ANNUAL REPORT THE EXECUTIVE STAFF Terrell C. Drinkwater President D.P. Renda Vice President Legal and Secretary William C. Jennings Assistant Secretary J. Judson Taylor Vice President and Treasurer John W. Simpson Assistant Secretary Charles J. J. Cox Controller and Assistant Treasurer Thomas M. Murphy Assistant to the President General Offices Western Air Lines Building 6060 Avion Drive Los Angeles International Airport Los Angeles 45, California Registrars Bank of America National Trust & Savings Assn. 660 South Spring Street Los Angeles 14, California The Chase Manhattan Bank 11 Broad Street New York 15, New York Stock Transfer Agents Security First National Bank 561 South Spring Street Los Angeles 14, California Chemical Bank New York Trust Co. 100 Broadway New York 15, New York Trustee for Debentures Union Bank 760 South Hill Street Los Angeles 14, California Stock Listings Listed and traded on New York Stock Exchange and Pacific Coast Stock Exchange General Counsel Darling, Shattuck & Edmonds Attorneys-at-Law 523 West Sixth Street Los Angeles 14, California Auditors Peat, Marwick, Mitchell & Co. 618 South Spring Street Los Angeles 14, California Annual Meeting Fourth Thursday in April at General Offices THE PRESIDENT'S LETTER HIGHLIGHTS OF1959 To Shareholders, Employees, Customers and Friends: For you, and for those of us entrusted with the management of Western Air Lines, 1959 was a year of considerable progress and consequent satisfaction. The chronicle of the company's achievements is evident in the statistical data contained in the "Decade of Growth" section of this 34th Annual Report. The continued and increasing success of Western, the nation's senior airline, is attribut- abl~ to the wise and farsighted guidance of a fine Board of Directors, the enthusiastic support of our stockholders, and the hard work of an experienced complement of employees. Western continues to be dedicated to its mission of serving the fast-growing West. During the year, the company introduced the Lockheed Electra turbo-prop airplanes which proved popular and profitable, implemented the first system-wide electronic reservations unit in the United States, and streamlined the route system by eliminating smaller communities more suited to subsidized local service airline operations. Continued careful planning should assure Western of future accomplishments at least equal to those of the past. Plans call for the operation of Boeing turbo-jets this Summer. Applications for new and important jet routes to Hawaii and Texas are being prosecuted vigorously before the Civil Aeronautics Board, with decisions expected late this year, or early in 1961. March 9, 1960 Western Air Lines Building I ,,. , o o... ~. B-~ Los Angeles International Airport Los Angeles 45, California Seat miles produced .. . .. . .. . ... . .. ..... .. . . . . Seat miles sold . . .. . ..... .. ...... . . . ........ . Passengers carried . ....... .. . ... . ... . . .... . . . Total operating revenues .. . .. . ..... . .. .. . . ... . Operating income .. . .. .. .. .... .... . .. . .... .. . Net earnings .. . ..... . .. . .. .. . . . .. .. . ....... . Dividends paid: Cash .. . . .. . . ..... .... .. . ... .. .. . ... . .. . . . Stock . ... . . . .. . .. . .. . ... . . ... . .. ... . . . .. . Common stock outstanding . . . .. .. . . .... . .. . .. . Earnings per share . .. .. . . . .... . .. . . .. ...... . Dividends per share: Cash-annual rate .... . .......... . ...... . Stock ....................... . .. . ... .. . . Total shareholders' equity . .. . . .. .. . .......... . Shareholders' equity per share ...... . ..... . . . . . Cash and U.S. Government securities . . .. . .... . . . Working capital ... . ........... .. ... . .. . ..... . Properties and equipment at cost . ........ . .... . Long-term debt .... . ..... .. .... . ............ . Number of employees . . . ... . ......... . ..... . . . Wages and salaries paid ...................... . PRESIDENT 1959 1,623,007,000 982,010,000 1,689,278 $ 63,253,971 $ 11,130,599 5,016,656 853,934 1,185,468 1,040,952 4.82 1.00** 4% 24,545,292 23.58 $ 18,265,546 11,980,236 55,731,571 23,178,000 2,962 $ 17,704,404 0 0perations were suspended from February 21 to June 10, 1958, because of a st ri ke. "As adopted during fourth quarter 1959. 1958* 981,740,000 533,443,000 970,498 33,970,204 1,055,791 1,402,340 731,861 807,238 9651 037 1.45 0.80 4% 18,996,428 19.68 6,520,798 5,319,511 46,319,339 19,748,000 2,547 11,946,734 EARNINGS Western Air Lines set a new earnings record in 1959 of $5,016,656, or $4.82 a share based on the 1,040,952 shares of common stock outstanding on December 31. (The 1959 earnings per share after adjustment for the 1960 stock dividend are equal to $4.60 a share.) The 1959 earnings were realized mainly from opera- tions, net income from this source totaling $4,806,203, or $4.62 a share, while net gains from the.disposal of property amounted to $210,453, or $0.20 a share. For comparison, net income in 1958, reflecting a suspension of operations due to a pilots strike, was $1,402,340, or $1.45 a share based on the 965,037 shares outstanding at the end of the year, as adjusted for the 1959 stock dividend. This resulted from net property gains of $1,522,386, or $1.58 a share, reduced by a net loss from operations of $120,046, equal to a deficit of $0.13 a share, with both per-share figures adjusted for the .1959 stock dividend. Comparisons of the 1959 results with those of 1957 are included in this report because 1958 figures were distorted by this strike. In 1957, the company earned $2,401,914, equal to $2.62 a share based on 917,782 shares outstanding at the year's close, as adjusted for 1958 and 1959 stock dividends. The company's previous top earnings were recorded in 1956 when net income totaled $3,044,458, or $3.48 a share adjusted for the stock dividends through 1959. DIVIDENDS In recognition of higher earnings, the Board of Directors of Western Air Lines increased the regular quarterly cash dividend rate from $0.20 to $0.25 effec- tive with the November 20, 1959 payment. Share- holders received quarterly dividends of $0.20 a share on March 20, May 15 and August 14, and a 4 per cent stock dividend was distributed on April 3. These payments marked the ninth successive year that Western has paid cash dividends to its shareholders. Continuing the company's established policy of con- ducting quarterly meetings in key cities on the system, directors took these dividend actions at sessions in Mex- ico City, Los Angeles, Seattle and Denver. At the initial meeting of the current year, held on January 18, 1960 at the company's Los Angeles Inter- national Airport headquarters, a 5 per cent stock divi- dend was declared in addition to the regular quarterly cash dividend of $0.25. The cash dividend was paid on March 4 and the stock dividend will be distributed on March 23. ANNUAL REPORT REVENUES Operating revenues of Western Air Lines in 1959 also reached a 34-year peak, totaling $63,253,971 compared with 1958 revenues of $33,970,204 and $42,218,951 in 1957, the previous record high. The company's total revenues were derived from substantially the same sources as in 1957, with passen- ger traffic accounting for 92.8 per cent; freight, express and excess baggage 3.5 per cent; mail 2 per cent; and all other sources, including property gains, 1. 7 per cent. A Civil Aeronautics Board decision is hoped for this year in the General Passenger Fare Investigation, a complex proceeding that was instituted on May 10, 1956, by the CAB. Certain intervening temporary in- creases were granted, and on May 27, 1959 the CAB examiner's initial decision was issued recommending a further increase of $1 per passenger ticket. The com- pany cannot predict what the final decision will be. EXPENSES While operating revenues in 1959 exceeded those of 1958 by 86.2 per cent and 1957 by 49.8 per cent, oper- ating expenses were held to increases of 58.5 per cent over 1958 and 39.3 per cent over 1957. Western Air Lines operating expenses totaled $52,123,372 in 1959, compared with $32,914,413 in 1958 and $37,422,237 in 1957. In 1959, operating income totaled $11,130,599, as against $1,055,791 in strike-affected 1958 and the pre- vious high of $4,796,714 in 1957. Management recognized the accelerated obsolescence of the Douglas DC-6B aircraft and adjusted deprecia- tion accordingly. As of July 1, 1959, the useful life for DC-6B airframes and engines was shortened and resid- ual values were reduced from 15 to 10 per cent. These revisions increased depreciation by $1,160,000 and decreased net income by approximately $557,000. Total operating expenses were 50.24 cents per reve- nue ton-mile for the year 1959, as compared with 58.04 cents for 1958 and 50.25 cents for 1957. Total cost per seat-mile flown was 3.21 cents in 1959, compared with 3.35 cents in 1958 and 3.18 cents in 1957. Western's total expense dollar in 1959, contrasted with 1957, included 32.9 cents for wages and salaries, as against 37.9 cents two years before; 13.9 cents for aircraft fuels, versus 15.5 cents; 12.3 cents for local, state and federal taxes, compared with 9.2 cents; 10.9 cents of depreciation, against 7.4 cents; 6.8 cents for materials, supplies and parts, versus 8.2 cents; and 23.2 cents for all other expenses, compared with 21.8 cents. brief balance sheet We1tem owns: Ci!IISh and U.S. Government securities . . . . , . .... . .. , . . . .. Owed by others ............... Expendable parts and supplies ff, Buildings and improvements, net Flight and other equipi:nent, net .. ' .. .. ~ ...... . .. ' .... ..... Deposits on new equipment Prepaid expenses Deferred charges and other .. Western owes: Owed to vendors and others Federal income taxes- current and deferred . ... . . Tickets sold but not yet used Notes payable- current and long-term ..... Debentures l,,,,. , ,, , Excess of what is owned over what is owed, or 1959 $18,265,546 6,387,821 947,499 2,036,858 32,952,735 2,439,047 1,130,893 506,416 64,666,815 6,955,964 7,449,070 1,338,489 22,500,000 1,878,000 40,121,523 1958 $ 6,520,798 5,769,421 662,276 2,129,052 28,905,983 4,208,493 1,131,126 268,389 49,595,538 5,047,091 2,699,272 904,747 18,700,000 3,248,000 30,599,110 shareholders' equity . . . . . . . . . . . $24,545,292 $18,996,428 statement of source and disposition of funds for 1959 Source of funds: Net earnings ................. . $ 5,016,656 Depreciation and other non-cash charges . ...... . 6,368,643 Deferred federal taxes on income . . . . . . . . . . . . . . . . 105,000 Sale of capital stock .......... 49,967 Insurance company notes .... $ 6,000,000 Less reductions in long-term bank notes . . 1,200,000 4,800,000 16,340,266 Disposition of funds: Planes and other equipment including contract deposits 8,553,757 Dividends-cash . . . . . . . . . . . . . . 853,934 Deferred charges . . . . . . . 271,850 Increase In Working Capital .. . . .. . .. .. .. .. . . . .. .. . .. . 6,660,725 $16,340,266 FINANCES Working capital of Western Air Lines rose $6,660,725 during 1959, totaling $11,980,236 at the end of the year. The ratio of current assets to current liabilities was $1.81 to $1, an improvement over the prior year ratio of $1.61 to $1. Long-term debt totaled $23,178,000 at December 31 , 1959; it was $19,748,000 at the close of 1958. The debt included $4,020,000 of bank notes, $17,280,000 of insurance company notes and $1,878,000 of con- vertible subordinated debentures. After the close of the year, the debentures were called for redemption at 103.5 per cent on February 23, 1960, and $1,822,000 of these debentures were converted into common stock. The company had on order at December 31, 1959 seven Lockheed Electra aircraft, which together with related equipment orders represented a purchase com- mitment exceeding deposits made at year-end of ap- proximately $14,500,000. This amount is to be reduced by approximately $3,600,000 when an amendment to a lease agreement, now in process, is concluded. This agreement pro- vides for lease, instead of purchase, of Allison engines and Aeroproducts propellers for the Blectras, and will amount to an annual rental of approximately $1,500,- 000 when all units are received. Western signed agreements with The Boeing Airplane Company on February 15, 1960, providing for the pur- chase of three Boeing 720 turbo-jet aircraft. The three aircraft, scheduled for early 1961 delivery, involve a purchase commitment of approximately $14,000,000. In addition, the company arranged to lease from Boeing, for a 14-month period, with an option to renew to January 1, 1962, two Boeing 707 turbo-jets and spare engines. Arrangements for financing these purchases to the extent not provided for by internal sources currently are being negotiated. SHAREHOLDERS AND STOCK There were 1,040,952 shares of Western Air Lines common stock issued and outstanding on December 31, 1959, an increase of 113,032 over the 927,920 total outstanding at the end of 1958. The increase was comprised of 37,935 shares dis- tributed as a 4 per cent stock dividend, 71 ,962 shares issued upon conversion of debentures, and 3,135 shares issued through exercise of stock options. (In 1960, 96, 71 7 shares were issued upon conversion of deben- tures and 54,606 shares will be issued upon payment of the 5 per cent stock dividend in 1960.) C Ordered for delivery in early 1961, the new Boeing 720 turbo-jet is illustrated in artist's -conception as the air- craft will appear in familiar Western Air Lines design. Shareholders' equity rose to a new high of $24,545,- 292, or $23.58 a share, at the end of 1959, a gain of $5,548,864 over 1958 total equity of $18,996,428, equal to $19.68 a share, adjusted for the 1959 stock dividend. On the New York Stock Exchange, 408,100 shares of the company's stock were traded in 1959 at prices ranging from a low of 26 to a high of 38, with a closing price for the year of 35. Western stock traded on the Pacific Coast Stock Exchange numbered 18,576 shares, with a high of 371/2 and a low of 27. The closing price at year-end was 35. Throughout the year, a stockholders-information program, based on publication of Western's Share- holders Report, provided news of pertinent corporate progress and development. The company's 1958 An- nual Report again won the Financial World's Merit Award. EQUIPMENT Successful introduction of the first Lockheed Electra service in the West highlighted the Western Air Lines equipment program in 1959. Ordered in 1956, the Electras were placed in regular service by Western on August 1, 1959. At the end of the year, the company was operating five of these aircraft, capable of cruising at more than 400 miles per hour, and had seven more on order from Lockheed, scheduled for delivery by August 1960. The new fleet of spacious Electras was instrumental in boosting the company's passenger seat-miles pro- duced during 1959 to a record high of 1,623,007,000, / WAL Boeing 707 turbo-jet, shown during factory roll-out, is scheduled to go into service on key Western routes in Summer of 1960 under lease agreement with Boeing. compared with 981,740,000 in strike-affected 1958 and the previous record of 1,175,071,000 set in 1957, the last comparable full year of operation. During the year, Western retired the last two of its 22-passenger DC-3 aircraft and sold one 40-passenger Convair 240. With an additional Electra delivered in January 1960, the company's fleet currently consists of 38 planes, including six 66-passenger Electras, 27 Douglas DC-6Bs (21 deluxe 60-passenger models, six 96-seat aircoaches) and five Convair 240s. The company in February 1960 signed agreements with The Boeing Airplane Company providing for the purchase of three Boeing 720 turbo-jet aircraft for delivery in April, May and June 1961. An option for the delivery of a fourth 720 in December 1961 was included in the contract. To enable the company to offer jet service commenc- ing in the Summer of 1960, Western is arranging to lease from Boeing two 707 turbo-jets for a period through January 1, 1962. Under terms of the Boeing agreements, Western also has an option to purchase five additional 720s for de- livery early in 1962 at the rate of one-a-month starting 14 months after the option is exercised, at prices pre- vailing at the time the option is exercised. Construction of a hangar for Western at Minne- apolis-St. Paul Internfltional Airport began in August 1959 and is scheduled for completion in 1960. The new hangar will house two DC-6Bs and one Electra, or two turbo-jet aircraft. The company will lease the $1 ,750,000 facility from the Metropolitan Airports Commission of the Twin Cities, which is erecting the structure as a part of its modern terminal complex. WESTERN'S income dollar ---62.5 ----30.3 /3.5 1/2.0 - - - -::...---- 1.7 from deluxe passenger services from aircoach passenger services from express, freight and excess baggage from mail from all other sources, including property gains WESTERN'S expense dollar -32.9 ----13.9 -----12.3 ----10.9 ______ 6.8 ----23.2 for wages and salaries for aircraft fuels for local, state and federal taxes for depreciation for materials supplies and parts for all other expenses MANAGEMENT AND PERSONNEL Membership of the Western Air Lines Board of Directors was increased to 14 at the 1959 fourth-quar- ter meeting with the election on October 23 of Mr. Edwin W. Pauley, noted oilman, industrialist and for- mer U.S. State Department officer. Mr. Pauley, who directs widespread petroleum and business enterprises from his headquarters in Los An- geles, California, has enjoyed successful careers in industry, education and government as an international oil authority, a 20-year member and former chairman of the University of California Board of Regents, and the former U.S. representative, with the rank of am- bassador, on the Allied Commission on Reparations following World War II. As a member of Western's board, he joined the 13 other directors who all were re-elected by the share- holders at the annual meeting held on April 23 when ballots representing 85.3 per cent of outstanding stock were cast, in person or by proxy. Western was named one of the 500 best-managed companies in the U.S. for the second consecutive year by the American Institute of Man~gement, a non- profit research organization dedicated to the improve- ment of corporations. With one of the highest seniority ratings in the air- line industry, Western closed the year with 2,962 em- ployees on its personnel rosters, a 16 per cent increase over 1958 and a 7 per cent rise over 1957. During the year, five employees were awarded 30- year service pins,. thus joining a select fraternity of veteran airline men. Twenty-year emblems now are worn by 2.5 per cent of the company's personnel, 24 per cent of Western employees enjoy seniority of 10 years or more, and 41.4 per cent are credited with more than five years service. At the end of 1959, 68.5 per cent of employees were men, 31.5 per cent women. Eighty-seven per cent of total personnel, or 2,577 employees, were repre- sented by the seven unions with which the company has labor agreements. Western signed new contracts with two unions dur- ing the year, the Air Line Stewards & Stewardesses As- sociation and the Air Line Dispatchers Association. Agreements will be opened for negotiation in 1960 with the Brotherhood of Railway & Steamship Clerks, Freight Handlers, Express & Station Employees, the Air Line Communication Employees Association, the Air Line Pilots Association, and the International Association of Machinists, the latter for the limited The company won plaudits for continuing development of special in-flight services like the Champagne, Hunt and Fiesta Flights, all originated by Western Air Lines. discussion only of working rules. Three contracts may be reopened in 1961, and one in 1962. Employee participation in the company's inclusive group insurance program continued at a high level during 1959 with 93.4 per cent of total personnel sub- scribing to one or more of the varied types of coverage offered. Group hospitalization insurance protected 88 per cent of eligible employees, while 84.2 per cent participated in the group accident and sickness cover- age, and 68.8 per cent contributed to the purchase of life insurance under the plan which is jointly financed by the company and its employees. A total of $325,679 in insurance benefits was paid to Western personnel and members of their families during the 1959 insur- ance reporting period. At the end of 1959, 76.8 per cent of 1,268 eligible employees were participating in Western's insured con- tributory retirement income program, now in its eighth year. In addition, a variable pension plan of the trus- teed type was activated during the year for pilots in accordance with terms of the company's agreement with the ALP A. Cost of these retirement programs in 1959 was $773,731 for current and past services. It is expected that remaining past-service costs will be funded over the next five years at an annual expense of $106,000. To provide professional administration of employee recreation, education and incentive programs, an em- ployee services department was established within the company's Administration Division in 1959. Flight Times, monthly employee-information pub- lication, continued to highlight the company's internal communications program during the year, supple- mented by frequent issues of bulletins, notices and other information pieces. The Westernaire Federal Credit Union, providing savings and loan service to 77.8 per cent of company employees in 1959, reported total assets of $1,671,628, with net earnings of $69,717 available for dividends. SALES AND SERVICE Introduction of turbine-powered aircraft, inaugura- tion of service over new routes, and aggressive cam- paigns to market and service the company's product- scheduled air transportation - keynoted the Western Air Lines sales and service programs during 1959. During the year, the company carried 1,689,278 passengers, an increase of 7 4 per cent over the abbrevi- ated 1958 total of 970,498, and a 22 per cent rise over the 1957 total of 1,379,653. Total passenger revenues for the year were $59,193,- 763, a gain of 88 per cent over the $31,459,203 re- ported in 1958 and 51 per cent above the 1957 total of $39,243,111. Deluxe services accounted for 67 per cent of the 1959 passenger revenues, as contrasted with 70 per cent in 1958 and 75 per cent in 1957. Aircoach serv- ices, correspondingly, accounted for 33 per cent of the 1959 passenger revenues, compared with 30 per cent in 1958 and 25 per cent in 1957. Cargo revenues, including express, freight and excess baggage, were $2,256,634, up 73 per cent over the $1,304,919 figure for 1958 and 41 per cent above 1957's total of $1,596,246. Mail revenues, including both service payments for regular air mail and the non- priority carriage of surface mail byair,came to $1,295,- 348 during the year, compared with $732,441 in 1958, and $1,067,404 during the previous year. In all, passenger traffic accounted for 92.8 per cent of Western's total revenues in 1959, while cargo con- tributed 3.5 per cent and mail 2 per cent. brief statement of earnings Westem's Income came from: Passengers Expr~ss, freight and baggage Mail , Gain on d!sposal of property Other income . .. .. .... .. . .. .. . Western's expenses were: Wages and salaries . .. .. .. . .. . Social security, group insurance and retirement plans .. ... .... . . Aircraft fuels ....... . .... .. . . . Materials and repair parts ... . _ Depreciation .............. . .. . Advertising and publicity . . . . For service to passengers .. . . Rentals and landing fees . ... . Insurance ......... . ......... . . Interest ........ .. .... .. .. . ... . Taxes ..... .. .. . ...... .. ... . .. . . Utilities and services . .... .. . . Other costs ........ .. . ....... . . 1959 $59,193,763 2,256,634 1,295,348 254,453 795,141 63,795,339 17,704,404 1,607,847 8,179,127 4,012,311 6,387,565 2,221,073 2,828,662 1,866,872 1,119,768 1,047,217 7,254,829 2,913,762 1,635,246 1958* $31,459,203 1,304,919 732,441 2;120,386 560,193 36,177,142 11,946,734 909.524 5,126,302 2,254,901 4,135,612 1,410,912 1,595,177 941,473 743,948 1,023,340 2,032,759 1,667,328 986,792 58,778,683 34,774,802 Net earnings . . . . .. . . .. .. . . . . . . . .. $ 5,016,656 $ 1,402,340 * Operations were suspended from February 21 to June 10, 1958, because of a strike. Passenger load factor during the year was 60.5 as the company exceeded the 1.5-billion mark in the pro- duction of seat-miles for the first time. The load-factor figure, best recorded since 1956, was accompanied by a 50 per cent breakeven figure, lowest in nine years. Average length of passenger trips during 1959 was 581 miles, a 6 per cent improvement over the 550-mile average in 1958. The company's electronic reservations network, the Resetron, which is leased, was installed with engineered capacity for anticipated major traffic increases during the 1960 introduction of turbo-jet aircraft. A reservations office was established in Seattle in 1959 to handle expanded business volume in the Pacific Northwest. Specialized reservations centers are planned for installation at Salt Lake City and Denver during 1960, as well as expansion of facilities at San Francisco and Los Angeles. New air travel sales centers were established during the year in Calgary, Portland, Oakland and Santa Monica, California, while offices on San Francisco's Union Square were modernized to provide increased service and company identification. As a part of the company's program of accelerating the development of interline revenues, off-line sales offices were opened in Dallas, Texas, and Vancouver, British Columbia. In preparation for the August 1 debut of the com- pany's new fleet of Lockheed Electras, extensive cour- tesy flights were operated during which more than 5,000 guests were invited aboard the 66-passenger, jet-powered aircraft for preview flights. The Electras promptly set traffic records over prin- cipal routes linking Los Angeles, San Francisco, Port- land, Seattle-Tacoma, Phoenix, Salt Lake City and Minneapolis-St. Paul. The company's feature services, the Champagne Flights, Hunt Breakfasts and Fiesta Flights, continued to merit public approval as several refinements were added during the year. The company was praised for its original champagne service, cited as " ... possibly the most effective promotion ever devised by an airline'.' Western stepped up its program of economy traffic development through intensified aircoach advertising in major population areas to keep pace with continued success of its deluxe services. In a milestone move to increase the convenience of credit flying, Western in September signed contracts with The Diners' Club and the Hilton Credit Corpora- tion (Carte Blanche) enabling approximately 2,000,000 national cardholders to include the purchase of trans- portation on the company's routes on their monthly credit statements. Addition of the two systems to Western's own Charge-A-Flight program and the in- dustrywide Universal Air Travel Plan broadened the company's credit facility to four different cards. Another campaign conducted during 1959 was directed at building more effective teamwork with authorized travel agents. This won recognition from such organizations as the American Society of Travel Agents. Inauguration of service to Calgary on June 1 opened a new resort area-Banff, Lake Louise, Jasper National Park- which will be featured during 1960 in a pro- motional campaign based on the warm-weather appeal of northern vacation areas, a logical counterpart of Western's annual "sun country" program highlighting the wintertime attractions of southern California, Nevada, Arizona and Mexico. During 1959, an exten- sive retail sales tie-in program was the key to the most Hold on1 th'"rt! l.o~al F,ul) Oir.1., on !11'" P1<'1fic Co.11 .. t v.ill brook MfJ o.lu.rring of their- fo.\orite Hunt Br('~kfa .. t flip:hh. Trur, \\ l'~lr-rn Air, hnl"'!'J k'!n '" a ldnph- bre11kfo .. 1 1,-un .. ,eal.Ui,c, what ,,. ? WESTERN AIRLINES I "' '"" T, ..., , .... ~ .~ ....... , ,,,,,., .. , ..... .... Award-winning national advertising campaign for Western Air Lines features series of unique sketches by famed artist Ronald Searle in The New Yorker Magazine. Colorful pageantry marked the inaugural of Western service to Calgary in the Province of Alberta, Canada. comprehensive "sun break" campaign undertaken by the company. Emphasis was placed on color newspaper advertis- ing and television commercials during the year. West- em's well-known TV figure, "The Relaxed Bird;' was selected as the best advertising character in the medi- um, both in the western U.S. and in Mexico during 1959. Celebrations marking the 50th anniversary of powered flight in both Canada and Mexico offered special opportunities for community relations efforts in both countries. Service Division personnel are scheduled for inten- sive training during 1960 following introduction of three new plans of instruction during the year. Station employees now are undergoing uniform technical training; passenger service personnel are participating in a quality-assurance program; and stewardess super- visors, contemplating careful preparation of a record number of students during 1960, are engaged in a management-development course. Concurrently, main- tenance and flight training programs will be conducted. ROUTE DEVELOPMENT Inauguration of new service to Canada, renewal of authority to serve Mexico, and participation in three major Civil Aeronautics Board proceedings marked an exceptionally active year of route development pro- grams for Western Air Lines. The company's inaugural of the first U.S. airline service to Calgary, key city of the Province of Alberta, Canada, on June 1, was accompanied by colorful cere- monies. A week-long program of civic activity by the inaugural delegations was highlighted by an official reception at Edmonton, the provincial capital, which Western has served since 1950. The new route provides direct, one-carrier air serv- ice betwen the heart of oil-rich Alberta and Jilajor Rocky Mountain and Pacific Coast centers. Initial flights were authorized as the result of an international conference at which changes in the U.S.-Canadian trans-border air agreement were announced on April 10. The same agreement terminated Western's author- ity to serve Lethbridge, Alberta. At another series of international meetings, the governments of the United States and Mexico agreed to a one-year extension of the bi-lateral pact which authorizes the company to operate its 1,555-mile Los Angeles-Mexico City route. Additional negotiations are expected to be held prior to the expiration of the extension on June 30, 1960. It is anticipated that the agreement will be renewed. On March 12, the day Hawaiian statehood was ap- proved by Congress, the company filed an application with the CAB for authority to provide service between Honolulu and Hilo, Hawaii, and San Francisco-Oak- land, Los Angeles and San Diego. Western proposes to link the 50th state with seven major western metro- politan centers through these Pacific Coast gateways. The company's plans, which call for one-plane jet service for the first time between the new state and San Diego, Phoenix, Salt Lake City, Denver and Minne- apolis-St. Paul, were presented in detail at CAB hear- ings held during February 1960 at Washington, D.C. A decision in the complex Trans-Pacific Route Case, involving the applications of several other airlines, may be reached before the end of 1960, or early in 1961. In the Southern Transcontinental Service Case, second CAB proceeding in which the company is seek- ing long-haul, high-density routes ideally suited for turbo-jet operation, Western, and other applicants, have requested authority to inaugurate service between Los Angeles and San Francisco-Oakland, in California, and Dallas and Houston, in Texas, via intermediate points including San Diego, Las Vegas and Phoenix, now on the company system, and the new cities of Albuquerque, New Mexico, and El Paso, San Antonio and Fort Worth, Texas. A decision in this proceeding may be expected early in 1961. During 1959, Western also participated in the Pacific- Southwest Service Case involving an examination of the air service needs of an area bounded by San Fran- cisce>, Reno, Las Vegas, San Diego and the Pacific coastline. In this proceeding, the company is asking for the right to operate direct service between Los Angeles, Sacramento and Reno; direct service between San Francisco and Las Vegas, which would provide one-carrier flights between the Pacific Northwest and the Nevada resort center; and San Diego-Long Beach- San Francisco and Palm Springs-Ontario-San Fran- cisco schedules by elimination of a restriction now re- quiring stops at Los Angeles. The company also is vigorously opposing proposals for unnecessary dupli- cation of its services over routes in the area covered by the case. The final CAB decision in this proceeding is anticipated during 1960. The year brought to completion Western's program of route modernization through termination of service to 13 additional small communities in accordance with CAB policy of separating trunkline operations from subsidized local service operations wherever possible. During 1959, Western was replaced by subsidized local Visitors formed long lines to inspect Western's new fleet of Lockheed Electra prop-jets during pre-inaugural introduction. service carriers at Ogden and Logan, Utah; Jackson, Wyoming; Lewistown and Cut Bank, Montana; Alli- ance, Chadron and Scottsbluff, Nebraska; Brookings, Hot Springs and Spearfish, South Dakota; and Man- kato and Rochester, Minnesota. In other route action during 1959, the CAB denied the company's application for authority to operate be- tween Minneapolis-St. Paul and Chicago, and approved withdrawal of an application to serve the Calgary- Spokane, Washington, route. When the latter case was set for hearing, the issue of service from Spokane to Portland and Seattle was not included. Since acquisi- tion of the Spokane-Calgary .segment would have resulted in a gap in the company's system, the Western application was withdrawn. Graphically displaying the present system (solid lines) and proposed services (broken lines) of Western Air Lines, this map also illustrates the programs undertaken during an active year of route development. SAN SAllAIIE#TI 11110 FIANC~~ ~D IUIIA LOS AN5WS~l"Wl~- ~NC-... .... -.,._,__.. IW:H t.N DIHO ,,,,...,,, ~,t :::- ~LI During 1959, the CAB instituted proceedings in two cases in which the company expects to participate dur- ing 1960. One case will cover an examination of the need for air service between the South Dakota-Wyom- ing region and Chicago. The second will consider the air service requirements of an area including, generally, Texas, Oklahoma, New Mexico and Colorado. In this proceeding, the Southwestern Area Local Service Case, the company seeks authority to carry local traffic be- tween Houston, Dallas and Fort Worth in the event it is authorized to serve these cities in the pending South- ern Transcontinental Service Case. At the close of 1959, Western service was being pro- vided to 34 cities in the 12 western states, Canada and Mexico over an 8,827-mile system. EDIIIDNTDN CAI.CAil THESE WELL-KNOWN PEOPLE WERE WESTERN PASSENGERS IN 1959 Famous, dedicated, busy personalities are regular company customers Vienna Philharmonic Orchestra arrives for symphony concert "Miss Indian America" represents original citizens of the West Carl Sandburg, the laureate of U.S. verse, pauses on tour financial summary Revenues: *'~ Passenger . . . . ... Express, freight and excess baggage Mail ............................ . . . Other .. . . . .. ... . Total Revenues .... . . . ......... . Operating Expenses:** Depreciation Payroll . . . . . . . .. . ... . ..... ...... .. . . . Other .. Total Operating Expenses ..... . Operating Income ** Gain on disposition of property ** ....... . Interest'''' Other Income and Expenses-net**. Provision for Taxes on Income ** .... . . . Net Earnings ** Earnings per share0 ......... .. .......... . Dividends paid per share: Cash0 .... Stock Shares outstanding** 0 ... . ..... . Shareholders' equity-total *" Shareholders' equity-a share0 ........ . Working capital "" Long-term debt** Properties and equipment-net"* .... . . .. . Total assets ** ..... . opera ting s ta tis tics Route Miles Available Ton Miles ** Revenue Ton Miles ** ......... .. . Passengers and Tonnage Carried: Revenue passengers ..... . Mail tons .. . Express and freight tons . Revenue Miles Flown:*" Airpiane miles Passenger seat miles .... ........... . Passenger miles ... Mail ton miles Express and freight ton miles . Other Statistics: Passenger load factor: Actual ..... Breakeven point . Average length in miles per passenger trip .. ... . . % .... % Average revenue per passenger mile Number of employees end of year .. $ $ $ $ $ A DECADE OF GROWTH 1959 59,194 2,256 1,295 508 63,253 6,388 17,704 28,031 52,123 11,130 254 (1,047} 180 10,517 5,500 5,017 4.82 0.84 4% 1,041 24,545 23.58 11,980 23,178 34,990 64,667 1959 8,827 196,178 103,741 1,689,278 5,994 6,798 25,689 1,623,007 982,010 3,766 5,133 60.5 50.0 581 .0605 2,962 1958* 31,459 1,305 732 474 33,970 4,136 11,947 16,831 32,914 1,056 2,120 (1,023) 74 2,227 825 1,402 1.45 0.76 4 % 965 18,996 19.68 5,320 19,748 31,035 49,596 1957 39,243 1,596 1,067 313 42,219 3,011 14,335 20,076 37,422 4,797 708 (780) 90 4,815 2,413 2,402 2.62 0.73 4 % 918 17,469 19.03 4,688 16,827 24,652 44,017 1958* 1957 9,153 8,799 123,416 137,640 56,710 74,468 970,498 1,379,653 3,754 5,367 4,256 6,170 16,449 21 ,896 981,740 1,175,071 533,443 702,727 2,159 3,092 3,150 4,026 54.3 54.1 550 .0595 2,547 59.8 53.5 509 .0558 2,773 1956* 26,249 954 775 210 28,188 2,294 10,283 13,009 25,586 2,602 2,694 (394} 31 4,933 1,889 3,044 3.48 0.69 4% 875 14,991 17.13 4,600 9,677 17,216 32,075 1955 28,756 1,185 862 236 31,039 2,151 11,057 13,775 26,983 4,056 51 (262) 10 3,855 1,87.3 1,982 2.28 0.77 868 12,430 14.33 2,784 3,484 11,208 23,332 1956* 1955 6,350 5,525 86,196 100,015 48,481 54,999 928,746 1,092,578 4,034 4,897 4,166 5,435 14,851 18,335 740,174 870,596 458,131 514,677 2,212 2,621 2,455 3,207 61.9 56.6 493 .0573 2,343 59.1 51.3 471 .0559 2,130 1954 22,423 968 764 326 24,481 1,761 9,239 11,456 22,456 2,025 508 (160) (15) 2,358 899 1,459 1.75 0.51 836 10,736 12.90 1,490 3,755 13,146 20,204 1954 5,525 80,261 42,669 834,910 3,283 4,~76 15,842 721,255 402,255 1,669 2,556 55.7 51.1 482 .0557 1,864 1953 20,302 846 875 853 22,876 1,718 8,367 10,246 20,331 2,545 138 (188} (6) 2,489 1,304 1,185 1.42 0.51 835 9,746 11.68 755 2,072 9,844 18,123 1953 5,525 68,580 38,088 838,732 3,284 4,206 14,450 613,814 359,965 1,610 2,100 58.6 51.8 429 .0564 1,813 1952 16,250 662 719 964 18,595 1,019 7,067 7,578 15,664 2,931 26 (109) (20) 2,828 1,596 1,232 1.48 0.51 835 8,991 10.77 1,364 2,903 9,702 18,564 1952 5,016 48,557 31,434 774,079 3,243 3,729 12,631 453,332 298,931 1,358 1,524 66.0 54.6 386 .0544 1,649 1951 13,688 507 1,212 875 16,282 998 6,084 6,617 13,699 2,583 480 (124) ~ ) 2,863 1,474 1,389 2.16 0.43 642 6,396 9.96 435 1,924 6,588 13,802 1951 5,016 43,036 27,549 691 ,322 3,419 3,191 11 ,487 401 ,720 259,693 1,449 1,282 64.7 53.4 376 .0527 1,459 "Operations were suspended from February 21 to June 10, 1958, and from January 9 to March 22, 1956, because of strikes. 0Based on s hares outstanding at close of respective periods adjusted for stock dividends paid through 1959. * *000 omitted. 1950 11 ,395 497 2,090 264 1,124 5,353 6,109 12,586 1,660 16 (154) ~ 1,464 714 750 1.22 613 5,045 8.23 981 2,231 6,621 10,657 1950 5,016 44,515 24,697 619,624 2,150 3,396 11,783 414,169 233,118 978 1,442 56.3 49.1 376 .0489 1,279 STATEMENT OF EARNINGS For the year ended December 31, 1959 (with comparative figures for 1958) Operating Revenues: Passenger . . . . . . . .. ...... . . . . . .... . ..... . Express, freight and excess baggage ... . ... .... . . .. .. . . . ... . Charter and other transport service . . . Mail .. . . . . . . ...... . . . . . ... . ........ . Incidental revenue (net) .. . Operating Expenses: Flying operations Maintenance Passenger service Aircraft and traffic servicing . . Promotion and sales . .. . General and administrative . Depreciation (Note 1) .. .. Operating income Non-Operating Income: Gain on disposition of property (Note 1) ... . . . Other . . . . . .. . ... . . . . . ... . ...... . . . . . Non-Operating Charges: Interest Other . Earnings before Taxes on Income . Provision for Taxes on Income (Note 2) . . . Net Earnings (Note 1) . 1969 $59,193,763 2,256,634 302,848 1,295,348 205,378 63,253,971 16,522,550 6,805,737 4,790,681 7,486,631 7,465,717 2,664,491 6,387,565 52,123,372 11,130,599 254,453 286,915 541,368 1,047,217 108,094 1,155,311 10,516,656 5,500,000 $ 5,016,656 "' Operations were suspended from February 21 to June 10, 1958, because of a strike. 1958* $31,459,203 1,304,919 325,432 732,441 148,209 33,970,204 10,233,643 4,262,936 2,692,591 4,921,652 4,616,833 2,051,146 4,135,612 32,914,413 1,055,791 2,120,386 86,552 2,206,938 1,023,340 12,049 1,035,389 2,227,340 825,000 $ 1,402,340 STATEMENT OF For the year ended December 31, 1959 Amount at December 31, 1958 . . .. . ... . Net earnings for 1959 ........... . Excess of proceeds over par value of: 71,962 shares of stoc.k issued upon conversion of debentures ..... . 3,135 shares issued under restricted stock option plan .. Excess of market value over par value of 37,935 shares paid as a stock dividend (Note 3) .. .. ................ .. Dividends paid : Cash- $0.85 a share .............. . Stock- 4 % (Note 3) .. . Amount at December 31, 1959 (Note 4) .................. . See accompany ing notes to financial statements. RETAINED EARNINGS $ 9,503,345 5,016,656 14,520,001 853,934 1,185,468 $12,480,599 CAPITAL IN EXCESS OF PAR VALUE $ 8,565,163 1,264,213 46,832 1,147,533 11,023,741 $11,023,741 ANNUAL REPORT Current Assets: Cash . .. . . .. . . . . . ..... . . . . .. . ... . .. . ..... . . . . ....... . . U.S. Treasury Bills (Market value $12,377,000) ...... . ... . Receivables: Traffic balances (net of allowance for doubtful accounts $100,000 and $50,000) .. . U.S. and State Government Departments .. ... . .. . Other ... .. . .. .. ...... .. ...... . ... . . .... .. ... . Expendable parts and supplies ... .. .. . . . ............ . . . . Prepaid expenses . ... . .. .......... . . . ....... . . . ... . ... . Total Current Assets . . . . ..... . .............. .. . Sundry securities . . .. . ... .. ......... . ........ . ......... .. .. . . Properties and equipment at cost: Flight equipment ...... . ... . ..... .. . . . . . . . . .. . ........ . Buildings on and improvements to leased property . .... . . . Other property and equipment ..... . ....... ... ......... . Less allowance for depreciation ..... .. . . . . ..... . Deposits on equipment purchase contracts (Note 5) .......... .. . . Deferred charges .. .. . . ... .. . ..... . ..... . ... . . ... .... . ... .. . . See accompanying notes to financial statements. assets 1969 $ 5,894,438 12,371,108 4,847,055 1,208,812 331,954 6,387,821 947,499 1,130,893 26,731,759 118,777 47,738,193 3,860,074 4,133,304 55,731,571 20,741,978 34,989,593 2,439,047 387,639 $64,666,815 1958 $ 3,535,824 2,984,974 3,049,283 1,018,038 1,702,100 5,769,421 662,276 1,131,126 14,083,621 96,524 38,759,630 3,873,092 3,686,617 46,319,339 15,284,304 31 ,035,035 4,208,493 171,865 $49,595,538 BALANCE SHEET asotDecember3t,t959 (with comparative figures for 1958) liabilities Current Liabilities: Current portion of long-term notes payable ..... . . . ...... . Accounts payable ..... . .. .. . . . . .. ... . . .... . .... . .. . . . . Accounts payable-taxes collected from others . .... . ..... . Accrued salaries and wages . . . . ........ .. . .. . . .. .. ... . . . Other accrued liabilities .. . .. . .. .. ........ .. ......... . . . Air travel plan deposits . . . . . .... . . . .. .. .. . . . .. . .. . . . .. . . Unused transportation . . . . .. ... . . .. . . . . . . . .. .... .. .. . . . Federal taxes on income-estimated (Note 2) .. . . ...... .. . Total Current Liabilities . . .......... .. ...... . ... . Long-term debt (Note 4): Notes payable to bank .. . . .. .. ............ .. . . .. . .. . .. . Notes payable to insurance companies . . ... .. .... .. . . ... . 4 % convertible subordinated debentures due June 1, 1971 ............... . . ....... . ......... . Deferred federal taxes on income (Note 2) . ..................... . Commitments and contingent liabilities (Note 5) Retirement plans (Note 6) Shareholders' Equity (Notes 3, 4 and 7): Common stock-$1.00 par value per share Authorized 2,000,000 shares Issued 1,040,952 and 927,920 shares respectively . Capital in excess of par value .. .. ... . ................ . . . Retained earnings ..... .. ... ... ........ . ... . .......... . $ 1969 1,200,000 3,087,769 1,010,537 1,584,709 950,799 322,150 1,338,489 5,257,070 14,751,523 4,020,000 17,280,000 1,878,000 23,178,000 2,192,000 1,040,952 11,023,741 12,480,599 24,545,292 $64,666,815 $ 1958 2,200,000 1,935,620 814,153 1,134,403 846,715 316,200 904,747 612,272 8,764,110 5,220,000 11,280,000 3,248,000 19,748,000 2,087,000 927,920 8,565,163 9,503,345 18,996,428 $49,595,538 NOTES TO FINANCIAL STATEMENTS Note 1. Net Earnings. Net earnings from operations after taxes were $4,806,203 and gain from disposition of property after taxes was $210,453. Effective July 1, 1959, the useful life for Douglas DC-6B airframes and engines was revised from seven years to the shorter of seven years or December 31, 1961 for units ac- quired prior to the year 1957 or December 31, 1963 for units acquired in 1957 and 1958. The residual values also were re- duced from 15% to 10%. These revisions, made to recognize accelerated obsolescence, increased depreciation by $1 ,160,000 and decreased net earnings by approximately $557,000. Note 2. Taxes on Income. Federal income tax returns through the year 1957 have been examined by the U. S. Treasury Depart- ment. Provision has been made for all known income tax liabili- ties. Taxes on income include a net provision of $105,000 for deferred taxes on income resulting from differences between the charges against income recorded in the accounts and the related deductions allowable for federal tax purposes. These differences are primarily in connection with depreciation and aircraft preoperational costs. Note 3. Stock Dividends. On April 3, 1959, the company paid a 4 % stock dividend on the shares outstanding on March 6, 1959. For the 37,935 shares thus issued, retained earnings were charged $1,185,468, with $1,147,533 being transferred to capital in excess of par value and $37,935 to common stock. The charge to retained earnings was based on the closing price of $31.25 a share on the New York Stock Exchange on February 17, 1959, the day preceding the declaration by the Board of Directors. In 1960, on January 18, a 5% stock dividend was declared payable on March 23 to shareholders of record on February 19, 1960. Note 4. Long-term Debt. The long-term debt outstanding is sum- marized as follows : Outstanding Bank Loans: December 31, 1959 4% notes payable $ 2,340,000 5% notes payable 2,880,000 Insurance Company Loans: 4 % notes payable 11,520,000 5 % notes payable 4 % convertible subordinated debentures Less current portion 5,760,000 1,878,000"' 24,378,000 1,200,000 $23,178,000 Payable Maturity $100,000 Jan.2, a month 1962 $50,000 Sept.1 , monthly 1966 effective Oct.1, 1961 $1,200,000 Sept.1, annually 1970 effective Sept. 1, 1962 $600,000 Sept. I , annually 1975 effective Sept. I, 1966 5 % per annum June 1, from 1961 to 1971 1966 and 10% per annum thereafter *The subordinated debentures, convertible into common stock of the company at the current conversion price of $18.83 a share, were called on January 18, 1960 for redemp- tion on February 23, 1960 at 103 1 h %. The conversion rights expired on February 15, 1960 and 96,717 of the 99,735 shares of common stock reserved on December 31, 1959 for such conversions were issued as a result of the call. Said conversions resulted in the transfer from long-term d0 ebt of $96,717 to common stock and $1,723,948 to capital in excess of par value. The 1956 and 1957 agreements with the bank and the insur- ance companies provide among other things (including restric- tions on additional borrowings) conditions and requirements which operated to restrict retained earnings from cash dividend distribution in the amount of $7,208,693, leaving $5,271,906 not so restricted. New financing agreements relating to the purchase of additional equipment referred to in Note 5 are presently being negotiated. PEAT, MARWICK, MITCHELL & Go. Cl!:R'l'tPil!:D PUIILIC ACCOUNT.ANTI!! e1e 900TB SPlllNO TREBT LO Al