- 
Southern 
Southern Airways, Inc. 
1978 Annual Report 
  
Southern 
Southern Airways, Inc. is a certificated, scheduled 
airline engaged in transportation of persons, property 
and mail. The Company serves 18 states, the District 
of Columbia, and the Cayman Islands in the British 
West Indies. 
Southern began scheduled service on June 10, 1949. 
During 1978, the Company's aircraft flew almost 34 
million miles, serving more than 4.1 million passengers. 
Aircraft in service include 30 DC9 jetliners and eight 
Metro 11 turboprops. Today, more than 98 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 4,500 
stockholders residing in 45 states and 10 foreign coun- 
tries. 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 major metro- 
politan 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 
fares and quality of service are competitive. 
On February 22, 1979, the shareholders of Southern 
voted to merge with North Central Airlines, Inc. Such 
merger is subject to approval of certain creditors, the 
Civil Aeronautics Board and the President of the 
United States. 
Southern is headquartered at Hartsfield Atlanta 
International Airport where the Company's 
Maintenance Base, Reservations Center, Training 
Center and General Office are located. 
About the Company 
Market Price of Common Stock 
Range of high and low bid and asked prices for the 
Company's Common Stock: 
Bid Price Asked Price 
Year High Low High Low 
1977 
First Quarter .. . . . .. . 41/s 3 4  41/s 
Second Quarter .. . .. 41/a 35/a 4  4 
Third Quarter ....... 41/s 35/a 4  4 
Fourth Quarter ...... 5 41/s 53 
/a 4 
1978 
First Quarter ... . .... 61/a 5 7 53/a 
Second Quarter .. . . . 8 63 
/a 83/a 6 
Third Quarter .... 16 75/a 17 8 
Fourth Quarter .. . .. 13 7  14 83/4 
1979 
First Quarter through 
February 26 . ... . 13 11  14 12 
On July 12, 1978, the day immediately preceding pu blic 
announcement of a proposed merger with North Central 
Airlines, Inc., the closing bid and asked prices of Southern's 
common stock were $8.00 and $8.375, respectively. 
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 subordina- 
ted debentures or warrants. 
Contents 
About the Company . . . . . . . . . . . . . . . . . . . . . . . . 1 
Report to Stockholders . ..... .. . . . .. . ... . ... 2 
Highlights .... . ... . ....... . .. .. . .......... 3 
Management's Discussion of 1978 
and 1977 Summary of Operations .... . .. .. .. 4-5 
Report of Ernst & Ernst, 
Independent Auditors . . . . . . . . . . . . . . . . . . . . . 6 
Statements of Income . . . . . . . . . . . . . . . . . . . . . . 7 
Balance Sheets . . . . .. . ... ... . ....... .. .. .. 8-9 
Statements of Changes in Financial Position . ... 10 
Statements of Stockholders' Equity ... .. .... . . 11 
Notes to Financial Statements ..... .. .... . . 11 -18 
Five-Year Operating and Financial Summary .... 19 
Directors and Officers ... .... ... . .......... 20 
 Report to Stockholders 
Clearly, the most significant event in 1978 was the 
announcement in July of the proposed merger of 
your Company and North Central Airlines, Inc., 
headquartered in Minneapolis, Minnesota. Upon 
the approval of the merger, these strong, regional 
carriers will become a coast-to-coast, national air 
carrier of considerable strength and potential. The 
new Company will be named Republic Airlines, Inc. 
Republic will serve some 150 cities and will 
generate an expected $700 million in revenue in its 
first full year. By linking the two strong regional 
systems over major connecting "bridge" routes, 
many small and medium-size cities on both systems 
will receive significantly improved, more frequent 
single-carrier and single-plane service. This, in turn, 
will generate additional revenue greater than for 
each carrier separately. With corresponding cost 
efficiencies, the profit potential will be enhanced. 
The merger has been approved by the stock- 
holders and directors of both companies and has 
been recommended favorably by an administrative 
law judge of the Civil Aeronautics Board. Consum- 
mation of the merger now is awaiting final approval 
of the Board and the President of the United States. 
This action is expected by mid-year. 
Upon completion of the merger, Southern's 
stockholders will receive 2.1 shares of common 
stock of North Central (Republic) for each share 
of Southern common stock. The conversion ratio 
on Southern's convertible debentures and the 
exercise rights on Southern's warrants will be 
amended to reflect the same exchange ratio. 
In 1978, Southern earned $2.4 million, or $1.29 
per share primary, on total revenues of $188.5 
million. This compares with a profit of $9.3 million, 
or $5.39 per share primary, in 1977 (after restatement 
to comply with Financial Accounting Standards 
Board Staternent No. 13, "Accounting for Leases") 
on total revenues of $159.5 million. A $3.9 million 
gain from an insurance settlement contributed to 
1977 resu Its. 
2 
Although revenue passenger miles increased a 
significant 27 .8 per cent in 1978, this was not 
sufficient to overcome a four per cent decline in 
revenue per passenger mile caused by the prolifera- 
tion of discount fares and the inflationary effects 
on costs, and still maintain 1977's profit margin. 
A more thorough review of the financial results 
is contained in Management's Discussion on the 
fo 11 owing pages. 
Southern and North Central, as wel I as the 
travelling public, will all benefit substantially from 
the merger. Together the two carriers can draw from 
the strengths of the other to produce a new airline 
stronger and better qualified to provide the best in 
air transportation service and to compete effectively 
in whatever regulatory environment the coming years 
may bring. 
Respectfully submitted, 
Frank W. Hulse 
Chair? 
~~ffe~ 
Vice Chairman 
/4-~~ In 
George M. Gross 
President 
March 30, 1979 
~ 
 Highlights 
Year ended December 31 1978 
PASSENGER REVENUES $ 159,802,000 
OPERATING REVENUES $ 188,512,000 
OPERATING INCOME $ 7,706,000 
NET INCOME $ 2,407,000* 
PRIMARY EARNINGS PER SHARE $ 1.29* 
REVENUE PER PASSENGER MILE $ 0.120 
SCHEDULED SERVICE 
REVENUE PASSENGER MILES 1,334,987,000 
AVAILABLE SEAT MILES 2,449,402,000 
PASSENGER LOAD FACTOR 54.5% 
REVENUE PASSENGERS CARRIED 4,111,000 
REVENUE PLANE MILES FLOWN 33,977,000 
NUMBER OF EMPLOYEES 
* Includes gain from sale of four engines which increased net income 
by $660,000 (32 cents per share). 
** Includes excess insurance proceeds horn the loss of a DC9 aircraft 
which increased net income by 53,922,000 ($2 .26 per share). Also 
includes prior years ' mail revenue which increased net income by 
$500,000 (29 cents per share ) 
The Company's 1977 financial statements have been restated in 
accordance with FASB Statem nt No 13. "Accounting for Leases" . 
These highlights should be read In con1unc1Ion with the Financial 
Statements and Notes to the F1nanc1al Statements appearing 
elsewhere in this report . 
3,216 
1977 % 
s 130,828,000 22.1 
s 1 5 9, 51 1 , 000 18.2 
$ 9,260,000 (16.8) 
$ 9,342,000** (74.2) 
$ 5.39** (76.1) 
$ 0.125 (4.0) 
1,044,818,000 27.8 
2,043,061,000 19.9 
51 .1% 6.7 
3,457,000 18.9 
28,638,000 18.6 
2,922 10.1 
3 
 Management's Discussion of 1978 and 1977 
Summary of Operations 
Overview 
Net income in 1978 was $2,407,000 ($1 .29 per 
share), compared to net income of $9,342,000 
($5 .39 per share) in 1977 after restatement to 
comply with FASB Statement No. 13, "Accounting 
for Leases", and $325,000 ( 1 7 cents per share) 
in 1976. In each of the years significant traffic 
growth was offset by increases in operating costs, 
both from inflationary sources and the cost to provide 
additional service to the public. 
Capita I gains and items of a nonrecurring nature 
added approximately $660,000 (32 cents per share) 
to net income in 1978, $4,422,000 ($2.55 per share) 
to 1977 and $145,000(nine cents per sha re)to 1976. 
Exclusive of the effect of these items, net income 
would have been approximately $1,747,000 (97 
cents per share) in 1978, $4,920,000 ($2.84 per 
share) in 1977, and $180,000 (eight cents per 
share) in 1976. 
Operating Revenues 
Total operating revenues reached record levels of 
$188,512,000 in 1978 and $159,511,000 in 1977, 
up 18.2 per cent and 13.8 per cent, respectively, 
compared with prior years. 
Passenger revenues of $159,802,000 in 1978 
represented a 22 .1 per cent gain over the prior year, 
while the $130,828,000 in passenger revenues in 
1977 reflected a 13.6 per cent gain over 1976. 
4 
Capacity, as measured by available seat miles 
(ASMs), was increased by 14.6 per cent in 1978fol- 
lowing a 5.7 per cent increase in 1977. These 
increases were brought about by the addition of two 
DC9 and one Metro aircraft in 1978 and alterations 
to increase the capacity of existing DC9 aircraft 
in 1978 and 1977. 
Yield (revenue per passenger mile) increased from 
11 . 7C in 1976 to 12.5C in 1977 and decreased to 
12.0C in 1978. The improvements from 1976 to 
1977 reflected certain fare increases throughout 
the period and the elimination of certain discount 
fares in 1976. The decrease in 1978 is a result of the 
introduction of new discount fares early in the year. 
Charter revenues decreased by $2,432,000 from 
1977 to 1 978 due to the phasing out of the Com- 
pany's charter operations to more profitably use the 
aircraft in scheduled services. The Company antici- 
pates flying very few charters in 1979. 
Other revenues increased by $3,352,000 in 1978 
and by $3,434,000 in 1977. Contract maintenance 
revenues, airframe and engine work performed for 
others initiated in 1978, contributed $2,683,000 to 
other revenues. Freight revenue increased 
$1,846,000 in 1978 and $2,477,000 in 1977 over 
the previous years. Included in the 1977 increase 
was $1,012,000of additional mail revenue received 
by the Company under a Civil Aeronautics Board 's 
order establishing permanent rates for the carriage 
of mail for the period 1973 through 1976. (See Note 
B of Notes to Fina ncia I Statements.) 
 Operating and Other Expenses 
Operating expenses increased by $30,555,000 in 
1978, following a $14,686,000 increase in 1977. 
Labor costs increased $13,590,000 in 1978 and 
$6,847,000 in 1977, as a result of increased 
salaries and benefits. The total number of employees 
at the end of 1978 was up considerably over prior 
year-end levels because of the expansion of in- 
house a ire raft engine ma i ntena nee, contract 
maintenance for others, and a greater volume of 
flying operations. There were 3,216 employees at 
December 31, 1978, compared with 2,922 at 
December 31, 1977, and 2,766 at December 
31 , 1976. 
The cost of aircraft fuels and oils increased by 
$5,265,000 in 1978 and $4,917,000 in 1977 over 
the previous year. Of these amounts, increased fuel 
consumption accounted for $3,490,000 and 
$939,000, respectively, while the balance of the 
differences were caused by the increase in the unit 
cost of fuel. Increased fuel consumption was a result 
of increases in the number of aircraft flown on the 
system. 
Depreciation and amortization expense increased 
by $2,230,000 in 1978 and $861,000 in 1977 over 
the prior year due primarily to additional aircraft in 
service and new facilities. The 1978 increase 
resulted primarily from the introduction of the new 
Metro aircraft in late 1977 and the purchase of two 
additional DC9 -10 aircraft in 1978, while the 1977 
increase was due pri ma ri ly to depreciation on the 
newly purchased Metro aircraft, and depreciation 
for a full year on two DC9-30 aircraft added in June 
and August 1976. 
Increases in other operating costs, such as outside 
goods and services, commissions, and costs relating 
to contract ma i ntena nee work performed for others 
generally are reflective of the expanded operating ' 
levels and inflationary pressures. 
As a result of increased debt to finance various 
capital additions, along with significant increases in 
!he prime interest rate during 1978, interest expense 
increased $2,262,000 from 1977 and $2,218,000 
from 1976. 
Included in Miscellaneous Deductions (Income) in 
1978 is a gain of $1,166,000 from the sale of four 
engines. In 1977, this classification included the 
ex_ 
cess of insurance proceeds over the purchase 
price on the loss of an aircraft, amounting to 
$5,823,000. 
The increase in the effective tax rate from 1977 
to 1978 was a result of the capitalization of certain 
expenses in 1978 for tax purposes and greater 
capital gains benefits in 1977 than in 1978. 
Additionally, the tax rate in 1977 as compared to 
the tax rate in 1978 was affected by the amount of 
investment tax credit. The decrease in the effective 
tax rate from 1 976 to 1 977 was a result of the more 
favorable capital gain rate applied to income in 1977 
relating to the excess i nsura nee proceeds on the loss 
of an aircraft. (See Note E of Notes to Financial 
Statements.) 
5 
 REPORT OF ERNST & ERNST, Independent Auditors 
Boa rd of Di rectors 
Southern Airways, Inc. 
Atlanta, Georgia 
We have examined the balance sheets of Southern Airways, Inc. as of December 31, 1978 and 1977, 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 . 
As discussed in Note E to the financial statements, the Company in 1978 amended the lease relating to its 
maintenance base and training facility and capitalized the lease for income tax purposes. As a result, the 
Company maybe entitled to reduce income taxes for 1975, 1976 and 1977 by approximately $800,000because 
of investment tax credits related to the lease . Because of the technical issues involved the Internal Revenue 
Service has not approved the Company's returns. Accordingly, no amounts have been included in the 
accompanying financial statements to recognize the income arising from the investment tax credits that may 
be realized upon the final resolution of this matter. 
In our opinion, subject to the effects, if any, on thefina ncia I statements oft he ultimate resolution of the matter 
discussed in the preceding paragraph, the financial statements referred to above present fairly the financial 
position of Southern Airways, Inc. at December 31, 1978 and 1977, 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 after restatement for the change, with which we concur, in the method 
of accounting for leases as described in Note B to the Financial Statements. 
Atlanta , Georgia 
February 9, 1 979 
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 capita l of Southern Airways, Inc. shall file with the Civil Aero - 
nautics 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 capita l owned as of December 31 of the preceding year; and in t he 
case of capital subsequently acquired, a report must be filed within ten (10) days after such acquisition, unless such person has other- 
wise filed with the Civil Aeronautics Board a report covering such acquisition or ownership . 
Any bank or broker covered by the provision, to the ex tent that it holds shares as trustee on the last day of any quarter of a calen - 
dar 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 t~e capita l stock or capita l of an air carrier sha ll 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 Economics 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 . 
6 
 Statements of Income 
SOUTHERN AIRWAYS, INC. 
Year ended December 31, 
Operating Revenues 
Passenger 
Ma il, express and freight- Note B 
Public service revenue- Note A 
Charter 
Other 
Operating Expenses 
Flying operations 
Ma intenance 
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 
Income Before Income Taxes 
Income taxes- Note E 
Net Income 
Net Income per Common and Common Equivalent Share - Note I 
Primary 
Fully diluted 
See Notes to Financial Statements 
1978 
$159,802,000 
$ 
$ 
$ 
10,180,000 
4,327,000 
7,162,000 
7,041,000 
188,512,000 
60,059,000 
22,603,000 
42,652,000 
10,962,000 
16,716,000 
9,916,000 
12,900,000 
4,998,000 
180,806,000 
7,706,000 
6,905,000 
(1,356,000) 
(1,159,000) 
4,390,000 
3,316,000 
909,000 
2,407,000 
1.29 
.93 
1977 
(As Restated) 
$130,828,000 
9,325,000 
5,220,000 
9,594,000 
4,544,000 
159,511,000 
50,540,000 
20,962,000 
36,078,000 
8,566,000 
12,894,000 
8,182,000 
10,670,000 
2,359,000 
150,251,000 
9,260,000 
4,643,000 
(6,199,000) 
(407,000) 
(1,963,000) 
11,223,000 
1,881,000 
$ 9,342,000 
$ 5.39 
$ 3.45 
7 
 Balance Sheets 
SOUTHERN AIRWAYS, INC. 
Assets 
Current Assets 
Cash, including short-term investments of $5,263,000 
in 1978 and $10,312,000 in 1977-Note C 
Accounts receivable 
U.S. Government-transportation and public 
service revenue 
Trade receivables, less allowance for doubtful 
accounts (1978- $190,000; 1977- $179,000) 
Maintenance and operating supplies, at average cost 
less allowance for obsolescence ( 1978- $1,397,000; 
1 977-$1 ,063,000)-Note A 
Prepaid expenses 
Total Current Assets 
Property and Equipment-on the basis of cost- 
Notes A, C, D, Hand L 
Flight equipment, including purchase deposits 
of $1,331,000 in 1978 and $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 
8 
December 31, 
1978 1977 
$ 11,747,000 
1,853,000 
14,048,000 
15,901,000 
9,406,000 
481,000 
37,535,000 
111,164,000 
20,979,000 
132, 143,000 
51,490,000 
80,653,000 
1,893,000 
489,000 
2,382,000 
$120,570,000 
(As Restated) 
$ 11,005,000 
2,984,000 
13,677,000 
16,661 ,000 
6,759,000 
507,000 
34,932,000 
103,756,000 
16,476,000 
120,232,000 
40,998,000 
79,234,000 
1,862,000 
565,000 
2,427,000 
$116,593,000 
 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-Note H 
Stockholders' Equity-Notes C, D and F 
Preferred Stock, authorized 2,000,000 shares, 
issuable in series: 
Series A, S.36 Convertible, S 1 par value, voting; 
issued and outstanding-163,581 shares (1977) 
Common Stock, $2 par value, authorized 7,500,000 
shares, issued and outstanding 1,896,288 shares 
(1978) and 1,581,080 shares (1977) 
Other paid-in capital 
Retained earnings 
Leases, Commitments and Contingencies-Notes B, D and H 
December 31, 
1978 1977 
(As Restated) 
$ 6,657,000 
5,514,000 
1,036,000 
2,039,000 
4,792,000 
10,313,000 
8,329,000 
38,680,000 
50,300,000 
7,270,000 
57,570,000 
644,000 
3,793,000 
5,981,000 
13,902,000 
23,676,000 
$120,570,000 
S 7,390,000 
4,346,000 
782,000 
2,014,000 
3,662,000 
9,471,000 
9,615,000 
37,280,000 
50,724,000 
8,289,000 
59,013,000 
314,000 
164,000 
3,162,000 
5,124,000 
11,536,000 
19,986,000 
$116,593,000 
9 
 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 
Increase in allowance for maintenance 
Amortization of deferred charges 
Deferred credits and other liabilities 
Tota I from operations 
Issuance of long-term debt 
Conversion of debentures to common stock 
Preferred stock converted to common stock 
Options and warrants exercised 
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 
Conversion of debentures to common stock 
Preferred stock converted to common stock 
Redemption of preferred stock 
Increase in deferred charges and other assets 
Dividends on preferred stock 
Increase (Decrease) in Working Capital 
Working capital (deficit) at beginning of period 
Working Capital ( Deficit) at End of Period 
Increase (Decrease) in Working Capital by Component 
Cash and short-term investments 
Accounts receivable 
Maintenance and operating supplies 
Pre pa id expenses 
Trade accounts payable 
Salaries, wages and vacations 
Accrued interest, taxes, and other expenses 
Air traffic I iabi I ity 
Current maturities of long -term debt 
Increase (Decrease) in Working Capital 
See Notes to Financial Statements 
10 
1978 
$ 2,407,000 
12,412,000 
11,000 
377,000 
330,000 
15,537,000 
33,555,000 
1,051,000 
159,000 
321,000 
2,623,000 
53,246,000 
16,000,000 
465,000 
33,947,000 
1,051,000 
159,000 
25,000 
355,000 
41,000 
52,043,000 
1,203,000 
(2,348,000) 
$ (1,145,000) 
$ 742,000 
(760,000) 
2,647,000 
(26,000) 
733,000 
(1,168,000) 
(1,409,000) 
(842,000) 
1,286,000 
$ 1,203,000 
1977 
(As Restated) 
$ 9,342,000 
10,171 ,000 
158,000 
370,000 
93,000 
20,134,000 
29,076,000 
6,187,000 
55,397,000 
34,860,000 
292,000 
19,508,000 
1,120,000 
118,000 
55,898,000 
(501 ,000) 
(1 ,847,000) 
$( 2,348,000) 
$ 2,874,000 
3,466,000 
753,000 
(467,000) 
(1 ,127,000) 
(432,000) 
(2,056,000) 
(1 ,555,000) 
(1,957,000) 
$ (501 ,000) 
 Statements of Stockholders' Equity 
SOUTHERN AIRWAYS, INC. 
Preferred Stock Common Other 
Paid-In 
Capital 
Balance January 1, 1977, as originally 
reported 
Effect of change in method of 
accounting for leases-Note B 
Balance January 1, 1977, as restated 
Net income 
Dividends on preferred stock 
Balance December 31 , 1977 
Net income 
Dividends on preferred stock 
Conversion and redemption 
of preferred stock 
Exercise of options and warrants 
Conversion of $593,000 of 6-1 / 2% 
Convertible Subordinated Debentures 
(less $16,000 deferred finance costs) 
Conversion of $458,000 of 5-3 / 4% 
Convertible Subordinated Debentures 
(less $5,000 deferred finance costs) 
Balance December 31, 1978 
See Notes to Financial Statements 
Notes to Financial Statements 
SOUTHERN AIRWAYS, INC. 
December 31, 1978 
Series A Stock Retained 
Earnings 
$1 Par Value $2 Par Value 
$164,000 
164,000 
164,000 
(164,000) 
$ 
$3, 162,000 $5, 124,000 $ 4,796,000 
(2,484,000) 
3,162,000 5,124,000 2,312,000 
9,342,000 
(118,000) 
3,162,000 
318,000 
110,000 
119,000 
84,000 
5,124,000 11,536,000 
2,407,000 
(41 ,000) 
(181 ,000) 
211 ,000 
458,000 
369,000 
$3,793,000 $5,981,000 $13,902,000 
Note A-Summary of Significant Accounting Policies 
Property, Equipment, Depreciation 
and Obsolescence 
Provisions for depreciation of property and equip- 
ment are computed on the straight-line method 
ca lculated to amortize the cost of the properties over 
the ir estimated useful lives. For DC9 flight equip- 
ment the life is 15 years (new equipment) and five 
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 
w ith a 10 per cent salvage value; for the general 
office building the life is 30 years; for ground equip- 
ment, the I ife ranges from three to 1 0 yea rs. 
At the time properties are retired, the amounts of 
costs and allowances for depreciation and mainte- 
nance 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 II spare parts, respectively. 
Deferred Charges 
Expenditures for preoperati ng and route extension 
and development costs are deferred and are amor- 
tized 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 periods of the 
financial arrangements. 
11 
 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 cur- 
rently payable or deferred. 
Pension Plans 
The Company has several pension plans covering 
substantially all of its employees. There are noun- 
funded past service costs. The Company's policy is 
to fund pension costs accrued. At December 31, 
1978, the assets of the pension fund exceeded the 
actuarially computed value of vested benefits. 
Employee Stock Ownership Plans 
The Company has an Employee Stock Ownership 
Plan (ESOP) and a Tax Reduction Act Stock Owner- 
ship Plan (TRASOP) for certain of its employees. The 
TRASOPwas established effective January 1, 1977. 
The Company's contribution to the ESOP is deter- 
mined annually at rates related to the base compen- 
sation 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 (CAB)for providing 
service to small and intermediate-size cities on its 
routes. Amounts received and recognized as reve- 
nues are those paid for the period based on the 
formula then in effect. Since July 1, 1978, the Com- 
pany has been receiving subsidy under a temporary 
rate in anticipation of a new subsidy rate which will 
be adjusted retroactively to July 1, 1978, when the 
rate is finalized . If the final rate, when determined, 
follows the pattern the Board has in the past estab- 
lished in determining final rates, the amount to be 
received by the Company from the CAB as public 
service revenue will not substantially differ from 
the amount received under the temporary rate. 
Note 8-Certain Significant Transactions and 
Credits Affecting Operating Results 
The Company sold four DC9 engines during 1978. 
The gain on the sale was $1,166,000 ($660,000 or 
32 cents per share primary after income taxes). 
The Company's financial statements have been re- 
stated to reflect the accounting for certain operating 
leases entered into prior to January 1, 1 977, as 
capital leases by recording assets and liabilities for 
leased property and equipment in accordance with 
FASS Statement No. 13, "Accounting for Leases". 
The effect of this change is recorded as an adjust- 
ment of beginning retained earnings for the year 
1977. Net income for 1977 was increased by 
$1,089,000 ($.63 per share primary). 
12 
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 manage- 
ment, the claims are adequately covered by insur- 
ance . Insurance proceeds in excess of the purchase 
price of the leased aircraft and other related costs 
were $5,823,000 ($3,922,000 or $2.26 per share 
primary after income tax effect). 
On December 29, 1977, the CAB issued an order 
establishing temporary rates for the carriage of mail 
during the period 1973through 1977 asa continuing 
part of the Priority and Nonpriority Domestic Service 
Mail Rates Investigation instituted in December 
1970. Under the order, Southern 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 November 1978, the 
CAB issued a final order substantially confirming the 
mail rates through 1977 and establishing a pro- 
cedure for adjusting mail rates for cost increases for 
years beginning with 1978. The final order had the 
effect of increasing net income in 1978 by $54,000 
(three cents per share primary). 
Note C-Long-Term Debt 
At December 31, 
Notes payable to banks 
under Credit Agreement 
"A" Term Loans, payable 
1978 
quarterly through 1982 $ 8,742,000 
"B" Revolving Loans, 
payable quarterly 
through 1985 3,000,000 
"C" Term Loans, payable 
quarterly through 1984 5,065,000 
Other notes payable 
Term note payable 
quarterly through 1988 7,142,000 
Term note payable 
quarterly through 1987 9,957,000 
Term notes payable 
quarterly through 1986 5,813,000 
Promissory notes 
Convertible Subordinated 
Debentures 
5-3/ 4% due December 
1, 1 981 
6-1 / 2% due November 
1, 1983 
Capital lease obligations- 
Note D 
Less current maturities 
3,016,000 
5,047,000 
18,117,000 
65,899,000 
8,329,000 
1977 
$10,962,000 
4,000,000 
6,029,000 
7,303,000 
10,752,000 
2,516,000 
3,474,000 
5,833,000 
17,759,000 
68,628,000 
9,615,000 
$57,570,000 $59,013,000 
 Notes payable to banks under the Credit Agree- 
ment bear interest at the lead bank's prime rate 
( 11 -3/ 4 per cent at December 31, 1 978), pl us one 
per cent ("A" and "C" Term Loans) and one and one 
half per cent ("B" Revolving Loan) and are payable in 
quarterly i nsta II ments. Substantially al I the 
Company's assets not pledged as collateral under 
the term notes described below are pledged as col - 
lateral under the terms of the Credit Agreement. 
Additionally, the "A" and "C" Term Loans are 90 per 
cent guaranteed by the Federal Aviation 
Administration . 
In November 1978, the Company expanded the 
" B" Revolving Loan commitment to a maximum of 
$16 .5 million . The new "B" Revolving Loan requires 
quarterly reductions in the comm itmentof $590,000 
beginning February 1979 and continuing through 
November 1, 1985. Additionally, reductions under 
the new "B" Revolving Loan commitment are 
required equal to 50 percent of net income in excess 
of $4,000,000 earned in any fiscal year . 
The term note due in 1988 is payable in forty 
quarterly consecutive installments beginning May 1, 
1978, plus interest at prime plus 2-1 / 2 per cent. The 
Metroliner 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 ($1,003,000) and a Class B Note ($8,954,000), 
both payable in forty quarterly installments with 
interest at 10 per cent and 8-1 / 4 per cent, respec- 
tively. The proceeds of the note were used to pur- 
chase six DC9-10 aircraft previously 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 Ad- 
ministration . 
The term notes due in 1986 are payable in equal 
quarterly installments, together with interest at the 
rate of 11 per cent per year over an eight year term . 
The notes are secured by a mortgage on three DC9 
aircraft and three spare engines. 
The promissory note of $2,516,000 at December 
31, 1977, was refinanced as a portion of the "B" 
Revolving Loan . 
The 5-3/ 4 per cent Convertible Subordinated 
Debentures due December 1, 1981 , are convertible 
into Common Stock at $10.86 per share; are subordi- 
nated, generally, to all existing and future indebted- 
ness for borrowed money; are callable at premiums 
currently ranging from three-fourths of one per cent 
downward; and require annual sinking fund pay- 
ments on December 1 of each year in an amount 
equal to $435,000. 
The 6-1 / 2 per cent Convertible Subordinated De- 
bentures due November 1, 1 983, a re convertible into 
Common Stock at $10 per share; are subordinated, 
genera I ly, to al I existing and future indebtedness for 
borrowed money; are callable at premiums ranging 
from two per cent downward; and require annual 
sinking fund payments which began November 1, 
1978, in an amount equal to $583,000. 
re terms of the Credit Agreement, the term note 
due in 1987 and both issues of convertible sub- 
ordinated debentures place certain requirements 
and restrictions upon, among other things, (a)work- 
ing capital, (b) indebtedness and lease obligations, 
(c) capital expenditures, (d) net worth and (e) pay- 
ments relating to capital stock, including dividends. 
Retained earnings available for the payment of 
dividends under the most restrictive requirement 
amounted to approximately $2,950,000 at 
December 31, 1 978. 
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, eq ua I to the sum of 1 5 per cent of the average 
daily balance outstanding of the "A" Loan, 20 per 
cent of the average daily balance outstanding of the 
"B" Revolving Loan, 10 per cent of the unused por- 
tion of the "B" Revolving Loan Commitment, and 
20 per cent of the average daily balance of the "C" 
Loan outstanding. Based upon outstanding borrow- 
ings at December 31, 1978, the Company should 
maintain average compensating balances of approx- 
imately $4,512,000 which stated in terms of the 
Company's book cash balances is approximately 
$2,668,000. The difference is attributable to 
average uncollected funds and float. During 1978, 
the Company maintained average compensating 
balances of approximately $4,984,000. Compensat- 
ing 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 summaryof minimum principal payments for the 
five years ended December 31, 1983 applicable to 
long-term debt including capital lease obligations, is 
as follows: 
1979 
1980 
1981 
1982 
1983 
Thereafter 
S 8,329,000 
8,484,000 
10,169,000 
10,401,000 
8,838,000 
19,678,000 
$65,899,000 
Substantially all interest capitalized ($98,000 in 
1978 and $116,000 in 1977) is related to cash 
deposits for the purchase of aircraft and aircraft 
modifications. If the Company did not have a policy 
of capitalizing interest, net income would have been 
reduced by $38,000 (2 cents per share primary) and 
$57,000 (3 cents per share primary), in 1978 and 
1977, respectively. 
13 
 Note D- Leases 
The Company leases flight equipment, its mainte - 
nance and training center, its general office build- 
ing, airport terminal space, and other property and 
equipment. 
The following is a summary of leased property 
under capital leases included in property and equip- 
ment at December 31, 1978 and 1977: 
1978 1977 
Flight equipment $21,116,000 S 19,973,000 
Ground property and 
equipment 8,936,000 7,198,000 
30,052,000 27,171,000 
Less accumulated 
amortization 13,943,000 11 ,196,000 
$16,109,000 S 15,975,000 
Amortization of amounts capitalized as the cost of 
property and equipment is included in depreciation 
expense. 
At December 31, 1978, future minimum rental 
payments under capital leases and non-cancellable 
operating leases that have initial or remaining terms 
equal to or exceeding one year are as follows: 
1979 
1980 
1981 
1982 
1983 
Subsequent to 1983 
Total minimum lease 
payments 
Amounts representing 
interest 
Present va I ue of future 
minimum lease 
payments 
Operating 
Leases 
S 4,886,000 S 
4,678,000 
4,506,000 
4,396,000 
4,215,000 
74,166,000 
$96,847,000 
Capital 
Leases 
4,169,000 
3,824,000 
3,453,000 
3,324,000 
2,847,000 
14,658,000 
32,275,000 
14,158,000 
S 1 8, 11 7,000 
Rental expense included in operations for 1978 
and 1977 was $6,055,000 and $5,653,000, 
respectively. Contingent renta Is and renta Is re- 
ceived from subleases are immaterial. 
 The Company has an agreement with the City of 
Atlanta to lease passenger gates and other airport 
facilities at a new terminal to be operational in late 
1981 . The terms of the lease call for annual net 
rental payments of approximately $2,000,000 over 
a thirty year period. 
14 
-. 
Note E-lncome Taxes 
Income taxes are as follows: 
Current: 
1978 
Federal $1,774,000 
State 183,000 
Investment tax credit (910,000) 
1,047,000 
Deferred: 
Federal (124,000) 
State (14,000) 
Investment tax credit 
(138,000) 
$ 909,000 
1977 
$3,798,000 
530,000 
(2,217,000) 
2,111 ,000 
101 ,000 
38,000 
(369,000) 
(230,000) 
$1 ,881 ,000 
Deferred income taxes result from timing differ- 
ences 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 : 
1978 1977 
Capita I ization of leases $ 98,000 $ 327,000 
Accelerated 
depreciation (84,000) (390,000) 
Provision for inventory 
obsolescence 38,000 295,000 
Provision for 
maintenance (39,000) (35,000) 
Deferred compensation (140,000) (46,000) 
Other (11,000) (12,000) 
Investment tax credit (369,000) 
$ (138,000) $ (230,000) 
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 : 
1978 1977 
Amount % Amount % 
Computed at 
statutory federa I 
income tax rate 
of 48 per cent $1,592,000 48 $5,387,000 48 
State income 
taxes, net of 
federal income 
tax benefit 86,000 3 295,000 3 
Capital gains (84,000) 
Investment tax 
(2) (963,000) (9) 
credit (910,000) (28) (2,586,000) (23) 
Capitalizable 
expenses 200,000 6 
Other 25,000 0 (252,000) (2) 
$ 909,000 27 S 1,881,000 17 
 During 1978, the Company amended its lease with 
the City of Atlanta relating to its maintenance base 
and training facilities. As a result of this amendment' 
to the lease agreement, the Company amended its 
1975 and 1976 tax returns and filed its 1977 tax 
return reflecting the lease as a capitalized lease for 
tax purposes. As a result of recording this lease for 
tax purposes as a capitalized lease, the Company 
reduced income taxes for 1975, 1976 and 1977 by 
approximately $800,000 related to investment tax 
credit on such assets. Representatives of the Internal 
Revenue Service have indicated that claims arising 
from the capitalization of these facilities involve 
very technical issues and that they are not in a 
position to approve the Company's returns. 
Accordingly, no amounts have been included in 
the accompanying financial statements for invest- 
ment tax credit related to these assets and the 
effect of capitalizing these facilities for tax 
purposes. 
Note F-Capital Stock and Options 
Authorized common shares include shares 
reserved for issuance as follows: 
At December 31, 1978 1977 
For convertible securities 
conversions: 
5-3/ 4% Convertible 
Subordinated Debentures 
(Note C) 277,680 319,853 
6-1 / 2% Convertible 
Subordinated Debentures 
(Note C) 504,700 583,300 
Series A Convertible 
Preferred Stock 163,581 
782,380 1,066,734 
For exercise of outstanding 
warrants at $6 per share, 
issued with Convertible 
Preferred Stock 407,622 457,229 
For options under Qualified 
Stock Option Plan (4,667 
shares in 1978 and 11 ,000 
shares in 1977) and 
Employee Stock Option 
Plan (25,000 shares) 29,667 36,000 
1,219,669 1,559,963 
At December 31, 1978, there were outstanding 
options for 4,667 shares of Common Stock under the 
Company's Qualified Stock Option Plan, of which 
2,000 shares (at $3.50 per share) expire in 1979, 
and 2,667 shares (at $2.94pershare)expire in 1980. 
Option transactions during the two years ended 
December 31, 1978 are summarized as follows: 
Number 
of Option Price 
Shares Per Share Total 
Outstanding January 
1, 1977 and 1978 
Exercised 
Expired 
Cancelled 
11 ,000 $2.94-$5.81 
(4,999) 2.94-5 .81 
(1,000) 5.81 
(334) 2.94 
$46,000 
(24,000) 
(6,000) 
(1 ,000) 
Outstanding 
December 31 , 
1978 4,667 $ 2.94- $ 3.50 $15,000 
The Qualified Stock Option Plan expired on 
October 26, 1975, except for options which were 
outstanding at that date. 
Options are exercisable at not less than 100 per 
cent of the fair market va I ue of the stock on the 
date of grant, terminate not later than five years 
after date of grant, and a re 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 year ended December 31, 1 977. Options for 
4,999 shares of Common Stock were exercised 
during the year ended December 31 , 1978. Options 
became exercisable as follows: 
Number of Shares 
Option Price : 
1978 
2,333 
1977 
3,667 
Per Share 
Total 
$2 .94-$3.50 $2 .94-$5 .81 
Quoted Market Price at Date 
Exercisable: 
$7,000 $15,000 
Per Share 
Total 
$6.00-$8.75 $3 .63-$4.50 
$18,000 $15,000 
Options for 3,778 shares (aggregating $12,000 at 
option prices) and 7,333 shares (aggregating 
$34,000 at option prices) were exercisable at 
December 31, 1978 and December 31, 1977, 
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 G-Pension, Employee Stock Ownership, 
and Incentive Compensation Plans 
Pension expense was $4,169,000 in 1978 and 
$4,032,000 in 1977, including $358,000 in 1978 
and $312,000 in 1977 applicable to the Employee 
Stock Ownership Plan . The Company has an 
15 
 incentive compensation plan under which approxi- 
mately $46,000 and $410,000 were accrued in 
1978 and 1977, respectively. 
Note H-Other Commitments and Contingencies 
On February 9, 1979, an Administrative Law 
Judge of the Civi I Aeronautics Boa rd rendered a 
decision approving the merger of the Company and 
North Central Airlines, Inc. Under the Agreement 
and Plan of Merger dated September 5, 1978, the 
Company will be merged into North Central forming 
a company to be called Republic Airlines, Inc. Based 
on the adjusted net earnings of the Company for 
1978, as defined in the Agreement, each share of 
Common Stock of Southern will be converted into 
two and one-tenth (2.1) shares of North Central. 
Consummation of the merger is subject to a pprova I 
of certain creditors of both companies, the approval 
of the Civil Aeronautics Board and the President of 
the United States. 
The Company has an employmentagreementwith 
its Chairman of the Board providing for his employ- 
ment to December 31, 1979, at an annual salary of 
not less than $90,000. In addition, upon his retire- 
ment, the Company has agreed to pay $4,400 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 retire- 
ment agreement is being made over a five-year 
period beginning in 1975. 
The Company also has an employment agreement 
with its President providing for his employment 
through October 31, 1981 at an annual salary of not 
less than $90,200. In addition, the agreement per- 
mits him to take early retirement any time after 
October 31, 1981 and receive additional retirement 
income which with his benefit under the Southern 
pension plan would equal the retirement benefits he 
would have received had he worked until normal 
retirement at age 65. Provision for the amount due 
under the retirement agreement is being made over 
a 37 month period beginning October 1, 1978. This 
agreement terminates upon the effective date of 
the proposed merger with North Central. 
The Company has an agreement with its Vice 
President and Assistant Secretary, under which he 
will receive $30,000 per year until retirement in 
1983 and thereafter will continue to receive such 
amount through the Southern pension plan and a 
supplemental retirement benefit payment. The 
amount necessary to provide for the supplemental 
retirement benefit was provided for in 1978. 
Additionally, the Company has employment 
agreements with five other officers which contem- 
plate their continued employment by the Company 
for periods ranging from three to nine years (until 
16 
each officer attains the age of 60) at an aggregate 
annual compensation of $267,000. In the event the 
proposed merger with North Central is completed, 
these agreements are terminated. 
The Company is the defendant in a number of law 
suits. In the opinion of management there is ade- 
quate insurance coverage for those suits that are 
being defended by the Company's insurance 
carriers . In the opinion of management, the other 
suits are not material to the financial statements 
for 1978. 
The Company, in order to comply with the Aviation 
Noise Abatement Policy of the Department of Trans- 
portation, is required to modify 50 per cent of its DC9 
aircraft by January 1, 1981, and have all these air- 
craft modified by January 1, 1983. The estimated 
cost to modify these aircraft is approximately 
$5.6 million . 
In October 1977, the Company signed an agree- 
ment 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 to be delivered in 1980. In May 1978, 
the Company converted that agreement into an 
agreement for the purchase of four new DC9 -30 
aircraft (for delivery in the first quarter of 1980) and 
an option for two DC9-80 aircraft (for delivery in 
1982). On October 31, 1978, the Company assigned 
to North Central Airlines, Inc. its agreement with 
McDonnell Douglas Corporation for the four new 
DC9-30 aircraft and its option on the DC9 -80 aircraft. 
The Company currently has a lease commitment 
for seven additional used DC9-10 aircraft (with an 
option to purchase four of the seven) for a term of 
seven years beginning in late 1979 at an annual 
aggregate net rental of approximately $3,200,000. 
Additionally, the Company committed to purchase 
two currently-leased used DC9-10 aircraft at the 
approximate cost of $4.8 million . The Company has 
letters of credit from its lead bank totaling $2.6 mil - 
lion relating to the purchase of these two aircraft. 
Note I-Earnings per Share 
Primary earnings per share for 1978 and 1977 
were computed by dividing net income (adjusted as 
described below and reduced by the preferred 
dividend requirement of $41,000 and $59,000, 
respectively) by the weighted average number of 
common shares and common equivalent sha res 
outstanding during each period (1,839,214 in 1978 
and 1,732,923 in 1977). In 1978, common equiva - 
lent shares comprised that number of shares issu - 
able upon exercise of stock options and warrants 
less the shares assumed repurchased from the 
proceeds of the exercise at the average market 
price for the period. In 1977, common equivalent 
shares comprised that number of common shares 
issuable upon exercise ofstockoptionsandwarrants 
in excess of 20 percent of the number of com man 
 shares outstanding at the end ofthe period . Proceeds 
from the assumed exercise of the options and 
warrants, in excess of the amount which would have 
bee n required to purchase 20 per cent of the out- 
standing 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 . 
If shares of preferred stock and debentures 
converted into common stock during 1978 were 
assumed converted at the beginning of the period, 
primary earnings per common and common equival- 
ent share would have been $1 .16 or a decrease 
of 13 cents per share . 
Note J-Supplementary Information 
1978 
Depreciation and 
Amortization : 
Depreciation of 
property and 
equipment $12,412,000 
Amortization of 
deferred charges 377,000 
Provision for inventory 
obsolescence 344,000 
13,133,000 
Deduct-amounts 
charged to other 
expense accounts 233,000 
$12,900,000 
1977 
$10,171,000 
370,000 
240,000 
10,781,000 
111,000 
$10,670,000 
Fully diluted earnings per share for the years 1978 
and 1977 were determined on the assumption that 
the weighted average number of common and 
common equivalent shares for these periods was 
furth er increased from the beginning ofthe period by 
conversion of outstanding convertible debentures 
and convertible preferred stock (2,888,288 shares in 
1978 and 2,799,826 shares in 1977). These calcula - 
tions also assume no preferred dividend require - 
ment, and interest (net of income tax effect) related 
to the debentures assumed converted, was added to 
income for purposes of the calculation . 
Taxes, other than income 
taxes, charged to 
operating expenses: 
Payroll taxes $ 3,131,000 $ 2,498,000 
Fuel and oil taxes 1,183,000 1,036,000 
Property taxes 1,136,000 865,000 
Sales and use taxes 646,000 473,000 
Other 232,000 178,000 
$ 6,328,000 $ 5,050,000 
Rental expense $ 6,055,000 $ 5,653,000 
Advertising expense $ 2,419,000 $ 1,676,000 
There were no royalties or research and develop- 
ment 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, 1978 
and 1977: 
Operating revenues 
Operating expenses 
Operating income (loss) 
Net income (loss) 
Net income (loss) per 
common and common 
equivalent share 
Primary 
Fully diluted 
Mar. 
31 
$42,156 
43,792 
(1 ,636) 
(1,592) 
(1 .02) 
(1 .02) 
Three Months Ended 
1978 1977 
June 
30 
Sept. 
30 
Dec. 
31 
Mar. 
31 
June 
30 
(Thousands of dollars, except per share data) 
$48,093 $49,760 $48,503 $36,794 $38,556 
44,849 47,564 44,601 36,406 36,673 
3,244 2,196 3,902 388 1,883 
1,090 615 (a) 2,294 (b) (427) 4,950 (c) 
.62 
.42 
.32(a) 
.24(a) 
1.13 (b} 
.82(b) 
(.28) 
(.28) 
2.86(C 
} 
1.80 (c) 
Sept. 
30 
Dec. 
31 
$40,574 $43,587 
37,550 39,622 
3,024 3,965 
1,934 2,885(d) 
1 .12 1 .66 (d) 
.72 1.06 (d) 
The above quarterly results for 1977 have been restated in accordance with Financial Accounting Standards 
Board Statement No. 13, "Accounting for Leases" . The increase in net income and net income per common and 
common equivalent share resulting from the restatement was as follows : 
17 
 Net income (000) 
Net income per common and 
common equivalent share 
(primary) 
Three Months Ended 
1977 
Mar. June Sept. Dec. 
_]j__~_3_Q_ _31_ 
S 54 $654 S 65 $316 
S.03 S.37 S.03 S.18 
(a) Includes gain of $323,000 ($187,000 after 
income taxes - 10 cents per share primary and 
six cents per share fully diluted) from the sale 
of a DC9 engine. See Note B. 
(b) Includes gain of $843,000 ($473,000 after 
income taxes - 26 cents per share primary and 
16 cents per share fully diluted) from the sale 
of three DC9 engines. See Note B. 
(c) Includes excess insurance proceeds from the 
loss of a DC9 aircraft which increased net 
income by $3,922,000 ($2.26 per share pri- 
mary and $1 .41 per share fully diluted). See 
Note B. 
(d) 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. 
Equal Opportunity Policy 
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 a nnua I report to the Securities and 
Exchange Commission on Form 10-K, a copy of 
which is available upon request . Form 10-K con - 
tains specific information with respect to the 
approximate replacement cost of flight equipment 
and other property and equipment at December 31 , 
1978 and 1977, 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 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 cumu- 
lative impact of inflation . 
It is the policy and practice of Southern Airways, Inc., to recruit, hire, and promote those persons who are best qualified without re- 
gard 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 established procedures to insure that all personnel actions such as compensation, bene- 
fits, transfers, lay-offs, returns from lay-off, Company sponsored training, education , tuition assistance, social and recreational pro- 
grams, 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 d isabled 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. 
18 
 Five-Year Operating and Financial Summary 
SOUTHERN AIRWAYS, INC. 
1978 1977 1976 1975 1974 
As Restated - (2) ) 
Summary of Operations 
(In thousands, except per share amounts) 
Operating revenues 
Passenger $ 159,802 $ 130,828 $ 115,206 $ 95,666 $ 86,821 
Charter 7,162 9,594 8,803 8,208 6,908 
Pub I ic Service 4 ,327 5,220 5,723 5,961 6,805 
Other 17,221 13,869 10,435 8,115 7,818 
188,5 12 159,51,1 140,167 117,950 108,352 
Operating expenses 
Depreciation and amortization 12,900 10,670 9,809 8,287 7,917 
Other 167,906 139,581 125,756 101 ,905 91 ,939 
180,806 150,251 135,565 110,192 99,856 
Operating income 7,706 9,260 4,602 7,758 8,496 
Interest on long -term debt 6,905 4,643 4,687 4,755 5,923 
Miscellaneous deductions (income)-net (2,515) (6,606) (514) (611 l (623) 
Income before income taxes, extraordinary 
tax credit and accounting change 3,316 11 ,223 429 3,614 3,196 
Income taxes 909 1.881 104_ 985 860 
Income before extraordinary tax credit 
and accounting change 2,407 9,342 325 2,629 2,336 
Tax benefits of net operat ing loss carryforward 185 800 
Cumulative effect of accounting change 565 
Net income $ 2,407 $ 9,342 $ 325 $ 2,814 $ 3,701 
Earnings per common and common equiva lent share 
Primary $ 1.29 $ 5.39 $ .17 $ 1.62 $ 2.33 
Fully diluted $ .93 $ 3.45 $ .17 $ 1 .16 $ 1.47 
Average number of common and common 
equiva lent shares 
Primary 1,839 1,733 1,581 1,765 1,599 
Fully diluted 2,888 2,800 1,581 2,912 2,913 
Financial Position-at year end 
(In thousands, except per share amounts) 
Current assets $ 37,535 $ 34,932 $ 28,307 $ 30,324 $ 27,214 
Current liabiliti es 38,680 37,280 30,154 27,033 26,931 
Property and equipment- net 80,653 79,234 60,598 57,541 56,182 
Long -term debt (excluding current maturities) 
Notes payable and other 50,300 50,724 40,138 42,306 42,032 
Convertible subordinated debentures 7,270 8,289 9,307 9,743 10,178 
Total stockholders' equity 23,676 19,986 10,762 10,496 7,801 
Common stockholders equity (1) 23,676 19,005 9,720 9,454 6,755 
Common stockholders' equity per common share 12.49 12.02 6.15 5.98 4 .28 
Common shares outstanding 1,896 1,581 1,581 1,581 1,580 
Operating Statistics 
Scheduled services 
Passengers carried (thousands) 4,111 3,457 3,245 2,935 2,940 
Available seat miles (thousands) 2,449,402 2,043,061 1,926,166 1,688,633 1,618,776 
Revenue passenger miles (thousands) 1,334,987 1,044,818 978,991 852,547 832,372 
Passenger load factor 54.5% 51 .1 % 50.8% 50.5% 51.4% 
Brea keven passenger load fa ctor 53 .2% 46.2% 50.6% 48.2% 49 .1% 
Revenue per passenger $ 38.83 $ 37.80 $ 35.46 $ 32.55 $ 29.49 
Revenue per passenger mile 12.0C 12.5C 11 . 7C 11 .2C 10.4C 
Al I Services 
Available seat miles (thousands) 2,625,064 2,290,839 2,167,198 1,906,443 1,803,177 
Cost per seat mi le 6 .9C 6 .6C 6.3C 5.8C 5.5C 
Number of em ployees at year end 3,216 2,922 2,766 2,519 2,639 
(1)After deducting equity of preferred stockholders at $6 per outstanding preferred share plus cumulative dividends at the end of each 
of the years 1974 through 1977. All shares of preferred stock were either converted to common or redeemed as of December 31, 
1978. Annual dividends of $.36 per share ($.285 in 1978) have been paid on preferred shares for 197 4 through 1978. No cash 
dividends on common stock have been paid since 1967. 
(2) Restated to comply with F ASB Statement No. 13, "Accounting for Leases." 
19 
 Directors and Officers 
Directors 
CECIL A. BEASLEY, JR. 
Vice President and 
Assistant Secretary 
Southern Airways, Inc. and 
Partner-Ballard, Beasley and Nelson 
(Attorneys) Washington, D.C. 
GEORGE M . GROSS 
President 
Southern Airways, Inc. 
GRAYDON HALL* 
Vice-Chairman of the 
Board of Directors 
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. JOHNSTON+ 
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 
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 
20 
F.D. SCHAS+ 
Retired Investment Counselor 
Memphis, Tennessee 
EL TON 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 
GRA YOON HALL 
Vice Chairman of the 
Board of Directors 
GEORGE M . GROSS 
President 
CECIL A. BEASLEY, JR. 
Vice President and 
Assistant Secretary 
J . KENNETH COURTENAY 
Vice President-Economic 
Regulations and Secretary 
JAMES G. GODSMAN 
Vice President-Customer 
Sales and Service 
A. L. MAXSON 
Vice President-Finance 
and Treasurer 
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 
RAYW. BURDEN 
Assistant Treasurer 
GERALD N. COX 
Assistant Vice President- 
Personnel 
J . PHILLIP DAY 
Assistant Vice President- 
System Planning 
W. H. MACKINNON 
Assistant Treasurer 
WILLIAM E. OAKES 
Assistant Vice President- 
Economic Research 
MARY C. HA YES 
Assistant Secretary 
Wm . BEW WHITE, JR. 
Assistant Secretary 
* Member of Executive Committee 
* * Member of Audit Committee 
+Senior 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 lnt'I Airport 
Atlanta , Georgia 30320 
 ,, 
Southern 
Southern Airways, Inc. 
General Office 
Hartsfield Atlanta International Airport 
Atlanta, Georgia 30320