Western Air Lines Annual Report 1961

AIRLINES.
1961 ANNUAL REPORT
highlights of. ................................. 1961~ ........ 19so
Seat miles produced ...... . .... .. ...... . .. .. . 1,718,854,000 1,776,076,000
Seat miles sold ... . . . . . .. . ...... . . . . .. . . . . .. 957,560,000 1,034,481,000
Passengers carried . . . , . . ..... .. . . . . ..... ... . . 1,529,137 1,721,619
Total operating revenues .. . . . . . .. . . . ... . .... . $ 64,252,277 $ 69,077,068
Operating income ..... . ..... . .... . . . .. .. .. . . 1,948,628 6,099,659
Net earnings and special item ... .. . .. ...... .. . 863,708 2,439,376
Dividends paid:
Cash .. .. .. ... . ..... . .. . .. . . ..... ... ... . $ 1,430,730 $ 1,357,464
Stock ... .. .. . .. . ... .. . ... .. .. . . ... .. .. .. 1,770,497
Common stock outstanding ..... ... .. . . . . .. . .. 1,430,730 1,430,730
Earnings and special item per share . . ... . .... 0.60 1.70
Dividends per share:
Cash-annual rate .... . ....... ... . ... . .. 1.00 1.00
Stock ... . .. . .. .. ... .. .. ... .. . .. ... .. . . 5%
Total shareholders' equity . .... ... .... . .. ... . . 32,017,307 32,584,329
Sh'areholders' equity per share . .. .. .... . . . .... 22.38 22.77
Cash and securities . . .. .. . ... . . .. . . .. . . .. .... $ 10,008,068 $ 20,885,262
Working capital ..... ..... . .... .. .. . ... ...... 6,962,326 17,534,017
Properties and equipment at cost ..... . ........ 84,418,816 60,203,939
Long-term debt ........ . .. . ...... .. ... .. .... 33,238,184 23,010,000
Number of employees at year end ... .... .. .. .. . 2,794 2,730
Wages and salaries paid ... ... .... .. . . .... . .. . $ 17,986,716 $ 19,477,514
*Operations were adversely affected by strike.
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GENERAL OFFICES
Western Air Lines Building
6060 Avion Drive
Los Angeles International Airport
Los Angeles 9, California
REGISTRARS
Bank of America National Trust &
Savings Assn.
660 South Spring Street
Los Angeles 14, California
The Chase Manhattan Bank
1 Chase Manhattan Plaza
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
STOCK LISTINGS
Listed and traded on
New York Stock Exchange and
Pacific Coast Stock Exchange
GENERAL COUNSEL
Darling, Shattuck, Hall & Call
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
March 12, 1962
Wes tern Air Lines Building
Los Angeles International Airport
Los Angeles 9, California
the president's letter
To Shareholders) Employees) Customers and Friends:
In this 36th Annual Report, you will find a detailed account
of Western's operations for 1961., a year which proved to
be an extremely trying transition period for the entire U.S.
domestic airline industry. In these few pages, we present
a capsule history of Western's progress and problems.
It is with considerable satisfaction that we can record an
account of achievement over challenging adversity. Despite
our difficult problems, we are able to report a profit for the
year, as well as solid advances toward long-range goals.
We are able to record these accomplishments because we had
throughout the year the support of loyal shareholders,
employees and customers, support which we acknowledge
with gratitude.
It is well within the realm of possibility that 1962 will be one of
the most successful years in the 36-year history of Western,
the nation's oldest continuously-operated commercial airline.
The management of the company will do its best to make
it so. We are looking forward to receipt of final authority
to implement Western's route awards in the Trans-Pacific
Route Case.
The development of the West has closely paralleled the
growth of transportation in the fastest-growing region in our
hemisphere; today, transportation history is being written in
the air. Western, by tradition and dedication, plans to
play a major role in writing that history .
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annual report
EARNINGS: In 1961, a year replete with financial hazards in the com-
mercial air travel industry, Western Air Lines earned a profit of $863,708,
equal to $0.60 a share.
Despite the curtailment of a substantial portion of operations between
February 17 and June 1 caused by an illegal walkout of flight engineers,
the company produced earnings of $0.04 a share strictly from operations.
Net gains from the disposal of surplus property amounted to $0.56 a
share. Final results, reflecting normal operations from June 1, demon-
strated the company's ability to earn a profit and in an amount sufficient
to overcome losses sustained during the period of labor strife.
Resiliency of W estern's recovery was demonstrated by the fact that
operations at the close of 1961 's first quarter showed a loss of $903,000
which was followed by a first-half loss of $1,064,000.
Although the adverse effects of the illegal strike must be taken into
account, previous-year results are offered for comparative purposes: In
1960, earnings were $2,439,376, or $1.70 a share, including gains from
sales of surplus property in the amount of $105,716, equal to $0.07 a
share.
All per-share results for both years are based on 1,430,730 shares out-
standing.
Notwithstanding the impact of the period of interrupted operations,
increases in costs related to integration of new, expensive jet equipment
and a high level of depreciation of piston-powered aircraft, Western's
1961 total operating income was $1,948,628, compared to 1960 oper-
ating income of $6,099,659.
DIVIDENDS: For the eleventh consecutive year, shareholders of Wes tern
Air Lines received cash dividends. In 1961, the regular quarterly rate
was $0.25 for an annual total of $1.00 a share.
Quarterly cash dividends were paid on March 10, May 19, August 4
and November 3.
In accordance with corporate policy of holding regular directors' ses-
sions in key cities on the Western system, dividend action was taken at
meetings held in Los Angeles, Palm Springs, Portland and San Francisco.
At the first regular board of directors meeting of 1962, held on Feb-
ruary 12 in San Diego, initial distribution of the quarterly $0.25 dividend
for the year was voted, payment to be made on March 9 to shareholders
of record on February 23.
REVENUES: Total operating revenues of Western Air Lines in 1961 were
$64,252,277. In spite of a reduction in operations for the February-June
period, revenues were the second-best since the company began flying in
1926, topped only by the previous year's record $69,077,068.
Operating revenues during the last seven months of 1961 made a
strong showing which is continuing to be evident in 1962 as indicated
by the revenues reported for January and February.
Sources of revenue generally were similar to those of previous years;
however, the change in the relationship between deluxe and aircoach
passenger traffic, which has been growing at an accelerated pace since
brief statement of earnings
Western income came from:
Passengers
Deluxe ............ ..... .....
Coach ... ....................
1961
$27,950,131
31,786,925
59,737,056
1960
$39,927,767
24,428,084
64,355,851
statement of source and
disposition of funds for 1961
Express, freight and baggage . 2,271,466 2.473,101
Mail .. ... ....... ... ..... ........ 1,230,768 1,392,850
Gain on disposal of property .. 1,157,024 103,716
Other income . ...... . ...... . .. . 1,280,496 1,372,471
65,676,810 69,697,989 PER SHARE AMOUNT
Source of funds:
Net earnings and special item . . . . $0.60 $ 863,708
Western's expenses were:
Wages and salaries .......... .
Social security, group
insurance and
retirement plans . ..... .. .. .
Aircraft fuels .... ... . . . . .... .. .
Materials and repairs ........ .
Depreciation ... .. .. ... ........ .
Rentals of flying equipment ..
Other rentals and
landing fees . ..... . . . ..... . .
Advertising and publicity . . . .. .
For service to passengers . ... .
Insurance .. . .. .... .. . ..
Interest ... . . .. ............ . ... .
Taxes . . .... . ... . ....... . ...... .
17,986,716
1,282,514
7,642,784
6,670,629
9,981,294
3,402,527
1,774,955
2,480,419
2,425,500
2,268,167
1,648,460
2,069,403
19,477,514
1,693,286
8,577,434
6,550,224
9,321,477
1,998,254
1,734,367
2,405,435
2,963,929
1,599,375
1,154,058
4,793,943
Depreciation and maintenance
reserve provision . . . . . . . . . . . . . . . 7.75
Deferred federal taxes on income (0.21)
8.14
Increase in long-term debt . .. . . .. .
Disposition of funds:
Planes and other equipment
accounts .... . ...... . .. .. . ... .. . .
Cash dividends . .. .. ..... . . .. . . ... .
Deferred charges and other assets
Decrease in Working Capital .. .. . .
11,084,728
(298,000)
11,650,436
10,228,184
21,878,620
30,744,924
1,430,730
274,657
(10,571,691)
3,440,262 3,331,971
Utilities and services . . . . . . . . . $21,878,620
Other costs ... .. ...... . .. .. . . . . 1,739,472 1,657,346
64,813,102 67,258,613
Net earnings and special Item.. . .. $ 863,708 $ 2.439,376
* Operations were adversely affected by strike.
1957, became even more evident with the introduction of additional
economy capacity aboard the company's jet fleet.
In all, economy-class passenger services for the first time in Western's
history became the first-ranking source of operating revenues, account-
ing for 48.4 per cent of the company's income dollar as compared with
42.6 per cent attributed to deluxe services.
An example of the change in the pattern of passenger traffic is seen
in the fact that 67 per cent of Western's revenue passenger miles was
represented by economy transportation during the second half of 1961,
as contrasted with only 52 per cent in 1960 and 41 per cent in 1959.
Of Western's income dollar, combined passenger traffic accounted for
91 cents; express, freight and excess baggage contributed 3.4 cents; serv-
ice pay for carrying the mail added 1.9 cents; and, all other sources, in-
cluding gains from the sale of surplus property, added 3. 7 cents.
On January 9, 1961, following lengthy proceedings by the California
Public Utilities Commission, Western was able to put into effect on intra-
state travel the 2.5 per cent fare increase granted to domestic trunklines
by the Civil Aeronautics Board on July 1, 1960.
On December 28, 1961, the CAB announced it would permit a tem-
porary domestic fare increase by the nation's 11 major carriers, all new
tariffs to bear a six-months expiration date. In accordance with this ac-
tion, Western increased its fares by 3 per cent on February 1, 1962, on
all domestic flights except California intrastate operations. On February
23, 1962, the California Public Utilities Commission authorized a fare
increase for intrastate travel effective March 20.
EXPENSES: Western Air Lines in 1961 had total operating expenses of
$62,303,649, compared with the previous year's total of $62,977,409.
Costs included increased provision for depreciation issuing from four
Boeing 720B fanjets and six Lockheed Electra Ils acquired in 1961.
Generally, the unusual expenses related to Western's entry into the Jet
Age subsided to expected levels during the year as outlays for flying oper-
ations, maintenance, aircraft servicing, fuel and flight equipment rentals
were maintained at budgets close to those established during the previous
year.
Depreciation and amortization charges came to $9,981,294, compared
with $9,321,477 in 1960, including a high level of depreciation for piston-
powered aircraft.
Another indication of the increasing cost of doing business was the rise
in interest expense on money used to finance aircraft acquisition; in 1961
the figure was $1,648,460, as contrasted with $1,154,058 for 1960.
In total, operating expense was 27. 71 cents per ton-mile produced in
1961, as compared with 30.34 cents in 1960; cost per seat-mile flown
amounted to 3.62 cents, as against 3.55 cents in the previous year.
FINANCES: As a consequence of conservative policy followed in the fi-
nancing of major capital investments, Western Air Lines was in healthy
financi~l position at the close of 1961.
A substantial increase in funds allocated to the purchase of new air-
craft and allied equipment brought the company's working capital level
to $6,962,326 at year's end, compared with the unusually high total of
$17,534,017 for 1960.
The ratio of current assets to current liabilities was lowered to $ l.54-
to-$1.00, compared with $2.55-to-$1.00 at the close of 1960, again re-
flecting the delayed acquisition in 1961 of Electra aircraft which had
been planned and financed for 1960.
In line with Western's major purchases of jet aircraft, long-term debt
was increased by $10,228,184 to a level of $33,238,184. This debt was
composed primarily of $8,980,000 in notes payable to banks and $26,-
280,000 in notes payable to insurance companies, less current maturities
amounting to $2,330,000.
As of December 31, the company had on order three Boeing 720B fan-
jets for delivery in 1962. These aircraft, together with orders for allied
equipment, represent purchase commitments of approximately $12,500,-
000 in excess of deposits already made. Companion financing arrange-
ments already concluded will provide $9,000,000 in 1962. The balance
. will be generated from internal sources.
Rental on the two Boeing 707 turbojet aircraft which have been
leased since May 1960 amounted to approximately $1,920,000 for the
year. The lease, which terminates on July 31, 1962, may be extended to
January 10, 1964, at the option of the company.
In addition, the lease agreement which the company holds for Allison
engines and Aeroproducts propellers used on its fleet of 12 Electra Ils
requires rental payments of approximately $1,500,000 a year through
1964.
SHAREHOLDERS AND STOCK: At the close of 1961, there were 1,430,-
730 shares of Western Air Lines common stock issued and outstanding,
the same number as were on record at the close of the previous year.
western's income dollar western's expense dollar
48 4 from aircoach
passenger services
29.7 for wages and salaries
42.6 from deluxe
passenger services
20.7 for depreciation and
flying equipment rentals
I 3.4 from express, freight and excess baggage 11.8 for aircraft fuels
11.9
t,om mall
1 0.3 for materials and repairs
13,7
from all othe, sou,ces, including property gains
I 3.2 to, local, state and fedml taxes
2 4 .3 for all other expenses
Representing each of the states and several foreign countries, stock-
holders numbered approximately 9,000 on December 31.
Officers and directors of the company held 62,428 shares, equal to 4.36
per cent of total shares outstanding. At the annual meeting of share-
holders held in Los Angeles on April 27, 1961, 86.3 per cent of all shares
were voted, either in person or by proxy.
Shareholders' equity totaled $32,017,307 at the close of 1961, second-
highest level in the company's 36-year history. Equity equaled $22.38 a
share, compared with $22.77 in 1960.
On the New York Stock Exchange, 581,600 shares of the company's
stock were traded during the year at prices ranging from a low of 19
to a high of 30, with a closing 1961 price of 23. On the Pacific Coast
Stock Exchange, 38,463 shares were traded, with a high of 291/a, a low
of 19, and a year-end closing price of 23.
The company continued its established practice of reporting financial
results to information media at regular intervals throughout the year,
and stockholders were advised of W estern's progress through regular
publication of the Shareholders Report.
In 1961, the company's Annual Report, keystone of the stockholders-
information program, won the Financial World Merit Award for the
fifth consecutive time.
For the third year in a row, the company received the Management-
Shareholders Award from the United Shareholders of America, Inc.,
national non-profit research organization dedicated to the development
of stockholder relations programs by major U.S. corporations.
EQUIPMENT: Introduction of the fastest commercial airliners in service,
the Boeing 720B fanjets, was the highlight of Western Air Lines opera-
tions in 1961.
The Mach .9 airliners first were placed in service on May 15 on the
company's 1,555-mile Los Angeles-Mexico City route after international
ceremonies marking the event.
In June, 720B fan jet service was extended on the Pacific Coast when
service with the 120-passenger aircraft ( combined configuration off er-
ing 28 deluxe and 92 aircoach seats) was introduced on the 95 7-mile
route between Los Angeles and Seattle-Tacoma.
Sixteen days later, Boeing 707s, the turbojets featured on Pacific Coast
schedules since June 1, 1960, were introduced into regular flight patterns
linking Los Angeles, Salt Lake City and Minneapolis-St. Paul, as well as
San Francisco and Denver. W estern's 707s are operated in 123-passenger
configuration ( 34 deluxe and 89 aircoach seats).
Earlier in 1961, the modernization and modification program launched
in 1960 for the company's Lockheed propjet fleet was completed and the
aircraft resumed originally designed cruising speed of more than 400 mph
carrying the name "Electra II." With acceptance of six additional Elec-
tra Ils, the company's propjet schedules now are operated with 12 air-
craft, four in 96-seat all-aircoach configuration and eight providing 82-
seat dual cabin design ( 34 deluxe and 48 economy accommodations) .
At the close of the year, the Western fleet was composed of four Boe-
ing 720B fanjets, two Boeing 707 turbojets, twelve Lockheed Electra II
propjets and eighteen 65-passenger Douglas DC-6Bs.
During 1961, the company sold four Convair 240s, three surplus DC-
6Bs with allied equipment and five DC-6Bs on lease-sale agreements, at
a net gain of $1,359,176, of which $807,024 was included in a special
item in the income account and $552,152 was deferred. In addition, one
surplus DC-6B is being leased to another airline. Further streamlining of
the fleet is planned during the current year, including the sale of addi-
tional piston-powered aircraft and the receipt of additional fanjets.
The company now has on order three Boeing 720Bs with delivery
scheduled in July and August 1962. In addition, the lease under which
Western has been operating two Boeing 707s since May 1960 may be
extended, by option, to January 1964.
In June, the company's new $1,500,000 hangar facilities at Minne-
apolis-St. Paul International Airport were dedicated. The modern main-
tenance base, which can accommodate two jetliners, is leased from the
Minneapolis-St. Paul Metropolitan Airports Commission.
During the year, modernized terminal facilities were occupied by the
company at Salt Lake City. Early in 1962, new installations were dedi-
cated at Minneapolis-St. Paul; before Summer, the company will occupy
new airport structures at Butte and Phoenix.
The company's passenger terminal and operations satellite at the new
$70,000,000 Los Angeles International Airport, among the most modern
facilities in the world, were activated on March 11, 1962.
In 1961, Wes tern was ranked as one of the top nine airlines in the
nation when it received the National Safety Council's highest award for
safe airline operation.
ROUTE DEVELOPMENT: A year-long campaign to clear the way for in-
auguration of new and improved mainland-Hawaii service, together with
the successful culmination of the lengthy Pacific Southwest route pro-
ceedings, were principal activities of the company's aggressive route de-
velopment program during the year.
On January 19, 1961, the Civil Aeronautics Board announced its de-
cision of December 7, 1960, in the Trans-Pacific Route Case granting
Western Air Lines certificates to operate jet routes linking major western
brief balance sheet
Western owns: 1961 1960
Cash and securities ... .. ... . . . $10,008,068 $20,885,262
Owed by others ............ ,.. . 8,614,461 5,548,200
Expendable parts and
supplies . . .. . . .. . . . . .. . . . . .. . 1,300,666 1,185,313
Buildings and improvements,
net . .. . .. . .. . . . .. . . .. .. . .. . . . 2,344,585 2,195,838
Flight and other equipment,
net ...... . .. . ... . ......... .. . 52,734,158 28,841,177
Deposits on new equipment .. 4,624,202 9,807,456
Prepaid expenses . . . . . . . . . . . . . 1,809,221 1,132,637
Deferred charges and other. . 847,004 572,347
82,282,365 70,168,230
Western owes:
Owed to vendors and others .. 9,154,459 7,493,928
Federal income taxes-
current and deferred .... . ... 3,481,808 4,378,452
Tickets sold but not yet used . 1,508,455 1,411,521
Notes payable-
current and long-term .... . . 35,568,184 24,300,000
Deferred earnings 552,152
50,265,058 37,583,901
Excess of what is owned
over what is owed, or
shareholders' equity ............ . $32,017,307 $32,584,329
cities with Hawaii through three principal Pacific Coast gateways - Los
Angeles, San Francisco-Oakland and San Diego.
However, the federal regulatory agency accompanied its decision with
a temporary stay order delaying the effectiveness of Western's operating
rights pending further study of the international route phases of the com-
plex proceedings. The CAB stated that the stay order was issued because
its international route recommendations, which require Presidential ap-
proval, had been largely disapproved by former President Dwight D.
Eisenhower, who had suggested that the board also reconsider its domes-
tic route awards as part of the overall Pacific air pattern.
On July 27, the CAB reopened the international phase of the case;
hearings were held in November 1961. The reopened proceedings were
limited to the issue of capacity controls on the international routes in-
volved and to the question of service between the United States and
Tahiti. Award of the domestic routes between California and Hawaii to
Western was specifically excluded from reconsideration at the reopened
hearings.
Through motions filed with the CAB on January 30 and again on
September 18, the company attempted to bring about board action which
would free the domestic route awards from the stay order which pre-
vented inauguration of service between mainland cities and Honolulu.
On December 21, the CAB denied these motions and announced that its
final decision on the mainland U.S.-Hawaii awards would be made con-
temporaneously with it decision on the international aspect of the
reopened proceedings. A supplemental recommended decision by the
board's examiner is now due, and the case, which Western entered on
March 12, 1959, should be ripe for final decision soon.
Climaxing another lengthy case, the CAB on January 25, 1962, issued
its final decision in the Pacific Southwest Local Service Case, awarding
Western two new major routes and new operating rights in the Cali-
fornia-Nevada area.
Western received authority to operate over the Los Angeles-Sacra-
mento-Reno and San Francisco-Oakland-Las Vegas routes, and won
elimination of a restriction requiring stops to be made at Los Angeles on
flights between San Francisco-Oakland, on one hand, and San Diego,
Long Beach, Palm Springs and Ontario, on the other hand.
In effect, the order, which adds 890 new route miles to the company's
8,827-mile route system, will permit Western to link San Francisco-Oak-
land with the southern California cities by non-stop flights.
The addition of Sacramento, California's state capital, to the com-
pany's 34-city network is expected to prove valuable, particularly in light
of substantial official traffic between the city and southern California
communities.
Effective date of the newly won routes and rights is April 24, 1962, and
the company plans to inaugurate a series of new services as soon there-
after as. possible. Western does not expect any changes in the awards
made to the company as a result of petitions for reconsideration now
pending before the CAB.
In other 1961 action, the CAB denied W estern's application for Cali-
fornia-Texas routes in the Southern Transcontinental Service Case, the
second major proceeding in which the company was seeking long-haul,
high-density routes appropriate for jet operations.
At the close of the year, hearings had been held in the Southern Rocky
Mountain Area Local Service Case, a proceeding involving the area
bounded by Los Angeles, Las Vegas, Reno, Denver, El Paso and San
Diego. Western presented its case for a Phoenix-Salt Lake City route
and opposed the duplication of its routes within this area by subsidized
local service carriers which are applicants in the proceeding.
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PRESENT AND PROPOSED ROUTES
SALES AND SERVICE: A series of inaugural programs introducing new
jet services and the re-establishment of the company's competitive posi-
tion in the western air travel market following the flight engineers illegal
strike were the principal challenges of the Western Air Lines sales and
service programs during 1961.
In spite of the interruption in operations early in the year, the com-
pany carried 1,529,137 passengers, third-highest total in 36 years, com-
pared with 1,721,619 air travelers accommodated in 1960, a record year.
Passenger revenues were $59,737,056, compared to $64,355,851 in
1960.
Including express, freight and excess baggage, cargo shipments ac-
counted for $2,271,466 of operating revenues, compared with the previ-
ous year's total of $2,473,101. Western received $1,230,768 in service
payments for handling regular airmail and non-priority transport of sur-
face mail by air. The comparable figure for 1960 was $1,392,850.
Revenues from charter flights continued to gain, notwithstanding the
strike period, as a direct result of Western's continued emphasis on group
travel, including special flights for athletic teams. Charter revenues for
the year were $698,398, up 5 7 per cent over 1960. Extension of American
League Baseball franchises to Los Angeles and Minneapolis-St. Paul
contributed to the favorable trend in special team travel.
Load factor for the year, including the February-June period of con-
tracted operations, was 55. 7 per cent, with a breakeven factor of 55.5
per cent; in 1960, load factor was 58.2 per cent, with a 53.3 per cent
breakeven level. Production of 1, 718,854,.000 passenger seat-miles during
1961 reflected the swift resumption of operations following the period of
interrupted service, particularly when compared with the previous full-
year's total of 1,776,076,000.
Average length of passenger trips over Western's system increased dur-
ing the year to 626 miles from 601 miles the previous year.
Although Western continued to concentrate substantial elements of its
sales and service programs on the high standards of deluxe services such
as the Champagne Flights and Hunt Breakfast Flights, the company
realistically increased market emphasis on economy services. By January
1962, for example, Western was offering 82 per cent more aircoach seats
than were produced in the same 1961 month, and sale of economy seats
was up 81 per cent.
To provide improved company identification and more service to the
traveling public, Western in 1961 opened new and larger air travel cen-
ters in Hollywood and Pasadena, as well as a joint office, shared with
other international carriers, in Acapulco. Other steps in making it con-
venient to do business with Western included a "tickets-by-mail" pro-
gram launched throughout the system after successful marketing tests.
From the passenger standpoint, introduction of aircraft ground air-
conditioning and heating equipment, the development of curbside bag-
gage check-in procedures, and the activation of fast, efficient "contain-
erization" baggage loading were noteworthy improvements introduced
during the year.
In the fields of advertising, promotion and publicity, as well as service
and sales training of company personnel, extensive programs were con-
ducted prior to the introduction of 720B fanjet services along the Pacific
Coast, to Mexico City and Phoenix, and the inaugural of 707 turbojet
flights from California to Utah, Colorado and Minnesota.
Continuing emphasis on off-line traffic development and on building
sales teamwork with travel agents, the company established new highs
in interline revenues from connecting carriers and in on-line revenues
produced by its authorized travel agents.
In keeping with these programs, and in light of the fact that the cities
and resorts on the Western system are attracting an all-time number of
group meetings, the company redoubled its convention sales activities,
placing greater emphasis on the development of group travel for pro-
fessional, cultural and health purposes.
An effective sales aid in these programs was an expanded series of
all-expense, all-season tours - Western's highly publicized "Magic
Holidays."
As a leader in the credit-travel field, the company continued to pro-
mote purchase of transportation through its four credit-card plans in
1961, including The Diners' Club, Hilton Carte Blanche, the industry-
wide Universal Air Travel Plan and Western's own no-deposit Charge-
A-Flight.
Joining major auto-rental organizations, the company directed sub-
stantial advertising and promotion appeals to the vast majority of inter-
city travelers who still move by private automobile. "Fly-and-drive," for
example, was a basic theme in the company's tenth annual "Sun Break"
campaign in the northern areas of the \V estern system.
Summertime travel to the Pacific Northwest in 1962 is expected to
rise sharply with the Seattle World's Fair as the principal attraction.
Western began its advance promotion of this international event early
in 1961 and has developed considerable response to a series of special
tours.
Devoting particular attention to the company's key route to Mexico
City, especially in the development of northbound traffic, the company
was an active participant in the federal government's official travel pro-
gram during 1961 by encouraging our Mexican neighbors to "Visit the
USA Through the Friendly Los Angeles Gateway."
Western received official commendation and endorsement upon open-
ing the Western U.S. Information Center in Mexico City, a facility
which the United States Travel Service regards as a model installation.
On January 12, 1962, the company inaugurated the first scheduled
international air service between San Diego and Mexico City, offering
weekend economy services to supplement its regular Fiesta Flights be-
tween Los Angeles and the Mexican capital.
PERSONNEL: Operating installations in 34 cities in 12 western states,
Canada and Mexico, Western Air Lines employed 2,794 men and wom-
en at the close of 1961, slight increase over the previous year's total of
2,730.
Salaries and payrolls for 1961 accounted for $17,986, 716, or 29. 7 per
cent, of total expenses. Western's employees enjoyed industry recognition
for individual productivity and one of the highest seniority rankings in
the airline business.
With 26.6 per cent of all employees credited with 10 years or more
service, Western has 13 men on its personnel rosters who are entitled to
30-year service emblems.
At year's end, 68 per cent of total personnel, or 1,895 employees, were
men; 32 per cent, or 899, were women. Average length of employee
service at the end of 1961 was seven years.
As the only major U.S. air carrier holding work agreements with all
unionized personnel at the end of the year, Wes tern looks forward in
1962 to a period of constructive labor peace.
Evidence of the company's harmonious labor relations is clear in the
contracts now in force covering 86 per cent of all employees, who are
represented by six labor organizations.
Union contracts now are in force between Western and the Brother-
hood of Railway Clerks, the International Brotherhood of Teamsters,
the Air Line Pilots .Association, the Air Line Stewards & Stewardesses
Association, the Air Line Dispatchers Association and the Communica-
tion Workers of America. Contracts covering major employee groups
( mechanics, clerks, flight crews) all run until 1963.
In the nationwide illegal action which affected seven major airlines,
flight engineers employed by Western walked off their jobs beginning
February 17 in a wildcat strike which interrupted the company's opera-
tions during the first half of the year. Taking a solitary stand in the wide-
spread controversy, Western discharged flight engineers who refused to
take their scheduled flights and replaced striking crew members, after
approved training, with pilot-qualified second officers.
The Civil Aeronautics Board, in a decision of November 24, dismissed
a complaint of the Flight Engineers International Association seeking
review of a ruling by the CAB's Bureau of Enforcement which cleared
the company of alleged Railway Labor Act violations with respect to the
illegal walkout of FEIA members early in the year.
Furthering the company's policy, Western continued to operate its jet
equipment with coordinated three-man crews, as recommended by re-
sponsible government authorities.
The company's long-established voluntary group insurance program
continued to be attractive to employees during 1961 as 89 per cent of
total personnel, or 2,491 employees, subscribed to one or more of the in-
clusive types of coverage provided. The special benefits of coverage for
family members were subscribed to by 1,344 employees for dependents.
Total insurance benefits paid to company employees and family mem-
bers during 1961 amounted to $476,015, including $280,210 paid for
hospitalization, $149,805 for accident and sickness coverage, and $46,000
paid under the group life insurance portion of the program.
At year's end, 1,015 employees, representing 71.2 per cent of those
eligible, were active participants in W estern's insured, contributory re-
tirement-income program, now in its tenth year of operation. A variable
pension plan of the trusteed type is provided in addition to the basic
program for pilots.
The retirement programs cost Western $325,553 in 1961 for current
and past services. On December 31, the remaining past-service cost, to
be funded over the next three years, amounted to approximately $250,000.
Flight Times, the company's employee-information publication, served
as the principal medium of internal communication during 1961. The
monthly news publication, now in its eleventh year, was supplemented
by a regular information program directed toward employees.
The government-accredited Westernaire Federal Credit Union, which
provides savings-and-loan service to company employees, closed the year
with total assets of $2,124,000 and a record of transactions in which
85.26 per cent of personnel participated. D
a decade
of growth
financial summary 1981*
Revenues:
Passenger .. . ... . . . . . .. . . . .. . .. . .. .... $ 59,737
Express, freight and excess baggage 2,271
Mail . .. ... . . . ... . . .... . .... . .. .. . . ..... 1,231
Other ...... .. .... .. .. . .... .. 1,013
Total Revenues .. .... .... ...... . 64,252
Operating Expenses: *"'
Depreciation and Amortization .. .. . 9,981
Payroll ..... ........ .. .. ... .. . . 17,9,87
Other ... .. .. .... ... ..... ..... ... . 34,335
Total Operating Expenses . ... . 62,303
Operating Income *'' . . . . '
. . . . . . . . .
. . .... 1,949
Interest** .. . ... .... . .. . .. ... .... . .... ... . (1,648)
Other Income and Expenses-net*" . .. (119)
182
Provision for Taxes on Income** .... .. . 125
Net Earnings (Loss) *" . 57
Special Item:
Gain on disposition of property,
less applicable income taxes *'' 807
Net Earnings & Special Item ** $ 864
Earnings per share0 . . . . . .... . . .. ... ... .. .. $ 0.04
Special item per share0. . . . .
. . . .
.. . .... 0.56
Dividends paid per share:
Cash0 .. . . . . . . . . . . . . . .... ... . . ... 1.00
Stock .. ... ...
..
-
Shares outstanding u 0
.. . .... .. ..... 1,431
Shareholders' equity-total *" $' 32,017
Shareholders' equity-a share0 ... . ...... 22.38
Working capital "'' . ..... .. . ....... 6,962
Long-term debt** 33,238
Properties and equipment-net**.' .. . . . .. 55,079
Total assets ** .. . . .
. . . . . . ..... ..... . .. 82,282
. . .
1961*
operating stat1st1cs
Route Miles ... 8,827
Available Ton Miles u .. . 224,819
Revenue Ton Miles **. ........... ... 102,232
Passengers and Tonnage Carried:
Revenue passengers ..... ..... . ..... 1,529,137
Mail tons .. 5,328
Express and freight tons .. 7,036
Revenue Miles Flown:"
Airplane miles .... ..... . ...... 20,624
Passenger seat miles ... . 1,718,854
Passenger miles . 957,560
Mail ton miles ....... . .. 3,531
Express and freight ton miles . 5,456
Other Statistics:
Passenger load factor:
Actual ... ............ .. .... . % 55.7
Breakeven point ...... . % 55.5
Average length in miles pe r
passenger trip 626
Average revenue per pas senger mile .0632
Number of employees at end of year 2,794
1960
64,356
2,473
1,393
855
- - -
69,077
9,321
19,478
34,178
62,977
6,100
(1,154)
438
- - -
5,384
3,050
2,334
105
- --
2,439
---
1.63
0.07
0.99
5 %
1,431
32,584
22.77
17,534
23,010
31,037
70,168
1960
8,827
207,554
109,316
1,721 ,619
6,113
7,241
25,996
1,776,076
1,034,481
3,987
5,551
58.2
53.3
601
.0626
2,730
*Operations were adversely affected by strike.
1959 1958* 1957 1956* 1955
59,194 31,459 39,243 26,249 28,756
2,256 1,305 1,596 954 1,185
1,295 732 1,067 775 862
508 474 313 210 236
- - - - - - - -
63,253 33,970 42,219 28,188 31 ,039
6,388 4,136 3,011 2,294 2,151
17,704 11,947 14,335 10,283 11,057
28,031 16,831 20,076 13,009 13,775
52,123 32,914 37,422 25,586 26,983
11,130 1,056 4,797 2,602 4,056
(1,047) (1,023) (780) (394) (262)
180 74 90 31 10
- - - - - - - - ---
10,263 107 4,107 2,239 3,804
5,456 227 2,233 1,205 1,860
4,807 (120) 1,874 1,034 1,944
210 1,522 528 2,010 38
- - - - - - -
5,017 1,402 2,402 3,044 1,982
- - - - - - - - - --
4.41 (0.12) 1.95 1.13 2.14
0.19 1.51 0.55 2.19 0.04
0.80 0.73 0.70 0.66 0.74
4 % 4% 4% 4 % -
1,091 1,011 962 917 909
24,545 18,996 17,469 14,991 12,430
22.50 18.78 18.16 16.35 13.67
11,980 5,320 4,688 4,600 2,784
23,178 19,748 16,827 9,677 3,484
34,990 31,035 24,652 17,216 11,208
64,667 49,596 44,017 32,075 23,332
1959 1958* 1957 1956* 1955
8,827 9,153 8,799 6,350 5,525
196,178 123,416 137,640 86,196 100,015
103,741 56,710 74,468 48,481 54,999
1,689,278 970,498 1,379,653 928,746 1,092,578
5,994 3,754 5,367 4,034 4,897
6,798 4,256 6,170 4,166 5,435
25,689 16,449 21 ,896 14,851 18,335
1,623,007 981 ,740 1,175,071 740,174 870,596
982,010 533,443 702,727 458,131 514,677
3,766 2,159 3,092 2,212 2,621
5,133 3,150 4,026 2,455 3,207
60.5 54.3 59.8 61.9 59.1
50.0 54.1 53.5 56.6 51.3
581 550 509 493 471
.0605 .0595 .0558 .0573 .0559
2,962 2, 547 2,773 2,343 2,130
0Based on shares outstanding at close of respective periods adjusted for stock dividends paid through 1960.
"'*000 omitted.
1954 1953 1952
22,423 20,302 16,250
968 846 662
764 875 719
326 853 964
- -- --- - -
24,481 22,876 18,595
1,761 1,718 1,019
9,239 8,367 7,067
11,456 10,246 7,578
22,456 20,331 15,664
2,025 2,545 2,931
(160) (188) (109)
~ ~ (20)
1,850 2,351 2,802
764 1,244 1,589
- -
1,086 1,107 1,213
373 78 19
- -- - --
1,459 1,185 1,232
- -- - - - - --
1.24 1.27 1.39
0.43 0.08 0.02
0.49 0.49 0.49
- - -
876 875 875
10,786 9,746 8,991
12.31 11.14 10.28
1,490 755 1,364
3,755 2,072 2,903
13,146 9,844 9,702
20,204 18,123 18,564
1954 1953 1952
5,525 5,525 5,016
80,261 68,580 48,557
42,669 38,088 31 ,434
834,910 838,732 774,079
3,283 3,284 3,243
4,276 4,206 3,729
15,842 14,450 12,631
721 ,255 613,814 453,332
402,255 359,965 298,931
1,669 1,610 1,358
2,556 2,100 1,524
55.7 58.6 66.0
51.1 51.8 54.6
482 429 386
.0557 .0564 .0544
1,864 1,813 1,649
statement
of earnings
For the year ended
December 31, 1961
(with comp-aratlve
figures for 1960)
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 Expenses (Income):
Interest expense . ............... . ........ . .. . ....... . ... .
Interest income ....... .. ............... .. ....... . ....... .
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 (Note 1) .... . ....... . .... .
Net Earnings and Special Item .................... .
*Operations were adversely affected by strike.
For the year ended
December 31, 1961 Amount at December 31, 1960 ............... . .................... .
Net earnings and special item ............................. .
Dividends paid:
Cash- $1.00 a share ..................................... .
Amount at December 31, 1961 (Note 2) ......................... ..
See accompanying notes to financial statements.
1961* 1960
$59,737,056 $64,355,851
2,271,466 2,473,101
785,989 606,791
1,230,768 1,392,850
226,998 248,475
64,252,277 69,077,068
18,862,659 19,151,441
9,206,272 9,374,066
4,678,754 5,216,782
8,130,517 8,436,127
8,310,103 8,474,595
3,134,050 3,002,921
9,981,294 9,321,477
62,303,649 62,977,409
1,948,628 6,099,659
1,648,460 1,154,058
(267,509) (475,331)
385,993 37,272
181,684 5,383,660
125,000 3,050,000
56,684 2,333,660
807,024 105,716
$ 863,708 $ 2,439,376
statement of
RETAINED
EARNINGS
$11,792,014
863,708
12,655,722
1,430,730
$11,224,992
CAPITAL IN
EXCESS OF
PAR VALUE
$19,361,585
19,361,585
$19,361,585
- I
'
Current Assets:
Cash . ........ . .......... . .... . ..... .... . . ..... . ..... .
Certificates of deposit ......... .. . . ... .. . . .. ...... ... .. .
U.S. Treasury Bills (approximating market) . . .. . ...... . . .. .
Prime commercial paper (approximating market) . . . . . . . ... .
Receivables:
Traffic balances (net of allowance
for doubtful accounts $100,000) ... ... .. .. ..... .
U.S. and State Government Departments ... . . .. . .. .
Other .. . . . .. ..... . ....... . .... .. ..... .. . . . . .. .
Expendable parts and supplies ................. . ....... . .
Prepaid expenses .... . ....... .. . . .. .. . . .. .. . .. ...... .. .
Total Current Assets . ......... . . .. . . ... . . . .. . . . . .
Properties and equipment at cost:
Flight equipment ......... . ......... . ........... . ..... .
Buildings on and improvements to leased property . . . .. .. . .
Other property and equipment .... . .. .. .... . . . .... .. .... .
Less allowance for depreciation and maintenance .. .
Deposits on equipment purchase contracts (Note 3) . . .. ....... . . .
Flight equipment lease/ sale contracts ........ . ................. .
Deferred charges and other assets .................. . .... . .... .
See accompanying notes to flnanc/al statements
annual report
assets
1961
$ 5,049,596
l,008,500
3,949,972
5,321,553
1,319,587
158,310
6,799,450
1,300,666
1,809,221
19,917,405
73,516,410
4,475,913
6,426,493
84,418,816
29,340,073
55,078,743
4,624,202
1,815,011
847,004
$82,282,365
1960
$ 4,401,525
6,035,167
8,451,820
1,996,750
4,190,713
1,208,126
149,361
5,548,200
1,185,313
1,132,637
28,751,412
51 ,039,430
4,209,545
4,954,964
60,203,939
29,166,924
31,037,015
9,807,456
572,347
$70,168,230
balance sheet AS OF DECEMBER 31, 1961 (with comparative figures for 1960)
Current Liabilities:
Current maturities of long-term debt (Note 2) ............ .
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 . ........................ .
Long-term debt (Note 2) ......... .. ................. .. ....... .
Reserves for maintenance-
leased flight equipment .......... .. ................... .
Deferred earnings-
flight equipment lease/ sale contracts .. ... . ............. . .
Deferred federal taxes on income (Note 1) .............. ... .... .
Shareholders' Equity:
Common stock-$1.00 par value per share
Authorized 2,000,000 shares
Issued 1,430,730 shares .............. ......... .. .
Capital in excess of par value ........................... .
Retained earnings (Note 2) ................. ....... .... .
liabilities
1961
$ 2,330,000
3,632,147
1,056,407
1,884,173
1,359,489
319,600
1,508,455
864,808
12,955,079
33,238,184
902,643
552,152
2,617,000
1,430,730
19,361,585
11,224,992
32,017,307
$82,282,365
$
1960
1,290,000
2,925,921
892,506
1,779,054
1,130,241
324,700
1,411,521
1,463,452
11,217,395
23,010,000
441,506
2,915,000
1,430,730
19,361,585
11,792,014
32,584,329
$70,168,230
PEAT, MARWICK, MITCHELL & Go.
CERTIFIED PUBLIC ACCOUNTANTS
629 SOUTH SPBINO STREET
LOS ANGELES 14, CALIF.
ACCOUNTANTS' REPORT
The Board of Directors
Western Air Lines, Inc:
ined the balance sheet of
We have exam a of December 31, 1961
Western Air Lines, ~nc ts of earnings, retained
and the related eta e~:t excess of par value for
earnings and capital Our examination vas made
the year then ended. 11 accepted auditing
in accordance vith genert hcluded such tests
standards, and accord~ y and such other auditing
of the accounting rec1~e:ed necessary in the
procedures as ve cons
circumstances
nving balance
In our opinion, the accompa..., in
ings retained earn gs
sheet and statements of/~ val~e present fairly
t~ ~=~a~p~~1~~~nof Wester~t;1"o;~~: Inc,
at December 31, 1961 andt~he ::~ed in conformity
operations for the year en t ' rinciples
vith generally acceptedia~:~~v~ that of the
applied on a basis cons s
preceding year
Los Angeles, California
February 14, 1962
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 Depart-
ment. Provision has been made for all known income tax liabil-
ities. The total provision for income taxes is summarized as
follows:
Provision for taxes on income ........................ . .. $ 125,000
Income taxes applicable to gain on
disposition of property (special item) ............... 350,000
475,000
Income taxes payable applicable to and
netted against deferred income...... . . . . . . . . . . . .. 311,000
Reduction in deferred income taxes (primarily
applicable to depreciation and amortization) ....... __
298,000
Total income taxes ................................ $1,084,000
Note 2. Long-term Debt. The long-term debt outstanding is sum-
marized as follows:
Outstanding Final
Bank Loans: December 31, 1961 Payable Maturity
5% notes payable $ 2,730,000 $50,000 Sept. 1,
monthly 1966
5 % notes payable 5,250,000 $80,000 Dec. 31,
monthly 1967
effective
Aug. 1, 1962
5%% notes payable " 1,000,000 $100,000 Sept. 1,
monthly 1967
effective
Jan. 1, 1963
Insurance Company Loans:
4 % notes payable 11 ,520,000 $1,200,000 Sept. 1,
annually 1970
effective
Sept. 1, 1962
5 % notes payable 5,760,000 $600,000 Sept. 1,
annually 1975
effective
Sept. 1, 1966
6 % notes payable 9,000,000 $810,000 Sept. 1,
annually 1975
effective
Equipment lease/purchase
contract 308.184
Sept. 1, 1965
July 1,
35,568,184 1966
Less current
maturities 2,330,000
$33.238.184
"' Scheduled borrowings for 1962 contemplate $9,000,000
from the bank; applicable commitment fee is of 1 % .
Effective January 1, 1964, payments increase to $200,000
monthly.
The related agreements with the bank and the insurance com-
panies provide among other things (including restrictions on ad-
ditional borrowings) conditions and requirements which oper-
ated to restrict retained earnings from cash dividend distribu-
tion in the amount of $8,875,276 leaving $2,349,716 not so re-
stricted.
Note 3. Commitments and Contingent Liabilities. At December
31 , 1961, the company had on order three Boeing 720B pure jet
aircraft with delivery scheduled for July and August of 1962.
These aircraft together with orders for other major items, repre-
sent purchase commitments at December 31, 1961, of approxi-
mately $12,500,000 in excess of the related deposits already
paid.
The lease agreement for the engines and propellers used on
all Electras requires annual rentals of approximately $1,500,000
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 31, 1962 with options exercisable by the company
upon certain conditions for extension up to January 10, 1964.
The rental of this equipment aggregates approximately $1,920,-
000 annually.
In addition to the flight equipment leases, the estimated mini-
mum annual rentals under long-term leases were approximately
$1,000,000 at December 31, 1961.
As of December 31, 1961, the company was contingently liable
for claims and lawsuits in which it is or may be a defendant, but
management and its counsel believe the ultimate liability, if
any, will not materially affect the financial statements.
Note 4. Retirement Plans. The costs charged to operating ex-
pense in 1961 totaled $325,553 for both current and past serv-
ices. At December 31, 1961, the remaining unfunded past-serv-
ice cost amounted to approximately $250,000.
-
the executive staff
TERRELL C. DRINKWATER
President
STANLEY R. SHATTO
Vice President-Operations
G. G. BROODER
Vice President
ARTHUR F. KELLY
Vice President-Sales
MARVIN
w. LANDES
Vice President-Service
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
the board of directors
HUGH W. DARLING
Darling, Shattuck, Hall & Call
Attorneys-at-Law
Los Angeles, California
TERRELL C. DRINKWATER
President
Western Air Lines, Inc.
ROBERT E. DRISCOLL
Honorary Chair-man 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, Cali[-ornia
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.
STANLEY R. SHATTO
Vice President-0 perations
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
36 years of continuous operation in serving the West
PRINTED IN U. S. A.