OFFICERS ANO DIRECTORS GENERAL OFFICES REGISTRAR STOCK TRANSFER AGENT GENERAL COUNSEL AUDITORS Terrell C. Drinkwater, President and Director Stanley R. Shatto, Vice President- Operations and Director Marvin W. Landes, Vice President- Service and Director' Paul E. Sullivan, Vice President- Administration and Secretary Arthur F. Kelly, Vice President- Sales J. J. Taylor, Treasurer D. P. Renda, Assistant Secretary and Attorney Robert H. Purcell, Controller and Assistant Treasurer I. W. Burnham II, Director New York City Hugh W. Darling, Director Los Angeles Hector C. Haight, Director Los Angeles L. Welch Pogue, Director Washington, D. C. John M. Wallace, Director Salt Lake City Alexander Warden, Director Great ~alls, Montana Sidney F. Woodbury, Director Portland, Oregon Western Air Lines Building 6060 A vion Drive Los Angeles International Airport Los Angeles 45, California Citizens National Trust & Savings Bank, Los Angeles Chase National Bank, New York Security-First National Bank of Los Angeles New York Trust Company, New York Guthrie, Darling and Shattuck Los Angeles Peat, Marwick, Mitchell & Co. Los Angeles to the stockholders of WESTERN AIR LINES, its customers and personnel During the year 1950, Western Air Lines, Inc. 0 car- ried 618,624 passengers a distance of 233,118,000 revenue passenger miles over its system. This traffic represents an increase of 49.68% over 1949. Operations of the Company for 1950 resulted in a net income of $787,904, or $1.50 per share after taxes and all other charges. This compared with a net income for 1949 of $432,053, which amounted to 82 per share of capital stock outstanding. In 1948, the net income was 26 per share. In 1950, total operating revenues of the Company were $14,246,494, representing an increase of 23.5% over the 1949 operating revenues of $11,534,131. Reflecting increased mileage flown and the sharp effect of inflation on payrolls, materials and supplies, the 1950 total operating expenses were $12,610,733, an increase of 19.4% over the 1949 oper- ating expenses of $10,564,296. Revenue miles flown in 1950 totalled 11,782,635 miles, an increase of 24.8% over the 9,495,978 miles flown in 1949. 0 Throughout this report, the operations of the Company's subsidiary, Inland Air Lines, Inc., are consolidated with those of the parent Company, except where otherwise indicated. The Company's total Federal, state, and county direct tax bill for 1950 was $1,162,423, which amounted to $2.21 per share of outstanding stock, as compared with the 1949 direct tax bill of $685,316, an increase of 70%. During the past year there was no general increase in the Company's rates for the carriage of passengers, mail, express or freight. The 1950 cost of air trans- portation per available ton mile was reduced to 28 cents as compared with the cost of such unit for 1949 of 33 cents. In spite of the inflation of costs, this reduction was made possible by greater efficiency, improved operating techniques, and better utiliza- tion of personnel and equipment. The Company's operating costs are among the lowest in the industry. Improvements in operating equipment, both flight and ground, and in .operating procedures, have been made in 1950. In 1950, the Company completed 97.48% of all airplane miles scheduled and carried an average of 1,695 passengers each day. The average passenger traveled 377 miles on Western Air Lines' system and paid $18.55 for his trip, exclusive of the 15% Federal transportation tax. Regularly scheduled services were inaugurated in 1950 to Edmonton, the Capital of the Province of Alberta, Canada; to Brookings, South Dakota, and to Mankato, Minnesota. Western Air Lines' system presently consists of 5,014 miles of routes certifi- cated by the Civil Aeronautics Board over which an average of 32,432 airplane miles, amounting to 1,116,592 airplane seat miles, are scheduled each day to serve, with Convair, Douglas DC-4 and DC-3 aircraft, the following 45 cities in 13 western states and Canada: ARIZONA NEBRASKA Yuma Alliance CALIFORNIA Scottsbluff Burbank NEVADA El Centro Las Vegas Long Beach OREGON Los Angeles Portland Oakland Ontario SOUTH DAKOTA Palm Springs Brookings San Bernardino Huron San Diego Pierre San Francisco Rapid City COLORADO Spearfish Denver UTAH Cedar City IDAHO Logan Idaho Falls Ogden Pocatello Salt Lake City MINNESOTA WASHINGTON Mankato Tacoma Minneapolis Seattle Rochester St. Paul WYOMING Casper MONTANA Cheyenne Billings Jackson Butte Sheridan Cut Bank Great Falls CANADA Helena Edmonton, Alberta Lewistown Lethbridge, Alberta Additional certificated points not now served because of inadequate airports are: St. George and Richfield, Utah; Hot Springs, South Dakota; West Yellowstone, Montana; and Chadron, Nebraska. In 1946 the Company was granted a certificate by the President of the United States and the CAB for an inter- national route between Los Angeles, California and Mexico City, Mexico, via La Paz, Baja California. Service over this route cannot begin until the governments of the United States and Mexico agre~ on reciprocal air routes between the two countries. The Company is advised that little progress has been made in connection with such an agreement and hence has no present plans for the inauguration of service to Mexico. Condensed Comparative Statement of Profit and Loss ($000.00 omitted) For the Calendar Year 1950 1949 1948 Operating revenues: Passenger ............ $10,865. Mail . . . . . . . . . . . . . . . . 2,090. Other . . . . . . . . . . . . . . . 1,291. Total operating $ 8,024. 2,504. 1,006. $ 7,813. 2,136. 514. revenues ......... $14,246. $11,534. $10,463. Operating expenses: Depreciation ......... $ 1,124. Other . . . . . . . . . . . . . . . 11,487. Total operating expenses ........ . Operating profit ( or loss) .. Non-operating income and expense ( net) ........ . Federal income taxes or credits .............. . Minority interest in profit $12,611. 1,635. ( 192.) ( 652.) $ 1,335. 9,229. $10,564. 970. (249.) (280.) $ 1,164. 9,198. $10,362. 101. ( 180.) 220. of subsidiary . . . . . . . . . . ( 3.) ( 9.) ( 6.) Net profit ( or loss) . . . $ 788. $ 432. $ 135. Condensed Comparative Balance Sheet As of December 31 ($000.00 omitted) ASSETS LIABILITIES ( What we own) ( What we owe) 1950 1949 1948 1950 1949 1948 Current Assets: Current Liabilities: Cash ............... $ 1,635. $ 1,401. $ 1,462. Notes payable ........ $ 440. $ 773. $ 2,394. Accounts receivable .... 1,363. 1,021. 2,307. Accounts payable ...... 786. 522. 1,087. Inventories ........... 245. 210. 246. Air Travel Plan deposits . 203. 206. 229. Prepaid expenses ....... 482. 461. 522. Accrued salaries, wages., taxes, insurance, etc,. ... 1,052. 887. 620. Total current assets .. 3,725. 3,093. 4,537. Properties and equipment: Unused portion of Airplanes, engines, land, tickets sold ........... 264. 174. 321. Total current liabilities 2,745. 2,562. 4,651. buildings, equipment, spare parts, etc ......... 12,934. 12,598. 12,311. Notes payable-long term 2,231. 3,113. 3,551. Less reserve for Operating reserves ...... 272. depreciation .......... (6,313.) (5,427.) (4,217.) Minority stockholders' 11. 11. 12. interest in subsidiary .... 12. 23. 24. Sundry securities ........ Deferred Charges ........ 186. 176. 156. Capital stock (525,164 shares) ....... 525. 525. 525. Routes, contracts and leases ............ ll3. 127. 147. Capital surplus .......... 2,768. 2,768. 2,768. - -- - - - Earned surplus .......... 2,375. 1,587. 1,155. $10,656. $10,578. $12,946. Total Assets ........ MOBILIZATION-As Western Air Lines, the coun- try's oldest continuously operated air carrier, enters its second quarter-century, the mobilization of its personnel and facilities in the interests of our na- tional defense is of paramount importance in the Company's planning. Secretary of the Air Force, Thomas K. Finletter, recently recognized the neces- sity of maintaining the domestic air transport industry at an efficient level to provide required transportation for production and home front pur- poses during a period of national emergency. Mr. Finletter observed that, "While the air transport - - - - - - Total Liabilities ..... $10,656. $10,578. $12,946. Stockholders' equity per share ............. $10.79 $9.29 $8.47 industry will be called upon to assist in a material way in the event of war, a plan must be developed so that the airlines -which now are an absolutely essential part of our transportation system-can con- tinue to operate as commercial airlines during the war, since the country will be very dependent upon them." During World War II, both Western Air Lines and its subsidiary, Inland Air Lines, performed several war-time services under contract with the Government. Among other tasks, the Company oper- ated for over three years a total of 6,150 trips over a 2,451 mile route between Great Falls, Montana, and Nome, Alaska. More than seven million miles in all were flown over this route, with a perfect safety record. At the present time the Company has a contract with the United States Air Force under which its aircraft and flight personnel participate in the Pacific airlift to Tokyo. Throughout the Company's system, including the Pacific Coast, the Intermountain Region and the northern section of the Great Plains, the defense industries and the mobilization program have been and are being materially accelerated. Military estab- lishments are located at or in the vicinity of many cities on Western Air Lines' system. Because of these wide-spread and varied enterprises, it is anticipated that the requirements for commercial air transport services offered by the Company will in the imme- diate future be substantially increased. The Company is making plans to provide additional service and will stand ready to do its part. STOCKHOLDERS-The 525,164 outstanding shares of $1.00 par value capital stock of the Company are held by approximately 4500 individual stockholders residing in each of the 48 states. The stock is listed on the New York Stock Exchange and on the Los Angeles Stock Exchange. During 1950, 490,000 shares of the stock were traded on the New York Stock Exchange between a price range of 7}~ low and 13 high; on the Los Angeles Stock Exchange 43,260 shares were traded with a low of 7 and a high of 13. The year-end closing price of the stock on both stock exchanges was 12. Book value of the stock as of December 31, 1950, was $10.79 per share. All shareholders are urged to be represented in person or by proxy at the annual stockholders meet- ing to be held at the general headquarters of the Company in Los Angeles on April 10, 1951. DEBT - During the reorganization of the Company in 1947, loans from the Reconstruction Finance Cor- poration were arranged for a total of $6,421,606. At the end of 1950, this debt had been reduced to $2,671,598, representing a repayment of 58.4% of the original loans. All amounts due through June 30, 1951, were prepaid as of December 31, 1950. Steps are being taken to refinance the balance of this obli- gation with private banking sources on terms more advantageous to the Company. PERSONNEL-The Company is fortunate in being staffed by an outstanding group of loyal and expe- rienced personnel in all divisions. The average length of service of Western Air Lines employes is the highest in the industry. The training, knowledge and judgment of these veteran airline people is of immeasurable value to the Company and to the cities it serves. About 17% of the employes own stock in the Company. Good progress has been made in the stabilization of employment during the year and in minimizing the extent of the historical sea- sonal change in number of employes due to the operation of reduced flight schedules in the winter months. At the close of the year the Company had 1279 employes, of whom 548 were in the Operations Division, 496 in the Service Division, 97 in the Treas- ury Division, 93 in the Sales Division, and 45 in the General Administrative Division. As a result of the national mobilization the air- line industry, like many others, is now faced with a manpower problem which requires intensified employment training and replacement programs. The Company and the rest of the industry are working closely with the appropriate branches of the Federal Government in order to solve this problem so that the national defense utility of the industry and its component units can be preserved and strengthened. Participation in the Westemaire Federal Credit Union is open to all Company personnel, of whom approximately 65% are now members. This organi- zation closed a successful year with a total of 509 loans aggregating $162,519, and its 821 members received a dividend on their savings. No losses have been experienced in connection with loans made. The Employes' Suggestion System has been con- tinued. Many cash prizes have been given for indi- vidual suggestions which have been accepted and put into effect to improve the efficiency of the Company. Early in 1950, the Employes' club in Los Angeles opened a modem cafeteria for the use of Company employes, their guests, passengers, and tenants of Western Air Lines' headquarters building. The employes' group insurance program, cover- ing both life insurance and accident and sickness insurance, hospitalization and family benefits, to which most employes subscribe, operated success- fully during 1950. Due to the increase in living costs, two voluntary, Company-wide increases in salaries and wages were granted to all employes during the fall of 1950. GOVERNMENTAL REGULATION-The Company has numerous matters pending before the Civil Aero- nautics Board. Of prime importance among these is the dispute over the Company's claim for retro- active mail compensation for the period prior to January 1, 1949, on which matter the CAB has not finally acted. The Company considers the CAB' s tentative decision as legally and equitably wrong and has advanced that position in its exceptions and brief filed with the CAB in January 1951. Also, the Air Transport Association of America, composed of forty scheduled certificated airlines, requested and has been permitted by the CAB to intervene in this proceeding as amicus curiae in support of the Com- pany's position, and in opposition to the tentative findings of the Civil Aeronautics Board. It is hoped that this matter can be finally decided by the CAB during 1951. The Company's current mail rates are not in issue. The Company has pending with the CAB two important applications for extensions of its routes as shown by dotted lines on the system map else- where in this report. One application involves an extension of the Imperial Valley route from Yuma to Phoenix, Arizona. It is expected that a decision in this case will be reached during the fall of 1951. The other application is for a route between Rapid City, South Dakota, and Salt Lake City, Utah, via Casper, Wyoming. This new connecting route, if granted, will _ serve to integrate the operations of the Company's system, thereby permitting greater utilization of personnel and equipment, in addition f=~-1", \ V ,_ { ,..,-,-.;<'',f/1#" ,.-..... -.. , to providing much-needed direct air service be- tween Southern California, Nevada and Utah, and the important communities of the Great Plains region in central Wyoming, South Dakota and Minnesota. The Company also has pending with the Civil Aeronautics Board two applications for "feeder routes" on the West Coast extending from Los Angeles, California, to Bellingham, Washington. The Company is of the opinion that it can provide the existing temporary "feeder" service at a very substantial savings to the taxpayers in comparison with the present cost of this service. It is not known what action, if any, the Civil Aeronautics Board contemplates taking on these applications. The Com- pany will continue to impress its views upon the CAB with the hope that in due course the Board will undertake a review of its "experimental feeder route" program which now threatens the continued sound development of the nation's air transport system. Also awaiting action by the Civil Aeronautics Board is the Company's application to dissolve its subsidiary, Inland Air Lines, Inc., and to consoli- date the properties and routes of that corporation with those of the parent company in order to elimi~ nate the necessity for maintaining duplicate sets of books, duplicate Government reports, etc. The Com- pany owns 98.8% of the outstanding stock of Inland Air Lines, Inc., and the dissolution of the latter will reduce the cost of operating the Company's system. Other than those mentioned herein, no additional applications for new routes or extensions of existing routes are presently contemplated. Studies are still in progress by committees of the Congress, the CAB and others, looking toward the separation of the elements of so-called "subsidy," if any there be, in the amounts of compensation paid to all air carriers for the transportation of U. S. mail. As stated in the Annual Report for 1949, the Company does not oppose such separation provided it is done on a fair and non-political basis by per- sons competent to make such separation after thor- ough and impartial study. As a matter of fact, the rates of mail compensation received by the Com- pany are lower than mail rates paid to many com- parable air carriers and very considerably lower than the rates paid to international air carriers and recently certificated "temporary feeder lines." The 1950 mail compensation: received by the Com- pany was 16.5% less than mail compensation paid to it in 1949. In 1949 mail pay represented 21.7% of total operating revenues, while in 1950 mail compensation represented only 14.7% of total operating revenues. On the other hand, ton miles of mail carried by the Company increased 72.5% in 1950 over ton miles carried in 1949. OUTLOOK-The Company celebrates its Silver An- niversary with good reason for confidence and optimism. Along with a rapid increase in the accept- ance of air transportation as a necessary part of the present day economy has come a great growth in the population, prosperity, and industrial and mobilization activity in the thirteen states in which Western Air Lines operates. All indications point to a continuation of such growth. In concluding this report on the most successful year of operation in the Company's history, it is proper that on behalf of the Board of Directors, appreciation be expressed to all members of the organization for a job well done, together with a firm determination to do in the future an. even better job in meeting the demands made on the Company in the interests of commerce, the national defense and the Postal Service. March 10, 1951 Western Air Lines Building Los Angeles International Airport Los Angeles 45, California PRESIDENT s America's oldest Airline enters its second quarter-century ln April, Western Air Lines becomes the first airline in the nation to complete 25 years of continuous operation. Air transport's growth during this quarter-century has speeded the development of the West by setting new stand- ards of travel and communication. West rn is proud to have pion ered from its original route between Los Angel and Salt Lake City, started in 1926 with two-passenger, open cockpit biplanes, to its present 5000-mile system, serving each day with modern, dependable airplanes, 45 cities in 13 western states and Canada. Western is proud to have d veloped new quipm nt and techniques that have been adopted by the industry; proud that in addition to meeting the needs of commerce and of the postal service, its record shows many jobs well done for the military during World War II - including the operation for over three years of a vital route between M-0ntana and Alaska. Today some of West m's personnel and aircraft are engaged under Air Force contract in the Pacific Airlift from California to Tokyo. On it Silv r Anniv rsary Western pledges its continued Hort to strengthen the nation's air transport faciliti s - for p ac , mobilization or war. Consolidated Balance Sheet as of December 31, 1950 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 .......... . Other United States and State Government Depts. Interline and agents' traffic balances ......... . Customers' accounts receivable ................ . Other ( including $16,395.07 due from officers and employes) ............................... . Less allowance for doubtful accounts ........... . Inventory of parts and supplies at the lower of cost or replacement market ( substantially all pledged) ( Note 1) ........... . Prepaid expenses ................................. . Sundry securities .................................... Properties and equipment, at cost ( substantially all pledged) ( Note 1): Land ........................................... . Buildings on 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 allowance for depreciation ( Note 2) .......... . Routes, contracts and leases, less amortization $73,392.00 .. . Deferred charges: Unamortized overhaul and pre-operational expense of aircraft ..................................... . Other .......................................... . $ 355,508.96 308,254.21 440,229.35 168,965.63 92,167.58 1,365,125.73 14,661.08 1,348.35 2,984,093.48 8,392,621.85 1,186,115.87 271,444.69 98,534.52 12,934,158.76 6,313,139.88 158,453.90 27,746.26 $ 1,634,673.45 12,761.22 1,350,464.65 245,315.70 482,008.08 3,725,223.10 11,186.71 6,621,018.88 112,939.98 186,200.16 $10,656,568.83 tt 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 unused tickets ........................ . Provision for Federal taxes on income ( Note 2) ..... . Long term debt: Notes payable-Reconstruction Finance Corporation ( Note 1 ) ................ . Less amount due within 12 months ................ . 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 (Notes 2 and 3) Contingent liabilities (Note 4) ......................... . Long term lease commitments ( Note 5) ................. . $ 2,671,597.65 440,499.98 525,164.00 2,768,247.10 2,374,927.31 $ 440,499.98 540,810.06 204,270.54 40,601.30 202,725.00 332,843.70 264,141.15 718,773.56 2,744,665.29 2,231,097.67 12,467.46 5,668,338.41 $10,656,568.83 Statement of Consolidated Income for the Year Ended December 31, 1950 Operating Revenue: Passenger .............................................. . Mail ................................................. Non-Scheduled transport services ........................ . Express and freight ..................................... . Excess baggage and other ............................... . Incidental revenue-net .................................. . Tohll Operating Revenue ............................ . Operating Expenses: Flying operations ....................................... . Ground operations ...................................... . Direct maintenance-flight equipment ..................... . Ground and indirect maintenance ......................... . Passenger service ....................................... . Traffic and sales ........................................ . Advertising and publicity ................................. . General and administrative .............................. . Depreciation ................... . ....................... . Operating Profit .................................... . Non-operating Income: Discounts received ...................................... . Other ................................................. . Non-operating Charges: Interest ................................................ . Amortization of routes, contracts and leases ................ . Amortization of pre-operational expense ................... . Other . .............................. . ................. . Income before Federal Taxes on Income ............... . Provision for Federal Taxes on Income ( excess profits tax - none ) ............................ . Less Minority interest in subsidiary . . . ......................... . Net Income ( Note 2) ....... . ........................ . Statement of Consolidated Earned Surplus Amount at December 31, 1949 .. . ............. . ............... . Add- Net income for the year ............................... . Amount at December 31, 1950 ( Notes 2 and 3) .................. . $ 3,842,598.57 2,066,144.84 1,184,305.74 801,796.72 894,083.03 1,177,997.92 476,492.26 1,043,185.99 1,124,127.80 8,943.61 9,024.60 153,532.62 18,180.00 25,464.02 13,172.53 $10,865,079.22 2,090,031.97 730,557.66 398,620.65 98,405.45 14,182,694.95 63,798.65 14,246,493.60 12,610,732.87 1,635,760.73 17,968.21 1,653,728.94 210,349.17 1,443,379.77 652,000.00 791,379.77 3,475.36 $ 787,904.41 $ 1,587,022.90 787,904.41 - - - - $ 2,374,927.31 Notes to Financial Statements 1. NOTES PAYABLE-RECONSTRUCTION FINANCE CORPORATION. The amount due to Reconstruction Finance Corporation, $2,671,597 ($2,117,766 on 1947 loan and $553,831 on 1948 loan), is secured by inventories, property and equip- :ment, and the capital stock of Inland Air Lines, Inc., a 99% owned subsidiary. Under the terms of the credit agree- ments, as amended, the indebtedness as of December 31, 1950, is payable in specific amounts with interest at 4% per annum as follows: 1947 Loan - Period July 1, 1951, to June 1, 1952, $28,000 monthly May through October, and $8,000 monthly November through April; Period July 1, 1952, to Decem- ber 1, 1952, $100,000 monthly July through October, and $55,000 monthly during November and December. The unpaid balance, if any, is due on or before December 31, 1952. 1948 Loan - $52,083 monthly commencing July 30, 1951. The unpaid balance, if any, is due on or before December 31, 1952. Additional principal payments are to be made annually within the first two months after the close of each calendar year in amounts equal to the excess of 50% of the Company's annual net income for the preceding year ( before provision for depreciati_ on) over the total of the specified monthly payments on principal made during the preceding year. No additional payment is due under this provision during the year 1951. 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. The federal income tax returns of the Company for 1947, 1948 and 1949, have been examined by a field agent of the Bureau of Internal Revenue and in connection therewith the Company agreed to a pro- posed additional assessment of $171,000 of which $44,000 has been recorded as a liability as of December 31, 1950. The balance of $127,000 has not been recorded pending clearance by the Government of the related depreciation schedule for Douglas DC-4 aircraft and engines, which as of January 1, 1949, redetermines the remaining life to be 60 months from that date rather than a life of 48 months ending in 1950. Upon clearance by the Government adjust- ment will be made reducing the provision for depreciation for 1949 and 1950 in respective amounts of $339,000 and $193,000 and increasing the provision for federal taxes on income for such years in the respective amounts of $127,000 and $81,000. Net income as reported for 1949 and 1950 would thus be increased $212,000 and $112,000, respec- tively, or a total of $324,000. The Federal income tax returns of the subsidiary have been examined and settled through June 30, 1947. 3. MAIL REVENUE. On March 3, 1949, the Civil Aeronautics Board awarded the Company "Temporary Rates of Mail Compensation" which, as to the period subsequent to Janu- ary 1, 1949, were made permanent by an order issued on May 6, 1949. For the period prior to January 1, 1949, the temporary rates so established resulted in additional retro- active mail revenue in amount of $975,461, which was recorded as income for the year 1948; a similar award was made to the subsidiary in amount of $75,049. On November 27, 1950, the Civil Aeronautics Board issued a tentative de- cision, to which exception has been filed by the Company and its subsidiary, specifying a rate of compensation for the period prior to January 1, 1949, which, if the appeal is not successful, will require a refund of mail pay in amount of $747,681. Against such amount there would be applied a related tax credit which at 1951 tax rates would amount to approximately $350,000; the net amount of $397,681 would then be charged against earned surplus. Management is of the opinion that the tentative decision of the Civil Aero- nautics Board is in error, both legally and equitably, and therefore no provision has been made in the accounts of the Company pending final settlement of the issue. 4. CONTINGENT LIABILITIES. As of December 31, 1950, the Company and its subsidiary were contingently liable for damage claims and lawsuits in which they are or may be defendants. The amounts claimed by the plaintiffs in such damage claims and lawsuits are substantial but the manage- ment and its counsel believe the ultimate liability, if any, will not be material in amount. 5. LONG TERM LEASE COMMITMENTS. The minimum annual rental liability on real property leased to the Company and its subsidiary for terms expiring more than three years from December 31, 1950, is summarized by periods of expiration as follows: Leases Amount 1954-1958 1959-1968 1969-1973 24 2 1 $109,000 26,000 29,000 6. CHANGES IN ACCOUNTING PRINCIPLES. For the year 1949 the Company adopted the practice of amortizing over a 30 month period that part of the cost of new aircraft which was deemed to be "built-in overhaul." Based upon experi- ence with the new aircraft the Company, as of January 1, 1950, redetermined the amount of original cost deemed to be "built-in overhaul" with the result that net income after taxes for 1950 is approximately $42,000 greater than it would have been if such redetermination had not been made. Accountants' Report To the Board of Directors, WESTERN AIR LINES, INC.: We have examined the Consolidated Balance Sheet of Western Air Lines, Inc., and Subsidiary as of December 31, 1950, and the related statements of Consolidated Income 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 necessary in the cir- cumstances; it was not practicable to con.firm receivables from United States and State Government departments but we satisfied ourselves by other means as to these items. Provision has not been made for the possible refund to the United States Government in respect to the final determina- tion of mail pay compensation for the period prior to January 1, 1949; also, depreciation of Douglas DC-4 aircraft and engines for 1949 and 1950 and the related Federal taxes on income have not been revised to reflect the possible change in estimated life. These matters are more fully explained in Notes 3 and 2 to financial statements. In our opinion, subject to the possible effect of the matters referred to in the preceding paragraph, the accompanying Consolidated Balance Sheet and statements of Consolidated Income and Surplus present fairly the financial position of Western Air Lines, Inc., and Subsidiary, at December 31, 1950, 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 pre- ceding year, except for the change, which we approve, set forth in Note 6 to financial statements. PEAT, MARWICK, MITCHELL &: CO. Los Angeles, California March 5, 1951 A B A N N E R Y E A R Many new records were chalked up by the men and women of Western Air Lines during 1950 - in traffic gains and operating efficiency. Pictured here are highlights of some of the activities that helped to make this the best year in the company's history. AIR COACH - Leading operator of economy coach service in the West, the company passed a milestone in air travel history last May when the 100,000th Coachmaster passenger boarded at Burbank for Oakland. Receiving orchids are Mrs. Lawrence Brown and daughter, Cindy, who became "Air Coach Passenger No. 100,000." NEW NON-STOP SERVICE - Queens of the Minneapolis Aquatennial and St. Paul Winter Carnival added glamour to 1950's inaugural of non-stop service between the Twin Cities and Denver. SKYWAY OF THE STARS - For 25 years the favorite airline of Hollywood, Western has carried almost every important personality of screen, radio and television. Shown are just a few. At left, the hero of young America, Bill "Hopalong Cassidy" Boyd, and his wife, Grace Bradley, depart from Los Angeles for Jackson, Wyo., during an extensive tour of the West's national parks. Center, lovely Esther CHARTER FLIGHTS- Western set new charter-operation records in 1950, special- izing in the transport of athletic teams, civic organizations, and military groups. Most colorful charter flight of the year was made from Seattle to Los Angeles by the famed Vancouver Police Bagpipe Band. EDMONTON INAUGURAL- Service was opened during April into Edmonton, Alta., gateway to Canada's parks and oil fields. At official banquet Mayor Sidney Parsons of Edmonton (center) received trophy of friendship from Mayor Earl J. Glade of Salt Lake City as James Flaherty, president of the Great Falls Chamber of Commerce, smiled approval. Williams and Western team up to promote the annual Christmas Seal campaign. At right, a famous troupe poses before leaving for San Francisco on Convair-liner tour of Pacific Coast service installations. Left to right are Bob Hope, singer Marilyn Maxwell, comedian Eddie Bracken, actress Gene Tierney, and leading man Lloyd Nolan, all veteran air travelers. OPERATING STATISTICS Revenues: 0 1943 1944 1945 1946 1947 1948 1949 1950 Passenger0 ............................ $ 1,709 $ 3,169 $ 5,654 $10,474 $10,114 $ 7,813 $ 8,024 $10,865 Mail0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261 837 1,239 1,326( a) 1,570 2,136 2,504 2,090 Express, Freight, Charter, etc. 0 148 155 206 318 410 483 920 1,227 Other0 43 97 59 118 282 31 86 64 Total Revenueso . . . . . . . . . . . . . . . . . . . . . . $ 2,161 $ 4,258 $ 7,158 $12,236( a) $12,376 $10,463 $11,534 $14,246 - - - Operating Expenses: 0 Depreciation .......................... $ 204 $ 321 $ 555 $ 1,369 $ 1,845 $ 1,164 $ 1,335 $ 1,124 Other0 1,851 3,702 6,298 11,744 11,196 9,198 9,229 11,487 Total Operating Expenses0 $ 2,055 $ 4,023 $ 6,853 $13,113 $13,041 $10,362 $10,564 $12,611 - - - - - - --- Revenue Miles Flown ........ , ........... 2,057 4,057 7,279 10,594 9,607 8,707 9,496 11,783 Revenue Passengers .............. , ......... 80,907 147,854 303,931 602,302 491,680 353,569 422,193 618,624 Average Length in Miles per Passenger Trip .. 403 427 385 355 396 384 369 377 Average Revenue per Passenger Mile ........ $ .0525 $ .0502 $ .0483 $ .0489 $ .0519 $ .0576 $ .0515 $ .0497 Passenger Seat Miles Flown ............... 38,499 73,101 138,852 301,856 312,615 243,771 299,503 414,169 Revenue Passenger Miles0 . . . . . . . . . . . . . . . . . . 32,589 63,073 117,106 214,023 194,923 135,724 155,747 233,118 Passenger Load Factor ..................... 84.65% 86.28 % 84.34% 70.90% 62.35% 55.68% 52.00% 56.29% Mail Ton Miles Flown .................... 435 893 1,120 706 733 574 567 978 Express and Freight Ton Miles0 221 221 312 635 912 1,089 926 1,442 Total Revenue per Revenu; Mile ............ $1.0506 $1.0495 $ .9834 $1.1550 $1.2882 $1.2017 $1.2146 $ 1.2005 Total Operating Expenses per Revenue Mile .... $ .9988 $ .9915 $ .9414 $1.2377 $1.3574 $1.1901 $1.1125 $ 1.0703 Percent of Scheduled Service Performed ...... 94.44% 95.43% 98.41% 96.59% 96.77% 98.32% 97.72% 97.48% Nurnber Employes End of Year ............. 817 1,120 1,674 2,396 1,529 1,285 1,226 1,279 0 000. omitted (a) Adjusted for $344,300.89 in mail pay applicable to 1946, but received in 1947. See WESTERN America first Western Air Lines provides fast service to many great vacation areas, including: Banff and Lake Louise Jasper National Park Glacier National Park and the Waterton Lakes Black Hills and Mt. Rushmore Rocky Mountain National Park Minnesota Lakes Yellowstone National Park Jackson Hole, Wyo., and Grand Teton National Park Sun Valley Utah National Parks Grand Canyon Dude Ranches and Desert Resorts Death Valley Las Vegas and Hoover Dam Palm Springs Southern California San Francisco and the Redwood Empire Oregon's Evergreen Empire Mt. Rainier and Olympic National Parks Seattle and the Puget Sound Playground WESTERN AIR LINES WESTERN AIR LINES SYSTEM - PRESENT ROUTES PROPOSED ROUTES