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PACIFIC NORTHERN AIRLINES 
THE ALASKA FLAG LINE 
1965 ANNUAL REPORT 
35TH YEAR OF SERVICE TO ALASKA 
  
Highlights 
of 
1965 
1965 1964 
Operating Revenues $17,019 ,000 $15,127,000 
Operating Expenses $15,191 ,000 $14,597,000 
Operating Profit $ 1,828,000 $ 530,000 
Special Credits $ 626,000 $ 1,622,000 
Net Earnings and Special Credits $ 1,494 ,000 $ 1,622,000 
Net Per Share $1.40 $1 .52 
Retained Earnings $ 2 ,998,000 $ 1,504,000 
Stockholders' Equity $ 4,651 ,000 $ 3,157,000 
Stockholders' Equity Per Share $4.35 $2.96 
Revenue Passenger Miles 198,537,000 160,070 ,000 
Total Revenue Ton-Miles 31 ,771 ,000 27,765,000 
Passenger Load Factor 47 0 
37 Yo 
Plane Load Factor 66 % 57 % 
Average Number of Employees 660 631 
Ton-Miles of Traffic Per Employee 48 ,000 44,000 
System Performance Factor 98.4 % 98.2 % 
 To the 
Stockholders 
of 
Pacific 
Northern 
Airlines, 
Inc.: 
In every respect 1965 was the most successful of Pacific Northern's thirty- 
four years of <?peration in Alaskan service. The outlook for 1966 appears 
to be even more favorable. 
Financial 
Net profits and special credits in 1965 amounted to $1 ,494,000, or $1.40 
per share after income taxes of $956,000. The Company's operating profit 
of $1 ,828,000, after depreciation charges of $1 ,079,000, represents more 
than a three-fold increase over last year. Total revenues of $17,019,000 
were the highest in the Company's history and reflect improvement of 12 
percent over 1964 which was also a record year. Stockholders' equity at 
the close of 1965 was $4,651 ,000 or $4.35 per share, an increase of 4 7 
percent during the year. 
Investment credits applied against 1965 tax payments amounted to $250,- 
000 leaving an unused investment credit of $463,000 which can be applied 
to reduce future income taxes. The U. S. Treasury Department h as audited 
and accepted the Company's income tax returns through 1962. 
Sales and Operations 
As shown in the following summary, Pacific Northern's record growth in 
traffic and productivity during 1965 represents continuation and acceler- 
ation of the favorable trend of the past ten years: 
 2 
Revenue Total Ton-Miles of 
Calendar Passenger Revenue Traffic per 
Year Miles Ton-Miles Employee 
1965 198,537,000 31 ,771 ,000 48,000 
1964 160,070,000 27,765,000 44,000 
1963 137,848,000 23,228,000 36,000 
1962 128,819,000 22,166,000 35,000 
1961 122,629,000 20,619,000 33,000 
1960 116,304,000 18,293,000 30,000 
1959 113,389,000 17,013,000 27,000 
1958 105,595,000 15,937,000 26,000 
1957 105,820,000 15,564 000 25,000 
1956 96,427,000 14,218 000 25,000 
Over three-fourths of the Company's 1965 system traffic was carried in jet 
aircraft. 
In June of 1965, Pacific Northern expanded its jet services to include daily 
non-stop jet schedules between Anchorage, the largest city in the state, and 
Juneau, the capital of Alaska. Also for the first time non-stop service was 
established between Juneau and Seattle, a service improvement not other- 
wise possible had competition continued on this route necessitating both 
carriers to make an intermediate stop for traffic at Ketchikan. 
Pacific Northern's 1965 system revenue passenger load factor was 4 7 per- 
cent, compared to 37 percent for last year. The plane load factor (pas- 
senger, mail and air cargo) of 66 percent during 1965 establishes a new 
all-time record for the Company and compares to an average of 4 7 percent 
for all domestic airlines. The Company's system performance factor, that 
is, scheduled trips completed, continued above 98 percent and the record 
of on-time arrivals and departures ranked with the highest in the industry. 
C. A. B. Proceedings 
In its final decision in the Pacific Northwest-Alaska Air Service Case, the 
Civil Aeronautics Board made basic changes in the mainland-Alaska com- 
petitive route pattern effective June 1, 1965. Pan American's rights to 
serve Ketchikan and Juneau were suspended for a period of seven years. 
Pacific Northern was given exclusive authority to serve those markets from 
Seattle-Tacoma and also was awarded the right to carry local Ketchikan- 
Juneau traffic. Except for a seven-year suspension of Portland as a co- 
 terminal with Seattle-Tacoma, the Civil Aeronautics Board did not disturb 
Pacific Northern's routes to Alaska or within Alaska. However, the Board 
did create modified competitive authorizations for other carriers on the 
Seattle-Anchorage route and the Anchorage-Juneau route for a period of 
seven years. Alaska Airlines was added as a third carrier on the Seattle- 
Anchorage non-stop route subject to a through service restriction. Cordova 
Airlines was extended to Juneau making it possible, subject to a two-stop 
restriction, for Cordova to provide limited competition with Pacific North- 
ern between Anchorage and Juneau. The Company's traffic gain resulting 
from exclusive operating rights in Southeastern Alaska far outweighs the 
minor traffic diversion made possible by the competitive changes in the 
other routes. 
In June of 1965, the Civil Aeronautics Board instituted the Trans-Pacific 
Route Investigation which includes the issue of the possible need for new 
and additional air service between Hawaii and the continental United 
States. Pacific Northern is an applicant for routes between Anchorage and 
Honolulu and between Seattle-Tacoma/ Portland and Honolulu, and has 
moved for consolidation of its application in the Trans-Pacific Route Inves- 
tigation. 
In December of 1965, the Civil Aeronautics Board established final mail 
rates for Pacific Northern for the three-year period beginning October 1, 
1962 and ending September 30, 1965. The Board's order contained the fol- 
lowing findings: 
"The Board has reviewed in detail all available data giving due 
regard to current trends in traffic, revenues, and expenses. These 
data indicate that Pacific Northern has in fact reached the point 
of economic self-sufficiency and no longer requires subsidization 
by the Board, and that the outlook for the future appears favor- 
able for maintaining such subsidy-free status. The carrier's 
reported operating profit for the twelve months ended September 
30, 1965 was $1 ,122,048. This amount, which contains no sub- 
sidy, is clearly indicative of Pacific Northern's ability to earn a 
fair return on its investment without subsidy support. Therefore, 
we have determined that, for the period October 1, 1965 forward , 
the rate of compensation for Pacific Northern shall be the service 
mail rate payable to the carrier unde outstanding orders of the 
Board. Such a rate will provide the carrier the opportunity to plan 
ahead in confidence and, under economical and efficient man- 
agement, to earn a fair return on its investment." 
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Jet Equipment 
During the past month the Company has successfully concluded tripartite 
equipment negotiations with Braniff Airways and The Boeing Company. 
The agreement provides that Braniff will sell one Boeing 720 to Pacific 
Northern and the Company in turn has agreed to assign to Braniff its con- 
tract with The Boeing Company relating to its B-727 jet program. Under 
this arrangement Braniff will obtain delivery of B-727 jet aircraft much 
earlier than would otherwise have been possible, and Pacific Northern will 
be able to meet its immediate requirements for expansion of its jet fleet 
by acquiring an additional Boeing 720 identical to those which it presently 
owns and operates. The price of the airplane is $3. 75 million and will be 
financed by long-term loans through amendment of existing bank loan 
agreements. This arrangement will provide the Company with almost the 
identical capacity it would have obtained from its B-727 program and will 
reduce debt financing requirements by approximately $13 million. 
These negotiations do not alter the Company's objective to offer jet ser- 
vice on all its routes after completion of proposed improvements to several 
smaller airports within Alaska. In addition to three Boeing 720's the Com- 
pany will continue to operate its six Lockheed Constellation 7 49 aircraft. 
Outlook 
Operating results for the year ahead will undoubtedly show improvement 
over 1965 because they will reflect a full year of the new competitive 
pattern which was in effect only during the latter half of the past year. 
Additionally, the economic outlook of the areas served by Pacific Northern 
continues to improve. After the 1964 earthquake the Federal Government 
made long-term, low-cost capital available for reconstruction purposes, 
which in turn encouraged private capital for commercial expansion that 
goes beyond the reconstruction stage. Major developments in the petro- 
leum industry and rapid growth in population have increased air travel 
over the Company's routes substantially above normal growth rates. These 
factors , together with the highly advantageous solution of the current 
phase of the Company's jet equipment program, should produce favorable 
results in 1966 and assure continued progress in the future. 
April 8, 1966. 
~~ 
PRESIDENT AND 
GENERAL MANAGER 
 PACIFIC NORTHERN AIRLINES~INC. (AN ALASKA CORPORATION) 
Statement of Earnings and Retained Earnings 
Year Ended December 31, 1965 
Operating revenues: 
Passenger . 
U. S. mail and air cargo 
Other 
Total operating revenues 
Operating expenses : 
Flying and ground operations 
Maintenance 
Selling and advertising 
General and administrative 
Depreciation and amortization ( Note 2 ) . 
Operating profit 
Non-operating expenses: 
Interest 
Other expenses, net 
Net earnings before Federal and state income taxes . 
Federal and state income taxes ( Note 1 ): 
Current 
Deferred . 
Net earnings 
Special credits relating to prior years : 
Depreciation and aircraft overhaul reserve 
adjustments (Note 2) . 
Final mail payments from C. A. B. (Note 1) . 
Related Federal and state income taxes, including 
deferred tax provision of $198,880 
Net earnings and special credits 
Retained earnings, January 1, 1965 . 
Retained earnings, December 31 , 1965 . 
See accompanying notes to financial statements. 
$8,507,122 
3,053,815 
1,460,424 
1,089,612 
1,079,575 
447,957 
7,562 
467,062 
37,517 
386,276 
691 ,653 
1,077,929 
451,818 
$13,138,637 
3,607,726 
272,426 
17,018,789 
15,190,548 
1,828,241 
455,519 
1,372,722 
504,579 
868,143 
626,111 
1,494,254 
1,504,127 
$ 2,998,381 
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PACIFIC NORTHERN AIRLINES~INC. (AN ALASKA CORPORATION) 
Balance Sheet, December 31, 1965 
ASSETS 
Current assets : 
Cash 
Receivables, less reserve 
Expendable parts and supplies (less obsolescence 
reserve of $13 7,996 ) . 
Prepaid expenses, principally insurance . 
Total current assets . 
Investments, principally cash surrender value of life insurance 
Operating properties and equipment 
at cost (Notes 1 and 2 ): 
Flight equipment 
Flight equipment deposits 
Other property and equipment 
Less depreciation and aircraft overhaul reserves 
Deferred charges, net of amortization: 
Preoperating expenses 
Lease deposits and other . 
$17,521,035 
163,029 
1,464,839 
19,148,903 
8,778,069 
254,168 
147,137 
LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities: 
Current installments on long-term debt 
Accounts payable and accrued liabilities . 
Federal and state income taxes (Note 1) 
Air travel plan deposits 
Advance ticket sales 
Total current liabilities 
Long-term debt, less current installments ( Note 5) . 
Provision for deferred income taxes . 
Stockholders' equity: 
Common stock-$1 par value per share. Authorized 
2,000,000 shares; issued 1,068,109 shares 
Paid-in surplus-no change during 1965 
Retained earnings (Note 5) . 
Contingent liabilities and commitments (Notes 1, 3 and 4) 
See accompanying notes to financial statements. 
$1,068,109 
584,905 
1,653,014 
2,998,381 
$ 1,405,419 
2,915,034 
215,701 
163,962 
4,700,116 
177,671 
10,370,834 
401 ,305 
$15,649,926 
$1 ,197,347 
2,421 ,910 
720,138 
70,975 
269,767 
4,680,137 
5,771 ,475 
546,919 
4,651 ,395 
$15,649,926 
 Notes to Financial Statements 
(1} See President's report for information concerning U. S. mail pay, Federal income taxes 
and equipment purchase commitments. 
(2) Adjustment of aircraft overhaul and depreciation reserves 
In 1965, the Company adjusted aircraft overhaul reserves from a provisioning to an amortiza- 
tion basis, effective October 1, 1962. The depreciation reserves relating to jet engine residual 
values were concurrently adjusted. The adjustments reduced depreciation expense for 1965 
and for prior years by $22,627 and $49,5-83, respectively, and reduced aircraft overhaul ex- 
pense for 1965 and for prior years by $183,172 and $336,693, respectively. 
(3) Long-term leases 
Minimum annual rentals under leases expiring more than three years from December 31, 
1965 aggregate $284,300. 
(4) Retirement plans 
The costs of retirement plans charged to operating expense in 1965 totaled $475,048, includ- 
ing $65,977 for past-service costs, thereby leaving approximately $359,996 of past-service 
benefits unfunded at December 31, 1965. 
(5) Long-term debt 
Long-term debt consists of $6,343,822 of notes, secured by first and second mortgages on flight 
equipment, at interest rates of 5 to 6 percent of which $1 ,097,347 is due within one year, 
and $625,000 of unsecured, subordinated debt at interest rates of 5 to 6 percent of which 
$100,000 is due within one year. Included in the unsecured debt is the unamortized balance 
of $240,000 of 6 percent subordinated debentures issued in 1961 with detachable warrants 
which entitle the holders to purchase 88,800 shares of the capital stock of the Company for 
$4.50 per share. 
Among other provisions, certain of the documents covering the Company's long-term borrow- 
ings 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. 
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, 
1965 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. 
In our opinion, the accompanying balance sheet and statement of earnings and retained 
earnings present fairly the :financial position of Pacific Northern Airlines, Inc. at December 
31, 1965 and the results of its operations for the year then ended, in conformity with gener- 
ally accepted accounting principles applied, except for the noted change ( which we approve) 
in method of determining aircraft overhaul reserves, on a basis consistent with that of the 
preceding year. 
Seattle, Washington 
April 8, 1966 
PEAT, MARWICK, MITCHELL & CO. 
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PACIFIC NORTHERN AIRLINES 
DIRECTORS : 
G. P. O'GRADY  Washington, D. C. 
PAUL W. KITTO  Seattle, Washington 
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'G rady, 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. 
REGISTRARS : Manufacturers Hanover Trust Company, New York, New York; Crocker -Citizens National Bank, 
San Francisco, California. 
COM MON STOCK LISTED: American Stock Exchange, Pacific Coast Stock Exchange. 
Pacific Northern Hangar and General Offices, Seattle-Tacoma International Airport, largest airline facility in the Pacific Northwest 
  
The routes of Pacific Northern serve the growth areas 
of Alaska where over 80% of the population resides and where 
most of the major economic developments are taking place.