Western Air Lines Annual Report 1948

OFFICERS AND DIRECTORS
WESTERN AIR LINES,INC.
REGISTRAR
STOCK TRANSFER AGENT
Ehiihii
GENERAL OFFICES
Terrell C. Drinkwater, President and Director
Stanley R. Shatto, Vice President-
Engineering and Maintenance and Director
Marvin W. Landes, Vice President-Service
Ric.hard A. Dick, Vice President- Sales
Paul E. Sullivan, Vice President and Secretary
D. P. Renda, Assistant Secretary
J. J. Taylor, Treasurer
Robert H. Purcell, Controller and Assistant Treasurer
William A. CQulter, Director
Hugh W. Darling, Director
George Albert Smith, Director
Chase National Bank, New York, New York
Citizens National Trust & Savings Bank, Los Angeles, California
New York Trust Company, New York, New York
Security-First National Bank of Los Angeles, California
Peat, Marwick, Mitchell & Co.
Western Air Lines Building
6060 A vion Drive
Los Angeles Airport
Los Angeles 45, California
To the Stockholders of
w
Es TE n H
AUL LIKES, IMC.
OPERATIONS OF THE COMPANY and its subsidi-
ary, Inland Air Lines, Inc., for the year 1948 resulted
in a net profit of $134,704, or 26 cents per share, as
compared with a loss of $945,333 for the calendar
year 1947, exclusive of the gain resulting from the
sale of the Denver-Los Angeles route and related
equipment. Total operating revenues decreased from
$12,376,176 in 1947 to $10,463,232 in 1948, a de-
crease of 15 % . Total operating expenses were reduced
from $13,040,685 in 1947 to $10,361,975 in 1948,
a decrease of 21 % .
The end of 1948 marks the close of the second
year of your Company's* reorganization period. As
has been previously reported, the end of 1946 found
your Company in serious financial difficulties. At-
tempts at public financing had failed, the Company's
cash position was critical, and outstanding purchase
commitments and other obligations were substantial.
Accordingly, the management of your Company at
that time was faced with the problems of, first, obtain-
ing some means of financing at least for the interim
period and, second, lowering costs and construc-
tively contracting the Company as promptly as could
be done on a sound basis. This has been the program
of the management of your Company for the past
t
two years. Adding to the complexity of the problem
has been the serious effect of inflation on the costs
of operating your Company since January 1, 194 7,
and the general leveling off in passenger volume exper-
ienced by all domestic air transportation companies.
In spite of these obstacles, however, the manage-
,:,Note: Whenever the terms "your Company" or "the Com-
pany" appear herein they refer to Western Air Lines, Inc.,
and its subsidiary, Inland Air Lines, Inc.
ment of your Company has made good progress. At
the present time payrolls account for about 48 % of
your Company's total operating expenses. The num-
ber of employes of your Company has been reduced
from 2,396 on January 1, 1947, to 1,203 on March 1,
1949, a reduction of approximately 50%. Although,
due to inflation, the average salary has risen during
that period approximately 32 % , the total payroll
expense has been reduced 34%.
Today, the wages, rules and working conditions of
over 85 % of the employes of your Company are
governed by union contracts with six different unions.
These organizations include: Air Line Pilots Associ-
ation International; International Union, United Auto-
mobile, Aircraft and Agricultural Implement Workers
of America, CIO; Air Line Stewardesses Association;
American Communications Association, CIO; Air
Line Dispatchers Association; and the Brotherhood
of Railway and Steamship Clerks, Freight Handlers,
Express and Station Employes. I~ each of the general
categories governed by the six union contracts, indi-
vidual pay is higher than was the c.ase on January
1, 1947.
Similarly, the cost to your Company of materials,
supplies, equipment and parts has increased substan-
tially during the past two years. For illustration, dur-
ing that period there has been an increase of 41 %
in the cost of aviation gasoline. Aircraft parts have
been increased generally an average of 40% in price.
Practically everything used today in the operation of
your Company is more expensive than it was two
years ago. In spite of such a condition, your Company
has been able to reduce its expenses materially as
shown in the adjoining Comparative Statement of
Profit and Loss.
1
Stockholders. As of January 7, 1949, there were
issued and outstaJ?.ding 525,164 shares of the Capital
Stock of your Company, all _of one class, and owned
by 2,664 shareholders of record, including a large
number of Company employes.
In September, 1948, on behalf of William A.
Coulter, the principal stockholder and former presi-
dent of the Company, there was filed with the Securi-
ties and Exchange Commission a registration state-
ment permitting the public or private sale of the
215,597 shares of the Company stock owned by him.
As of .March 17, 1949, according to the Company's
records, Mr. Coulter had sold all but a small amount
of his stock in the Company. It is believed that the
sale of this stock is in the best interests of your Com-
pany inasmuch as it enlarges the group of stock-
holders, makes a better market for the stock, and
should make any future permanent financing program
more easily attainable.
Mail Compensation. On December 30, 1948, the
Civil Aeronautics Board issued show cause orders
tentatively fixing the rates of mail compensation for
past and future periods for your Company.
With respect to the retroactive adjustment for the
period prior to January 1, J 949, your Company has
received $1,051,000. Your management feels, how-
ever, that the Company is also entitled to receive an
additional sum of $925,000 in retroactive mail pay-
ments representing profits earned in past periods .from
non-airline operations and the profit realized on the
sale of the Denver-Los Angeles route and related
equipment in September, 1947. Although the CAB
has tentatively deducted the sum of $925,000 from
the retroactive mail pay settlement, your Company
intends to pursue in all appropriate ways the collec-
tion of this additional claim and will urge the CAB
to revise its tentative findings in this regard. In the
event your Company is successful in this matter, the
retroactive settlement will be increased from $1,051,-
000 to $1,976,000. In view of the fact that the claim
is still pending, no part of the additional amount of
$925,000 has been recorded on the books of your
Company.
With reference to the future period subsequent to
January 1, 1949, the tentative orders of the CAB
propose establishment of new rates of mail compen-
sation for your Company on a more realistic basis.
2
Condensed Co1nparative Statement
of Profit and Loss
($000.00 omitted)
For the Calendar Year
1948 1947 1946
Operating revenues:
P!ssenger ............ $ 7,813. $10,114. $10,474.
Mail . . . . . . . . . . . . . . . . 2. t 36.
Other . . . . . . . . . . . ... . . 514.
Total operating
1,570. 982.::
692. 436.
revenues ......... $10,463. $12,376. $11,892.
Operating expenses:
Depreciation ......... $ 1, t 64. $ l,845. $ 1,369.
Other . . . .. .. .. .. .. .. 9,198. J 1,196. 11,744.
Total operating
expenses ......... $10,362. $)3,041. $13,1 J 3.
Operating profit or (loss) . . 10 I. ( 665.) (1,221.)
Non-operating income and
expense ( net) . . . . . . . . . ( 180.) ( 192.)
Federal income taxes or
credits . . . . . . . . . . . . . . . 220. (88.) 278.
Minority interest in profit
of subsidiary ... ..... (6.)
Netptofitorloss ..... $ 135. $ (945.) $ (943.)
~Exclusive of 1946 mail pay in the amount of $344,300.89
received in 1947 and credited direct to earned surplus.
On the basis of a forecast of a revenue passenger load
factor of 57 % , the estimated_ effective mail rate per
airplane mile is established at 25.76 cents per mile
for Western Air Lines, Inc. At an anticipated revenue
passenger load factor of 59.4% for the subsidiary,
Inland Air Lines, Inc., an effective rate of 27 cents
per airplane mile is established. It is estimated that
these rates will produce total mail compensation of
$2,200,000 to your Company for the year 1949.
Your Company has indicated its acceptance of
these new rates to the CAB. However, because of
certain technical disagreements as to procedures be-
tween the CAB and the Post Office Department, the
rates have not yet been made permanent by order of
the CAB, but are effective under a temporary order
Financial Position-The comparative financial status of
your Company as of the close of the last three calendar
years is shown in the following condensed statement:
ASSETS
(What we own)
1948 1947 1946
Current Assets:
Cash ................ $ 1.462. $ 2,137. $ 1,137.
Accounts receivable .... 2.307. 1.168. 1,591.
Inventories ........... 246. 229. 1,043.
--
Total current assets .. 4,015. 3,534. 3,771.
Properties and equipment:
Airplanes, engines, land,
buildings, equipment,
spare parts, etc. . ...... 12,311. 9,823. 10,207.
Less reserve for
depreciation .......... (4,217.) (3,531.) (2,625.)
Sundry securities ........ 12. 11. 10.
Deposits on equipment
purchase contracts ..... 484. 653.
Insurance. rent, interest,
etc., paid in advance ... 678. 269. 404.
Routes, contracts
and leases ............ 147. 166. 184.
Total Assets ........ $12,946. $10,756. $12,604.
- - - --- ---
and your Company is currently receiving mail com-
pensation on the new basis.
Reconstruction Finance Corporation Loan. During
the past two years, your Company has borrowed from
the Reconstruction Finance Corporation a total of
$6,421,606, which sums were used, first, for the pay-
ment of substantial obligations outstanding on Jan-
uary 1, 194 7, and, second, to purchase a fleet of
Convair aircraft, together with spare engines and
parts. As security for the loans, the Reconstruction
Finance Corporation holds a first mortgage lien on
practically all of the assets of your Company. The
agreement between your Company and the Recon-
struction Finance Corporation likewise contains cer-
Condensed Comparative
Balance Sheet
As of December 31 ($000.00 omitted)
LIABILITIES
( What we owe)
1948 1947 1946
Current Liabilities:
Notes payable ........ $ 2,394. $ $ 3,831.
Accounts payable ..... 1,087. 532. 3,470.
Air Travel Plan
deposits
............. 229. 244. 240.
Accrued salaries, wages,
taxes, insurance, etc. . .. 620. 1,348. 787.
Total current
liabilities .. . . "
..... 4,330. 2,124. 8,328 .
Unused portion of
tickets sold ........... 321. 239. 308.
Notes payable-long term. 3,551. 3,800. 287.
Operating reserves ...... 272. 260. 340.
Minority stockholders'
interest in subsidiary ... 24. 20. 21.
Capital stock
(525,164 shares) ...... 525. 525. 525.
Capital surplus .......... 2,768. 2,768. 2,768.
Earned surplus .......... 1,155. 1.020. 27.
Total Liabilities ..... $12,946. $10,756. $12,604.
--- = - - -
Stockholders' equity
per share ................... $8.47 $8.21 $6.32
tain provisions with respect to your management and
other matters relating to the Company's finances to
be effective until the loans are paid.
As of March 17, 1949, the balance due the RFC
had been reduced to $5,367,205. The terms of these
loans will require principal payments by your Com-
pany during the remainder of 1949 of $1,495,833.
Discussions are being had with the RFC for the pur-
pose of rescheduling the principal payments which
will become due to the RFC in 1949 and subsequent
years.
Route Structure. During the past two-year period,
the concept of your Company's place in the domestic
air route pattern has materially changed. Attempts
3
to compete in the transcontinental market with its
high cost, and intense competition by four very large
companies, were of necessity abandoned. The West-
ern Air Lines' route from Los Angeles to Denver,
basically part of a transcontinental operation, was
sold and transferred to United Air Lines, the proceeds
of such sale helping to alleviate the Company's finan-
cial problems.
In accord with the regionalization philosophy of
the Company's system, on August 1, 1947, the Com-
pany's coastal route was extended from San Francisco
and Oakland to Seattle-Tacoma via Portland. On
April 1, 1947, the operations of the Company's In-
land Division were extended from Huron to Minne-
apolis-St. Paul and Rochester, thus permitting a
through service from Denver as well as from Great
Falls to these Minnesota cities. On May 2, 194 7,
service was inaugurated between San Diego, Califor-
nia and Yuma, Arizona, via El Centro, California, a
franchise awarded to the Company in 1946 by the
Civil Aeronautics Board.
Since the inauguration of the San Diego-El Centro-
Yuma operations, negotiations have been entered
into looking toward the transfer of this segment of
your Company's route to Arizona Airways, a tem-
porarily certificated feeder operator which has been
authorized to fly between Phoenix and Yuma. The
management of your Company is of the belief that
the San Diego-Yuma operation is not a sensible seg-
ment of your Companfs route structure. Its opera-
tion thus far has proved to be uneconomical and this,
coupled with low traffic potential, has constituted a
serious drain on your Company's finances. It can
better be operated as a part of the Arizona Airways
feeder line system. This proposed transfer is now
pending before the CAB for approval.
In September, 1947, your Company withdrew all
of its other applications for extensions and new routes
which had previously been filed with the Civil Aero-
nautics Board. It thus became, for the first time in
the history of the industry, the only carrier to abandon
plans for wide-spread route extensions, electing in-
stead to confine itself to a regional operation.
The route structure of your Company today con-
sists of three divisions: The Inland Division ( which
comprises Inland Air Lines, Inc., a subsidiary) ex-
tending from Denver to Minneapolis-St. Paul and
Rochester via Rapid City and various intermediate
4
points, and from Denver to Great Falls, Montana, via
Cheyenne, Casper, and other intermediate points; the
Western Division, extending from Los Angeles to
Lethbridge, Alberta, Canada, via Las Vegas, Nevada,
Salt Lake City, Great Falls, and other intermediate
points; and the Coastal Division extending from Seat-
tle-Tacoma to San Diego via all of the major cities
on the Pacific Coast. Service is also provided between
San Diego and Yuma via El Centro.
The system serves 3 7 cities and a total metropolitan
population of 7,620,133. An average of 23,855 air-
plane miles is scheduled each 24 hours, making 316
landings and take-offs. During 1948, the Company
carried an average of 969 passengers each day and
the average passenger riding over the system traveled
384 miles and paid $22.10 for his ticket. The Com-
pany is, therefore, essentially a "short-haul carrier"
as distinguished from the predominently long-haul
carriers such as the transcontinental airlines. This
factor imposes problems with respect to the costs of
the Company's operation due to the fact that certain
costs obtain with respect to each passenger regardless
of the length of his ride or the price of his ticket.
Your Company has been authorized by the Civil
Aeronautics Board and the President of the United
States to operate between Los Angeles and Mexico
City, D. F., via La Paz, Baja California, and from
Lethbridge, Alberta, Canada, to Edmonton, Alberta,
via Calgary. The Government of the United States,
however, has not as yet been able to obtain permission
of the Mexican and Canadian governments respec-
tively for the operation of these routes by your Com-
pany. Because of the policy of those governments
with respect to American Flag Air Carriers at the
present time, your Company has not been advised by
our own Government as to when permission will be
forthcoming which will allow the operation of these
services. The management of your Company .does not
negotiate directly with the governments of Canada
and Mexico on these matters.
Flight Equipment. Since the date of the last annual
report, your Company has acquired its new fleet of
Consolidated-Vultee Convair Liner aircraft consisting
of l O airplanes, the last three of which were delivered
in December, 1948. This fine, modern, fast, pressur-
ized equipment is now in operation on the Coastal
Division and between Los Angeles and Las Vegas.
It will soon be possible to introduce Convair opera-
tions on other segments of the system. Your Company
is also operating a fleet of 10 Douglas DC-3 aircraft
on the Western and Inland Divisions. The introduc-
tory period of the Convair operation is now drawing
to a close and the manageme.nt of your Company pro-
poses to sell, as promptly as possible and at the best
prices obtainable, the fleet of six Douglas DC-4 type
airplanes. The proceeds resulting from such sale will
be applied toward the reduction of the RFC loan. The
sale of the DC-4's will eliminate substantial deprecia-
tion costs, taxes and insurance charges and will make
possible further economies in operating expenses.
Attempts also are being made to sell inventories of
DC-4 spare parts and equipment.
Maintenance Facilities. Practically all of the Com-
pany's operatfons, maintenance and administrative
personnel and facilities have now been housed in the
general headquarters office and hangar building at the
Los Angeles Airport. Overhaul and shop facilities
Where it came from
and where it went
($000.00 omitted)
We Received:
1948
Passenger revenue ............... $ 7,813.
Mail revenue . . . . . . . . . . . . . . . . . . . 1,085.
Express, freight, etc. . . . . . . . . . . . . 514.
Sale Route 68, etc. . ............. .
RFC loan . . . . . . . . . . . . . . . . . . . . . . 2,266.
Sale of other assets ....... : . . . . . . 176.
$11,854.
We Spent:
Salaries and wages .............. $ 4,974.
Gasoline and oil . . . . . . . . . . . . . . . . 1,118.
Insurance . . . . . . . . . . . . . . . . . . . . . . 312.
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 368.
Passenger food and supplies . . . . . . 30 t.
Materials and outside services. . . . . . 1,694.
Other expenses . . . . . . . . . . . . . . . . . 404.
Interest . . . . . . . . . . . . . . . . . . . . . . . 184.
Payment of Joans . . . . . . . . . . . . . . . 121.
Purchase of equipment, spare parts,
etc. . ...................... , 2,270.
Reduction of other debts and misc.. . 108.
$11,854.
1947
$10,114.
1,914.
702.
3,750.
3,800.
1,000.
$21,280.
$ '5,777.
984.
397.
455.
371.
2,267.
944.
109.
4,118.
2,997.
2,861.
$21,280.
have been installed and, for the first time in its his-
tory, the Company now does almost' all of its own
overhaul and maintenance work, including airframes,
aircraft engines, propellers, radio, instruments and
accessories. This program has very materially reduced
the maintenance costs of your Company's operation
and it is felt that even further economies can be
achieved in this department with the standardization
of the fleet of aircraft to consist of Convairs and
DC-3's. The DC-4's will be eliminated.
The headquarters building could not be utilized
efficiently in its entirety by your Company a~d, there-
fore, on March 1, 1949, a sizeable portion of the build-
ing, including office, hangar and storage space, has
been sub-let to another airline, the proceeds of which
tenancy will help defray the cost of maintenance of
the building. The Company has leased and is under-
taking to sell as promptly as possible its former office
building in Beverly Hills and its former warehouse
facilities at Burbank, California, neither of which
properties is any longer useful to your Company.
Consolidations. The management of your Company
is of the firm belief that the Federally certificated
trunk airlines in the United States should consolidate
their respective facilities on the ground at both ticket
offices and at airport stations wherever practicable in
order to reduce their costs of operation. In accord
with this philosophy, your Company has adopted a
policy of making such consolidations wherever they
can be arranged with the other air carriers. As a result,
your Company occupies a conspicuous position in
the airline industry for its consolidation programs. At
the present time, the Company serves 3 7 stations, of
which 23 are served jointly with another air carrier.
Of these 23 stations, Western Air Lines has some type
of consolidation arrangement at 16, and is constantly
negotiating to include other consolidations for the
purpose of achieving a more efficient operation and
reducing costs. The management of your Company is
constantly urging the establishment and operation of
consolidated downtown ticket offices serving all air-
lines in each major city on your Company's system.
Meal Service. On December 10, 1948, your Com-
pany, acting on the theory that the serving of meals is
an illogical and uneconomical function for an organi-
zation engaged solely in air transportation, applied to
5
the Civil Aeronautics Board for permission to discon-
tinue this practice. Since the cost of serving meals
amounted to approximately 5 % of passenger fares,
application was also made for permission to reduce
the fares in this amount. Approval of the application
subsequently was received, and on February 1, 1949,
your Company eliminated the service of meals on its
airplanes and passed the savings on to the traveling
public in the form of a general 5 % fare reduction.
Wes tern Air Lines was the first air carrier to serve
"free" meals aloft to its passengers as a promotional
stunt back in 1928. It therefore seems appropriate
that Western Air Lines should be the first to eliminate
this costly practice and to concentrate its energies on
promoting the utility of the airplane-its speed, com-
fort and safety.
Employe Relations. The Company employes have
organized the Westernaire Federal Credit Union under
a Federal charter on January 14, 1948, for the pur-
pose of providing a convenient means of systematic
savings to the employes of your Company, all of
whom are eligible for membership. The funds derived
from these savings are then made available for loans
to employe members.
During the past year, dividends amounting to 4.8 %
of their savings have been paid to employe members.
No losses nor delinquent payments have been experi-
enced in connection with loans made. All officers and
directors of the Credit Union are elected by the mem-
bers at an annual meeting, and a payroll deduction
plan has been inaugurated by your Company for the
purpose of facilitating savings and loan repayments.
On July 1, 194 7, your Company placed in effect a_
n
Employes' Suggestion Program based on a system
of recognition and monetary awards for suggestions
made by employes which increased the efficiency and
safety of your Company's operation. During the first
18 months of operation, 2,401 suggestions were made
by employes in all divisions of your Company and
over 200 cash awards were made. Annual savings of
approximately $20,000 have been realized by your
Company as a result of these suggestions.
In the Los Angeles metropolitan area, the resi-
dence of 50% of the Company's personnel, an em-
ployes' recreational club is sponsored for various
employe activities. This organization also operates the
lunch-room at the general offices.
6
Civil Aeronautics Board Investigation. On Feb-
ruary 25, 1949, the Civil Aeronautics Board released
a lengthy statement of policy reviewing many current
problems of the domestic air transport business, and
issued a series of some 14 separate orders launching
broad investigations of many types. The Board an-
nounced: "Our principal objective during the coming
year is a complete return of the air transport industry
to a sound and profitable condition from which it can
withstand the ordinary vicissitudes of economic fluc-
tuations."
Your Company, in common with all other air car-
riers in varying degrees, is aff ec.ted by this series of
investigations. With specific regard to Western Air
Lines, the CAB issued an order entitled, "Order
Amending Order Instituting Investigation," thus tying
in the present order with the investigation the Board
instituted on April 29, 194 7. This latter proceeding
followed the application by your Company in the
early part of 194 7 for a temporary emergency mail
rate in order to alleviate the critical financial condition
of your Company at that time.
The present order of investigation indicates that
the Board intends to make a complete survey through
public hearings of the relationship of your Company's
routes to the over-all domestic air transport pattern.
The CAB in its order, however, states that "the
amended inquiry will not contemplate the issuance
of an order by the Board directing Western to take
any action, but does contemplate that at the conclu-
sion of said inquiry the Board will determine what
future steps, if any, may be required to effectuate any
findings made during the course of the said investiga-
tion as to the needs of the public interest."
The purposes and motives of the CAB's present
inquiry are obscure. Neither the duration nor the
scope nor the results of such inquiry can be predicted
at this time. Under present law, the CAB has no
power to confiscate the properties of your Company.
The route structure of your Company, with minor
modifications, is believed to be both economically
and geographically sound providing, as it does, a much
needed regional air transport system for the western
part of the country in the public interest. It is entirely
conceivable that the current CAB investigation may
result in benefit to your Company. It is by no means a
foregone conclusion that harm will be done by CAB
action. The CAB's limited staff is already far behind
in processing pending proceedings, and in view of the
fact .that several of the investigations concurrently
launched have to do with matters obviously much
more vital to the we~fare of domestic air transporta-
tion than the continufog investigation of Western Air
Lines, it seems unlikely that any action will be taken
with respect to the inquiry relating to your Company
for a long time to come.
Outlook for the Future. Throughout 1947 and
1948, the management of your Company has of ne-
cessity concentrated its energies on the job of reducing
costs, increasing operating efficiency, and solving its
acute interim financial difficulties. It is felt that much
has been accomplished in this regard. In 1949 your
management expects to make further progress in the
reduction of costs and the elimination of frills from
air transportation without any sacrifice in the safety
and efficiency of the operation. A new system of bud-
getary control has been introduced for this purpose.
There are applications on file with the Civil Aero-
nautics Board by other airlines seeking franchises
which would subject segments of your Company's
routes to additional competition. These efforts will
be vigorously opposed, inasmuch as it now seems per-
fectly clear to most informed persons that there is
little need for further competition in the areas served
by your Company.
Certain portions of your Company's routes have
likewise been subjected to improper competition by
so-called "irregular" or "non-scheduled" air carriers
which operate under different safety rules and stand-
ards, wage rates, insurance coverages, and operational
techniques than are observed by your Company. It is
believed that in the public interest all such operators
should and ultimately will be obliged to observe the
same safety standards that are applicable to the op-
eration of your Company.
Much has been done during the past two years by
the airline industry and the Government to increase
the reliability of air transportation. The fog dispersal
system at the Los Angeles Airport will soon go into
operation and in itself should increase your Com-
pany's revenues. Other navigational aids are being
and have been installed in both your Company's air-
craft and on the ground at considerable expense, all
of which will increase the efficiency of the scheduled
performance.
There has been a growing realization on the part
of the people of the United States of the essential value
of a sound domestic air 'transportation system with
relation to the national defense and security of this
nation. The validity of the point has been recently
recognized on many occasions by persons in both the
legislative and executive branches of the Federal Gov-
ernment. Your Company is an integral part of the
national defense system, and your management, as in
the past, will continue to work closely with the mili-
tary air forces in appropriate fashion.
With the continued progress of cost reduction and
reasonable adjustment in rates of mail compensation,
in the absence of unforeseen contingencies, the ma~-
agement of your Company hopes and expects to
operate at a profit during the year 1949. The market
for air transportation will expand each year as a larger
segment of the public becomes acquainted with the
utility of the airplane, particularly in the western states
served by your Company. Greater sales effort will be
made to tap this market.
It is appropriate to note herein an expression of
sincere thanks to the loyal employes for their hard
work, devotion and energy in doing their part toward
the solution of many of the Company's problems
during this difficult reorganization period immedi-
ately past.
Respectfully submitted,
---
PRESIDENT
March 17, 1949
Western Air Lines Building
6060 A vion Drive
Los Angeles Airport
Los Angeles 45, California
7
8
Consolidated
E
A
L AH C
ASSETS
Current Assets:
Cash in banks and on hand ...................... .
Deposit with Reconstruction Finance Corporation
for payment of certain state and local taxes .....
Accounts receivable:
United States Post Office Department ......... .
United States and State Government Departments
Interline and agents' traffic balances ........... .
Customers' accounts receivable .. . ........... .
Other ( including $17,152.16 due from officers and
employes) ........................ . .. .
Less reserve for doubtful accounts ............ .
Federal taxes on income refundable under loss carry-
back provisions of Internal Revenue Code
Inventory of parts and supplies at the
lower of cost or replacement market
(substantially all pledged) (Note 1) .......... .
Sundry securities ................ . ................. .
Properties and equipment, at cost (substantially all
pledged) (Note 1):
Land .................................. . .... .
Buildings and improvements to leased property ..... .
Airplanes, engines, propellers and flying equipment .. .
Radio stations, furniture, fixtures,
shop and other equipment .. . ........ . . . .. . . .
Property not used in operations ................. . .
Construction work in process ....... .. . . .. . ...... .
Less reserve for depreciation ............. . ...... .
Routes, contracts and leases, less amortization $36,804.00 ..
Deferred charges and prepaid insurance, rent,
taxes and sundry ( including $118,832.02 of
unamortized pre-operational expense of
new type aircraft- Note 3) .. . ... . .. . ........ .
$ 1,214,046.74
105,746.30
303,386.46
150,098.18
99,956.20
1,873,233.88
6,947.97
1,348.35
2,962,767.36
7,946,449.39
1,103,403.05
237,038.10
60,375.90
1 2,311,382.15
4,217,528.39
$ 1,461,993.84
67,255.56
1,866,285.91
372,636.36
246,417.02
4,014,588.69
12,481.73
8,093,853.76
147,288.87
678,011.02
$12,946,224.07
SHEET as of December 31, 1948
LIABILITIES
Current Liabilities:
Notes payable-Reconstruction Finance Corporation
(amount due within 12 months) (Note 1) ..... .
Accounts payable-trade ........................ .
Accounts payable-taxes collected from others ...... .
Interline and agents' traffic balances ................ .
Air Travel Plan deposits ........................ .
Accrued salaries, wages, taxes, insurance and other .. .
Provision for Federal taxes on income
(amount due within 12 months) ............. .
Deferred income ( unused portion of tickets sold)
Long term debt:
Notes payable-Reconstruction
Finance Corporation (Note 1)
Less amount due within 12 months ............... .
Provision for Federal taxes on income (Note 2) ......... .
Minority stockholders' interest in subsidiary .. . ......... .
Capital stock-$1.00 par value per share (Note 1):
Authorized 2,000,000 shares (25,000 shares
reserved for option to officer)
Issued 525,164 shares ........... . ...... . ....... .
Surplus :
Capital surplus ( no change during year)
Earned surplus from December 31, 1934
Contingent liabilities ( Note 4) . . . . .. . . .. . . . . .. . . . .. . .
$ 5,945,164.12
2,394,388.23
2,768,247.10
I, 154,970.24
$ 2,394,388.23
1,065,732.43
145,630.05
20,908.84
229,075.00
393,629.22
80,570.22
4,329,933.99
320,589.78
3,550,775.89
272,000.00
24,543.07
525,164.00
. 3,923,217.34
12,946,224.07
9
Consolidated
Prt 0 F
lT AH D L
0 S S S TATE ME H
T
for the year ended December 31, 1948
Operating Revenue:
Passenger .............................................. .
Mail (Note 2) .......................................... .
Express and freight ....................................... .
Excess baggage and other .................................. .
Incidental revenue-net . , ............... , .................. .
Total Operating Revenue .............................. .
Operating Expenses:
Flying operations ........................................ .
Ground operations ... , ................................... .
Direct maintenance-flight equipment . ~ ...................... .
Ground and indirect maintenance ........ ; .................. .
Passenger service ........................................ .
Traffic and sales ......................................... .
Advertising and publicity .................................. .
Extension and development ................................ .
General and administrative ................................. .
Depreciation ............................................ .
Operating Profit ..................................... .
Non-operating Income:
Discounts received ....................................... .
Lease bonus ............................................ .
Other .................................................. .
Non-operating Charges:
Interest ................................................ .
Amortization of routes, contracts and leases ................... .
Other .................................................. .
Loss before Federal Taxes on Income ................... .
Provision for Federal Taxes on Income:
Applicable to subsidiary company's taxable income ............. .
Applicable to increased mail revenue taxable in 1949 (Note 2) ... .
Total Provision .................................. .
Less:
Restoration of excess provision for prior year's taxes resulting
from loss carry-back provisions ............ $179,363.64
Prior year's taxes refundable under loss
carry-back provisions .................... $372,636.36
Net Credit .................................. .
Less Minority interest in subsidiary .............................. .
Net Profit .................................. .
Statement of Consolidated Earned Surplus
Amount at December 31, 1947 ........................ . ........ .
Add- Net profit for the year ............................. . ..... .
Amount at December 31, 1948 ................................. .
10
$ 2,612,415.13
1,732,466.40
831,134.56
666,554.52
812,136.00
1,202,341.66
328,884.50
1,537.81
1,010,668.00
1,163,836.09
5,519 39
14,371.77
26,700.63
183,536.49
18,408.00
25,361.00
60,000.00
272,000.00
332,000.00
552,000.00.
$ 7,813,194.78
2,135,745.66
309,730.55
173,829.45
10,432,500.44
30,731.55
...._ 10,463,231.99
10,361,974.67
101,257.32
46,591.79
147,849.11
227,305.49
79,456.38
220,000.00
140,543.62
5,839.49
$ 134,704.13
$ 1,020,266.11
134,704.13
$ 1,154,970.24
Notes to Financial Statements
1. NOTES PAYABLE - RECONSTRUCTION FINANCE CORPORATION.
The amount due to the Reconstruction Finance Corpora-
tion, $5,945
1
164.12, includes $4,183,624.36, the amount pay-
able on a loan obtained in 1947 together with $1,761,539.76,
the amount payable under a related loan obtained in 1948,
and is secured by inventories, property and equipment, and
the capital stock of inland Air Lines, lnc., a 95% owned
subsidiary. Under the terms of the credit agreements the
amount~ b~rrowed are repayable, commencing in January,
1949 with interest at 4% per annum, in annual aggregate
amounts of $1,824,999.96, embracing specified installments
of $177,083.33 ($125,000.00 on the 1947 loan and $52,-
083.33 on the 1948 loan) payable during the months of
April through September and $ I 27,083.33 ($75,000.00 on
the 1947 loan and $52,083.33 on the 1948 loan) payable
during the months of October through March.
. Additional principal payments on the 1947 loan during
its term and subsequently on the 1948 loan are to be made
annually within the first two months after the close of
each calendar year, commencing with the year ended
December 31, 1948, in amounts equal to the excess of
50% of the Company's annual net profit for the preceding
year (before provision for depreciation) over the total of
the specified monthly payments on principal made during
the preceding year. The additional payment due within the
first two months of 1949 amounts to $569,388.27, which
together with the specific payments aggregating $1,824,-
999.96 to be paid during 1949 are included in the current
liabilities in the amount of $2,394,388.23.
The unpaid balance of the 1947 loan is due on or before
December 24, 1950, and of the 1948 loan on or before
December 31, 1952.
The credit agreements provide, among other things, that
no dividends on the capital stock of the Company are to
be paid without the approval of the Reconstruction Finance
Corporation.
2. FEDERAL TAXES ON INCOME-INCREASE IN MAIL REVENUE.
Provision has been made for all known income tax liabili-
ties. The Federal income tax returns of the Company have
been examined and closed through the year ended Decem-
ber 31, 1946, and those of the subsidiary through June 30,
1946.
On February 25, 1949, and March 3, 1949, the Civil
Aeronautics Board awarded the Company and its subsidiary
"Temporary Rates of Mail Compensation" which increased
the 1948 mail revenue in the aggregate amount of $1,050,-
510.90. Except for the increase in mail revenue awarded
the Company's subsidiary in the amount of $75,049.70
( for which provision for 1948 Federal income taxes has
been made) this increa,se in mail revenue is not includable
in the 1948 income tax returns of the Company, but is
includable in its 1949 return. Provision has been made,
however, in the amount of $272,000.00 for Federal income
taxes on the balance ($975,461.20) of the increased mail
revenue. Such provision has been based on 1948 tax rates
and the application of the loss carry-forward provisions
of the internal Revenue Code. As the amount of income
tax payable for the year ended December 31, 1949, is
dependent upon the results of operations for that full year,
the amount provided is reflected on the balance sheet as
a deferred liability.
3. CHANGES IN ACCOUNTING PRINCIPLES. In order to make its
accounting practices uniform with those of a majority of
the air transport industry and following extensive confer-
ences with the Rates and Analysis Division of the Civil Aero-
nautics Board in connection with the adjustment in mail
com~~nsation_ rates, the ~ompany discontinued for the year-
1948_ 1!s practice_ of cred1tmg reserve accounts with monthly
prov1s1ons for aircraft and engine overhaul costs based on
flying hours and subsequently charging such reserve ac-
counts with the costs of overhaul when determined. For the
year 1948, therefore, all overhaul costs in excess of the
reserves provided as of December 31, 194 7, have been
charged to operating expenses. In addition, the Company
discontinued its practice of writing off in .the year in-
curred all pre-operational expenses and for the year 1948
deferred the pre-operational expenses incurred in connec-
tion with its new type aircraft and will amortize such ex-
pense over a period of 56 months from December 31, 1948.
As a result of these changes, the net profit for the year is
approximately $378,000.00 greater than it would have been
had the previous practices been continued.
4. CONTINGENT LIABILITIES. The Company and its subsidiary
were contingently liable as of December 31, 1948, oncer-
tain damage claims and lawsuits in which they are or may
be defendants, but the management believes that the lia-
bility resulting therefrom, if any, in excess of insuran.ce
coverage will not be material in amount.
Accountant~' Report
To the Board of Directors,
WESTERN AIR LINES, INC.:
_We have examined the Consoljdated Balance Sheet of Western
Air Lines, Inc .. and Subsidiary, as of December 31. 1948, and
the related statements of Consolidated Profit and Loss and
Surplus for the year then ended. Our examination was 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 neces-
sary in the circumstances; it was not practicable to confirm
receivables from United States and State Government depart-
ments and agencies but we satisfied ourselves by other means
as to these items.
In our opinion, the accompanying Consolidated Balance Sheet
and statements of Consolidated Profit and Loss and Surplus
present fairly the financial position of Western Air Lines,
Inc., and Subsidiary, at December 31, 1948, and the results
of their operations for the year then ended, in conformity with
generally accepted accounting principles applied on a basis
consistent with that of the- preceding year, except for the
changes, which we approve, as set forth in Note 3.
'PEAT, MARWICK, MITCHELL & CO,
Los Angeles, California
March 16. 1949
11
OFEl\ATIHG STATISTICS
Revenues:*
1942 1943 1944 1945 1946 1947 1948
Passenger*


e
I $ 1,243 $ 1,709 $ 3,169 $ 5,654 $10,474 $10,114 $ 7,813
Mail* ................................. 761 261 837 1,239 l,326(a) 1,570 2,136
Express, Freight and Excess Baggage* ...... 191 148 155 206 318 410 483
Other* ................................ 180 43 97 59 118 282 31
Total Revehues* ..................... $ 2,375 $ 2,161 $ 4,258 $ 7,158 $12,236(a) $12,376 $10,463
---
Operating Expenses: ,:,
Depreciation,:, .......................... $ 216 $ 204 $ 321 $ 555 $ 1,369 $ 1,845 $ 1,164
Other* ................................ 1,582 1,851 3,702 6,298 11,744 11,196 9,198
Total Operating Expenses* ............. $ 1,798 $ 2,055 $ 4,023 $ 6,853 $13,113 $13,041 $10,362
- - -
Revenue Miles Flown* .................... 2,318 2,057 4,057 7,279 10,594 9,607 8,707
Revenue Passengers ....................... 77,801 80,907 147,854 303,931 602,302 491,680 353,569
Average Length in Miles per Passenger Trip ... 314 403 427 385 355 396 384
Average Revenue per Passenger Mile ......... $ .0509 $ .0525 $ .0502 $ .0483 $ .0489 $ .0519 $ .0576
Passenger Seat Miles Flown':' ... ...... . ..... . 39,349 38,499 73,101 138,852 301,856 312,615 243,771
Revenue Passenger Miles* .................. 24,394 32,589 63,073 117,106 214,023 194,923 135,724
Passenger Load Factor ..................... 61.99% 84.65% 86.28% 84.34% 70.90% 62.35% 55.68%
Mail Ton Miles Flown':' .................... 316 435 893 1,120 706 733 574
Express and Freight Ton Miles* . ............. 284 221 221 312 635 912 1,089
Total Revenue per Revenue Mile ............. $1.0246 $ 1.0506 $1.0495 $ .9834 $1.1550 $1.2882 $1.2017
Total Operating Expenses per Revenue Mile ... $ .7755 $ .9988 $ .9915 $ .9414 $ 1.2377 $1.3574 $1.1901
Percent of Scheduled Service Performed ...... 96.17% 94.44% 95.43% 98.41 % 96.59% 96.77% 98.32%
Number Employes End of Year ............. 587 817 1,120 1,674 2,396 1,529 1,285
,:, 000. omitted (a) Adjusted for $344,300.89 in mail pay applicable to 1946, but received in 1947.
12
WESTEl\H All\ LIKES
Route System
Coastal & Western Divisions
\\'t"'t\\)6\
<;t.\~1
\~\\
Inland Division
Serving the entire Pacific Coast,
Arizona, Nevada, Idaho, Montana,
Wyoming, Utah and Canada.
Serving Colorado, Wyoming, Nebraska,
Montana, South Dakota, Minnesota, and
Canada with connections to the Pacific Coast.