,:- .. :-:..~ ::::::: I I I I (IATIONAL~ETY (IOUNCIL. ~~53 AVIATION SAFETY AWARD . ,:, - -. ~ .... ~-.... TO in rec09nition of its contribution ro t1fe Jtir9ranspor'ratioJt hal'in9 operated 4 yrar.s and, as of 'December 31, 1953 without a passenger or crew fatality in scheduled passen9er carryin9 flighr operations IKE F. JONES Vice President GEORGE F. ESTEY Secretary - Treasurer MANAGEMENT OFFICERS FRANK W. HULSE President NORMAN K. ARNOLD Vice President - Research C. M. BRITT Vice President - Sales HUGH W. DAVIS Vice President - Operations CECIL A. BEASLEY, JR. Assistant Secretary W. B. WHITE, JR. Assistant Secretary C. H. D. TARRER Assistant 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, Ballard & Beasley Washington, D. C. EDWARD U. BENEKE The Beneke Corporation Columbus, Miss. ALEXANDER J. BRUNINI EXECUTIVE COMMITTEE FRANK W. HULSE HENRY P. JOHNSTON IVAN ALLEN, JR. ELTON B. STEPHENS W. B. WHITE, JR. DIRECTORS 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 Ga.-Carolina Paper & Supply Co. Augusta, Ga. R. EUGENE ORR Knight, Orr & Co., Inc. Jacksonville, Fla. W. HERBERT SMITH W. Herbert Smith Co. Clover, S. C. ELTON B. STEPHENS Elton 8. Stephens & Assoc. Birmingham, Ala. W. B. WHITE, JR. White, bradley, Arant, All & Rose Birmingham, Ala. Brunini, Everett, Grantham & Quin Vicksburg, Miss. G. GUNBY JORDAN The Jordan Company Columbus, Ga. GEN. RALPH H. WOOTEN Mid-South Chemical Co. Memphis, Tenn. GENERAL OFFICES Brown-Marx Building 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 twelve months ended December 31, 1953, was the most successful year to date in your company's history. Despite major operational adjustments required because of revisions in our route system by the Civil Aeronautics Board in the Certificate Renewal Case, we earned a profit during 1953 in an amount that may be regarded as satisfactory under all the circum- stances. In addition to the necessity of major operational adjustments in 1953, the retroactive application of our permanent mai I rate to the first quarter of the year also had a depressive effect upon profits. While the Boarddid not issue the final moil rate order until April 7, 1953, it was nevertheless made retroactive to October I, 1952. largely because of the resulting inability of your management to conform scheduling and expense levels to those established by the Board in this mail rate order, the company incurred a loss during the period January l through March 31, 1953 of approximately $35,000. Significantly, we operated at a profit in Apri I and during every succeeding month of the year, earning an amount sufficient to offset the I oss during the first quarter and to show a profit for the year of $31 , 886. Although the Renewal Case was tried during 1952, the Board's decision was not issued until April, 1953. Our certificate was extended forapproximotely five years from February 8, 1952, the original expiration date, through December 31, 1956. Route revisions ordered by the Board in the Renewal Case were placed in effect by your company on June 13 when service was terminated between Columbus, Georgia and Charleston, South Carolina, and at Hattiesburg, Mississippi. On the same date we inaugurated service at Monroe, Louisiana, with two trips per day. On September 27, 1953, this service was increased to four trips per day. While during 1953 we operated our revised system for some six months, past experience in the industry demonstrates that a substantially longer period is required to properly develop the traffic potential and achieve the maximum commercial revenues which can be expected after ma jor route modifications. Improvement in your company's traffic generation during 1953 is reflected by the fact that its load factor or percentage of seats occupied was the highest for any year since it com- menced operations. This record load factor was achieved despite a 9.25% reduction of total mileage below that in 1952 and despite the fact that, because of the lower total mileage, we carried7.22% lesspassengers in1953than in 1952. By elimination of our less productive mile- age, and constant sales efforts we were able to increase our non-mai I revenues from 37. 40c per plane mile in 1952 to 39.99c in 1953, an increase of 6.93%. While increasing its load factor, your company maintained strict control over costs. Although it flew substantially less total mileage and although inflationary pressures continued from all quarters, nevertheless your company held its 1953 per mile operating cost to 105.?lc-- an amount below the average for the local service industry for the same period. This result was accomplished by a reduction in personnel made possible in no small part through the A - - increasing efficiency of our employees. Thus, at the beginning of 1953 your company h~n excess of 475 persons on its payrol I and by the end of the year this number had been reduced to 408. During 1953 the Civil Aeronautics Administration extended the number of hours during which our aircraft may be operated without major overhaul. This extension was based upon your company's excellent maintenance record. The increase of the overhaul period resulted in making available more time for our maintenance staff to work upon equipment other than that of your company. Services performed during 1953 for owners of several executive airplanes increased considerably your company's revenues from outside service sales. Pursuant to the provisions of the Internal Revenue Code, no Federal Income Taxes are expected to be due on our 1953 earnings of $31,886. Further, under the present revenue laws, no taxes are anticipated on future earnings of your company up to $142,000 provided such profits ore obtained withinthe next four years. Barring changes in the present Federal tax law, profits in coming years may be used to retire a substantial portion of our deficit without pay- ment of any Federal Income Tax. In the fall of 1953 our Atlanta offices were moved into new quarters in a more conven- ient location near the main entrance to the Atlanta Airport. The new, air-conditioned facili- ties are well-suited functionally to our purposes and shouldsubstantially improve the company's operating efficiency. I am happy toreport thatwe were able toobtain the space atno increase in rental over that paid for the old offices. You are cordially invited to visit your company's offices at any ti me you can do so. During the Christmas season of 1953 your company carried first class mail along with ti ther local service airlines. Participation by the local service air carriers in the movement of this mail substantially expedited a large volume of mail which would otherwise have moved by surface transportation and at the same time materially improved the Post Office's service to the public. It is believed that the success of this experimentwill in time lead toregular trans- portation of first class mail by Southern Airways. Again in 1953, your company operated with a perfect safety record. The fact that we have earned the Aviation Safety Award from the National Safety Counci I every year since operations began is a real tribute to the members of our organization. At December 31, 1953, the original bank loan of $500,000 made in the second quarter of 1952 had been reduced to $130,000. No additional loans are contemplated; likewise, no increase in equity financing is planned at this time. Your management wi II continue to exercise every possible effort to increase non-mai I revenues, control costs and to reduce its dependence upon Government mai I pay. Progress made by your company since it commenced operation in June, 1949, is illustrated by statistics on the last page of this report. An aggressive sales campaign is presently in progress and already our load factor is ahead of 1953. We, of Southern, look forward to the year 1954 with confidence and I personally con- sider our future brighter than ever. April 26, 1954 Respectfully yours, Frank W. Hulse President BALANCE SOUTHERN DECEMBER ASSETS CURRENT ASSETS Cash: Demond deposits Due from agents Office and station cash funds Accounts receivable: United States Government: For transportation of moi I - Note B For other transportation Air travel plans, air line traffic, and other trade receivables I nve ntori es - at cost: Repair ports and shop supplies Other operating supplies Prepayments: Aircraft engine overhaul (unamortized) Insurance and interest INVESTMENTS AND OTHER ASSETS Investments in affiliates - at cost Account receivable from Employees' Trust Committee and accrued interest Service, utility and other deposits PROPERTY AND EQUIPMENT - at cost, less allowances for depreciation and overhaul - Note B Hangar (located on leased land) Aircraft and related equipment Other equipment Improvements to rented property less allowances for depreciation and overhaul Construction in progress - equipment DEFERRED CHARGES Unamortized cost of certificate of public convenience and necessity Dues, advertising and other expenses Note A - The Company is engaged in air tronspor- tati on with respect to persons, property, and mai I under authority of a Temporary Certificate of Public Conven- ience and Necessity issued by the Civi I Aeronautics Boord, which was originally effective February 8, 1949, and which was renewed under date of April 14, 1953 (with certain modifications) for an additional period expiring December 31, 1956. Note B - Note payable to bank for money borrowed is secured by ten aircraft and substantially all of the re- $ 79,171.84 9,229.31 4,325.00 $193,702.52 10,645.84 $ 204,348.36 N 149,430.12 $ 105,555.87 13,847.27 $ 57,871.69 33,312.87 TOT Al CURRENT ASSETS 0 T E $ 1,101.00 2,028.01 1,047.00 $ 124,479.23 729,721.35 163,745.11 9,611.32 $1,027,557.01 696,085.85 $ 331,471.16 16,282.03 $ 8,508.64 6,081.56 s T 0 $ 92,726.15 353,778.48 119,403.14 91.56 $ 657,2.33 4,176.01 347,753.19 14,590.20 $1 , 023, 6 l l . 73 ------------- F N A lated equipment, hangar located on land leased until January 11 , 1959 (with option of re newa I for five years), station and office furniture and equipment, automotive equipment, assignment of air moil pay due from .ed States Government, insurance policies for $150, ,.00 on life of on officer, and lease under which the Company is lessee of the land on which the hangar is located. The indebtedness is further secured by the guaranty of an offi- cer of the Company. Under the terms of the loan agreement with the SHEET AIRWAYS, 31, 1953 n C. LIABILITIES C CURRENT LIABILITIES Notes payable, including current portion of long-term debt due within one year: Secured: For money borrowed - Note B For insurance premium - Note C Accounts payable and accrued expenses: T rode accounts Interest, taxes, and insurance Salaries and wages Withholding and pay rol I taxes Rents and londi ng fees Other Unearned transportation revenue State taxes on income - estimated G-TERM DEBT Secured: Note payable to bank for money borrowed, due $10,000.00 monthly to January, 1955 - Note B less payments due within one year shown as current liability Unsecured: Note payable for equipment and supplies - (subordinated) - Note D CAPITAL Common stock, par value $3.00 per shore: Authorized, issued, and outstondi ng 250, 000 shores Paid-in surplus Earned surplus - deficit* A L s T A T E M E N T s bank as amended effective January l, 1954, the Company has agreed, among other things, (l) to maintoi n net current assets (as defined in the agreement) of $300,000.00 or of operating expenses (exclusive of depreciation) e preceding twelve months, whichever is greater; (2) pay no dividends while the note is outstanding; and (3) to maintain a net worth of one and one-fourth times the unpaid principal amount of the note; otherwise the entire balance. of the loan may be called by the bank. Note C - Note payable for insurance premium is $120,000.00 31,616.00 $157,903.59 19,347.48 13,257.12 1,735.91 12,718.93 8,025.24 TOT AL CURRENT LIABILITIES $130,000.00 120,000.00 $10,000.00 109,403.42 $750,000.00 6,251.38 227,908.28* $ 151,616.00 212,988.27 9,760.94 1,500.00 $ 375,865.21 119,403.42 528,343.10 $ I , 023 , 6 11. 73 ------------- ------------- secured by the unexpired portion of such premium. Note D - Note payable to Southern Airways Company for equipment and supplies in the amount of $109,403.42 is subordinated to the note payable to bank for money borrowed. Note E - At December 31 , 1953, the Company was contingently liable as endorser of note ofEmployees' Trust Committee of Southern Ai rwoys, Inc. payable to bank, in the amount of $7,666.62. This note was paid in April, 1954. Operating revenues: T ronsportoti on: Passenger Moil Express Excess baggage Incidental: SOUTHERN AIRWAYS, Inc. STATEMENT OF PROFIT AND LOSS Year ended December 31, 1953 Agency services and rents received - joint facilities Service soles - net Other TOT Al OPERATING REVENUES Operating expenses: Flying operations Ground operations Ground and indirect maintenance Passenger service Traffic and soles Advertising and publicity General and administrative Other income: Interest earned Cash discount earned Profit on sole of equipment Reduction of rents and landing fees accrued for prior years Reduction in taxes accrued for prior years Sundry Other deductions: Interest on long-term debt Other interest paid Amortization of route extension and development expenses Amortization of cost of renewal of certificate of public convenience and necessity life insurance premiums Mai I fines loss on equipment abandoned Sundry Taxes on income - estimated: Provision for the year for state income taxes Provision for depreciation and overhaul of property and equipment included above - $160,497. 27. See Notes to Financial Statements. $1,529,280.75 513,530.72 257,741.30 135,041.62 459,360.07 66,577.88 233,466.70 OPERATING PROFIT $ 130.16 4,516.31 2,491.81 3,600.00 2,951.86 1,510.78 $ 15,646.26 3,392 . 35 4,529.50 2,127. 15 2,186. 30 660. 48 1,621.44 41.02 PROFIT BEFORE TAXES ON INCOME NET PROFIT STATEMENTS OF PAID-IN SURPLUS AND EARNED SURPLUS-DEFICIT Year ended December 31 , 1