1940 AN UAL REPORT OF WESTERN AIR EXPRESS CORPORATION ;, ~ f;l/m; ~ ~~t:14 OFFICERS DIRECTORS REGISTRAR STOCK TRANSFER AGENT AUDITORS GENERAL OFFICES ~a4Mf~ William A. Coulter, President L. H. Dwerlkotte, First Vice-President, Secretary & Treasurer Charlie N. James, Vice-President, Operations Thos. Wolfe, Vice-President, Traffic E. H. Brown, Asst. Secretary Serge E Ballif, Jr. Charles Boettcher II William A. Coulter L. H. Dwerlkotte Harold P. Fabian Alfred Frank Stanley W Guthrie Charlie N. James Ralph Waycott Thos. Wolfe Citizens National Trust & Savings Bank, Lgs Angeles, California Security-First National Bank of Los Angeles, California Peat, Marwick, Mitchell & Co. Lockheed Air '1crminal, Burbank, California If ftwu SISTER SHIPS OF 1926 AND 1941 OF PROGRESS On April 17, 1941, Western Air Express will celebrate its fifteenth a1:miversary-the first American airline to complete a decade and a half of continuous service. During these fifteen years, Western Air has made swift and steady progress. A number of important developments in airline equipment and operation were pioneered by this company-the first scheduled passenger flight-the first use of de luxe multi- engined airplanes-the first complete weather reporting service, and many others. It is a far cry from the tiny Douglas bi-plane, whose single passenger perched on the mail sacks in the front cockpit, to the giant 21-passenger Douglas DC-3's in operation today. But the same spirit of determination and enterprise which inspired the pioneers of its early clays still dominates Western Air Express, bringing promise of fresh accomplishments in the days to come. T O T H E S. TOCKHOLDERS OF ~ C ~~~ ~~~4 ~t?M- MARCH 1, 1941 * There is submitted herewith Profit and Loss Statement of your company for the calendar year 1940, together with the Balance Sheet of the company as at December 31, 1940, to which is appended the report of Messrs. Peat, Marwick, Mitchell & Co., accountants and auditors. Operations of the company for the year 1940 re- sulted in a net profit of $139,585.26 after all taxes and charges, including provision of $141,745.81 for depreciation and $35,000.00 for estimated Federal Income Taxes for the year 1940. In comparison, the year 1939 resulted in a net profit of $74,555.90 after a provision of $142,843.97 for depreciation and $12,500.00 for Federal Income Taxes. REVENUES* Passenger revenues established a new record in 1940 and accounted principally for the im- provement in net earnings. The total of $752,140.24 was 49.2% higher than the total for 1939, while Rev- enue airplane miles flown increased only 5.3%, indi- eating a substantial increase in the average number of passengers carried per revenue mile. Passenger rev- enue accounted for 45.6% of total operating rev- enues as compared with 36.3% in 1939 and 35.3% in 1938. Mail revenue for the year 1940 amounted to $808,487.99 which is slightly under the total for the prev10us year. Revenues from the transportation of air express for the year 1940 amounted to $50,835.89 as compared with $40,531.74 for the year 1939, or an increase of 25.4%. OPERATING EXPENSES* The trend of operating expenses continued upward i1\ 1940 with a 14.5% increase over 1939, resulting primarily f~om increases in personnel, wage levels,. prices of materials and supplies, rentals and taxes. The latter amounted to $65,653.33, including gasoline taxes of $33,805.18, an increase of 2 5. 7 % over taxes in 19 39. FINANCIAL POSITION* The attached balance sheet of the company as at December 31, 1940 shows current assets of $505,992,89, including cash of $260,469.21, as against current liabilities of $179,024.30. As at December 31, 1939 current assets amounted to $512,973.65, including cash of $249,337.20, as against current liabilities of $258,246.45. EQUIPMENT * To meet replacement requirements and the demands of a steadily rising traffic volume, your company during 1940 purchased and received delivery of one Douglas DC-3 twenty-one passenger airplane, new engines, and propellers, having an aggregate cost of approximately $370,000.00, all of which has been paid. In addition, your company had purchase commit- ments outstanding as at December 31, 1940 for five Douglas DC-3 twenty-one passenger airplanes, and spare engines having an approximate total cost of $680,000.00. The Priorities Board of the National REVENUE DOLLAR E.~PE.NSE DOLLAR Defense Council has approved the manufacturers' acceptance of these orders. Approval of the Priorities Board has also been obtained for the delivery during April 1941, of one airplane and for delivery of two airplanes during August 1941. Approval has not yet been obtained for the delivery of the two remaining airplanes on order. ROUTES AND SERVICES* The Civil Aeronautics Board on June 19, 1940 denied the application of United Air Lines Transport Corporation to acquire control of Western Air Express. Plans for merging the two companies have been abandoned and it is the intention of your present officers and directors to make every effort to expand the operations of your company and strengthen its position in the Air Transport Industry. On August 20, 1940 through sleeper service was inaugurated from Los Angeles to Chicago, New York, and other eastern cities in conjunction with United Air Lines Transport Corporation by an exchange of equipment at Salt Lake City, Utah. This is the first arrangement of this nature to be placed into opera- tion by any airline and it is anticipated an increase in passenger revenues will result. On December 5, 1940 the Civil Aeronautics Board awarded your company the route from Great Falls, Montana, to Lethbridge, Canada, an extension of approximately 170 miles. Service on this route is to be inaugurated about April 1st and will close the "gap" that has heretofore existed in air transportation between cities in the Western part of the United States and such important Canadian cities as Edmon- ton, Alberta, and Lethbridge. It will also provide service to Glacier ational Park. In addition to those routes and erviccs presently operated by your company, applications have been made to the Civil Aeronautics Board for Certificates of Public Convenience and Necessity to transport passengers, mail, and property on the following routes, with a total new route mileage of approxi- mately 2,300 miles: REVENUE P,'>\,S..5ENCi1::.R;5 Re.vENUL PA5..Sa.Nc.e:R.. PA.!>.!>~NG~R REYeNu~ MAIL. PouND.5 EJ\PR.E~ Pounos Ye.AA. c.,,..._R.Fl.1 e!..O MILE.~ rl..Cv-JN Dou ... AR.5 (.,AA.R-1 E!..0 CARR.I E.O 1935 iii ~ 6ol ~~ 1936 iilli! ~ .... @ ~ f)'!Jf)f)!)l ~~~~~ 1937 Aiiij ~ @ i) e 6~E)~363t G5~~~ \9.38' iiiiit ~ @@ e !J636666!Jl ~~~'r 1939 iiiiii t4 @41>@@\ c!J636o'633t ~~~~ 1940 iiiiiiiiii ~ @@@~ !J!Jt. l 66t>lJ!Jl "@~.~~~~ DATA: i 5,000 P~i;:~e.~ =-5,000, DOO M IL-E.!5 'i) = 100,000 DoLL.All:S 6-=: 100,000 Pour-.O.!> ~-= \OO,0oo Povno-5 (a) Between San Diego, California, and Pl10e- nix, Arizona, via El Centro, California, and Yuma, Arizona. (b) Between Los Angeles, California, and El Centro, California, via Palm Springs, Cali- fornia. (c) Between Los Angeles, California, and San Diego, California, via San Bernardino, Cali- fornia. ( d) Between Los Angeles, California, and San Francisco, California. ( e) Between Los Angeles, California, and Sacra- mento-San Francisco, California, via the in- termediate points Bakersfield, Visalia, Mer- ced and Stockton, California. (t) Between Los Angeles, California, and Denver, Colorado, via Las Vegas, Nevada, and Grand Junction, Colorado. No prediction can be made as to what action will be taken on the applications by the Civil Aeronautics Board. CORPORATE NAME* Your officers and directors recommend for adoption by the stockholders the changing of the corporate name to Western Air Lines, Inc., in order to eliminate any possibility of confusion in the minds of the public as to the serv- ices rendered by your company caused by the word "Express" in the present corporate name of Western Air Express Corporation. THE ORGANIZATION* Among the main factors contributing to the improved showing by your com- pany in the year 1940 was the fine spirit of coopera- tion and loyalty displayed by the personnel of the organization. That they performed their duties well is evidenced by the improvement in business and operating results. The officers and directors are sin- cerely appreciative of their efforts. OUTLOOK FOR 1941 * The unsettled condition of economic and world affairs makes it extremely dif- ficult to forecast future trends. Ilowever, it is gratify- ing to note that the rising trend of air travel which was experienced almost uninterrupted during 1940 is showing indications of being continued. Your officers anticipate greater passeriger revenues for 1941 but it is believed increasing operating costs will partially off et this. ~a~ ' PRli:SIDENT Current Assets: Cash in Banks and on Hanel Accounts Receivable: United States Post Office Department Interline and Agents' Traffic Balances ASSETS Customers' Accounts Receivable . . . . . . . . . . Sundry ( including $1,974.81 due from Officers and Employees) Less Reserve for Doubtful Accounts . . Inventory of Parts and Supplies, at the lower of Cost or Market Total Current Assets Prepaid Insurance, Rent, Taxes, etc. . . Note Receivable- Secured by Deed of Trust ($1,500.00 due in 1941) Investments: Securities of Other Corporations . Property Not Used in Operations, at Cost-less Reserve for Depreciation of $6,712.46 Properties and Equipment: Land and Land Improvements . . . . . . Buildings and Leasehold Improvements . . . . . Airplanes, Propellers, Engines, and Flying Equipment. . . . . Radio Stations, Furniture and Fixtures, Shop and Other Equipment Less Reserve for Depreciation . Deferred Charges: Development of Air Routes Total $ BALANCE SHE ET $ 260,469.21 92,023.34 49,001.07 18,956.51 23,697.02 183,677.94 5,098.17 178,579.77 66,943.91 505,992.89 43,542.24 4,457.62 1,724.34 4,248.81 5,973.15 26,091.72 98,899.26 849,357.34 142,045.64 1,116,393.96 487,148.19 629,245.77 6,820.89 $1,196,032.56 AS AT DECEMBER 31, 1940 l LIABILITIES Current Liabilities: Accounts Payable-Trade Interline and Agents' Traffic Balances Accrued Liabilities: Salaries and Wages Taxes, including Social Security Taxes Insurance. Other . Reserve for Federal Income Tax (Subject to Review by United States Treasury Department) . Total Current Liabilities . Reserves for Overhaul of Equipment rented to Others Unused Portion of Tickets Sold Capital Stock and Surplus: Capital Stock: Authorized, 500,000 shares of $1.00 each Outstanding, 409,954 shares Capital Surplus Opera ting Deficit from Decern ber 1, 19 34 . Contingent Liabilities (Note 2) Total NOTES: $ 8,607.15 10,058.30 2,938.59 $ 112,259.48 2,910.73 1,200.00 22,804.04 409,954.00 648,214.12 1,058,168.12 65,911.31 41,050.05 179,024.30 13,200.55 11,550.90 992,256.81 $1,196,032.56 ( 1) The Company has ordered five Douglas DC-3 airplanes and spare engines having an approximate total cost of $680,000.00. The Priorities Board of the National Defense Council ha approved the manufacturer ' acceptance of the e orders. Approv,al of the Priorities Board has also been obtained for the delivery during April, 1941, of one airplane and for the delivery of two airplanes during August, 1941. Approval has not yet been obtained for the delivery of the two remaining airplanes on order. ( 2) The Company is the defendant in two lawsuits aggregating in excess of $710,000.00 for damages arising out of an accident involving one of its airplanes on January 12, 19 37. These two lawsuit were con olidated for trial and a verdict in favor of the Company , was returned on December 29, 1938, and appeals have been taken by the plaintiff. Liability insurance in substantial amounts was carried by the Company, but hould final judgment exceed the limits of insurance coverage, the Company will be liable for the excess amounts. In addition to the foregoing, sundry suits and claims have been filed against the Company aggregating approximately $25,000.00. PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31 , 1940 Opera ting Revenue: Passenger Mail . Express, Freight and Excess Baggage Other Transportation . . . . Incidental Services (Net) . . . Total Operating Revenue. Operating and General Expenses Depreciation . . . . . . Operating Profit . . Miscellaneous Income: Interest and Discounts Received . . . . . . . Gain on Disposal of Equipment . . . . . . . Income from Property not used in Operations-Net Sundry . . . . . . . . . . . . . . . Less Miscellaneous Charges . . . . . . . . . . . Miscellaneous Income (Net) . . . . . . . . Net Income before Provision for Federal Income Tax Provision for Federal Income Tax Net Income $1,347,742.38 141,745.81 1,636.45 11,864.94 2,973.57 661.34 17,136.30 1,571.17 SURPLUS (DEFICIT) .ACCOUNTS Balance as at December 31, 1939 . . . . . . . . . . . . . Transfer from Capital Surplus of Expenses of issuing Capital Stock in prior years to Operating Deficit in accordance with Uniform Sys- tem of Accounts for Domestic Air Mail Carriers Balance as at December 31, 1939, as adjusted . . . . . . . . . Net Income for Year ended December 31, 1940 . . . . . . . . Excess of Proceeds from Sale of Capital Stock at $2.00 over Par Value of $1 .00 per share . . . . . . . . . . . . . . . . . Balance as at December 31, 1940 . . . . . . . . . . . . . Capital Surplus $ 629,466.47 12,793.65 642,260.12 5,954.00 $ 648,214.12 ===== $ 752,140.24 808,487.99 58,093.92 6,120.51 23,665.66 1,648,508.32 1,489,488.19 159,020.13 15,565.13 174,585.26 35,000.00 $ 139,585.26 Operating Deficit 192,702.92 12,793.65 205,496.57 139,585.26 65,911.31 ACCOUNTANTS' REPORT To the Board of Directors of WESTERN AIR EXPRESS CORPORATION We have examined the Balance Sheet of Western Air Express Corpora- tion as at December 31, 1940, and the statements of Profit and Loss and Surplus (Deficit) for the year ended on that date, have reviewed the system of internal control and the accounting procedures of the Company and, without making a detailed audit of the transactions, have examined or tested accounting records and other supporting evidence, by methods and to the extent we deemed appropriate. In our opinion, the accompanying Balance Sheet and related statements of Profit and Loss and Surplus (Deficit) present fairly the position of Western Air Express Corporation at December 31, 1940, and the results of the operations for the year, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. Los Angeles, California, February 27, 1941. PEAT, MARWICK, MITCHELL & CO. TRAFFIC STATISTICS Percent of Increase 1937 1938 1939 1940 1940 over 1939 Revenue: Passenger .................... ..... $ 355,508 $ 451,157 $ 503,998 $ 752,140 49.2 Mail ...................... ....... 469,511 754,650 809,980 808,488 (0.2 ) Express, Freight and Excess Baggage .. 39,620 39,651 45,249 58,094 28.4 Other ............................ 22,074 34,145 28,020 29,786 6.3 Total .......................... $ 886,713 $1,279,603 $1,387,247 $1,648,508 18.8 Revenue Miles Flown .................. 1,898,520 2,309,938 2,277,161 2,399,338 5.4 Revenue Passengers .................... 21,776 28,738 30,075 47,407 57.6 Average Passengers per Revenue Mile Flown 4.03 4.57 4.85 6.59 35.9 Average Revenue per Passenger Mile ...... .0464 .0428 .0457 .0476 4.2 Passenger Seat Miles Flown .............. 21,090,260 26,276,444 27,564,517 32,359,017 17.4 Revenue Passenger Miles ................ 7,654,174 10,551,761 11,035,541 15,803,768 43.2 Load Factor ..... ....... .. ... .... . ... .. 36.29% 40.16% 40.04% 48.84% 22.0 Mail Pounds Carried .... .. ....... .... .. 707,873 893,920 957,884 951,451 ( 0.7) Express Pounds Carried ................. 386,400 312,209 361,017 566,427 56.9 OPERATING STATISTICS Percent of Increase 1937 1938 1939 1940 1940 over 1939 Expense: Depreciation ...................... $ 94,508 $ 162,567 $ 142,844 $ 141,746 ( 0.8) Other Operating & General Expenses .. 864,579 1,123,017 1,158,231 1,347,742 16.4 Total Operating Expenses ......... $ 959,087 $1,285,584 $1,301,075 $1,489,488 14.5 Operating Expenses per Revenue Mile ..... .5052 .5565 .5714 62.08 8.6 Percent of Scheduled Service Performed ... 94.90% 95.66% 95.65% 96.39% 0.8 Number of Employees (average) . . ....... 142 173 194 241 24.2 Brackets denote decrease C..ALC:.AA.Y EDMONTON A.LA5KA ----- ~A NADA --- -------------- LONG LE.GE ND - PR~ENT ROUT~ of 'w'E.5TE.R.N AtR., [)(.PR.~ CoRR - 1,411 MILES IICll f'R.OPO:SEO R.-ouTE.~ of 'wE.5TE.RN A1R EXPRE.~ CoQ.,R - 2,300 MILE.~ ROUTE5 Ot OfHER. A\R., CAR.R,IE.M MAR-CH I, 1941 MONTANA TE.XA.5 /1141 ,4(!I I I,/ ,t;~