Terrell C. Drinkwater Stanley R. Shatto Marvin W. Landes Paul E. Sullivan Arthur F. Kelly J. J. Taylor D. P. Renda C. J. J. Cox I. W. Burnham II, New York City Hugh W. Darling, Los Angeles Robert E. Driscoll, Rapid City, South Dakota Hector C. Haight, Los Angeles L. Welch Pogue, Washington, D. C. Harry J. Volk, Los Angeles John M. Wallace, Salt Lake City Alexander Warden, Great Falls, Montana Sidney F. Woodbury, Portland, Oregon GENERAL OFFICES Western Air Lines Building, 6060 Avion Drive REGISTRARS Citizens National Trust & Savings Bank Chase National Bank STOCK TRANSFER AGENTS Security-First National Bank of Los Angeles New York Trust Company GENERAL COUNSEL Guthrie, Darling and Shattuck AUDITORS Peat, Marwick, Mitchell & Co. President and Director Vice President - Operations and Director Vice President - Service and Director Vice President - Administration and Secretary Vice President - Sales Treasurer Assistant Secretary and Attorney Controller and Assistant Treasurer Director Director Director Director Director Director Director Director Director Los Angeles International Airport, Los Angeles 45, California Los Angeles New York Los Angeles New York Los Angeles Los Angeles TO THE STOCKHOLDERS OF WESTERN AIR LINES, ITS CUSTOMERS AND PERSONNEL The year 1951, during which Western Air Lines, Inc.*, celebrated its Silver Anniversary, was one of continued development and progress for the Company. New records for traffic and net income were established. Net in come for the year, after taxes and all other charges, amounted to $1,389,300 or $2.52 per share, includ ing approximately 68^ per share realized from the sale of assets. This compares with adjusted net income of $750,200, or $1.36 per share, for 1950 and $320,806 or 58^ per share, earned during 1949, based upon 550,164 shares of capital stock outstand ing on December 31, 1951. During the year 1951, 691,322 passengers were carried a distance of 260,000,000 revenue passenger miles over the Company's 5,016-mile route system. Total operating revenues were $16,281,514, an in crease of 14% over the preceding year, despite the fact that over 5% of the Company's scheduled air plane miles in 1951 were cancelled due to a 15-day Mechanics' Union strike during the third quarter. Passenger revenues increased 20% and mail com pensation decreased $878,056, or 42%, as compared with 1950. Coach operations, pioneered by Western, have become increasingly important to the Company and to the industry generally. During 1951, coach passengers constituted 30% of the total revenue pas sengers carried by the Company. Western recently has added daylight coach service on its route north of San Francisco-Oakland, thus making daylight economy flights available for the first time, border to border, from San Diego to Seattle-Tacoma. Total operating expenses during 1951 were $13,747,753, as compared with $12,610,732 for the year 1950, an increase of 9% reflecting the con tinuing rising costs of payrolls, taxes, parts and supplies. Of the total revenue dollar, 37% was ex pended for wages and salaries and 27% for materials, gasoline and depreciation. 0 Throughout this report, the operations of the Company's sub sidiary, Inland Air Lines, Inc., are consolidated with those of the parent Company, except where otherwise indicated. Although direct taxes accounted for but 12% of the Company's revenue dollar during 1951, it is apparent that substantial additional indirect taxes were included in the price paid by the Company for practically everything it bought. The Company also collected from its customers and employees approximately $2,600,000 in trans portation, payroll and withholding taxes for re mittance to the Federal and State Governments. Probably one-third of the price of each ticket sold by the scheduled airlines represents tax payments in one form or another. During its 25th year of service, the Company completed 98.25% of all miles scheduled throughout its system (excluding flights cancelled during the mechanics' strike). Western carried an average of 1,975 revenue passengers during each day of opera tion. These passengers traveled an average of 376 miles and paid, exclusive of the Federal transporta tion tax, an average of $19.80 for their tickets. SHAREHOLDERS Western is owned by approximately 5,000 share holders holding a total of 550,164 shares of out standing capital stock. The stock is listed and traded CONDENSED COMPARATIVE BALANCE SHEET ($000 omitted) ASSETS (What we own) As of December 31 1951 1950 1949 Current assets: Cash $ 3,223 $ 1,635 $ 1,401 Accounts receivable.. . 1,485 1,363 1,021 Inventories 324 245 210 Prepaid expenses 484 482 461 Total 5,516 3,725 3,093 Sundry securities 17 11 11 Properties and equipment 13,448 12,934 12,598 Less allowance for depreciation (6,859) (6,313) (5,427) Deposits on equipment purchase contracts . .. . 1,313 - - Routes, contracts and leases 96 113 127 Deferred charges 271 186 176 Total assets $13,802 $10,656 $10,578 LIABILITIES (What we owe) As of December 31 1951 1950 1949 Current Liabilities: Notes payable $ 861 $ 440 $ 773 Accounts payable .... 916 847 583 Air travel plan deposits 210 203 206 Accrued salaries, wages and expenses. 1,209 333 326 Unused transportation. 430 264 174 Federal taxes on income 1,455 890 694 Total 5,081 2,977 2,756 Notes payable -- long term 1,924 2,231 3,113 Provision for contingencies 200 200 200 Minority stockholders interest 10 12 23 Shareholders equity: Capital stock 550 525 525 Capital surplus 2,967 2,768 2,768 Earned surplus 3,070 1,943 1,193 Total 6,587 5,236 4,486 Total liabilities $13,802 $10,656 $10,578 Shareholders' equity per share $11.97 $9.97 $8.54 on the New York Stock Exchange and on the Los Angeles Stock Exchange. It also is traded on the San Francisco Stock Exchange. During 1951, 369,800 shares of stock were traded on the New York Stock Exchange within a price range of $11% low and $16 high; on the Los Angeles Stock Exchange 36,240 shares were traded between a low of $12 and a high of $15%. The year-end closing price of the stock on the New York Exchange was $15/8. The net book value per share of the stock as of December 31, 1951 was $11.97, as compared with $9.97 per share, as adjusted, on December 31, 1950. For the first time since 1936, stockholders received a dividend in 1951 consisting of two payments of 25 cents each or a total of 50 cents per share. It is the hope of the Board of Directors and Manage- ment of the Company that earnings will permit the continuation of regular divi dend payments to shareholders. The Company solicits the support of its share holders in furnishing modern air transportation to 45 cities in 13 Western states and Canada. Western hopes its stockholders will use its passenger, mail and cargo services and will urge such use by their friends and associates. FINANCES In the Spring of 1951, the Company arranged for a bank credit totaling $8,000,000 but limited to $6,500,000 at any one time. During the year, the Company borrowed $3,500,000 against this credit, of which $2,500,000 was used to retire the Company's loan from the Reconstruction Finance Corporation and the balance was used for progress payments on the five Douglas DC-6B aircraft which are on order. As at December 31, 1951, these bor rowings had been reduced to $2,785,000. It is anticipated that additional borrowings will be made under the credit agreement during 1952 to complete the purchase of the five Douglas DC-6B aircraft. In order to improve Western's working capital position and to provide additional funds for general corporate purposes, the Board of Directors has under active consideration the issuance of addi tional capital stock with rights to be made available to existing stockholders. The time of issuance will depend upon market and general business condi tions, and when and if action is taken in this regard all stockholders will be promptly notified. CONDENSED COMPARATIVE STATEMENTS OF INCOME ($000 omitted) For Calendar Year 1951 1950 1949 Operating revenues: Passenger $13,688 $11,395 $ 8,471 Mail 1,212 2,090 2,504 Other 1,382 761 559 Total 16,282 14,246 11,534 Operating expenses: Depreciation 998 1,124 1,335 Other 12,750 11,486 9,229 Total 13,748 12,610 10,564 Operating profit 2,534 1,636 970 Non-operating (income) ajid expense (280) 196 258 Federal income taxes or (credits) 1,425 690 391 Net income $ 1,389 $ 750 $ 321 Per share based on 550,164 shares $2.52 $1.36 $0.58 PERSONNEL Sincere appreciation on behalf of the Board of Directors is expressed to the loyal and hard-working Western employees for their individual contribu tions to the successful operation of the Company in its Silver Anniversary year. The experience, train ing, knowledge, skill and judgment of its 1,459 employees is Western's principal asset. Being the oldest continuously operated airline in the nation, Western is fortunate in the long service record of its personnel. For example, the average length of Company service of Flight Captains exceeds 11 years. During 1951, the average monthly turnover in Western's personnel amounted to but 2.4%. Eighty-four per cent of the employees carry Western's group accident and sickness insurance; 84% carry group hospitalization insurance for them selves and their families; and 70% of those eligible carry Company group life insurance. During the past year, benefit payments in excess of $126,000 were made under these policies. To supplement the existing employees' insurance programs, the Board of Directors currently is sub mitting to the stockholders for approval an employees' Company-wide contributory pension or retirement plan, which, if approved by the stock holders and accepted by the requisite number of eligible employees, soon will be made effective. Under this plan, the Company will pay the cost of past service benefits and will share with the employees the cost of future service benefits. Western maintains for its employees one of the most liberal emergency and vacation free transpor tation policies in the Industry. In 1951, Western personnel and their families were issued 4,500 passes on Western's system, and by virtue of arrangements between Western and other scheduled airlines, were issued 3,000 passes on the systems of those airlines for total "space available" air transportation valued at $692,000. During the past year, the employees' Western- aire Federal Credit Union continued to grow. Membership increased from 821 to 1,015. In 1951, 1,282 loans were made to employees aggregating $271,670, an increase of 25% over 1950. Total em ployees' savings on deposit exceed $242,000. A divi dend of 5% was earned and paid to the shareholders of the Credit Union. EQUIPMENT Passenger, mail, express and freight serv ice over the Company's 5,016-mile route system was operated during 1951 with a fleet con sisting of 10 Convair-Liner, 10 Douglas DC-3, and 5 Douglas DC-4 aircraft. This fleet will be aug mented, beginning in the Fall of 1952, by the addi tion of 5 Douglas DC-6B aircraft, which, together with spare parts and equipment, have been ordered at a total cost exceeding $6,000,000. The addition of these new and improved 66-passenger, pressurized luxury liners will enable the Company to provide more service over its principal routes with the finest equipment flying today. Western's complete maintenance and overhaul shops have continued the program of progressive modernization of its fleet. Among major projects in this category were the installation of omni directional aircraft radio equipment, and extensive conversions of engines and airframes for improved operating efficiency. The Company's gross investment during the past four years in property and equipment has been approximately $10,000 per employee, as compared with an average investment per employee in 1946 of $4,500 and an average investment per employee in 1936 of approximately $3,600. CIVIL AERONAUTICS BOARD PROCEEDINGS The Company has pending before the Civil Aero nautics Board a very important route application to provide scheduled service between Salt Lake City, Utah, and Rapid City, South Dakota, via Casper, Wyoming. It is expected that a final de cision will be forthcoming in this proceeding during the summer of 1952. The new franchise, if granted, will permit the Company to supply much-needed regional air service between points in Utah, Wyoming, and South Dakota, and will permit far better operating integration of the Company's sys tem. The proposed route extension also will enable the Company to furnish one-carrier, one-plane, passenger, mail and air express service between Southern California and the Minneapolis-St. Paul area, which will be an important improvement over the existing service. Shortly after the close of 1951, the CAB denied Western's application for an extension of its routes from the present terminal, Yuma, Ariz., to Phoenix, Ariz., and issued an order undertaking to force the DIVISION OF WESTERN'S INCOME Total Operating Revenues.. .$16,282,000 100% suspension of the Company's operations at Yuma, Ariz., and at El Centro, Calif. Counsel for the Company is of the opinion that the CAB exceeded its statutory authority in this regard and therefore this case has been appealed to the United States Circuit Court of Appeals. The only other trunk route application Western has pending with the CAB is for a new direct route between San Francisco-Oakland and Las Vegas, Nev. By order of the Civil Aeronautics Board, effec tive October 1, 1951, the mail rates for Western Air Lines, Inc., and Inland Air Lines, Inc., were opened for review. Since the issuance of that order, Western has indicated to the CAB its willingness to accept a non-subsidy mail rate of 53 cents per ton mile of mail carried. The proposed rate, re garded by the CAB as a service rate for Western, should be established soon. The mail rate for Western's subsidiary, Inland Air Lines, Inc., from October 1, 1951, forward also remains to be de termined by the CAB. The question of the mail rate for Western for the retroactive period prior to January 1, 1949, has been appealed from the order of the CAB to the United States Circuit Court of Appeals where the matter is pending. Progress has been made toward the dissolution of Inland Air Lines, Inc., and the merger of its properties and franchises into the parent Company, Western, which owns more than 99% of the out standing stock of the subsidiary. It is expected that this dissolution and merger can be concluded pur suant to orders of the CAB before the summer of 1952 with resultant savings in costs. Since 1946, Western has had a certificate of public convenience and necessity issued by the Civil Aero nautics Board and approved by the President of the United States to provide service from Los Angeles to Mexico City, D. F., and to La Paz, Baja California. Service over this route has been delayed because of the absence of a bilateral agreement between the governments of the United States and Mexico covering reciprocal air rights between the two countries. During 1951, further discussions took place between the two governments, but as yet no agreement has been reached. It is hoped that during 1952 this matter will be settled so that Western will be in a position to provide service to Mexico. Western presently serves the cities of Edmonton and Lethbridge in the Province of Alberta, Canada. Although the Company has a franchise from the Civil Aeronautics Board to serve Calgary, the gate way to world-famous Banff and Lake Louise, situ- ated midway between Lethbridge and Edmonton, the Canadian Government has not yet granted authority to serve Calgary. Western is urging that appropriate arrangements be made between the Governments of the United States and Canada in order that service to Calgary soon may be inaugurated. OUTLOOK Western's forecast for 1952 indicates an increase in operating revenues over 1951. Such anticipated in crease is predicated upon the expanding utilization of air transportation by the public and the expected continued prosperity and industrial development in the general territory served. Operating expenses are expected to continue the inflationary rise. In order to meet these higher costs and insure reasonable earnings, it is not unlikely that a modest industry wide increase in first-class fares will become neces sary during 1952. An airline ticket is one of the few commodities which has not yet become more expensive with inflation. During 1951, the Company played its part in the mobilization program. Some of its personnel and aircraft were engaged in the Korean Airlift. Other military tasks were performed. Western, in common with the entire scheduled air transport industry, will continue to stand ready to do its part in this program. In order to obtain additional outstanding repre sentation in the West, the Board of Directors was increased to 12 members during 1951 by the addi tion of Mr. Harry J. Volk of Los Angeles, Vice- President in charge of the Western Home Office of the Prudential Insurance Company of America; and Mr. Robert E. Driscoll of Rapid City, South Dakota, Chairman of the Board of The First National Bank of the Black Hills. Western Air Lines notes with sorrow the death of Mr. Robert H. Purcell, Controller and Assistant Treasurer. This office has been filled by the election of Mr. Charles J. J. Cox. The Board of Directors and Executive Staff of Western Air Lines look to the future with confi dence and faith in the sound development of air transportation as an essential public utility, and be lieve that this Company is privileged to serve the finest and fastest-growing section of our Country. Respectfully submitted, I A jJLSL C.. President March 1, 1952 Western Air Lines Building Los Angeles International Airport Los Angeles 45, California EDMONTON 1EWISTOWN MINNEAPOLIS PAUL BILLINGS ^SHERIDAN WYO CASPER CHEYENNE SAN FRANCISCO } OAKLAND SEATTLE *ash TACOMA -im PORTLAND Mp mS idAHO LETHBRIDGE CUT BANK MONT. GREAT FALLS calif. SEgHELENi BUTTI JACKSON IDAHO FALLS POCATELLO! LOGANf OGDEN1 NEBR. APRIL 17, 1926 TO MEXICO CITY Twenty-five years have seen Western Air Lines grow from a 670-mile route serving three cities to a 5000-mile system linking 45 cities in 13 western states and Alberta, Canada, with fast, frequent passenger, mail, express and freight service. WESTERN AIR LINES AMERICA'S OLDEST AIRLINE CONSOLIDATED BALANCE SHEE (WITH COMPARATIVE FIGURES FOR 1950) ASSETS Current Assets: 1951 1950 Cash in banks and on hand $ 3,222,954 $ 1,634,673 Accounts receivable: United States Post Office Department 139,851 355,508 Other United States and State Government Depts. 335,289 308,254 Interline and agents' traffic balances 540,187 440,229 Customers' accounts receivable 199,617 168,965 Other 295,438 104,930 1,510,382 1,377,886 Less allowance for doubtful accounts 25,000 14,661 1,485,382 1,363,225 Inventory of parts and supplies at the lower of cost or replacement market 323,873 245,315 Prepaid expenses 484,121 482,010 Total Current Assets 5,516,330 3,725,223 Sundry securities Properties and equipment at cost (Note 1): 16,962 11,187 Flying equipment 8,831,906 8,392,621 Buildings on and improvements to leased property.... 2,989,534 2,984,093 Other property and equipment 1,626,032 1,557,444 13,447,472 12,934,158 Less allowance for depreciation 6,859,113 6,313,139 6,588,359 6,621,019 Deposits on equipment purchase contracts (Note 2) 1,313,375 -- Routes, contracts and leases, less amortization $92,220.... Deferred charges: 96,459 112,939 Unamortized overhaul and pre-operational expense of aircraft 119,347 158,454 Claim for recaptured mail pay (Note 3) 126,000 Other 25,640 27,746 270,987 186,200 $13,802,472 $10,656,568 ! LIABILITIES Current Liabilities: 1951 1950 Current portion of long term notes Accounts payable Accounts payable -- taxes collected from others Air travel plan deposits Accrued salaries, wages, taxes, insurance and other... Unused transportation Federal taxes on income -- estimated Total Current Liabilities $ 861,000 669,987 246,095 209,950 1,208,730 430,373 1,454,891 5,081,026 $ 440,500 642,527 204,270 202,725 332,845 264,141 889,764 2,976,772 Notes payable -- Secured (Note 1) Less amount due within 12 months Amount due after 12 months 2,785,000 861,000 1,924,000 2,671,597 440,500 2,231,097 Provision for contingencies (Note 3) 200,000 200,000 Minority stockholders' interest in subsidiary 10,319 12,468 Shareholders' Equity: Common stock -- $1.00 par value per share Authorized 2,000,000 shares (Note 4) Issued 550,164 and 525,164 shares respectively... 550,164 525,164 Capital surplus 2,967,425 2,768,247 Earned surplus from December 31, 1934 (Note 1) 3,069,538 1,942,820 6,587,127 5,236,231 $13,802,472 $10,656,568 Commitments and contingent liabilities (Note 2) STATEMENT OF CONSOLIDATED INCOME FOR THE YEAR ENDED DECEMBER 31,1951 (WITH COMPARATIVE FIGURES FOR 1950) Operating Revenue: Passenger Mail Charter and other transport services Express, freight and baggage Incidental revenue --net (Note 5) Operating Expenses: Flying operations -- Ground operations Flight equipment maintenance -- direct Ground and indirect maintenance Passenger service Traffic and sales Advertising and publicity General and administrative Depreciation Operating Income Non-operating Income: Gain on disposition of property 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 5) STATEMENT OF CONSOLIDATED EARNED SURPLUS 1951 1950 $13,687,903 $10,865,079 1,211,975 2,090,031 131,368 730,557 506,715 497,028 743,553 63,798 16,281,514 14,246,493 4,016,622 3,842,598 2,330,450 2,066,144 1,345,389 1,184,305 817,576 801,796 1,036,101 894,083 1,384,410 1,177,997 586,227 476,492 1,232,699 1,043,190 998,279 1,124,127 13,747,753 12,610,732 2,533,761 1,635,761 480,435 15,646 21,237 2,322 501,672 17,968 123,801 153,531 18,828 18,180 26,361 25,464 51,385 13,176 220,375 210,351 2,815,058 1,443,378 1,425,000 689,704 1,390,058 753,674 758 3,474 $ 1,389,300 $ 750,200 Amount as of December 31, 1950: As reported at December 31, 1950 $ 2,374,927 Less: Additional Federal income taxes for years 1948-1950 194,107 Provisions for contingencies including recapture of 1948 mail pay (Note 3) 200,000 Refund of 1948 mail pay by subsidiary company net of applicable Federal tax credit 38,000 432,107 As adjusted 1,942,820 Add Net income for year ended December 31, 1951 1,389,300 3,332,120 Deduct Dividends paid in cash, $0.50 a share 262,582 Amount as of December 31, 1951 (Note 1) $ 3,069,538 STATEMENT OF CONSOLIDATED CAPITAL SURPLUS Amount as of December 31, 1950 $ 2,768,247 Add Excess of proceeds over par value of 25,000 shares of Common Stock issued upon exercise of option 209,375 2,977,622 Deduct Expenses incurred in connection with issuance 10,197 Amount as of December 31, 1951 $ 2,967,425 NOTES TO FINANCIAL STATEMENTS Note 1. Long Term Notes. During 1951 the Company borrowed $3,500,000 from the Bank of America under a credit agree ment which, though authorizing a total borrowing of $8,000,000, limits maximum outstanding indebtedness at any one time to $6,500,000. The proceeds of additional loans under the credit agreement are to be used solely for the pur chase of new Douglas DC-6B aircraft referred to in Note 2. The debt is secured by certain property and equipment (principally aircraft, engines, propellers and the Los Angeles hangar and office building, having a cost value of approxi mately $9,000,000, together with a variable portion of the related spare parts) and by the shares of Inland Air Lines, Inc. evidencing the Company's investment therein. The credit agreement provides, among other things, that dividends to be paid shall be limited 1 the extent of consolidated net income realized subsequent to June 30, 1950, that minimum consolidated net worth shall be $5,000,000 plus 50% of the annual consolidated earnings subsequent to December 31, 1950, and that the excess of consolidated current assets over consolidated current liabilities, exclusive of the current portion of long term debt, shall not be less than $1,000,000 or a greater amount deter mined by projecting average monthly expenses (exclusive of depreciation), which greater amount as of December 31, 1951 approximated $1,125,000. The combined effect of the afore mentioned minimum consolidated net worth requirement and the limitation on the payment of dividends to earnings real ized subsequent to June 30, 1950 is to restrict earned surplus as of December 31, 1951 in the amount of $2,177,061 leaving the balance of $892,477 as unrestricted; the amount of unre stricted earned surplus is, however, subject to a further limi tation which issues from the above cited requirement to main tain minimum working capital. As of December 31, 1951 the working capital requirement operates to restrict an additional amount of $721,173, leaving $171,304 available for dividends. The indebtedness bears interest at 3%% per annum; in addition, a commitment fee of t of 1% per annum is required until July 1, 1953 on the unused portion of $6,500,000. The principal is payable monthly in stipulated amounts aggre gating $652,500 for the year 1952 and $1,305,000 annually in subsequent years. Additional principal payments are to be made annually on or before April 1 of each year commencing with 1952, in amounts equal to 33%% of consolidated net income after taxes of the preceding calendar year after ad justments for property sales when related proceeds are remitted to the lender (for 1951 such payment shall be measured by net income for the period from April 1 to December 31, 1951). Accordingly, as of December 31, 1951 an amount of $208,500 is included in the current portion of long term notes. Final maturity of all loans is December 31, 1957. Note 2. Commitments and Contingent Liabilities. In March, 1951 the Company contracted for five new Douglas DC-6B aircraft and 7 spare engines at an approximate cost of $5,500,000; the first aircraft is scheduled for delivery in September, 1952. Related financing has been arranged as commented upon in Note 1 above; as of December 31, 1951 contract advance payments of $1,313,375 had been made. The minimum annual rental liability under long term leases covering real property leased to the Company and its sub sidiary amounted to approximately $190,000 as of December 31, 1951. As of December 31, 1951 the Company and its subsidiary were contingently liable for claims and lawsuits in which they are or may be defendants and for asserted fines and penal ties but the management and its counsel believe the ultimate liability, if any, will not materially affect the financial position. Though provision has been made for all known income tax liabilities, the Federal income tax returns of the Company for 1950 and 1951 and of the Subsidiary for the year ended June 30, 1951 are subject to examination by the U. S. Treasury Department. On February 3, 1952 the Board of Directors declared a cash dividend payable on March 15, 1952 of 15tf a share, aggregating $82,525. Note 3. Mail Revenue. On November 27, 1950 the Civil Aero nautics Board issued a tentative decision specifying a rate of compensation for the period prior to January 1, 1949, which would have required a refund of mail pay by the Company in amount of $686,565 applicable to the year 1948. Exceptions thereto were filed and on June 26, 1951 the Board adopted a final decision and it reduced the amount of mail pay re fundable to $342,973. On July 25, 1951 the Company filed a Petition for Reconsideration to which the Board responded in an Opinion and Order under date of October 12, 1951 which claims mail pay refundable in amount of $334,639. The Post Office Department implemented the Order of October 12, 1951 by offsetting the claimed overpayment to the extent of one-eighth thereof per month, approximately $42,000, against mail pay earned subsequent to October 1, 1951. Management is of the opinion that the position of the Civil Aeronautics Board is legally wrong and should not be sustained in an appeal for review now pending before the United States Circuit Court of Appeals; the Post Office Department has also filed an appeal from the Board's order in which they assert that the Company should refund an additional amount of $447,000; pending the final outcome of this matter the Company has established a provision for contingencies of $200,000 measured by the amount of the claimed overpayment as determined by the Board net of a related Federal tax credit, which based on the tax position of the Company as of December 31, 1951 would be at least 38% thereof. Note 4. Options to Purchase Capital Stock. 35,000 shares were re served as of December 31, 1951 under a Restricted Stock Option Plan adopted by the Board of Directors on April 10, 1951 under authorization of the shareholders. Such plan per mits the allocation of not in excess of 5,250 shares to an officer and 1,750 shares to a key employee. As of February 15, 1952, 31,000 shares have been allocated to twelve officers and key employees; options had been issued in accordance with the plan for 22,300 of the allocated shares with option prices ranging from $11.88 to $14.14 a share. The option prices are established by determining the average of the high and low sales prices for the Company's stock on the New York Stock Exchange on the day the officer or key employee asks for an option under the allocation previously made. The term of each option granted shall be five years from the date granted and the right to grant options under this plan shall terminate April 9, 1956. Note 5. Revenues Subject to Renegotiation. Under applicable Federal statutes, incidental revenues of the Company for 1951 in gross amount of approximately $1,100,000 are subject to renegotia tion. In the opinion of management the ultimate refund, if any, will not have a materially adverse effect on the financial position of the Company. 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, 1951 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 confirm receivables from United States and State Government departments but we satisfied ourselves by other means as to these items. In our opinion, 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, 1951 and the results of their operations for the year then ended, in conformity with gen erally accepted accounting principles applied on a basis consistent with that of the preceding year. PEAT, MARWICK, MITCHELL & CO. Los Angeles, California February 27,1952 SILVER ANNIVERSARY YEAR When Western Air Lines in April of 1951 commemorated its silver anniversary, it became the nation's first airline to complete 25 years of continuous operation. But many another "first" was added to Western's history in 1951. Pictured here are a few of the highlights in a record-breaking year. YESTERDAY--Celebration of the 25th birthday of America's oldest airline caused people throughout the nation to reflect upon the breathtaking progress made in a quarter-century by air transportation. In newspapers and magazines,the public saw this rare photograph of Western's first planes, the little silver-and-red M-2s, preparing to take off for their initial flights in 1926. TODAY--This scene of passengers boarding a huge Western Coachmaster for the historic inaugural of day light, border-to-border economy flights on the Pacific Coast points up the tremendous contrast between 1926 airline pioneering and the efficient, dependable service of the present. Today, Western carries 10 times more pas sengers in a single day than flew with the company during its entire first year of its operation. LOOKING AHEAD--Men of vision plan for the future. Here, Donald W. Douglas, left, president of Douglas Air craft Company, and Terrell C. Drinkwater, Western's president, compare models of the historic Douglas M-2, Western's first plane, and the modern DC-6B, luxurious sky giant which will join the company's fleet late in 1952. When Western purchased the M-2s from Douglas in 1926, the cost was $11,000 for each plane. The five DC-6Bs ordered in 1951 will cost more than $1,000,000 each. NATIONAL DEFENSE--Symbolic of Western's par ticipation in the national defense program during 1951 is this view of ramp crewmen and American Red Cross officials loading whole blood for swift transfer to Far Eastern battlefields. Many times the mercy shipments went all the way on Western aircraft engaged in the Korean Air lift. Serving every major military installation in the West, the company transported thousands of uniformed pas sengers, tons of vital materials and mail. DIRECTORS--Here are the men who direct Western's destinies--the board of directors and executive staff. Representing every major section of the territory served by the company, the board includes leaders of long and suc cessful experience in air transportation, insurance, busi ness, finance and the law. The year 1951 was marked by the board's declaration of two dividend payments, first made to shareholders in 15 years. TRAVEL PROMOTION--Throughout the year, Western Air Lines joined civic organizations and Chambers of Com merce in activities developing increased air travel to the "Sun Country," famed national parks, winter sports resorts, dude ranches, and world-known western playgrounds for all seasons. Shown here are "Miss Sunshine" and repre sentatives of Palm Springs, Las Vegas, San Diego, Phoenix and Los Angeles, departing on an air tour of the Northwest to invite residents to enjoy a "Second Summer." SUMMARY OF EARNINGS Revenues:* 1944 1945 1946 1947 1948 1949 1950 1951 Passenger .$ 3,169 $ 5,654 $10,474 $10,114 $ 7,813 $ 8,471 $11,395 $13,688 Mail 837 1,239 1,326 1,570 1,740 2,504 2,090 1,212 Express, Freight and Excess Baggage 155 206 318 410 483 313 497 507 Other 130 132 118 282 31 246 264 875 Total Revenues .$ 4,291 $ 7,231 $12,236 $12,376 $10,067 $11,534 $14,246 $16,282 Operating Expenses: * Depreciation .$ 321 $ 555 $ 1,369 $ 1,845 $ 1,164 $ 1,335 $ 1,124 $ 998 Other . 3,677 6,297 11,744 11,196 9,198 9,229 11,486 12,750 Total Operating Expenses .$ 3,998 $ 6,852 $13,113 $13,041 $10,362 $10,564 $12,610 $13,748 Operating Profit (Loss) * .$ 293 $ 379 ($ 877) ($ 665) ($ 295) $ 970 $ 1,636 $ 2,534 Other Income or (Charges) * .$ 6 ($ 20) -- ($ 192) ($ 186) ($ 258) ($ 196) $ 280 $ 299 $ 359 ($ 877) ($ 857) ($ 481) $ 712 $ 1,440 $ 2,814 Provision for Federal Taxes on Income* .$ 147 .$ 169 ($ 277) $ 88 ($ 333) $ 391 $ 690 $ 1,425 Net Income (Loss) * .$ 152 .$ 190 ($ 600) ($ 945) ($ 148) $ 321 $ 750 $ 1,389 OPERATING STATISTICS Route Miles 2,962 3,117 4,808 4,725 4,727 4,727 5,016 5,016 Available Ton Miles* n/a n/a 35,831 35,757 29,534 32,034 44,515 43,036 Revenue Ton Miles* n/a n/a 22,877 20,887 14,660 16,383 24,697 27,549 Passenger and Tonnage Carried Revenue Passengers . 147,854 303,931 602,302 491,680 353,569 422,193 619,624 691,322 Mail Tons . 2,267 3,347 1,852 1,722 1,543 1,359 2,150 3,419 Express and Freight Tons 472 754 1,640 2,252 2,702 2,435 3,396 3,191 Revenue Miles Flown: Airplane Miles * . 4,057 7,279 10,594 9,607 8,707 9,496 11,783 11,487 Passenger Seat Miles " . 73,101 138,852 301,856 312,615 243,771 299,503 414,169 401,720 Passenger Miles * . 63,073 117,106 214,023 194,923 135,724 155,747 233,118 259,693 Mail Ton Miles* 905 1,120 706 733 574 567 978 1,449 Express and Freight Ton Miles* 222 307 635 912 1,089 926 1,442 1,282 Other Statistics: Passenger Load Factor 86.3 84,3 70.9 62.4 55.7 52.0 56.3 64.7 Average Length in Miles per Passenger Trip. 427 385 355 396 384 369 376 376 Average Revenue per Passenger Mile .$ .0502 $ .0483 $ .0489 $ .0519 $ .0576 $ .0544 $ .0489 $ .0527 Number of Employees End of Year . 1,120 1,674 2,396 1,529 1,285 1,226 1,279 1,459 000 omitted n/a not available Where in the West do you want to go? To Canada's Jasper, Banff, and Lake Louise... Glacier National Park .. .Yellowstone and the Grand Tetons ... Zion and Bryce Canyon National Parks... the famous all-year recreation areas of Southern California ... the Redwood Empire ... the Evergreen Playground of the Pacific Northwest? Western serves them all! No matter which is the vacationland of your choice, it's only a short, pleas ant flight on a fast, dependable Western Airliner. This year, See Western America First! WESTERNAIRLINES AMERICA'S OLDEST AIRLINE