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. - I ' 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 . .. ,QSl,c:.. ~~ Pr sident - I . 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. SAN SACIAll(II FIIAIICI~~ OM~D IUW LDSAlllliES ~NI IUCN ~N DIUO : .. :: ..... . #O#OL~\~~~~ '(71'.~ HILO 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.