Southern Airways Annual Report 1976

~
Southern
About the Company
Southern Airways, Inc. is a certificated, scheduled airline, engaged in transportation of
persons, property and mail. The Company serves 14 states, the District of Columbia, and
the Cayman Islands in the British West Indies. Additionally, the Company operates an
extensive charter business throughout the United States and into the Cayman Islands,
other points into the Caribbean, Canada, Mexico, and the Bahamas.
Southern began scheduled service on June 10, 1949. During 1976 the Company's
aircraft flew more than 27 million miles, serving more than three million passengers.
Aircraft in service included 28 DC9 jetliners and six Martin 404 piston-engine aircraft.
Today, more than 95 per cent of Southern's revenue passenger miles are generated
aboard DC9s.
Incorporated in the State of Delaware, Southern is a publicly held corporation with
more than 5,300 stockholders residing in 45 states and 10 foreign countries. The
Company's stock is registered and traded in the NASDAQ/Over-the-Counter Market.
Southern is one of 10 "Local Service Carriers" operating in interstate commerce to
serve cities of small and intermediate
size as well as in major metropolitan
areas. For rendering air services to small
and intermediate size communities that
otherwise could not sustain scheduled
service, Southern receives public
service revenue (subsidy) from the
Federal Government.
On the longer haul, more densely
traveled routes where Southern
competes with larger Trunk Carriers, the
Company does not receive a subsidy.
Southern's fares and quality of service
a re competitive.
Southern is headquartered at
Hartsfield Atlanta International Airport
where the Company's Maintenance
Base, Reservations Center, Training
Center and General Offices are located.
About the cover: Memphis, Tennessee, where
Southern operates 46 flights daily and links the
Southeast with Chicago, Illinois, and St. Louis,
Missouri.
Market Price of Common Stock
Range of high and low bid and asked prices for the
Company's Common Stock:
Bid Prices Asked Prices
Year High Low High Low
1975
First Quarter . . . ........ 3 2 4 3
Second Quarter . . .. . . . . 3 3 3 3
Third Quarter .. . . . .... . 3 2 3 3
Fourth Quarter ... .. . . . . 3 2% 3 3
1976
First Quarter ........... 5 3 6 3
Second Quarter ........ 5 4 5 5
Third Quarter ...... . ... 6 5 7 5%
Fourth Quarter ..... .. .. 5 3 5% 4
1977
First Quarter through
March 18 ..... . ... ... 4 3 4 4
The foregoing prices do not represent actual transactions. They
represent prices between dealers and do not include retail markup,
markdown or commission . There have been no active markets in
the Company's convertible preferred stock, convertible
subordinated debentures, or warrants.
Highlights
SOUTHERN AIRWAYS, INC. Per Cent
Increase
Years ended December 31 1976 1975 (Decrease)
PASSENGER REVENUES $11 5,206,000 $ 95,666,000 20.4%
OPERATING REVENUES $140,167,000 $ 117,950,000 18.8
OPERATING INCOME $ 2,492,000 $ 6,076,000 (59.0)
NET INCOME $ 405,000 $ 2,742,000* (85.2)
PRIMARY EARNINGS PER SHARE $ .22 $ 1.58* (86.1)
REVENUE PER PASSENGER MILE $ 0.117 $ 0.112 4.5
SCHEDULED SERVICE
REVENUE PASSENGER MILES 978,991,000 852,547,000 14.8
AVAILABLE SEAT MILES 1,926,166,000 1,688,633,000 14.1
PASSENGER LOAD FACTOR 50.8% 50.5% .6
REVENUE PASSENGERS CARRIED 3,245,000 2,935,000 10.6
REVENUE PLANE MILES FLOWN 27,646,000 25,534,000 8.3
NUMBER OF EMPLOYEES 2,766 2,519 9.8
*Includes in 1975 the final settlement of a fuel price dispute and reimbursements
made under the Federal Airport Development Aid Program which increased net
income by $1 ,999,000 ($1 .13 per share). These highlights should be read in
conjunction with the Financial Statements appearing elsewhere in this report.
Contents
About the Company . ........ ..... . ...... Outside Foldout Balance Sheet ... ... ....... .... ....... . ......... 20,21
Southern Routes ..................... Inside Front Cover Statement of Changes in Financial
Highlights .... .. . ............. ..... . . .. ... .......... 1 Position .. . .. ... . . ....... . . .. ... . ................ 22
Report to Stockholders .......... .. ................. 2,3 Statement of Stockholders' Equity .. . ..... . ......... .. 23
Ten Year Operating and Financial Summary ....... .. ... 4,5 Notes to Financial Statements ...... . .... ... ....... 23-30
Management's Discussion of Summary of Report of Independent Auditors .... .... . ... .. . ..... . . 31
Operations .......... .. ..... .. .. .. . .. ..... ... .... 6-9 Directors and Officers ..... . .. . .......... .... ........ 32
Review of Operations ............................ 10-18 General Information .. . ............. .. . Inside Back Cover
Statement of Income .. ... .... ... .. . ... ... ..... .. .... 19
1
41
Southern
NEBRASKA
DENVER.
COLORADO
WICHITA.
*As of March 21, 1977
MINNESOTA
MINNEAPOLIS-
ST. PAUL
\
\
IOWA \
\
DES MOINES. -
ARKANSAS
WISCONSIN
MILWAUKEE.
*Substitute service to Natchez. Miss ,
1s provided by a commuter airline
MERIDA
MEXICO
MICHIGAN
. BUFFALO
NEW YORK
PENNSYLVANIA
PITTSBURGH
...__ _ __, Southern Airways
System
Pending Routes
Report To Stockholders
Passengers Carried
IN THOUSANDS
4000
3000
2000
1000
0
1972 1973
2
Frank W Hulse
Graydon Hall
1974 1975 1976
Calendar 1976, an encouraging year for Southern
Airways despite a disappointing fourth quarter,
produced record revenues, higher passenger traffic
volume, and the fifth consecutive year of profitable
operations. Earnings were $405,000 or 22 cents a
share. Revenues totaled $140,167,000. A year earlier,
earnings reached $2,742,000, equal to $1 .58 per
share, on revenues of $117,950,000. The 1975
earnings, however, included $1 ,999,000 of
nonrecurring income arising from settlement of a fuel
price dispute and from reimbursement of certain
landing fees under the Federal Airport Development
Aid Program.
-L ,Your Company's 1976 earnings were impacted
;:,ldversely by a $922,000 fourth quarter loss which
resulted primarily from our passenger traffic growth
rate falling to 6.1 per cent in the fourth quarter, while
available seat miles increased 12.3 per cent. This
mainly resulted from two DC9-30 aircraft being added
to scheduled service earlier in the year.
It is gratifying to report that, since year-end ,
Southern's traffic has shown improvement. In January,
passenger traffic increased 9.3 per cent over January
1976 despite extremely severe weather conditions.
Adverse weather imposed substantial operational
burdens on Southern, closed many plants in cities we
serve and reduced business travel markedly. Available
seat miles during the month were up 11 .1 percent.
The upward trend continued in February and March
with gains of 7.2 and 7.6 per cent, respectively, over
Available Seat Miles/Revenue Passenger Miles
IN MILLIONS
2000
Seat Miles
Passenger Miles
1500
1000
500
0
1972 1973 1974 1975 1976
the similar months in 1976. Available seat miles were
up 7.4 and 8. 7 per cent, respectively, during these
months.
Because of the traffic downturn in late 1976 the
Company had no choice but to effect a staff reduction
and to do so promptly. Some 190 persons were
furloughed or terminated. Our employees at the end
of February numbered 2,608, some 90 more than
during the similar period last year. This growth in total
personnel has resulted from increased service and a
system-wide traffic gain, including expanded service
between Memphis and Chicago where greater gate
availability at peak traffic periods has permitted highly
favorable scheduling.
Southern continues to expand its promotional efforts
and to seek ever improving marketing effectiveness.
As a part of this program, James G. Godsman, vice
president-Sales, joined Southern in January 1976. He
comes to Southern from a firm outside the airline
industry where he served as marketing manager for
new business ventures.
There continues to be much uncertainty as to the
kind and degree of regulation to be maintained for the
air transportation industry. It is obvious that some
changes will be forthcoming as early as 1978. As
demonstrated by our commitment to operate an
additional kind of aircraft, as discussed later in this
Report, we are, among other activities, positioning
ourselves to minimize any problems and exploit the
Operating Revenues
IN MILLIONS
160
120
80
40
0
1972 1973 1974 1975 1976
opportunities presented by changes in the regulatory
environment.
In 1976, two members of the Board of Directors
reached mandatory retirement age: Henry P. Johnston,
Birmingham, Alabama, and R. Eugene Orr,
Jacksonville, Florida. Each has made a long and
meaningful contribution to Southern 's growth. We are
fortunate to have Mr. Johnston continue his
association as a senior director.
Elsewhere in this Report, you will find detailed
reviews of financial results, operations, marketing
expansion, new facilities, and other developments that
made 1976 a year of achievement for Southern. The
year 1977 justifies optimism and offers new challenges
as well as opportunities. Southern is fortunate in
having excellent facilities and outstanding employees
to take advantage of these opportunities and to meet
the challenges ahead.
Respectfully,
Frank W. Hulse
Chairman
~~~
Graydon Hall
President
April 1, 1977
Net Income
IN THOUSANDS
4000
3000
2000
0
1972 1973 1974 1975 1976
3
.
-- - - -- -
Ten Year Operating and Financial Summary
SOUTHERN AIRWAYS, INC.
1976 1975 1974 1973 1972 1971 1970 1969 1968 1967
Summary of Operations
(In thousands, except per share amounts)
Operating revenues
Passenger $115,206 $ 95,666 $ 86,821 $ 65,949 $ 52 ,052 $ 45,302 $ 37,1 87 $ 28,050 $ 20,503 $ 17,155
Charter 8,803 8,208 6,908 5,358 4,839 4,067 3,835 3,358 1,934 564
Public service 5,723 5,961 6,805 6,814 7,138 6,974 4,823 3,580 4,038 4,255
Other 10,435 8,115 7,818 6,488 5,603 4,917 4,563 3,641 3,652 2,949
140,167 117,950 108,352 84,609 69,632 61 ,260 50,408 38,629 30,127 24,923
Operating expenses
Depreciation and amortization 5,381 4,634 4,397 3,673 2,559 2,637 2,632 2,396 1,770 1,454
Other 132,294 107,240 97,072 79,447 64,180 58,216 49,556 35,807 27,764 23,537
137,675 111 ,874 101,469 83,120 66,739 60,853 52,188 38,203 29,534 24,991
Operating income (loss) 2,492 6,076 6,883 1,489 2,893 407 (1,780) 426 593 (68)
Interest on long-term debt 2,468 2,918 3,929 3,083 1,362 1,678 1,789 1,720 1,136 585
Miscellaneous deductions (income)- net (514) (612) (623) (2,023) (110) 23 (236) 15 (120) (57)
Income (loss) before income taxes, extraordinary
tax credit and accounting change 538 3,770 3,577 429 1,641 (1 ,294) (3,333) (1 ,309) (423) (596)
Income taxes (credit) 133 1,028 985 109 450 (235) (487) (212) (358)
Income (loss) before extraordinary tax credit
and accounting change 405 2,742 2,592 320 1,191 (1 ,059) (3,333) (822) (211) (238)
Tax benefits of net operating loss carryforward 325 97 409
Cumulative effect of accounting change 565
Net income (loss) $ 405 $ 2,742 $ 3,482 $ 417 $ 1,600 $ (1 ,059) $ (3,333) $ (822) $ (211) $ (238)
Earnings (loss) per common and common equivalent share (1)
Primary $ .22 $ 1.58 $ 2.19 $ .23 $ 1.06 $ (1 .02) $ (3.25) $ (.80) $ (. 21) $ (.23)
Fully diluted $ .22 $ 1.14 $ 1.40 $ .23 $ .80 $ (1 .02) $ (3.25) $ (.80) $ (.21) $ (.23)
Average number of common and common equivalent shares
Primary 1,581 1,765 1,599 1,314 1,440 1,035 1,025 1,025 1,025 1,025
Fully diluted 1,581 2,912 2,913 1,314 3,099 1,035 1,025 1,025 1,025 1,025
Financial Position - at year end
(In thousands, except per share amounts)
Current assets $ 28,306 $ 30,324 $ 27,214 $ 25,793 $ 15,923 $ 14,336 $ 12,380 $ 12,308 $ 15,754 $ 7,048
Current liabilities 25,447 24,366 23,620 21 ,629 10,399 10,944 12,012 8,707 7,696 6,255
Property and equipment - net 40,651 34,818 36,414 36,467 16,987 18,739 20,336 21 ,086 20,333 21,178
Long-term debt (excluding current maturities)
Notes payable and other 21,545 19,006 22,687 27,523 9,238 8,535 9,408 9,903 12,228 13,468
Convertible subordinated debentures 9,307 9,743 10,178 10,178 11 ,345 12,682 12,682 12,682 12,682 4,682
Total stockholders' equity 13,246 12,900 10,277 ., 7,043 5,514 2,493 915 4,248 5,070 4,849
Common stockholders' equity (2) 12,204 11 ,858 9,171 4,803 3,245 (30) 915 4,248 5,070 4,849
Common stockholders' equity per common share 7.72 7.50 5.80 3.40 2.55 (.03) .89 4.14 4.95 4.73
Common shares outstanding 1,581 1,581 1,580 1,413 1,271 1,062 1,025 1,025 1,025 1,025
Operating Statistics
Scheduled service
Passengers carried (thousands) 3,245 2,935 2,940 2,494 2,101 1,875 1,589 1,377 1,271 1,180
Available seat miles (thousands) 1,926,166 1,688,633 1,618,776 1,643,569 1,279,175 1,222,289 1,111,287 763,748 554,516 483,644
Revenue passenger miles (thousands) 978,991 852,547 832,372 721 ,135 596,197 527,552 430,736 323,472 254,028 222,142
Passenger load factor 50.8% 50.5% 51.4% 43.9% 46.6% 43.2% 38.8% 42.4% 45.8% 45.9%
Breakeven passenger load factor 50.6% 48.2% 49.0% 45.1% 44.9% 44.6% 42.9% 44.8% 47.1% 48.1%
Revenue per passenger $ 35.46 $ 32.55 $ 29.49 $ 26.41 $ 24.73 $ 24.11 $ 23.36 $ 20.33 $ 16.08 $ 14.49
Revenue per passenger mile 11.7~ 11 .2 10.4 9.1 8.7 8.6 8.6 8.7 8.1 7.7
All services
Available seat miles (thousands) 2,167,198 1,906,443 1,803,177 1,798,409 1,418,799 1,336,982 1,228,373 862,388 611 ,795 498,322
Cost per seat mile 6.4~ 6.0 5.8 4.6 4.7 4.6 4.3 4.5 4.9 5.0
Number of employees at year end 2,766 2,519 2,639 2,478 2,084 1,994 1,757 1,747 1,538 1,499
(1) Primary earnings per share include $.20 (1974), Fully diluted earnings per share include $.11 (2) After deducting equity of preferred share- Dividends on common stock of $.16 per share
$.08 (1973) and $. 29 (1972) appl icable to tax (1974), $.08 (1973) and $.20 (1972) applicable holders at $6 per outstanding preferred share were paid in 1967. No cash dividends on common
benefits of net operating loss carryforward to tax benefits of net operati ng loss carry- plus cumulative dividends at the end of each stock have been paid since 1967. Annual dividends
and $.35 (1974) applicable to cumulative effect forward and $. 19 (1974) applicable to cumula- of the years 1971 (year preferred shares were of $.36 per share have been paid on preferred
of accounting change. tive effect of accounting change. first issued) through 1976. shares for 1972 through 1976.
4
5
Management's Discussion of 1976 and 1975
Summary of Operations
Overview
Net income in the 1974 to 1976 period was subjected
to substantial variations, resulting from sudden and
dramatic shifts in the rate of passenger growth during
the perrod, substantial cost increases, and several
nonrecurring events. Earnings for the period totaled
$405,000 or 22 cents per share in 1976; $2,742,000 or
$1 .58 per share in 1975; and $3,482,000 or $2.19 per
share in 1974.
Passenger traffic volume in 1975 began that year
below comparable 1974 levels. The comparison was
distorted because of the unusual bulge in early 1974
air travel caused by the automotive gasoline shortage.
In late 1975, the rate of traffic growth rose dramatically
and this continued into early 1976. In the latter half of
1976, the rate of traffic growth again shifted downward
and it has continued at more moderate levels.
Anticipating a higher and more sustained level of
traffic growth, Southern added aircraft in late 1975 and
mid-1976. The additional aircraft met the higher traffic
demand in early 1976, but with the downturn in rate
of traffic growth in the second half of 1976, these
added aircraft resulted in excess capacity relative to
traffic demand and operating costs disproportionate
to revenues generated. Consequently, a $1 ,327,000
profit in the first nine months of 1976 was reduced by
a $922,000 fourth-quarter loss.
Extensive cost cutting measures were implemented
early in 1977 to lower costs to the current level of
traffic growth. As part of this program, the number of
employees was reduced by 190, approximately 7 per
cent of the total work force, but remained at a level
above that at the end of 1975.
Continuing operating cost increases also have
squeezed net income that already was under pressure
from lower than expected revenues. Fuel costs have
continued to rise markedly, while other cost increases
have kept pace with inflation. Fare increases in 1976
did not sufficiently improve the yield necessary to
offset the increased costs.
6
Earnings were influenced in 1975 by several non-
recurring events. A $2,074,000 settlement of a fuel
price dispute, and a $595,000 reimbursement of
certain landing fees, had a combined favorable effect
amounting to $1,999,000 on 1975 after-tax earnings.
In both 1975 and 1976, long-term debt was reduced .
These reductions together with lower prime interest
rates resulted in reduced interest expense. These
interest reductions, which partially offset the declines
in operating income, amounted to $450,000 in 1976
and $1 ,011 ,000 in 1975.
Operating Revenues
Total operating revenues reached record levels of
$140,167,000 in 1976 and $117,950,000 in 1975, up
18.8 per cent and 8.9 per cent, respectively, compared
with prior years. Changes in the percentage
composition of revenues is highlighted by Table 1,
Revenue Composition .
Table 1 - Revenue Composition
PER CENT OF TOTAL REVENUES
1976 1975 1974
Passenger:
Scheduled Service 82.1% 81.1 % 80.1%
Charter 6.3 7.0 6.4
88.4 88.1 86.5
Mail, Freight and Express 4.9 4.5 4.7
Public Service 4.1 5.1 6.3
Other 2.6 2.3 2.5
100.0% 100.0% 100.0%
Passenger revenues of $115,206,000 in 1976
represented a 20.4 per cent gain over the prior year,
while the $95,666,000 in passenger revenues in 1975
reflected a 10.2 per cent gain over 1974.
Traffic behavior since 1974 is indicated by Table 2,
which reflects total revenue passenger miles by
quarter and the increase or decrease in revenue
passenger miles over the same quarter of the prior
year. As demonstrated by Table 2, Southern
experienced soft traffic during the first half of 1975,
which was more than offset by increased traffic levels
during the second half of that year as the economy
improved. The traffic recovery continued into 1976
with revenue passenger miles up 19.7 per cent in the
first half of 1976 compared with the similar period
in 1975.
Table 2 - Traffic Behavior By Quarter
IN MILLIONS OF REVENUE PASSENGER MILES
1976 1975 1974
Total Net Total Net Total
RPMs Change RPMs Change RPMs
First Quarter 224 + 37 187 - 9 196
Second Quarter 253 + 42 211 - 9 220
Thi rd Quarter 257 + 33 224 + 4 220
Fourth Quarter 245 + 14 231 + 35 196
979 + 126 853 + 21 832
With the traffic recovery in the second half of 1975
and further increases expected in 1976, three 100-
passenger DC9 (30 Series) aircraft were added to the
fleet; one each in October 1975, December 1975 and
August 1976. An additional 100-passenger DC9 (30
Series) aircraft was placed into service in June 1976
to replace a 75-passenger DC9 (10 Series) which was
returned to a lessor. This added capacity increased
available seat miles (all services) by 13.7 per cent
in 1976 following a 5.7 per cent increase in 1975.
In the second half of 1976, the rate of traffic
growth declined significantly. The third quarter rate of
increase declined to 15 per cent and the fourth quarter
produced only a 6 per cent gain over the preceding
1975 quarter.
The decrease in traffic growth in the latter half
of 1976 can be attributed both to an overall slowing of
the rate of growth in air transportation throughout the
country and to increased activity by other carriers in
the Southeast. Further, in each of the two previous
years a major competitor experienced a strike during
the fourth quarter.
Source of Passenger Revenue Dollar
FOR THE YEAR 1976
Business
Pleasure/
Vacation
Personal
Business/ Pleasure
Combined
Other
Distribution of Total Expense Dollar
FOR THE YEAR 1976
Wages. Salaries.
Employee Benefits
Fuel, 011
Deprec1at1on . Amortization.
Aircraft Leases
Aircraft Maintenance.
Material. Supplies. Services
Landing Fees. Rentals
Passenger Service
All Other
7
Management's Discussion of 1976 and 1975
Summary of Operations (continued)
Public Service Revenue
DOLLARS PER PASSENGER
4.00
3.00 ~
2.00
1.00
0
1972 1973 1974
Common Stockholders' Equity
DOLLARS PER COMMON SHARE
8.00
6.00
4.00
2.00
8
0
1972 1973 1974
1975 1976
1975 1976
Improved yields, i.e., revenue per passenger mile,
also contributed to improvements in passenger
revenues. Yield increased from 10.4 cents in 1974 to
11 .2 cents in 1975 and to 11 . 7 cents in 1976, increases
of 7.7 per cent and 4.5 per cent, respectively. These
improvements reflected certain fare increases during
the period, the elimination of certain discount fares,
and an adjustment increasing short-haul fares
resulting from the completion of an investigation of
domestic passenger fares by the Civil Aeronautics
Board. The latter adjustment became effective in
April 1975.
Public service revenues, or government payments
to the Company to provide service to certain small
communities, were reduced by $238,000 in 1976,
following a $844,000 reduction in 1975. In 1976 the
decline resulted from reduced losses in subsidized
service and the removal of certain larger cities from
subsidy eligibility. The 1975 reduction was due
principally to the discontinuance of service to four
cities late in 197 4 and to a fifth in 1975.
Operating Expenses
Operating expenses increased by $23,132,000 in
1976, following a $13,074,000 increase in 1975,
exclusive of the fuel price settlement and landing fee
rebate totaling $2,669,000. Of these amounts,
increases of $3,117,000 and $4,119,000 in 1976 and
1975, respectively, are attributable to increases in the
unit price of fuel. Increased fuel consumption as a
result of increases in the number of aircraft flown on
the system resulted in further cost increases of
$1 ,777,000 in 1976and $419,000 in 1975.
On a unit cost basis, operating expenses per
available seat mile increased to 6.35 cents in 1976, up
from 6.01 cents in 1975 (before reduction for the fuel
price settlement and landing fee rebate) and 5.64
cents in 1974. The influence of fuel on these unit cost
increases is demonstrated byTable 3, Unit
Cost Analysis.
Table 3 - Unit Cost Analysis
PER AVAILABLE SEAT MILE (ASM)
1976 1975 1974
Cost % Cost % Cost
Per ASM Increase Per ASM Increase Per ASM
Operating
Expenses
Fuel 1.18 9.3% 1.08 16.1% .93
Fuel Price
Adjustment
and Land-
ing Fee
Rebate (.14)
Other
Operating
Expenses 5.17 4.9 4.93 4.7 4.71
Total
Operating
Expenses 6.35 8.2 5.87 4.1 5.64
Non-Operating
Charges and
Credits-Net .10 .18 .19
Total Cost 6.45 6.05 5.83
Labor costs, exclusive of pension expense,
increased by $8,578,000 in 1976 and by $3,817,000 in
1975, primarily as a result of increased salaries and
benefits. Labor costs also were affected by an increase
of 9 per cent in the average number of employees in
1976, following a 4 per cent decrease in the average
number of employees in 1975.
Pension expense increased $872,000 in 1976 to a
total of $3,251 ,000, after a $480,000 increase in 1975.
As a result, pension expense has climbed , from 4.4
per cent of total labor cost in 1974, to 5.0 per cent in
1975, and to 5.7 per cent in 1976. These increases
were caused principally by an increased number of
employees participating in the plans and by the cost
of benefit improvements. Also contributing to the
increases were contributions of $273,000 in 1976 and
$43,000 in 1975 for the Employee Stock Ownership
Plan (ESOP) adopted effective November 1, 1975.
Rental expense increased to $11,229,000 in 1976,
$1 ,628,000 above the 1975 level. Rental expense in
1975 increased $1 ,669,000 over 1974. Of these
amounts, aircraft rentals increased by $570,000 in
1976, following a $942,000 increase in 1975. These
increases were brought about by the short-term lease
of an aircraft from late 1974 through June 1976, and by
the two aircraft acquired in 1975, both of which were
leased under long-term agreements. The remaining
increases, $1 ,063,000 in 1976 and $728,000 in 1975,
related to property other than aircraft, principally
terminal rentals. In addition to a continual program
to modernize and expand these other lf ased
properties, as required, the Company also is subject
to periodic rental increases when leases are renewed
or renegotiated , due principally to the inflationary rise
in the cost of lessor-provided maintenance and
operations. The rentals were further increased by the
commencement of rentals on the new Atlanta training
facility, effective October 1, 1975, and maintenance
base, effective October 1, 1976.
Depreciation and amortization expense was
$5,381 ,000 in 1976 and $4,634,000 in 1975. The
increase in 1976 of$ 747,000 was due primarily to
depreciation on the two aircraft acquired in 1976, both
of which were purchased . This followed an increase
of $237,000 in 1975 which resulted from the effect
(approximately $330,000) of certain adjustments to
the I ives of DC9 ratable parts.
Advertising costs were increased by $794,000 in
1976 as a resu It of the need to promote new services
and to initiate several new sales programs. This
followed a decline in advertising costs in 1975 of
$271 ,000 a result of the cost reduction program in
effect during the first half of that year.
Increases in other operating costs, such as outside
goods and services, commissions, etc, are generally
reflective of the expanded operating levels and
inflationary pressures.
9
Review of Operations
10
Southern 's growth and facilities modernization
program continued forward in 1976. An additional 238
million available seat miles were offered in scheduled
service along existing routes, made possible by the
acquisition in late 1975 and early 1976 of three
additional DC9-30 aircraft. A new Maintenance Base
was completed and occupied, a newTraining Center,
completed in late 1975, achieved a high degree of
utilization, and a new Reservations Center and
General Offices building is well underway.
Among the 63 certificated cities on Southern 's
system, 56 now are served with jet flights, producing
96.6 per cent of total revenue passenger miles. Each
day in 1976 some 9,000 passenger-customers traveled
an average 302-mile flight. On these same flights,
some 23,000 ton miles of cargo and mail also were
transported.
In support of this level of service, reservations
agents answered an average total of 12,500 telephone
calls each day. Calls from throughout the United States
are answered in the Consolidated Reservations
Center in Atlanta.
Southern uses a highly efficient reservations
computer which contains schedules of more than 25
airlines, with Southern 's schedules correspondingly
logged in those carriers' reservations systems.
Each day, connections are made with every
scheduled airline in the continental United States, as
well as with foreign carriers at major gateways in the
eastern-half of the country.
New Route Applications and Awards
Southern continues to press for profitable new
markets through new route applications before the
Civil Aeronautics Board. These are outlined inside the
front cover of this Report. Both business-oriented and
pleasure-oriented market routes are being sought.
In mid-1976, permanent authority was received as
the United States Flag Carrier to the Cayman Islands
in the British West Indies. Some two years earlier,
temporary operating authority had been granted by
the Board, until hearings could be completed and a
final decision made. Since service to the Cayman
Islands began, an outstanding quality of service has
been provided between Miami, Florida, and Grand
Cayman, the largest of the three-island chain . Daily,
round trip flights have been offered, as well as many
charter flights.
The experience gained in promoting and operating
Cayman Islands service has led to interests elsewhere
south of the United States. Three vacation destinations
in Mexico - Merida, Cozumel, and Punta Cancun -
Reservations agents answer 12,500 calls daily, while Southern
serves some 9,000 passengers during that time. Comfortable
facilities for improved passenger service are being developed
throughout Southern's system. New passenger boarding areas and
modern ticket counters depict Southern's commitment to the
public. In Atlanta, a new Reservations Center and General Offices
building is underway to provide better support services.
11
Review of Operations (continued)
12
Southern's new Maintenance Base and Traimng Center in Atlanta
now are operative. Nearby, the Reservations Center and General
Offices structure will be occupied late in 1977. Throughout its
system, Southern is modernizing facilities and developing
outstand,ng personnel.
Sou
were applied for in 1976. Southern proposes to serve
these developing resort areas from New Orleans,
Louisiana.
In the meantime, charter activities into the
Bahamas, to the Caribbean, and into Mexico have
been increased, further evidencing ability to promote
and serve primarily vacation areas.
Business-related travel , however, always has been
the Company's principal revenue source, amounting
to almost 60 per cent of 1976 passenger revenues.
Accordingly, Southern has been pursuing new routes
supported by the business traveler. The success in
developing service between Memphis and Chicago,
Memphis and St. Louis, and Nashville and Detroit is
expected to favorably influence new route
authorizations now pending. In addition to expansion
in mid-America and into the Midwest, Southern is
seeking Sun Belt growth that would add service to the
Georgia coast and an extensive pattern of service
between and among points in Florida, as well as
non-stop service to and from Atlanta.
Service to Smaller Communities
Southern also is developing a program to ensure
continued service to small and intermediate cities on
its 14-state domestic route network. Although few such
cities are more than one hour by surface from a major
or regional airport, these cities continue to need local
air service, both for passengers and for cargo. Service
to these points has been provided by Southern's
piston aircraft, as few of the smaller points have traffic
volume sufficient to support jet service or have jet-
capable airports. While there has been a lack of
passenger growth, and in some areas an actual
passenger decline, a need does exist for a frequent
pattern of service to ensure community growth.
Recognizing this, a program has been developed
to offer a viable level of air service, utilizing an aircraft
capable of meeting these needs. In March 1977,
Southern entered into an agreement to purchase
seven new, 19-passenger Metro 11 turboprop aircraft
from Swearingen Aviation Corporation. These aircraft
cruise at speeds of almost 300 miles per hour. They
will replace Southern's piston aircraft which will be
phased out by the end of 1977. On the short flights,
where the new aircraft will be used, travel time is
comparable with that of jet aircraft. Southern will
implement th is revitalized short-haul service during
13
Review of Operations (contmued)
14
Southern 's customers are served by friendly, competent men
and women
the third quarter of this year, with delivery of the
Metro I ls beginning in June. This new aircraft program
also is expected to save 2,200,000 gallons of
fuel annually.
Other Sources of Revenue
Already a major factor in charter sales among
scheduled airlines, additional revenue opportunities
are anticipated as a result of liberalized charter
regulations adopted in 1976 by the Civil Aeronautics
Board. Both domestic and foreign destinations are
expected to attract additional tourists who will benefit
from low-cost package tours.
In addition to passenger revenue generated by
Southern's jet aircraft, 600 cubic feet of space is
available in the cargo compartments beneath . Three
services are offered: Air Express, for items that must
go on a designated flight; Air Freight, when a specific
flight is not required ; and Swift, a guaranteed-delivery
small parcel service that moves packages weighing
less than 50 pounds between ticket counters and
freight terminals. Sales efforts have been expanded
to develop this important additional revenue. Cargo
handling equipment has been installed at major freight
hubs, increasing single-item shipment weight capacity
to 500 pounds.
Facility Improvements
Southern has occupied a new maintenance facility
at Hartsfield Atlanta International Airport. Construction
at the 50-acre site was completed in September 1976,
with more than eight acres of hangar, departmental
workshops and support offices under one roof. The
hangar area is sufficient to simultaneously house four
jet aircraft. Adjoining the main building is a jet engine
test cell and allied equipment. Nearby is a modern
waste treatment plant that eliminates any undesirable
impact on the environment.
Built to Southern 's specifications, the maintenance
facility is owned by the City of Atlanta, Georgia, funded
with airport revenue bonds, and leased to Southern
for 30 years with a renewal option.
Prior to this move, the maintenance facility had been
outgrown as a result of jet fleet expansion. In the new
facility, virtually every support function necessary to
operate a fleet of modern DC9 aircraft will be
performed. No longer will it be necessary for the
Company to contract jet engine overhaul to outside
sources.
A collateral benefit of the new facility is the
capability of providing contract maintenance support
to other airlines and government agencies. Currently
underway is a program to offer these services to
airlines throughout the world . Because of the ability
to move jet aircraft quickly between continents, the
efficient facility and the technical experience of
Southern's personnel, contract work can be scheduled
to mesh with the predetermined maintenance that
supports Southern 's own fleet.
Southern long has provided contract maintenance
for government and corporate aircraft. This experience,
backed by one of the most modern and technically
efficient maintenance and overhaul centers, will make
possible a greatly expanded external support program.
Further Facilities Expansion
A new Reservations Center and General Offices
building will be ready for occupancy in November.
Built on a site adjoining the Maintenance Base, this
complex will bring all Atlanta headquarters operations
into one area. Previously, portions of seven buildings
at various locations on or near Hartsfield Atlanta
International Airport were being used.
The new building will be leased from a private owner
for 30 years with renewal options. The increased
efficiency from consolidated operations and favorable
rental rate, compared with present rental rates, were
decisive factors in this move.
A collateral benefit of the move is the consolidation
of people and functions, permitting employees to
share greater knowledge of each corporate
department.
Personnel Development
Southern takes pride in the competence and high
morale of its employees. Contributing to an excellent
employee attitude are good working conditions,
salaries in line with industry standards, excellent fringe
benefits, a practice of promoting from within the
Company when possible, and constant communication
between employees and management.
Salaries and benefit costs represent 40.7 per cent
of total expenses. As a service-oriented organization,
this represents the highest operating expense
category.
Furthering Company expansion and individual
employee growth are new training programs. This
ensures an adequate supply of qualified people to
support growth. More importantly, it provides
employees an opportunity to progress in the Company,
in turn , increasing their capabilities and reducing
turnover.
Understanding Company goals and the
opportunities available to both the Company and its
Innovation extends to both training methods and promotional
programs. Southern's customers constantly are reminded of the
value of travel agents' free service
15
Review of Operations (continued)
16
Sophisticated ma,ntenance checks determine when Southern s
skilled mechanics put their experience to work.
employees is an important element in Southern 's
internal communications effort. Ongoing programs
continue to emphasize to all personnel the necessity
to earn an adequate return on investment. The
employee newspaper explained this in many editions,
and a filmed presentation explained and emphasized
the importance of profitability and methods to be
used in achieving it.
Training
Further enhancing the value of our employees is the
support training offered in the new Training Center.
Becoming operative late in 1975, the center was fully
functional in 1976. It provides pilots with the most
advanced DC9 simulator training available, as well as
innovative methods for training ground personnel.
Use of the DC9 simulator permits maximum
utilization of all aircraft for revenue flying and
eliminates the expense of leasing simulator time from
other airlines. Training schedules now may be more
efficient, reducing transportation time and related
expenses.
When Southern pilots are not operating the
simulator, its 24-hour daily capacity permits contract
use by other airlines and government agencies,
making a contribution to profit. Currently, two airlines,
two government agencies and a major aircraft
manufacturer lease simulator time.
Flight attendants receive their initial five-week
training in the center, then return for semi-annual
training. New station employees receive introductory
training here, before station assignments where skills
are developed on the job. Classrooms in the facility
often are occupied by office personnel receiving
special training , or members of Southern 's field sales
staff learning new techniques to develop additional
revenue sources.
Southern has entered into a continuing effort to
improve service to its customers. The Training Center
is making a significant contribution toward this goal.
Fuel Situation
Although 1976 and the first quarter of 1977 have not
seen significant fuel price increases like those incurred
in the 1973-1975 period, fuel costs continue to
increase at an irregular rate. In the 36-month period
through December 1976, jet fuel prices increased from
an average of 13.9 cents per gallon in December 1973,
to 32.1 cents in December 1976. At 1976 consumption
levels, this equates to an annual increase of more than
$14,900,000. At February 28, 1977, the average cost
for jet fuel was 34.1 cents per gallon .
Elevating women to management and improving employee skills
aid Southern in retaining highly qualified people.
Southern s maintenance facility utilizes eight acres of under-roof
hangar and support area~
17
Review of Operations (continued) Southern has been diligent in minimizing fuel
usage and the increases cited would have had an even
greater adverse effect had it not been for fuel
economy programs that were implemented with
substantial positive results.
Southern pilots, utilizing improved flying techniques
including reduced air speeds, changing some taxiing
times, and modifications in refueling schedules,
reduced hourly DC9 fuel burn from 944 gallons per
hour to 873 gallons. This represents a savings of 71
gallons per hour and a monetary savings of more than
$2 million per year.
Fuel economy programs also extend to ground
equipment. Vehicles are being operated only when
necessary, are shut off at all stops, and are maintained
mechanically to ensure optimum mileage.
Fuel availability was not a problem through the end
of 1976, but the first months of 1977 have seen some
shortages. This has required some change in fueling
points, but no flight schedules have required
- adjustment.
18
Jet engines now are overhauled and tested in house, part of
Southern 's self-supporting aircraft maintenance program.
Additional price increase notifications have been
received from major suppliers and the Company's
plans for 1977 take into account anticipated jet fuel
price increases.
Present and Future
Southern continues to progress as a reliable and
growing transportation company. Changing is the
image that the Company is a small airline serving only
the heartland of the Southeastern United States.
Instead, the airline has won recognition in Chicago,
St. Louis, Detroit, New York and Washington as a
primary source of travel to and from the Southeast.
Between Orlando and Miami and between Orlando
and Fort Lauderdale, Southern serves more travelers
than any other airline.
Elsewhere, Southern continues to provide a high
level of service, always responsive to community
needs.
Passenger growth will result from continued
dedication to the public, both in frequency of service
and in quality of service.
Underway are new programs to further increase
frequency, to further upgrade quality, and to be
responsive as always to Southern's primary purpose:
" ... to provide the best in short-haul air
transportation throughout the Southeast and to
provide convenient long-haul service to and from
other parts of the country from our key gateway
cities:'
Statement of Income
SOUTHERN AIRWAYS, INC.
Year ended December 31, 1976 1975
Operating Revenues
Passenger $115,206,000 $ 95,666,000
Mail, express and freight 6,848,000 5,351,000
Public service revenue 5,723,000 5,961,000
Charter 8,803,000 8,208,000
Other 3,587,000 2,764,000
140,167,000 117,950,000
Operating Expenses- Note B
Flying operations 49,802,000 41 ,628,000
Maintenance 19,337,000 16,831,000
Aircraft and traffic servicing 32,804,000 26,782,000
Passenger service 8,598,000 7,490,000
Promotion and sales 12,246,000 9,012,000
General and administrative 7,633,000 6,053,000
Depreciation and amortization 5,381,000 4,634,000
Other 1,874,000 1,518,000
Fuel price adjustment (credit)- Note B (2,074,000)
137,675,000 111,874,000
Operating Income 2,492,000 6,076,000
Other Deductions and Income
Interest on long-term debt 2,468,000 2,918,000
Gain on disposal of property (91,000) (40,000)
Miscellaneous deductions (income)- net (423,000) (572,000)
1,954,000 2,306,000
Income Before Income Taxes 538,000 3,770,000
Income taxes - Note D 133,000 1,028,000
Net Income $ 405,000 $ 2,742,000
Net Income per Common and Common Equivalent Share - Note I
Primary $ .22 $ 1.58
Fully diluted $ .22 $ 1.14
See Notes to Financial Statements.
19
Balance Sheet
SOUTHERN AIRWAYS, INC.
Assets
Current Assets
Cash, including short-term investments of $3,200,000
in 1976 and $7,599,000 in 1975 - Note C
Accounts receivable
U.S. Government-transportation and public service revenue
Trade receivables, less allowance for doubtful
accounts (1976-$162,000; 1975-$127,000)
Maintenance and operating supplies, at average cost less allowance
for obsolescence (1976- $1,717,000; 1975- $1,498,000)- Note A
Prepaid expenses
Total Current Assets
Property and Equipment - on the basis of cost-
Notes A and C
Flight equipment
Other property and equipment
Less allowances for depreciation and maintenance
Deferred Charges and Other Assets
Deferred charges - Note A
Other assets
See Notes to Financial Statements.
20
December 31 ,
1976 1975
$ 8,131,000
1,703,000
11,492,000
13,195,000
6,006,000
974,000
28,306,000
58,812,000
7,865,000
66,677,000
26,026,000
40,651,000
949,000
252,000
1,201,000
$70,158,000
$11 ,918,000
2,135,000
9,709,000
11 ,844,000
5,645,000
917,000
30,324,000
51 ,349,000
6,204,000
57,553,000
22,735,000
34,818,000
1,230,000
241 ,000
1,471 ,000
$66,613,000
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable
Collections and withholdings as agent
Salaries, wages and vacations
Accrued interest payable
Accrued income taxes
Accrued taxes and other expense ~
Air traffic liability
Current maturities of long-term debt - Note C
Total Current Liabilities
Long-Term Debt, less current maturities - Note C
Notes payable and other
Convertible subordinated debentures
Deferred Credits and Other Liabilities
Deferred income taxes
Other
Stockholders' Equity- Notes C and E
Preferred Stock, authorized 2,000,000 shares,
issuable in series:
Series A, $.36 Convertible, $1 par value, voting
(liquidation value $6 per share plus cumulative
dividends - aggregate of $1 ,042,000)
issued and outstanding-163,781 shares
Common Stock, $2 par value, authorized 7,500,000
shares, issued and outstanding 1,580,880 shares
Other paid-in capital
Retained earnings
Leases, Commitments and Contingencies - Notes G and H
December 31,
1976 1975
$ 6,264,000 $ 5,644,000
1,387,000 1,206,000
3,914,000 3,222,000
567,000 713,000
109,000 1,093,000
2,258,000 837,000
7,9~6,000 r 7 535,000
2,952,000 4,116,000
25,447,000 24,366,000
21,545,000 19,006,000
9,307,000 9,743,000
30,852,000 28,749,000
391,000 496,000
222,000 102,000
613,000 598,000
164,000 164,000
3,162,000 3,162,000
5,124,000 5,124,000
4,796,000 4,450,000
13,246,000 12,900,000
$70,158,000 $66,613,000
21
Statement of Changes in Financial Position
SOUTHERN AIRWAYS, INC.
Year ended December 31,
Funds Provided
From operations
Net income
Items not requiring outlay of working capital in current period :
Depreciation
Allowance for maintenance (deduction)
Amortization of deferred charges
Deferred credits and other liabilities
Total from operations
Issuance of long-term debt
Property and equipment sold, less gain included in operations
Recovery of hijacking payment less deferred subsidy- Note B
Reclassification of equipment to inventory
Funds Used
Additions to property and equipment
Utilization of DC9 engine maintenance reserve
Reduction of long-term debt
Dividends on preferred stock
Other
Increase (Decrease) in Working Capital
Working capital at beginning of year
Working Capital at End of Year
Increase (Decrease) in Working Capital by Component
Cash and short-term investments
Accounts receivable
Maintenance and operating supplies
Prepaid expenses
Accounts payable
Collections and withholdings as agent
Salaries, wages and vacations
Accrued interest, taxes and other expenses
Air traffic liability
Current maturities of long-term debt
Increase (Decrease) in Working Capital
See Notes to Financial Statements.
22
Lt
1976 1975
$ 405,000 $2,742,000
4,878,000 4,177,000
(82,000) {2,000)
396,000 388,000
15,000 304,000
5,612,000 7,609,000
8,918,000
88,000 84,000
1,400,000
533,000
14,618,000 9,626,000
10,517,000 2,331 ,000
200,000 665,000
6,815,000 4,116,000
59,000 119,000
126,000 31 ,000
17,717,000 7,262,000
(3,099,000) 2,364,000
5,958,000 3,594,000
$ 2,859,000 $5,958,000
$(3,787,000) $ 23,000
1,351,000 1,870,000
361,000 1,068,000
57,000 149,000
(620,000) 1,626,000
(181,000) (162,000)
(692,000) (59,000)
(291,000) -- (850,000)
{461,000) (1,021 ,000)
1,164,000 (280,000)
$(3,099,000) $2,364,000
Statement of Stockholders' Equity
SOUTHERN AIRWAYS, INC.
Preferred Stock Common Other
$1 Par Value Stock Paid-In Retained
Years Ended December 31, 1976 and 1975
Balance, January 1, 1975
Net income
Dividends on preferred stock
($.36 per share)
Common stock issued upon conversion
of preferred stock
Balance, December 31 , 1975
Net income
Dividends on preferred stock
($.36 per share)
Balance, December 31 , 1976
See Notes to Financial Statements.
Notes to Financial Statements
SOUTHERN AIRWAYS, INC.
December 31 , 1976
Note A- Summary of Significant Accounting Policies
Property, Equipment, Depreciation and Obsolescence
Provisions for depreciation of property and
equipment are computed on the straight-line method
calculated to amortize the cost of the properties over
their estimated useful lives. For DC9 flight equipment
the life is 15 years (new equipment) and 10 years (used
equipment and ratable parts), with a 10 per cent
salvage value; for ground equipment, the life ranges
from three to 10 years.
The Company is engaged in a program of
permanently reducing the use of Martin 404 flight
equipment. At December 31 , 1976, the Company's
investment in Martin 404 flight equipment is fully
depreciated except for $394,000 related primarily to
engine overhauls, which will be charged to operations
based on hours flown .
Series A $2 Par Value Capital Earnings
$165,000 $3,160,000 $5,125,000 $1 ,827,000
2,742,000
(119,000)
(1,000) 2,000 (1,000)
164,000 3,162,000 5,124,000 4,450,000
405,000
(59,000)
$164,000 $3,162,000 $5,124,000 $4,796,000
At the time properties are retired , the amounts
of costs and allowances for depreciation and
maintenance are eliminated from the accounts. Profits
and losses on disposals of DC9 flight equipment
(exclusive of ratable parts) are credited or charged to
operations. Proceeds from the disposal of DC9 ratable
parts are credited to the allowance for depreciation
account. Proceeds from the disposal of Martin 404
flight equipment and ratable parts are included
in income.
Expenditures for ordinary maintenance and repairs
are charged to expense. Expenditures for major spare
parts are capitalized and minor parts are recorded in
inventory accounts and charged to expense as used.
A provision for obsolescence of the investment
in minor spare parts inventory for DC9 aircraft is made
at an annual rate of 4 per cent.
23
Notes to Financial Statements (continued)
Deferred Charges
Expenditures for preoperating and route extension
and development costs are deferred and are amortized
over a period of five years from the dates operations
of the routes are started. Costs associated with
obtaining leased DC9 aircraft are being amortized over
the I ives of the leases. Deferred charges associated
with long-term debt are being amortized over the
period of the financing arrangements.
Income Taxes
Income taxes are provided at current tax rates for
all items included in the statement of operations
regardless of the years when such items are reported
for tax purposes.
The Company uses the flow-through method of
accounting for investment tax credit, and available
investment tax credit is recognized to the extent it
can be realized or offset against income taxes
currently payable or deferred.
Pension Plans
The Company has several pension plans covering
substantially all of its employees. There are no
unfunded past service costs. The Company's policy is
to fund pension costs accrued. At December 31 , 1976,
the assets of the pension fund exceeded the
actuarially computed value of vested benefits.
Employee Stock Ownership Plan
The Company has an Employee Stock Ownership
Plan (ESOP) for certain of its employees. The Plan was
established effective November 1, 1975. The
Company's contributions to the plan are determined
annually at rates related to the base compensation of
active participants. It is the Company's policy to fund
contributions accrued.
Public Service Revenue
The Company receives public service revenue
from the Civil Aeronautics Board (CAB) for providing
service to small and intermediate-size cities on its
routes. Amounts received and recognized as revenues
are those paid for the period based on the formula
then in effect.
Note B - Certain Significant Transactions and
Changes Affecting Operating Results
In January 1976, pursuant to an offer tendered in
December 1975, the Company purchased $871,400
24
principal amount of 5-3/4% Convertible Subordinated
Debentures at a price of $750 for each $1,000
debenture plus certain brokerage and other related
expenses. A gain of $200,000 ($145,000 after income
taxes -9 cents per share) resulted from the
repurchase. These debentures were used to satisfy
sinking fund payments due December 1, 1976
and 1977.
In early 1974, a fuel supplier notified the Company
that its contract with the Company was withdrawn and
future fuel deliveries would only be made on a spot
price basis. Subsequently, the Company filed an action
in the Federal District Court seeking a declaration that
the supplier must specifically perform under the terms
of the contract, which expired May 31 , 1975. In
January 1976, the Company negotiated a final
settlement of the amount due to the supplier under
this contract. The amount provided in 1974 as due to
the supplier exceeded the final settlement by
$2,074,000 and such amount has been included
separately in the'statement of income for 1975 as a
reduction of operating expenses. This final settlement
had the effect of increasing net income by
approximately $1,500,000 (85 cents per share).
In 1975, the City of Atlantareimbursed airlines
using Hartsfield Atlanta International Airport for
certain amounts which the airlines had advanced
toward airport expansion through higher landing fees
since 1967. These funds were made available to the
City under the Federal Airport Development Aid
Program. This reimbursement of $686,000 (which
includes interest of $91,000) has been included as a
reduction of expenses and in interest income for 1975
and had the effect of increasing net income
approximately $499,000 (28 cents per share).
In 1973, the CAB implemented a subsidy formula
which recognized the $2 million ransom payment
retained by the Republic of Cuba following a 1972
hijacking. This formula resulted in increased subsidy
revenue; however, the Company was required to
return to the CAB a proportionate amount of the
increased subsidy revenue when the ransom was
returned. Following receipt of approximately
$2 million from the Cuban Government in 1975,
representing payment in full return of the ransom
funds, the Company refunded to the CAB
approximately $490,000 of the $600,000 which had
been deferred at December 31, 1974. General and
administrative expenses were reduced by
approximately $110,000 for the final subsidy
settlement related to the hijacking payment. The
settlement resulted in an increase in net income for
1975 of approximately $80,000 (five cents per share).
Note C - Long-Term Debt
At December 31, 1976 1975
Notes payable to banks under
a Credit Agreement dated
February 20, 1973 and
amended February 2, 1976
"A" Term Loans, payable
quarterly through 1982 $13,183,000 $15,403,000
"B" Revolving Loans,
payable in 1978
and 1979 4,400,000 7,284,000
"C" Term Loans, payable
quarterly through 1984 6,754,000
Other 160,000
Convertible Subordinated
Debentures
5-3/ 4% due December 1,
1981 3,474,000 4,345,000
6-1/ 2% due November 1,
1983 5,833,000 5,833,000
33,804,000 32,865,000
Less current maturities 2,952,000 4,116,000
$30,852,000 $28,749,000
The Credit Agreement loans bear interest at the
lead bank's prime rate (six per cent at December 31,
1976) plus one per cent ("A" and "C" Term Loans) and
two per cent ('' B" Revolving Loan) and are payable in
quarterly installments. Substantially all of the
Company's assets are pledged as collateral under the
terms of the Credit Agreement. Additionally, the "A"
and "C" Term Loans are 90 per cent guaranteed by
the Federal Aviation Administration.
On February 2, 1976, the " B" Loan was converted
from a term loan to a revolving credit loan under which
the Company may borrow, repay and reborrow
through 1978, subject to quarterly reductions in the
amount of funds available. The unused " B" Loan
Commitment at December 31, 1976, was $1,424,000.
In connection with the Credit Agreement, the
Company maintains average compensating balances,
based on bank ledger balances adjusted for treasury
tax contributions and uncollected funds, equal to the
sum of 15 per ce-nt of the average daily balance of the
"A" and " B" Loans outstanding, 15 per cent of the
unused portion of the " B" Loan Commitment, and
20 per cent of the average daily balance of the "C"
Loan outstanding. Based upon outstanding borrowings
at December 31 , 1976, the Company should maintain
average compensating balances of approximately
$4,483,000, which stated in terms of the Company's
book cash balances is approximately $2,409,000. The
difference is attributable to average uncollected funds
and float. During 1976, the Company maintained
average compensating balances of approximately
$4,660,000. Compensating balances are not restricted
as to withdrawals, serve in some instances as
compensation to the participating banks for their
account handling function and other services, and
additionally serve as part of the Company's minimum
operating cash balances.
The 5-3/4% Convertible Subordinated Debentures
due December 1, 1981 , are convertible (until maturity
or prior redemption) into common stock at $10.86 per
share; are subordinated, generally, to all existing and
future indebtedness for borrowed money; are callable
at premiums currently ranging from 1. 75 per cent
downward; and require annual sinking fund payments
on December 1 of each year in an amount equal to
$435,000. In January 1976, pursuant to an offer
tendered in December 1975, the Company purchased
$871,400 principal amount of the 5-3/4% Convertible
Subordinated Debentures at a price of $750 for each
$1,000 debenture, plus certain brokerage and other
related expenses. These debentures were used to
make the sinking fund payments due December 1,
1976, and December 1, 1977. Also, the Company may
make additional voluntary prepayments equal
to the required amounts.
The 6-1 /2% Convertible Subordinated Debentures
due November 1, 1983, are convertible (until maturity
or prior redemption) into common stock at $10 per
share; are subordinated, generally, to all existing and
future indebtedness for borrowed money, are callable
at premiums ranging from four per cent downward;
and require annual sinking fund payments beginning
November 1, 1978, in an amount equal to 1 0 per cent
of the principal amount outstanding at November 1,
1977, less credit for principal amount converted or
cal led subsequent to November 1, 1977. Also, the
Company may make additional voluntary prepayments
equal to the required amounts.
The terms of the Credit Agreement and both issues
of convertible s.ubordinated debentures place certain
requirements and restrictions upon, among other
things, (a) working capital , (b) indebtedness and lease
obligati,ons, (c) capital expenditures, (d) net worth and
(e) payments relating to capital stock, including
25
Notes to Financial Statements (continued)
dividends. Retained earnings available for the
payment of dividends at December 31, 1976, under
the most restrictive requirement, amounted to
approximately $1,885,000.
Credit Agreement Loans
Year "A" "B"
1977 $ 2,220,000 $
1978 2,220,000 1,276,000
1979 2,220,000 3,124,000
1980 2,220,000
1981 2,220,000
$
A summary of minimum principal payments under
the Credit Agreement loans, other indebtedness and
both issues of convertible subordinated debentures
is as follows:
Convertible
Subordinated
"C" Other Debentures Total
724,000 $ 8,000 $ $ 2,952,000
965,000 9,000 1,015,000 5,485,000
965,000 11,000 1,018,000 7,338,000
965,000 13,000 1,018,000 4,216,000
965,000 16,000 2,756,000 5,957,000
Thereafter 2,083,000 2,170,000 103,000 3,500,000 7,856,000
$13,183,000 $4,400,000 $6,754,000 $160,000 $9,307,000 $33,804,000
A reduction in the "B'' Loan Commitment is required
equal to 25 per cent of net income in excess of $1 ,500,000
plus 50 per cent of net income in excess of $3,000,000
earned in any fiscal year. The above summary of minimum
Note D - Income Taxes
Income taxes are as follows:
1976 1975
Current:
Federal $361,000 $1 ,309,000
State 42,000 155,000
Investment tax credit (193,000) (638,000)
210,000 826,000
Deferred:
Federal (122,000) 396,000
State (15,000) 33,000
Investment tax credit 60,000 (227,000)
(77,000) 202,000
$133,000 $1,028,000
Deferred income taxes resulted from timing
differences in the recognition of revenue and expense
for tax and financial reporting purposes. The sources
of these differences and the tax effect.of each were
as follows:
1976 1975
Accelerated depreciation for tax
purposes $ 25,000 $ 791 ,000
Provision for inventory
obsolescence for financial
reporting purposes in excess of
amount allowed for tax purposes (51,000) (111 ,000)
Provision for maintenance (39,000) (166,000)
Deferred compensation (61,000) (43,000)
Other (11,000) (42,000)
Investment tax credit 60,000 (227,000)
$ (77,000) $ 202,000
26
principal payments does not reflect the possible effect of
any prepayment which may result from the reduction in
the commitment.
The sum of current and deferred Federal income
taxes in each year before applicable investment tax
credits equals approximately 48 per cent (the statutory
Federal tax rate) of income before taxes after
deducting the state tax provision shown above.
Investment tax credit carryovers, which may be
used to offset Federal income taxes payable in future
income tax returns, aggregate approximately
$927,000 and expire in 1978 ($26,000), 1979
($44,000), 1980 ($257,000), 1981 ($126,000), 1982
($193,000), and 1983 ($281 ,000). Approximately
$417,000 of this amount has been utilized as a
reduction of deferred taxes for financial reporting
purposes.
Note E - Capital Stock and Options
The Series A Preferred Stock is convertible into
common stock on a share for share basis, can be
redeemed at the Company's option after July 1, 1976,
at $6 per share plus accumulated dividends and is
entitled upon liquidation to receive $6 per share plus
accumulated dividends. The liquidation preference
for the 163,781 shares outstanding at December 31 ,
1976, including the dividend requirement described
below, aggregated $1 ,042,000 which is $878,000
more than the aggregate par value of such shares.
Each share of preferred stock is entitled to receive
annual dividends of 36 cents cumulative only to the
extent of annual net profits. Payment of dividends is
also subject to the limitations prescribed by the
Indenture Agreements covering the 5-3/4% and
6-1 /2% Convertible Subordinated Debentures and to
limitations contained in the Credit Agreement (See
Note C). The dividend requirement on preferred
shares at December 31 , 1976, aggregated $59,000
and was paid on February 28, 1977.
Authorized common shares include 1,560,163
shares and 1,674,403 shares reserved at December
31 , 1976 and 1975, respectively, for issuance
as follows:
1976 1975
For convertible securities
conversions:
5-3/ 4% Convertible Subordinated
Debentures (Note C)
6-1 / 2% Convertible Subordinated
Debentures (Note C)
Series A Convertible Preferred
Stock
For exercise of outstanding
warrants at $6 per share, issued
with Convertible Preferred Stock
For options under Qualified Stock
Option Plan ( 1976-11 ,000 shares;
1975-45,000 shares) and
Employee Stock Option Plan
(25,000 shares)
319,853
583,300
163,781
1,066,934
457,229
36,000
1,560,163
400,093
583,300
163,781
1,147,174
457,229
70,000
1,674,403
At December 31 , 1976, there were outstanding
options for 11 ,000 shares of common stock under the
Company's Qualified Stock Option Plan, of which
4,000 shares (at $5.81 per share) expire in 1978, 3,000
shares (at $3.50 per share) expire in 1979, and 4,000
shares (at $2.94 per share) expire in 1980. Option
transactions during the two years ended December
31 , 1976, are summarized as follows:
Number of Option Price
Shares Per Share Total
Outstanding
January 1, 1975 44,000 $3.50-$5.81 $229,000
Granted 4,000 2.94 12,000
Expired (3,000) 5.25- 5.81 (16,000)
Outstanding
December 31 ,
1975 45,000 2.94- 5.81 225,000
Expired (34,000) 5.25 (179,000)
Outstanding
December
31 , 1976 11 ,000 $2.94-$5.81 $ 46,000
The Qualified Stock Option Plan expired on October
26, 1975, except for options which were outstanding at
that date.
Options granted under the Plan are intended to
constitute "qualified stock options" as defined in
Section 424 (b) of the Internal Revenue Code of 1954,
as amended. Options are exercisable at not less than
100 per cent of the fair market value of the stock on
the date of grant, terminate not later than five years
after date of grant, and are not exercisable during the
first 24 months after date of grant. Each option is
exercisable with respect to one-third of the number of
shares at any time after 24 months following date of
grant, with respect to an additional one-third after 36
months, and with respect to the balance after 48
months. No options were exercised during the two
years ended December 31 , 1976. Options became
exercisable as follows:
1976 1975
Number of Shares
Option Price:
Per Share
Total
2,333
$3.50-$5.81
$ 11 ,000
12,667
$5.25 -$5.81
$ 67,000
Quoted Market Price at Date
Exercisable:
Per Share
Total
$5.00-$5.50
$ 12,000
$2.875-$3.25
$ 37,000
Options for 3,667 shares (aggregating $19,000 at
option prices) arid 35,333 shares (aggregating
$186,000 at option prices) were exercisable at
December 31 , 1976 and 1975, respectively.
A total of 25,000 shares of common stock are
reserved for issuance to participating employees
under an Employees' Stock Option Plan (an employee
stock purchase plan as defined by section 423(b) of
the Internal Revenue Code of 1954). This plan is
currently inactive and there are no participants.
The Company makes no charge to income with
respect to options.
Note F - Pension and Employee Stock Ownership
Plan
Pension expense was $3,251 ,000 in 1976 and
$2,379,000 in 1975, which includes $273,000 in 1976
and $43,000 in 1975 applicable to the Employee Stock
Ownership Plan adopted in 1975. During 1976, the
Company made certain changes in one of its plans to
provide increased benefits, which had the effect of
increasing pension costs by approximately $450,000.
The plans have been modified to comply with the
Employee Retirement Income Security Act of 1974
to the extent of existing regulations.
27
Notes to Financial Statements (continued)
Note G - Leases
Total rental expense for all leases amounted to:
Fi nancing leases (minimum
rentals):
1976 1975
Flight equipment
Other financing leases
$ 5,933,000 $4,991 ,000
Other leases:
Minimum rentals
Contingent rentals
3,299,000 2,132,000
1,636,000 1,912,000
431,000 639,000
$11,299,000 $9,674,000
Contingent rentals for 1976 and 1975 consist of
1977
1978
1979
1980
1981
1982-1986
1987-1991
1992-1996
Remainder
Flight
Equipment
$ 5,901 ,000
5,901 ,000
4,924,000
2,861 ,000
2,508,000
4,778,000
$26,873,000
Financing Leases
Maintenance
Center
$ 2,535,000
2,535,000
2,535,000
2,535,000
2,535,000
12,673,000
12,673,000
12,673,000
22,173,000
$72,867,000
The Maintenance Center lease extends to October 1,
2005, and may be renewed at the Company's option
for an additional term extending to January 1, 2024.
Most of the Company's other leases do not contain
formal renewal options. However, consistent with the
prevailing practice in the industry, leases with
relatively short terms are generally renegotiated and
charges of $331 ,000 and $437,000, respectively, for
reservation services based upon the number of
unduplicated passengers in excess of a specified
minimum of $120,000 per annum ; and $100,000 and
$202,000, respectively, for that portion of the rental
charges for a short-term leased aircraft which was
based on hours flown . Rentals received from
subleases are immaterial.
Future minimum rental commitments as of
December 31 , 1976, for all noncancelable leases
including the new Maintenance Center at the
Hartsfield Atlanta International Airport are as follows:
Other
Financing
Leases
$ 2,023,000
1,741 ,000
1,629,000
1,594,000
1,587,000
6,816,000
5,245,000
1,703,000
1,300,000
$23,638,000
Other
Leases
$ 744,000
544,000
450,000
345,000
160,000
541 ,000
356,000
30,000
16,000
$3,186,000
Total
$ 11 ,203,000
10,721 ,000
9,538,000
7,335,000
6,790,000
24,808,000
18,274,000
14,406,000
23,489,000
$126,564,000
extended at the conclusion of their terms and leases
with relatively long terms generally provide for
renegotiation of their provisions at specified intervals
throughout their term .
The estimated present values of the net fixed
minimum rental commitments for all non-capitalized
financing leases are:
Interest Rates Used
Weighted Average Range As of December 31 ,
1976 1975 1976 1975 1976 1975
Flight equipment 7.98% 7.91 % 5.3%- 9.2% 5.3%- 9.2% $21 ,941 ,000 $25,977,000
Computer and message switching
equipment 11 .39
Airport terminal facilities 5.35
Maintenance, training and other facilities* 7.62
Miscellaneous ground equipment 7.52
*Includes only land and phase one facilities for new
Maintenance Center in 1975.
28
14.01
5.50
7.22
6.12
7.5 -23.7
2.9 - 8.0
3.5 - 7.8
7.5
7.5 -23.7
2.9 - 7.5
3.5 - 7.5
5.1 - 6.8
1,539,000
8,924,000
30,351 ,000
94,000
622,000
7,264,000
9,754,000
9,000
The present values were computed after reducing
total rental commitments, where required, by
estimated or actual amounts applicable to lessors'
payments of taxes, insurance, maintenance, and other
operating expenses.
If all financing leases had been capitalized and it
was assumed that the estimated present values were
amortized on a straight-line method over the terms of
the leases and that interest expense was accrued on
the outstanding lease obligations at the rates shown
above, the increase in expenses would have been
as follows:
1976
Rent expense- net $(8,619,000)
Amortization of leased property 5,505,000
Interest expense 3,597,000
Income taxes (121,000)
1975
$(6,659,000)
4,586,000
2,394,000
(90,000)
$ 362,000 $ 231 ,000
To the extent that the increased expenses were not
offset by resultant increases in subsidy revenues and
related income taxes, which are indeterminable as
to specific amounts, net income would have been
decreased.
Landing fees were $3,094,000 in 1976; and
$1 ,950,000 in 1975, after reduction for the
reimbursement by the City of Atlanta of $595,000
(see Note B).
Note H -Other Commitments and Contingencies
In connection with the sale of two aircraft in 1973,
the Company agreed to indemnify the purchaser
against loss to the extent of $350,000 in the event the
third party to which the purchaser resold the aircraft
should default in payment to the purchaser.
The Company has an employment agreement with
its Chairman of the Board providing for his
employment to December 31, 1979, at an annual
salary of not less than $90,000. In addition, upon his
retirement, the Company has agreed to pay $4,000
per month to him for life, or not less than 180 months
to him and his lineal descendants in the event of his
death. Provision for the amount due under the
retirement agre~ment is being made over a five-year
period beginning in 1975.
The Company is the defendant in a number of law
suits. In the opinion of management there is adequate
insurance coverage for such of those suits as are
being defended by the Company's insurance carriers.
In the opinion of management, the other suits will
have no material effect on the financial statements
for 1976.
In August 1976, the Company entered into an
agreement to lease a new general office building
under a capitalizable lease obligation. This building
is being constructed to the Company's specifications
at an estimated total cost of $3,900,000.
In December 1976, the Company entered into an
agreement to lease a Reservation Call System under
a capitalizable lease obligation. This equipment will
be put into use in late 1977 at a cost of approximately
$900,000.
The Company, in order to comply with the Aviation
Noise Abatement Policy of the Department of
Transportation, is required to modify 50 per cent of its
DC9 aircraft by January 1, 1981 and have all these
aircraft modified by January 1, 1983. The estimated
cost to modify these aircraft is approximately $5.6
million. Legislation has been proposed to permit
financing of a portion of the cost of compliance with
this policy by air carriers from special ticket-tax
revenues presently allocated to airport development.
Note I - Earnings Per Share
Primary and fully diluted earnings per share for
1976 were computed by dividing net income, after
reduction for the preferred dividend requirement, by
the weighted average number of common shares
outstanding during the year-1 ,580,880 shares.
Common equivalent shares (described below) and
adjustments resulting from their assumed exercise
were excluded from the computation of primary
earnings per share for 1976 since their inclusion
would have increased earnings per share. Similarly,
the assumed conversion of convertible securities was
excluded from the computation of fully diluted
earnings per share for 1976 since the result of such
conversions would not have been dilutive.
Primary earnings per share for 1975 were computed
by dividing net income (adjusted as described below
and reduced by the preferred dividend requirement)
by the weighted average number of common shares
and common equivalent shares outstanding during the
year- 1,765,168 shares. Common equivalent shares
comprise that number of common shares issuable
upon exercise of stock options and warrants in excess
of 20 per cent of the number of common shares
outstanding at the end of the year. Proceeds from the
assumed exercise of the options and warrants in
excess of the amount which would have been required
29
Notes to Financial Statements (continued)
to purchase 20 per cent of the outstanding common
stock at the average market price during the year
were assumed to have been applied to debt reduction
and the related interest, net of income tax effect, was
added to income for purposes of the calculation.
Fully diluted earnings per share for 1975 were
determined on the assumption that the weighted
average number of common and common equivalent
shares were further increased from the beginning of
the year by conversion of outstanding convertible
debentures and convertible preferred stock- a total
of 2,912,407 shares. This calculation also assumes
no preferred dividend requirement, and interest, net
of income tax effect, related to the debentures
assumed converted, was added to income for
purposes of the calculation.
Note J - Supplementary Information
1976
Depreciation and Amortization:
Depreciation of property and
equipment $ 4,878,000
Amortization of deferred
charges
Provision for inventory
obsolescence
Deduct- amounts charged
to other expense accounts
Taxes, other than income taxes,
charged to operating
expenses:
Payrol I taxes
Fuel and oil taxes
Property taxes
Sales and use taxes
Other
Rents:
Rental expense under leases
396,000
233,000
5,507,000
126,000
$ 5,381,000
$ 2,352,000
881,000
782,000
431,000
175,000
$ 4,621,000
1975
$4,177,000
388,000
203,000
4,768,000
134,000
$4,634,000
$1 ,874,000
723,000
652,000
360,000
154,000
$3,763,000
(Note G) $11,299,000 $9,674,000
Portion of gross lease rentals
not charged to rent
expense in accordance
with CAB classifications
and miscellaneous rentals
- net (70,000) (73,000)
$11,229,000 $9,601,000
Advertising costs $ 1,712,000 $ 918,000
There were no royalties or research and development
costs.
Note K - Quarterly Results of Operations (unaudited)
The following is a tabulation of the quarterly results
of operations for the year ended December 31, 1976:
30
Three Months Ended
Mar. 31 Jun. 30 Sept. 30 Dec.31
(Thousands of dollars, except per share data)
Operating revenues
Operating expenses
Operating income (loss)
Net income (loss)
$32,045 $35,860 $36,087 $36,1 75
32,650 33,791 34,370 36,864
(605) 2,069 1,717 (689)
(649) 1,149 827 (922)
Net income (loss) per
common and common
equivalent share:
Primary
Fully diluted
(.42)
(.42)
.65
.45
.47
.33
(.59)
(.59)
Quarterly earnings per share do not total earnings
per share for the year because the computation of
earnings per share on a quarterly basis included
certain common stock equivalents which were not
included in the earnings per share computation on an
annual basis.
Note L- Replacement Cost of Property and
Equipment (unaudited)
The Company has estimated certain replacement
cost information for flight equipment and ground
property and equipment, and has elected to present
this information in its annual report to the Securities
and Exchange Commission on Form 10-K, a copy of
which is available upon request. Form 10-K contains
specific information with respect to the approximate
replacement cost of flight equipment and ground
property and equipment at December 31 , 1976, and
the approximate effect which replacement cost would
have had on depreciation expense for the year, as
compiled in accordance with the rules of the
Commission. Replacing items of property and
equipment with assets having an equivalent capacity
has generally required a greater capital investment
than was required to purchase the assets which are
being replaced due to the cumulative impact of
inflation.
Note M - Subsequent Event
On March 18, 1977 the Company signed a purchase
agreement with Swearingen Aviation Corporation for
the purchase of seven new Metro 11 aircraft and
related spare parts to be delivered from June 1977
through January 1978. These turboprop transports
have a capacity of 19 passengers and cruise at speeds
of approximately 300 miles per hour. The total cost of
these aircraft including related spare parts and
equipment is expected to approximate $7,750,000.
The purchase agreement is subject to the Company
obtaining the required financing. A deposit of
$175,000 was made in connection with the agreement
and is subject to forfeiture if the financing is not
obtained by May 15, 1977.
. REPORT OF ERNST & ERNST, Independent Auditors
Board of Directors
Southern Airways, Inc.
Atlanta, Georgia
We have examined the balance sheet of Southern Airways, Inc. as of December 31, 1976, and
December 31, 1975, and the related statements of income, stockholders' equity and changes in
financial position for the years then ended. Our examinations were 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 financial statements referred to above present fairly the financial
position of Southern Airways, Inc. at December 31, 1976, and December 31, 1975, and the
results of its operations and changes in its financial position for the years then ended in
conformity with generally accepted accounting principles applied on a consistent basis.
Atlanta, Georgia
January 31 , 1977, except
as to Note M as to which
the date is March 18, 1977
Notice to Stockholders of Southern Airways, Inc.
Any person who owns as of December 31 of any year, or
subsequently acquires ownership, either personally or as a
trustee, of more than five per cent (5%) in the aggregate of
any class of capital stock or capital of Southern Airways, Inc.
shall file with the Civil Aeronautics Board a report containing
the information required by Part 245.12 of the Board 's
Economic Regulations. This report must be filed on or
before April 1 of each year as to the capital stock or capital
owned as of December 31 of the preceding year; and in the
case of capital subsequently acquired, a report must be filed
within ten (10) days after such acquisition, unless such
person has otherwise filed with the Civil Aeronautics Board
a report covering such acquisition or ownership.
Any bank or broker covered by this provision, to the
extent that it holds shares as trustee on the last day of any
quarter of a calendar year, shall file with the Civil Aeronautics
Board within thirty (30) days after the end of the quarter, a
report in accordance with the provisions of Part 245.14 of
the Board's Economic Regulations.
Any person required to report pursuant to these
provisions who grants a security interest in more than five
per cent (5%) of any class of the capital stock or capital of an
air carrier, shall within thirty (30) days after granting such
security interest, file with the Civil Aeronautics Board a
report containing the information required in Part 245.15
of the Economic Regulations.
Any stockholder who believes that he may be required
to file such a report may obtain further information by writing
to the Director, Bureau of Operating Rights, Civil
Aeronautics Board, Washington, D.C. 20428.
Equal Opportunity Policy
It is the policy and practice of Southern Airways, Inc. to
recruit, hire and promote qualified applicants regardless of
their race, color, religion, sex, age, national origin, or
physical handicap.
To further this objective, the Company has established
procedures to insure that all personnel actions such as
compensation , benefits, transfers, layoffs, returns from
layoffs, Company sponsored training, education, tuition
assistance, social and recreational programs, and all
Company facilities are administered without regard to race,
color, religion, sex, age, national origin, or physical handicap.
31
Directors and Officers
Directors
CECIL A. BEASLEY, JR.
Assistant Secretary,
Southern Airways, Inc. and
Partner- Ballard, Beasley and Nelson
(Attorneys) Washington, D.C.
GEORGE M. GROSS
Executive Vice President and
General Manager,
Southern Airways, Inc.
GRAYDON HALL*
President,
Southern Airways, Inc.
F. BARTON HARVEY, JR.
Partner-Alex. Brown & Sons
(Investment Bankers)
Baltimore, Maryland
FRANK W. HULSE*
Chairman of the Board and
Chief Executive Officer
Southern Airways, Inc.
ALTON F. IRBY, JR.
Chairman of the Board
Fred S. James & Company of
Georgia, Inc. (Insurance Agents
and Counselors)
Atlanta, Georgia
HENRY P. JOHNSTONt
Radio and Television Consultant
Birmingham, Alabama
G. GUNBY JORDAN*
Chairman of the Board
The Jordan Company (Construction)
Columbus, Georgia
SARTAIN LANIER**
Chairman of the Board
Oxford Industries, Inc.
(Textile Manufacturer)
Atlanta, Georgia
32
A. L. MAXSON
Vice President- Finance
and Treasurer,
Southern Airways, Inc.
G. FRANK PURVIS, JW*
Chairman of the Board and Chief
Executive Officer - Pan American
Life Insurance Company
New Orleans, Louisiana
F. D. SCHASt
Retired Investment Counselor
Memphis, Tennessee
ELTON B. STEPHENS*
Chairman and Founder
EBSCO Industries, Inc.
(Diversified Multinational Sales
Corporation and Metals Manufacturing)
Birmingham, Alabama
RICHARD A. TRIPPEER, JW*
President- Union Planters
National Bank
Memphis, Tennessee
WM. BEW WHITE, JW
Assistant Secretary,
Southern Airways, Inc. and
Partner- Bradley, Arant, Rose & White
(Attorneys)
Birmingham, Alabama
Officers
FRANK W. HULSE
Chairman and Chief
Executive Officer
GRAYDON HALL
President
GEORGE M. GROSS
Executive Vice President
and General Manager
J. KENNETH COURTENAY
Vice President - Economic
Regulations and Secretary
JAMES G. GODSMAN
Vice President - Sales
A. L. MAXSON
Vice President- Finance
and Treasurer
OWEN L. McREE
Vice President - Customer Sales
and Services
J. R. PRICE
Vice President- Properties
VICTOR C. PRUITT
Vice President -
Technical Services
T. M. SHANAHAN
Vice President-Flight
THOMAS A. WILEY, JR.
Vice President- Marketing
RAY W. BURDEN
Assistant Treasurer
JAMES H. ISHEE
Assistant Treasurer and
Controller
J. PHILLIP DAY
Assistant Vice President -
System Planning
WILLIAM E. OAKES
Assistant Vice President-
Economic Research
CECIL A. BEASLEY, JR.
Assistant Secretary
MARY C. HAYES
Assistant Secretary
WM. BEW WHITE, JR.
Assistant Secretary
*Member of Executive Committee
**Member of Audit Committee
tSenior Director
,
Southern
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