Western Air Lines Annual Report 1963

Honolulu
Hilo
Present and Proposed Routes
LEGEND
Present Routes
Proposed Routes
President's Letter
To Shareholders, Employees, Customers and Friends:
With considerable satisfaction, the management
of Western Air Lines presents this detailed account of
Western's operations for 1963, the most successful
year in the history of the company.
The key to the company's success during the year
was its ability to hold down costs while responding
to the ever-growing needs of the dynamic area served
with substantial increases in service. In fulfilling its
responsibility to the traveling and shipping public,
western has made and will continue to make every
effort to provide safe, comfortable and convenient air
transportation at the lowest possible fares.
Although there were no changes in the company's
route structure during the year, Western is continuing
to seek ways to expand its system. The Civil Aero-
nautics Board's decision in the Hawaii route case was
disappointing to the company. As discussed in the
Route Development section of this report, the com-
pany has taken action in an attempt to obtain a reversal
or modification of this decision.
During 1963, the airline industry was plagued with
a seemingly never-ending series of new fare proposals.
This is the most serious problem facing the industry
today. It is hoped that fares will be permitted to
stabilize at their present levels, thereby providing a
sound economic climate for the future.
Based on the strong financial condition of the company,
western's board of directors increased the quarterly
dividend in 1963 and again at its first regular meeting
of 1964. In addition, the directors voted at their Febru-
ary 1964 meeting to submit for stockholder approval
at the next annual meeting a recommendation that
Western's stock be split 3-for-1.
We are optimistic about the future and confident
that those factors which contributed to the company's
growth and success in 1963 will continue in 1964.
The management of the company will work diligently
to make this a year of new growth and profitability
for Western.
Your continuing support, which is gratefully acknowl-
edged, will assist in this endeavor.
--
February 25, 1964 \ e I~ t:.
~

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te
,..;1;., ,
President
1
Vestern's board of directors at February 1964 meeting in Phoenix.
Highlights of 1963
1963 1962
Seat miles produced 2,929,673,000 2,402,344,000
Seat miles sold 1,615,189,000 1,307,173,000
Passengers carried 2,812,640 2,128,225
Total operating revenues $ 99,427,036 $ 86,369,850
Operating income $ 21,317,947 $ 11,380,651
Net earnings $ 9,424,826 $ 5,014,384
Cash dividends paid $ 1,573,803 $ 1,430,730
Common stock outstanding 1,430,730 1,430,730
Earnings per share $ 6.59 $ 3.50
Cash dividends per share $ 1.10 $ 1.00
Total shareholders' equity $ 43,451,984 $ 35,600,961
Shareholders' equity per share $ 30.37 $ 24.88
Cash and securities $ 16,227,395 $ 18,641,554
Working capital $ 6,580,448 $ 12,364,101
Properties and equipment at cost $ 121,725,177 $ 104,984,213
Long-term debt $ 32,940,000 $ 39,488,357
Number of employees at year end 3,513 3,078
Wages and salaries paid $ 24,748,998 $ 21,839,862
38th Annual Report
EARNINGS Western Air Lines earned $9,424,826, or
$6.59 a share in 1963, highest earnings in the com-
pany's 38-year history and the 15th consecutive year in
which Western has reported a profit. In 1962, the
company earned $5,014,384, or $3.50 a share.
Operations during 1963 produced net earnings of
$9,816,840, or $6.86 a share. This was reduced by
$392,014, or 27 cents a share, as the net result of
two special items: (1) A year-end writedown of the
carrying value of the company's fleet of DC-6B air-
craft ( from $145,000 to approximately $60,000 each)
totaling $582,953 after taxes, and (2) a gain of
$190,939 after taxes from the disposition of property.
Operating income amounted to $21,317,947, equal to
21.4 percent of total operating revenues. In 1962, op-
erating income was $11,380,651, or 13.2 percent of
total operating revenues.
Earnings from operations before taxes totaled
$19,616,840, or $13.71 a share; the provision for taxes
on income consumed $9,800,000, or $6.85 a share.
Per-share figures are based on 1,430,730 shares of
common stock outstanding.
DIVIDENDS For the 13th consecutive year, shareholders
of Western Air Lines received cash dividends in 1963.
Quarterly dividends of 25 cents a share were paid on
March 8, May 17 and August 9. At its October meet-
ing, the board of directors increased the dividend rate
from 25 cents to 35 cents, effective with the dividend
paid on November 8, 1963, resulting in a total pay-
ment of $1.10 a share for 1963.
At the first regular meeting of 1964, held in Phoenix
on February 10, the board again increased the quarterly
dividend, from 35 cents to 45 cents a share, payable
on March 6 to stockholders of record on February 21.
When the 3-for-1 stock split recommended by the
board at the February meeting and discussed in the
Shareholders and Stock section is approved by the
shareholders, the current annual dividend rate of $1.80
will be equivalent to $.60 a share on the new stock.
REVENUES Operating revenues for 1963 also estab-
lished a record high for the company, totaling
$99,427,036, a 15.1 percent increase over the previous
high of $86,369,850 in 1962.
Supporting the growth in operating revenues were a
22 percent increase in seat miles produced and a 23.6
percent increase in the number of seat miles sold.
At the same time, however, the company's yield per
seat mile decreased by 6.6 percent, from 6.23 cents to
5.82 cents. The reduction in yield was largely the re-
sult of three factors: ( 1) a continuing shift of pas-
sengers on an industry-wide basis from deluxe travel
to regular or coach travel, ( 2) the development of
Western' s $11.43 "Thriftair" shuttle service between
Los Angeles and San Francisco which, at 3.36 cents per
mile, is the lowest one-way fare in the U.S., and (3)
an industry-wide family plan fare structure for deluxe
service which was generally lower than coach fare.
Seat miles sold in the coach section increased 3 7. 5
percent for 1963, while deluxe seat miles sold de-
creased by 20.7 percent.
Western's income dollar was derived from essentially
the same sources as in 1962. Passenger traffic accounted
for 93.5 percent (16.6 percent deluxe and 76.9 percent
coach); express, freight and excess baggage added 3.2
percent; mail 1.3 percent and all other sources, includ-
ing property gains, 2 .0 percent.
EXPENSES Total operating expenses for 1963 were
$78,109,089, a 4.2 percent increase over 1962. Costs
other than depreciation were up 8.3 percent, while de-
preciation and amortization were down 17 .9 percent.
A major portion of the expense increase resulted from
the 2 2 percent increase in seat miles produced and a
14.9 percent increase in airplane miles flown.
The holding of the overall expense line and a turn-
down of the cost line in certain areas, combined with
the substantial increase in production, had a very favor-
able effect on unit costs and on Western's break-even
load factor (percentage of seats produced which must
be sold to produce a break-even of expenses and in-
come) . Cost per seat mile decreased from 3 .12 cents
to 2.67 cents, cost per ton mile produced decreased
from 24.38 cents to 22.19 cents and Western's break-
even load factor was lowered from 48 percent for 1962
to 43.6 percent for 1963, despite the reduced yield per
passenger mile, mentioned in the Revenues section of
this report.
Illustrative of favorable expense trends in 1963 were:
the emergence of the 720B as the most economical
aircraft on an overall seat mile cost basis the com-
pany has ever operated; the substantial increase in
volume, especially of "Thriftair" operation, which
resulted in a greater spread of fixed costs, particularly
in the Los Angeles-San Francisco market; and an
improved computer-based fuel management program.
The 720B cost-improvement factor was of even greater
import in relation to 1962 by reason of the return in
September 1962 of the two leased Boeing 707s. The
efficiency of the 720B also permits its use on shorter
routes.
FINANCES Western closed 1963 in a strong financial
position.
Working capital amounted to $6,580,448, a decrease
of $5,783,653 from the 1962 level. The decline in
working capital resulted when the company elected to
deposit with the manufacturer an amount equal to the
purchase price of two Boeing 720B fanjet aircraft
which are scheduled for delivery in 1964. Accordingly,
$7,947,221 in deposits on equipment purchases are
earning interest at a higher rate than is available from
usual short-term investments.
The ratio of current assets to current liabilities at
December 31, 1963, was $1.30-to-$1.00, down from
$1.71-to-$1.00 at the end of 1962.
The overall improved financial condition, which per-
New company headquarters and expanded maintenance base is
1mder construction at Los Angeles International Airport.
Brief Statement of Earnings
Western's income came from:
Passengers
Deluxe ........ . ..... . $
Coach .. . . ...... . .... .
Express, freight and baggage
Mail . . ........... . .... .
Gain on disposition
1963
16,703,444
J_},_
2~9_,226
93,912,670
3,247,853
1,320,254
of property . . . . . . . . . . . . 333,939
Other income . . . . . . . . . . . 1,585,724
100,400,440
Western's expenses were:
Wages and salaries ...... .
Social security, group
insurance and
retirement plans . .... . .
Aircraft fuels ........... .
Materials and repairs . .... .
Depreciation and aircraft
write-down ........... .
Rentals of flying equipment
Other rentals and
landing fees ......... . .
Advertising and publicity ..
For service to passengers ..
Insurance .............. .
Interest .... . .. . ... .. . . .
Taxes . . ............... .
Utilities and services .. .. . .
Other costs ..... . ..... . .
24,748,998
2,321,131
10,550,751
9,724,424
10,980,060
2,966,259
2,722,875
3,095,603
3,466,687
2,322,109
11,194,149
5,186,520
1,696,048
90,975,614
Net earnings .. . ..... . . . .. .. $ 9,424,826
Western' s Income Dollar
76.9 from aircoach passenger services
-
16.6 from deluxe passenger services
I
3.2 from express, freight and excess baggage
I
1.3 from mail
I
1962
$23,544,861
57,624,935
81 ,169,796
2,964,055
1,426,720
1,539,087
1,292,514
88,392,172
21 ,839,862
1,937,375
9,659,785
9,335,283
13,088, 5.98
1,381,263
2,611 ,112
2,823,355
2,577,694
2,946,972
2,285,700
6,727,535
4,639,192
1,524,062
83,377,788
$ 5,014,384
2.0 from all other sources, including property gains
Statement of Working Capital for 1963
Sources of Working Capital
From operations
Net earnings ... . ... . ........ . . ..... $ 9,424,826
Add back
Depreciation and maintenance reserve
provision ....... . ..... . . .... .. . 11,097,084
Deferred income taxes . . . . . . . . . . . . . 6,589,000
Total from operations . . . . . . . . . . 27,110,910
From other sources
Proceeds from disposition of property,
net of taxes . . . . . . . . . . . . . . . . . . . . . . 536,715
Flight equipment lease/ sale contracts . . . 958,626
Other items . . . . . . . . . . . . . . . . . . . . . . . . (87,788)
Total from all sources . . . . . . . . . . 28,518,463
Applications of Working Capital
To purchase airplanes and other property
and equipment ... .. . . ... .... ... . .. .
To pay cash dividends ... .. .. . . .. .. . . .. .
To reduce long-term debt . .. . ... . . .. . .. .
Total applied . . ... .. . ........ .
26,179,956
1,573,803
6,548,357
34,302,l 16
Decrease of Working Capital .. . . . .... .. . . . (5,783,653)
Working capital at beginning of year . . . . . . 12, 3!54, 101
Working Capital at End of Year ........... $ 6,580,448
Western's Expense Dollar
29.7 for wages and salaries
-
12.3 for local, state and federal taxes
-
12 .1 for depreciation
-
11.6 for aircraft fuels
-
10. 7 for materials and repairs
-
2 3. 6 for all other expenses
Brief Balance Sheet
Western owns: 1963 1962
Cash and securities ....... 16,227,395 $18,641,554
Owed by others .......... 9,030,622 9,695,305
Expendable parts and
supplies .... .. ........ 1,661,804 1,266,308
Building and improvements,
net .................. 2,509,904 2.484,779
Flight and other equipment,
net .................. 68,651,705 60,374,316
Deposits on new equipment 11,081,171 4,837,528
Prepaid expenses ......... 1,649,715 1,229,162
Def erred charges and other. ~2jz_ 301,459
111,201,563 98,830,411
Western owes:
Owed to vendors and others 11,464,612 9,482,491
Federal income taxes-
current and deferred . . . . 16,274,443 7,252,124
Tickets sold but not yet used 1,910,524 1,575,613
Notes payable-
current and long-term . . . 38.100,000 44,919,222
Excess of what is owned over
what is owed, or
67,749,579 63,229.450
- -~ --
shareholders' equity ...... $___iM_SJ.,_?84_ $35,600,961
mitted the interest-bearing aircraft deposits, also per-
mitted the company to forego any borrowings under its
1962 credit agreements. These agreements had been
set up to finance the purchase of three 720B's which
were delivered in 1963. During the year, the agree-
ments were amended to make these funds available for
the aircraft scheduled for delivery in 1964. However,
this right to borrow was cancelled by the company
effective December 31, 1963, in anticipation that cur-
rent commitments can be covered by internally gen-
erated funds.
The level of current earnings is the fundamental key
to the company's improved financial position. How-
ever, the significant amount of annual depreciation
( which does not consume working capital) and the
effective acceleration of depreciation for tax purposes
( which lowers income taxes currently payable but for
which provision is made under def erred taxes) have
both materially aided the retention of working capital.
The company anticipates further material and effective
fund flow from both sources in 1964. During 1963,
the investment of excess cash funds produced $500,000
in interest income.
As of December 31, 1963, Western's long-term debt
totaled $32,940,000. This debt was composed of
$14,220,000 in notes payable to banks and $23,880,000
payable to insurance companies, less current maturities
of $5,160,000. During the year, the company made
payments as scheduled under the various loan agree-
ments in the amount of $3,960,000 and paid off in full
the equipment lease/purchase contracts which totaled
$2,859,222 at December 31, 1962, and were part of
the long-term debt at the close of 1962.
A full summary of debt, interest rates and repayment
schedules is shown in Note 2 to the financial state-
ments. A statement of source and application of work-
ing capital is included in this report.
SHAREHOLDERS AND STOCK At the close of 1963, there
were 1,430,730 shares of Western's common stock
issued and outstanding.
The stock was held by approximately 7,500 stock-
holders, residing in each of the 50 states and several
foreign countries.
At the 1963 annual meeting of shareholders held in
Los Angeles on April 25, 85.1 percent of all shares
were voted either in person or by proxy.
Shareholders' equity reached a new high in 1963, total-
ing $43,451,984, or $30.3 7 a share, compared with a
1962 equity of $35,600,961, or $24.88 a share.
On the New York Stock Exchange, 1,171,300 shares
of the company's stock were traded during the year.
The high was 76, the low 28 and the closing price
on December 31, 1963, was 73. On the Pacific Coast
Stock Exchange, 102,881 shares were traded with a
high of 75, a low of 28 and a year-end closing
price of 73.
At the February 10, 1964 meeting, the board voted to
recommend to the shareholders at the next annual meet-
ing a proposal to increase the number of 1 par value
authorized stock from 2,000,000 shares to 10,000,000
shares and to split the stock 3-for-1.
Shareholders of record on March 6, 1964, will be en-
titled to vote at the annual meeting to be held on
April 23. Upon obtaining shareholder approval and
after compliance with security regulations, the pro-
posed stock split will be made effective May 4, 1964,
and the additional shares will be mailed to sharehold-
ers on or about June 1, 1964.
ANNUAL MEETING The 1964 meeting of shareholders
will be held at the Beverly Hilton Hotel, Beverly Hills,
on April 23. On or before March 20, stockholders will
receive a notice of the meeting and proxy material.
EQUIPMENT Western took delivery on three addi-
tional Boeing 720B aircraft during 1963 increasing
its fanjet fleet to 10.
The three new 122-passenger jets, delivered in April,
May and June, permitted the company to increase the
number of passenger seat miles produced by 22 percent
over 1962, from 2.4 billion seat miles in 1962 to 2.9
billion in 1963.
The company also ordered three additional 720B's for
delivery in May and November of this year and April
1965. Two piston-powered Douglas DC-6B's were sold
..
during the year. At year's end, W< stern operated a fleet
of 36 aircraft, including the 10 720B's, 12 Lockheed
Electra II's and 14 DC-6B's.
New Western terminal facilities at San Francisco Inter-
national Airport offer latest passenger-service features.
While expanding the four-engine fanjet fleet, company
officials also followed closely the development of two
short-to-intermediate range twin-engine jets-the Brit-
ish Aircraft Corporation One-Eleven and the Douglas
DC-9-as the next step in the company's continuing
effort to operate the most modern and efficient aircraft
available. Although no orders have been placed, it is
anticipated that short-range jets will be acquired in
the future.
Construction of a new company headquarters and main
maintenance base at Los Angeles International Airport
proceeded according to plan during the year. Occu-
pancy of the new facilities, which will include jet
hangars, maintenance shops and an engine test cell, in
addition to corporate offices, is scheduled for the sum-
mer of 1964.
During 1963, the company occupied modernized termi-
nal facilities at San Francisco and Las Vegas. At San
Francisco, Western installed jet passenger loading
bridges- the first on the WAL system - and two pop-
ular passenger service features which are unique to
Western: curbside baggage checking and a dial-a-matic
electronic flight information system.
Scheduled for 1964 are the installation of passenger
loading bridges at Western' s Los Angeles terminal and
new boarding concourses at Seattle and Denver.
SALES AND SERVICE New records in traffic volume and
continued emphasis on economy air services were 1963
highlights of the most extensive marketing program in
Western's history.
The company carried 2,812,640 passengers during
1963, 32.2 percent more than in the previous year.
A 15. 7 percent increase in passenger revenue , from
81 169,796 in 1962 to 93,912,670 reflects an ex-
pansion of passenger volume and two additi nal key
factor : ( 1) the successful full-year operation f three
new routes-Los Angeles-Sacramento, an Franci co-
Ontario ( alif.) and an Franci co-La Vi ga, and (2)
the high-volume, 1 w-fare "Thriftair" ervi e b tween
Los Angeles and San Francisco and, effective Decem-
ber 1, between Los Angeles and Las Vegas.
The percentage of increase in passenger revenues was
less than that of passengers and revenue passenger
miles because of the reduced yield per passenger mile
mentioned in the Revenues section of this report and
a shorter length of haul. The latter was influenced in
part by growth of the "Thriftair" operation.
Volume of cargo shipments continued to increase
throughout the system with air freight tonnage
( freight, express, excess baggage, airmail and regular
first-class mail) and revenue reaching an all-time high
of $4,568,107, compared to $4,390,775 in 1962.
Continuing its program to make air travel available to
a greater number of people through economy air serv-
ices, Western remained the nation's No. 1 trunkline in
this field, with approximately 85 percent of its capacity
in economy seating. The company continued to offer
and promote deluxe services as well, so that a choice of
accommodations would be available to travelers.
Sales teamwork between Western and its authorized
travel agents was further developed during 1963, with
the company's ticket sales by agencies establishing a
new record of $28,400,000, an increase of 21.3 percent
over the previous year.
Closer relationships and joint sales programs with
other airlines brought a new high in connecting traffic,
with Western' s interline revenues reaching $28,600,000,
up 4.2 percent from 1962.
Despite the 22 percent increase in seat miles produced,
Western's overall load factor increased to 5 5.1 percent,
compared to 54.4 percent for 1962.
On February 25, 1963, the company reduced the one-
way fare on its "Thriftair" DC-6B shuttle service be-
tween Los Angeles and San Francisco to $11.43, lowest
fare on the highly competitive route. This service pro-
vides every-hour-on-the-hour departures from each city
during the business day, with 15 daily roundtrips.
Extensive programs of advertising, promotion and
publicity were devoted to the Mexico route during the
year, under the theme of "Let's Go Mexico!" Travel
between Pacific Coast cities and Mexico was stimulated
by economy tours and trips by special groups mer-
chandised through travel agents. A new concept of
routing transcontinental travelers via Mexico was well-
received. Emphasis on such "Circle Trips" is being
l
I
developed for the New York World's Fair.
For its leadership in promoting travel from Mexico to
the Pacific Coast under the "Visit U.S.A." program,
Western was awarded the President's "E'' A ward for
excellence in developing foreign markets.
In addition to expanding its 12th annual "Sun Break"
campaign in wintry northern regions, the company
developed for the first time a summer counterpart of
this program. The "Fly North" program encouraged
vacationers to visit the Pacific Northwest, Canada,
Alaska and other summer vacation areas.
Arrangements were made during the year for Western
to offer a "Fly Now-Pay Later" plan. This conven-
ience, and BankAmericard, which is being added in
March of this year, augment the five credit cards al-
ready honored by the company: American Express,
Diners' Club, Hilton Carte Blanche, the industry-wide
Universal Air Travel Plan and Western's own Charge-
A-Flight.
ROUTE DEVELOPMENT Although there were no
changes in Western' s route system during 1963, certain
developments are significant.
On November 8, i963, the Civil Aeronautics Board
decided by ~ 3-2 vote to terminate both the domestic
and the international phases of the Transpacific Route
Case. The majority took this action without either
granting or denying Western' s applications for Cali-
fornia-Hawaii domestic authority, stating that it would
review again the entire Pacific route pattern in a new
proceeding at some time in the future.
The two minority members stated that they would
have issued a certificate for Los Angeles-, San Fran-
cisco-, and San Diego-Hawaii authority to Western in
accordance with the board's decision of December 7,
1960.
On November 29, 1963, the company filed a petition
asking the CAB to reconsider this decision. The com-
pany contends that the CAB committed a number of
major legal errors in its disposition of the domestic
phase of this case. It is Western' s position that federal
law requires the CAB to act upon outstanding applica-
tions after a proceeding has been completed and also
New traffic records were set during the year as 2,812,640
business and pleasure travelers were cartied on WAL flights.
requires that authorization for new service be issued
when a finding is made that additional service is
required by public convenience and necessity.
The CAB' s findings in its decision of December 7, 1960
-that new California-Hawaii service is required-have
not been revoked by the CAB. Instead, the CAB
has attempted to hold those findings in abeyance pend-
ing a future proceeding. The CAB is expected to rule
soon on the company's petition for reconsideration of
the November 8 decision.
In order to protect its legal rights, the company also
filed on January 6, 1964, a petition with the United
States Court of Appeals for the District of Columbia
requesting that it review and set aside the CAB' s
November 8 decision on the grounds stated above. If
the Civil Aeronautics Board grants the company's peti-
tion for reconsideration, the petition for court review
will be withdrawn or amended, depending on the
nature of the CAB's ruling. However, if the CAB
should deny the company's petition, Western will pro-
ceed with the court proceeding, which should be
argued in the spring or early summer of 1964.
The company continues to remain hopeful that these
legal issues will be resolved successfully and that it will
ultimately be authorized to inaugurate the much-needed
new service from California to Hawaii.
The CAB also issued a decision in the Southern Rocky
Mountain Local Service Case during 1963, denying the
company's application for Phoenix-Salt Lake City serv-
ice but also denying the main applications of subsidized
local service carriers which proposed to duplicate
WAL service on certain routes in an area bounded by
Los Angeles, Las Vegas, Reno, Denver and San Diego.
International negotiations between the governments of
the United States and Mexico, conducted during July
and August, resulted in the extension of the bilateral
Shareholders' Equity
$45 (millions)
40
35
30
25
20
15
54 55 56 57
Load Factors
100%
90
80
70
60
Actual load Factor
Tan-jacketed 11Special Agents" became a familiar sight at
major Western terminals during 1963.Among passengers aided
0
by company's new program are mothers with small children. 56 57
58 59 60 61 62 63
58 59 60 61 62 63
Seat Miles Sold
1600 (millions)
agreement under which the company operates its
Los Angeles-San Diego-Mexico City route, from
1400
August 14, 1963, to August 15, 1964.
PERSONNEL Western' s greatest asset has always been
1200
its employees. During 1963, as a result of expanded
training programs and individual initiative, they con-
1000 tinued to broaden their knowledge, learn important
new skills and accept greater responsibilities in the
800 fulfillment of their demanding tasks.
Deluxe
As of December 31, there were 3,513 employees on
600 the WAL employment roster, compared to 3,078 in
1962. Wages and salaries accounted for $24,748,998
400 during 1963.
Contracts were signed during the year with four unions,
200 representing the company's pilots, clerks and agents,
maintenance personnel and communication workers. A
contract also is in force with the dispatchers' union. An
54 55 56 57 58 59 60 61 62 63
agreement which covers Western' s stewardesses was the
only one open for negotiation at the close of 1963.
Seat Miles Eighty-eight percent of total employees are represented
3000 (millions)
by the six unions.
Participation by employees in the company's voluntary
group insurance program continued high during 1963,
2500
with 3,099 employees subscribing to the basic coverage,
1,362 members of this group carrying an additional
life insurance feature of the plan and 1,614 employees
2000
carrying family benefits.
Produced
As of December 31, 1963, there were 1,621 employees
eligible (by length of service) to participate in the
company's insured, contributory retirement income pro-
gram; 1,129 of these employees participated in the plan,
now in its 12th year of operation.
During the year, the retirement programs cost the
company $1,020,085 for current and past services.
Western believes its employee benefit programs are
second to none in the industry.
--~--
Successful Los Angeles-San Francisco "T hriftair" fiights
54 55 56 57 58 59 60 61 62 63 were extended to Los Angeles-Las Vegas route in Decembe1'.
A Decade of Growth
1963
Revenues:**
Passenger . . . . . . . . . . . . . . . . . . $93,913
Express, freight and excess
baggage . . . . . . . . . . . . . . . . . 3,248
Mail . . . . . . . . . . . . . . . . . . . . . . 1,320
Other ..................... _ __,9;_4_.;;..6
Total Revenues . . . . . . . . . . . 99,427
Operating Expenses:**
Depreciation and amortization. . 9,762
Payroll . . . . . . . . . . . . . . . . . . . . 24,749
Other . . . . . . . . . . . . . . . . . . . . . 43,598
Total Operating Expenses . . . 78,109
Operating Income** . . . . . . . . . . . 21,318
Interest** . . . . . . . . . . . . . . . . . . . . {2,322)
Other Income and Expenses
Net** ..................... __
6_2_1
Provision for Taxes on Income** .
Net Earnings from
Operations** .......... .
Special Items (Less Applicable
Income Taxes) : * *
Gain on disposition of
property .............. .
Write-down of aircraft .... .
Net Earnings** ........ .
Net earnings from operations
19,617
9,800
9,817
191
(583)
$ 9,425
per sharet . . . . . . . . . . . . . . . . . $ 6.86
{0.27)
Special items per sharet ....... .
Dividends paid per share:
Casht .................... .
Stock .................... .
Shares outstanding* *t ........ .
Shareholders' equity-total** ... .
Shareholders' equity-a sharet .. .
Working capital** ........... .
Long-term debt** ............ .
Properties and equipment-net** ..
Total assets** ... ......... ... .
1.10
1,431
$43,452
30.37
6,580
32,940
71,162
111,202
Route miles at end of year . . . . . . . 9,474
Airplanes at end of year:
Boeing 720-B . . . . . . . . . . . . . . . 10
Boeing 707-leased ......... .
Lockheed Electra II . . . . . . . . . . 12
Douglas DC-6B . . . . . . . . . . . . . 14
Other aircraft-piston powered ..
Airplane miles flown** . . . . . . . . 29,035
Ton miles produced** . . . . . . . . . 352,038
Ton miles sold** . . . . . . . . . . . . . 168,002
Seat miles produced** ......... 2,929,673
Seat miles sold** ............. 1,615,189
Express, freight & mail ton
miles sold** . . . . . . . . . . . . . . . 12,291
Passengers carried ............. 2,812,640
Express, freight & mail tons
carried . . . . . . . . . . . . . . . . . . . . 16,250
Passenger load factor-
actual % 55.1
breakeven point % 43.6
Average length in miles per
passenger trip . . . . . . . . . . . . . . 574
Average revenue per passenger
mile . . . . . . . . . . . . . . . . . . . . . . $ .0582
Employees at end of year . . . . . . . 3,513
* 0 perations were ad verse Ly a/Jected by strike.
1962
81,170
2,964
1,427
__Q2_
86,370
11,895
21,840
41,254
74,989
11,381
{2,286)
_ill_
9,578
4,875
4,703
889
_{lli)
5,014
3.29
0.21
1.00
1,431
35,601
24.88
12,364
39,488
62,859
98,830
9,545
7
12
16
1961*
59,737
2,271
1,231
1,013
64,252
11,211
17,987
32,864
62,062
2,190
(1,889)
-1.!.!2)
182
_!l.?_
57
807
864
0.04
0.56
1.00
1,431
32,017
22.38
5,505
36,097
58,493
85,697
8,827
4
2
12
19
25,262 20,624
307,570 224,819
137,492 101,232
2,402,344 1,718,854
1,307,173 957,560
11,574 8,987
2,128,225 1,529,137
16,037 12,364
54.4 55.7
48.0 55.5
614 626
.0623 .0632
3,078 2,794
1960
64,356
2,473
1,393
_m
69,077
10,000
19,478
33,323
62,801
6,276
(1,330)
~
5,384
3,050
2,334
105
1.63
0.07
0.99
5%
1,431
32,584
22.77
16,841
24,790
33,302
72,433
8,827
2
6
27
4
25,996
207,554
109,316
1,776,076
1,034,481
1959
59,194
2,256
1,295
~
63,253
6,643
17,704
27,696
52,043
11,210
{1,127)
__JJlQ_
10,263
5,456
4,807
210
5,017
4.41
0.19
0.80
4%
1,091
24,545
22.50
11,518
25,272
37,546
67,223
8,827
5
27
5
25,689
196,178
103,741
1,623,007
982,010
1958*
31,459
1,305
732
_ill
33,970
4,136
11,947
16,831
32,914
1,056
(1,023)
-1!
107
______I!:]_
(120)
1,522
(0.12)
1.51
0.73
4%
1,011
18,996
18.78
5,320
19,748
31,035
49,.596
9,153
27
8
16,449
123,416
56,710
981,740
533,443
1957
39,243
1,596
1,067
-2.Ll
42,219
3,011
14,335
20,076
37,422
4,797
(780)
_.2Q
4,107
2,233_
1,874
528
2,402
1.95
0.55
0.70
4%
962
17,469
18.16
4,688
16,827
24,652
44,017
8,799
21
14
21,896
137,640
74,468
1,175,071
702,727
1956*
26,249
954
775
210
28,188
2,294
10,283
13,009
25,586
2,602
(394)
__
3_1
2,239
1,205
1,034
2,010
1.13
2.19
0.66
4%
917
14,991
16.35
4,600
9,677
17,216
32,075
6,350
14
16
14,851
86,196
48,481
740,174
458,131
1955
28,756
1,185
862
--1li
31.039
2,151
11,057
13,775
26,983
4,056
(262)
_ _ l_O
3,804
1,860
1,944
38
1.982
2.14
0.04
0.74
909
12,430
13.67
2,784
3,484
11,208
23,332
5,525
8
23
18,335
100,015
54,999
870,596
514,677
1954
22,423
968
764
_lli_
24,481
1,761
9,239
11,456
22.456
2,025
(160)
_ill)
1,850
764
1,086
373
1.24
0.43
0.49
876
10,786
12.31
1,490
3,755
13,146
20,204
5,525
8
24
15,842
80,261
42,669
721,255
402,255
9,538 8,899 5,309 7,118 4,667 5,828 4,225
1,721,619 1,689,278 970,498 1,379,653 928,746 1,092,578 834,910
13,354
58.2
53.3
601
.0626
2,730
12,792
60.5
50.0
581
.0605
2,962
8,010
54.3
54.1
550
.0595
2,547
11,537
59.8
53.5
509
.0558
2,773
8,200
61.9
56.6
493
.0573
2,343
10,332
59.1
51.3
471
.0559
2,130
7,559
55.7
51.1
482
.0557
1,864
i-Based on shares outstandin/!, at close of respective periods adjusted /01 stock dividends paid throuf!,h 1960.
* *000 omitted.
Statement of Earnings and Retained Earnings
For the year ended December 31 ., 1963 (with comparative figures for 1962)
Operating Revenues : 1963 1962
Passenger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 93,912,670 $ 81,169,796
Express, freight and excess baggage ............................... . 3,247,853 2,964,055
Charter and other transport service ................................ . 205,031 484,899
Mail ........................................................ . 1,320,254 1,426,720
Incidental revenue - net .. . ...................................... . 741,228 324,380
99,427,036 86,369,850
Operating Expenses :
Flying operations .............................................. . 20,818,768 20,313,399
Maintenance ................................................... . 13,303,710 12,445,297
Passenger service .............................................. . 6,694,820 5,517,229
Aircraft and traffic servicing ..................................... . 12,270,573 10,861,460
Promotion and sales ........................................... . 11,096,120 10,194,263
General and administrative ............... . ...................... . 4,162,991 3,762,967
Depreciation and amortization ................................... . 9,762,107 11,894,584
78,109,089 74,989,199
Operating Income ................. . ....................... . 21,317,947 11,380,651
Other Income (Expenses) :
Interest expense ............................................... . (2,322,109) (2,285,700)
Interest income ................................................ . 639,465 447,271
(18,463)
Other income (expense) - net ..................................... - -~-- 35,964
Earnings before Taxes on Income ............................. . 19,616,840 9,578,186
9,800,000
Provision for Taxes on Income ( ote 1) .... . .... . .... . ..... . . . ....... - --'-- 4,875,000
Net Earnings from Operations . ............. . .......... . . . .. . 9,816,840 4,703,186
Special Items (Less Applicable Income Taxes - Note I):
Gain on disposition of property .................................. . 190,939 889,087
Write-down of piston aircraft ... . ................................ . (582,9~)
_ ____,_
__ _ (577,889)
Net Earnings ....................................... . ..... . 9,424,826 5,014,384
Retained Earnings at Beginning of Year ...... . ....................... . 14,808,646
_
____;._...:..
11,224,992
24,233,472 16,239,376
Cash Dividends Paid
$1.10 per share in 1963 and $1.00 in 1962 .. . ... . ... . .. .. . . ....... . 1,573,803 1,430,730
22,659,669 ! 14,808,646
Retained Earnings at End of Year (Note 2) ........ . ................... $
=====
See accompanying notes to financial stc1tements
Western Air Lines Balance Sheet
Assets
As of December 31, 1963
( with comparative figures for 1962)
Current Assets : 1963 1962
Cash ......................................................... $ 3,550,685 $ 3,154,038
Certificates of deposit .......................................... . 8,261,806 7,554,521
---
u. S. Treasury Bills ( approximating market) ........................ . 4,414,904 7,932,995
---
Receivables :
Traffic balances (net of allowance for doubtful accounts $125,000) .. . 6,591,951 5,537,104
U.S. and State Government Departments ....................... . 956,493 1,106,284
Other ................................................... . 1,299,669 1,910,782
8,848,113 8,554,170
1,661,804
Expendable parts and supplies .................................... ____ _ 1,266,308
Prepaid expenses .............................. ............ .... . 1,649,715 1,229,162
- - - - -
Total Current Assets . ..................................... . 28,387,027 29,691,194
Deposits on equipment purchase contracts (Note 3) . .................... . 11,081,171 4,837,528
Properties and equipment at cost :
Flight equipment .............................................. . 106,433,995 92,889,702
Buildings on and improvements to leased property ................... . 4,738,364 4,533,785
Other property and equipment ................................... . 10,552,818 7,560,726
121,725,177 104,984,213
Less allowance for depreciation and maintenance .................... . 50,563,568 42,125,118
71,161,609 62,859,095
Flight equipment lease/sale contracts ( exclusive of current maturities) ....... . 182,509 1,141,135
Def erred charges and other assets ..................................... . 389,247 301,459
$ 111,201,563 $ 98,830,411
--
Liabilities
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) .......................................... . .
Deferred federal taxes on income (Note 1) ............................. .
Shareholders' Equity (Notes 2 and 5):
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 ............................................. .
See accompanying notes to financial statements
$
$
As of December 31, 1963
( with comparative figures for 1962)
1963 1962
5,160,000 $ 5,430,865
5,744,189 4,581,791
914,324 794,544
2,698,200 2,268,318
1,808,699 1,522,488
299,200 315,350
1,910,524 1,575,613
3,271,443 838,124
21,806,579 17,327,093
32,940,000 39,488,357
13,003,000 6,414,000
1,430,730 1,430,730
19,361,585 19,361,585
22,659,669 14,808,646
43,451,984 35,600,961
111,201,563 $ 98,830,411
Notes to Financial Statements
Note 1. Taxes on Income. Federal income tax returns have been ex-
amined by the U. S. Treasury Department through December 31, 1962.
The net provision of $9,308,000 as summarized below includes
$2,719,000 for taxes currently payable and $6,589,000 for deferred
income taxes, which relate primarily to the use of guideline lives and
accelerated depreciation for tax purposes.
Charged to operations:
Current year's provision . . . .... .. ..... . ....... $9,952,000
Investment credit . . . . . . . . . . . . . . . . . . . . . . . . . . . (152,000) *
9,800,000
Included in special items:
Applicable to gain on the disposition of property. . 143,000
Reduction applicable to write-down of aircraft. . . . (635,000)
Net provision for taxes . .. ..... .. ........... . ... $9,308,000
*The 48% portions of investment credits are being amortized to
income over eight years.
Note 2. Long-term Debt (Unsecured). The long-term debt is sum-
marized as follows:
Bank Loans:
5 % notes payable
51/8
% notes payable
5 % notes payable
Insurance Company Loans:
4 % notes payable
5 % notes payable
6 % notes payable
Outstanding
December 31,
1963
$1,530,000
3,890,000
8,800,000
9,120,000
5,760,000
9,000,000
38,100,000
Less current maturities 5,160,000
$32,940,000
Payable
$50,000
monthly
$80,000
monthly
$200,000
monthly
$1,200,000
annually
$600,000
annually
effective
Sept. 1, 1966
$810,000
annually
effective
Sept. 1, 1965
Final
Maturity
Sept. 1,
1966
Dec. 31,
1967
Sept. 1,
1967
Sept. 1,
1970
Sept. 1,
1975
Sept. 1,
1975
The related agreements with the bank and insurance companies pro-
vide among other things (including restrictions on additional borrow-
ings) conditions and requirements which at December 31, 1963 op-
erated to restrict retained earnings from cash dividend distribution
in the amount of $20,286,248 leaving $2,373,421 not so restricted.
Note 3. Commitments and Contingent Liabilities. At December 31,
1963, the company had on order three Boeing 720B fanjet aircraft
with deliveries scheduled in May and November 1964 and April 1965.
These aircraft together with orders for other major items represented
purchase commitments at December 31, 1963 of approximately
$13,000,000 in excess of the related deposits already paid.
The estimated minimum annual rentals under long-term leases were
approximately $1,000,000 at December 31, 1963.
Note 4. Retirement Plans. The costs charged to operating expense in
1963 totaled $1,020,085 for both current and past services. The past-
service costs of the 1952 group annuity plan became fully funded
in 1963.
The company's pension plans are in the process of being revised. The
actuarial computations have not been finalized; however, the company
does not anticipate any material adverse effect upon earnings as the
result of these changes.
Note 5. Stock Split and Cash Dividend. On February 10, 1964, the
Board of Directors proposed a three-for-one stock split, subject to
shareholder approval. The Directors also declared a quarterly divi-
dend, payable March 6, 1964, at the increased rate of $0 .4 5 per share
on the shares currently outstanding.
PEAT, MARWICK, MITCHELL & Go.
CEBTIJPIED PUBLIC ACCOUNTANTS
829 SOUTH SPJUNO STREET
LOS ANOE LES 14, CALIF.
ACCOUNTANTS' REPORT
The Board of Directors
Western Air Lines, Inc.:
We have examined the balance sheet of
Western Air Lines, Inc. as of December 31, 1963
and the related statement of earnings and retained
earnings for the year then ended. Our examination
vas made in accordance vi th generally accepted
auditing standards, and accordingly included such
tests of the accounting records and such other
auditing procedures as we considered necessary
in the circumstances.
In our opinion, the accompanying balance
sheet and statement of earnings and retained earnings
present fairly the financial poai tion of Western Air
Linea, Inc. at December 31, 1963 and the results of
its operations for the year then ended, in confonnity
vi th generally accepted accounting principles applied
on a basis consistent with that of the preceding year,
Loa Angeles, California
February 12, 1964
Board of Directors
HUGH W. DARLING
Darling, Shattuck, Hall & Call
Attorneys-at-Law
HECTOR C. HAIGHT
Los Angeles, California
L. WELCH POGUE
Pogue & Neal
Attorneys-at-Law
Washington, D.C.
Los Angeles, California GOODRICH LOWRY
President
TERRELL C. DRINKWATER
President
Northwest Ban corporation
Minneapolis, Minnesota
STANLEY R. SHATTO
Vice P1esident-O perations
Western Air Lines, Inc.
Western Afr Lines, Inc.
ROBERT E. DRISCOLL
Honorary Chairman of the Board
First National Bank
DONALD H. MC LAUGHLIN
Chairman of the Board
Homestake Mining Co.
San Fran6sco, California
HARRY ]. VOLK
President, Union Bank
Los Angeles, California
of the Black Hills
Rapid City, South Dakota EDWIN W. PAULEY
Chairman of the Board
Pauley Petroleum, Inc.
Los Angeles, California
Executive Staff
Senior Officers
TERRELL C. DRINKWATER, President
Stanley R. Shatto, Vice President-O perntions
Marvin W Landes, Vice President-Service
Arthur F. Kelly, Vice Pi-esident-Sales
J. Judson Taylor, Vice President and Treasurer
D . P. Renda, Vice President-Legal and Sec1etary
G. G. Brooder, Vice President
Operations Division
STANLEY R. SHATTO, Vice President
Anton B. Favero, Assistant Vice President
and Director of Maintenance
Harold W Caward, Assistant Vice President
and Director of Flight Operations
Terrell S. Shrader, Assistant Vice President
and Director of Industrial Relations
Richard B. Ault, Director of Engineering
Peter P. Wolf, Director of Communications
Charles S. Fisher, Dfrector of Flight Schedules
Stanley J. Cavill, System Chief Pilot
GENERAL OFFICES
Western Air Lines Building
6060 Avion Drive
Los Angeles International Airport
Los Angeles 9, California
REGISTRARS
Bank of Ame1'ica National Trust &
Savings Assn.
111 West Seventh St1eet
Los Angeles 14, California
The Chase Manhattan Bank
1 Chase Manhattan PlaZc1
New York 15, New York
Service Division
MARVIN W LANDES, Vice P1esident
Philip E. Peirce, Assistant Vice P1'esident
and Director of Ground Services
Richard P Ensign, Assistant Vice P1'esiden/
and Director of In-Flight Services
Sales Division
ARTHUR F. KELLY, Vice Pi-esident
Bert D. Lynn, Assistant Vice Pi-esident
and Director of Advertising
and Sales Pmmotion
Arthur C. Smith, Assistant Vice President
and Directo1 of Sales Administ1ation
Willis R. Balfour, Director of Agency
and Interline Sales
Ray Silvius, Director of Public Relations
Memphis E. Sullivan, Dfrecto1 of Traffic
STOCK TRANSFER AGENTS
Secu1'ity Fi1'St National Bank
124 1Vest Fourth Sheet
Los Angeles 14, California
Chemical Bank New York Trust Co.
20 Pine Street
New York 15, New York
STOCK LISTINGS
Listed and traded on
New York Stock Exchange and
Pacific Coast Stock Exchange
JOHN M. WAL LACE
Chairman of the Board
Walket 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
Treasury Division
J. JUDSON TAYLOR, Vice President
and Treasurer
Charles J. J. Cox, Contt"oller
and Assistant Treasurer
Kenneth W: Kendrick, Director of
Purchasing and Sto1'es
H. S. Gray, Direc/01 of Budget
Legal Division
D. P RENDA, Vice Pl'esident and Secreta1'y
John W: Simpson, Assistant Secretary
and Director of Law
Thomas M. Murphy, Di1'ecto1' of State
and Community Aff afrs
James L. Mitchell, Directo1' of Research
James M. Keefe, Director of Properties
GENERAL COUNSEL
Hugh W. Darling
Dading, Shattuck, Hall & Call
523 West Sixth Street
Los Angeles 14, California
AUDITORS
Peat, Marwick, Mitchell & Co.
629 South Sp1'ing Street
Los Angeles 14, California
ANNUAL MEETING
Fourth Thursday in April