~ THIRD EAR OF PROGRESS Southern Airways Incorporated :;;..--? ,- ( ~ Jouthern Al RWAYS REPORT TO STOCKHOLDERS, EMPLOYEES AND FRIENDS ~TIONAL i:)AFETY DUNCIL 1951 AVIATION e SAFETY AWARD TO SOUTHERN AIRWAYS. l~C. in rec09uition.of its corttriburion to ofe}lir9ransporration hal'in9 operated '2 yean. and, as of ~~cember 31, 1951 without a passenger or crew fatality in scheduled passen9er canyin9 fli9hr operations IKE F. JONES Vice President GEORGE F. ESTEY Secretary - Treasurer IVAN ALLEN, JR. Ivan Al I en-Marshal I Co. Atlanta, Ga. J. MURREY ATKINS R. S. Dickson & Co. Charlotte, N. C. CECIL A. BEASLEY, JR. Kilpatrick, Bal lard & Beasley Washington, D. C. EDWARD U. BENEKE The Beneke Corporation Columbus, Miss. ALEXANDER J. BRUNINI MANAGEMENT OFFICERS FRANK W. HULSE President CECIL A. BEASLEY, JR. Assistant Secretary EXECUTIVE COMMITTEE HUGH W. DAVIS Vice President - Operations W. B. WHITE, JR. Assistant Secretary FRANK W. HULSE HENRY P. JOHNSTON IVAN ALLEN, JR. ELTON B. STEPHENS W. B. WHITE, JR. DIRECTORS ROBERT Z. CATES Arkwright Mills Spartanburg, S. C. FRANK W. HULSE Southern Airways, Inc. Birmingham, Ala. ALTON F. IRBY, JR. A. F. Irby & Co., Inc. Atlanta, Ga. HENRY P. JOHNSTON Birmingham News Company Birmingham, Ala. IKE F. JONES G. GUNBY JORDAN The Jordan Company Columbus, Ga. W. HERBERT SMITH W. Herbert Smith Co. Clover, S.C. ELTON B. STEPHENS EI ton B. Stephens & Assoc. Birmingham, Ala. W. B. WHITE, JR. White, Bradley, Arant , All & Rose Birmingham, Ala. Brunini, Everett, Grantham & Quin Vicksburg, Miss. Ga . -Carolina Paper &Supply Co. Augusta, Ga. GEN. RALPH H. WOOTEN Mid-South Chemical Co . Memphis, Tenn . GENERAL OFFICES Municipal Airport Birmingham, Alabama Stock Transfer Agent THE FIRST NATIONAL BANK OF BIRMINGHAM OPERATIONS HEADQUARTERS Municipal Airport Atlanta, Georgia TO STOCKHOLDERS, EMPLOYEES AND FRIENDS OF SOUTHERN AIRWAYS, INC. The year 1951 completed another period of substantial development by your Company. Although it is impossible to document everything that transpired during the year in a report of this nature, I do wish to point out a number of de- velopments. We again operated the entire year with a perfect safety record, flying 17,186,342 passenger miles. Service was established over the entire system that we are authorized to operate. Night and all-weather operations established at all stations served on our system. Tupelo, Mississippi opened upon completion of airport Improvements. Revenue passengers totaled 96,572 as compared to 38,117 for the calendar year 1950. System load factor was 27.19 as compared to 17.08 for the calendar year 1950. The fleet of aircraft increased to 10 Douglas DC-3's. Maintenance facilities expanded to include complete airframe overhaul. Program started to increase passenger capacity of airplanes from 21 to 24 seats Overhaul periods on airframe increased, pursuant to CAA authority, to 6,000 hours. Passenger Service Department es tab I ished. Improved reservations procedures installed. Authority granted by the Civil Aeronautics Board to omit landings at stations without traffic. Straight-in approaches authorized at smaller airports without control towers. Personnel Deportment established. Salary increases granted all employees except officers. Employees recreation program established. Applications filed with the Civil Aeronautics Boord requesting authority to establish a new route from Columbus, Georgia, to Mobile, Alabama via Dothan, Alabama, Panama City, Florida and Pensacola, Florido. Authority sought to serve Gulfport/Biloxi, Mississippi, and additional service to Vicksburg. (Authority to serve Gulfport/Biloxi by exemption was granted early in 1952. Service was inaugurated there Morch 21, 1952.) The Southern Airways Certificate Renewal proceeding was started in November, 1951. This will continue through various procedural steps during the year 1952. Final decision is expected late in 1952 or early in 1953. Your manage- ment anticipates certificate renewal for a reasonable period of time. I should like to coll to your attention the audited financial statements prepared by Ernst and Ernst. Since the Company's claims for retroactive moll pay for pre-operational and developmental costs hove not yet been acted upon by the Civil Aeronautics Board, no assets ore shown on the balance sheet to cover allowances which will be mode on these claims. Likewise, the profit and loss statement tokes into account only that portion of retroactive moil pay actually received during the calendar year 1951. Although the final amount recoverable hos not been determined, it is believed that the Company's indicated deficit will be offset by retroactive moil payments. Employees of Southern Airways hove continued to grow in stature. They ore courteous, enthusiastic, and inter- ested in their Company's growth. This report was prepared in our own print shop to save printing expense. Respectfully yours, Fronk W. Hulse, President August 9, 1952 AII.IIION ATLANfA ALTl1'40tU: OST ON U,-,-ALO CANTON C:HICAOO CINC: I NNA,TI CLl[VCLA.NO C:OLU M US OA.YTON 01:N V ltlll OltTIIIOIT 1[ 1111 1 P'OIII T WOIIITH (JPIIA.NO IIIA.P'IOS HOUSTON I NO I ANAP'OLIS KALAMA.100 KANSAS C:ITY LOS ANO CLCS LOU I SV I LLI[ MCMP'H I S MILWA.UKltC M I NNCA .. OLI S ERNST & ERNST ACCOUNTANTS AND AUDITORS SYSTEM SERVICE ATLANTA FIRST NATIONAL BANK B L.DG . DELIV E RY ZONE 3 Board of Directors Southern Airways, Ince Birmingham, Alabama N C W O tlll L CANS N EW Y Otlll ll. P'H I LAOC L P'H IA P' ITT$ U IIIO H P'Olll' T LANO, MC . P'AO VI Ol[N C: C IIICAO I NG III I C:HMOND IIIO C:H t:STCIII ST. LOU I S S T. P'A UL SAN AN TONI O SAN l"AAN CI S CO SCAT TL E T O LE D O WASH I N GTO N W I NSTON S ALCM COfttlllCSP' O NOCN T AT LONDON CA L C AOOIIICS S s;111NSTA UOIT " N . Y. We have examined the balance sheet of Southern Airways, Inc . as of December 31, 1951, and the related statements ot profit and loss and surplus-deficit 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. The Company has included in its financial statements all temporary adjustments of compensation for transportation of U.S. mail through the year ended December 31, 1951. Under provisions of the Civil Aeronautics Act of 1938, as amended, the Civil Aeronautics Board will determine the final mail compensation rate after ~t has completed its review of the results of the Company's operations over a period of time. The effect of such retroactive determination upon the financial statements of the Company at December 31, 1951 cannot be anticipated at this date . In our opinion, subject to the effect of retroactive mail compensation rates as commented upon in the preceding paragraph, the accompanying balance sheet and statements of profit and loss and surplus-deficit present fairly the financial position of Southern Airways, Ince at December 31, 1951, 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 . Atlanta, Georgia Karch 17, 1952 Certified Public Accountants BALANCE SHEET SOUTHERN AIRWAYS, Inc. December 31, 1951 ASSETS LIABILITIES CURRENT ASSETS Cash: Demand deposits Due from agents Office and station cash funds Accounts receivable: U.S. Government-for transportation of moi I, etc. (Note 8) Air travel pion, air line traffic and other trade receivables Inventories - at cost: Repair parts and shop supplies Other operating supplies TOT AL CURRENT ASSETS INVESTMENTS AND OTHER ASSETS Investments in affiliates - at cost Note receivable from Employees' Trust Committee - for purchase of Company's capital stock through pay roll deductions Note receivable from officer Cash surrender value of life insurance (Note C) Postage and service deposits PROPERTY AND EQUIPMENT - At cost, less allowances for depreciation (Note C) Hangar (constructed on leased land) Aircraft and related equipment Other equipment Improvements to rented property Less allowances for depreciation Construction in progress - equipment Non-operating property - aircraft engines DEFERRED CHARGES Development and preoperating expenses (Note D) Prepaid insurance, interest, dues, etc. $124,479.23 666,540.69 113,655.96 3,743.51 $908,419.39 479,975.64 $428,443.75 9,802.97 Unamortized expense in connection with sale of capital stock (Note E) Overhauled aircraft and engines - unamortized balance $114 I 532 , 48 10,913.26 4,800.00 $325,119.01 123,256.85 $ 78,965.43 9,219.23 $ 1,101.00 17,558.04 2,698.00 1,000.00 435.00 $438,246.72 6,000.00 $ 7,917.87 49,450.98 2,908.88 54,221.10 $ 130,245.74 448,375.86 88, 184.66 $ 666,806.26 22,792.04 444,246.72 114,498.83 $1,248,343.85 CURRENT LIABILITIES Notes payable (including portion of long-term debt due within one year): Secured (Note C) For money borrowed For equipment, supplies, etc. Unsecured: For money borrowed Employees - for unpaid compensation Accounts payable and accrued expenses: Bonk overdrafts: Bank checks outstanding Less cash on deposit as reported by bank T rode accounts For equipment purchased Pay rol I taxes ol"ld taxes withheld from employees Interest, taxes, and insurance Audit and legal fees Salaries and wages Rents and landing fees Employees' accounts for purchase of U.S. savings bonds Southern Airways Federal Credit Union Employees' Trust Committee Advertising and corporate expenses $270,000.00 211,632.06 $ 50,000.00 105.00 $22,684.04 21,104.98 TOTAL CURRENT LIABILITIES LONG-TERM DEBT Notes payable for equipment, supplies, etc: Secured (Note C) $ 2,375.76 Less payments due within one year 1,187.88 Unsecured DEFERRED INCOME Unearned transportation revenue CAPITAL Common stock, par value $3.00 per share: Authorized 250,000 shares Issued and outstanding 200,000 shares Earned surplus - deficit* $481,632.06 50,105.00 $ 1,579.06 266,408.69 13,429.82 61,079.02 71,843.20 9,436.34 68,506.05 11,016.83 163.75 1,286.89 831.95 600.00 $ 1,187.88 109,103.42 $600,000.00 $ 531,737.06 506,181.60 $1,037,918.66 110,291.30 7,101.46 506,967.57* 93,032.43 $1,248,343.85 NOTES TO FINANCIAL STATEMENTS Note A - The company is engaged in air transportation with respect to persons, property, and mai I under authority of a Temporary Certificate of Public Convenience and Necessity issued by the Civil Aeronautics Board effective February 8, 1949, for a period of three years. Since February 8, 1952, the Company has continued operations under provisions of the Ad- ministrative Procedure Act. Since commencement of scheduled service on June 10, 1949 the Company hos been ondis now be- ing compensated for the transportation of mail under temporary rates. These rates are subject to odjustment in a future Civil Aeronoutics Board proceeding to determine a final moil rate. Neither the final mai I rote, nor the amount of retroactive od- justed compensation which the Company will receive thereunder for the transportation of mail during the term of its temporary certificate, are determinable at this time. Note B - Charges to occounts receivable and credits to, i n . come for the transportation of U.S. Mail have been made on the basis of odjusted rates applicable through the year 1951. Such rates ore not final but ore subject to review and possible further adjustment by the Civil Aeronautics Boord . Note C - Collateral to the secured notes payable includes ten aircraft and substantially al I of the related equipment, hangar building (constructed on land leased until January 11, . 1959 with option of renewal for five years), office furniture and equipment, automotive equipment, insurance policies for ,000.00 on life of on officer, and leases under which the pany is lessee of the land on which the hangar building is ted. In oddition to the above, certain of these notes are further secured by guaranty of an officer of the Company. Note D - Expenses incurred by the Company in connection with its application to the Civil Aeronautics Boord for author- ity to engage in air transportation and before actual flying op- erations amounted to $186,417.26, and these expenses, upon. approval by the Boord, are subject to recovery after the estob- 1 ishment of a permanent mail rote. Such expenses ore being amortized over the three year temporary certificate issued by the Civil Aeronautics Board, as mentioned in Note A, and the remaining unamortized portion of these expenses, amounting to $7,917.87, is reflected in the balance sheet under deferred charges. Note E - Expenses in connection with the sale of capital stock ore being amortized over the period covered by the Cer- tificate of Public Convenience and Necessity, as set forth in Note A, by charges made directly to earned surplus - deficit. , SOUTHERN AIRWAYS, Inc. STATEMENT OF PROFIT AND LOSS Year Ended December 31 , 1951 Operating revenues: Transportation: Passenger Motl (Note B) Express Excess baggage, etc . Inc identa I : Agency services and rents received - joint facilities Service sales - net Other TOT AL OPERATING REVENUES Operating expenses: Flying operations - (incl~ding provision for depreciation of aircraft and other flight equipment $161 , 7 66 .45) Ground operations Ground and indirect maintenance Passenger service Traffic and sales Advertising and publ icity General and administrative - (including provision for depreciation of ground and other equipment $61,844.91) Other income: Dividends received Interest earned Sundry Other deductions: Amortization of development and preoperating expenses (Note D) Interest paid Premium on insurance to secu;e debt Life insurance expense Loss on equipment abandoned Loss on sale of equipment Mail fines Sundry Provision for depreciation of property and equipment included above - $223 I 611 36 See notes to financial statements. $1,417,686.79 376,089.49 193,089.62 127,641.27 284,747.79 90,278. 44 259 ,909.09 OPERATING LOSS $ 1,686.43 506.61 11 .59 $ 74,919. 34 22,384. 21 2,530 .50 1,384.87 60.68 23.70 1,695.00 518.87 NET LOSS STATEMENT OF EARNED SURPLUS - DEF IC IT Year Ended December 31 , 1951 Deficit at January l, 1951 Add: Net loss for the year Amortization of expenses in connection with sale of capital stock (Note E) $ 225,178.94 27,556.68 DEFICIT - DECEMBER 31, 1951 See notes to financial statements. $ 948,026.36 1,626,096.67 28,993.93 18,732.44 2,227.97 1,452.50 46.22 $2,625,576.09 .} 2,749,442.49 $ 123,866.40 2,204.63 $ 121,661.77 103,517.17 $ 225,178. 9~ $ 254,231.95 252,735.62 $ 506,967.57 COMPARATIVE OPERATING STATISTICS (1st Year: June 1949 through May 1950 - 2nd Year: June 1950 through May 1951 - 3rd Year: June 1951 through May 1952) Our 1st Yearl Our 2nd Year I Our 3rd Year REVENUE PASSENGERS 21,763 59,791 110,525 REVENUE PASSENGER MILES .. 10,553,071 19,302,027 PASSENGER LOAD FACTOR 11.02% 21.56% 28.08% MAIL TON MILES 35 I 187 68,773 85,677 EXPRESS TON MILES 31,117 62,225 84,487 _ REYE NUE PLANE MILES 1,530,830 2,270,751 3,216,382 ' PERCENT SCHEDULED MILES COMPLETED 94.80% 97.14% 98.93% PASSENGER TRAFFIC GAINS BY QUARTERS 1949 1950 1951 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter (By Thousands) 30 SALES ACTIVITIES During 1951 the Sales Department was reorganized. This department includes Reservations and Space Control Offices, Tariff and Schedules Department, the actual Sales Staff and the stations. Five District Traffic Managers are now locat- ed at strategic points over the system. Mai I ing I ists, and advertising were supplemented during the year with hun- dreds of personal cal Is on prospective passengers and old established customers. Sales activities also included many promotional programs in various cities over Southern's System, joint advertising programs with other carriers, distribution of special advertising posters and literature, and participation in numerous civic ac- tivities in the 31 cities we serve. These Sales Activities coupled with the successes of other departments in ii proving performance, passenger service and other phases of operations have resu 1 ed in continued outstanding growth of Southern's business during 1951. Plans for increased sales effort during 1952 should assure that Southern wi 11 continue to grow at a rapid rate in passenger, airmail and air-express business. The picture below was taken in Birmingham in Morch of 1952 at the first 1952 Sales Meeting. In attendance at the Meeting were al I of the Sales Department Staff, Station Managers, Officers and Department Heads of the company. These Sales Meetings are scheduled twice yearly and are devoted to stimulation of the Sales Program and, also, discussion of Sales and Operational problems. ' PROPOSED ROUTES: