,589 13,446,890 
Flying operations 3,364,356 3,101,332 
Maintenance . 2,983,030 2,660,339 
Passenger service 506,538 411,975 
Aircraft and traffic servicing 3,038,357 2,807,546 
Promotion and sales 1,316,260 1,369,331 
General and administrative . 969,663 864,915 
Depreciation . 1,016,967 902,654 
Amortization of preoperating and route development costs 27,382 37,455 
13,222,553 12,155,547 
Operating income . 1,462,036 1,291,343 
Other expenses : 
Interest (less interest income, 1965-$64,465; 
1964-$29,873) 258,718 354,818 
Loss on disposition of assets. 8,398 27,165 
Other 19,583 59,542 
286,699 441,525 
Income before federal income taxes . 1,175,337 849,818 
Estimated federal income taxes (including $61,000 in 1965 
and $56,000 in 1964 deferred to future years) (Note 3) 475,000 266,314 
Net income for the year . 700,337 583,504 
Excess of insurance proceeds over carrying value of aircraft 
destroyed, net of income taxes of $123,983. 387,724 
Earnings retained for use in the business : 
Balance, beginning of year . 2,505,796 1,534,568 
Balance, end of year (Note 1) . $ 3,206,133 $ 2,505,796 
12 
 NOTES TO FINANCIAL STATEMENTS 
NOTE 1-Notes payable: 
5 % note payable in 
monthly instal- 
December 31 
1965 1964 
ments of $38,550 
to April 1967 and 
thereafter in monthly 
instalments of 
$5,550 to Feb. 1969 $ 754,690 $1,217,290 
5 % note payable in 
monthly instal- 
ments of $43,654 
to March 1971 . 
6 % note paid in 1965 
Less: Instalments due 
within one year. 
Instalments due 
after one year . 
2,750,163 3,274,011 
167,500 
$3,504,853 $4,658,801 
986,448 1,053,448 
$2,518,405 $3,605,353 
The Company's turbo-prop aircraft and re- 
lated spare parts are pledged as security 
under chattel mortgages for the loans. The 
Civil Aeronautics Board has guaranteed 90 % 
of the principal amount and 100 % of the in- 
terest on the 5 % loan. 
Under the terms of the loan agreements, 
the Company has agreed that ( 1) it will not, 
without the prior 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) it will main- 
tain current assets at least equal to current 
liabilities ( excluding the current portion of 
notes payable) . 
NOTE 2- Debentures: 
On December 9, 1965, the Company called all 
outstanding 6 % convertible subordinated 
debentures for redemption at 105 % of the 
principal amount. In accordance with the 
terms of indenture agreement, the debentures 
alternatively were convertible into common 
stock of the Company at the conversion price 
of $6.00 per share. As of December 31, 1965, 
debentures in the principal amount of $579,- 
700 were outstanding, of which $452,922 were 
converted by January 5, 1966 into 75,487 
shares of common stock and the remainder 
redeemed on January 10, 1966. The redemp- 
tions and conversions subsequent to the year 
end have been reflected in the accompanying 
financial statements, the debentures redeemed 
being included in current liabilities and those 
converted in common stock as if issued as of 
December 31, 1965. 
NOTE 3-lnvestment tax credit: 
The Company's provision for federal income 
taxes charged against current income has 
been reduced by investment tax credits of 
$94,000 in 1965 and $153,000 in 1964 resulting 
from acquisitions of qualified property.  
13 
 Notes (Continued) 
NOTE 4-Paid-in surplus: 
Balance, December 31, 1964 $1,396,723 
Excess of conversion price over 
par value of common stock 
issued upon conversion of 6 % 
debentures (after deducting 
unamortized debenture expense) : 
132,495 shares issued upon con- 
version in 1965 . 662,706 
75,487 shares issued upon conver- 
sion subsequent to December 31, 
1965 (Note 2) . 
Balance, December 31, 1965 
NOTE 5- Pension plans: 
378,650 
$2,438,079 
The Company has several pension plans for 
pilots and other employees, all of which are 
contributory except for the fixed benefit plan 
for pilots. During 1965 earnings were charged 
with $238,140 representing the Company's 
share of current and past service pension 
costs. As at December 31, 1965, unfunded past 
service costs under the plans amounted to 
$483,000 and will be funded over future years 
at a rate which should accumulate sufficient 
funds to meet pension obligations to em- 
ployees as they retire. 
NOTE 6-Commitments 
and contingent liabilities: 
As of December 31, 1965, the Company had 
aggregate lease commitments of $3,650,000 
14 
payable as follows: 1966-$455,000; 1967- 
$839,000; 1968-$523,000; 1969 through 
1978-$1,033,000; and 1979 through 1990- 
$800,000. These leases relate to land, terminal 
facilities and aircraft and include the follow- 
ing major lease commitments contracted in 
1965 : (a) lease of two Boeing 727 jet aircraft 
scheduled for delivery in mid-1966 and (b) 
lease of certain land at the San Francisco 
International Airport for a new maintenance 
base and office building scheduled for occu- 
pancy in 1966. 
During 1965 the Company contracted for 
the purchase of four Boeing 737 jet aircraft 
at an approximate aggregate cost of $14,000,- 
000, the aircraft being scheduled for delivery 
in 1968. The Company is also committed under 
the terms of the land lease at the San Fran- 
cisco International Airport to construct not 
less than $1,000,000 of improvements on or 
before January 1, 1967. The Company has 
long-term loan commitments to finance pur- 
chase of the aircraft and construction of its 
new airport facilities. 
The Company has been named a defendant 
in several lawsuits resulting from the crash 
in May 1964 of one of its Fairchild F-27 turbo- 
prop aircraft. In the opinion of Company offi- 
cials any liability that may result from claims 
for passenger fatality as a result of the crash 
should be adequately covered by insurance. 
 PRICE WATERHOUSE & Co. 
120 MONTGOMERY STREET 
SAN FRANCISCO 94104 
To the Board of Directors and Stockholders of 
Pacific Air Lines, Inc. 
March 15, 1966 
In our opinion, the accompanying balance sheet and the related statement 
of earnings present fairly the financial position of Pacific Air Lines, Inc., 
at December 31, 1965 and the results of its operations for the year, in 
conformity with generally accepted accounting principles applied on a 
basis consistent with that of the preceding year. Our examination of these 
statements 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. It was not practicable to obtain confirmation of 
certain receivables from the United States Government by 
 direct correspondence, but we satisfied ourselves as to these amounts 
by application of other auditing procg 
/4,/ 
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The Annual Meeting of shareholders will be held at the Mountain 
Shadows Hotel, ScottsdaJe, Arizona, on June 6, 1966, 10 :00 a. m. 
Stock Transfer Agents 
Crocker-Citizens National Bank 
79 New Montgomery Street, 
San Francisco, California 
Bankers Trust Company 
New York 17, New York 
Stock Registrars 
Bank of America 
300 Montgomery Street, 
San Francisco, California 
The Chase Manhattan Bank 
New York 15, New York 
15 
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'' In addition to Pacific's present service to Lake Tahoe your Company 
is . awaiting decision by the Civil Aeronautics Board on its application 
to fly non-stop between Lake Tahoe and all other points in California.