Pacific Northern Airlines, Inc. Annual Report to Stockholders 1948

PACIFIC NORTHERN AIRLINES, INC
*
Annual Report To Stoc_kholders
1948
PACIFIC NORTHERN AIRLINES, INC
Robert A. Rowan
G. P. O'Grady
A. G. Woodley .
John E. Manders
C. A. DuRose
Clarence W. Nelson
M:. E. Diamond
Dean B. Hart
General Off ice : Anchorage, Alaska
DIRECTORS
A. G. Woodley
OFFICERS
John ]J. Manders
Joseph E. Crosson
Preshlent and General Manager
T.,,fre-President and Gene1al Go1tnsel
. Yfre-P.resident, Operations
S ecretary-Treas1trer
. Ass1'.stant Secretary
Assistant Secretarv-Treasurer
Treasury and Accounting Office: 1626 Exchange Building, Seattle, Washington
General Traffic and Sales Office: 1324 Fourth Avenue, Seattle, Washington
lVashington Counsel: Gerald P. O'Grady, 1025 Connecticut Avenue NW, Washington, D. C.
R eport to Stockholders o.f
P AGIFIG NORTHERN AIRLINES, INC.
The year 1948 was the seventeenth consecutive year in which the Company has
had a profitable operation. Profits however were not as substantial as had been anti-
cipated, but against rising costs which in some categories amounted to as much as
35 % increase over the previous year, a net profit of $34,227.54 was realized after
depreciation of $190,972.24 and Federal Income Taxes. This amounted to 5 % of in-
vested capital. The capital position of the Company was also improved through the
sale of 53,700 shares of capital stock to employees at par, which issue had been au-
thorized by the Directors as a basis of an Employee Participation Program. Long term
debt representing mortgage loans against flight equipment was reduced to $135,-
326.25. This balance is to be retired in monthly installments by March, 1951. All
other equipment is fully owned by the Company.
Gross revenues were the largest in the Company's history and were an 8 %
increase over the prior year. Although passenger miles remained approximately the
same, it is significant that the revenue ton miles of cargo flown increased 327 % which
indicates the great potential of cargo in the Alaska trade. During the maritime strike
in the fall of 1948 the Civil Aeronautics Board authorized Alaskan carriers to oper-
ate between Seattle and Alaska to relieve shipping shortage caused by the strike. With-
out prior notice and operating only on a temporary basis with month-to-month auth-
orization the Company carried in the two and a half months of this exemption period
over three hundred thousand ton miles of freight from Seattle to Alaska which clearly
demonstrates the ability of the Company to serve the traffic needs of the Territory.
During 1948 the Civil Aeronautics Board instituted an investigation as to the ade-
quacy of cargo service being rendered by the certificated carriers between Seattle and
Alaska and included in these hearings the applications then pending for additio.nal
service between the States and Alaska. Hearings in this case, known as the United
States-Alaska Service Case, C.A.B. Docket 3286, were conducted in Alaska and in
Washington, D. C. and were completed in November. The Company is an applicant
in this proceeding for an extension of its routes from Juneau, Alaska to Seattle, \Vash-
ington. This extension will require certification of only 906 additional route miles and
will give the Company access to the great potential of cargo and passenger traffic
which it is felt has been inadequately developed and inadequately served in the past.
The service proposed by the company will render more one-carrier, one-plane service
to more important communities than would the services presently performed or pro-
posed by any other applicant. The Company estimates that in the first year of oper-
ation, if extended to Seattle, it will carry over four million ton miles of cargo and 21 ,-
300 passengers between the States and Alaska and will further increase this operation
to over five million ton miles of cargo and 25,500 passengers in the second year of op-
eration. This is not an unrealistic projection at all. Evidence submitted at the hearings
PACIFIC NORTHERN AIRLINES, INC.
in this case disclosed that the numerous non -certificated . and irregular carriers oper-
ating in a haphazard manner and for the most part in flagrant violation of the law, had
actually flown in the aggregate in excess of this amount.
It would seem logical that the government's program of economic development
of Alaska could best be implemented by certification of Pacific Northern to serve the
Territory by a direct route from Seattle. The Company has the largest scheduled air
carrier operation of any Alaskan carrier with the largest payroll supported by such
operation, and the revenues of the Company would remain primarily in Alaska. The
financial success of the Company in its long-haul operation from the States to Alaska
would enable it to greatly lower the cost of air transportation to the people of Alaska
on its intra-Alaska routes. As it is now, the development of the Territory is seriously
impaired by the revenues, obtained by the present certificated carriers in the States-
Alaska trade, being diverted to their domestic and international routes in which they are
understandably primarily interested. Briefs on all parties in this case have already been
submitted to the Board and it is hoped that a decision in this case giving sympathetic
consideration to the needs of the people of the Territory will be rendered by the Board
before the close of the instant year.
Recently the Civil Aeronautics Board issued a Statement of Policy with respect to
its mail rate program for Alaskan carriers. Since the passage of the Civil Aeronautics
Act in 1938 Alaska has been somewhat neglected not only in the economic considera-
tions of the Board but also in respect to the fixing of rates of compensation for han-
dling mail in Alaska which compensation would most certainly aid in the accelera-
tion of the development of the Territory. The board's program indicates that perma-
nent rate decisions will be issued as rapidly as the Board's staff can . analyze the oper-
ating and financial results of the carriers' operations and it is expected that final mail
rates will be established during 1949. The Board's auditors have been conducting such
an audit of the company's records since the first of the year covering a period of op-
eration since January 1, 1943 and are so engaged in this audit. In this connection it
is pointed out that the statements submitted with this report are unaudited for the rea-
son that priority to the Board's audit has been given by the Company and the Com-
pany's auditors have been delayed in completing their report. As soon as such audit
is completed, however, it will be submitted as a supplement to this report.
The Company still continues to operate under a temporary rate of compensation
for carrying mail on its Anchorage-Juneau route. This rate of fifty-nine cents per rev-
enue mile was established by the Civil Aeronautice Board in May, 1947 and was made
retroactive to July 31 , 1946. Mail rates on other routes of the Company have not
been set by the Board and the rates currently being paid are those that were in effect
at the time of the passage of the Civil Aeronautics Act in 1938, and which have been
continued in effect under Section 409a of the Act until such time as temporary or per-
manent rates may be fixed by the Board. These rates were those established by compe-
PACIFIC NORTHERN AIRLINES, INC.
titive bidding prior to 1938 and certainly have no relation to present costs or standard
of service being rendered today. The yield of mail compensation in cents per revenue
mile flown is the lowest presently effective rate of any carrier in Alaska and is compar--
able to the rates currently being received by the average domestic carrier in the United
States.
There was no acquisition of additional major flight equipment during the year.
The Company's four DC-3's and one DC-4 are considered adequate to handle the pres--
ent volume of business and any increased volume that may be obtained on its present
routes. The Company, however, replaced its single-engine aircraft which it used on
one of its routes where landing facilities are inadequate for the large multi-engine
aircraft, with two small twin-engine aircraft. This replacement gives the Company
multi-engine equipment on all its routes. If extended to Seattle, the Company intends
to purchase three additional DC-4 aircraft and to lease one DC-4 aircraft for approxi--
mately four months of seasonal traffic increases. Capital improvements to present
flight equipment amounted to $40,255.01. This represents costs of compliance with
latest C.A.A. safety bulletins, and all aircraft used in the Company's scheduled oper--
ations are fully modified and air-carrier certificated.
The Company continues to maintain what it considers adequate insurance cover-
age which in the case of aircraft is for their respective full value and in the case of
ground equipment and buildings approximately 80 % of their insurable value.
Because of the number of carriers operating between the States and Ala~ka under
names similar to Pacific Northern and because of the number of accidents involving
loss of life on these Alaska routes in the past year, it might be well at this time to
point with pardonable pride to the outstanding safety record of Pacific Northern which
has had no passenger fatalities in the seventeen years of its operations which includes
the period of pioneering air routes in the rugged wastelands of Alaska. Today the
airports and the airway facilities compare to and in some instances surpass the very
finest in the continental United States.
The Company has inaugurated and is continuing a program. of training in Instru-
ment Landing System ( ILS) and Ground Controlled Approach System ( GCA) . Ground
facilities for either or both _
systems have recently been installed by the C.A.A. in the
major airports served by the Company. All aircraft of the Company are currently being
equipped with necessary flight equipment to utilize these systems and it is expected
that authorization for their use will shortly be incorporated in the Company's Air Car-
rier Operating Certificate. The use of these systems will enable the Company to obtain
lower minimum landing requirements and should increase the percentage of comple-
tion of its scheduled miles which during 1948 was 97 .26 % , an increase over the 194 7
figure of 9 5. 5 7 % . This percentage of operating efficiency compares favorably with
airlines operating in good weather areas in the United States and is considered the
Current Assets
Cash and special deposits
Current receivables:
U. S. Government .
Others - Less Reserve .
ASSETS
Materials, supplies, motor fuels and oils
( at average cost or less)
Total current assets .
Property and Equipment
Flight equipment
Ground property and equipment .
Non-operating equipment
Less - Reserve for depreciation
Prepaid Expenses
Property Acquisition Adji(,stment: (Note 1)
Capital Stock Expense:
PACIFIC NORTI-IBRN AIRLINES, INC
. $ 281,161.63
170,728.75
$ 763,354.35
150,013.48
57,071.84
$ 970,439.67
456,965.05
BALANCE SHEET AS OF DECEMBER 31, 1948
$ 99,823.46
451,890.38
46,832.20
$ 598,546.04
5 t 3,474.62
45,634.13
99,412.55
660.30
$1,257,727.64
( UNAUD I T E D )
1
l
1
1
Current Liabilities
Accounts payable
Payments on long term debt
due within one year
LIABILITIES
Due stockholders (Note 2)
Provision for Federal income . ta~es
Accrued salaries and wages .
Other current liabilities
Total current liabilities .
Lon_q 11erm Debt:
(Less - Payments due within one year)
Unearned Transportation Beven1-te:
Capital Stock and Surplus:
Common stock, par value $1.00 per share
Issued and outstanding
Subscribed and unissued .
Earned Surpl1,,,s: .
Notes to Financial Statements-PACIFIC NORTHERN AIRLINES, INC.-December 31, 1948.
Note 1-In accordance with CAB Standard Classification of Accounts, Form 41, showing difference in agreed valuation o
assets of the Predecessor Partnership as of September 4, 1945, and book value adjusted to reflect the two year in-
terim operations to August 1, 1947, the date of actual transfer to the Corporation, as approved by the Civil Aero
nautics Board.
Note 2-Provision for Federal income taxes of predecessor company assumed by Corporation per transfer agreement.
. $ 654,077.00
11,700.00
$ 260,779.83
$
74,565.00
61,874.32
5,711.96
12,614.31
15,415.87
430,961.29
60,761.25
5,115.78
665,777.00
95,112.32
$1,257,727.64
PACIFIC NORTHERN AIRLINES, INC.
ST A TEMENT OF REVENUE AND EXPENSE
Twelve Months Ended December 3 1 , 1948
Operating Revenue~
Passenger . . . . .
United States mail
Cargo
. . . . . . $ 976,739.77
. . . . 363, 138.0 l
147,040.08
12,985.59
Excess baggage
Other 2,784.77 $1,502,688.22
Operating Expenses ;
Flying operations .
Ground operations
Maintenance
Passenger service .
Traffic, sales and advertising . .
General and administrative .
Depreciation .
Net operating income .
Less: Non-operating expense (net)
Net income before Federal income taxes .
Provision for Federal income taxes
Net Income . . .
404,033.29
177,142.90
326,682.35
88,705.74
121,286,73
149,50 I .72
190,972.24
$
l ,458,324.97
44,363.25
4,648.79
39,714.46
5,486.92
34,227.54
PACIFIC NORTHERN AIRLINES, INC.
more outstanding when it is viewed in the light of one of the most severe fall and
winter seasons ever recorded in Alaska. It is indeed a tribute to the industriousness,
efficiency and loyal cooperation of all employees.
While it is too early to predict with any degree of accuracy what the results may
be for 1949, it is known that the government intends to pursue is program for the de-
velopment of Alaska and the Company will participate in this development.
The vast Territory of Alaska, truly the last of frontiers, is now receiving the rec-
ognition to which its strategic position entitles it. Over $1.2 billion has been projected
for the military, economic and social development of Alaska in the next five years.
Already close to $200 million has been appropriated for the current fiscal year to
build and improve airfields and roads; to explore and survey potential homestead
areas, new industry and mineral resources. Over $7 5 million has already been award-
ed in contracts for construction work in Alaska for this year.
This huge plan of development contemplates a concentration on two large areas
in Alaska, one in the central region with Anchorage as the pivotal point and the other
in Southeastern Alaska with Juneau, the capital of Alaska, as the focal point. Both of
these points are major termini on the Company's routes and if extended to Seattle the
Company would be in a position to render direct service between these areas and the
U nited States.
The key military roll assigned to Alaska in the Defense Program and the economic
factors accompanied by considerations of national defense especially during the pres-
ent era give Alaska a pre-eminent position in which a sound air transportation system
not alone within Alaska but between Alaska and the continental United States assumes
madded importance.
A. G. WOODLEY
President