+ 
Southern 
 Highlights 
SOUTHERN AIRWAYS, INC. 
Year ended December 31 
PASSENGER REVENUES 
OPERATING REVENUES 
OPERATING INCOME 
NET INCOME 
PRIMARY EARNINGS PER SHARE 
REVENUE PER PASSENGER MILE 
SCHEDULED SERVICE 
REVENUE PASSENGER MILES 
AVAILABLE SEAT MILES 
PASSENGER LOAD FACTOR 
REVENUE PASSENGERS CARRIED 
REVENUE PLANE MILES FLOWN 
NUMBER OF EMPLOYEES 
*Includes excess insurance proceeds from the loss of a DC9 aircraft which 
increased net income by $3.6 million {$2.09 per share). Also includes prior years' 
mail revenue which increased net income by $500,000 (29 cents per share). 
These highlights should be read in conjunction with the Financial Statements 
and Notes to the Financial Statements appearing elsewhere in this report. 
1977 
$130,828,000 
$159,511,000 
$ 7,524,000 
$ 8,253,000* 
$ 4.76* 
$ 0.125 
1,044,818,000 
2,043,061,000 
51.1% 
3,457,000 
28,638,000 
2,922 
Per Cent 
1976 Increase 
$115,206,000 13.6 
$140,167,000 13.8 
$ 2,492,000 201.9 
$ 405,000 1,937.8 
$ .22 2,063.6 
$ 0.117 6.8 
978,991 ,000 6.7 
1,926,166,000 6.1 
50.8% .6 
3,245,000 6.5 
27,646,000 3.6 
2,766 5.6 
  # 
Southern 
A General Office 
B Reservations Center 
C Training Center 
D Maintenance Base 
E Jet Engine Test Cell , Fuel Facility 
and Waste Treatment Plant 
Contents 
Highlights ........ ..... . .. .. . . .... . . .. . Outside Foldout 
Southern's Facility Complex . .. ... . .... Inside Front Cover 
About the Complex ...... . . . .... . ... .... . . . .. . . . Flyleaf 
About the Company .. . .... .. ... . . . ... . . ... Inside Flyleaf 
Report to Stockholders . ... . . . .. . ... . ... . .. . . . .... . . 1-3 
Ten Year Operating and Financial Summary .. . ........ .4, 5 
Management's Discussion of Summary of 
Operations . .. . .. . . .... ..... . . . . . . .. . .. ... ... ... 6-9 
Review of Operations .. ... . ... ... ... . .. ... . . . . . . . 11-20 
About the Complex 
Southern completed its three-year building 
program in October 1977, occupying a new 
General Office and Reservations Center. 
Completed earlier were a Maintenance Base 
and Training Center 
The facility is located at Hartsfield Atlanta 
International Airport. It was built to Southern's 
specifications and leased for 30 years with 
renewal options. More than 40 acres remain 
available for expansion. 
The Maintenance Base encloses more than 
325,000 square feet of hangar and support- 
shop space. The hangar accommodates 
simultaneously four large jet aircraft. 
The Training Center houses a DC9 flight 
simulator, with expansion room for an 
additional simulator or other training aids. 
Training is conducted in an academic 
atmosphere. 
As protection for the environment, the 
facility includes a waste treatment plant to 
ensure that chemicals used in maintaining 
aircraft do not pollute nearby streams 
and rivers. 
Within this complex work some 1,200 
Southern employees. All aircraft are 
maintained here and reservations calls from 
throughout the United States are 
answered here. 
This complex has been engineered for 
human and technical efficiencies to support 
Southern's growth. 
Statements of Income . . ................... . ........ 21 
Balance Sheets ...................... . .......... 22,23 
Statements of Changes in Financial Position ... . ........ 24 
Statements of Retained Earnings ..... .. ..... .. .... . .. 25 
Notes to Financial Statements ........ . ... : ....... . 25-31 
Report of Independent Auditors . .. . .....  ... . .... . ... . 32 
Directors and Officers .... .. . . ....... . . Inside Back Flyleaf 
Southern Route Applications . ...... . . Outside Back Flyleaf 
Southern Routes . ... . ..... .. ... .. .... Inside Back Cover 
F-1 
 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 to the Cayman Islands, and 
to other points in the Caribbean, Canada, Mexico, and the Bahamas. 
Southern began scheduled service on June 10, 1949. During 1977, the Company's 
aircraft flew more than 28 million miles, serving almost 3.5 million passengers. 
Aircraft in service include 29 DC9 jetliners, seven Metro II turboprops, and two 
Martin 404 piston-engine aircraft. Today, more than 97 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 NAS DAO/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 
are competitive. 
Southern is headquartered at 
Hartsfield Atlanta International Airport 
where the Company's Maintenance 
Base, Reservations Center, Training 
Center and General Office are located. 
F-2 
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 
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 . . ...... .. 4 3 4 4 
Second Quarter . . . .. . . 4 3% 4 4 
Third Quarter .. ... .. ... 4 3% 4 4 
Fourth Quarter . ... . .. . 5 4 5% 4 
1978 
First Quarter through 
March 2 ....... . . . . . 6 5 7 5% 
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, convertibl e 
subordinated debentures, or warrants. 
 Report To Stockholders 
The year 1977 was the most profitable of 
Southern's 28-year operating history. New 
highs were attained in all revenue categories. 
This was the Company's sixth consecutive 
profitable year. 
Net income rose to $8.2 million on revenues 
of $159.5 million. Per share earnings totaled 
$4.76.These gains compared with 1976 net 
income of $405,000 on revenues of $140.2 
million and per share earnings of 22 cents. The 
1977 profits included nonrecurring gains of 
$4.1 million. 
In every way, the year 1977 was a significantly 
productive one for Southern. The Company's 
three-year building program was completed 
and in October the highly efficient, new office 
and reservations facilities were occupied. 
During the year, maintenance activities were 
expanded to perform increased contract 
maintenance for other airlines, government 
agencies, and aircraft operators. A program to 
modernize the interiors of Southern's DC9 
aircraft was undertaken and the "wide-look" 
cabins already are appearing in the fleet. 
We have improved our service at smaller 
cities with high speed, jet-powered equipment, 
the Swearingen Metro I ls. This aircraft replaces 
the obsolete and expensive piston-powered 
Martin 404. 
Sales and marketing efforts continue to be 
broadened and intensified. Innovative 
promotional fares place emphasis on pleasure 
travel along Southern's routes. Special 
attention is being given to developing 
outstanding sales people. Indeed, throughout 
the Company, employee training to improve job 
Graydon Hall Frank W. Hulse 
efficiency continues as a major priority. 
Hundreds of employees undergo advanced 
courses to upgrade their job knowledge. 
During the year, two new directors joined the 
Board: David H. Hughes, Orlando, Florida, and 
Frank M. Young, 111, Birmingham, Alabama. 
Leaving our Board of Directors because of the 
mandatory retirement age was Sartain Lanier, 
Atlanta, Georgia. Mr. Lanier has served long 
and well. Fortunately, we will retain his counsel 
as he becomes a senior director. 
Southern today is processing more 
applications before the Civil Aeronautics Board 
than at any time in the Company's history. 
These proceedings are discussed elsewhere in 
this Report, but we are happy to say that 
1 
 Report To Stockholders (continued) 
Available Seat Miles/Revenue Passenger Miles 
IN MILLIONS 
2400 - - - - - - - - - - - - - - - - - 
 Seat Miles 
 Passenger Miles 
1200 
600 
0 
1973 1974 
Passengers Carried 
IN THOUSANDS 
1975 1976 1977 
4000 - - - - - - - - - - - - - - - - - 
2000 
1000 
Southern has recently been successful in 
obtaining from the Civi I Aeronautics Board two 
long-sought and valuable route awards. The 
first grants both Milwaukee, Wisconsin, and 
Minneapolis-St. Pau I, Minnesota, authority 
from Memphis. The second extends Southern 
from Memphis to Denver, Colorado, via Wichita, 
Kansas. Although other carriers also may serve 
the same markets, these new routes represent 
significant additions to the Company's system. 
They provide great challenge and at the same 
time great opportunity for future growth and 
profits. 
Equipment is being acquired, to serve the 
newly awarded routes as well as others we 
expect, and to provide expanded service on 
our existing system. At the time of this Report, 
the Company has obtained an option to acquire 
eight DC9 aircraft currently operated by 
another airline. Other aircraft acquisitions also 
are under active consideration . 
Of importance to the Company's future are 
proposals before Congress to alter significantly 
the regulation of air carriers. Entry by new 
carriers, and particularly by the so-called 
"commuter" and supplemental airlines into 
new markets, including markets served by 
Southern, would be greatly liberalized. Lower 
fares would be encouraged. The present system 
for payment of subsidy to Southern and other 
local service carriers would be greatly modified 
and, in time, terminated. Your management 
favors regulatory reform insofar as it would 
make more efficient Civil Aeronautics Board 
action and insure the best possible service for 
0 
1973 1974 1975 1976 1911 the traveling public, especially including 
2 
 service for the smaller communities. We are 
hopeful that the regulatory reform proposals 
which are enacted into law will avoid 
unnecessary deregulation and permit the 
carriers to continue to provide a service 
universally recognized as the outstanding 
scheduled service in the world. 
Other Federal legislation of vital importance 
to Southern includes proposals now pending in 
Congress to permit financial assistance from 
user charges for air carriers to retrofit their 
current generation of jet aircraft or replace 
them with quieter and more fuel-efficient 
equipment. The objective is, of course, to 
insure an improved environment through the 
elimination or reduction of air and noise 
pollution - an objective which Southern feels 
justifies funding in one form or another by the 
Federal government. 
Southern's future is bright, indeed. Today, 
the Company's system extends from the 
Atlantic Ocean to the Rocky Mountains, from 
the Canadian Border to the Caribbean. 
Immediately before us are opportunities we 
long have sought and challenges as great as 
any we have ever faced. 
Frank W. Hulse 
Chairman 
/4---~ 
Graydon Hall 
President 
April 3, 1978 
Operating Revenues 
IN MILLIONS OF DOLLARS 
80 
40 
0 
1973 1974 1975 1976 1977 
Net Income 
IN MILLIONS OF DOLLARS 
10.0 - - - - - - - - - - - - - - - - - - 
0 
1973 1974 1975 1976 1977 
3 
 Ten-Year Operating and Financial Summary 
SOUTHERN AIRWAYS, INC. 
1977 1976 1975 1974 1973 1972 1971 1970 1969 1968 
Summary of Operations 
(In thousands, except per share amounts) 
Operating revenues 
Passenger $130,828 $115,206 $ 95,666 $ 86,821 $ 65,949 $ 52,052 $ 45,302 $ 37,187 $ 28,050 $ 20,503 
Charter 9,594 8,803 8,208 6,908 5,358 4,839 4,067 3,835 3,358 1,934 
Public service 5,220 5,723 5,961 6,805 6,814 7,1 38 6,974 4,823 3,580 4,038 
Other 13,869 10,435 8,115 7,818 6,488 5,603 4,917 4,563 3,641 3,652 
159,511 140,167 117,950 108,352 84,609 69,632 61 ,260 50,408 38,629 30,127 
Operating expenses 
Depreciation and amortization 7,272 5,381 4,634 4,397 3,673 2,559 2,637 2,632 2,396 1,770 
Other 144,715 132,294 107,240 97,072 79,447 64,180 58,216 49,556 35,807 27,764 
151 ,987 137,675 111,874 101,469 83,120 66,739 60,853 52,188 38,203 29,534 
Operating income (loss) 7,524 2,492 6,076 6,883 1,489 2,893 407 (1,780) 426 593 
Interest on long-term debt 2,943 2,468 2,918 3,929 3,083 1,362 1,678 1,789 1,720 1,136 
Miscellaneous deductions (income)- net (6,012) (514) (612) (623) (2,023) ( 110) 23 (236) 15 (120) 
Income (loss) before income taxes, extraordinary 
tax credit and accounting change 10,593 538 3,770 3,577 429 1,641 (1,294) (3,333) (1,309) (423) 
Income taxes (credit) 2,340 133 1,028 985 109 450 (235) (487) (212) 
Income (loss) before extraordinary tax credit 
and accounting change 8,253 405 2,742 2,592 320 1,191 (1,059) (3,333) (822) (211) 
Tax benefits of net operating loss carryforward 325 97 409 
Cumulative effect of accounting change 565 
Net income (loss) (1) $ 8,253 $ 405 $ 2,742 $ 3,482 $ 417 $ 1,600 $ (1,059) $ (3,333) $ (822) $ (211) 
Earnings (loss) per common and common equivalent share ( 1) 
Primary $ 4.76 $ .22 $ 1.58 $ 2.19 $ .23 $ 1.06 $ (1.02) $ (3.25) $ (.80) $ (.21) 
Fully diluted $ 3.07 $ .22 $ 1.14 $ 1.40 $ .23 $ .80 $ (1.02) $ (3.25) $ (.80) $ (.21) 
Average number of common and common equivalent shares 
Primary 1,733 1,581 1,765 1,599 1,314 1,440 1,035 1,025 1,025 1,025 
Fully diluted 2,800 1,581 2,912 2,913 1,314 3,099 1,035 1,025 1,025 1,025 
Financial Position- at year end 
(In thousands, except per share amounts) 
Current assets $ 34,932 $ 28,306 $ 30,324 $ 27,214 $ 25,793 $ 15,923 $ 14,336 $ 12,380 $ 12,308 $ 15,754 
Current liabilities ( 1) 34,919 25,447 24,366 23,620 21,629 10,399 10,944 12,012 8,707 7,696 
Property and equipment-net (1) 69,162 40,651 34,818 36,414 36,467 16,987 18,739 20,336 21,086 20,333 
Long-term debt (excluding current maturities)(1) 
Notes payable and other 40,289 21,545 19,006 22,687 27,523 9,238 8,535 9,408 9,903 12,228 
Convertible subordinated debentures 8,289 9,307 9,743 10,178 10,178 11 ,345 12,682 12,682 12,682 12,682 
Total stockholders' equity 21 ,381 13,246 12,900 10,277 7,043 5,514 2,493 915 4,248 5,070 
Common stockholders' equity (deficiency) (2) 20,400 12,204 11 ,858 9,171 4,803 3,245 (30) 915 4,248 5,070 
Common stockholders' equity (deficiency) per common share (1) 12.90 7.72 7.50 5.80 3.40 2.55 (.03) .89 4.14 4.95 
Common shares outstanding 1,581 1,581 1,581 1,580 1,413 1,271 1,062 1,025 1,025 1,025 
Operating Statistics 
Scheduled service 
Passengers carried (thousands) 3,457 3,245 2,935 2,940 2,494 2,101 1,875 1,589 1,377 1,271 
Available seat miles (thousands) 2,043,061 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 
Revenue passenger miles (thousands) 1,044,818 978,991 852,547 832,372 721,135 596,197 527,552 430,736 323,472 254,028 
Passenger load factor 51 .1% 50.8% 50.5% 51.4% 43.9% 46.6% 43.2% 38.8% 42.4% 45.8% 
Breakeven passenger load factor 48.5% 50.6% 48.2% 49.0% 45.1% 44.9% 44.6% 42.9% 44.8% 47.1% 
Revenue per passenger $ 37.80 $ 35.46 $ 32.55 $ 29.49 $ 26.41 $ 24.73 $ 24.11 $ 23.36 $ 20.33 $ 16.08 
Revenue per passenger mile 12.5~ 11 .n 11 .2 10.4 9.1  8.7 8.6 8.6 8.7 8.1 q: 
Al I services 
Available seat miles (thousands) 2,290,839 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 
Cost per seat mile 6.6~ 6.4 6.0<!: 5.8<C 4.6<C 4.7<C 4.6 4.3 4_ 
5q; 4.9 
Number of employees at year end 2,922 2,766 2,519 2,639 2,478 2,084 1,994 1,757 1,747 1,538 
( 1) See Note G for effect of compliance with Finan- (2) After deducting equity of preferred sharehold- Annual dividends of $.36 per share have been 
cial Accounting Statement No. 13 in 1978 and ers at $6 per outstanding preferred share plus paid on preferred shares for 1972 through 
future years. cumulative dividends at the end of each of the 1977. No cash dividends on common stock 
years 1971 (year preferred shares were first have been paid since 1967. 
issued) through 1977. 
4 5 
 Management's Discussion of 1977 and 1976 
Summary of Operations 
Common Stockholders' Equity 
DOLLARS PER COMMON SHARE 
14.0 0 - - - - - - - - - - - - - - - - - - - 
3.50 
6 
0 
1973 1974 1975 1976 1977 
Overview 
Net income in 1977 of $8,253,000 ($4. 76 per share) 
was the product of sustained traffic growth, regulatory 
fare increases and several items of a nonrecurring 
nature. These positive influences were sufficient to 
offset the substantial cost increases incurred during 
the year, particularly the ever-increasing cost of fuel 
and other goods and services used by the Company. 
This compared to net income of $405,000 (22 cents 
per share) in 1976 and $2,742,000 ($1 .58 per share) 
in 1975. 
Items of a nonrecurring nature added approximately 
$4,106,000 ($2 .38 per share) to net income in 1977, 
$145,000 (9 cents per share) in 1976, and $2,079,000 
($1 .18 per share) in 1975. Exclusive of the effect of 
these items, net income would have been 
approximately $4,147,000 ($2.38 per share) in 1977, 
compared with $260,000 (13 cents per share) in 1976 
and $663,000 ( 40 cents per share) in 1975. 
The pretax effect of one of these items in 1977, the 
excess of insurance proceeds over the purchase price 
on the loss of an aircraft, amounting to $5,350,000, is 
included in Miscellaneous Deductions (Income) in the 
accompanying Summary of Operations. It accounts for 
substantially all of the net change in that category 
between 1977 and 1976. The pretax effect of other 
such events, a retroactive mail rate adjustment of 
$1 ,012,000 in 1977; a $2,074,000 settlement of a fuel 
price dispute and a $595,000 reimbursement of 
certain landing fees in 1975, were included in the 
determination of income from operations. 
As a result of increased debt to finance various 
capital additions, along with an increase in the prime 
interest rate during the second half of 1977, interest 
expense increased by $475,000 over 1976. The 
increase followed a decline of $450,000 in interest 
expense in 1976 when debt was reduced and the 
prime interest rate was lower. 
 Operating Revenues 
Total operating revenues reached record levels of 
$159,511 ,000 in 1977 and $140,167,000 in 1976, up 
13.8 per cent and 18.8 per cent, respectively, 
compared with prior years. 
Passenger revenues of $130,828,000 in 1977 
represented a 13.6 per cent gain over the prior year, 
while the $115,206,000 in passenger revenues in 1976 
reflected a 20.4 per cent gain over 1975. 
Capacity, as measured by available seat miles 
(AS Ms), was increased by 5. 7 per cent in 1977 
following a 13.7 per cent increase in 1976. This added 
capacity was brought about by increases in the number 
of DC9 aircraft in late 1975 and in 1976; and alterations 
to increase the capacity of existing DC9 aircraft in 
1977. Additionally, the Company purchased seven new 
Metro 11 aircraft in 1977. These 18-passenger, jet- 
powered aircraft are intended primarily to replace the 
Company's Martin 404 aircraft. The complete phase-out 
of the Martin 404 equipment is expected to be 
completed by mid-1978. 
Improved yields (revenue per passenger mile) also 
contributed to improvements in passenger revenues. 
Yields increased from 11.2 cents in 1975 to 11 . 7 cents 
in 1976 and to 12.5 cents in 1977, increases of 4.5 per 
cent and 6.8 per cent, respectively. These 
improvements reflected certain fare increases 
throughout the period and the elimination of certain 
discount fares in 1976. 
Charter revenues, which increased by$ 791,000 in 
1977 following a $595,000 increase in 1976, have 
benefited both from the aforementioned increases in 
capacity and from the Civil Aeronautics Board 's 
relaxation of its limitations on the number of off- 
system charters scheduled air carriers are permitted 
to fly. Additionally, charter rates have been adjusted, 
as required, in line with increasing operating costs. 
Public service revenues, or government payments 
to the Company to provide service to certain small 
communities, were reduced by $503,000 in 1977, 
following a $238,000 reduction in 1976. In both years, 
CAB Rate of Return on Corporate Investment 
YEARS ENDED JUNE 30 
20 - - - - - - - - - - - - - - - - - - - 
 Southern 
 Local Service Industry 
10 
5 
0 
1973 1974 1975 1976 1977 
7 
 Management's Discussion of 1977 and 1976 
Summary of Operations (continued) 
Source of Revenue Dollar 
FOR THE YEAR 1977 
82.0% Passenger- - - -~ 
6.0% Charter- - - - -- - -- - -- - ~ 
5.8% Cargo - - - - - - - - - - -- - - - - - - ' 
3.3% Public Service - - -- - -- -- - - -- ----' 
2.9% Other- - - - - - - - - - - - - - -- - - - ' 
8 
the decline resulted from reduced losses in subsidized 
service and the removal of certain larger cities 
from subsidy eligibility. 
Other revenues increased by $3,434,000 in 1977 
and by $2,3.20,000 in 1976. Included in the 1977 
increase was $1 ,517,000 in additional mail revenue 
received by the Company under the Civil Aeronautics 
Board's order establishing temporary rates for the 
carriage of mail for the period 1973 through 1977 (See 
Note B of Notes to Financial Statements). This 
revenue includes $505,000 applicable to the year 
1977 and $1 ,012,000 applicable to the years 1973 
through 1976. The remaining increases in Other 
Revenue result primarily from increases in freight 
services, contract main.tenance activities, sales of 
training simulator time, sales of inflight beverages 
and food , and other miscellaneous sales and services. 
Operating Expenses 
Operating expenses increased by $14,312,000 in 
1977, following a $23,132,000 increase in 1976 
exclusive of a fuel price settlement and landing fee 
rebates totaling $2,669,000. Of these amounts, 
increases of $3,980,000 and $3,117,000 in 1977 and 
1976, 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 
$938,000 in 1977 and $1 ,777,000 in 1976. 
On a unit cost basis, operating expenses per 
available seat mile increased to 6.63 cents in 1977, up 
from 6.35 cents in 1976 and 6.01 cents in 1975 
(before reduction of the fuel price settlement and 
landing fee rebate totaling $2,669,000). 
Labor costs increased by $6,847,000 in 1977 and by 
$9,450,000 in 1976, primarily as a result of increased 
salaries and benefits. A nine per cent increase in the 
average number of employees in 1976 also contributed 
to the labor cost increase in that year. The total number 
of employees at the end of 1977 was up considerably 
over prior year-end levels because of the expansion 
 of in-house aircraft engine overhauls, contract 
maintenance for other carriers, and a greater volume 
of flying operations. Nevertheless, the average 
number of employees throughout the year 1977 
increased by less than one-half of one per cent over 
the 1976 level. There were 2,922 employees at 
December 31, 1977, compared with 2,766 at 
December 31 , 1976, and 2,519 at December 31 , 1975. 
Rental expense decreased to $10,734,000 in 1977, 
$495,000 less than 1976. Rental expense in 1976 
increased $1,628,000 above the 1975 level. Of these 
amounts, aircraft rentals decreased $1 ,656,000 in 
1977 due primarily to the purchase in July of six 
previously-leased DC9 (1 O series) aircraft, and the loss 
of a leased DC9 (30 series) aircraft in April. In 1976, 
aircraft rental cost increased by $570,000, brought 
about mainly by two aircraft being acquired in 1975 
under long-term lease arrangements. Occupancy of 
the new Atlanta Training Center and Engine Test Cell, 
effective October 1, 1975, and the new Maintenance 
Base, effective October 1, 1976, increased rentals 
by $1,314,000 in 1977 and by $924,000 in 1976. 
Depreciation and amortization expense was 
$7,272,000 in 1977 and $5,381 ,000 in 1976. The 
$1 ,891 ,000 increase in 1977 was due primarily to 
depreciation on the newly-purchased Metro 11 aircraft, 
depreciation for a full year on two DC9 (30 Series) 
aircraft added in June and August 1976, and additional 
depreciation applicable to the July 1977 purchase of 
six previously-leased DC9 ( 10 Series) aircraft. This 
followed an increase in 1976 of $747,000 due 
primarily to the depreciation on the two above- 
mentioned DC9 (30 Series) aircraft that were acquired 
in 1976. 
Advertising costs leveled off in 1977 after a 
$794,000 increase in 1976. The 1976 increase was the 
result of the need to promote new services and to 
initiate several new sales programs. 
Increases in other operating costs, such as outside 
goods and services and commissions, generally are 
reflective of the expanded operating levels and 
inflationary pressures. 
Distribution of Total Expense Dollar 
FOR THE YEAR 1977 
I . 
42.1 % Wages, Salaries. Employee Benefits 
20.1 o/o Fuel, Oil - - - - - - - - - ' 
7.9% Deprec1 
at1 
on. Amortization, Aircraft Leases _ _ _ _, 
6.3% Aircraft Maintenance, Material. Supplies, Services - - - ~ 
6.2% Landing Fees. Rentals - - - - - - - - - - - - ' 
2.7% Passenger Service - - - - - - - - - - - ~ 
14.7% All Other - - - - - - -- - - - - - - - - - ' 
9 
  Review of Operations 
The highlight of 1977 was significantly improved 
financial results. This was accomplished as more 
passengers flew more revenue passenger miles than 
in any of Southern's 28 previous years. For the first 
time, revenue passenger miles generated exceeded 
one billion. 
These favorable results tended to overshadow some 
of the Company's other accomplishments, many of 
which are expected to have a highly favorable impact 
on the future. 
Among these are: 
 Completion of a three-year building program at 
Hartsfield Atlanta International Airport; 
 Introduction of a new jet-powered aircraft fleet to 
serve existing cities and routes that cannot 
accommodate Southern's DC9 jetliners; 
 Implementation of sophisticated reservations 
communications equipment that improves service to 
customers; 
 Increased development of human resources, both 
among existing employees and in filling staffing 
requirements with new personnel; 
Orlando's Walt Disney World; the French Quarter in New Orleans; the 
excitement of New York; St. Louis, its arch and its river; and streetcars 
that still run in Detroit: all on Southern's routes. 
 Creating a program, to be carried out in 1978-1979, 
to modernize further Southern's DC9 fleet with wide- 
bodied interiors, more comfortable seats, new galleys, 
and a new interior decor; 
 Development of a program to provide major 
maintenance support and services to other airlines 
and aircraft owners or operators; 
 Continued aggressive efforts to acquire new routes 
and to expand operating authority among existing 
system points; 
 Establishment of procedures supported by training 
programs to improve the quality of Southern's service 
to its passengers and shippers; 
 Generation of new revenue sources through 
innovative business development programs, including 
discount fares designed to attract new customers to 
flights with unused capacity. 
Many of these accomplishments in turn resulted in 
satellite programs that are expected to make both 
immediate and long-range contributions. The 
completion of Southern's three-year building effort is 
expected to have many favorable influences on 
11 
  Review of Operations (continued) 
efficiency and cost reduction. 
Southern long ago outgrew its maintenance and 
support facilities in Atlanta. Available hangar and shop 
space was insufficient to support the requirements of 
a growing DC9 fleet. Compounding this problem was 
the impending loss of two hangar buildings, both 
scheduled to be demolished by the City of Atlanta to 
create additional parking areas and access roads for 
the Atlanta Airport. Also, imminent were rental rate 
increases on the five buildings housing the General 
Office and reservations personnel. Thus, the 
development of new facilities was not only 
economically feasible, but also mandatory. 
Accordingly, in August 197 4, Southern entered into a 
building program that has produced one of the most 
efficient airline maintenance and operations centers 
in the industry. 
The last phase of Southern's building program was 
completed in October 1977, climaxed by occupancy of 
the General Office and Reservations building. 
Southern's Consolidated Reservations Center now 
answers all passenger inquiries generated throughout 
a 64-city, 14-state domestic route network. (Southern 's 
customers in the Cayman Islands, B.W.I., are answered 
locally and reservations are confirmed to Atlanta by 
high speed teletype equipment.) Each Southern 
reservations agent is supported by a computer system 
that provides schedules and seat availability to more 
than 200 daily Southern flights, as well as to the 
connecting schedules of every domestic carrier in the 
United States, and many foreign carriers. 
Southern's rapid rate of growth frequently has 
created problems in reservations handling, primarily 
because of inadequate capacity to handle the large 
increases in call volume. The new Consolidated 
Reservations Center incorporates improvements 
expected to resolve these problems. 
Among the improvements in this new facility is a call 
distributing system that not only directs calls to agent 
groups where a designated function is provided, but 
also it generates information as to the number of calls 
from each city, the level of service offered the caller, 
the average time each caller waits before being 
accommodated, and the determination of incoming 
lines needed at a given time to serve each city. Among 
other management information provided is the number 
of reservations agents required for proper staffing at a 
given time of day. The result of this equipment has 
been improved efficiency in an already efficient 
environment. 
During January 1978, Southern reservations agents 
answered 390,684 calls compared with 311,211 in the 
Southern's fun: there is golf for duffers, and for champions; remote 
lakes; and tennis, everyone. 
13 
  Review of Operations (cont,nued) 
corresponding period a year ago, an increase of 25.5 
per cent. 
Among the other accomplishments made possible 
by Southern's modern physical plant are those taking 
place in the Maintenance Base. This structure was 
completed and occupied late in 1976; it became fully 
operational early in 1977. Southern always has 
provided its own airframe maintenance; however, 
some major components such as jet engines and 
auxiliary power units were sent to outside contractors. 
Jet engine work is one of the most expensive elements 
in maintaining an airline fleet, and an area that offers 
one of the largest cost-saving possibilities. 
Accordingly, Southern has developed complete in- 
house capability for jet engine overhaul and related 
testing . A collateral benefit of this program is the 
reduced requirement for spare engines required to 
compensate for transport and production time 
required by an external repair center. 
Southern's experience in overhauling and 
refurbishing DC9 aircraft will make an additional profit 
contribution as a result of an active maintenance 
program being made available to other airlines and 
aircraft owners. Southern has selected the name 
Advanced Performance to define the services it is 
offering for sale. To date, Southern is providing both 
airframe and engine overhaul support to other airlines, 
aircraft manufacturers, government agencies, and 
private aircraft owners and operators. 
Advanced Performance is being offered actively to 
airlines and other aircraft operators throughout the 
world, supported by advertising and sales efforts. 
Other contract services already under way at 
Southern include time leased for use of the Company's 
DC9 flight simulator. This is the most modern DC9 
simulator in the world, and availability excess to the 
needs of Southern's own pilots is contracted fully by 
other airlines or aircraft owners. 
Completed in the first phase of Southern 's building 
program was a Training Center, now the focal point 
for improving technical and passenger-handling skills. 
In addition to containing Southern 's DC9 flight 
simulator, a DC9 cabin mock-up is available for flight 
attendant training , while comfortable classrooms 
house audio-visual training aids to support modern 
teaching techniques for all personnel. 
New employees receive both indoctrination and 
qualification training in this center. Flight personnel 
return for recurrent training, and station personnel 
now are brought to the Atlanta center for instruction 
in new methods and programs. 
Large employee groups are accommodated in a 
Relaxation, tranquility, history, and a salute to American music abide 
along Southern routes. 
15 
  Review of Operations (continued) 
Diving in the Caribbean Sea off Grand Cayman Island, walking on a 
secluded beach, or along the Atlantic Coast or the white sands of the 
Gulf of Mexico, Southern routes beckon water lovers. 
250-seat auditorium, also housed in the Training 
Center. This is the site of the Company's annual 
stockholders meeting. 
More than 45,000 student hours of training were 
provided in 1977, averaging 23 employees in training 
every work day of the year. Th is is expected to increase 
substantially as Southern is putting increasing 
emphasis upon training activities to improve the 
overall quality and consistency of the Company's 
service. (Southern's simulato(and other training 
facilities leased by other airlines and aircraft owners 
produced $525,000 in revenues during 1977.) 
Although most training facilities are in use through- 
out the day, the classrooms and auditorium , when not 
committed , are available to selected civic and business 
entities, in turn creating good community relations 
and sometimes additional revenues. 
The most significant passenger facility undertaken 
by the Company is at Hartsfield Atlanta International 
Airport, where a new terminal is scheduled for 
completion in January 1981 . Within this, Southern will 
occupy 13 passenger boarding gates, providing more 
than four times the space now available to the 
Company within the present terminal. Although located 
on a concourse more than 4,000 feet from the primary 
building, people movers will whisk passengers to their 
flights in less than five minutes. Meanwhile, under way 
is expansion of present terminal facilities to meet an 
immediate need. Southern's administrative space at 
the Atlanta terminal is being relocated to satisfy 
increased passenger requirements. Currently, 
Southern enplanes some 600,000 passengers annually 
in Atlanta, compared with 125,000 served annually 
16 years ago when this space was first acquired. 
Another facility contributing to an improved level 
of service for Southern 's customers is a recently 
completed passenger terminal area in St. Louis. This 
evidences the growth experienced to and from cities 
outside Southern 's original passenger base in the 
Southeast. St. Louis has become a key destination and 
origination point, currently ranking among the top ten 
busiest Southern stations. The improvements there 
portray this progress. 
In addition to ground improvements, two major 
efforts have taken place related to aircraft. On 
August 8, 1977, the first Metro 11 service was 
inaugurated as part of the planned replacement for 
the Martin 404 fleet. The selection of the Metro 11 
resulted in the purchase of eight of the aircraft. Initially, 
four cities, Athens and Moultrie-Thomasville, Ga., and 
17 
  Review of Operations (continued) 
Anniston and Gadsden, Ala., were introduced to the 
improved level of service offered by the faster, more 
fuel-efficient aircraft. Although offering fewer seats 
compared with the Martin 404s, the increased speed 
of the Metro 11 has permitted increased schedule 
frequency in each of the four markets, offering 
travelers a greater choice of flight times. In turn, total 
passengers in these markets doubled during the first 
quarter of Metro 11 operation. Subsequently, Metro 11 
schedules have been expanded, with eight cities 
being served exclusively by the new aircraft. In 
addition to the initial four points, Greenwood, Tupelo, 
and University-Oxford, Miss., and Jackson, Tenn., now 
are served by Metro I ls. 
Initial introduction of Metro lls was accompanied by 
operational problems commonly associated with the 
addition of a new aircraft into a fleet. Southern is 
working to resolve these temporary problems, and 
reaffirms the Company's commitment to continue to 
provide reliable service to areas not requiring or not 
capable of supporting 80- or 100-passenger jetliners. 
Substantiating Southern 's reliance on DC9s as its 
primary aircraft, has been the decision to acquire the 
newest version of this aircraft, the DC9-Super 80, 
scheduled for delivery in the 1980s. Southern expects 
to purchase four aircraft at a total purchase price 
exceeding $60 million to replace aircraft currently 
operated on its more heavily traveled routes. Further, 
the Company has committed to purchase the two 
aircraft currently operated under a lease expiring in 
1979, and has purchased an option to acquire eight 
additional used DC9s for delivery in the fourth quarter 
of 1979. 
With the passenger growth, expanded facilities, and 
an increased fleet of aircraft have come new staffing 
demands. Southern long has prided itself on being 
one of the most human resource-efficient airlines in 
the industry. This is attributed to high employee 
morale, and has been furthered by the opportunities 
for advancement created by expansion and 
profitability. 
Parallel to Southern 's emphasis on training, is 
development of procedures to ensure the highest 
possible level of passenger-related proficiency. 
Southern's facilities in Memphis, Tenn., have been 
selected for development of programs to be introduced 
system-wide. Memphis is Southern's second busiest 
originating point. In 1977, 430,369 passengers boarded 
here. In January 1978, Southern operated 55 flights 
daily from Memphis. Passenger and service areas 
were expanded two years ago and are among the most 
attractive and efficient on Southern's system. Ideas 
Southern sports: racing in all its forms, and professional sports in all 
its leagues. 
19 
 Review of Operations (continued) 
for better passenger handling are put into practice 
here: those that are proved beneficial become 
standards for all Southern personnel. 
The airline industry is labor intensive, both cost- 
wise and service-wise and Southern long has 
recognized that product quality is directly related to 
people quality. Continuing efforts select the best 
qualified people for entry positions, providing a base 
for advancing careers as well as accommodating 
needs of the Company. Supporting this direction will 
be a computerized Personnel Management Reporting 
System now being implemented. Not only will this 
permit instant display of employee records, but also 
will assemble data for personnel-related reports that 
presently require manual compilation . This system 
includes an employee skills bank that can be searched 
quickly when position openings occur. In addition to 
providing the Company with a ready source of 
advancement-eligible personnel , it will offer 
Southern 's employees the assurance of consideration 
for each promotion opportunity for which they are 
qualified. 
While tangible improvements are evident, the 
successful growth of an airline also is dependent 
upon route improvements and additions. At the 
beginning of the year, Southern was a participant in 
six route proceedings; during the year this number 
increased to 17. 
Southern long has sought operating authority 
for service between Greenville-Spartanburg, S.C., 
and both Washington , D.C., and New York City. This 
was authorized in December 1977, enabling the 
Company to combine existing authority with the new 
authority resulting in service between Birmingham, 
Ala., Greenville-Spartanburg, and New York, and along 
a route from Memphis to Huntsville-Decatur, Ala. , to 
Greenville-Spartanburg, then to Washington and New 
York, and return . 
Permanent operating authority to continue flights to 
the Cayman Islands, B.W.I., was approved by the 
British Government late in 1977. Operating authority 
of unlimited duration already was granted by the U.S. 
Civil Aeronautics Board. 
All other route cases are in procedural stages. These 
pending routes are outlined on the route map in 
th is Report. 
The continuing improvement in Southern's quality 
of service and expanding routes has opened new areas 
for sales and marketing efforts. Increased emphasis 
has been and continues to be placed upon new 
revenue sources, a major one being the discretionary 
traveler who can be motivated by an appealing fare. 
Historically for Southern, Saturday has been a low 
passenger traffic day. Previously, many flights were 
not operated on Saturdays, and many operating did so 
with relatively low load factors. Passengers for these 
flights have been attracted with special excursion 
20 
rates requiring part of the travel on a Saturday. 
During the last four months of 1977, Southern 
offered a "Saturday Special " fare at 40 per cent below 
normal rates. The fare applied to all flights on the 
domestic system , requiring only that travel begin on a 
Saturday, end on the following Monday or Tuesday, or 
on any other Saturday within a 30-day period, with 
the entire itinerary being planned and paid for before 
departure. A three-month trial period ended 
December 10 indicated wide acceptance by the public, 
with the collateral benefit of improved identity for 
the Company. 
The success of this promotional fare resulted in 
offering it again between mid-January and mid-March 
1978. 
Meanwhile, Southern has introduced even more 
dramatic fare selections, also aimed at attracting 
new customers. 
"Fabulous 50" has been selected as the name for 
Southern 's new 50 per cent discount fare, usable on 
all flights system-wide, with advance reservations 
required. Capacity restrictions are imposed to limit the 
number of seats available at this discount, but the 
attractiveness of the fare is expected to fill the allotted 
seats with passengers who otherwise would select 
surface travel , or not travel at all. 
Also receiving increased sales focus are Southern's 
charter and cargo services. 
Southern has become a dominant force in charter 
sales among scheduled airlines. The nonstop range, 
up to 1,200 miles, and seating capacity, 80- or 100- 
passengers, of Southern 's DC9 aircraft are particularly 
appealing to tour operators, and business, military, 
and athletic team customers. Charter flights are 
operated throughout the United States, into Canada, 
Mexico, the Bahamas, to the Cayman Islands, and to 
other points in the Caribbean. As many charters 
operate during other than normal scheduled flying 
times, profitable aircraft utilization can be 
accomplished by charter usage. 
Cargo, long an incremental revenue source for the 
Company, is gaining in importance and attention . 
Southern now transports individual items weighing 
as much as 500 pounds, although many low-weight 
items such as fruits, flowers and seafood are high- 
income producers. Growing as a revenue source is 
Swift, the Company's small package shipping service 
where expedited treatment is available for items 
requiring next-flight attention. To make this even 
more attractive, interline agreements with other 
airlines offer additional destinations for these 
priority items. 
Whether the customer is a passenger or a shipper, 
Southern offers a high level of reliable service, 
competitive rates, and personnel who recognize their 
obligation to these customers. 
 Statements of Income 
SOUTHERN AIRWAYS, INC. 
Year ended December 31, 
Operating Revenues 
Passenger 
Mail, express and freight-Note B 
Public service revenue 
Charter 
Other 
Operating Expenses 
Flying operations 
Maintenance 
Aircraft and traffic servicing 
Passenger service 
Promotion and sales 
General and administrative 
Depreciation and amortization 
Other 
Operating Income 
Other Deductions (Income) 
Interest on long-term debt 
Gain on involuntary conversion and disposal of property- Note B 
Miscellaneous deductions (income)-net-Note B 
Income Before Income Taxes 
Income taxes-Note D 
Net Income 
Net Income per Common and Common Equivalent Share- Note I 
Primary 
Fully diluted 
See Notes to Financial Statements. 
1977 1976 
$130,828,000 $115,206,000 
9,325,000 6,848,000 
5,220,000 5,723,000 
9,594,000 8,803,000 
4,544,000 3,587,000 
159,511,000 140,167,000 
55,106,000 49,802,000 
20,962,000 19,337,000 
36,120,000 32,804,000 
8,566,000 8,598,000 
13,047,000 12,246,000 
8,555,000 7,633,000 
7,272,000 5,381,000 
2,359,000 1,874,000 
151,987,000 137,675,000 
7,524,000 2,492,000 
2,943,000 2,468,000 
(5,722,000) (91,000) 
(290,000) (423,000) 
(3,069,000) 1,954,000 
10,593,000 538,000 
2,340,000 133,000 
$ 8,253,000 $ 405,000 
$ 4.76 $ .22 
$ 3.07 $ .22 
21 
 Balance Sheets 
SOUTHERN AIRWAYS, INC. 
Assets 
Current Assets 
Cash, including short-term investments of $10,312,000 
in 1977 and $3,200,000 in 1976- Note C 
Accounts receivable 
U.S. Government-transportation and public service revenue 
Trade receivables, less allowance for doubtful 
accounts (1977-$179,000, 1976-$162,000) 
Maintenance and operating supplies, at average cost less allowance 
for obsolescence (1977 - $1,063,000; 1976- $1,717,000)- Note A 
Prepaid expenses 
Total Current Assets 
Property and Equipment- on the basis of cost- 
Notes A, C, G and H 
Flight equipment, including purchase deposits 
of $3,390,000 in 1977 
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. 
22 
December 31, 
1977 1976 
$ 11,005,000 $ 8,131,000 
2,984,000 1,703,000 
13,677,000 11,492,000 
16,661,000 13,195,000 
6,759,000 6,006,000 
507,000 974,000 
34,932,000 28,306,000 
84,807,000 58,812,000 
14,325,000 7,865,000 
99,132,000 66,677,000 
29,970,000 26,026,000 
69,162,000 40,651,000 
1,154,000 949,000 
565,000 252,000 
1,719,000 1,201,000 
$105,813,000 $70,158,000 
 Liabilities and Stockholders' Equity 
Current Liabilities 
Trade accounts payable 
Salaries, wages and vacations 
Accrued interest payable 
Accrued income taxes 
Accrued taxes and other expenses 
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, E and G 
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 $981,000 in 1977 and 
$1,042,000 in 1976); issued and outstanding- 
163,581 shares (1977) and 163,781 shares (1976) 
Common Stock, $2 par value, authorized 7,500,000 
shares, issued and outstanding 1,581,080 shares (1977) 
and 1,580,880 (1976) 
Other paid-in capital 
Retained earnings 
Leases, Commitments and Contingencies- Notes G and H 
December 31, 
1977 1976 
$ 7,390,000 $ 6,263,000 
4,346,000 3,914,000 
782,000 567,000 
2,014,000 109,000 
3,662,000 3,726,000 
9,471,000 7,916,000 
7,254,000 2,952,000 
34,919,000 25,447,000 
40,289,000 21 ,545,000 
8,289,000 9,307,000 
48,578,000 30,852,000 
620,000 391 ,000 
315,000 222,000 
935,000 613,000 
164,000 164,000 
3,162,000 3,162,000 
5,124,000 5,124,000 
12,931,000 4,796,000 
21,381,000 13,246,000 
$105,813,000 $70,158,000 
23 
 Statements 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 dispositions, less gain included in operations 
Funds Used 
Additions to property and equipment 
Utilization of DC9 engine maintenance reserve 
Reduction of long-term debt 
Dividends on preferred stock 
Increase in deferred charges and other assets 
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 
Trade accounts payable 
Salaries, wages and vacations 
Accrued interest, taxes and other expenses 
Atr traffic liability 
Current maturities of long-term debt 
Decrease in Working Capital 
See Notes to Financial Statements. 
24 
1977 
$ 8,253,000 
6,773,000 
157,000 
370,000 
322,000 
15,875,000 
29,880,000 
3,717,000 
49,472,000 
38,866,000 
292,000 
12,154,000 
118,000 
888,000 
52,318,000 
(2,846,000) 
2,859,000 
$ 13,000 
$ 2,874,000 
3,466,000 
753,000 
(467,000) 
(1 , 127,000) 
(432,000) 
(2,056,000) 
(1,555,000) 
(4,302,000) 
$ (2,846,000) 
1976 
$ 405,000 
4,878,000 
(82,000) 
396,000 
15,000 
5,612,000 
8,918,000 
88,000 
14,618,000 
10,517,000 
200,000 
6,815,000 
59,000 
126,000 
17,717,000 
(3,099,000) 
5,958,000 
$ 2,859,000 
$ (3,787,000) 
1,351,000 
361,000 
57,000 
(638,000) 
(692,000) 
(459,000) 
(456,000) 
1,164,000 
$ (3,099,000) 
 Statements of Retained Earnings 
SOUTHERN AIRWAYS, INC. 
Years Ended December 31, 1977 and 1976 
Balance January 1, 1976 
Net income 
Dividends on preferred stock for 1975 ($.36 per share) 
Balance January 1, 1977 
Net income 
$ 4,450,000 
405,000 
(59,000) 
Dividends on preferred stock for 1977 and 1976 ($.36 per share each year) 
4,796,000 
8,253,000 
(118,000) 
Balance December 31, 1977 
See Notes to Financial Statements. 
Notes to Financial Statements 
SOUTHERN AIRWAYS, INC. 
December 31, 1977 
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 I ife is 15 years (new equipment) and six to 10 years 
(used equipment) and 10 years for ratable parts, with 
a 10 per cent salvage value; for Metro II flight 
equipment, the life is seven years with a 10 per cent 
salvage value; for ground equipment, the life ranges 
from three to 10 years. 
At the time properties are retired, the amounts 
of costs and allowances for depreciation and 
maintenance are eliminated from the accounts. Gains 
and losses on disposals of flight equipment (exclusive 
of ratable parts) are included in operations. Proceeds 
from the disposal of ratable parts are credited to the 
allowance for depreciation. 
Expenditures for ordinary maintenance and repairs 
are charged to expense. Expenditures for major spare 
parts are capitalized and minor parts are included in 
maintenance and operating supplies and charged to 
expense as used. 
A provision for obsolescence is made at an annual 
rate of four per cent and six per cent for DC9 and 
Metro 11 spare parts, respectively. 
Deferred Charges 
Expenditures for preoperating and route extension 
and development costs are deferred and are amortized 
over a five-year period. Costs associated with 
obtaining leased DC9 aircraft are amortized over the 
term of the leases. Deferred charges associated with 
long-term debt are amortized over the period of the 
financing arrangements. 
$12,931,000 
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, 
1977, 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) and a Tax Reduction Act Stock Ownership 
Plan (TRASOP) for certain of its employees. The 
TRASOP was established effective November 16, 
1977. The Company's contribution to the ESOP is 
determined annually at rates related to the base 
compensation of active participants. The TRASOP is 
funded by the additional one per cent investment tax 
credit allowed for such plans. 
Public Service Revenue 
The Company receives public service revenue from 
the Civil Aeronautics Board 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. 
25 
 Note B- Certain Significant Transactions and 
Credits Affecting Operating Results 
On April 4, 1977, a DC9 aircraft was destroyed 
during severe weather conditions near Atlanta, 
Georgia. A number of claims have been made and are 
expected to be made against the Company for loss of 
life, injury, and damage to property as a result of this 
accident. In the opinion of management, the claims 
are adequately covered by insurance. Insurance 
proceeds in excess of the purchase price of the leased 
aircraft and other related costs were $5,350,000 
($3,606,000 or $2.09 per share primary after income 
tax effect). In October, the Company used a portion 
of the excess proceeds to acquire aircraft of sufficient 
capacity to replace the aircraft destroyed. 
On December 29, 1977, the Civil Aeronautics Board 
issued an order establishing temporary rates for the 
carriage of mail during the period 1973 through 1977 
as a continuing part of the Priority and Nonpriority 
Domestic Service Mail Rates Investigation instituted 
in December 1970. Under the order, the Company 
received $1,012,000 of additional mail revenue 
applicable to the years 1973 through 1976, which is 
included in mail, express and freight revenue for 1977. 
The additional revenue had the effect of increasing 
net income for 1977 by approximately $500,000 (29 
cents per share primary). 
In January 1976, pursuant to an offer tendered in 
December 1975, the Company purchased $871,000 
principal amount of 5% Convertible Subordinated 
Debentures at a price of$ 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 requirements. 
Note C - Long-Term Debt 
At December 31, 1977 1976 
Notes payable to banks under 
Credit Agreement 
"A" Term Loans, payable 
quarterly through 1982 $10,962,000 $13,183,000 
"B" Revolving Loans, 
payable quarterly 
through 1980 4,000,000 4,400,000 
"C" Term Loans, payable 
quarterly through 1984 6,029,000 6,754,000 
Other notes payable 
Term note payable quarterly 
through 1988 7,303,000 
Term note payable quarterly 
through 1987 10,752,000 
Promissory note 2,516,000 
Capital lease obligations 4,963,000 160,000 
Convertible Subordinated 
Debentures 
5% due December 1, 1981 3,474,000 3,474,000 
6% due November 1, 1983 5,833,000 5,833,000 
55,832,000 33,804,000 
Less current maturities 7,254,000 2,952,000 
$48,578,000 $30,852,000 
26 
Notes payable to banks under the Credit Agreement 
bear interest at the lead bank's prime rate (7 per 
cent at December 31, 1977), plus one per cent ("A" 
and "C" Term Loans) and two per cent (''B" Revolving 
Loan) and are payable in quarterly installments. 
Substantially all the Company's assets not pledged as 
collateral under the term notes described below 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 
1981, subject to quarterly reductions in the amount 
of funds available. The bank has agreed, subject to 
certain conditions, to expand the "B" Loan commitment 
to permit additional borrowings of $11 ,000,000. 
The Term note due in 1988 is payable in 40 
quarterly installments beginning May 1, 1978, plus 
interest at prime plus 2 per cent. The Metro II flight 
equipment purchased with the loan proceeds is 
pledged as collateral under the Note. 
The Term note due in 1987 is composed of a Class A 
Note ($1,077,000) and a Class B Note ($9,675,000), 
both payable in 40 quarterly installments with interest 
at 10 per cent and 8 per cent respectively. The 
proceeds of the loan were used to purchase six 
DC9-10 aircraft which previously were leased. These 
aircraft are pledged as collateral under the terms of 
the Agreement. Additionally, the Class B Note is 90 
per cent guaranteed by the Federal Aviation 
Administration. 
The Promissory note bears interest at prime plus 
of one per cent, and is expected to be refinanced 
under a commitment for long-term financing related 
to the purchase of four new DC9-80 aircraft. These 
aircraft are on order and are expected to be delivered 
beginning in 1980. See Note H. 
The 5% 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 1.25 per cent 
downward; and require annual sinking fund payments 
on December 1 of each year in an amount equal to 
$435,000. 
The 6% Convertible Subordinated Debentures due 
 November 1, 1983, are convertible (until maturity or 
prior redemption) into common stock at $1 0 per share; 
are subordinated, generally, to all existing and future 
indebtedness for borrowed money, are callable at 
premiums ranging from three per cent downward; and 
require annual sinking fund payments beginning 
November 1, 1978, in an amount equal to $583,000. 
The terms of the Credit Agreement, the Term note 
due in 1987, and both issues of convertible 
subordinated debentures place certain requirements 
and restrictions upon, among other things, (a) working 
capital, (-b) indebtedness and lease obligations, (c) 
capital expenditures, (d) net worth and (e) payments 
relating to capital stock, including dividends. Retained 
earnings available for the payment of dividends at 
December 31, 1977, under the most restrictive 
requirement, amounted to approximately $3,831 ,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 cent of the average daily balance of the 
"A" and " B" Loans outstanding, 15 per cent of the 
Credit Agreement Other Notes 
Loans Payable 
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, 1977, the Company should maintain 
average compensating balances of approximately 
$3,900,000, which stated in terms of the Company's 
book cash balances is approximately $2,500,000. The 
difference is attributable to average uncollected funds 
and float. During 1977, the Company maintained 
average compensating balances of approximately 
$4,300,000. The excess of actual compensating 
balances maintained over the amount required during 
1977 may be used to satisfy requirements in 
future periods. 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. 
A summary of minimum principal payments under 
the Credit Agreement loans, other indebtedness and 
both issues of convertible subordinated debentures is 
as follows: 
Capital Convertible 
Lease Subordinated 
Obligations Debentures Total 
1978 $ 5,023,000 $ 1,114,000 $ 99,000 $1 ,018,000 $ 7,254,000 
1979 4,626,000 3,844,000 111 ,000 1,018,000 
1980 3,905,000 1,450,000 124,000 1,018,000 
1981 3,185,000 1,583,000 139,000 2,754,000 
1982 3,046,000 1,729,000 156,000 583,000 
Thereafter 1,206,000 10,851 ,000 4,334,000 2,916,000 
$20,991 ,000 $20,571 ,000 $4,963,000 $9,307,000 
A reduction in the " B" Loan Commitment under the 
Credit Agreement 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 principal 
payments includes $1 ,081 ,000 applicable to 1978 for 
this commitment. 
Note D-lncome Taxes 
Income taxes are as follows: 
Interest capitalized in 1977 relating primarily to 
equipment purchase deposits amounted to $116,000. 
If the Company did not have a policy of capitalizing 
interest, net income would have been reduced by 
$57,000 (3 cents per share primary) for 1977. Interest 
capitalized in 1976 was not significant. 
Current: 
Federal 
State 
Investment tax credit 
Deferred: 
Federal 
State 
Investment tax credit 
1977 
$ 3,798,000 
530,000 
(2,217,000) 
2,111 ,000 
186,000) 
2,000) 
417,000 
229,000 
$ 2,340,000 
9,599,000 
6,497,000 
7,661 ,000 
5, 514,000 
19,307,000 
$55,832,000 
1976 
$ 361,000 
42,000 
(193,000) 
210,000 
(122,000) 
( 15,000) 
60,000 
( 77,000) 
$ 133,000 
27 
 Deferred income taxes result from timing differences 
in the recognition of expense for tax and financial 
reporting purposes. The sources of these differences 
and the tax effect of each are as follows: 
1977 1976 
Accelerated depreciation $( 390,000) $ 25,000 
Provision for inventory 
obsolescence 295,000 51 ,000) 
Provision for maintenance 35,000) 39,000) 
Deferred compensation 46,000) 61,000) 
Other 12,000) 11 ,000) 
Investment tax credit 417,000 60,000 
$ 229,000 $( 77,000) 
Differences between income taxes and amounts 
derived by applying the statutory federal income tax 
rate of 48 per cent to income before income taxes 
are as follows: 
1977 1976 
Amount % Amount % 
Computed at 
statutory federal 
income tax rate of 
48 per cent $5,085,000 48 $ 258,000 48 
State income taxes, 
net of federal 
income tax benefit 275,000 3 16,000 3 
Capital gains 963,000) (10) 
Investment tax 
credit (1,800,000) (17) (133,000) (25) 
Other ( 257,000) ( 2) ( 8,000) ( 1 ) 
$2,340,000 22 $ 133,000 25 
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 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 163,581 
shares outstanding at December 31, 1977, 
aggregated $981 ,000 which is $818,000 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% and 6% 
Convertible Subordinated Debentures and to 
limitations contained in the Credit Agreement and the 
Term note due in 1987. (See Note C) 
During 1977, 200 shares of the Company's preferred 
stock were converted to 200 shares of common stock. 
Authorized common shares include 1,559,963 
shares and 1,560,163 shares reserved at December 
31, 1977, and 1976, respectively, for issuance as 
follows: 
28 
1977 1976 
For convertible securities 
conversions: 
5% Convertible Subordinated 
Debentures (Note C) 319,853 319,853 
6% Convertible Subordinated 
Debentures (Note C) 583,300 583,300 
Series A Convertible Preferred 
Stock 163,581 163,781 
1,066,734 1,066,934 
For exercise of outstanding 
warrants at $6 per share, issued 
with Convertible Preferred Stock 457,229 457,229 
For options under Qualified Stock 
Option Plan (11 ,000 shares) and 
Employee Stock Option Plan 
(25,000 shares) 36,000 36,000 
1,559,963 1,560,163 
At December 31 , 1977, 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 $2.95 per share) expire in 1980. Option 
transactions during the two years ended December 
31, 1977, are summarized as follows: 
Number of Option Price 
Shares Per Share Total 
Outstanding 
January 1, 1976 45,000 $2 .94-$5.81 $225,000 
Expired in 1976 (34,000) 5.25 (179,000) 
Outstanding 
December 31 , 
1976 and 1977 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, 1977. Options became 
exercisable as follows: 
 1977 1976 
Number of Shares 3,667 2,333 
Option Price: 
Per Share $2.94-$5.81 $3.50-$5.81 
Total $ 15,000 $ 11 ,000 
Quoted Market Price at Date 
Exercisable: 
Per Share $3.63-$4.50 $5.00-$5.50 
Total $ 15,000 $ 12,000 
Options for 6,333 shares (aggregating $34,000 at 
option prices) and 3,667 shares (aggregating $19,000 
at option prices) were exercisable at December 31 , 
1977, and 1976, 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, Employee Stock Ownership, and 
Incentive Compensation Plans 
Pension expense was $4,032,000 in 1977 and 
$3,251 ,000 in 1976, which includes $312,000 in 1977 
and $273,000 in 1976 applicable to the Employee 
Stock Ownership Plan adopted in 1975. The Company 
has an incentive compensation plan under which 
approximately $410 ,000 was accrued in 1977. 
Note G-Leases 
The Company leases flight equipment, maintenance 
and training center, general office building, airport 
terminal space, and other property and equipment. 
Other property and equipment includes the following 
amounts for leases that have been capitalized: 
December 
1977 1976 
Assets $5,025,000 $168,000 
Less accumulated amortization 84,000 7,000 
$4,941,000 $161 ,000 
Amortization of amounts capitalized as the cost of 
property and equipment is included in depreciation 
expense. 
The following is a schedule by years of the aggregate 
future minimum rental payments under capital leases 
and noncancellable operating leases that have initial 
or remaining terms equal to or exceeding one year: 
Capital Operating 
Leases Leases 
1978 $ 667,000 $ 8,053,000 
1979 667,000 7,526,000 
1980 667,000 6,810,000 
1981 667,000 6,381 ,000 
1982 667,000 6,204,000 
Subsequent to 1982 12,452,000 79,122,000 
Total minimum lease 
payments 15,787,000 $114,096,000 
Amounts representing 
interest 10,824,000 
Present value of future 
minimum lease payments $ 4,963,000 
Rental expense included in operations for 1977 and 
1976 was $10,787,000 and $11,299,000, respectively. 
Contingent rentals and rentals received from subleases 
are immaterial. 
As permitted by Statement of Financial Accounting 
Standard No. 13, the Company has accounted for 
leases entered prior to January 1, 1977, in accordance 
with generally accepted accounting principles existing 
prior to the issuance of the Statement. The effect of 
the change to the lease capitalization requirements 
of Statement No. 13 is not material to the 1977 
financial statements. 
If the Company were required to restate its financial 
statements in 1977 as it will be required to do in 1978, 
to apply Statement No. 13 in accounting for leases, 
the effect would result in certain leases being 
capitalized with an increase (decrease) in amounts 
reflected in the accompanying financial statements 
as follows: 
December 31 
1977 1976 
Property and Equipment- net $10,072,000 $19,947,000 
Capital lease obligations 
Current 2,362,000 4,706,000 
Noncurrent 10,434,000 18,594,000 
Increase (decrease) in 
net income 1,089,00Q(al (80,000) 
Increase (decrease) in 
earnings per common and 
common equivalent share- 
primary .63(al (.05) 
Retained Earnings (1,215,000) (2 ,304,000) 
Common stockholders' equity 
per common share (.77) (1.46) 
(a) Includes increase in net income of $241 ,000 
( 14 cents per share primary) applicable to the loss of an 
aircraft discussed in Note B. 
29 
 Note H - Other Commitments and Contingencies 
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 agreement 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 those suits that 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 1977. 
In October 1977, the Company signed an agreement 
with McDonnell Douglas Corporation for the purchase 
of four DC9-80 aircraft (with an option to lease for a 
term of 14 years) at the approximate cost of $64 million, 
with delivery during 1980. The financing arrangements 
have not been completed, although the Company has 
obtained a manufacturer's guarantee for a portion of a 
financing package. 
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. 
The Company has purchase commitments for 
delivery in 1978 of three aircraft at the approximate 
cost of $6,000,000. 
Note I- Earnings per Share 
Primary earnings per share for 1977 were computed 
by dividing net income (less preferred dividend 
requirement and adjusted as described below) by the 
weighted average number of common and common 
equivalent shares outstanding during the year- 
1, 732,923 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 
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 1977 were 
determined on the assumption that the weighted 
30 
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 2,799,826 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. 
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 above) 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 results of such 
conversions would not have been dilutive. 
Note J -Supplementary Information 
1977 1976 
Depreciation and Amortization: 
Depreciation of property 
and equipment $ 6,773,000 $ 4,878,000 
Amortization of deferred 
charges 370,000 396,000 
Provision for inventory 
obsolescence 240,000 233,000 
7,383,000 5,507,000 
Deduct-amounts charged 
to other expense accounts 111,000 126,000 
$ 7,272,000 $ 5,381,0Q0 
Taxes, otherthan income taxes, 
charged to operating 
expenses: 
Payroll taxes $ 2,498,000 $ 2,352,000 
Fuel and oil taxes 1,036,000 881,000 
Property taxes 865,000 782,000 
Sales and use taxes 473,000 431 ,000 
Other 178,000 175,000 
$ 5,050,000 $ 4,621,000 
Rents: 
Rental expense under leases $10,787,000 $11 ,299,000 
Rental expense charged to 
other e?(pense accounts- 
net (53,000) (70,000) 
$10,734,000 $11,229,000 
Advertising costs $ 1,676,000 $ 1,712,000 
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 years ended December 31, 1977 
and 1976: 
 Three Months Ended 
1977 1976 
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 
- - - 
(Thousands of dollars, except per share data) 
Operating revenues $36,794 $38,556 $40,574 $43,587(b) $32,045 $35,860 $36,087 $36,175 
Operating expenses 36,940 37,177 37,939 39,931 32,650 33,791 34,370 36,864 
Operating income (loss) (146) 1,379 2,635 3,656 (605) 2,069 1,717 (689) 
Net income (loss) (481) 4,296(a) 1,869 2,569(b) (649) 1,149 827 (922) 
Net income (loss) per common and 
common equivalent share 
Primary (.31) 2.49(a) 1.09 1.48(b) (.42) .65 .47 (.59) 
Fully diluted (.31) 1.59(a) .73 .95(b) (.42) .45 .33 (.59) 
(a) Includes excess insurance proceeds from the loss of a DC9 aircraft which increased net income by $3,606,000 ($2.09 per 
share primary and $1.29 per share fully diluted). See Note B. 
(b) Includes mail revenue of $1,391,000 ($682,000 after income taxes-39 cents per share primary and 25 cents per share fully 
diluted) related to the period 1973 through September 30, 1977. See Note B. 
Quarterly earnings per share do not total earnings 
per share for the year because the computation of 
earnings per share for certain quarters did not include 
common stock equivalents which were 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 other 
property and equipment, and has presented 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 other 
property and equipment at December 31, 1977 and 
1976, and the approximate effect which replacement 
cost would have had on depreciation expense for such 
years, as compiled in accordance with the rules of the 
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 
In March 1978, the Company committed to purchase 
two DC9 aircraft currently leased. In addition, the 
Company purchased an option for the purchase of an 
additional eight used DC9 aircraft. The purchase price 
of these ten aircraft is approximately $24 million. 
31 
 REPORT OF ERNST & ERNST, Independent Auditors 
Board of Di rectors 
Southern Airways, Inc. 
Atlanta, Georgia 
We have examined the balance sheets of Southern Airways, Inc. as of December 31, 1877 and 
1976, and the related statements of income, retained earnings 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, 1977 and 1976, 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 27, 1978 
except as to Note M, as to 
which the date is March 16, 1978. 
Notice to Stockholders of Southern Airways, Inc. 
Any person who owns, as of December 31 of any year, or 
subsequently acquired 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 the 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. 
32 
Equal Opportunity Policy 
It is the policy and practice of Southern Airways, Inc., to 
recruit, hire, and promote those persons who are best 
qualified without regard to their race, color, religion, sex, 
age (40-65), national origin, or physical or mental handicap, 
and not to discriminate against any employee or applicant 
for employment because he/ she is a disabled veteran or 
Vietnam era veteran. 
To further this objective, the Company has est.ablished 
procedures to insure that all personnel actions such as 
compensation, benefits, transfers, lay-offs, returns from 
lay-off, Company sponsored training, education, tuition 
assistance, social and recreational programs, and all 
Company facilities are administered without regard to race, 
color, religion, sex, age (40-65), national origin, physical or 
mental handicap, and will take into consideration those 
employees who are disabled veterans or Vietnam 
era veterans. 
These practices are designed and implemented to be in 
concert with the accepted standards and principles of equal 
opportunity employment. 
 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 
DAVID H. HUGHES 
President and Chief Executive Officer 
Hughes Supply, Inc. 
(Manufacturer and Distributor of 
Electrical and Plumbing Supplies) 
Orlando, Florida 
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**t 
Chairman of the Board 
Oxford Industries, Inc. 
(Textile Manufacturer) 
Atlanta, Georgia 
A. L. MAXSON 
Vice President-Finance 
and Treasurer 
Southern Airways, Inc. 
G. FRANK PURVIS, JR.** 
Chairman of the Board and Chief 
Executive Officer-Pan American 
Life Insurance Company 
New Orleans, Louisiana 
F. D. SCHASt 
Retired Investment CouAselor 
Memphis, Tennessee 
ELTON B. STEPHENS* 
Chairman and Founder 
EBSCO Industries, Inc. 
(Diversified Multinational Sales 
Corporation and Metals Manufacturing) 
Birmingham, Alabama 
RICHARD A. TRIPPEER, JR.** 
President-Union Planters 
National Bank 
Memphis, Tennessee 
WM. BEW WHITE, JR.* 
Assistant Secretary 
Southern Airways, Inc. and 
Partner-Bradley, Arant, Rose & White 
(Attorneys) 
Birmingham, Alabama 
FRANK M . YOUNG , Ill** 
Partner- North Haskell 
Slaughter Young & Lewis 
(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 0. HAYES 
Assistant Secretary 
WM. BEW WHITE, JR. 
Assistant Secretary 
*Member of Executive Committee 
**Member of Audit Committee 
tSenior Director 
General Information 
Counsel 
Bradley, Arant, Rose & White 
Birmingham, Alabama 
Ballard, Beasley and Nelson 
Washington, D.C. 
Auditors 
Ernst & Ernst 
Atlanta, Georgia 
Stock Transfer Agent 
Trust Company Bank 
Atlanta, Georgia 
Form 10-K 
A copy of the Company's Annual 
Report to the Securities and 
Exchange Commission on Form 10-K 
is available to the Company's 
securities holders, without charge, 
on request to: 
Mr. A. L. Maxson 
Vice President- Finance and Treasurer 
Southern Airways, Inc. 
Hartsfield Atlanta International Airport 
Atlanta, Georgia 30320 
F-3 
 Route Applications Pending 
Before the Civil Aeronautics Board* 
Midwest-Atlanta Competitive 
Service Case 
(Atlanta-Detroit) 
(Atlanta-Cleveland) 
Docket No. 28115 
Houston/New Orleans-Yucatan 
Proceeding 
(New Orleans-Merida) 
(New Orleans-Pun,ta Cancun) 
(New Orleans-Cozumel) 
Docket No. 29 789 
Louisville Service Case 
(Louisville-Nashville) 
(Louisville-Memphis) 
Docket No. 29968 
TWA/Southern Route Exchange Case 
(Nashville-St. Louis) 
(Nashville-Tampa) 
(Nashville-Miami/Ft. Lauderdale) 
(Tampa-Miami/Ft. Lauderdale) 
Docket No. 29001 
Caribbean Area Service Investigation 
(Co-terminal points, New York/ 
Newark-Washington, D.C.-Memphis- 
Birmingham-Atlanta-New Orleans- 
Jacksonville-Orlando-Tampa/St. 
Petersburg/Clearwater-Fort 
Lauderdale-Miami and Puerto Rico- 
Turks and Caicos Islands-Haiti- 
Dominican Republic-U .S. Virgin 
Islands-Antigua-Martinique- 
Barbados-Trinidad-Netherlands 
Antilles-Venezuela) 
Docket No. 3069 7 
*As of March 24, 1978 
Service To Brunswick And 
Savannah Case 
(Atlanta-Brunswick) 
(Atlanta-Savannah) 
(Brunswick-Savannah) 
( Bru nswick-Jac ksonvil le) 
(Savannah-Jacksonville) 
Docket No. 30570 
Memphis-Denver Nonstop Service Case 
Docket No. 29189 
Atlanta-Florida Cities Case 
(Between and among the following 
points: Atlanta-Pensacola-Tallahassee- 
Jacksonville-Gainesville-Tam pa/ 
St. Petersburg/Clearwater-Orlando- 
Melbourne-West Palm Beach-Miami/ 
Fort Lauderdale) 
Docket No. 31680 
Proposed routes from: 
NEW YORK/NEWARK 
WASHINGTON, D.C. 
MEMPHIS 
BIRMINGHAM 
ATLANTA 
NEW ORLEANS 
JACKSONVILLE 
ORLANDO 
TAMPA/ST. PETERSBURG/CLEARWATER 
FORT LAUDERDALE 
MIAMI 
Florida-Atlanta Competitive Nonstop 
Service Case 
(Atlanta-Tallahassee-Daytona Beach- 
Sarasota/Bradenton-Miami/Fort 
Lauderdale) 
Docket No. 30679 
Nashville-Cleveland Subpart M Case 
(Nashville-Cleveland) 
Docket No. 31116 
New Orleans-Orlando Case 
(New Orleans-Orlando) 
Docket No. 32043 
Austin/San Antonio-Atlanta 
Service Investigation 
(Atlanta-Austin) 
(Atlanta-San Antonio) 
(Austin-San Antonio) 
Docket No. 32143 
to the following points: 
PUERTO RICO 
TURKS AND CAICOS ISLANDS 
HAITI 
DOMINICAN REPUBLIC 
U.S. VIRGIN ISLANDS 
ANTIGUA 
MARTINIQUE 
BARBADOS 
TRINIDAD 
NETHERLANDS ANTILLES 
VENEZUELA 
DESIGNED AND PRODUCED BY S TEIN CORPORATE COMMUNICATIONS/ ATLANTA 
F-4 
 -a 
Southern 
NEBRASKA 
COLORADO 
TEXAS 
MINNESOTA 
MINNEAP LIS- 
ST. PAUL 
OKLAHOMA 
\ 
\ 
IOWA \ 
\ 
\ 
\ 
\ 
\ 
\ 
WISCONSIN 
*Substitute service to Natchez, Miss , 
1s provided by a commuter airline 
Investigation 
MICHIGAN 
INDIANA 
GRAND CAYMAN 
NEW YORK 
PENNSYLVANIA 
NORTH CAROLINA 
ESTON 
NA e 
  
   
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ST PA9' BEACH 
 
~ 
I 
Southern Airways 
System  
Scheduled to beg in 
in Summer 1978 
DELAWARE 
...... Recommended by 
Civil Aeronautics 
Board administrative 
law judge; awaiting 
approval by the Board 
- Pending before the 
Civil Aeronautics Board 
All service, authonzat,ons, 
and pending routes shown as 
of March 24, 1978 
 ,, 
Southern 
Southern Airways, Inc . 
General Office 
Hartsfield Atlanta International Airport 
Atlanta, Georgia 30320