Western Air Express Annual Report 1937

W escern Air Express Corporation
Burbank, California
ANNUAL REPORT
1 937
WESTERN AIR EXPRESS CORPORATION
OFFICERS
President ,.., ,..,
Vice .. President
Operations ,..,
Vice,..,President
Traffic ,.., ,.., ,..,
Secretary and
ALVIN P. ADAMS
,.., C. N. JAMES
THOS. WOLFE
Treasurer ,.., ,.., ,.., L. H. DwERLKOTTE
Ass't. Secretary ,.., ,.., ,.., ,.., E. H. BROWN
DIRECTORS
ALVIN p. ADAMS
L. H. DWERLKOTTE
HAROLD p. FABIAN
ALFRED FRANK
STANLEY V/. GUTHRIE
C. N. JAMES
JAMES Q. NEWTON
Tttos. WOLFE
Rl\LPH WAYCOTT
REGISTRAR
Citizens National Trust & Savings Bank, Los Angeles, California
STOCK TRANSFER AGENT
Security,..,first National Bank of Los Angeles, California
AUDITORS
Peat, Marwick, Mitchell & Co.
GENERAL OFFICES
Union Air Terminal, Burbank, California
February 25, 1938
TO THE STOCKHOLDERS:
There is submitted herewith Profit and Loss Statement of your company
for the calendar year 1937, together with the Balance Sheet of the Company as
of December 31. 1937, to which is appended the report of Messrs. Peat, Mar,.,
wick, Mitchell & Company, accountants and auditors.
Operations for the year resulted in a net loss of $34,939.58. after all taxes
and charges, including provision for depreciation of $94,508.25. In 1936 a net
profit, after taxes and charges, of $50,697.44 was reported, including deprecia,.,
tion charges of $95,638.69.
On August 1, 1937 your company purchased from National Parks Airways,
Inc., the latter's air mail contract for the 550 mile route from Salt Lake City,
Utah, to Great Falls, Montana, together with all operating equipment and pro,.,
perty used on the route. As consideration for these assets 38,991 shares of com,.,
mon stock of your company were issued to that company. This acquisition gives
your company a continuous route from San Diego, California, to Great Falls,
Montana, a total of 1329 miles. Two round,.,trip schedules are now operated
daily between San Diego and Los Angeles, three between Los Angeles and Salt
Lake City, and two between Salt Lake City and Great Falls.
Operating results for 1937 were materially affected by several factors. First
and most important, the series of accidents experienced by the air transportation
industry during the year not only retarded the increase in passenger revenue
which had been experienced during the several years prior, but actually resulted
in a decrease in revenues received from this source in 1937 from the previous
year. Passenger revenue in 1937 on the San Diego,.,Salt Lake City rout_
e amount,..
ed to $324,238 as compared with $363,555 in 1936, while $31,270 in passen,.,
ger revenue were earned on the Salt Lake,.,Great Falls route during the five
months of its operation by the Company.
The second unfavorable factor was the increase in operating costs. This was
largely the result of increased governmental regulation and the installation of
new flying equipment throughout the company's entire system. Two Douglas
DST sleeper..-type transports were purchased for the Los Angeles..-Salt Lake
City division at a total cost of $236,685 and two Lockheed Model 12 airplanes
together with spare engines and parts were purchased for the Salt Lake,..Great
Falls route involving approximately $120,000. A small Waco airplane was also
purchased for pilot instruction and training at a cost of $9,042. As these ex..-
penditures, together with an unexpected decrease in passenger business, have
decreased the working capital of your company, it is deemed advisable, and
plans are being completed to offer for sale additional stock to the company's
shareholders in order to improve the working capital position of the company.
Air mail revenue increased in 1937 as a result of authorizations being re..-
ceived from the Post Office Department for additional pay flights over both the
Salt Lake..-Los Angeles division and the Salt Lake..-Great Falls division. On the
San Diego,.,Salt Lake route air mail revenue amounted to $368,855 as compared
with $330,198 in 1936. This is an increase of 11.7%.
Air express revenues reached an all,..time high figure of $38,611 on the San
Diego,.,Salt Lake division as compared with $37,038 earned from this source in
1936.
As a result of the above revenue changes, gross revenue for the year
amounted to $886,713 as compared with $740,984 in 1936, and $586,989 in 1935.
That this revenue improvement was not reflected in increased earnings of your
company was accounted for by: ( 1 ) the increase in operating costs involved in
flying 365,164 additional revenue miles, the major part of which was the result
of the acquisition of the Salt Lake,.,Great Falls route, ( 2) the higher costs in,..
volved in the operation of the Douglas equipment, ( 3) the non .... recurring charges
incidental to the installation of new equipment over the entire route and, ( 4) the
non .... recurring charges and increased cost due to government_al regulation. It is
estimated that expenditures made on account of the foregoing aggregated ap ....
proximately $35,000.00.
Total operating costs for the year amounted to 50.51c per revenue mile ~s
compared with 42.54c per revenue mile during the year 1936. The company s
costs, however, per revenue mile are believed to be considerably less than those
of other major airlines.
The following table shows revenue and expense comparisons for the past
three years, as well as certain operating statistics:
Passenger Revenue ............................................ .
Mail Revenue ..................................................... .
Express ................................................................ .
Other Revenue ................................................... .
GROSS REVENUE ................................. .
Operating and General Expense ..................... .
Depreciation ........................................................ .
TOT AL OPERA TING EXPENSES .... .
Net Operating Income ...................................... .
Miscellaneous Charges ...................................... .
Net Income Before Federal Income Tax ........ .
Revenue Miles Flown ....................................... .
Revenue Passengers Carried ............................ .
Revenue Seat Miles ........................................... .
Mail Poundage ................................................... .
Express Poundage ............................................. .
( )-Denotes Red Figures
1937 1936 1935
$ 355,508
469,511
39,620
22,074
$ 886,713
864,579
94,508
$ 959,087
( 72.374)
( 37,434)
($ 34,940)
1,898,520
21,776
7,654,174
707,873
386,400
$ 363,555
330,198
37,038
10,193
$ 740,984
556,677
95,639
$ 652,316
88,668
30,370
$ 58,298
1,533,356
20.242
7,473,774
506,448
475,274
$ 269,368
289,763
18,935
8,923
$ 586,989
495,295
71,109
$ 566,404
20,585
28,773
($ 8,188)
1,213,274
13,736
4,915,129
298,287
198,389
In spite of the unsatisfactory operating results for the year 1937, the out ....
look for the current year is favorable. Improved operating methods in effect on
all airlines should make for an outstanding safety record. Passenger revenue in
January, 1938 was 89% ahead of January a year ago, after adjusting the latter
to include the revenue from the Salt Lake .... Great Falls division. As new equip,...
ment will be in service on both divisions for the entire year, a considerable im ....
provement in passenger revenue over 1937 figures is anticipated. Effective Feb ....
ruary 15, 1938, the company received authority from the Post Office Dept. for
certain additional air mail schedules. These additional schedules should increase
the monthly air mail revenue of your company approximately $4,500.00 In ad ....
dition, the company has petitioned the Interstate Commerce Commission for an
increase in the base mileage between San Diego and Salt Lake, upon which the
air mail rate is partially based. Hearings before the Commission are scheduled
to be held March 15, 1938. Furthermore, it is expected certain developments
will take place during 1938 which will permit us to interchange our equipment
with that of United Air Lines to provide through sleeper service between Los
Angeles, Chicago and New York.
With unusual costs incidental to the installation of new equipment over the
entire route already absorbed, it is believed operating expenses can be kept to a
normal figure. It is probable that new air mail legislation will be enacted at the
present session of Congress which will place the affairs of the industry in the
hands of the Interstate Commerce Commission or an independent, separate
commission. This would do much to improve and stabilize conditions in the
industry.
Respectfully yours,
ALVIN P. ADAMS, President.
ASSETS
Current Assets:
Cash on Hand and in Banks ........................... .
United States Government Treasury Notes
{ Market Value $22,770.00) deposited with
United States Post Office Department-at
cost less amortization of premium ............... .
Accounts Receivable:
Customers' Accounts Receivable ................... .
Interline and Agents' Traffic Balances ....... .
Sundry { including $2,528.00 due from
Officers and Employees) ......................... .
Less Reserve for Doubtful Accounts ....... .
Total Current Assets ....................... .
Inventory of Parts and Supplies stated at the lower
of Cost or Market ( determined by responsible
officials on the basis of physical inventories)
Less Reserve for Obsolescence and Depreciation ....
Note Receivable-Secured by Deed of Trust
($1 ,800.00 due in 1938) ...................................... .
Investments:.
Securities of Other Corporations ..................... .
Property not used in Operations-at Cost less
Reserve for Depreciation $3,949.82 ........... .
Properties and Equipment:
Land and Land Improvements ......................... .
Buildings and Leasehold Improvements ........... .
Airplanes, Propellers and Engines ................. .
Radio Communication, Shop and Other Equip--
ment and Furniture and Fixtures ............... .
Less Reserve for Depreciation ....................... .
Airport Lease and Rights not used in Operations,
less Amortization $20,625.00 .............................. .
Deferred Charges:
Prepaid Insurance, Rent, Taxes, etc ................ .
Development of Air Routes ............................. .
Total ................................................... .
$
WESTERN AIR EXPRESS CORPORATION
82,721.17
BALANCE SHEET
As at December 31. 1937
$ 53,112.73
22,681.52
LIABILITIES
Current Liabilities:
Note Payable to Bank ....................................... .
Notes Payable for purchase of airplanes costing
$90,021.12-Secured by Chattel Mortgage
- maturing monthly during 1938 ................. .
Accounts Payable:
$ 50,000.00
39,526.66
8,519.51 Trade ............................................................... $ 78,092.06
19,450.52
110,691.20
5,098.17 105,593.03
181.387:28
40,197.19
4,158.48 36,038.71
8,915.72
1,724.34
6,349.19 8,073.53
23,389.14 n
80,128.68
440,776.48 1
109,614.47
653,908.77
160,893.08 493,015.69
29,375.00
20,362.29
6,325.49 26,687.78
$783,493.71
Interline and Agents' Traffic Balances ....... .
Accrued Liabilities:
Salaries, Wages and Commissions ............. .
Insurance ........................................................ .
Taxes including Federal Old Age Benefit
and Unemployment Insurance Taxes ....... .
Other .............................................................. .
Total Current Liabilities ................. .
Unused Portion of Tickets Sold ........................... .
Notes Payable for purchase of airplanes-due
January 10, 1939 to June 10, 1939 ................... .
Capital Stock and Surplus:
Capital Stock:
Authorized, 500,000 Shares of $1 .00 each-
( Note 1)
Outstanding, 261,636 Shares ....................... .
Capital Surplus ................................................. .
Operating Deficit ............................................. .
Contingent Liabilities- ( Note 2)
Total ................................................... .
12,928.05
7,961.27
8,382.16
3,160.23
91 ,020.11
1,765.60 21,269.26
261 ,636.00
499,896.12
761.532.12
201,816.03
5,087.28
19,763.28
204,705.00 556,827.12
$783,493.71
Notations constituting a part of the foregoing Balance Sheet are submitted on the following page
WESTERN AIR EXPRESS CORPORATION
BALANCE SHEET, Continued
NOTATIONS CONSTITUTING A PART OF THE
FOREGOING BALANCE SHEET
Note 1, Capital Stock:
At December 31, 1937, 7,625 shares of capital stock were reserved for issue
under an employees stock purchase plan. On January 27, 1938, a new plan
was substituted whereby 7,666 shares are reserved for employees and 11,000
shares for management of the Company.
Note 2, Contingent Liabilities:
An assessment of additional Federal Income Tax, including interest
thereon, for the taxable year 1933 of approximately $22,500.00 has been pro~
posed by the Treasury Department. The Company is contesting this proposed
assessment.
The Company is the defendant in five lawsuits aggregating approximately
$1,200,000.00 for damages arising from deaths and injuries of passengers on the
Company's airplanes which crashed on December 15, 1936, and January 12,
1937. Liability insurance within substantial limits was carried by the Company,
but should the final judgment in any of these cases exceed the limits of insurance
coverage, the Company will be liable for the excess amount. It is not possible
to predict the final outcome of these cases or of any further claims which may
be filed in connection with these accidents.
WESTERN AIR EXPRESS CORPORATION
PROFIT AND LOSS ACCOUNT
For the Year ended December 31, 1937
Operating Revenue:
Mail .................................................................... .
Passenger ............................................................ .
Express and Freight ......................................... .
Other ................................................................... .
Total Operating Revenue ............... .
Operating and General Expenses ........................... .
Depreciation ............................................................... .
Net Operating Loss ......................... .
Miscellaneous Income:
Profit on Disposal of Equipment ................... .
Sundry ................................................................ .
Less Miscellaneous Charges:
Amortization of Airport Leases
and Rights ............................. .
Expenses of Property not used
in Operations ......................... .
Sundry ........................................ .
$3,300.00
2,142.36
1,266.71
Miscellaneous Income (Net) ........... .
Net Loss ............................................. .
$864,579.06
94,508.25
41,902.15
2,241.32
44,143.47
6,709.07
SURPLUS (DEFICIT) ACCOUNTS
Capital
Surplus
Balances as at December 31, 1936............................ $413,887.12
Less Additional Air Mail Revenue Applicable to
Prior Years .................. : .................................... .
Balances as at December 31. 1936, as Adjusted...... 413,887.12
Net Loss for Year ended December 31. 1937 ....... .
Loss on Sale of Unimproved Real Estate not used
in Operations ..................................................... .
Excess of valuation of Assets acquired from
National Parks Airways, Inc., over Par Value
of Stock issued in exchange therefor less Air
Mail Contract and Airport Leases ($264,910.00)
written off ........... _
............................................. .
Balances as at December 31 , 1937 ......................... .
86,009.00
$499,896.12
$469,511.11
355,507.95
39,620.13
22,074.14
886,713.33
959,087.31
72,373.98
37,434.40
$ 34,939.58
Operating
Deficit
41 ,954.56
5,181.89
36,772.67
34,939.58
132,992.75
204,705.00