Pacific Northern Airlines Annual Report 1956

Annual
Report
1956
PACIFIC NORTHERN AIRLINES, INC.
DIRECTORS
G. P. O'GRADY, WASHINGTON, D. C.
JOHN A. CUNNINGHAM, SEATTLE, WASHINGTON
PAUL PORZELT, NEW YORK, NEW YORK
R. A. ROWAN, LOS ANGELES, CALIFORNIA
M. B. KIRKPATRICK, ANCHORAGE, ALASKA
C. W. NELSON, SEATTLE, WASHINGTON
A.G. WOODLEY, SEATTLE, WASHINGTON
OFFICERS
A. G. WOODLEY
PRESIDENT AND GENERAL MANAGER
H. A. OLSEN
VICE PRESIDENT- TRAFFIC AND SALES
JOHN A. CUNNINGHAM
VICE PRESIDENT- OPERATIONS
J. H. FOSTER
VICE PRESIDENT
ENGINEERING AND MAINTENANCE
C. W. NELSON
SECRETARY-TREASURER
M. E. DIAMOND
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
HOMER CORDOVA
KETCHIKAN KENAI
AUDITORS:
JUNEAU
PORTLAND
SEATTLE
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
Mt. McKinley
AN INVESTMENT IN PROGRESS
This year marks the Company's 25th Anniversary of service
to Alaska and the completion of its most successful year of
operation. Net income amounted to $394,391 after deprecia-
tion of $582,823 and taxes on income of $550,000. These
earnings, together with special items of $450,410, amounted
to $844,801 for the year or 79 per share.
During 1956 Pacific Northern provided more service to
Alaska than any other air carrier and achieved record revenues
of $9,607,854, an increase of 27% over last year.
In 1956 the Civil Aeronautics Board established final mail
pay for the Company's operations during 1954 and 1955. The
Company had operated under temporary mail rates since
February 9, 1954 which were inadequate to provide a reason-
able profit element. The Board's final action for those years
resulted in an additional cash settlement to offset the losses
previously reported. In the same proceeding, the Board fixed a
final m~il rate for the Company's future operations beginning
January 1, 1956.
During the year the Company also reached final settlement of
pending tax matters with the Treasury Department. The reserve
for income tax contingencies which had been established in
19 5 2 proved more than adequate for the liability which was
finally determined, and the balance of $62,670 was restored
to surplus.
1956 has been a year of achievement and the progress we
have realized has reflected the full support of the communities
we are privileged 'to serve and the loyalty of our employees and
stockholders. I have complete confidence that events in 19 5 7
will further strengthen the position of the Company and will
greatly enhance our role as the dominant airline serving Alaska.
~~
President and General Manager
60,098
GROWTH IN
PASSENGER TRAFFIC
92,458
78,283 78,052
1952 1953 1954 1955
2
117,231
1956
TRAFFIC AND SALES
New traffic records were established during 1956. Total ton-miles
of revenue traffic increased from 12,671,000 last year to 14,218,000 in
1956, growth of over 12 per cent.
Passenger traffic reflected the largest gains. 117,231 passengers
used the Company's services during the year, a gain of almost 27
per cent over the 92,458 passengers carried in 1955. This was the first
time in Alaskan aviation history that an airline serving the Territory
has passed the 100,000 passenger mark in any year. All routes of the
Company shared in the greater volume of passenger traffic, but the
greatest increases occurred in Southeastern Alaska where significant
new commercial developments are taking place.
The growth in air traffic between Portland, Oregon, and points in
Alaska is especially noteworthy. Passenger traffic increased 26 per
cent and air cargo increased 56 per cent over the preceding year.
An expanded volume of tourist travel accounted for substantial
traffic gains realized by the Company during 1956. This. same factor
is expected to produce new all time records in 1957. Unsettled con-
ditions in the Near East and io Europe have tended to discourage
pleasure travel to Europe and vacationers are now discovering the
vast recreational resources of Alaska. The Company has intensified
its promotional advertising efforts to insure full participation and a
position of leadership in the development of the growing tourist
market. The number of tourists who visited Alaska during 1956
reflected a 20 per cent increase over the preceding year. Advance
bookings for 1957 indicate further gains of from 25 to 50 per cent.
NEW TRAFFIC FACILITIES
Increased passenger traffic has required further
capital improvements. The new terminals
completed this year at Homer and Cordova
provide expanded facilities to meet growing
business demands.
Homer Terminal
Cordova Terminal
PERSONNEL
The Company is proud of its record of 25 years of operation without
strike or work stoppage. This accomplishment attests the willingness of
both management and employees to secure modification of working
agreements through mutual understanding and negotiation.
During 1956 wage and salary adjustments were made in line with
industry trends, and all working agreements with organized employee
groups were satisfactorily renegotiated . Expiration dates of currently
effective working agreements will carry forward into 1958, with the ex-
ception of the dispatchers agreement which will be subject to renegotia-
tion in October 1957.
On April 10, 1957, Pacific Northern
completed 25 consecutive years of service
SAFETY
1956
to the Territory, flying over 400 million
passenger miles without a passenger fatality.
This safety record stands as a monument
AVlATlON
SAFETY
AWAJlD
in world aviation history. The diligent care
and sense of responsibility on the part of
the Company's personnel are reflected in
this achievement.
OPERATIONS AND MAINTENANCE
During the year the Company's entire fleet of aircraft was completely
overhauled and modified to achieve greater payload capacity and more
efficient utilization. The latest developments in ILS and VOR navigational
equipment have been installed to insure the highest level of operational
standards. Improvements in the airfield at Dillingham have enabled the
Company to extend its scheduled services to that community, which is the
center of important fishing industry operations in Western Alaska.
During 1956, Pacific Northern achieved a scheduled performance factor
of 96 %. In large measure this dependability of service is a tribute to the
competence and care exercised by the Company's maintenance personnel.
3
TRAVELAIRE
CONSOLIDATED FLEETSTER
STI NSON TRI -MOTOR
BOEING 247D
_
4
Anchorage, 1932
DOUGLAS DC-3
DOUGLAS DC-4
When Pacific Northern commenced air service
in 1932, the Territory was an isolated wilderness
frontier, sparsely populated, and dependent pri-
marily upon fishing and trapping for livelihood .
It was World War II and its aftermath which
provided tremendous impetus to the present
economic development of Alaska.
Population has increased at a rate more rapid
than in any other area under the American flag.
In the present era of supersonic aircraft and guided
missiles, Alaska's strategic location has made it
the keyst0ne of hemispheric defense. World
interest is now focussed upon developing the
Territory's vast natural resources. The isolated
villages of 25 years ago have been transformed into
thriving cities, and the few remaining log cabins
now stand in the shadows of modern steel sky-
scrapers as mementoes of America's last frontier.
The growth of Pacific Northern Airlines during
the past 25 years has kept pace with the vigorous
development of the Territ0ry and has reflected
the rapid advances of modern aviation. The tiny
single engine Travelaires of the early thirties
soon gave way to a succession of larger and faster
transport planes, and today the company operates
a fleet of Lockheed Constellations.
LOCKHEED CONSTELLATION
The time required for travel between Alaska
and the United Scates has been telescoped from
several days to several hours.
A review of past achievements would not be
complete without a glance into the future. There
can be no doubt that the very substantial pro-
gress in Alaska's economic development during
the past few decades is merely prologue to
dynamic growth which lies ahead. Commercial
aviation will soon move into the age of jet
transports. As a hardy pioneer with a long
history of service to the Territory, Pacific North-
ern Airlines is confident of its ability to meet
chis challenge of che future.
QUARTER CENTURY OF GROWTH
--
nc orage, Alaska's larges c1 ,
Seattle, Washington
Portland, Oregon
6
PACIFIC NORTHERN AIRLINES, INC.
: STATEMENT OF INCOME AND EARNED SURPLUS
I. ,
: : For the year ended December 3 -
1, . 1956
OPERATING REVENUES:
Passenger
Air mail
Cargo
Excess baggage
Other transport service
Incidental revenues, net
Total .
OPERATING EXPENSES:
Flying operations
Direct maintenance- flight equipment
Ground operations
Ground and indirect maintenance
Passenger service .
Traffic and sales
Advertising and publicity
General and administrative
Depreciation
Operating profit
OTHER EXPENSES:
Interest, net
Miscellaneous, net
Income before provision for taxes on income
and special items .
Provision for taxes on above income .
Net income before special items
SPECIAL hEMs relating to prior years :
Additional air mail revenue, net
Reductions of prior years ' expenses, net
Excess reserve for income tax contingencies
Provision for income taxes on special items- deduct*
Net income and special items for the year
DEFICIT, January 1, 1956 .
EARNED SuRPLus, December 31, 1956
$2,694,039
l, l 01,097
l, 186,796
747,890
559,343
915,962
l 08,568
574,880
582,823
183,332
8,733
277,579
184,271
62,670
7 4, 11 0*
$5,236,658
3,190,774
$
949,995
73,923
72,741
83,763
9,607,854
8,471,398
l, 136,456
192,065
944,391
550,000
394,391
450,410
844,801
131,731
713,070
The financial comments on page 10 are an integral part of the financial statements.
7
8
PACIFIC NORTHERN AIRLINES, INC.
BALANCE SHEET December JI-' I!)J6
Current :
Cash .
Receivables :
Traffic balances
United Sta tes Government
Other .
Less allowance for losses
ASSETS
Maintenance and operating supplies, at average cost
Prepaid expenses, mainly insurance and rent deposits
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
$5,1 68,811
534,297
494,424
411,064
20,662
$6,629,258
Non-operating property and equipment, net of $76,188 depreciation
Property Acquisition Adjustment, Unamortized
Route Extension and Development, net of amortization
Pre-operating Expenses- Constellations, net of amortization
Other Deferred Charges
$ 489,861
687,685
89,141
1,266,687
22,285
23,944
1,000
Allowances
for
Depreciation
$1,832,108
317,596
159,542
189,199
$2,498,445
The .financial comments on pa[
,e 10 are an integral part of the .financial statements.
$ 814,833
1,244,402
358,602
279,257
2,697,094
24,944
4,130,813
15,313
130,020
31,206
119,753
20,140
$7,169,283
(AN ALASKA CORPORATION)
LIABILITI ES
Current :
Current portion of long-term debt
Accounts payable:
Trade .
Taxes withheld or collected for benefit of taxing authorities
Accrued liabilities:
Salaries and wages
Other accrued expenses
Provision for income taxes
Air travel plan deposits
Unearned transportation revenue
To cal current liabilities
Long-term debt :
Chattel mortgage note to bank
Less amount included in current liabilities
Note payable officer, due January 1, 1961
STOCKHOLDERS EQUITY
Common Stock, authorized 2,000,000 shares, par value $1 each, issued and
$ 750,249
69,501
126,354
142,255
3,008,000
720,000
outstanding 1,068,109 shares . 1,068,109
Paid-in Surplus- no change during 1956 . 584,905
1,653,014
$ 720,000
819,750
268,609
526,675
13,175
141,990
2,490,199
2,288,000
25,000
Earned Surplus, all of which is restricted, statement annexed 713,070 2,366,084
$7,1 69,283
The .financial comments on page 10 are an integral part of the .financial statements.
~ 9 3 1
Financial Comments
U. S. MAIL PAY
The Company is a certificated air carrier subject to
regulation by the Civil Aeronautics Board. Under pro-
visions of the Civil Aeronautics Act, the Company is
entitled to a reasonable return on investment after income
taxes. During 19S6 the Board fixed final rates for the period
February 10, 19S4 through December 31, 19S5 which
provided additional mail compensation amounting to
$277,579 and required certain adjustments to preceding
years' expenses, mainly depreciation. In the same pro-
ceeding the Board established final future rates effective
January 1, 19S6 which will remain in effect until action
is taken by either the Board or the Company to revise
them prospectively.
AMORTIZATION OF
DEFERRED CHARGES
In 195S the Company began amortizing (1) the extension
and development costs incurred in connection with the
States-Alaska route renewal proceedings, and (2) the
rental, training and other preoperating expenses of the
Lockheed Constellation equipment incurred prior to plac-
ing these aircraft in regular service. These costs and ex-
penses are being amortized over the five-year period
covered by the renewed temporary Certificate of Public
Convenience and Necessity granted by the Civil Aeronautics
Board in 195S.
LYBRAND, Ross BRos. c.. MONTGOMERY
C ERTIFIED PUBLI C AC C OUNTANT S
Pacific Northern Airlines, Inc.
Seattle, Washington
We have examined the balance sheet of
PACIFIC NORTHERN AIRLINES, INC.
LONG-TERM DEBT
In March 19S6 the Company purchased the Constellation
flight equipment which it had previously operated under
lease. The purchase was financed in part by a bank loan,
the December 31, 19S6 balance of which was $3,008,000
and on which interest ranges from 5 to 5% (currently
S%). Substantially all of the Company's flight equip-
ment is pledged under a chattel mortgage as collateral for
this loan. The loan agreement, which may be altered by
agreement between the parties, contains certain restric-
tions and limitations including, among other things,
dividend payments.
RETIREMENT PLAN
Through contract negotiation, the Company has
agreed to execute a contributory pension plan for flight
officers which will become effective February 1, 19S7
if the plan is approved by the United States Treasury
Department. It is designed to provide monthly pensions
for participants upon retirement. Past service benefits have
been estimated to be under $200,000 and may be paid into
the plan by the Company during succeeding years.
CONTINGENT LIABILITIES
As of December 31, 19S6, the Company was contingently
liable for claims arising in the normal course of business
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.
....,,., . . .. c,sco
l.OS ..,,.Olt\.CS
CO OP ERS C. LYBRA ND
,,. u: s o, T .. r. woa1,.o
OUTS,Dlt nu: UN!lt:O ., .. u:s
as of December 31, 1956, and the related statement of income and
earned surplus for the year then ended . It was not practicable to
confirm the balances receivable from the United States Government.
We satisfied ourselves as to these balances by means of other auditing
procedures. Our examination 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 con-
sidered necessary in the circumstances.
AUDITOR'S REPORT In our opinion, the accompanying balance sheet and statement
of income and earned surplus present fairly the financial position
10
of Pacific Northern Airlines, Inc. at December 31, 1956, and the re-
sults of its operations for the year then ended, in conformity with
generally accepted accounting principles applied on a consistent
basis.
~:_:;~
1iA."~9~tt~
1n
OFFJCJE OF THE GOVERNOR
JUNEAU
Mr. A. G. Woodley, President
Pacific Northern Airlines , Inc.
1626 Exchange Building
Seattle 4, Washington
Dear Mr. Woodley:
April 2, 1957
I am pleased to take this opportunity on the occasion
of your Silver Anniversary to convey to you my personal
regards and my congratulations to you and your associates
for having attained this iitportant milestone.
Alaska nov stands at the threshold of the most significant
era in its economic and social development. Its population
is groving more rapidly than in any other area under the
.t..merican flag. Its strategic location astride the cross
roads o! world air routes assures a dominant role in air
commerce of the future. Important developments are nov
taking place in the utilization of the Territory's vast
resources of hydroelectric power, minerals, petroleum,
and pulp and timber. The immediate future promises
economic growth vhich vill far s urpass the very substantial
progress that bas been achieved during the past fev decades,
I look forward rith confidence to your continued success
in keeping pace vith the future growth of Alaska.
Sincerely yours,
w ~ (: , ~
Waino E. Hendricks on
Acting Governor
STATE OF OREGON
Mr. A. G. \loodley, President
Pacific Northern Airlines, Inc.
Dear Mr. \loodley:
April J, 1957
The State of Oregon congratulates Pacific Northern Airlines on
its 25th Anniversary of service to the Territory of Alaska. The
extension of PNA 1s routes to Portland in 1951 created an import-
ant opportunity to expand the flov of c0011Derce betveen Oregon
and Alaska, and it is most gra tifylng to note that the progress
ve had hoped for is nov being achieved.
As the result of significant industriel develonents now taking
place, ~be opportunities for expanding Oregon 's c0011Dercial ties
vith Alaska appear to be even greater in the future than they
have been in the past, Accordingly, it seems appropriete that
ve extend, in addition to our congratulations on your past 25
years of distinguished service , our best v is bes for your con-
tinued growth and develonent.
Governor
State of Washington
..E CUTOv< 0 .. AOTM E["')
AJ. EJIT 0 . Ro'CL..LINI
ofyrnpia
April 2, 1957
Mr. A. G. Woodley, President
Pacific Northern Airlines, Inc.
Seattle, Washington
Dear Mr. Woodley:
I should like to extend to Pacific Northern
Airlines my heartiest congratulations on the 25th
anniversary of the inauguration of its air transport
services to the Territory of Alaska.
Pacific Northern is now well established
as a vital link in the nation's air transport system ,
and I extend to you my best wishes in your continuing
program to develop and expand the important c0111'1ercial
relationships between the State of Washington and the
Territory of Alaska.
ADR:ceo
EXECUTIVE
" ~
'
Governor
COMMENDATIONS
11
Point Barrow
Nome
Bethel
ANCHORAGE*
BRISTOL BAY *
*
ILIAMNA
* Seward
HOMER
* KENAI
* CORDOVA
YAKUTAT*
Skagway
* KODIAK
Sitka
ALASKA
12
An Expanding Market
A market of almost a quarter million customers would be important
at any place, any time. The potential market of this size in Alaska
is doubly important because it is backed by vastly improved
transportation, permanent payrolls, new industries, and boundless
natural resources. The burgeoning growth of Alaska is just the beginning.
Goods and services of all kinds are in great demand and many
suppliers are finding that the market can best be served at competitive
prices by arranging for final assembly, or even fabrication, within
Alaska. Federal government appropriations for all expenditures
within Alaska during 195 7 approximate 200 million dollars. Three
times that amount of private capital investment within the
next few years is planned for the development of timber production,
new pulp mills, minerals, hydroelectric power, tourist facilities,
and agriculture. The great strength of the Territory is its
diversification of resources. Man and nature have combined in this
fabulous opportunity-land to make Alaska today the most promising
growth investment in all America.
JUNEAU
KETCHIKAN*
*

SEATTLE *
PORTLAND *
* PNA Routes
Connecting Airlines
,~ .. , i
I \,'4;,,.' -'
1 '. ' . - ' }... -
~
d
'
Ketchikan Pulp
Company Mill ranks as
a major industry
Modern Alaska gold
mining by hydraulic
"giant" and dredge
Mendenhall Glacier near
Juneau is spectacular
tourist attraction
Fishing fleets
headquarter in many
Alaska ports
Juneau, Alaska's
capital city and major
distribution center
Matanuska Valley farm
typical Western Alaska
agricultural development