PACIFIC NORTHERN AIRLINES 
THE ALASKA FLAB LINE, 
 34TH YEAR OF SERVICE TO ALASKA 
rowr BARROW  
 KOTZEBUE 
 NOME 
 To the Stockholders of Pacific Northern Airlines: 
The Civil Aeronautics Board, on March 29, 1965, released its long- 
awaited decision in the Pacific Northwest-Alaska Air Service Case. 
The Board's order awards Pacific Northern Airlines exclusive authority 
to serve Ketchikan and Juneau from Seattle-Tacoma for a period of 
seven years and also confers the right to carry local Ketchikan-Juneau 
traffic. The Company heartily endorses this portion of the order for 
it will enable Pacific Northern to conduct a more economical operation 
and to improve service in that market. With one carrier serving the 
route, it will now be possible to give the people of Southeastern Alaska 
a choice of departure times which heretofore was not possible because 
of simultaneous competitive schedules. The Company is hopeful that 
it will also be possible to inaugurate non-stop service between Seattle- 
Tacoma and Juneau, Alaska's capital. 
The Board's order also seeks to dispose of many other aspects of the 
historically complex competitive relationships which have existed in 
the Pacific Northwest-Alaska air route pattern. Except for a seven-year 
suspension of the Company's Portland co-terminal, the Board does 
not propose to disturb Pacific Northern's routes to Alaska. However, 
the Board seeks to create modified competitive authorizations for 
other carriers on the Seattle-Anchorage route and the Anchorage- 
Juneau route which may have a significant, but as yet undetermined, 
impact upon the Company's present operations. The Board estimated 
in its opinion that its proposed air route changes would result in oper 
ating gains of about $5 million for three of the airlines involved in 
Pacific Northwest-Alaska operations. The Board estimated that Pacific 
Northern's annual loss of $237,000 (prior to Federal subsidy) would 
be converted into a profit of $2,244,000 without need for Federal 
subsidy. This result for Pacific Northern depends entirely upon the 
validity of many complex underlying assumptions upon which the 
Board based its opinion. The Company is now analyzing these as 
sumptions to determine whether the Board's facts are correct and 
current and whether its projections are realistic. The Company will 
 not decide whether or not to file formal petitions for reconsideration 
to the Board's order until these analyses have been completed, probably 
in mid-April. 
The Civil Aeronautics Board has not yet acted on the petition of the 
Company to fix final mail rates retroactive to October 1, 1962, and for 
that reason, the results shown on the Company's financial statements 
do not properly reflect the position of the Company, Since October 1, 
1962, the Company has received only temporary mail compensation 
at rates which obviously are inadequate to provide a fair return on 
investment after taxes as authorized in the Federal Aviation Act. The 
Company believes it is entitled to and will receive from the Civil Aero 
nautics Board for the periods subsequent to October 1, 1962, the 
additional mail compensation required to produce this result. The 
Board's delay in fixing final mail compensation for the Company un 
doubtedly has been inter-related with its consideration of the Pacific 
Northwest-Alaska Air Service Case. Now that the Board's policy de 
terminations in the route investigation appear to be nearing finaliza 
tion, it should be possible to proceed toward a final settlement of the 
past mail compensation due the Company and to establish final mail 
rates for the future. 
The Company experienced substantial growth during 1964. Revenue 
passenger miles for the system improved 16 per cent over the preceding 
year and total revenue ton-miles reflect a 20 per cent gain. In spite of 
the unusually severe winter conditions during the past season, the 
performance factor for the system was a creditable 98.2 per cent of all 
scheduled mileage and the percentage of on-time departures was equal 
to the best in the industry. Productivity increased from 36,000 revenue 
ton-miles of traffic per employee during the previous year to 44,000 
revenue ton-miles in 1964, an increase of 22 per cent, reflecting the 
advantages of the new facilities occupied by the Company in early 1964. 
The Company continues its position as the leading airline serving 
Alaska, and tomorrow, April tenth, will commence its 34th year of 
Alaskan service. 
A. G. WOODLEY / 
PRESIDENT AND ' 
GENERAL MANAGER 
2 
April 9,1965 
 PACIFIC NORTHERN AIRLINES. INC. 
(AN ALASKA CORPORATION) 
Statement of Earnings and Retained Earnings 
Year ended December 31, 1964 
Operating revenues: 
Passenger $10,495,721 
Mail (note 1) 2,123,073 
Cargo and excess baggage 2,178,701 
Other operating revenues 330,007 
Total operating revenues 15,127,502 
Operating expenses: 
Flying operations 
Maintenance and repairs 
Aircraft and traffic servicing 
Passenger service 
Promotion and sales 
General and administrative 
Depreciation, amortization and obsolescence 
provisions (note 3) 
Operating profit 
$4,311,351 
2,657,923 
2,994,678 
1,065,297 
1,364,278 
957,357 
1,246,495 14,597,379 
530,123 
Non-operating expenses: 
Interest 
.... 
Other expenses, net 
544,356 
16,399 560,755 
Net earnings (loss) (30,632) 
Special credits: 
Partial receipt of past due C.A.B. payments 
received in 1964 (note 1) 1,413,123 
Reduction of depreciation provisions of 
prior periods (note 3) 187,449 
Investment tax credits of prior years allowable 
in 1964 (note 4) 51,670 1,652,242 
Net earnings after special credits (notes 3 and 4) 1,621,610 
Retained earnings (deficit), January 1, 1964 (117,483) 
Retained earnings, December 31, 1964 $ 1,504,127 
See accompanying notes to financial statements. 
3 
 PACIFIC NORTHERN AIRLINES, INC. (AN ALASKA CORPORATION) 
Balance Sheet, December 31, 1964 
ASSETS 
Current assets: 
Cash 
, 
$ 1,039,887 
Receivables: 
Traffic $1,079,804 
United States Government agencies (note 1) . . . 
572,879 
Other 67,788 
1,720,471 
Less allowance for doubtful receivables 24,968 1,695,503 
Maintenance and operating supplies, at average cost . . . 
344,672 
Less allowance for obsolescence 135,002 209,670 
Prepaid expenses, principally insurance 228,607 
Total current assets 3,173,667 
Investments, principally cash surrender value of life insurance 175,895 
Operating properties and equipment, at 
cost (notes 2, 3 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: 
Preoperating expenses: 
Jet aircraft 
Airport hangar building .... 
Assets 
$15,984,509 
1,206,444 
140,615 
1,450,489 
38,786 
18,820,843 
Lease deposits 
Debt expense . 
Other 
. . . 
Allowances for 
depreciation, 
amortization 
and overhauls 
7,027,477 
759,670 
110,169 
621,405 
8,518,721 10,302,122 
276,500 
103,024 
379,524 
103,070 
29,193 
428 512,215 
$14,163,899 
LIABILITIES 
Current liabilities: 
Current installments on long-term debt (note 2) 
Accounts payable: 
Trade $ 725,298 
Airline traffic accounts 655,114 
Collections as agent 163,633 
Accrued wages, taxes, interest, etc 
Federal and state taxes on income, estimated (note 4) 
Air travel plan deposits 
Unearned transportation revenue 
Total current liabilities 
Long-term debt, less current installments of $1,201,243 (note 2) 
Provision for deferred taxes on income (note 4) 
Stockholders' equity: 
Common stock--$1 par value per share. Authorized 
2,000,000 shares; issued and outstanding 1,068,109 
shares (note 2) 1,068,109 
Paid-in surplus--no change during 1964 584,905 
1,653,014 
Retained earnings (note 2) 1,504,127 
Contingent liabilities and commitments (notes 5 and 6) 
$ 1,201,243 
1,544,045 
574,188 
85,000 
62,475 
260,462 
3,727,413 
6,968,823 
310,522 
3,157,141 
$14,163,899 
See accompanying notes to financial statements. See accompanying notes to financial statements. 
 Notes to Financial Statements 
December 31, 1964 
1.U. 
S. mail pay: 
The Company is a certificated air carrier subject to regulation by the Civil Areo- 
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 were designed to provide 
approximate break-even need (as determined by the Board) and which are 
subject to final negotiation and settlement. These temporary rates were not 
intended to include the return on investment element; such element is to be 
determined upon finalization of rates. Management believes, based on past 
experience, that there will be a favorable retroactive adjustment (not reflected 
in the financial statements) to October 1, 1962 upon finalization of the rates 
since mail pay received under the temporary rates, including the adjustment 
referred to in the succeeding paragraph, is considered to be inadequate to 
accomplish the desired objective. 
In 1964 the temporary rates were adjusted (not finalized) by the Board for 
the period from October 1, 1962 through May 31, 1964, resulting in additional 
mail pay of $1,878,439. Of the total adjustment, $1,413,123 was allocated by the 
Board "for administrative purposes only" (subject to reallocation upon finaliza 
tion of rates) to periods prior to 1964 and is, therefore, presented in the state 
ment of earnings and retained earnings as a special credit. 
2.Long-term 
debt: 
Long-term debt is summarized as follows: 
Secured: 
514-6% term loans from bank, secured by first and 
second 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(4% 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 Total 
one year indebtedness 
$ 881,199 $6,491,020 
216,148 950,150 
3,896 3,896 
$1,101,243 $7,445,066 
$ 50,000 $ 375,000 
40,000 280,000 
10,000 70,000 
$ 100,000 $ 725,000 
$1,201,243 $8,170,066 
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.Extension 
of service life of jet flight equipment: 
In 1964, the service life of jet flight equipment was extended from 10 to 12 years, 
effective October 1, 1962, resulting in reduced depreciation provisions for 1964 
and for prior periods by the amounts of $148,557 and $187,449, respectively. 
6 
 4. 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 
determination of income reportable for tax purposes. The deferred income tax 
liability arising from the resulting differences between book and taxable income 
was provided for in prior years in the estimated amount of $447,192. Of this 
amount, $136,670 was transferred in 1964 to the estimated current tax liability 
account to cover taxes currently payable on the approximate excess of deduc 
tions included in the statement of earnings (for tax purposes, previously allowed 
or to be claimed in the future) over those allowable in computing taxable 
income in 1964. 
No provision for Federal income taxes for the year 1964 has been made in the 
accompanying statement of earnings because of the application against 1964 
operating results of a tax operating loss carryover from 1963 in an approxi 
mately equivalent amount. The Company has available for reduction of future 
Federal income taxes (principally pertaining to the next three years) a potential 
unused investment tax credit of $700,000 which resulted from equipment acquisi 
tions in 1962 and subsequent years. 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. The investment tax credit allowable in reduction of the tax liability other 
wise payable for 1964 is estimated to be $51,670, which amount is shown as a 
special credit in the statement of earnings. 
5. Long-term leases: 
Minimum annual rentals under leases expiring more than three years from 
December 31, 1964 aggregate $284,088. 
6. Retirement plans: 
The Company has contributory retirement plans covering (1) flight officers, 
(2) mechanics (covered in 1964) and (3) other employees of the Company. 
During 1964 the Company charged to operating expenses and other accounts, 
provisions totaling $418,199 of which $65,977 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 $417,194 at December 31, 1964. 
Peat, Marwick. Mitchell & Co. 
CERTIFIED PUBLIC ACCOUNTANTS 
957 STUART BUILDING 
SEATTLE, WASHINGTON 96101 
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, 1964 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 additional 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, 1964 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 25, 1965 
7 
 Dual purpose advertising program 
seiis PNA and Aiaska travei 
PNA is the most vigorous advertiser 
in the Alaska travel business. Adver 
tisements like those shown here are 
being placed in major magazines: 
Holiday, Time, Newsweek, United 
Airlines Mainliner and many others. 
Many ads are in full color, showing 
the true beauty of Alaska. Others 
stress the unforgettable contrasts of 
the 49th State. And all of them push 
PNA as the finest way to get there. 
Other ads are regularly scheduled in 
major metropolitan newspapers. A 
radio and television campaign is 
scheduled for major Pacific Northwest 
and Alaskan cities on PNA routes. 
fly PNA 
PACIFIC NORTHERN AIRLINES 
THE ALASKA FLAG LINE, 
dive for your dinner 
...or order it saute' 
PACIFIC NORTHEPN AWLINES 
SCATTve-TACOMA AIRPORT. SCaTTlE. WASrt 
roe ALASKA FLAB 
AT S-5WJ  SanfwcWArVtf 
Alaska means business 
.. 
.with a measure of pleasure" 
PACIFIC NORTHERN AIRLINES 
me ALASKA EfAB UNS. 
Wstt. * BuKhiPes'or lAVJHK 
8 
 PACIFIC NORTHERN AIRLINES 
Directors: 
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 
H. A. OLSEN, Seattle, Washington 
A. G. WOODLEY, Seattle, Washington 
Officers: 
A. G. WOODLEY, President and General Manager 
H. A. OLSEN, Vice President--Traffic and Sales 
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: 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