Pacific Northern Airlines Annual Report 1955

PACIFIC NORTHERN AIRLINES, INC.
G. P. O'GRADY, Washington, D. C.
JOHN A. Cu I GHAM, Seattle, Washington
PAUL PoRZELT, ew York, ew York DIRECTORS
R. A. Row A , Los Angeles, California
M. B. KIRKPATRICK, Anchorage, Alaska
C. W. NELSO , Seattle, Washington
A. G. WOODLEY, Seattle, Washington
A. G. WOODLEY, President and General Manager
H. A. OLSEN, Vice President-Traffic and Sales OFFICERS
JOHN A. CUNNINGHAM, Vice President-Operations
J. H. FOSTER, Vice President-Engineering and Maintenance
C. W. ELSO , Secretary-Treasurer
M. E. DIAMO D, Assistant Secretary
DEAN B. HART, Assistant Secretary
GENERAL COUNSEL: G. P. O'Grady, 1625 Eye Street, Washington, D. C.
GENERAL OFFICES: 1626 Exchange Building, Seattle, Washington
CITY TICKET OFFICES: Anchorage Kodiak Juneau
Homer Cordova Portland
Ketchikan Kenai Seattle
AUDITORS: Lybrand, Ross Bros. & Montgomery
TRANSFER AGENT: Bankers Trust Company, New York, New York
REGISTRAR: Manufacturers Trust Company, New York, New York
COMMON STOCK LISTED ON THE AMERICAN STOCK EXCHANGE
TO THE STOCKHOLDERS OF PACIFIC NORTHERN AIRLINES,
ITS CUSTOMERS AND PERSONNEL:
During 1955, the 24th year of the Company's Alaskan operation and the 5th year
of its overseas service between the States and Alaska, Pacific orthern has '
realized the greate t volume of traffic and the highest revenue in it~ history. This
was possible because in early 1955 the Company strengthened its competitive
position in the States-Alaska market with the placing in service of fast,
pressurized Lockheed Constellation aircraft which the Company had under lease.
With the purchase of this equipment in March of this year, the Company's
equipment problem is stabilized and its continued growth is assured.
In August, 1955, the Civil Aeronautics Board renewed Pacific orthern's
States-Alaska rpute for an additional five years, and authorized the Company to
add service on this route to Ketchikan, an important center of fishing and
lumbering in Alaska. During the year the new $55 million pulp plant of the
Ketchikan Pulp & Paper Company started full production, making
Ketchikan the pulp and timber capital of the Territory.
Although the Constellation service was not fully implemented until May, 1955,
total operating revenues for the year increased 21 per cent over 1954. While there
has been a substantial increase in revenues, there has been a corresponding
increase in expense levels due to the greater amount of service rendered and
normal reequipment costs involving engineering and development, employee
training, tooling and modification of ground facilities necessary to
place new type aircraft in scheduled service.
Although the statement of income indicates a net loss of $199,671 for the year,
it must be noted that this figure is meaningless since the Company is operating
under an open rate of mail pay established in 1954 for a level of service
considerably less than that now being performed. For a carrier operating under
an open rate, the earnings figure is preliminary and does not indicate the actual
result of the year's operation. Final adjustments are expected to be made by
the Board, in conference with the Company, within a month, and the
actual profit element for the past period will be determined.
In March, hearings were conducted by the Interstate and Foreign Commerce
Committees of the Senate and the House of Representative in Washington, D. C.,
on legislation introduced by Senator Magnuson of Washington and Delegate
Bartlett of Alaska, propo ing amendment of the Civil Aeronautics Act of 1938 to
require the Civil Aeronautics Board to issue permanent certificates to all holders
of temporary certificates in Alaska, Hawaii and in the States-Alaska service. It is
noteworthy that the Civil Aeronautics Board in both hearings presented testimony
enthusiastically supporting this legislation. While all the routes of the Company
within Alaska are permanently certificated for ersons, property and mail, the
2
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granting of permanent status on its States-Alaska route, which is now temporary,
would be most beneficial to the Company to permit long-range planning and
development. This legislation is now pending before both houses of Congress, and
your help in gaining the support of your Congressional delegation for passage of this
legislation would be most helpful to the future development of your company.
The management wishes to express its appreciation of the loyal cooperation and
support of its employees, its customers and friends in helping the Company
to secure renewal of its overseas certificate and in making the past year
the largest traffic year in the Company's history.
17,634,000
Respectfully submitted,
~~
President
20 40 60 80
60 80
In 1955 Pacific Northern again sold its service to more passengers
than any other airline serving the Territory of Alaska. The 92,458
passengers carried produced a system total of 76,110,000 revenue
passenger miles-an increase of 27.6 per cent over the 59,610,000
total for 1954. The greatest increase in passenger traffic was over the
States-Alaska route, and as a result each passenger travelled an average
of 823 miles compared to an average trip of 764 miles in 1954.
19S5 TOUR SALES
The year 1955 ushered another basic industry into the economy of
Alaska when tourists spent an estimated $12,000;000 in transportation,
accommodations, food, sightseeing and other services. Your Company
played a leading role in the promotion and advertising of Alaska as a
REVENUE
PASSENGER
MILES
(In Millions)
16,140,000
16,482,000
18,930,000
21,203,000
vacation area on a national scale. Promotional low-cost ''Independent Air
Tours" and "All Inclusive" 10 to 15 day air tours were merchandised and sold
to vacationers from pra.ctically all of the 48 states and several foreign
countries. The Company jointly promoted tours with Thos. Cook and Sons,
Scenery Unlimited of California, Arctic Alaska Tours, and participated in the
development of tourist travel to Alaska with numerous other tour operators.
CONSTELLATIONS
The Lockheed Constellations placed in service in May of 1955 made it
possible for the Company to effectively advertise and promote the important
States-Alaska route, and this promotion made it feasible for the Company
to retain its dominant position in the Alaska market. The importance of
competitive equipment can be best illustrated by noting that States-Alaska
passeng~r traffic declined 23 per cent in the first quarter of 1955, when DC-4
aircraft were used exclusively, as compared to the first quarter of 1954.
States-Alaska passenger traffic for the first quarter of 1956 has registered
an 88 per cent gain over 1955, again pointing up the ability of the Company
to strengthen its position when competitive factors are somewhat equal.
AIR CARGO AND U. S. MAIL
Air cargo traffic and excess baggage of 3,637,000 ton miles registered an 8.8
per cent increase over 1954. The volume of mail ton miles increased from
881,000 in 1954 to 917,000 ton miles in 1955, a 4 per cent increase.
The system revenue load factor in 1955 increased to 66.9 per cent from
63 per cent in 1954, and again this percentage of available space utilized is
unsurpassed by any domestic or international carrier.
TOT AL SYSTEM TON MILES
AVAILABLE AND UTILIZED
TON MILES OF REVENUE TRAFFIC
REVENUE TONS UTILIZED -
TOT AL AVAILABLE
LJ
6 9 12
3
I I
NATIONAL
SAFETY COUNCIL
1955
A VIATION
8Al'ETY
AWARD
The policy of the Company and the dedication of its employees
to conduct all operations with primary attention to safety has
resulted in a perfect record for another year. This marks the
Company's 24th year in achieving a perfect safety record,
and entitles the Company to again receive the Aviation
Safety Award of the National Safety Council.
The Company provides group insurance and medical and hospital
benefits, the cost of which is shared jointly by the Company
and the employees. The Company sponsors an Employee's
Credit Union, and provides sick leave, paid annual vacations
and free or reduced-rate transportation.
Employee productivity, measured by total revenue ton mi]es
of traffic per employee, increased to 24,600, as compared to 23,000
in the previous year. This reflects continued satisfactory employee
relationship, for which management expresses its sincere appreciation.
KETCHIKAN
PNA service was inaugurated on October 15, 1955 to
Ketchikan-known as the salmon capital of the world
and Alaska's ''First City,'' where forest, mineral and fish
products are extensively processed. The Company
feels that a great potential for air transportation exists
in the Ketchikan area. Above and at left are view
Pacific Northern's new passenger ter
Island. View of Ketchikan water
PACIFIC NORTHERN AIRLINES, INC.
STATEMENT OF INCOME AND EARNED SURPLUS
I
FOR THE YEAR ENDED DECEMBER 31, 1955
OPERATING REVENUES:
Passenger .
Air mail . . .
Cargo . . . .
Excess baggage .
Other transport service
Incidental revenues, net .
Total. . .
OPERA TING WENSES:
Flying operations .
Direct maintenance-flight equipment .
Ground operations . . . . . . .
Ground and indirect maintenance .
Passenger service . . .
Traffic and sales . . . . .
Advertising and publicity .
General and administrative
Depreciation:
Flight equipment. .
Ground equipment .
Operating loss .
OTHER INCOME-EXPENSE*:
Gain on disposal of purchase option and other assets, net.
Interest, net. . . . . . . . . . . . . . . . . . .
Amortization of route extension and development costs
Miscellaneous, net . . . . . . . . . . . . . .
Loss before refunds of Federal income taxes
CLAIMS FOR refunds of prior years' Federal income taxes
Net loss . . . . . . .
EARNED SURPLUS, January 1, 1955 .
DEFICIT, December 31, 1955 . . .
$4,332,866
2,044,760
979,340
59,287
30,123
91,859
7,538,235
$2,923,704
1,044,823
977,338
627,631
466,718
788,960
111,684
503,128
354,991
83,338 7,882,315
344,080
144,104
12,718*
3,887*
2,567* 124,932
219,148
19,477
199,671
67,940
$ 131,731
The financial comments on page 8 are an integral part of the financial statements.
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6
PACIFIC NORTHERN
BALANCE SHEET December 31, 1955
ASSETS
Current:
Cash.
Receivables:
Traffic balances
United States Government.
Other . . . . . . . . .
Less, Allowance for losses .
Claims for refunds of prior years' Federal income taxes
Maintenance and operating supplies, at average cost .
Prepaid expenses, mainly insurance .
Total current assets
Investments:
Cash surrender value of life insurance .
Aeronautical Radio, Inc. stock, at cost .
Property and Equipment (at cost to the Company or predecessor):
Flight equipment. . . . . . . . . . . . .
Ground equipment . . . . . . . . . . . .
Buildings and improvements to leased property
Replacement parts for flight equipment
Construction work in progress . . . . . . .
Cost
$1,834,401
499,419
455,074
372,547
5,174
$3,166,615
Non-operating property and equipment, net of $30,443 depreciation
Property Acquisition Adjustment, Unamortized . . . . . .
Route Extension and Development, net of amortization . .
Pre-operating Expenses-Constellations, net of amortization
Other Deferred Charges . . . . . . . . . . . . . . . .
$ 402,124
382,718
23,094
807,936
36,684
-----
19,670
1,000
Allowances
for
Depreciation
$1,554,286
266,394
116,533
173,699
$2,110,912
The financial comments on page 8 are an integral part of the financial statements.
$ 343,333
771,252
19,884
370,284
123,144
1,627,897
20,670
1,055,703
27,290
130,020
42,754
143,907
17,108
$3,065,349
AIRLINES, INC.
(AN ALASKA CORPORATION)
Current:
Notes and contracts payable
Accounts payable:
Trade .... ... .
LIABILITIES
Taxes withheld or collected for benefit of taxing authorities .
Accrued liabilities:
Salaries and wages
Insurance and miscellaneous .
Interest. . . . . . . . . .
Taxes other than Federal income taxes
Air travel plan deposits . . . . .
Unearned transportation revenue .
Total current liabilities . .
Reserve for income tax contingencies .
Other Deferred Credits . . . . . . .
Commitments (See financial comments)
CAPITAL AND SURPLUS
Common Stock, authorized 2,000,000 shares, par value $1 each, issued and out-
standing 1,068,109 shares . . . . . . . . . . . . . . . . . . . . . .
Paid-in Surplus, excess of net proceeds from 401,665 shares of common stock
over par value-no change during 1955 . . . . . . . . . . . .
Deficit, statement annexed . . . . . . . . . . . . . . . . . . . . . . .
$ 330,279
$ 629,947
85,314 715,261
108,777
72,837
1,593
25,513
1,068,109
584,905
1,653,014
208,720
11,475
126,688
1,392,423
142,000
9,643
131,731 1,521,283
$3,065,349
The financial comments on page 8 are an integral part of the financial statements.
7
8
LYBRAND. Ro BRos. & MONTGOMERY
CERTIFIED PUBLIC ACCOUNTANTS
Pacific No rthern Airlines, Inc.
Sea Ct le, W
ashington
We have examined the balanc e sheet o f
PACIFI C NORTHERN AIRLINES , INC.
as of December 31 , 1955 , and the related statement o f income and
earned surplus f or the year then ended. It was not practicable t o
confi rm the balanc es receivable from the United States G
overnment.
We sat i sfied ourselves as t o these balances by means o f other audit-
ing procedures. Our examination was m
ade l n accordance with gen-
erally accepted audi ting s tandards, and acco rd i ngly included such
tests o f the accounting reco rds and such o ther auditing procedures
as we considered necessary in the c i rcumstances.
Since February 10 , 1954 the Company has been operating
under tempo rary rates o f m
ail pay whi ch are subject t o increases or
decreases retroact ive l y to tha t date by the Civ i l Aeronaut i cs Board,
as explained i n the accompanyi ng Financial Comments regarding U. S .
Ma il Pay.
In our opini on , subject t o the f i nal determina tion o f rates
o f mail pay referred t o in the preceding paragraph, the accompany ing
bal ance sheet and statement o f i ncome and earned surplus pre sent
f a i rly the financial posit i on o f Pacifi c Northern Ai rl ines, Inc . at
Decem
ber 31, 1955 , and the results o f its operations f or the year
t hen ended, i n conformi ty with gene rally accepted ac counting prin-
ciples appl ied on a consistent basis.
Seattl e , W
ashi ngton
March 27 , 1956
FINANCIAL COMMENTS
U. S. MAIL PAY
The Company is a certificated air carrier sub-
ject to regulation by the Civil Aeronautics
Board. Under provisions of the Civil Aero-
nautics Act, the Company is entitled to a reason-
able return on investment after income taxes,
and all mail pay received under temporary rates,
i.e., during an open period, is subject to review
and adjustment in conference between the Board
and the Company. Since February 10, 1954, the
Company has been operating under temporary
rates of mail pay which are suhje~t to adjust-
ment retroactively to that date. Until perma-
nent mail rates have been established the results
of the Company's annual operations can not be
finally determined.
PROPERTY, PLA 'T AND EQUIPMENT
In 1955 the Company sold two Douglas DC-4
aircraft, which it owned, and also sold an option
to purchase a third DC-4 which it had on lease.
These sales, which aggregated $950,000, pro-
duced a profit to the Company of $143,000.
In March, 1955, the Company leased three
Lockheed Constellation aircraft, with spare en-
gines and accessories, at a monthly rental of
about $83,000 and purchased an inventory of
spare parts, assemblies and accessories sufficient
to maintain these aircraft. In March, 1956, the
Company purchased the Constellation flight
AUDITOR'S REPORT
equipment, and in part, financed the tran action
through bank loans which are referred to under
Long-Term Debt.
Included in non-operating property and equip-
ment is a deposit of $23,833 made in 1951 in
connection with the then planned construction
of a hangar. The order, which was not filled,
was modified by correspondence between the
parties. Inasmuch as the Company considers
that the modified agreement has been breached
by the supplier, the matter has been referred to
counsel and accordingly no forecast can he made
regarding ultimate disposition of the matter.
AMORTIZATIO OF DEFERRED CHARGES
In 1955 the Company began amortizing (1)
the extension and development costs incurred
in connection with the States-Ala ka route re-
newal proceedings, and (2) the rental, training
and other pre-operating expenses of the Lock-
heed Constellation equipment incurred prior
to placing these aircraft in regular service. These
costs and expenses are being amortized over the
five-year period covered by the renewed tem-
porary Certificate of Public Convenience and
ecessity granted by th e Civil Aeronautic
Board in 1955.
LO GTERM DEBT
Proceeds from the sales of the DC-4 aircraft
and the purchase option were used to liquidate
the bank loan balance in 1955, so that at
December 31, 1955, the Company had no long-
term debt.
The purchase of the Constellation equipment
in March, 1956, was financed in part through a
bank loan of $3,608,000, to be repaid in 60
monthly payments and pledged as collateral
under a chattel mortgage substantially all of the
Company's flight equipment. The loan agree-
ment, which may be altered by agreement be-
tween the parties, contains certain restrictions
and limitations, including among other things,
dividend payments.
CONTI GE T LIABILITIES
As of December 31, 1955, the Company was
contingently liable for claims arising in the
normal course of husi_
ness in which it is or may
be a defendant, but in the opinion of legal
counsel the ultimate liability, if any, will not
materially affect the financial statements.
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capital city of Alaska, is most
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