WESTERN AIR LINES Board of Directors Hugh W. Darling Guthrie, Darling & Shattuck, Attorneys at Law Los Angeles, California Terrell C. Drinkwater President, Western Air Lines, Inc. Robert E. Driscoll Chairman of the Board of Directors First National Bank of the Black Hills Rapid City, South Dakota Hector C. Haight Los Angeles, California Marvin W. Landes Vice President, Western Air Lines, Inc. L. Welch Pogue Pogue & Neal, Attorneys at Law Washington, D. C. Executive Staff Terrell C. Drinkwater, President Stanley R. Shatto, Vice President- Operations Marvin W. Landes, Vice President- Service Paul E. Sullivan, Vice President- Administration and Secretary Arthur F. Kelly, Vice President- Sales J. Judson Taylor, Vice President and Treasurer D. P. Renda, Attorney and Assistant Secretary C. J. J. Cox, Controller and Assistant Treasurer G. G. Brooder, Assistant to the President Thomas M. Murphy, Assistant to the President Joseph F. Ringland President, .Northwestern National Bank of Minneapolis Minneapolis, Minnesota Stanley R. Shatto Vice President, Western Air Lines, Inc. Harry J. Volk Vice President for Western Operations The Prudential Insurance Company of America Los Angeles, California John M. Wallace President, Walker Bank & Trust Company Salt Lake City, Utah Alexander Warden Publisher, Great Falls Tribune-Leader Great Falls, Montana Sidney F. Woodbury Chairman of the Board of Directors Woodbury & Company, Portland, Oregon General Offices Western Air Lines Building, 6060 Avion Drive Los Angeles International Airport Los Angeles 45, California Registrars Citizens National Trust & Savings Bank Los Angeles Chase National Bank New York Stock Transfer Agents Security-First National Bank of Los Angeles Los Angeles New York Trust Company New York General Counsel Guthrie, Darling and Shattuck Los Angeles Auditors Peat, Marwick, Mitchell & Co. Los Angeles TO THE STOCKHOLDERS OF WESTERN AIR LINES, ITS CUSTOMERS AND PERSONNEL Earnings The .year 1952, twenty-seventh year of continuous operation by Western Air Lines, was a period of continued growth and development. The Company established new records in passenger traffic and operating revenue. Net income, after taxes and all charges, was $1,232,114, as compared with earnings of $1,389,300 in 1951 (which included substantial non-recurring profits from the sale of fixed assets), and $750,200 in 1950. Net income from all sources, per share of capital stock outstanding amounted to $1.72 for 1952, against $1.94 the preceding year, and $1.05 in 1950.,:, Net income for 1951 included $.52 per share derived from the sale of fixed assets. Operating income for the year was a record $2,835,318, as compared with $2,533,761 for 1951, and $1,635,761 in 1950. Dividends During 1952 the Company increased its dividends * Earnings per share for all years are computed on the 715,213 shares of capital stock outstanding as of December 31, 1952. TREND OF MAIL NON-MAIL 1936 1948 1949 to 60 cents per share, which was paid in four quarterly dividends of 15 cents each. This com- pared with two semi-annual payments of 25 cents each or a total of 50 cents per share for 1951. Prior to that year the last dividend to stockholders had been paid in 1936. At its first quarterly meeting for 1953, 'the Board of Directors declared a dividend of 15 cents per share payable March 16, 1953 to shareholders of record March 2, 1953. Finances Continued improvement was made in the Com- pany's financiaJ position during the year. At the close of 1952, current assets (including $5,090,998 cash and government securities) totaled $7,643,517. Current liabilities were $6,279,342, leaving net working capital of $1,364,175. During the year, property, plant, and equipment were increased approximately $4,000,000. This included the receipt of three new four-engine Douglas DC-6B aircraft and related equipment. Two additional DC-6Bs were delivered by Douglas Aircraft Company in January of 1953, completing a $6,000,000 purchase 1950 1951 1952 18,595,063 15,000,000 10,000,000 5,000,000 2,000,000 500,000 10,000 by Western of the latest and finest airliners. The Company's increase in net working capital and funds for the purchase of new airplanes and equipment were provided from three sources: earn- ings retained in the business, increases in bank loans, and the sale of additional capital stock. In the spring of 1952, the Company sold 165,049 shares of capital stock to the public with net proceeds of $1,766,663. Bank indebtedness was increased dur- ing the year by $1,833,837. As a result of earnings retained in the business, after dividends paid to stockholders, the net book value per share of stock outstanding at the end of 1952 increased to $12.84 per share. This compares with net book value per Simplified Balance Sheet 1952 1951 We own: Cash and U.S. Government securities ... $ 5,090,998 Owed to us by others. . . . . . . . . . . . . . . . 1,434,403 Materials and supplies . . . . . . . . . . . . . . . 305,950 Buildings and improvements, net... . . . 2,172,103 Flight and other equipment, net. . . . . . . 7,530,367 Deposits on new equipment.... . . . . . . . 674,737 Prepaid expenses. . . . . . . . . . . . . . . . . . . . 812,166 Deferred charges less provision for contingencies . . . . . . . . . . . . . . . . . . 342,990 We owe: Notes payable ..................... . Accounts payable .................. . Inco1ne taxes ...................... . Tickets sold but not yet used ......... . Excess of what we own over what we owe, 18,363,714 4,618,837 2,587,077 1,462,701 513,564 9,182,179 or stockholders' equity . ................ $ 9,181,535 3,222,954 1,485,382 323,873 2,271,299 4,317,060 1,313,375 484,121 184,408 13,602,472 2,785,000 2,345,081 1,454,891 430,378 7,015,345 M87,127 share of $11.97 at the close of 1951. In anticipation of future requirements for addi- tional schedules and service, the Company recently placed an order for three more DC-6B aircraft, to be delivered in 1954. Funds for the additional planes will be provided for through a credit agree- ment with the Bank of America, which will be par- ticipated in by a group of western banks on the Company's system. Revenues and Expenses Operating revenues for the year totaled $18,595,063, an increase of 14.2% over 1951, and a new record for the Company. Passenger revenues were up 18.7% over the previous year. Reflecting Western's non- subsidy status, mail compensation at the same time decreased 40.7%. Mail pay during 1952 represented only 3.9% of total operating revenues, as compared with 21.7% in 1949. During 1952 passenger traffic was at the highest level in ~Vestern's history, with a total of 774,079 passengers carried an average distance of 386 miles. These passengers paid, exclusive of Federal trans- portation tax, an average of $20.99 for their tickets, equivalent on the average to 5.44 cents per mile. By comparison, the average per mile ticket cost on the Western Air Lines system in 1951 was 5.27 cents per mile. Airline fares are one of the very few commodities which are available to the public at a lower cost today than prevailed four years ago. Moreover, between 1940 and 1952, although the cost-of-living index soared 89.2%, Western increased its average passenger fares by only 14%. Total operating expenses f9r the year amounted to $15,759,745, an increase of 14.6% over 1951. The increase in operating expense was attributable to several factors - important among them being an increase of 12% in the number of passengers carried and an increase of 9.8% in total miles flown. But in addition to the expanded scope of operations, the cost of wages, materials, and nearly everything required in the Company's activities reflected increases during the year. Per revenue ton mile flown operating expenses were 50.1 cents, as com- pared with 49.9 cents per revenue ton mile flown in 1951. The airline industry's ability to maintain fares at approximately comparable levels during the past decade has been due primarily to incr~ased volume of traffic, increased efficiency, and the use of increasingly modern equipment. But unless the inflationary spiral of wages, materials, and services is checked, it is likely that a point will be reached when increased costs can no longer be absorbed by increased voJume, and can be met only by an increase in fares. Personnel No airline in the industry has a finer group of skilled and experienced personnel than Western. The successful operations of the Company in 1952 were due to the loyalty and hard work of these people, who numbered 1649 at the close of the year. They serve in five major divisions of the Company: ( 1) Operations, which includes flight, maintenance, engineering and communications; ( 2) Service, which includes stations, reservations, in-flight service, cargo, and stewardesses; ( 3) Sales, which includes traffic, advertising, and public relations; ( 4) Treasury, which includes accounting, purchas- ing, stores, and budget control; and ( 5) Adminis- tration, which includes corporate, legal, insurance, personnel, and office management. In 1952, to complet the employees' insuranc program, a company-wide contributory retirement plan was approved by the shareholders and placed in effect. It was accepted by about ninety per cent of the eligible employees. Participation in the Company's group accident and sickness insurance, group hospitalization insurance, and group life insurance increased materially during the year. The Company's liberal policy of emergency and vaca- tion transportation on a space-available basis for all personnel and their families was continued and used extensively. Westernaire Federal Credit Union - an employees' organization - had a very successful year. Total employees' savings on deposit at the end of the year exceeded $384,000. A dividend of five per cent was paid to all depositing members by the Credit Union. New Aircraft and Facilities Five new DC-6B aircraft costing approximately $6,000,000 are now being operated by Western be- tween leading cities on the Pacific Coast, and on Simplified Statement of Income 1952 1951 Income was derived from : Passengers ......................... $16,250,201 Mail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 719,266 Express, freight and baggage. . . . . . . . . . 661,987 Other income . . . . . . . . . . . . . . . . . . . . . . 1,927,190 Gain on disposal of property.. . . . . . . . . 26,154 Total Income . . . . . . . . . . . . . . . . . . . 19,584,798 The costs of doing business were : Wages and salaries ....... . ....... . 7,436,275 Social security, group insurance and retirement plan . . . . . . . . . . . . . . . . . 335,012 Gasoline and oil. . . . . . . . . . . . . . . . . . . . . 2,104,793 Materials, supplies and repair parts. . . . . 1,977,205 Depreciation and obsolescence . . . . . . . . 1,082,344 Advertising and publicity. . . . . . . . . . . . . 512,284 For servic to passengers. . . . . . . . . . . . . .588,809 Rentals and landing f es. . . . . . . . . . . . . 535,936 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 515,788 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,539 Taxes other than income taxes. . . . . . . . . 533,278 Utilities and servic s. . . . . . . . . . . . . . . . . 573,732 Other costs. . . . . . . . . . . . . . . . . . . . . . . . . 548,689 Total Costs ..... . ............ . . - 16,852,684 Amount remaining before Federal Income taxes. . 2,732,114 Less Federal taxes on Income. . . . . . . . . . . . . . . . 1,500,000 Net Income . ............ . ..... . ...... . ... $ 1,232,114 13,687,903 1,211,975 506,715 1,367,140 480,435 17,254,168 6,389,012 250,210 1,772,690 1,343,147 l ,04, '3,467 542,940 510,270 488,565 486,181 123,801 408,213 509,436 571,936 14:-,i39,868 2,814,300 1,425,000 1]89,300 its new, direct route between Minnesota and Cali- fornia. These airplanes were ordered from the manufacturer in the spring of 1951, with deliveries beginning in late 1952. Western's DC-6Bs are the most advanced version of the world-famous Douglas airliners, and are equipped with every modern development for safety, speed and comfort. Their interiors feature typically Western fabrics, More than 35% of Western's passengers during 1952 were women and children. designs and colors. Initial reaction among travelers to the inauguration of DC-6B service by the Com- pany has been gratifying, and it is anticipated that the present fleet, augmented by the three additional DC-6Bs now on order, will be important factors in Western's competitive position and in its service to the public. As part of the Company's continuing pro~ram of improvement and modernization, engines used on its fleet of Convair-liners are being converted to the same type of power plant employed in the DC-6Bs. This work is being done by Western in its own maintenance shops. The conversim1 will pro- vide uniform and interchangeable engines for both types of aircraft, with resultant benefits in operating and maintenance efficiency and economy. To gear its service and sales facilities for the steady increase in traffic being experienced, the Company has added to its teletype communications system on the new route, has centralized and streamlined reservations control on a system-wide basis, and has underway a program for improve- ment of city ticket offices and airport passenger handling facilities. The Company has just com- pleted construction of a new hangar building at the Seattle-Tacoma International Airport at a cost of approximately $210,000 to meet DC-6B operat- ing requirements. The maintenance and headquarters facilities completed in 1947 by Western at Los Angeles Inter- national Airport at a cost of $2,500,000 have been progressively modernized. The Company now has one of the most complete and best-integrated main- tenance and overhaul bases in the West, with suffi- cient capacity to absorb continued expansion in the Company's operations. During 1952, Western per- formed in these shops a substantial amount of con- tract maintenance work for other air carriers which were engaged in international operations and in the Korean airlift. Mail Pay and Taxes The Civil Aeronautics Act of 1938 as amended provides that the compensation paid airlines for carrying the United States mails should be at a rate which will cover the cost of the service fur- nished and in addition give the airline, under effi- cient management, a reasonable rate of return on the investment of its stockholders. The goal of the scheduled trunk airlines for many years has been to reach a point of self-sufficiency where the amount paid for carrying the mail was not in excess of the cost of the service rendered the Post Office Depart- ment. That point has been reached by Western Air Lines and since October 1, 1951, Western has re- ceived but 53 per ton mile of mail carried. This rate has been determined by the Civil Aeronautics Board to contain no element of subsidy. Having emerged, for the first time in its history, from being a subsidized air carrier to Western' s present position where no subsidy is received, it is highly important that everything possible be done to strengthen that position. In order to main- tain Western's status as a permanently self-sufficient carrier, far-sighted and intelligent government reg- ulation of the industry by the Civil Aeronautics Board is essential. The Company and the industry must be per- mitted to earn through their own endeavors suffi- ciently liberal profits as will maintain stability and establish the confidence of the investing public, thus making airline securities attractive as a sound, long-range investment. The ability of the airline industry to maintain low fares in an inflationary economy has been due in no small part to the replacement of aircraft and other airline equipment with modern and more efficient airplanes and facili- ties. In order for this pattern of progress to continue, large additional investments by the airline industry will have to be made in the years ahead. The question has been raised as to whether the airlines are paying their fair share of the cost of government airway facilities used jointly by the air- lines, military, and various other airplane operators. The facts are that the scheduled airlines pay more than their fair pro-rata share for their use of such facilities. Airline use, incidentally, is small com- pared with the utilization of these facilities by non- airline aircraft. For the calendar year 1952, Western paid directly to the Federal government for fuel and lubricant taxes the sum of $234,970. In addi- tion to the Company's Federal income taxes for that year in the amount of $1,500,000, the Com- pany remitted to the Federal government for trans- portation taxes on passengers and property the sum of $2,068,659. Air Coach Services Western was the first scheduled, certificated air- line to inaugurate air coach service on the Pacific Coast. This phase of Western's operations, in bring- ing the benefits of dependable, economical air COACH -e- DELUXE transportation to as many travelers as possible, has become increasingly important both to the Com- pany and to the industry. Western now operates economy-fare flights between all major cities on the Pacific Coast, and between Los Angeles and Las Vegas, Nevada. During 1952, air coach passen- gers constituted more than 35% of the Company's traffic, compared with 30% for 1951. These opera- tions are conducted by the Company exclusively in Douglas DC-4 Coachmasters. To be operated efficiently and profitably at this stage of its deve\op- ment, economy coach service must be offered only between traffic centers of - substantial population, and the flights must be flown with aircraft contain- ing higher-density seating than is normally used for deluxe services. Within these limitations Western anticipates continuing and substantial increase in this type of service. 400,000 300,000 200,000 100,000 50,000 Route Structure Since its creation in 1938, at which time it inherited a patchwork system of "grandfather routes," the Civil Aeronautics Board has developed a pattern of domestic scheduled airlines comprising three general types of carriers, with functional overlap- ping in some instances. First, the coast-to-coast trunk airlines, whose major operation is the long-haul, transcontinental business. These four larger carriers receive no subsidy. In 1952, they, together with the. largest regional trunk line in the East, did over 77% of the total domestic trunkline passenger business, the balance being divided in varying proportions among the remaining ten certificated trunk airlines. Second, the regional trunk airlines, which is Western Air Lines' category. Most of these regional carriers, including Western, receive no subsidy. The function of the primary regional carriers, in the regions they serve, is to transport passengers, prop- erty, and mail - principally between major metro- politan areas. Some of the regional trunk lines are competitive on portions of their routes with rela- WESTERN'S EXPENSE DOLLAR I ' ~ Taxes 11.1% tively short segments of the coast-to-coast carriers. Third, the local service, or "feeder" airlines, which are engaged in the short-haul traffic to and from small cities generally in groupings around large metropolitan areas. Airlines in this third class receive a substantial subsidy in order to permit their useful but necessarily high-cost operation to be conducted at a profit. Looking ahead, there are many reasons to be- lieve that the delineation between these three classes of carriers will, in the future, become even more marked than it has been in the past. An impor- tant influence on this trend may be anticipated from the new coast-to-coast, non-stop aircraft presently being manufactured for the transcontinental air- lines, which probably will be followed into service by long-range jet transports. Western is in the fortunate position of being well-established as the regional trunk airline for the West. There is no other major trunk airline exclu- sively serving this western area. This is in marked contrast with the situation existing in the eastern portion of the country, where the number of AIJ Other Expenses 20.2% Wages and Salaries {l 111 [[I [IJI I IJ] regional trunk lines is being reduced with approval of the Civil Aeronautics Board through mergers. Western has no plan or intention to merge with any other carrier. The route structure of Western Air Lines today consists of 5525 miles, serving 44 cities in 12 western states and the Province of Alberta, Canada. To meet the rapidly increasing demands for air transportation in the western area it serves, Western has filed applications for authority to operate direct air routes between Denver, Colorado, and San Francisco-Oakland, California, via Salt Lake City, Utah, and between Denver and San Diego, Cali- fornia, via Phoenix, Arizona. All of these cities, with the exception of Phoenix, are now served by Western on its existing routes. Favorable action on these two petitions, which will soon be heard by the Civil Aeronautics Board, will enable the Com- pany to provide vitally needed additional regional trunk line service in rapidly growing and impor- tant areas. The 1,869 new route miles sought by Western in these applications will, as shown on the map in this report, aid in the sound integration of Western' s existing regional system. The Company also has on file with the Civil Aeronautics Board an application to furnish serv- ice on a direct route between San Francisco and Las Vegas, Nevada, and an application to include Sioux Falls, South Dakota, on its route connect- ing Minneapolis-St. Paul, Rapid City, and Denver. Other matters are pending before the Civil Aero- nautics Board, of major importance, whereby Western is seeking a more orderly pattern of its routes by eliminating, where feasible to do so, un- necessary and uneconomic service. During 1952, by order of the Civil Aeronautics Board, the cities of Yuma, Arizona, and El Centro, California, were suspended from Western's certifi- cates and given to a "feeder airline" to be operated on a local service, subsidized basis. On April 10, 1952 the Company's former sub- sidiary, Inland Air Lines, Inc., was dissolved and its routes and operations transferred to the parent company. At the close of 1952 Western was granted by the Civil Aeronautics Board a very important new route between Salt Lake City and Rapid City, South Dakota, via Casper, Wyoming. This new route, which closes a long-existing gap in Western's sys- tem, not only permits the Company to provide much-needed one-carrier service between these Utah, Wyoming, and South Dakota cities with Convair aircraft, but also makes possible entirely new one-stop direct service with Douglas DC-6Bs between Minneapolis-St. Paul and Southern Cali- fornia, via Salt Lake City. The Company antici- pates substantial and growing traffic over this route linking key areas of the West. 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, for a route between Los Angeles and Mexico City. Service over this route has been and still is delayed because of the absence of a bilateral agreement between the Governments of the United States and Mexico allowing reciprocal airline routes between the two countries. During 1952 no progress was made in this regard and its status and future development at the present time is uncertain. Western is continuing to urge that it be per- mitted to serve the city of Calgary, located midway between the cities of Lethbridge and Edmonton in the Province of Alberta, Canada, which latter two cities are presently served by the Company. Although strong civic support is being extended in behalf of Western Air Lines service for Calgary, this is a matter that can be resolved only by our own Government and that of Canada. The West The 12 western states and the Province of Alberta, Canada, served by the Company comprise a sub- stantial portion of the new economic frontier of North America. The emergence of the West from its traditional position as an economic colony of the East strongly points toward increased demands for four-directional air transportation in this region. The amazing population growth during the last decade of virtually every city served by Western, the increasing decentralization of industry and of government, and the rapid expansion of new west- WESTERN Announces NJ~\r Dlll/Jl'l1 ll()lJlE 1JU11~~~UN L()S Al\f (JJ~IJ~S J\1\fl) l\iINNl~\P()JJS Sl:Pl\lJl Now -for the first time -you can fly between Southern California and the Twin Cities without changing planes! . . ~ . d the long-needed : . . Western's new route prov1 es t l . . skyway for business and pleasure rave the great metropolitan centers . between . 1 nd Los Angeles. . . of Minneapolis-St. Pau a 3 flights daily on Western's New Direct Skyway from the Upper Midwest to California r--------------------------, NOW/ P . DC6B $E.f