years of service to the west WESTERN AIRLINES LINES ANNUAL REPORT AIR WESTERN ANNIVERSARY EMBLEM Symbolizing thirty-five years of continuous operation in serving the West, this emblem will be used extensively throughout 1961 to mark an important milestone in the history of the nation's oldest airline. Western be gan operations on April 17, 1926, with the sturdy little Douglas M-2 bi-plane which appears between the company's dates of service. Illustrating Western's established position in the Jet Age is the soaring tur bine-powered Boeing 720B, newest addition to the fleet, fastest in commercial service. 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. 30 Broad Street 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. 629 South Spring Street Los Angeles 14, California annual meeting Fourth Thursday in April in Los Angeles, California the president's letter To Shareholders, Employees, Customers and Friends: The following pages contain a report of the company's operations, achievements and problems during 1960, the year of Western's entry into the Jet Age. Forthe entire domestic air transport industry, 1960 was in many respects an abnormal year. Due to the introduction of new jet equipment and theunfortunatetroubles related to the Lockheed Electra aircraft, many increases in expenses occurred. Notwithstanding these difficulties, Western's financial results were among the best in the industry and the outlook for the future is good. During1960,Western had one of the best on-time schedule-performance and employee-productivity rec ords in the industry. Prosecution of applications for vitally needed, long-hauljetroutestoHawaiiand between California and Texas was completed before the CivilAeronauticsBoard and decisions in both these cases are expected soon. It is essentialthatWestern's route structure be strengthened by the addition of long-haul jet routes in order to permit the economical operation and good utilization of large jet aircraft, which cannot be operated economically solely on short-haul trips. On April 17, 1961, Western, which is America's pioneer airline, will celebrate its thirty-fifth anniversary. We anticipate that the company'sprogress and pros perity will match that of the region which we are privileged to serve inwhatis the most flourishing and dynamic area of North America. The support of Western's loyal shareholders, employees and customers in providing and using the finest air transportation in the West is gratefully acknowledged by the Board of Directors and the management of the company. March 10,1961 Western Air Lines Building Los Angeles International Airport Los Angeles U5, California President highlights of 1960 1960 Seat miles produced 1,776,076,000 Seat miles sold 1,034,481,000 Passengers carried 1,721,619 Total operating revenues $ 69,077,068 Operating income 6,099,659 Net earnings and special item 2,439,376 Dividends paid: Cash $ 1,357,464 Stock 1,770,497 Common stock outstanding 1,430,730 Earnings and special item per share 1.70 Dividends per share: Cash--annual rate 1.00 Stock 5% Total shareholders' equity 32,584,329 Shareholders' equity per share 22.77 Cash and securities $ 20,885,262 Working capital 17,092,511 Properties and equipment at cost 60,203,939 Long-term debt 23,010,000 Number of employees at year end 2,730 Wages and salaries paid $ 19,477,514 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 1.090,918 4.60 18,265,546 11,980,236 55,731,571 23,178,000 2,962 17,704,404 eCLVTllYigS In I960, for the twelfth suc cessive year, Western Air Lines generated a profit, the third largest in the company's 35- year history. Earnings totaled $2,439,376, or $1.70 a share based on the 1,430,730 shares of common stock outstanding on December 31,1960. Operations accounted for the major portion of earnings, amounting to $2,333,660, equal to $1.63 a share, and the company registered net gains from property disposal of $105,716, or $0.07 a share. In 1959, earnings reached an all-time high of $5,016,656, or $4.60 a share based on 1,090,918 shares, the number outstanding on December 31, 1959, adjusted for the 1960 stock dividend. Operations in 1959 contributed $4,806,203, or $4.41 a share, to earnings, while net gains from the disposal of property totaled $210,453, or $0.19 a share. Despite extraordinary expenses related to the company's entry into the Jet Age, higher operating costs and revenues lost because of the slowdown of the Electra, increased depre ciation charges resulting from accelerated ob solescence and a general business downturn, Western's operating income of $6,099,659 for 1960 was second only to the record $11,130,599 realized in 1959. dividends: Shareholders of Western Air Lines for the tenth consecutive year re ceived cash dividends in 1960, continued by the Board of Directors at the increased quarterly rate of $0.25 which became effective in the final quarter of 1959. Quarterly cash dividends were paid on March 4, May 18, August 5 and November 11. In addi tion, a 5 per cent stock dividend was distributed on March 23, 1960. Western's directors took dividend action at sessions held in Los Angeles, Phoenix and Min neapolis, in accordance with company policy to meet in key cities on the Western system. A regular quarterly cash dividend of $0.25 was declared at the board's initial meeting of 1961 held on February 13 at the company's Los Angeles International Airport headquarters. The dividend was paid on March 10 to share holders of record on February 24. VeVeTIUGS ' Western Air Lines 1960 operating revenues of $69,077,068 established a 35-year high, despite the Electra slowdown and the general economic downturn experi enced throughout most of the year. The pre vious record was set in 1959 when operating revenues totaled $63,253,971. Revenues resulted generally from the same sources as in 1959, although a significant change occurred in the relationship between first-class and coach traffic. The company's first-class deluxe passenger services in 1960 decreased to 57.3 per cent of total revenues, compared with 62.5 per cent in 1959, while aircoach passenger services rose to 35 per cent, as against 30.3 per cent the year before. Passenger traffic accounted for 92.3 per cent of the 1960 income dollar; freight and excess baggage contributed 3.5 per cent; mail was 2 per cent; and, all other sources, including property gains, accounted for 2.2 per cent. The General Passenger Fare Investigation, pending before the Civil Aeronautics Board since 1956, was concluded in 1960. The board awarded a fare increase of 2.5 per cent, plus $l-a-ticket, to domestic trunklines, effective July 1. The rate rise did not affect Western's Mexican route, nor did it go into effect for California intrastate operations until January 9, 1961, following long-delayed approval by another regulatory agency, the state Public Utilities Commission. BRIEF BALANCE SHEET In its final order, issued on November 25, 1960, the CAB established definite standards for the determination of fair rates of return for commercial airlines and for the evaluation of future requests for fare increases. A reason able rate of return on investment for the "Big Four" airlines was determined to be 10.25 per cent, while the rate for the other eight trunk lines, including Western, was set at 11.125 per cent. As yet, no procedural techniques have been outlined by the CAB for the implementa tion of this philosophy. expenses: Total operating expenses in 1960 rose to $62,977,409, a 21 per cent increase over 1959 costs. A portion of this rise reflected increased production; seat-miles produced in creased 9 per cent and ton-miles produced were up 6 per cent. The greater portion of this in crease in costs, however, reflected extraordinary expenses related to the Electra slowdown, ac celerated depreciation and obsolescence on the DC-6B fleet, substantially increased flying equipment rentals and costs related to West ern's inauguration of service in the Jet Age. As a result, total operating expenses were 30.34 cents per ton-mile produced for 1960, as compared with 26.57 cents in 1959; cost per seat-mile flown amounted to 3.55 cents, as against 3.21 cents the year before. Expenses of flying operations climbed 16 per cent in 1960 to $19,151,441 from $16,522,550, while maintenance costs totaled $9,374,066, a 38 per cent rise from $6,805,737 in 1959. Both increases involved problems encountered in the operation and maintenance of the Electra air craft, problems now being solved through the joint efforts of the operators, the manufacturer and government agencies. The higher costs also reflected the greater expenditures inherent in operating larger equipment. Depreciation and amortization in 1960 totaled $9,321,477, a figure 46 per cent above the 1959 total of $6,387,565. The higher amount reflects not only the increase caused by the acquisition of new equipment but also that generated by a recognition of the accelerated obsolescence of the DC-6B fleet. Normal useful life of the DC-6B for depreci ation and amortization purposes originally was set at seven years, but the company recognized the accelerated obsolescence of this airplane as Western owns: 1960 1959 Cash and securities $20,885,262 $18,265,546 Owed by others 5,548,200 6,387,821 Expendable parts and supplies 1,185,313 947,499 Buildings and improvements, net 2,195,838 2,036,858 Flight and other equipment, net 28,841,177 32,952,735 Deposits on new equipment... 9,807,456 2,439,047 Prepaid expenses 1,132,637 1,130,893 Deferred charges and other... 572,347 506,416 70,168,230 64,666,815 Western owes: Owed to vendors and others.. 7,493,928 6,955,964 Federal income taxes-- current and deferred 4,378,452 7,449,070 Tickets sold but not yet used 1,411,521 1,338,489 Notes payable- current and long-term 24,300,000 22,500,000 Debentures - 1,878,000 37,583,901 40,121,523 Excess of what is owned over what is owed, or shareholders' equity $32,584,329 $24,545,292 STATEMENT OF SOURCE AND DISPOSITION OF FUNDS FOR 1960 PER SHARE Source of funds: AMOUNT Net earnings and special item. .. $1.70 $ 2,439,376 Depreciation and maintenance reserve provision 6.23 8,907,160 Deferred federal taxes on income.. .51 723,000 $8.44 12,069,536 Sale of capital stock 5,246,920 Bank borrowings, net of $1,290,000 reduction during the year 1,710,000 19,026,456 Disposition of funds: Planes and other equipment including contract deposits Cash dividends, including $70,885 for fractional interest of stock dividend Deferred charges and other Increase in Working Capital 12,322,991 1,428,349 162,841 5,112,275 $19,026,456 Newest aircraft in the Western Air Lines fleet, the Boeing 720B turbo-fan jetliner, rolls from production line ready for installation of Pratt & Whitney JT3D-1 engines. 720B will be fastest commercial airliner. of July 1, 1959, and, again, as of January 1, 1960. If the original seven-year period had been continued, depreciation and amortization would have totaled approximately $2,400,000 less in 1960 and $1,160,000 less in 1959. Western's DC-6B fleet now is scheduled for reduction to 10 per cent residual values in the following order: Ten aircraft acquired prior to 1957 by December 31, 1961; seven acquired in 1957 by December 31, 1962; and, nine ac quired in 1958 by December 31, 1963. finances: Western Air Lines entered its 35th year in a sound financial position. Working capital during 1960 increased to $17,092,511, which was $5,112,275 above the 1959 level. The ratio of current assets to cur rent liabilities also improved significantly in 1960 -- $2.47 to $1, compared with $1.81 to $1 in 1959. Working capital and current assets were significantly higher due to the delayed delivery of the Electra prop-jets scheduled originally for early 1960. Long-term debt amounted to $23,010,000 on December 31, 1960, as against $23,178,000 at the end of 1959. The debt was composed of notes payable to banks totaling $5,730,000, and $17,280,000 in notes payable to insurance companies. Western had on order four Boeing 720B turbo-jets and six Lockheed Electra prop-jet aircraft at the close of 1960. The 720Bs are scheduled to be delivered at the rate of one-a- month during April, May, June and July of 1961. Three of the Electras were delivered by February 15, 1961, with the remaining three scheduled for delivery on or before April 30, 1961. These aircraft, together with orders for other major items, represented purchase com mitments, at year-end, approximating $26,000,- 000 in excess of previously paid deposits. The company's lease agreement for the Alli son engines and Aeroproducts propellers used on the Electras provides for rentals, when all units are received, of approximately $1,500,000 a year through 1964. Under an agreement with The Boeing Air plane Company, Western has been leasing two Boeing 707 turbo-jet aircraft, with spare en gines, since May 1960. While the lease period terminates July 1, 1961, the company has an option to extend the agreement to January 1, 1962. Western's 1960 financing program, imple mented in March and April, arranged for funds in the amount of $19,735,000. Through a rights offering to shareholders, 238,455 shares were issued at $23 per share for an aggregate of $5,485,000 before issue costs of $237,545. Bank and insurance company agreements were signed for $14,250,000 of additional borrowings. Of this amount, $3,000,000 was borrowed in 1960 and the agreements contemplate the balance of WESTERN'S INCOME DOLLAR $11,250,000 will be borrowed in 1961. In antici pation of the financing program, Western's convertible subordinated debentures were re tired primarily by conversion into stock of the company. The funds, arranged through the 1960 financ ing program, will supplement the funds to be generated by normal operations. In 1960, operations generated $12,069,536, equivalent to $8.44 a share, in comparison to $11,490,299, or $10.53 a share, in 1959. shareholders and stock: Western Air Lines had 1,430,730 shares of common stock issued and outstanding on December 31, 1960, an increase of 389,778 shares over the 1,040,952 total outstanding at the end of 1959. The shares were held by approximately 8,500 stockholders, located in every one of the 50 states of the U. S. Included in the increased number of shares were 54,606 distributed as a 5 per cent stock dividend, 96, 717 shares issued upon conversion of debentures and 238,455 shares issued under a rights offering in April. Shareholders' equity in 1960 established a new all-time high for the company's 35 years of operations, totaling $32,584,329, or $22.77 a share, compared with 1959 equity of $25,- 545,292, equal to $22.50 a share, adjusted for the 1960 stock dividend. On the New York Stock Exchange, 474,300 shares of the company's stock were traded in 1960 at prices ranging from a low of 17% to a high of 35%, with a closing price for the year of 19%. A total of 40,943 Western shares was traded on the Pacific Coast Stock Ex change, with a high of 35% and a 17% low. The year-end closing price was 18%. Western reported monthly financial results to nationwide information media throughout the year, and informed stockholders directly of the company's progress and development through regular publication of its Share holders Report. Western's 1959 Annual Report again won Financial World's Merit Award, and the company was honored with a Management- Shareholders Award for its 1960 stockholder relations program by the United Shareholders of America, Inc., a national non-profit research organization. :tm 3.5 from express, freight and excess baggage 2.0 from mail I ,*1 2.2 from all other sources, including property gains WESTERN'S EXPENSE DOLLAR 31.5 for wages and salaries "12.8 for aircraft fuels 7.1 for local, state and federal taxes iimH 16.8 for depreciation and flying equipment rentals for materials, supplies and parts 22.1 for all other expenses equipment: On June 1, Western Air Lines entered the turbo-jet era by inaugurating service between major Pacific Coast cities with two leased Boeing 707 jetliners. The company has been operating these 707s in combined aircoach-deluxe configuration, offering passengers 71 economy accommoda tions, 42 first-class seats and a four-place lounge. Operation of the 707s contributed signifi cantly to lifting the company's passenger seat- mile production during 1960 to a new record of 1,776,076,000, compared with the previous high of 1,623,007,000 set in 1959. Following two accidents in Texas and Indiana involving Lockheed Electra aircraft operated by other airlines, the Federal Avia tion Agency on March 25, 1960 imposed a speed restriction, lower than the contract specifica tions, on all Electras operated by U. S. airlines, including Western. Lockheed Aircraft Corporation, after the most intensive investigation of aircraft struc ture in the history of aviation, proposed mod ifications of the aircraft to the FAA, which, after thorough testing, approved the changes late in 1960 and removed the speed restriction on modified Electras on December 31. Modification of the six Electras in the West ern fleet during 1960, performed at the expense of Lockheed, is scheduled to be completed by April 1961. In February of the current year, the company took delivery of three additional Electras, all modified, and the last three of the original orders for 12 are scheduled for accept ance on or before April 30, 1961. During 1960, Western sold two DC-3 aircraft and one Convair 240, all two-engine equipment. Early in the current year, the company be came an all four-engine airline with the retirement of the last four of its 40-passenger Convair aircraft, all of which since have been sold. In February 1961, Western sold a DC-6B airliner to the Los Angeles Dodgers baseball team. With the acceptance of three new Electras in February 1961, the company's fleet now con sists of 37 planes, including the two leased Boeing 707s, nine Electras (four in combined configuration offering 54 deluxe and 18 air- coach seats, and five 96-seat aircoaches) and 26 Douglas DC-6Bs (20 deluxe 60-passenger models and six 96-seat aircoaches). The three additional Electras to be delivered will be in combined configuration cabin design. While 1960 marked the company's entry into the Jet Age with leased aircraft, 1961 will be highlighted by delivery of the Boeing 720B turbo-fan jets to be accepted from April through July 1961. The 600-mph-plus speed of the 720B will rank it as the fastest commer cial airliner in service. Western's $1,750,000 hangar at Minneapolis- St. Paul International Airport was officially dedicated early in 1961. The company is leas ing the modern maintenance facility from the Metropolitan Airports Commission of the Twin Cities.. In the current year, Western is scheduled to occupy new, modernized terminal facilities in Salt Lake City, Minneapolis, Phoenix and Los Angeles. personnel: Western Air Lines, at the close of 1960, operated installations in 34 cities in 12 western states, Canada and Mexico, and Graduated from Western's own training center, carefully instructed stewardess class poses with supervisor on steps of Lockheed Electra prop-jet. BRIEF STATEMENT OF EARNINGS had 2,730 employees on its personnel rosters. The total number of employees was down nearly 8 per cent from the 1959 figure of 2,962 despite increased revenues, a fact which merited in dustry recognition for employee productivity. With 13 men wearing 30-year service em blems, Western continued to hold one of the highest seniority standings in the airline business. At year's end, 4.5 per cent of all employees were credited with 20 years or more seniority; 28 per cent of personnel had at least 10 years experience; and, a record 54 per cent enjoyed service rating of more than five years. Sixty- six per cent of employees were men, 34 per cent women. Eighty-six per cent of total per sonnel, or 2,348 employees, were represented by the seven labor unions holding agreements with the company. During 1960, Western signed a new contract with the Brotherhood of Railway & Steamship Clerks, Freight Handlers, Express and Station Employees effective to June 30, 1963. Working agreements were in force at the close of the year with the Air Line Dispatch ers Association, the Air Line Stewards & Stewardesses Association and the International Association of Machinists. Contract revisions were being negotiated with the Air Line Pilots Association, the Com munications Workers of America and the Flight Engineers International Association. In addition, work-rule discussions were underway with the IAM. Participation by employees in the company's voluntary group insurance program continued high during 1960 with 92.7 per cent of per sonnel subscribing to one or more of the in clusive types of coverage offered. Group hospitalization policies covered 89.7 per cent of employees, and of the 2,422 men and women subscribing to this plan 1,321 also carried family-member coverage. Next most popular protection under the insurance program, joint ly financed by the company and its employees, was group accident and sickness coverage, sub scribed to by 85.6 per cent of those eligible. The group life insurance plan attracted par ticipation by 71 per cent of employees. During the underwriter's reporting period, which does not coincide with the calendar year, Western's income came from: 1960 Passengers $64,355,851 Express, freight and baggage 2,473,101 Mail 1,392,850 Gain on disposal of property . 103,716 Other income 1,372,471 1959 $59,193,763 2,256,634 1,295,348 254,453 795,141 69,697,989 63,795,339 Western's expenses were: Wages and salaries 19,477,514 17,704,404 Social security, group insurance and retirement plans 1,693,286 1,607,847 Aircraft fuels 8,577,434 8,179,127 Materials and repair parts. .. 6,550,224 4,012,311 Depreciation 9,321,477 6,387,565 Rentals of flying equipment 1,998,254 334,789 Other rentals and landing fees 1,734,367 1,532,083 Advertising and publicity 2,405,435 2,221,073 For service to passengers 2,963,929 2,828,662 Insurance 1,599,375 1,119,768 Interest 1,154,058 1,047,217 Taxes 4,793,943 7,254,829 Utilities and services 3,331,971 2,913,762 Other costs 1,657,346 1,635,246 67,258,613 58,778,683 Net earnings and special item $ 2,439,376 $ 5,016,656 a total of $459,815 in insurance benefits was collected by company employees and family members. At the close of the year, 1,050 employees, representing 71.4 per cent of those eligible, were participating in the company's insured, contributory retirement-income program, now in its ninth year of operation. In addition to this plan, a variable pension plan of the trus teed type was continued for pilots. During 1960, the retirement programs cost $692,799 for current and past services. The company contemplates that the remaining past- service cost of the insured plan will be funded over the next four years at an annual expense of $106,000. In its first full year of operation, the Em ployee Services Office established in 1959, became a popular center for a wide variety of employee activities and company-sponsored BOEING 107M along mt kobccmsi JUNE I,19b0 Inauguration of Boeing 707 turbo-jet service along the Pacific Coast was a highlight of 1960. Actress June Lockhart christens famed Champage Flight. Symbolizing pride of Westerners in very successful Boeing 707 jetliners, employee's young son gazes in awe at huge aircraft poised for regular flight. events. Keystone of Western's employee-infor mation program, the monthly publication Flight Times, was expanded in coordination with the new services office. Savings and loan service was provided to 88.2 per cent of company employees by the independent Westernaire Federal Credit Union which established new activity records during the year. The government-accredited organiza tion closed the year with $1,935,446 in assets. sales and service: Inauguration of Boeing 707 turbo-jet service along the Pacific Coast and operation of the company's electronic reservations network at an increased level of efficiency were highlights of the West ern Air Lines sales and service programs during 1960. The company carried a record number of 1,721,619 passengers, compared with 1,689,278 in 1959, the prior high. Passenger revenues totaled $64,355,851, up 9 per cent over $59,- 193,763 the previous year. Western also established a new high in cargo revenues. Including express, freight and excess baggage, cargo accounted for $2,473,101 of total operating revenues, a 10 per cent increase over the $2,256,634 figure recorded in 1959. Mail revenues, including both service pay ment for regular air mail and the non-priority carriage of surface mail by air, totaled $1,- 392,850 as against $1,295,348 the year before. The company registered a 100 per cent gain in revenues from charter flights and other transport service, as a result of its emphasis on group travel and special handling of athletic teams. Revenues from this source amounted to $606,791 in 1960 versus $302,848 in 1959. Western's passenger load factor during the year was 58.2, with a breakeven figure of 53.3. In 1959, the passenger load factor was 60.5 with the breakeven at 50 per cent. The com pany produced more than 1.7 billion seat miles in 1960, topping the record of 1.6 billion es tablished in 1959. Average length of passenger trips during the year increased to 601 miles from 581 miles the previous year, while average flight distance increased from 297 to 317 miles. During its second year of operation, the Resetron, Western's leased electronic reserva tions network, operated 99.97 per cent of the 22 hours out of every 24 that it was scheduled to function. With this high rate of perform ance, the Resetron handled a total of 8,774,879 transactions, including sales, cancellations, availability-of-space information and flight data. A new reservations office was opened in Denver in July, improving Western's service to the approximately 10,000 passengers that enplane at Denver monthly. The specialized reservations quality-control section established a continuing program of assessing the performance of service through out the company's system. Preparing for the June 1 introduction of Boeing 707 service by Western between Los Angeles, San Francisco, Portland and Seattle- Tacoma, the company conducted a program of Jet Age employee orientation for all sales and service personnel in cities served by the new aircraft. The most comprehensive program of announcement advertising, promotion and pub licity in Western's history preceded the in auguration of 707 service, including a special "Western Air Lines-Boeing Week" in Seattle, home of the manufacturer. While the company's well-known deluxe services, such as Champagne Flights, Hunt Breakfasts and Fiesta Flights, are expected to remain major sales items, the steady growth of economy aircoach travel, up 19 per cent over 1959, evidences the continued penetration the company is making into new travel markets. This objective was furthered in 1960 by con verting some of Western's Electras, formerly all-deluxe aircraft, into dual configuration, with both deluxe and coach sections. When the company receives the remainder of its 12 Electras from Lockheed this year, five will operate as high-density, 96-passenger coaches in recognition of the increased im portance of the aircoach market. To develop the nearly 90 per cent of intercity travel which continues to move by private automobile, Western launched a unique adver tising and promotional campaign based on the "fly-and-drive" theme. Radio and newspaper advertising were directed at northern areas on the company's system, advising Winter vacationers to "Take a Sun Break" with West ern in southern California, Nevada, Arizona or Mexico. Major department store cooperative promotions and publicity activities supported the campaign. As a supplement to the most intensive "Sun Country" program conducted in the past nine years, the company promoted travel to the national parks and resorts of Summer vacation centers located in northern regions of its system. Western progressed during 1960 in its con tinuing program of establishing more effective teamwork with travel agents and connecting airlines. Continuing its emphasis on off-line sales coverage and traffic development, the com pany expanded its interline agreements during the year to include nearly all the world's major air carriers. Special sales attention was devoted to Western's service to Mexico. The company spearheaded a campaign supporting former President Eisenhower's invitation to "Visit the USA in 1960." Southern California civic organizations, hotels and tourist enterprises joined the campaign, urging our neighbors to the south to "Visit the USA through the friendly Los Angeles Gateway." Results were encouraging, and the important "gateway" concept was firmly established. In line with its emphasis on developing Mexico traffic, Western opened a new East Los Angeles district office, with prime responsibil ity for Latin American sales. Seeking to heighten the operating efficiency of its finely trained corps of hostesses, the company conducted an intensive re-training program during 1960 for all stewardesses. In addition to the regularly scheduled refresher classes, the program included checkrides by supervisors and personal follow-up interviews for each stewardess. Supporting its introduction of turbo-jet service, Western adopted a new color scheme, featuring silver-gray and red, for ground serv icing equipment and personnel uniforms. The company also established industry-wide on-time aircraft performance records. In 1960, the company's advertising empha sized two-color newspaper displays and ani mated television commercials, winning national awards and recognition in both categories. Western's newspaper advertising was judged best among domestic air carriers, and its famed Los Angeles Dodgers prepare to depart for Spring training. Specializing in charter flights for teams, Western has gained fame in the world of sports. TV salesman, the "Relaxed Bird," won new prizes from advertising associations in both the U. S. and Mexico. Western accelerated its convention sales ac tivities during the year, keying them to the continued increase in major group meetings in cities and resort areas on its system. Consistent with the nationwide trend toward greater use of credit facilities, Western con tinued to offer its passengers the convenience of four different credit cards during 1960: The Diners' Club, Hilton Carte Blanche, the industry-wide Universal Air Travel Plan and the company's own no-deposit Charge-A-Flight. Volume of credit sales transacted through these cards gained 14.7 per cent during the year. During 1960, the company relocated or mod ernized air travel centers at Palm Springs, Pasadena and Anaheim, California, as well as on San Francisco's Union Square, in order to provide improved service and identification. route development: With long- haul, high-density air routes economically suited to jet operations as the goal, Western Air Lines during 1960 continued its affirmative route development campaign. On December 7, the Civil Aeronautics Board decided, in the Trans-Pacific Route Case, that Western should be certificated to operate jet routes linking major western cities with Ha waii through three Pacific Coast gateways--Los Angeles, San Francisco-Oakland and San Diego. The decision was not announced by the CAB until January 19, 1961, and it was accompanied by a temporary stay order denying the com pany operating rights pending further study and action by the federal regulatory agency. The board explained that its international route recommendations in the case, which re quire Presidential approval because of their relation to foreign policy, had been largely dis approved by former President Eisenhower, who at the same time suggested that the CAB re consider its domestic awards -- Mainland-to- Hawaii -- as part of the overall trans-Pacific air pattern. Moving to provide the vitally needed new and improved air service without additional delay, Western on January 30 filed a motion with the CAB requesting that the agency vacate its stay order with respect to the route awards made to the company. Answers to the Western motion have been filed with the board by all parties to the case and the company is hopeful that the original decision will be re affirmed quickly. In September, the company participated in oral arguments before the CAB in the South ern Transcontinental Service Case, the second major proceeding in which Western is seeking routes appropriate for jet operation. Earlier, the CAB examiner recommended route awards to other trunklines, but the com pany argued strongly the need for a pattern of regional air service designed specifically for the California-Texas market. In this proceeding, the company is seeking authority to operate jet flights between Los Angeles and San Francisco-Oakland on the Pacific Coast and Dallas and Houston, Texas. Intermediate points which Western proposes to SEATTLE TACOMA serve include San Diego, Las Vegas, Phoenix, Albuquerque, El Paso, San Antonio and Fort Worth. A final board decision is expected early in 1961. During the Summer, international negotia tions between the governments of the United States and Mexico resulted in the issuance of a bilateral agreement under which the com pany's authority to operate its 1,555-mile Los Angeles-Mexico City route was extended for a period of three years. Although Western's rights over the route expired on June 30, operations were permitted during negotiations for the new agreement, which became effective on August 15. On February 6, 1961, an initial CAB exam iner's decision was issued in the Pacific South west Local Service Case recommending two new routes and new operating rights for West ern in the California-Nevada region. The company was favored by the examiner to fly nonstop routes linking Los Angeles with Sac ramento, Sacramento with Reno, and San Francisco-Oakland with Las Vegas. In addition to these new routes, the company won endorsement of plans to link San Francisco- Oakland with San Diego, Long Beach, Palm Springs and Ontario by nonstop flights, elimin ating a restriction requiring stops at Los An geles. One-carrier service between the Pacific Northwest and Las Vegas also will be possible if the board adopts the examiner's recommen dations. A final decision is anticipated late in 1961. Scheduled for hearing is the Southern Rocky Mountain Area Local Service Case, a proceed ing involving the local air service needs of an area bounded by Los Angeles, Las Vegas, Reno, Denver, El Paso and San Diego. Western will prosecute its application for Phoenix-Salt Lake City rights, and will oppose duplication of its services being proposed by local service carriers. FINANCIAL SUMMARY 1960 1959 1958* 1957 1956* 1955 1954- 1953 1952 1951 Revenues:** Passenger $ 64,356 59,194 31,459 39,243 26,249 28,756 22,423 20,302 16,250 13,688 Express, freight and excess baggage 2,473 2,256 1,305 1,596 954 1,185 968 846 662 507 Mail 1,393 1,295 732 1,067 775 862 764 875 719 1,212 Other 855 508 474 313 2l0 236 326 853 964 875 Total Revenues 69,077 63,253 33,970 42,219 28,188 31,039 24,481 22,876 18,595 16,282 Operating Expenses:** Depreciation and Amortization 9,321 6,388 4,136 3,011 2,294 2,151 1,761 1,718 1,019 998 Payroll 19,478 17,704 11,947 14,335 10,283 11,057 9,239 8,367 7,067 6,084 Other 34,178 28,031 16,831 20,076 13,009 13,775 11,456 10,246 7,578 6,617 Total Operating Expenses 62,977 52,123 32,914 37,422 25,586 26,983 22,456 20,331 15,664 13,699 Operating Income** 6,100 11,130 1,056 4,797 2,602 4,056 2,025 2,545 2,931 2,583 Interest** (1,154) (1,047) (1,023) (780) (394) (262) (160) (188) (109) (124) Other Income and Expenses--net** 438 180 74 90 31 10 (15) (6) (20) (76) 5,384 10,263 107 4,107 2,239 3,804 1,850 2,351 2,802 2,383 Provision for Taxes on Income** 3,050 5,456 227 2,233 1,205 1,860 764 1,244 1,589 1,354 Net Earnings (Loss)** 2,334 4,807 (120) 1,874 1,034 1,944 1,086 1,107 1,213 1,029 Special Item: Gain on disposition of property less applicable income taxes** 105 210 1,522 528 2,010 38 373 78 19 360 Net Earnings & Special Item** $ 2,439 5,017 1,402 2,402 3,044 1,982 1,459 1,185 1,232 1,389 Earnings per share0 $ 1.63 4.41 (0.12) 1.95 1.13 2.14 1.24 1.27 1.39 1.53 Special item pershare0 0.07 0.19 1.51 0.55 2.19 0.04 0.43 0.08 0.02 0.53 Dividends paid per share: Cash0 0.99 0.80 0.73 0.70 0.66 0.74 0.49 0.49 0.49 0.41 Stock 5% 4% 4% 4% 4% - - - - - Shares outstanding**0 1,431 1,091 1,011 962 917 909 876 875 875 673 Shareholders' equity--total** $ 32,584 24,545 18,996 17,469 14,991 12,430 10,786 9,746 8,991 6,396 Shareholders' equity--a share0 22.77 22.50 18.78 18.16 16.35 13.67 12.31 11.14 10.28 9.51 Working capital** 17,093 11,980 5,320 4,688 4,600 2,784 1,490 755 1,364 435 Long-term debt** 23,010 23,178 19,748 16,827 9,677 3,484 3,755 2,072 2,903 1,924 Properties and equipment--net** 31,037 34,990 31,035 24,652 17,216 11,208 13,146 9,844 9,702 6,588 Total assets** $ 70,168 64,667 49,596 44,017 32,075 23,332 20,204 18,123 18,564 13,802 OPERA TING S TA T/ST/CS 1960 1959 1958* 195T 1956* 1955 1954- 1953 1952 1951 Route Miles 8,827 8,827 9,153 8,799 6,350 5,525 5,525 5,525 5,016 5,016 Available Ton Miles** 207,554 196,178 123,416 137,640 86,196 100,015 80,261 68,580 48,557 43,036 Revenue Ton Miles** 109,316 103,741 56,710 74,468 48,481 54,999 42,669 38,088 31,434 27,549 Passengers and Tonnage Carried: Revenue passengers 1,721,619 1,689,278 970,498 1,379,653 928,746 1,092,578 834,910 838,732 774,079 691,322 Mail tons 6,113 5,994 3,754 5,367 4,034 4,897 3,283 3,284 3,243 3,419 Express and freight tons 7,241 6,798 4,256 6,170 4,166 5,435 4,276 4,206 3,729 3,191 Revenue Miles Flown:** Airplane miles 25,996 25,689 16,449 21,896 14,851 18,335 15,842 14,450 12,631 11,487 Passenger seat miles 1,776,076 1,623,007 981,740 1,175,071 740,174 870,596 721,255 613,814 453,332 401,720 Passenger miles 1,034,481 982,010 533,443 702,727 458,131 514,677 402,255 359,965 298,931 259,693 Mail ton miles 3,987 3,766 2,159 3,092 2,212 2,621 1,669 1,610 1,358 1,449 Express and freight ton miles 5,551 5,133 3,150 4,026 2,455 3,207 2,556 2,100 1,524 1,282 Other Statistics: Passenger load factor: Actual % 58.2 60.5 54.3 59.8 61.9 59.1 55.7 58.6 66.0 64.7 Breakeven point % 53.3 50.0 54.1 53.5 56.6 51.3 51.1 51.8 54.6 53.4 Average length in miles per passenger trip 601 581 550 509 493 471 482 429 386 376 Average revenue per passenger mile $ .0626 .0605 .0595 .0558 .0573 .0559 .0557 .0564 .0544 .0527 Number of employees at end of year 2,730 2,962 2,547 2,773 2,343 2,130 1,864 1,813 1,649 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 shares outstanding at close of respective periods adjusted for stock dividends paid through 1960. **000 omitted. For the year ended December 31, 1960 (with comparative figures for 1959) 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 and amortization Operating income Non-Operating Expense (Income): Interest expense Interest inc'ome Other expense--net Earnings before Taxes on Income Provision for Taxes on Income (Note 1) Net Earnings Special Item: Gain on disposition of property, less applicable income taxes Net Earnings and Special Item 1960 $64,355,851 2,473,101 606,791 1,392,850 248,475 69,077,068 19,151,441 9,374,066 5,216,782 8,436,127 8,474,595 3,002,921 9,321,477 62,977,409 6,099,659 1,154,058 (475,331) 37,272 5.383.660 3,050,000 2.333.660 105,716 $ 2,439,376 1959 $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 1,047,217 (242,044) 63,223 10,262,203 5,456,000 4,806,203 210,453 $ 5,016,656 For the year ended December 31, 1960 RETAINED EARNINGS Amount at December 31, 1959 $12,480,599 Net earnings and special item 2,439,376 Excess of proceeds over par value of: 238,455 shares issued, less expenses of $237,545 96,717 shares issued upon conversion of debentures Excess of market value over par value of 54,606 shares paid as a stock dividend (Note 2) 14,919,975 Dividends paid: Cash--$1.00 a share 1,357,464 Stock-5 % (Note 2) 1,770,497 Amount at December 31, 1960 (Note 3) $11,792,014 CAPITAL IN EXCESS OF PAR VALUE $11,023,741 5,008,465 1,684,373 1,645,006 19,361,585 $19,361,585 See accompanying notes to financial statements. ASSETS I960 1959 Current Assets: Cash $ 4,401,525 $ 5,894,438 Certificates of deposit 6,035,167 -- U.S. Treasury Bills (approximating market) 8,451,820 12,371,108 Prime commercial paper (approximating market) 1,996,750 -- Receivables: Traffic balances (net of allowance for doubtful accounts $100,000) 4,190,713 4,847,055 U.S. and State Government Departments 1,208,126 1,208,812 Other 149,361 331,954 5,548,200 6,387,821 Expendable parts and supplies 1,185,313 947,499 Prepaid expenses 1,132,637 1,130,893 Total Current Assets 28,751,412 26,731,759 Sundry securities 118,754 118,777 Properties and equipment at cost: Flight equipment 51,039,430 47,738,193 Buildings on and improvements to leased property 4,209,545 3,860,074 Other property and equipment 4,954,964 4,133,304 60,203,939 55,731,571 Less allowance for depreciation 29,166,924 20,741,978 31,037,015 34,989,593 Deposits on equipment purchase contracts (Note 4) 9,807,456 2,439,047 Deferred charges 453,593 387,639 $70,168,230 $64,666,815 See accompanying notes to financial statements AS OF DECEMBER 31, 1960 (with comparative figures for 1959) Current Liabilities: Current portion of long-term notes payable to bank 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 1) Total Current Liabilities LIABILITIES 1960 1959 $ 1,290,000 $ 1,200,000 2,925,921 3,087,769 892,506 1,010,537 1,779,054 1,584,709 1,571,747 950,799 324,700 322,150 1,411,521 1,338,489 1,463,452 5,257,070 11,658,901 14,751,523 Long-term debt (Note 3): Notes payable to bank 5,730,000 Notes payable to insurance companies 17,280,000 4%% convertible subordinated debentures due June 1, 1971 -- 23,010,000 Deferred federal taxes on income (Note 1) 2,915,000 Commitments and contingent liabilities (Note 4) Retirement plans (Note 5) Shareholders' Equity (Notes 2 and 3): Common stock--$1.00 par value per share Authorized 2,000,000 shares Issued 1,430,730 and 1,040,952 shares respectively 1,430,730 Capital in excess of par value 19,361,585 Retained earnings 11,792,014 32,584,329 $70,168,230 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 notes to financial statements Note 1. Taxes on Income. Federal income tax returns through the year 1958 have been examined by the U. S. Treasury De partment. Provision has been made for all known income tax liabilities. Taxes on income include a net provision of $723,000 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 primarily in connection with depreciation and amortization. Note 3. Long-term Debt. The long-term debt outstanding is sum marized as follows: Outstanding Bank Loans: December 31, 1960 Payable 4% notes payable $ 1,140,000 $100,000 a month 5% notes payable 2,880,000 5%% notes payable 3,000,000* Insurance Company Loans: 4V2% notes payable 11,520,000 5V2% notes payable 5,760,000 6V4% notes payable Less current portion 24,300,000 1,290,000 $23,010,000 $50,000 monthly effective Oct. 1, 1961 $80,000 monthly effective Aug. 1, 1962 $1,200,000 annually effective Sept. 1, 1962 $600,000 annually effective Sept. 1, 1966 $810,000 annually effective Sept. 1, 1965 Maturity Jan. 2, 1962 Sept. 1, 1966 Dec. 31, 1967 Sept. 1, 1970 Sept. 1, 1975 Sept. 1, 1975 `Scheduled borrowings for 1961 contemplate $2,250,000 from the bank and $9,000,000 from the insurance com panies; applicable commitment fees are Vi and % of 1% respectively. The related agreements with the bank and the insurance companies provide among other things (including restrictions on additional borrowings) conditions and requirements which operated to restrict retained earnings from cash dividend distri bution in the amount of $8,529,792 leaving $3,262,222 not so restricted. Note 4. Commitments and Contingent Liabilities. At December 31, 1960, the company had on order four Boeing 720B pure jet aircraft and six Lockheed Electra prop-jet aircraft. The sched uled delivery of the Boeing 720B aircraft is one each during the months of April, May, June and July of 1961. As of February 15, 1961, three of the Electra aircraft have been delivered. The re maining three Electras are scheduled for delivery in March 1961. These aircraft, exclusive of the leased engines and propellers used on all Electras, together with orders for other major items, represent purchase commitments at December 31, 1960, of ap proximately $26,000,000 in excess of the related deposits already paid. The lease agreement for the engines and propellers used on the Electras will require, when all units are received, rentals of approximately $1,500,000 per annum through 1964. Since May 1960, the company has been leasing two Boeing 707 pure jet aircraft and spare engines. The lease period termi nates on July 1, 1961 with the company having the right to extend to January 1, 1962. The monthly rental of this equipment is approximately $165,000. In addition to the flight equipment leases, the estimated minimum annual rentals under long-term leases were approxi mately $700,000 at December 31, 1960. As of December 31, 1960, the company was contingently liable for claims and lawsuits in which it is or may be a de fendant, but management and its counsel believe the ultimate liability, if any, will not materially affect the financial statements. Note 2. Stock Dividends. On March 23, 1960, the company paid a 5% stock dividend on the shares outstanding on February 19, 1960. For each of the 54,606 shares thus issued $1.00 was trans ferred to common stock and $30,125 was transferred to capital in excess of par value. Retained earnings was also charged for cash payments in lieu of fractional shares in the amount of $70,885. The charge to retained earnings was based on the clos ing price of $31,125 a share on the New York Stock Exchange on January 18, 1960, the day of the declaration by the Board of Directors. Note 5. Retirement Plans. The company has an insured con tributory retirement plan for all eligible employees, including officers, and in addition, the company has in accordance with the pilots' labor agreement, a "variable pension plan," of the trusteed type, based on pilots' current services. The cost of these plans charged to operating expense in 1960 totals $692,- 799 for both current and past services. Management contem plates that the remaining past-service cost of the insured plan will be funded over a period of approximately four years and will require annual payments of $106,000. the board of directors the executive staff Terrell C. Drinkwater President Stanley R. Shatto Vice President Operations G. G. Brooder Vice President Stanley Gewirtz Vice President Administration Arthur F. Kelly Vice President Sales Marvin W. Landes Vice President Service Hugh W. Darling Darling, Shattuck & Edmonds Attorneys-at-Law Los Angeles, California Terrell C. Drinkwater President Western Air Lines, Inc. Robert E. Driscoll Honorary Chairman of the Board First National Bank of the Black Hills Rapid City, South Dakota Hector C. Haight Vice President and General Manager Del Amo Estate Co. Los Angeles, California Goodrich Lowry President Northwest Bancorporation Minneapolis, Minnesota Donald H. McLaughlin Chairman of the Board Homestake Mining Co. San Francisco, California Edwin W. Pauley Chairman of the Board and President Pauley Petroleum, Inc. Los Angeles, California L. Welch Pogue Pogue & Neal Attorneys-at-Law Washington, D.C. D. P. Renda Vice President Legal and Secretary J. Judson Taylor Vice President and Treasurer Charles J. J. Cox Controller and Assistant Treasurer William C. Jennings Assistant Secretary John W. Simpson Assistant Secretary Thomas M. Murphy Assistant to the President Stanley R. Shatto Vice President-Operations Western Air Lines, Inc. Dudley Swim Carmel, California Harry J. Volk President Union Bank Los Angeles, California John M. Wallace Chairman of the Board Walker Bank & Trust Co. Salt Lake City, Utah Alexander Warden Publisher Great Falls Tribune-Leader Great Falls, Montana Sidney F. Woodbury President Pine Street Co. Portland, Oregon