Pacific Northern Airlines, Inc. First Report to Stockholders 1947 [photocopy]

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. PACIFIC NORTHERJV AIRLINES, INC
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First Report To Stockholders
1947
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PACIFIC NORTHERN AIRLINEf, INC
A. G. Woodley
John E. Manders
Clarence W. Nelson
M. E. Diamond
Dean B. Hart
DIRECTORS
Robert A. Rowan_
G. P. O'Grady
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John E. Manders
Joseph E. Crosson
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A.G. Wooclley
President and General Manager
Vice-President and General O oitnsel
Secretary-Treasurer
Assistant Secretary
Assistant Secretary
General Office: Anchorage, Alaska
Treasury and Accounting Office: 666 Stuart Building, ~eattle, Washington
General Traffic and Sales Office: 1324 Fourth Avenue, Seattle, Washington
Wash,
ington Counsel: Gerald P. O'Grady, 1025 Connecticut Avenue, N.W., Washington, D. C.
PA.OIFIO NORTHERN AIRLINES, INO.
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.. _ In submitting this report it is.pointed out that Pacific Northern Airlines, Inc.. hms
operated as a corporation only since August 1, 1947. Because this is the first report to
be made on the new corporation it is considered desirable to outline briefly the histoYy
of Pacific Northern Airlines, Inc. and its predecessors.
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. The Cotnpany was ihcorporated on January 9, 1945 under the laws -
of the Terri-
tory of Alaska as Woodley Airways, Inc. By amended Articles of Incorporation, filed
August 23. 1945, the name was changed to Pacific Northern Airlines, Inc. The cor-
poration's President, A. G. Woodley, started a business of aviation in .Alaska in
1932 which was subsequently operated as Pacific Northern Airlines, a partnership, un-
til August 1, 194 7 the date on which by approval of the Civil Aeronautics Board the
transfer of the assets and liabilities of the partnership to the corporation was effected.
Prior to this the corporation had conducted no business of any kind and had remained
inactive~ . . .
Pacific Northern Airlines, Inc. through its predecessor companies, ( and herein-
after referred to as the Company), is the oldest air carrier in Alaska operating under
original management and is now commencing its seventeenth year in the air transporta-
tion business. It was the first Alaskan Air Carrier to qualify for and to be granted an
~r Carrier Operating Certificate by the Ci vii Aeronautics Admi~istration.
The following table shows the growth in the past eight years of the Company as an
air carrier and includes all revenues for the transportation of persons, property and
mail.
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Year , . Total Revervues
1940 _______ $ 91,025.31
.. ~, 1941 151,533.11
1942 .203, 138.62
1943 - - - - - - - 215,002.72
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1944 274,000.30
1945 - - - -- - - 353,296.95
1946 ------ 1,116,665.46
i 947 - - - - - - - - J ,382,541.89
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Jn each of these years, as likewise in each and every year since it commenced oper-
ations in 1932, the_ Company has had an ~perating profit. . .
Individual and partnership income taxes absorbed a major portion of these profits,
however the corporate tax rate will henceforth m_
aterially reduce this item of cost.
:: The large increase in total revenues in 1946 over prior years can be attributed to
the establishment of a general Traffic and Sales office in Seattle where, it is estimated,
approximately _70 % of the Company~ s total annual revenues originate. The Com-
pany also .at this time replaced its two 10-Passenger Boeing 247D aircraft with three
new.Douglas 21-Passenger DC-3D aircraft which not only aided in generating traffic but
also enabled the Company to handle the increased volume developed through its im-
. proved sales facilities. .
* PACIFIC NORTHERN AIRLINES, INC. *
Routes and Services ( '
. The routes and services authorized by the .. grandfather" certificates issued to the
Company by the Civil Aeronautics Board in October 1942, are described as follows:
.. Over the regular routes as follows:
1. Between the terminal point Anchorage, th~ intermediate points Pedro Bay, Iliamna,
lgiugig, Koggiunk, Naknek, Egegik, and Pilot Point, and the terminal point Uga-
. shik, and between the intermediate point Iliamna and the intermediate points Ek-
- wok, Dillingham, Kanakanak, and Clark's Point, and the terminal point Ugashik,
with respect to persons, property, and mail. t..,
2. Between the terminal point Anchorage, the intermediate points T yonek and Susitna,
and the terminal point Skwentna, with respect to persons, property, and mail;
3. Between the terminal point Anchorage (or Seward), the intermediate points Kenai,
Kasilof, and the terminal point Ninilchik, with respect to persons, property and mail.
4. Between the terminal point Anchorage, the intermediate points Medfra, McGrath;
Takotna, and Ophir, and the terminal point Flat, with respect to persons, and prop-
erty, except mail;
5. Between the terminal points Anchorage and Seward, with respect to persons and
property, except mail; and
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Over an irregular route, as follows:
Between all points in that part of the Territory of Alaska situated east of the Yukon
River, south of the 64th parallel of latitude, and west of a line extending north and
south through the most westerly point of Prince William Sound, with respect to per-
sons and property, except mail."
Certain amendments to these "grandfather" routes were obtained through pro-
ceedings before the Civil Aeronautics Board as follows:
Route 3-Effective July 2, 1945, the Civil Aeronautics Board in Alaska .Airlines,
Inc.-Fairbanks to Kodiak Operation, 6, C.A.B. 381, amended the certificate of pub-
lic convenience and necessity of the Company to extend the Anchorage-Ninilchik route
to the new terminal point Kodiak via the intermediate point Homer.
In Northwest .Airlines, Inc.-Pacific Case, & C.A.B. 209, decided June 20, 1946,
the Civil Aeronautics Board further amended the Company's certificate of public con.:
venience and necessity by authorizing it to engage in air transportation of persons,
property and mail between the terminal point Anchorage and the intermediate points
Cordova and Y ~kutat and the terminal point Juneau.
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All these authorizations are included in permanent certificates of public conveni-
ence and necessity.
The Company suspended service on route 4 at the beginning of the war be-
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-PACIFIC NORTHERN AIRLINES, INC. *
cause of the complete cessation of mining activity in that area. Should activities of any
size be reinstated in this area the Company is prepared to resume service on this route.
Likewise the Company has not operated route 5 since the granting of the "grandfather"
rights on tliis route and has petitioned the Civil Aeronautics Board for permission to
abandon this route because the topographic conditions at Seward preclude the possibility
of ever rendering scheduled service with the transport type equipment now operated
by the Company and with which the Company intends to continue its future operations.
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; The Company has on file with the Civil Aeronautics Board an application to ex-
t~nd its Anchorage-Juneau route to Seattle for the transportation of persons, property
and mail. The Company participates in Alaska-United States traffic through an inter-
line agreement with Pan American World Airways which operates scheduled service be-
tween Juneau and Seattle. It is recognized that this connecting service cannot compete
on an equal basis with the one-plane, one-carrier non-stop service operated by North-
west Airlines, the only certificated carrier authorized by the Board to operate through
service between Seattle and Anchorage. The Company has and will continue to urge
the Board for early hearing on its application for authorization to _serve this important
traffic.
Although only one carrier is authorized to render scheduled through service be-
tween Seattle and Anchorage, considerable revenue has been diverted from the Com-
pany by the operations of one Alaskan carrier and approximately fifteen so-called irreg-
ular carriers operating DC-3 and DC-4 equipment over this route in violation of the
Civil Aeronautics Act. The success of these carriers is understandable when the class
of service being rendered is such to permit them to off er .a far lower fare than is possible
by the scheduled airlines and their advertising_ does not identify the type of accommo-
dations being made available. This condition has been permitted to develop by the in-
ability of the Board to police its Regulations, however it is expected that with an expan-
sion in its staff and with grea~er appropriations the Board will remedy this situation.
Th~ Compan~ has frequently complained to the Boaii of these illegal operations
and on November 5~ 1947 sought injunctive relief in the Courts of Alaska against the
two largest and most aggressive of these carriers, namely Alaska Airlines and Northern
Airlines. The Company was subsequently joined in its complaint by Pan American Air-
ways, Northwest Airlines and the Civil Aeronautics Board itself, as intervenors. The
case is expected to be brought t_o hearing early this.Spring and it is expected that injunc-
tions will be obtained against these carriers which will serve as a basis for similar ac-
tion against other such carriers unless in the meantime the Board enforces its Regula-
tions eff e.ctively by direct action.
Equipment and Property
In the latter part of 1945 the Company purchased three new Douglas DC-3D air-
craft from the Douglas Aircraft Company at Santa Monica, California which were put
in operation on the Company's routes in February, 1946, and were the first new trans-
por,t aircraft to be placed in air-carrier service in Alaska. The Company subsequently
purchased one used Douglas C-4 7 aircraft for cargo use and one Douglas DC-4, fifty-
. five passenger aircraft for passenger and cargo use. Both these aircraft have been con-
verted and modified to Company specifications. The Company also operates one six-
ASSETS
Current .Assets
Cash and special deposits
U. S. Government Bonds {Note 2) . . . . .
Current receivables:
U. S. Government $
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Notes receivable .
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Others - Less Reserve
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Inventory of supplies
{at average cost or less) .
Total current assets . . . . .
Property and Equipment
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Flight equipment
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Ground property and equipment
Construction work in progress . . .
Non-operating property and equipment'
$
Less - Reserve for depreciation
Prepaid Expenses
Intangibles
Property acquisition adjustment (Note 4). . . . $
Suspense adjustment (Note 3)
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PACIFIC NORTHE 'RN AIRLINES, INC
BALANCE SHEET AS O F DECEMBER 31, 1947
LIABILITIES
Current Liabilities
$ 124,702.70 ' i Notes payable (Note 2)
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60,000.00 I ' Accounts payable .
Accrued salaries and wages . . . .
184,163.57 Accrued taxes ( other than Income)
7,176.81
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Provision for federal income taxes for
120,218.11 311,558.49
period August l to December 31, 1947 .
Due stockholders (Note I)
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58,391.70 Payments on long-term _
debt due
$ 554,652.89
within one year
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Other current liabilities . . .
Total current liabilities , , .
694,593.07
131,438.05 Long Term Debt...:..Less -payments due
8,941.89 within one year
57,071.84
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892,044.85 Unearned Transportation Revenue
273,472.90 618,571.95
Capital. Stock, Surplus and Reserves
12,933.08
r <:ommqn stock, par value $1.00 per share
Outstanding 537,000 shares . .
93,323.29 t ). f.arned Surplus (August 1 to
21,089.26 114,412.55
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December 31, 1947) .
$1,300,570.47
Notes to Financial Statement-PACIFIC NORTHERN AIRL INES, INC.-December 31, 1947.
Note 1-This amount represents loans from stockholders in th the amount of $75,077.91 and estimated income tax liability of
$98,000.00 on 1947 partnership operations.
Note 2-U. S. Government Boncu pledged as security on note te payable to bank.
Note 3--Contingent liabilities and incidental expenses not 1nv voiced at date of transfer.
Note 4-Difference tn valuation of aasets in accordance with -e -escrow agreement dated September 4, 1945 and book values
adjusted to reflect two year lntar1m operatiorus to da date of actual transfer August 1, 1947.
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$ 60,000.00
. 171,276.07
. 15,287.21
22,822.78
. 37,016.60
. 173,077.91
74,565.00
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. $ 563,716.03
. 135,326.25
. 3,759.79
. 537,000.00
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. . 60,768.40
$1,300,570.47
* PACIFIC NORTHERN AIRLINES, INC.
STATEMENT OF REVENUE AND EXPENSE
August 1 to December 3 1 , 194 7
Operating Revenue:
Passenger
Mail
Baggage, express, freight
Other . . . . . . .
Operating Expenses:
Flying and ground operations
Traffic, sales, advertising, general
and administrative . . . .
Maintenance
Depreciation
Operating income
Non-operating income - net
Profit before provision for federal
income taxes . .
Provision for federal income taxes
Net profit for the period August 1 to
December 31, 1947 . . . . . .
$ 394,652.25
140,653.83
27,425.93
30,502.18
$ 182,332.98
135,077.42
105,514.33
78,522.07
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$ 593,234.19
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501,446.80
$ 91,787.39
5,997.61
97,785.00
37,016.60
$ 60,768.40
* .PACIFIC NORTHERN AIRLINES,. INC. *
place T ravelair plane which is used in both passenger and cargo service on the route No.
3, where the travel potential is small and the landing facilities are inadequate for the
larger multi-engine aircraft.
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The Company maintains spare engines ~nd. an inventory 'of aircratt, engine ancl
radio supplies adequate for its operations. The Company owns a hangar, warehouse
and administration buildings on leased property at the commercial airfield in Anchor-
age ( Merrill Field) but ~
due to the Iestricted size of this field conducts its scheduled op.-
erations from leased hangar facilities at the Army airfield nearby (Elmendorf Field) .. ,
Maintenance . :
The Company during the past year inaugurated a progressive overhaul program
for its aircraft and conducts this program in its buildings at Merrill Field. This program
while inceasing the present maintenance costs should effect considerable saving in
overhaul costs in future years. Daily aircraft and engine maintenance is carried on in
the Company's shops at the Army airfield. The Company was recently granted_ an in-
crease of hours between overhaul of its motors, aircraft components, and instruments
by the Air Carrier Section of the Civil Aeronautics Administration which, in effect, is
an endorsement of the Company's maintenance procedures. Major engine overhauls
are performed under contract by commercial agencies approved by the Civil Aeronautics
Administration.
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Insurance , [
The Company maintains what it considers adequate insuran~e ~overage with pub-
lic liability in the aggregate amount of $250,000 and passenger liability in the aggre-
gate amount of $2,650,000. Property damage insurance is carried in the amount of
$100,000. All the aircraft are covered for their respective full value and fleet coverage
of automotive equipment for bodily injury liability is carried in the a.mount of $50,000.
The Company likewise carries insurance on all buildings which it owns, as well as cap-
ital equipment and other contents, against fire and extended coverage hazards to ap-
proximately 80 % of their sound insurable value.
Rates- . {
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Passeng~r fares vary on different segments of the Company's ~ystem and are sub-
stantially higher th~n on the scheduled airlines of the United States. This is under-
standable when costs of every nature are generally higher in Alaska than in the conti-
nental United States, i.e., from a minimum of twenty-five percent higher to four hun-
dred percent higher in some categories of expense. The passenger fares vary from a
low of 9 .3c per passenger mile on through service over more heavily travelled routes
to as much as 18.64c per passenger mile on the less travelled routes in Western Alaska.
Cargo rates are fixed on a poundage basis and range for general commodities from 70c
to 40c per ton mile depending on distance flown. This is a reduction in some instances
of as much as 70% over the rates in effect the previous year. These reductions were
made in an effort to generate traffic and to meet competition of irregular air carriers
whose -costs of operation are eonsiderably lower than those of scheduled air carriers.
Due to the fact that the Company's operations are highly seasonal cost per reve-
nue mile varie~ accordingly. The Company handles during three of the summer months
* PACIFIC NORTHERN AIRLINES, 1
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approximately 5-0% of its gross annual busines1, with a minimum of organization re-
quired to conduct ita year-around operation as a scheduled carrier. During these
months when maximum utilization of equipment and personnel is possible the coatl
of operation compare favorably with those of the domestic United States carrier-, and
in the peak traffic month of August was as low as 92.6c per revenue mile.
In May. 1947 the Board established a temporary rate of 59c per airplane mile for
the Company's operations over the Anchorage-Juneau route for an average daily mile-
age of 1132 miles to serve aa an interim basis of payment for the carriage of mail until
such time as the Board may determine and fix a permanent rate which may be either de-
creased or increased. This rate was made retroactive to July 3 1, 1946. Mail t'atee on
the other routes of the Company have not as yet been determined by the Civil Aeronaut-
ics Board and the rates currently being paid are those in effect at the time of the pass-
age of the Civil Aeronautics Act in 1938, which have been continued in effect by Sec-
tion 405 (a) of the Act until such time as rates are fixed by the Board.
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Financial J. ::- 4
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There i, submitted herewith a balance sheet as of December 31, 1947 and a state-
ment of revenue and expense for the five month period from August I, 1947 to Decem-
ber 31, 1947. Audit of this report has not bee11 made by the Company's Auditors. Sexton..
Chabot and Molitor of Seattle, as it was considered unnecessary at tlua time ina8'!
much as an independent audit of accounts was completed as recently as of July 31,
194 7 upon termination of the partnership operation. As shown in the Profit and Lou
statement the net earnings after taxes for the initial five months of operation aa a cor-
poration were $60,768.40. This is somewhat higher than could be projected over the
entire year, due to the fact that the peak month of August is included in this period.
The capital stock of the Company consists only of Common Stock, having a par
value of$ 1.00 per share and has capital authorization of 2,000,000 shares. 537,000
shares are issued and outstanding.
No public offering of stock has yet been made. When market conditions appear
more favorable it is likely the Company will consider such an offer in order to improve
its working capital position, and to provide for contemplated capital expansion.: The
Board of Directors has authorized 53,700 shares of stock to be issued for purchase at
par by employees as a basis of an employee partidpation program.
The Future
The over-all prospects for 1948 at present indicate an increase of revenues over
fast year. The importance of Alaska to the national defense cannot be overlooked in .
planning for the future. Not alone militarily, but commercially also, Alaska is certain
to progress rapidly in its development.
The success of the Company in ita application now pending before the Civil Ae!t
onautica Board to extend its routes to Seattle will afford the Company not only a bet-
ter level of traffic throughout t!he year but will better permit it to aid in the development
of the Territory and will further provide the Company with greater security and greater
possibility of future expansion.
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A G. WOODLEY,
'Premuni .1nd Gmcral ~,.,.