Western Air Lines Annual Report 1942

1942 AN UAL REPORT OF
WESTERN AIR_ LINES, INC.
OFFICERS
DIRECTORS
REGISTRAR
STOCK TRANSFER AGENT
AUDITORS
GENERAL OFFICES
William A. Coulter, President
L. H. Dwerlkotte, Executive Vice-President
Charlie N. James, Vice-President, Operations
Thos. Wolfe, Vice-President, Traffic
Paul E. Sullivan, Secretary-Treasurer
J. J. Taylor, Assistant Secretary-Treasurer
William A. Coulter
L. H. Dwcrlkotte
Harold P. Fabian
Stanley W Guthrie
George Albert Smith
Citizens National Tru t & Saving Bank, Los Angeles, California
Security-First National Bank of Los Angele , California
Peat, Marwick, Mitchell & Co.
Lockheed Air 'Terminal, Burbank, California
ON T H ~ ~ ~ E H O ~
~
* Since May 15, 1942, when two-thirds of its transport fleet was turned over to the Army, Western Air
Lines has completely adjusted itself to a war footing. There were a few at first, who could see no ray of
light for the future,-but that, we know now, was a narrow view. The plain facts were that the United
States needed transport planes more than it needed normal airline service-at that time.
* Valuable and
necessary as airline service is, there arc times when military needs are greater. Actually, we should be proud
that the nation's trust in the airlines as an arm of national defense was justified. When the need came, we
were ready with the men, and the planes, and the priceless knowledge that only long experience can give.
tft Today finds Western Air Lines serving the nation on the war front and the home front, too. Thirteen
of our pilots and dozens of our ground personnel are filling hard and dangerous job in the armed forces.
Day by day we are flying military cargo planes over a route that is longer by far than our entire pre-war
system. While here at home we are utilizing our remaining equipment with maximum efficiency to
maintain essential civilian passenger schedules. So, whether it carries the Indian IIeacl or the Army Star
every Western Air Lines plane flies but one course-to VICTORY!
T 0 T H E STOCKHOLDERS 0 F
FEBRUARY 26, 1943
* There is submitted
herewith Profit and Loss Statement of your com-
pany for the calendar year 1942, together with the
Balance Sheet of the company as at December 31,
1942, to which is appended the report of Messrs.
Peat, Marwick, Mitchell & Company, accountants
and auditors.
Operations of your company for the year 1942
resulted in a net profit of $693,703.30 after all taxes
and charges, including provision of $215,707.34 for
depreciation and $315,000.00 for estimated Federal
Income Taxes for the year 1942. In comparison, the
year 1941 resulted in a net profit of $5,980.64, after
provision of $197,780.43 for depreciation.
The improvement in net income results largely
from the following:
(a) Increases in passenger load factors, revenue passenger
miles flown, and air express, accompli hed with le s
equipment and les revenue mile flown.
(b) An increase in pas enger fares and the elimination of
discounts effective July 1, 1942.
( c) An adjustment of the allocation of ground costs to
commercial operations.
( cl ) et gain on sale or other di po ition of equipment.
REVENUES * Although the changes mentioned
hereinafter effected a decrease of 26.1 % in revenue
miles flown in 1942 as compared with the previous
year, passenger revenue amounted to $1,242,540.81
increasing 17-7% over the total of $1,055,821.10 for
1941. The increased load factors, stimulated by war
conditions, account largely for the substantial gain
in operating profit. Passenger revenues continued
the trend of previous years in contributing an
increa ing percentage of Gro Revenue , being
52.3% as again t 52% in the year 1941.
Mail revenue of $76o,572.94 was 10-4% lower
than the $848,654.64 received during the previous
year. This is due to cancellation of certain mail
flights after May 26, 1942, becau e of the ale of
airplanes to the United States Government.
Air express recorded a substantial gain of 141.9%,
increasing from $69,022.32 in 1941 to $166,944.00
111 1942.
During the past year your company has experi-
enced many changes of importance chiefly as
a
result of directing a large part of its operations to
activities for the U. S. Army Air Forces. On May
15, 1942, the United States Government requisi-
tioned nine of the twelve airplanes then owned by
your company. Of these, five Boeing 247D air-
planes and two Douglas DST airplanes were sold
to the Government and two Douglas DC-3 air-
planes were converted to Army cargo type. At the
request of the U. S. Government your company
purchased a Lockheed Lodestar airplane, with the
result that three Douglas DC-3 airplanes and one
Lockheed Lodestar were operated in commercial
service after May 26, 1942. This 67% decrease in
the number of airplanes available for commercial
operations was partially offset by greater utilization
of the airplanes retained, but it was necessary to
eliminate certain flights which reduced scheduled
mileage by 2 7 .4 % .
On June 4, 1942, a contract was entered into
with the U. S. Army Air Transport Command for
the transportation of military cargo and the train-
ing of personnel. While the details of this contract
are restricted, service of a substantial nature have
been performed. Effective January 1, 1943, this
contract wa revi ed and the activitie of your com-
pany for the Air Tran port Command will be
increa ed materially within the next few months.
OPERATING EXPENSES
* The 1942 oper-
ating co ts may not be effectively compared with
tho e of previou year bccau e a sub tantial por-
tion of such co t have been allocated to other than
commercial operations and becau e of the material
change in operations resulti1ig from the loss of
equipment and the decrease in schedules flown.
However, it is known that a sub tantial increase in
operating costs occurred during the year and the
uptrend continues. The effects of Selective Service
training of personnel, increased turnover ancl
increased salaries and wages arc factors which
contributed materially to the rise in costs.
FINANCIAL POSITION
* The attached bal-
ance sheet of your company as at December 31,
~942, shows current assets of $1,643,647.18 includ-
mg cash of $572,115.31 as against current liabilities
of $680,326.32. As at December 31, 1941 current
assets amounted to $518,913-46 including cash
of $102,729.89 as against current liabilities of
$291,043.89.
EQUIPMENT
* In addition to the equipment
changes previously mentioned, your company, at
the request of the Government, cancelled its out-
standing orders for new airplanes. It is not known
at this time when the Army will permit the airlines
to purchase additional aircraft or what type. Four
improved type radio ground stations were installed
during the past year. o difficulty has been experi-
enced_, and none is expected, in obtaining parts and
s\1pphes necessary for maintaining the company's
a1~planes a?~l other equipment in excellent oper-
a~mg condition. As in peace times, safety of opera-
tions has been and will continue to be one of the
paramount objectives of your company.
NEW ROU TES* Applications are now pending
before the Civil Aeronautics Board for the follow-
ing additional routes:
(a) Between Los Angeles and San Francisco, California.
Between Los Angeles and Sacramento-San Francisco,
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1942
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C~lif?rnia via the intermediate points Bakersfield,
Visalia, Merced, and Stockton, California.
B.ctwccn Los Angeles and l
] Centro, California,
via Palm Springs, California.
(b ) Between San Diego, California, and Phoenix, Ariz-
ona, via El Centro, California, and Yuma, Arizona.
( c) Between Los Angele , California, and Denver, Colo-
rado, via Las Vegas, Nevada, and Grand Junction,
Colorado.
(cl ) Between Leth bridge, Canada, and Nome, Alaska, vin
Calgary, Edmonton, and Grande Prairie, Canada,
and Juneau, Anchorage, and McGrath, Alaska, with
shuttle service between Anchorage and Fairbank ,
Alaska.
( e) A system of secondary or "feeder routes" a shown
by the map on the inside back cover of thi report.
Hearings on the applications listed as (a ) and
(b ) have been completed and the Examiners for
the Civil Aeronautics Board in their report to the
Board, have recommended that your company be
granted a franchise for the non-stop route from Los
Angeles to San Francisco, and the addition of San
Bernardino, California, as an intermediate sched-
uled stop between Los Angeles and San Diego, and
a franchise for the route between San Diego, Cali-
fornia, and Phoenix, Arizona, via El Centro, Cali-
fornia. These cases now await the final decision of
the Civil Aeronautics Board. Hearings have not
been set on the other applications listed as ( e)
to ( e ) .
MAIL RATE* On December 21, 1942, the Civil
Aeronautics Board issued its order to "show cause"
why the mail rates for your company should not be
reduced to o. 3 mill per pound mile of mail carried
over the company's entire system effective January
1, 1943. Such rate would give your company annual
mail revenue of 188,000.00 as compared with
$76o,6oo.oo received for the year 1942, or a reduc-
tion of 75.3/4. The Board bases this rate on the
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assumption that the estimated non-mail revenues
to be received by your company in 1943 plus the
$188,000.00 mail pay will be sufficiently in excess
of estimated operating costs to net your company
sufficient profit to constitute a fair return on in-
vested capital. It is believed that the Board in its
order underestimated the future expenses of your
company and failed to allow for the necessity of
building up reserves to purchase new aircraft to
replace presently operated airplanes which may be
obsolete upon the termination of the war. An
answer to the show cause order has been filed and
a hearing will be requested unless the suggested
rate be adjusted.
THE ORGANIZATION
* The effects of the
Selective Service Act, manpower shortage, and in-
creased personnel turnover combined with an
expanding operation have presented many new
problems and required many adjustments. The
number of employees as of December 31, 1942,
totalled 59 3 of whom 1 78 were women while on
the same date a year prior, there wa a total of 356
of whom 57 were women. During the pa t year the
total number of personnel increased 66.5% while
female employees increased 212%.
The Army Air Forces have recognized the "going
organization" value of commercial airlines with
their experienced personnel and have called upon
them to perform services for which they are ideally
qualified. The Directors and employees of your
MAIL POUNDS EXPRESS POUNDS
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company have accepted this responsibility and
while the extent of the work performed may not
now be described, it is believed that they have
been of material aid to the war effort.
It is gratifying to be able to report that the
employees of your company have exhibited the
highest degree of cooperation and loyalty during
the past year. Their efforts are helping to bring
about the early victory we all seek.
OUTLOOK FOR FUTURE
* t the present
time our principal concern is to win the war-
everything else is secondary. However, it is becom-
ing increasingly apparent that postwar aviation,
both foreign and domestic, will be conducted on
an improved and expanded scale. Larger and faster
equipment is a certainty. Existing routes may be
expanded and supplemented with feeder routes,
and indications are that air cargo will play an
important part in the future world commerce. The
ir Transport Command and the airlines are jointly
moving cargo and per onnel to all corners of the
earth by air with a regularity.- and routine un-
dreamed of prior to the war. Events of today are
laying a solid foundation for the old saying-"It'
a small world."
1/~t::1~
'
PRESIDE T
BALANCE SHEET AS 0
Current Assets:
Cash in Banks and on I land
Accounts Receivable:
ASSETS
United States Post Office Department
Interline and Agents' Traffic Balances .
Customers' Accounts Receivable
Sundry ( including $9,765.83 due from Officers and Employees)
Less Reserve for Doubtful Accounts . . . . . . . . .
Billed and Unbilled Charges to United States Army Air Forces,
less advance payment $125,000.00 ( ote 1) . . . . . .
Inventory of Parts and Supplies, at the Lower of Cost ( first-in,
first-out) or Replacement Market . . . . . . . . .
Investments:
Securities of Other Corporations . . . . . . . . .
Property ot Used in Operations, at Cost-less Reserve for
Depreciation of 8,646.65 . . . . . . . . . . .
Properties and Equipment:
Land and Land Improvements . . . . . . . .
Buildings and Lea ehold Improvements . . . . .
Airplane , Propellers, Engines and Flying Equipment
Radio Stations,Furnitureand Fixture , Shop and Other Equipment
Less Reserve for Dcprecia tion . .
Deferred Charge :
Prepaid Insurance, Rent, Taxes, etc.
Development of Air Routes . . .
$ 72,639.69
11,434.07
253,805.32
127,156.47
465,035.55
5,098.17
1,724.34
2,339.62
9,096.57
109,781.11
835,207.55
272,910.42
1,226,995.65
457,523.44
$ 572,115.31
459,937.38
469,769.23
141,825.26
1,643,647.18
4,063.96
769,472.21
88,146.05
6,820.89
DECEMBER 31, 1942
LIABILITIES
Current Liabilities:
Totes Payable to Bank
3% Equipment Notes Payable to Bank, portion clue in 194 3
Accounts Payable . . . . . . . . .
Interline and Agents' Traffic Balance Payable
ccrued Salaries, \1/ages, Taxc , Insurance, etc.
Provision for Federal Taxc on Income (Subject to Review by
Federal Internal Revenue Department)
Reserve for Overhaul of Equipment . . . . . . . .
Unused Portion of Tickets Sold . . . . . . . . .
3fo Equipment 1ote Pa_ able to Bank, clue 1944 to 1946
Common Capital Stock of 1.00 Par Value Per Share.
500,000 Shares; Is uecl and Outstanding 409,954 Share
Surplus:
Capital Surplus
Earned Surplus ( ote 1)
Con tin gent Liabilities:
Proposed Additional Assessment of Federal Taxes on
Income
Damage Claim , if Any in Exces of Insurance Coverage
\ hich i Carried in Substantial mount
uthorizcd
. $ 648,214.12
637 65.11
1,738.36
$ 50,000.00
40,000.00
130,976.75
49,489.49
94,860.08
315,000.00
680,326.32
4,205.18
29,685.56
102,000.00
409,954.00
1,2 5,979.23
2,512,150.29 $2 512,150.29
otc to Fi11aucial tatcrnc11ts
OTE 1: The net profit for the year and the earned surplus arc subject to any adju tmcnts that may be made by rmy ir Force uclitors and through renegotiation of billed and unbilled charges to Army contracb.
1
_I
WESTERN AIR LINES INC.
STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED DECEMBER 31 , 1942
Operating Revenue:
Passenger
Mail . . . .
Commercial Express, Freight and Excess Baggage
Other rfransportation . . . . . . .
Equipment Rentals and Incidental Services
Operating and General Expenses
Depreciation . . . . . .
Other Income:
Gain on Disposition of Equipment . . . . . . . . . .
Profit from Fixed Price and Fixed Fee United States Army Air
Forces Contracts . . . . . . . . . . . . .
Net Income from Restaurant Operations:
Operating Revenue . . . . . .
Less Operating Expenses . . . . .
Income from Property not used in Operations-Net
Interest and Discounts Received
Sundry . . . . .
Operating Profit
0 thcr Charges :
Interest Paid . . .
Profit Before 'faxes on Income
Provision for Federal orrnal Income and Surtax
ct Profit ( ote 1)
$78,910.82
78,702.56
SURPLUS ACCOUNTS
Balance as of December 31, 1941 . . . . . . . . . . .
Adjustments Applicable to Prior Years:
Mail Revenues for 1941 Disallowed by Post Office Department
Unused Reserve for Overhaul of Aircraft Sold
Adjusted Deficit at December 31, 1941 .
Net Profit for the Year . . . . . .
Amount at December 31, 1942 ( Note 1)
Brackets denote clefici t
$1 ,242,540.81
760,572.94
191,051.1 7
4,189.05
176,702.62
2,375,056.59
$1,582,159.59
215,707.34 1,797,866.93
577,189.66
401,370.36
31,701.78
208.26
6,498.90
1,077.87
151.11 441,008.28
1,018,197.94
9 494.64
1,008,703.30
315,000.00
$ 693,703.30
Capital Earned
Surplus Surplus
$ 648,214.12 (55,871.20 )
(23,025.60 )
22,958.61
- -
(55,938.19 )
693,703.30
$ 648,214.12 637,765.11

ACCOUNTANTS' REPORT
To the Board of Directors of
WESTERN .A.IR LINES, INC.
We have examined the Balance Sheet of Western Air Lines, Inc., as of
December 31, 1942, and the statements of Profit and Loss and Surplus for the
fiscal year then ended, 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 of the company
and other supporting evidence, by methods and to the extent we deemed
appropriate. Except that it was not practicable to confirm the accounts receivable
from the United States Army Air Forces, as to which we have satisfied ourselves
by means of other auditing procedures, our examination was made in accordance
with generally accepted auditing standards applicable in the circumstances and
included all procedures which we considered necessary.
In our opinion, the accompanying Balance Sheet and related statements of
Profit and Loss and Surplus present fairly the position of Western Air Lines, Inc.,
at December 31, 1942, and the re ults of its operations for the fiscal year, in conformity
with generally accepted accounting principles applied on a basis consistent with
that of the preceding year.
Los Angeles, California
February 24, 1943
.PEAT, IARWICK, IITCIIELL & CO.
TRAFFIC STATISTICS
Percent of
Increase
1939 1940 1941 1942 194 2 over 1941
Revenue:
Passenger ......................... $ 503,998 $ 752,140 $1,055,821 $1,242,541 17.7
Mail ...... . . . .................... 809,980 808,488 848,655 760,573 (10.4)
Express, Freight and Excess Baggage .. 45,249 58,094 83,702 191,051 128.3
Other ............................ 28,020 29,786 31,067 180,892 482.3
Total .......................... $1,387,247 $1,648,508 $2,019,245 $2,375,057 17.6
Revenue Miles Flown .................. 2,277,161 2,399,338 3,136,917 2,318,305 (26.10)
Revenue Passengers .................... 30,075 47,407 69,791 77,801 11.48
Average Passenger per Revenue Mile Flown 4.85 6.59 7.30 10.52 44.11
Average Revenue per Passenger Mile ... . .. .0457 .0476 .0461 .0509 10.4
Passenger Seat Miles Flown ............. 27,564,517 32,359,017 48,592,298 39,348,869 (19.02)
Revenue Passenger Miles ............... 11,035,541 15,803,768 22,892,281 24,393,816 6.56
Load Factor ........................... 40.04 48.84 47.11 61.99 31.59
Mail Pounds Carried .... ............... 957,884 951,451 1,289,505 1,547,984 20.04
Express Pounds Carried ................. 361,017 566,427 821,514 1,258,368 53.18
OPERATING STATISTICS
Percent of
Increase
1939 1940 1941 1942 1942 over 1941
Expense:
Depreciation ...................... $ 142,844 $ 141,746 $ 197,781 $ 215,707 9.1
Other Operating and General Expenses 1,158,231 1,347,742 1,826,920 1,582,160 ( 13.4)
Total Operating Expenses ......... $1,301,075 $1,489,488 $2,024,701 $1,797,867 ( 11.2)
Operating Expenses per Revenue Mile. . . . .5714 .6208 .6454 .7755 20.1
Percent of Scheduled Service Performed. . . 95.65 96.39 96.85 96.17 (0.7)
Number of Employees ( A vcragc) . . . . . . . . 194 241 330 485 47.0
Brackets denote decrease
All of the above figures, except the number of employees, apply to commercial operations only.
SAN FRAN
BAKE
LOS ANG
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SAN
WESTERN AIR Ll~ES, INC.
FEBRUARY, 1943
LEGEND
PRESENT EXISTING ROUTES OF WESTERN AIR LINES - 1,411 MILES
PROPOSED
PROPOSED
EXISTING
NATIONAL
OF WESTERN
ROUTES
ALTERNATE ROUTE OF
ROUTES
PARKS
OF OTHER
AIR LINES -
WESTERN
CARRIERS
AIR
PLEASE
ROUTES
SEE NEXT PAGE FOR MAP SHOWING _
PROPOSED
MILES
OF WESTERN AIR
CREEK
PRAIRIE/
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,DMONTQ~
N I
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CALGARY /
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LINES -
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5,874
4,880 MILES
LINES
FEEDER
A
WESTERN AIR INC.
FEBRUARY,
LINES,
1943
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LINES
Routes of WESTER:, A~~STERN Al R
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TEXAS