PACIFIC NORTHERN AIRLINES 
THE ALASKA FLAG LINE 
 e NOME 
POINT BARROW  
. 
KOTZEBUE 
AKUTAT 
SKAGWAY 
* JUNEAU 
IKAN 
ill' SEATTLE 
) TACOMA 
l 
-.-PORTLAND 
32ND YEAR OF SERVICE TO ALASKA 
 To the Stockholders of Pacific Northern Airlines: 
April 27, 1963, will mark the end of the Company's first full year of 
operations with jet aircraft. Delivery of Pacific Northern's two Boeing 
720 jets was made as scheduled in March and April of 1962. Crew train- 
ing was accomplished as planned and both aircraft were placed in 
revenue service on April 27, 1962, four days in advance of the original 
target date. All phases of the long-term financing were executed 
as planned. 
Operationally, the Boeing 720 jets have been highly satisfactory, and 
the cost levels and operating factors have been among the best in the 
industry. Pacific Northern's experienced growth in traffic continued 
through 1962. Revenue passenger miles increased 4. 7 per cent over the 
prior year. Mail and cargo ton-miles were up 11.4 per cent, and total 
revenue ton-miles increased 7.6 per cent. However, in spite of these 
favorable factors the Company's operations resulted in a net loss of 
$338,000 for the year. 
Prior to inauguration of jet service, the Company was operating piston 
aircraft in competition with jet equipment on both of its major routes, 
which understandably produced a loss for that period. However, during 
the five initial months of jet operations from May through September, 
1962, substantial profits were realized which more than offset the earlier 
losses. This normally would have been the result of operations for the 
year, but in the fourth quarter, which is traditionally the seasonal low 
traffic period, excess capacity and destructive competition were en- 
countered on the Company's major routes, resulting in substantial 
losses for all carriers involved. 
It was in anticipation of this situation that the Company petitioned 
the Civil Aeronautics Board on October 1, 1962, for revised rates of 
1 
 2 
mail compensation in accordance with the provisions of the Federal 
Aviation Act. Since that date the Company has been operating on 
temporary rates of mail pay which will be renegotiated to provide the 
proper level of earnings for the period subsequent to that time. While 
it is impossible to determine the result of such negotiations, it is the 
stated policy of the Civil Aeronautics Board to establish mail rates in 
an amount sufficient to cover the carrier's operating need and to provide 
a fair net return on the Company's investment. 
The Board's order fixing prior mail rates was based upon detailed fore- 
casts of revenues and expenses submitted by the Company and adopted 
by the Board. The Company has been able to meet the forecast level of 
expenses and has been able to produce the forecast levels of revenue 
and traffic on all routes except the Seattle-Anchorage segment, which 
has the greatest amount of excess competition and diversion of traffic 
of any of the several routes involved. 
The matter of excess competition has been a matter of great concern to 
management and to the Civil Aeronautics Board, which is charged by 
Congress to foster sound economic conditions, eliminate destructive 
competitive practices and promote competition to the extent necessary 
to assure sound development of air transportation. For this reason, the 
Civil Aeronautics Board has instituted an investigation to determine 
whether the present pattern of service between the Pacific Northwest 
and Alaska is excessive and therefore uneconomic and destructive, 
and to take whatever action may be appropriate to remedy and correct 
the situation. 
The Board's tentative conclusions attached to its order of investigation 
proposed the establishment of a three-carrier service pattern for Alaska 
which would leave the route structure of Pacific Northern Airlines un- 
changed. The Board proposed the elimination of Pan American World 
Airways' service on the routes competing with Pacific Northern. It 
further proposed the elimination of Northwest Orient Airlines' author- 
ity to operate between Seattle and Anchorage in competition with 
Pacific Northern, other than on those flights originating or terminating 
in the Orient. The board tentatively concluded that Pacific Northern 
should relinquish the Portland-Seattle segment of its service, which is 
presently restricted to traffic originating or terminating in Alaska. 
Although the loss of this segment would have no material financial 
 effect, the Company believes that this service by Pacific Northern is 
required because of the community of interest between Portland and 
the greater number of Alaska points served by Pacific Northern. Ac- 
cordingly the Company will resist the Board's proposal relating to 
Portland service. Hearings on this matter are scheduled to commence 
in Alaska on April 2 and will continue thereafter in Washington, D. C. 
It is significant that Pacific Northern is the largest carrier in point of 
service between the Pacific Northwest and Alaska and within Alaska. 
It carries more passengers more passenger miles, and more cargo and 
mail ton-miles in Alaskan service than does any other airline. It has 
the largest investment of any form of transportation dedicated to 
Alaska service. Should the Board's proposal for a three-carrier service 
pattern for Alaska materialize, it would result in better service at lower 
cost to the traveling public and inevitably~ result in more profitable 
operations for all the carriers concerned. 
The Company has entered into a contractual agreement for the con- 
struction of a hangar and office building at the Seattle-Tacoma Airport 
which it will lease for a 25-year period. Construction of this facility is 
under way and is scheduled for occupancy in March, 1964. It is esti- 
mated that the economies of this move will permit savings substantially 
in excess of lease rentals. 
With the inauguration of jet aircraft on the Company's Pacific North- 
west-Alaska routes, service on its intra-Alaska system was upgraded 
by the assignment of four-engine equipment to these routes. In addition 
to the two Boeing 720 jet aircraft, the Company's fleet consists of five 
owned and one leased Lockheed 749 A Constellation aircraft and three 
Douglas DC-3 aircraft, of which two will be retired during the year. 
The Company's large investment in Alaska service affirms its faith in 
the potential growth and development of Alaska. I am confident that, 
with the continuing increases in all categories of traffic and with appro- 
priate adjustment of our present rates of mail compensation, operating 
results for 1963 will be satisfactory. 
PRESIDENT AND 
GENERAL MANAGER 
3 
 4 
PACIFIC NORTHERN AIRLINES.INC. 
Balance Sheet, December 31, 1962 
ASSETS 
Current assets: 
Cash 
Receivables: 
Traffic 
United States Government agencies (note 1) 
R efundable Federal and state taxes on income 
Other . 
Less allowance for doubtful receivables 
Maintenance and operating supplies, at average cost . 
Less allowance for obsolescence 
Prepaid expenses, principally insurance 
Total current assets 
Investments, principally cash surrender value of life insurance 
Operating properties and equipment, at 
cost (notes 2 and 5): 
Flight equipment 
Ground equipment 
Buildings and improvements to 
leased property . 
Replacement parts for flight equipment 
Construction work in progress . 
Deferred charges, net'of amortization 
(note 3): 
Preoperating expenses: 
Jet aircraft . 
Airport hangar building lease . 
Debt expense . 
Other 
See accompanying notes to financial statements. 
Assets 
$16,202,226 
1,018,695 
164,939 
1,521,875 
15,830 
18,923,565 
$ 1,031,317 
678,728 
575,340 
96,739 
2,382,124 
18,552 
449,813 
109,664 
Allowances for 
depreciation, 
amortization 
and overhauls 
5,446,190 
577,753 
135,552 
407,614 
6,567,109 
513,430 
56,384 
569,814 
37,185 
411 
$ 432,817 
2,363,572 
340,149 
238,158 
3,374,696 
97,894 
12,356,456 
607,410 
$16,436,456 
( 
[ 
(AN ALASKA CORPORATION) 
LIABILITIES 
Current liabilities: 
Current installments on long-term debt (note 2) 
Accounts payable: 
Trade 
Airline traffic accounts 
Collections as agents 
Accrued wages, taxes, etc. 
Air travel plan deposits . 
Unearned transportation revenue 
Total current liabilities 
Long-term debt, less current installments of $1,226,147 (note 2) . 
Provision for deferred taxes on income (note 4) . 
Stockholders' equity: 
Common stock - $1.00 par value per share. 
Authorized 2,000,000 shares; issued and 
outstanding 1,068,109 shares (note 2) 
Paid-in surplus - no change during 1962 . 
Retained earnings, all of which are restricted . 
Contingent liabilities and commitments (notes 5 and 6) 
See accompanying notes to financial statements. 
$ 644,643 
771,338 
166,263 
1,068,109 
584,905 
1,653,014 
1,541,146 
$ 1,226,147 
1,582,244 
412,613 
34,000 
169,270 
3,424,274 
9,368,248 
449,774 
3,194,160 
$16,436,456 
5 
 6 
PACIFIC NORTHERN AIRLINES~ INC. 
(AN ALASKA CORPORATION) 
Statement of Earnings and Retained Earnings 
Year ended December 31, 1962 
Operating revenues: 
Passenger 
Mail (note 1) 
Cargo and excess baggage 
Other operating revenues 
Total operating revenues 
Operating expenses: 
Flying operations 
Maintenance and repairs 
Aircraft and traffic servicing 
Passenger service . 
Promotion and sales 
General and administrative 
Depreciation, amortization and obsolescence provisions 
Operating profit (loss) 
Non-operating expenses: 
Interest 
Other expenses, net, principally life insurance costs 
Federal and state taxes on income, estimated (note 4) : 
Refundable through carryback of operating loss 
of current year . 
Excess accrual of prior years . 
Less provision for deferred taxes . 
Net earnings (loss) . 
Retained earnings, January 1, 1962 . 
Retained earnings, December 31, 1962 . 
See accompanying notes to financial statements. 
$ 
$ 
4,281,072 
2,199,913 
2,683,887 
894,666 
1,118,550 
852,886 
1,557,200 
439,821 
11,121 
(575,340) 
(24,700) 
(600,040) 
185,962 
$ 8,667,196 
2,647,571 
1,783,185 
188,800 
13,286,752 
$ 
13,588,174 
(301,422) 
450,942 
(752,364) 
(414,078) 
(338,286) 
1,879,432 
1,541,146 
 Notes to Financial Statements 
D ecember 31, 1962 
1. U.S. mail pay: 
The Company is a certificated air carrier subject to regulation by the Civil Aero- 
nautics Board. Under provisions of the Federal Aviation Act, the Company is 
entitled to mail pay adequate in amount to provide it with a reasonable return on 
investment after income taxes. Since October 1, 1962 the Company has been 
receiving mail pay based on temporary rates which are subject to final negotiation 
and settlement. Management believes, based on past experience, that there will 
be a favorable retroactive adjustment to October 1, 1962 when rates are finally 
reviewed and settled. 
2. Long-term debt: 
Long-term debt is summarized as follows : 
Secured : 
T erm loans from bank, secured by first 
mortgages on all aircraft and various 
accessories (approximately $3,800,000 
guaranteed to the extent of 90% by the 
Civil Aeronautics Board) 
T erm notes, secured by conditional 
sales contracts . 
T erm note, secured by second mortgage . 
Other notes, secured by conditional sales 
contract 
Total secured 
Unsecured: 
Subordinated to first and second mortgages 
above: 
T erm loan from bank 
6 % Subordinated Debentures, issued 
with detachable warrants entitling holders 
to purchase 88,800 shares of capital stock 
of the Company at $4.50 per share 
Other note payable 
Total unsecured 
Total long-term debt . 
Interest 
rates 
5-6% 
6% 
6% 
5% 
5% 
6% 
5% 
Principal 
installments 
due within 
one year 
$ 786,199 
216,148 
95,000 
28,800 
1,126,147 
50,000 
40,000 
10,000 
100,000 
$1,226,147 
Total 
indebtedness 
$ 7,303,418 
1,382,446 
950,000 
33,531 
9,669,395 
475,000 
360,000 
90,000 
925,000 
$10,594,395 
Among other provisions, certain of the documents covering the Company's long- 
term borrowings 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. Amortization of deferred charges: 
Preoperating and debt expenses incurred in connection with conversion to jet air- 
craft service and securing the financing thereof are being charged to operations 
as follows : 
Preoperating expenses - over five years ($76,642 amortized through December 
31, 1962) 
7 
 8 
Debt expense - over ten years, the term of the debt to which the major portion 
of the expense pertains ($2,989 amortized through December 31, 1962). 
The period of amortization of the airport hangar building preoccupancy ex- 
penses is to be determined upon completion of construction and occupancy (see 
note 5) . 
4. Federal taxes on income: 
Certain adjustments (relating principally to depreciation, overhaul and obsolesc- 
ence reserves) to income determined in accordance with the rules and regulations 
of the Civil Aeronautics Board are required to be made in determination of income 
reportable for tax purposes. The deferred income tax liability arising from the 
resulting differences between book and taxable income has been provided for in 
the stimated amount of $449,774 of which $185,962 pertained to and was charged 
against operations of the year 1962, with the remainder having been provided for 
by accrual in prior years and by crediting to the deferred liability account tax 
refunds arising from such differences. 
The Company has available for reduction of Federal income taxes of the next five 
years a potential unused tax credit of $738,000 which resulted from acquisitions 
in 1962 of operating properties and equipment. Application of such credit is 
limited as to each year to $25,000 plus twenty-five percent of the tax liability 
in excess of $25,000. Any unused credit is allowable in the sixth year as a deduction 
from taxable income. 
5. Long-term leases: 
Minimum annual rentals under leases expiring m ore than three years from D e- 
cember 31, 1962, is $268,488, the major portion of which pertains to an airport 
hangar building under construction which is expected to be occupi d in 1964. 
Under the terms of the twenty-five year hangar building lease, u pon occupancy 
the Company is required to pay advance rental for a full year and to maintain 
such prepayment throughout the term of the lease. 
6. Retirement plans: 
The Company has two contributory retirement plans covering (1) flight officers 
and (2) other employees of the Company. During 1962 the Company charged to 
operating expenses and other accounts provisions totaling $187,996 of which 
$36,096 was for past service benefits. The unfunded past service benefit costs of 
both plans have been estimat d by the Company's independent actuaries to 
aggregate $205,363 at December 31, 1962. 
PEAT, MARWICK. M I TCHELL & Co. 
ACCOUNTANTS ' REPORT 
The Board of Directors 
Pacifi c Northern Airlines, Inc. : 
We have examined the balance sheet of Pacific Northern Airlines, Inc. 
as of December 31, 1962 and the related statement of earnings a nd r eta ined 
earnings for the year tben ended. Our examination was made in accordance with 
generally accepted auditing standards , and accor dingly included such tests of 
the accounting records and such other auditing procedures a s we cons idered 
necessary in the circumstances, It was not practicable to confirm amounts 
due f r om certain United States Government agencies by communication with them, 
but we satisfied oursel ves as to these am 
ounts by means of other auditing 
procedur es . 
In our opinion, subject to any r etroactive upwa rd adjustment of mail 
pay as mentioned in note 1 to the financial statements, the accompanying balance 
sheet and statement of ear nings and r etained earnings pr esent fairly the financial 
position of Pacific Norther n Ai rlines, Inc . at December 31 , 1962 a nd the results 
of its operations for the year then ended, in conformity with generally accepted 
accounting principles applied on a basis cons istent with t hat of the preceding 
year. 
Seattle, W 
a shington 
March 8 , 1963 
 PACIFIC NORTHERN AIRLINESJNC. 
Directors:* 
Officers: 
G. P . O'GRADY, Washington, D. C. 
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 
A.G. WOODLEY, President and General Manager 
H . A. OLSEN, Vice President - Traffic and Sales 
J. H. FOSTER, Vice President - Engineering 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: SAN FRANCISCO, 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 HANOVER TRUST COMPANY, NEW YORK, NEW YORK 
COMMON STOCK LISTED: AMERICAN STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE 
*A vacancy exists on the Board of Directors which will be 
filled by election at the annual meeting of stockholders.