_ 1963_ 
ANNUAL 
REPO 
RT 
PACIFIC NORTHERN AIRLINES THE ALASKA FLAG LINE 
 PACIFIC NORTHERN AIRLINES 
Directors: 
Officers: 
G. P. O'GRADY, Washington, D. C. 
PAUL PORZELT, New York, New York 
R. A. ROW AN, Los Angeles, California 
M. B. KIRKPATRICK, Anchorage, Alaska 
C. W. NELSON, Seattle, Washington 
H. A. OLSEN, 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: SEATTLE-TACOMA INTERNATIONAL AIRPORT, 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 AGENTS: BANKERS TRUST COMPANY, NEW YORK, NEW YORK 
BANK OF AMERICA, N.T.& S.A., SAN FRANCISCO, CALIFORNIA 
REGISTRAR: MANUFACTURERS HANOVER TRUST COMPANY, NEW YORK, NEW YORK 
CROCKER-CITIZENS NATIONAL BANK, SAN FRANCISCO, CALIFORNIA 
COMMON STOCK LISTED: AMERICAN STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE 
 To the Stockholders of Pacific Northern Airlines: 
All the Company's personnel in Alaska and their families escaped 
injury and all the Company's property was undamaged when the 
most powerful earthquake on record struck the Alaska area on March 
27. Major earthquake damage was suffered in the Anchorage area and 
seismic sea waves carried major destruction to the port cities of 
Kodiak, Seward, Valdez, Whittier, Cordova and to many smaller com- 
munities. Deaths and injuries are far lower than expected, but prop- 
erty losses will be counted in the hundreds of millions of dollars 
when the full extent of damage becomes known. 
It is too early to assess the full meaning of this disaster; however, plans 
are being formulated for massive federal aid to the stricken areas. Al- 
though the nature and scope of these programs are not yet clearly 
defined, consideration is being given by the government to measures 
for rehabilitation such as enabling legislation to authorize extension 
of credits by the Federal Reserve Board to banks in the disaster area 
and the application of retroactive war disaster type insurance to cover 
actual losses. Preliminary estimate of the total losses incurred by 
earthquake and water damage is in excess of five hundred million 
dollars; however, there is complete confidence that effective federal 
aid will be extended to permit speedy and full recovery of Alaska's 
economy. 
Many business properties in the Anchorage area suffered far less 
damage than had first been feared. Hotels and motels are confident 
that repairs can be made to restore accommodations to previous 
levels in time for the summer tourist business, which has the lar- 
gest bookings of any year thus far. It is felt that if accommoda- 
tions can be provided there will be little or no effect from the quake 
experienced in this very important segment of Alaska's economy. 
Severe damage to surface transport facilities such as highways, bridges 
1 
 and docks, coupled with the need for speedy rebuilding of the affected 
area, will unquestionably increase air traffic demands far above normal 
levels during the initial phases of recovery. The Company anticipates 
no problems in expanding its services to meet any unusual demands 
for air support. 
The results shown on the Company's financial statements do not 
properly reflect the position of the Company. This is because the 
Civil Aeronautics Board has not yet acted on petitions of the Com- 
pany to fix mail rates retroactive to October 1, 1962. Since that date 
the Company has received only temporary mail compensation at 
rates which obviously are inadequate to meet the carrier's needs. The 
Federal Aviation Act and the stated policy of the Civil Aeronautics 
Board provide for payment of adequate rates of compensation to 
permit a carrier to earn a fair return on its investment after taxes. 
Accordingly, the Company believes it is entitled to and will receive 
an amount required to produce this result. The Company's invest- 
ment of approximately $14 million is the largest investment in any 
form of transportation dedicated solely to Alaskan service. 
In February, the Company took occupancy of its new administration 
and maintenance base at Seattle-Tacoma International Airport. 
Advance planning, coupled with ideal weather conditions, permitted 
complete transfer to the new location without disruption of any func- 
tion of the airline's operation. This new facility, expressly designed 
for PNA's existing and prospective requirements, is the largest of its 
kind in the Pacific Northwest and Alaska. With the exception of its 
District Sales Office located in downtown Seattle, this facility now 
houses under one roof all the Company's activities in this area which 
were previously maintained at eight widely separated locations. It is 
believed this consolidation will result in improved efficiency in all de- 
 partments and will ultimately result in savings which are expected to 
be as high as several hundred thousand dollars per year. 
In the fall of 1963 the Civil Aeronautics Board concluded public hear- 
ings on its investigation of the air service pattern between the Pacific 
Northwest and Alaska. The case is now awaiting a decision of the 
hearing examiner, and it is expected this decision will be released in 
the very near future. However, final orders of the Board in this case 
probably cannot be obtained before the end of this year. The evidence 
introduced at the hearings reinforces the Company's conviction that 
the final orders of the Board in this investigation will result in better 
public service and in more profitable operations for the Company. 
The Civil Aeronautics Board authorized the .suspension of the Com- 
pany's winter operations between Anchorage and King Salmon, and 
approved the deletion of PNA's service to Iliamna and Big Mountain. 
The Company anticipates modest financial advantages from these 
alterations. 
Special mention should be made of the dedication and ingenuity 
demonstrated by the Company's personnel during the earthquake 
disaster. Although Alaska-bound flights were turned back from An- 
chorage at the time of the earthquake because of the complete disrup- 
tion of communications, during the night Company personnel set up 
emergency facilities so that scheduled operations were restored the 
following morning and they have continued without interruption 
since that time. 
Through their tireless efforts in the aftermath of this emergency our 
employees are continuing to demonstrate their allegiance to Alaska 
and their faith in its future, which I am sure is shared by all Alaskans. 
This spontaneous energy and loyalty assures a confident outlook for 
the 49th State and for the Company. 
PRESIDENT AND 
GENERAL MANAGER 
3 
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PACIFIC NORTHERN A/Rl/NESt/NC. (AN ALASKA CORPORATION) 
Balance Sheet, December 31, 1963 [ 
ASSETS LIABILITIES 
Current assets: 
Cash 
Receivables: 
Traffic 
United States Government agencies (note 1) 
Refundable Federal 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 4): 
Flight equipment . . . . . . 
Ground equipment . . . . . 
Buildings and improvements to 
leased property . . . . . . 
Replacement parts for flight equipment 
Construction work in progress 
Deferred charges, net of amortization: 
Preoperating expenses: 
Jet aircraft . . . . . . 
Airport hangar building lease . 
Debt expense 
Other . . .. 
See accompanying notes to financial statements. 
Assets 
$16,041,800 
1,066,379 
176,891 
1,483,970 
28,841 
18,797,881 
$1,015,604 
459,227 
18,090 
93,718 
1,586,639 
19,451 
355,855 
120,974 
Allowances for 
depreciation, 
amortization 
and overhauls 
6,376,968 
668,085 
146,100 
565,005 
7,756,158 
395,000 
87,949 
482,949 
33,201 
3,415 
$ 814,651 
1,567,188 
234,881 
290,030 
2,906,750 
136,895 
11,041,723 
519,565 
$14,604,933 
I 
f 
Current liabilities: 
Notes payable to bank, unsecured . . . . . . 
Current installments on long-term debt (note 2). 
Accounts payable: 
T rade . . . . . . . . 
Airline traffic accounts 
Collections as agent . . 
Accrued wages, taxes, interest, etc. 
Air travel plan deposits . . . . 
Unearned transportation revenue 
Total current liabilities 
$1,196,225 
724,598 
187,159 
Long-term debt, less current installments of $1,234,715 (note 2) . . . . . . . 
Provision for deferred taxes on income (note 3) . . . . . . . . . . . . . . 
Stockholders' equity: 
Common stock-$1 par value per share. Authorized 
2,000,000 shares; issued and outstanding 1,068,109 shares 
(note 2) . . . . . . . . . . . . . 
Paid-in surplus-no change during 1963 
Retained earnings (deficit) (note 2) . . 
Contingent liabilities and commitments (notes 4 and 5) 
See accompanying notes to financial statements. 
1,068,109 
584,905 
1,653,014 
(117,483) 
$ 400,000 
1,234,715 
2,107,982 
472,103 
43,350 
197,890 
4,456,040 
8,166,170 
447,192 
1,535,531 
$14,604,933 
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PACIFIC NORTHERN AIRLINES. INC. 
(AN ALASKA CORPORATION) 
Statement of Earnings and Retained Earnings 
Year ended December 31, 1963 
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 
Refundable Federal taxes on income (note 3) 
Net earnings (loss) . . . . . . . 
Retained earnings, January 1, 1963 
Retained earnings (deficit), December 31, 1963 
See accompanying notes to financial statements. 
$4,470,962 
2,300,619 
3,004,544 
973,320 
1,200,471 
872,911 
1,595,661 
593,654 
438 
$ 9,270,390 
2,012,537 
l,807,q27 
245,907 
13,335,861 
14,418,488 
(1,082,627) 
594,092 
(1,676,719) 
18,090 
(1,658,629) 
1,541,146 
$ (117,483) 
 Notes to Financial Statements 
December 31, 1963 
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 (not reflected in the financial statements) 
to October 1, 1962 when rates are finally reviewed and settled. 
2. Long-term debt: 
Long-term debt is summarized as follows: 
Secured: 
5 -6% term loans from bank, secured by first mortgages 
on flight equipment . . . . . 
6% term notes to manufacturers 
5% note to supplier 
Total secured . . . . . . 
Unsecured : 
Subordinated to above indebtedness: 
5% term loan from bank . . . . . . . . 
6% subordinated debentures, issued with detachable 
warrants entitling holders to purchase 88,800 shares 
of the capital stock of the Company for $4.50 per 
share . . . . . 
5% note payable . . . 
Total unsecured . . 
Total long-term debt 
Principal 
installments 
due within 
$ 
one year 
786,199 
333,664 
14,852 
1,134,715 
50,000 
40,000 
10,000 
100,000 
$1,234,715 
Total 
indebtedness 
$6,517,219 
2,043,814 
14,852 
8,575,885 
425,000 
320,000 
80,000 
825,000 
$9,400,885 
As of December 30, 1963, the Company entered into an agreement for a 6% 
interim bank loan not to exceed $1,500,000 (none drawn in 1963), payable on 
demand or on May 31, 1964 if no demand is made. The interim loan is secured 
under the same provisions as the bank loans with an indebtedness of $6,517,219, 
shown above. 
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 (provision waived as of December 31, 1963) and shall not declare 
or pay any dividends or purchase, redeem or otherwise acquire for value any 
of its capital stock. 
7 
 8 
3. Federal taxes on income: 
Certain adjustments (relating principally to depreciation and overhaul reserves 
and preoperating expenses) to income determined in accordance with the rules 
and regulations of the Civil Aeronautics Board are required to be made in de- 
termination 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 estimated amount of $447,192 of which a provision 
reduction of $2,582 pertained to the year 1963. 
The Company has available for reduction of future Federal income taxes (prin- 
cipally pertaining to the next four years) a potential unused tax credit of $742,000 
which resulted from acquisitions in 1962 and 1963 of operating properties and 
equipment. Application of such credit is limited as to each year to $25,000 plus 
twenty-five per cent of the tax liability in excess of $25,000. In addition, there is 
available under carryover provisions of the Internal Revenue Code, approxi- 
mately $1,550,000 of operating losses available to offset taxable income of the 
next seven years. 
4. Long-term leases: 
Minimum annual rentals under leases expiring more than three years from 
December 31, 1963 aggregate $284,088. 
5. Retirement plans: 
The Company has two contributory retirement plans covering (1) flight officers 
and (2) other employees of the Company. During 1963 the Company charged to 
operating expenses and other accounts, provisions totaling $232,780 of which 
$36,096 was for past service benefits. The unfunded past service benefit costs of 
both plans have been estimated by the Company's independent actuaries to 
aggregate $173,950 at December 31, 1963. 
PEAT, MARWICK. MITCHELL & Co. 
The Board of Directors 
C ERTIFIED PUBLIC ACCOUNTANTS 
967 STUART BUILD.ING 
SEATTLE 1,WASHINOTON 
ACCOUNTANTS I REPORT 
Pacific Northern Airlines, Inc.: 
W 
e have examined the balance sheet of Pacific Northern Airlines, Inc. 
as of December 31, 1963 and the related statement of earnings and retained 
earnings for the year then ended. 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 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, subject to any retroactive increase in mail pay as 
mentioned in note 1 to the financial statements, the accompanying balance sheet 
and statement of earnings and retained earnings present fairly the financial 
position of Pacific Northern Airlines, Inc. at December 31, 1963 and the results 
of its operations for the year then ended, in conformity with generally accepted 
accounting principles applied on a basis consistent with that of the preceding 
year. 
Seattle , Washington 
March 18, 1964 
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33RD YEAR OF SERVICE TO ALASKA