Pacific Northern Airlines Annual Report 1960

1960
ANNUAL
REPORT
Pacific
Northern
airlines
POINT BARROW
BfTHEL
FAIRBANKS
To the Stockholders of Pacific Northern Airlines:
Highlights of the Company's operations during 1960 include the fol
lowing items:
Operating profit of $681,000 after depre
ciation of $995,000.
Net earnings of $205,000 or 19 cents per
share after income taxes of $292,000.
Reduction of bank debt by $1,391,000 to
total obligations of $1,045,000 at year-end.
Total revenues of $11,597,000, highest in
the Company's history.
Lower cash operating costs per available
ton-mile than in any previous year.
New all time records in every class of traffic.
Continuation of the Company's leading posi
tion among all the airlines serving Alaska.
Highest productivity rate in the Company's
history by obtaining 30,000 revenue ton-
miles of traffic per employee.
A 62% plane load factor for the Company's
system schedules, which compares to an
average of 53% for the entire U.S. certifi
cated airline industry.
On the whole, 1960 was a year of sound progress for Pacific Northern.
Although losses were experienced in the first part of 1960, earnings
during the last half of the year ranked with the highest in the Com-
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pany's history. This favorable development, together with many other
business factors, demonstrates complete recovery and further growth
in Alaska's economy in contrast to the depressed conditions which
prevailed in 1959 and early 1960. Moreover, marked improvement in
the first quarter of the current year lends a strong tone of optimism
to the outlook for 1961.
During the past year, the Company enjoyed amicable relations with
all of its employees. Although a number of the nation's airlines were
plagued by jurisdictional disputes of pilot and flight engineer unions,
agreements reached in 1955 resolved this problem and therefore elimi
nate the possibility of such jurisdictional disputes involving Pacific
Northern.
The Company has now completed its evaluation studies of jet aircraft
and has formulated a financing program to enable their acquisition.
Although no formal commitments have been signed as of this date,
such action is contemplated in the very near future. The objective will
be to place jet aircraft in service on the Company's major routes in
the spring of 1962.
Pacific Northern's growth in traffic and productivity during the past ten
years is shown in the following tabulation:
Calendar
Year
Revenue
Passenger
Miles
Mail
Ton-Miles
1960 116,304,000 1,585,000
1959 113,389,000 1,370,000
1958 105,595,000 1,248,000
1957 105,820,000 1,121,000
1956 92,150,000 904,000
1955 76,110,000 918,000
1954 59,610,000 881,000
1953 58,977,000 750,000
1952 42,303,000 522,000
1951 17,634,000 218,000
Ton-Miles of
Cargo
Ton-Miles
Total Revenue
Ton-Miles
Traffic per
Employee
4,091,000 18,293,000 30,000
3,306,000 17,013,000 27,000
3,250,000 15,937,000 26,000
2,985,000 15,564,000 25,000
3,368,000 14,218,000 25,000
3,552,000 12,671,000 25,000
3,267,000 10,440,000 23,000
3,097,000 10,169,000 22,000
1,747,000 6,735,000 18,000
592,000 2,638,000 12,000
During 1961, the Company plans to expand its Lockheed Constellation
services to all routes west of Anchorage and to add all-cargo service
between the Pacific Northwest and Alaska. Additional Lockheed equip-
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merit for these purposes will be obtained by short-term lease. In 1962,
the Company's existing complement of owned Constellation equipment,
together with the proposed jet aircraft, will be adequate to handle these
expanded services.
As previously noted, the outlook for 1961 appears to be highly favor
able. Preliminary results for the first quarter indicate gains over 1960
of 40% in revenue passenger miles, 72% in mail ton-miles, 74% in
cargo and express ton-miles, and 52% in overall revenue ton-miles.
Looking forward to 1962, prospects for further growth seem even more
impressive. The Century 21 Exposition to be held in Seattle in 1962
will attract hundreds of thousands of out-of-state tourists to Seattle,
and many of these visitors have already expressed an interest in ex
tending their travel to include excursions to Alaska. Pacific Northern's
routes offer convenient access to more points of interest in Alaska than
do those of any other airline, and it is anticipated that the air travel
market generated by Century 21 will increase the Company's traffic by
25% in 1962.
In the light of these experienced and anticipated developments, the
Company petitioned the Civil Aeronautics Board in February of 1961
to dismiss its application for higher rates of mail pay which the Com
pany filed in 1959 because of a temporary downturn in the level of
economic activity in Alaska. The Board's order approving the petition
for dismissal is expected within the next ten days. This will give the
Company an earnings allowance in 1961 of 12%% after taxes on its
recognized investment, as distinguished from the allowable return of
7 % in the past.
Because of Pacific Northern's secured position as the leading airline
serving Alaska, the Company's continued growth in future years will
directly reflect the tide of new economic and commercial activities in
the 49th State. In the immediate future, as well as in long range fore
casts, all factors seem to indicate sound and accelerated development.
March 27, 1961
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Peat, Marwick. Mitchell & Co.
CEBTIFIED PUBLIC ACCOUNTANTS
STUART BUILDING
SEATTLE 1, WASHINGTON
ACCOUNTANTS' REPORT
The Board of Directors
Pacific Northern Airlines, Inc.
We have examined the balance sheet of Pacific Northern Airlines, Inc.
as of December 31, 1960 and the related statement of earnings and retained earn
ings for the year then ended. Our examination was made in accordance with gener
ally accepted auditing standards, and accordingly included such tests of the ac
counting records and such other auditing procedures as we considered necessary in
the circumstances. It was not practicable to confirm amounts due from certain
United States Government agencies by communication with them, but we satisfied
ourselves as to these amounts by means of other auditing procedures.
In our opinion, the accompanying balance sheet and statement of earn
ings and retained earnings present fairly the financial position of Pacific
Northern Airlines, Inc. at December 31, 1960 and the results of its operations
for the year then ended, in conformity with generally accepted accounting princi
ples applied on a basis consistent with that of the preceding year.
Seattle, Washington
April 14, 1961
PACIFIC NORTHERN AIRLINES, INC.
(AN ALASKA CORPORATION)
Statement of Earnings and Retained Earnings
Year ended December 31, 1960
Operating revenues:
Passenger
Mail (note 1)
Cargo and excess baggage
Other transport service
Incidental revenues, net
Total operating revenues
Operating expenses:
Flying operations $ 3,264,868
Maintenance and repairs 1,936,107
Aircraft and traffic servicing 2,280,909
Passenger service 787,499
Promotion and sales 810,651
General and administrative 840,939
Depreciation and amortization 995,069
Operating profit
Non-operating income:
Non-operating expenses:
Losses on disposal of flight equipment
and other assets 42,330
Interest, net 98,548
Provision for obsolescence in inventories of
Constellation aircraft maintenance materials
....
44,536
Federal and state taxes on income, estimated (note 3) . .
Net earnings
Retained earnings, January 1, 1960
Deduct special charge --
reversal of 1959 accrual (net
of taxes) of estimated retroactive mail pay (note 1)
Retained earnings, December 31, 1960
See accompanying notes to financial statements.
$ 7,221,318
2,899,008
1,302,193
51,979
122,934
11,597,432
10,916,042
681,390
1,524
682,914
185,414
497,500
292,307
205,193
1,576,425
1,781,618
164,000
$ 1,617,618
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Pacific NorthernAirlines,
Balance Sheet, December 31, 1960
ASSETS
Current assets:
Cash
Receivables:
Traffic $ 904,948
United States Government agencies (note 1) . .
642,868
Other 128,930
1,676,746
Less allowance for doubtful receivables
....
23,434
Maintenance and operating supplies, at average cost . .
352,205
Less allowance for obsolescence 74,225
Prepaid expenses, principally insurance
Total current assets
Investments, principally cash surrender value of life insurance
$ 535,662
1,653,312
277,980
134,046
2,601,000
50,729
Operating properties and equipment, at
cost (notes 2, 4 and 6): Assets
Allowances for
depreciation,
amortization
and overhauls
Flight equipment $ 6,408,183 $ 3,314,636
Ground equipment 674,561 491,350
Buildings and improvements to
leased property 151,206 127,490
Replacement parts for flight equipment .
697,021 287,946
Construction work in progress ....
14,476 -
$ 7,945,447 $ 4,221,422 3,724,025
Deferred charges, net of amortization:
Lease deposit $ 7,000
Preoperating expenses --
airport hanger building . . .
18,757
Other 1,793 27,550
$ 6,403,304
See accompanying notes to financial statements.
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Inc. (AN ALASKA CORPORATION)
LIABILITIES
Current liabilities:
Current installments on long-term debt
Accounts payable:
Trade $ 628,208
Airline traffic accounts 449,212
Collections as agents 139,205
Accrued wages, taxes, etc
Federal and state taxes on income, estimated
Air travel plan deposits
Unearned transportation revenue ....
Total current liabilities
$ 737,472
1,216,625
236,819
308,163
28,475
158,433
2,685,987
Long-term debt:
Chattel mortgage notes to bank, non-current portion (note 2) ... .
307,288
Provision for deferred taxes on income (note 3) 139,397
Stockholders' equity:
Common stock --
$1.00 par value per share. Authorized
2,000,000 shares; issued and outstanding 1,068,109
shares 1,068,109
Paid-in surplus -- no change during 1960 584,905
1,653,014
Retained earnings, all of which are restricted
(notes 1 and 3) 1,617,618 3,270,632
Contingent liabilities and commitments (notes 4, 5 and 6)
$ 6,403,304
See accompanying notes to financial statements.
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Notes to
Financial Statements
December 31, 1960
1.U.
S. mail pay:
The Company is a certificated air carrier subject to
regulation by the Civil Aeronautics Board. Under
provisions of the Federal Aviation Act, the Com
pany is entitled to mail pay adequate in amount
to provide it with a reasonable return on invest
ment after income taxes. As indicated in the ac
companying report to stockholders, the Company had
petitioned the Board to reinstate mail rates as
they existed prior to October 23, 1959 as final rates
of mail compensation for the periods subsequent to
that date. By Civil Aeronautics Board Order dated
April 11, 1961, such rates were finalized for the past
period and will remain in effect hereafter until action
is taken either by the Board or by the Company to
revise them prospectively. Accordingly the accrual
of retroactive mail pay at December 31, 1959, which
represented an estimate of the additional mail pay
due in excess of that received under temporary rates,
has been reversed, with the net effect thereof,
$164,000, after reduction for applicable income
taxes, being charged against retained earnings.
2.Long-term
debt;
The Company is indebted under a Loan Agreement
which had a balance at December 31, 1960 amount
ing to $1,044,760, of which $737,472 represents
principal payments due within one year and is in
cluded in current liabilities. Substantially all of tbe
Company's flight equipment is pledged as collateral
under the Loan Agreement. Among other provisions,
the Loan Agreement together with amendments
thereto require that the Company shall maintain
specified amounts of working capital and shall not
declare or pay any dividends or purchase, redeem
or otherwise acquire for value any of its capital
stock.
3.Deferred
income taxes:
Certain adjustments (relating principally to de
preciation, overhaul and obsolescence reserves) to
income determined in accordance with the rules and
regulations of the Civil Aeronautics Board are re
quired to be made in determination of income re
portable for tax purpo.ses. The deferred income tax
liability arising from the resulting differences be
tween book and taxable income has been provided
for in the estimated amount of $139,397, of which
approximately $39,000 pertained to and was charged
against operations of the year 1960, with the re
mainder having been provided for by accrual in
prior years and by crediting to the deferred liability
account tax refunds arising from such differences.
4.Long-term
leases;
The Company is obligated under a fifty-year ground
lease with the Port of Seattle, requiring monthly
rentals of $1,530.92 through May 31, 1969 and there
after at a newly-negotiated rate, to construct an air
port hangar building by June 1, 1961 at a minimum
cost of $1,000,000 at Seattle-Tacoma Airport. The
Company has requested that the construction com
pletion date be extended to June 1, 1963 and be
lieves that such request will be granted.
Terminal buildings and facilities in tbe State of
Alaska have been leased to the Company for a period
of fifteen years from December 30, 1959 at the
monthly rental of $4,000, with an option to renew
under certain conditions. The lease agreement also
gives the Company an option to purchase the proper
ties upon expiration of the lease.
To replace an aircraft lost in Alaska in 1960, the
Company is presently leasing one Constellation air
craft for $7,000 per month, such lease to expire
August 15, 1963.
5.Retirement
plans:
The Company has two contributory retirement plans
covering (1) flight officers and (2) other employees
of the Company. During 1960 the Company charged
to operating expenses and other accounts provisions
totaling $222,219 of which $34,611 was for past serv
ice benefits. The unfunded past service benefit costs
of both plans have been estimated by the Company's
independent actuaries to aggregate $248,072 at De
cember 31, 1960.
6.Aircraft
acquisition:
Tbe Company's program for the acquisition of jet
aircraft is described in the accompanying report to
stockholders and insert thereto.
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PACIFIC NORTHERN AIRLINES, INC.
Directors
G. P. O'GRADY, Washington, D C.
J. A. CUNNINGHAM, Sea/f/e. Was/iing/on
PAUL PORZELT, New York. New York
R. A. ROWAN, Los Angeles, California
M. B. KIRKPATRICK, Anc/iorage, AZasA:a
C. W. NELSON, Seattle, Washington
A. G. WOODLEY, Seattle, Washington
Officers
A. G. WOODLEY, President and General Manager
H. A. OI.SEN, Vice President --
Traffic and Sales
J. A. CUNNINGHAM, Vice President --
Operations
J. H. FOSTER, Vice President --
Engineering and Maintenance
FELIX AUBUCHON, Vice President --
Alaska Operations
T. D. STUART, Vice President --
Industrial Relations
C. W. NELSON, Secretary-Treasurer
M. E. DIAMOND, Assistant Secretary
D. B. HART, Assistant Secretary
GENERAL COUNSEL: G. p. o'grady, 1625 eye street, n. w., Washington, d. c.
GENERAL OFFICES: 400 Norton building, Seattle, Washington
CITY TICKET OFFICES: Portland, Seattle, ketchikan, juneau, cordova, anchorage,
KENAI, homer, KODIAK, KING SALMON, YAKUTAT
AUDITORS: peat, marwick, mitchell & co.
TRANSFER AGENT: bankers trust company, new york, new york
REGISTRAR: manufacturers trust company, new york, new york
COMMON STOCK LISTED: American stock exchange, pacific coast stock exchange