Western Air Lines Annual Report 1969

Western
Air Lines Inc.
1969
Annual
Report
Highlights of 1969
Operating 1969*
Seat miles produced ................ . .. . 8,509,441,000
Seat miles sold ....................... . 4,021,296,000
Passengers carried ........... . ........ . 5,752,072
Passenger load factor - actual % ........ . 47.3
-breakeven point% .. 53.1
Financial
Operating revenues ................... . $240,351,788
Operating income (loss) ....... .. .. . .. .. . $ (12,400,902)
Net earnings (loss) .................... . $ (12,198,860)
Cash dividends paid ......... . ......... . $ 2,451,634
Common stock outstanding .... . ......... . 4,903,879
Earnings (loss) per share . ... . . .. .. . .. .. . $ (2.49)
Cash dividends per share ............... . $ 0.50t
Shareholders' equity ................... . $ 79,309,461
Shareholders' equity per share ........... . $ 16.17
Cash and short-term securities ........... . $ 28,454,327
Working capital ....................... . $ 20,447,092
Property and equipment at cost ....... . . . . $429,107,512
Long-term debt ....................... . $197,149,588
Number of employees at year end ........ . 9,225
Wages and salaries paid ................ . $ 87,495,153
operations were suspended from July 29 to August 16, 1969 because of a strike.
t$0.25 per share paid on March 3 and on May 26, 1969.
1968
7,096,229,000
3,841,864,000
5,692,947
54.1
50.7
$221,952,867
$ 19,681,421
$ 8,435,770
$ 4,893,544
4,901,734
$ 1.72
$ 1.00
$ 93,862,286
$ 19.15
$ 27,870,420
$ 25,763,975
$404,674,981
$183,718,216
8,919
$ 71,884,941
To Our Stockholders
As detailed in the following pages of this report, 1969
was a difficult year for Western as the company experi-
enced a loss of $12.2 million, ending a record of 20
consecutive years of profit.
Any regulated industry has problems during an infla-
tionary period when it is unable to increase prices as
rapidly as costs are increasing. Air transportation is no
exception. During 1969, however, Western was faced
with additional problems that contributed to the com-
pany's losses, some of which are behind us, others which
remain as a challenge in 1970. These were:
Costs associated with repeated postponements in the
effective date of Hawaii routes;
loss of revenue because of an 18-day strike during the
peak travel season;
industrywide increases in wages, salaries, interest
costs, jet fuel, materials, landing tees and rentals;
a general slowdown in the growth of air travel that
resulted in a traffic increase of only five percent at a time
when the company's fleet modernization and expansion
program was producing a 20 percent increase in seat-
mile production;
new and increased competition on the company's key
domestic routes.
Western started service to Hawaii under the most
adverse circumstances. After being awarded a number
of Hawaii routes on January 4 for an effective date of
March 5, the company began preparations for the inaugu-
ration of service. The effective date was then postponed
five times by the Civil Aeronautics Board before being
made final on July 22. On July 25, Western inaugurated
its service, which was further interrupted four days later
by an unexpected strike by the company's mechanics.
The Hawaiian market is one in which reservations by
individuals and tour groups are normally made months
in advance. The uncertainty of when Western would be
permitted to inaugurate its service and the ensuing work
stoppage made it impossible to build up advance reser-
vations prior to the establishment of service.
The growth of traffic on new routes normally requires
a period of development, particularly where competition
is well entrenched or where, as in the case of Hawaii, ex-
cessive competition is authorized. A total of eight certifi-
cated U.S. flag airlines are now authorized to fly to Hawaii
from the Mainland, compared to only three prior to West-
em's entry into the market. In addition, nine supplemental
airlines operated charter flights to Hawaii in 1969.
Because of the excessively low fare structure between
the Mainland and Hawaii, the breakeven load factor for
these routes is higher than is normal for routes of this
length. Already one of the lowest per-mile fares in the
U.S., the basic fare was reduced an additional 15 percent
in 1969 for economy and coach travel during the middle
of the week and was not included in the October domes-
tic fare increases. In addition, the yield for Mainland
carriers is further reduced by a common fare arrange-
ment, required by the Civil Aeronautics Board, wherein
the Mainland carrier underwrites the major portion of the
fare reductions that are available for connecting flights
on inter-island carriers between the islands of Hawaii.
Included in Western's operating authority for Hawaii
was a condition which requires that all Hawaii-Los
Angeles flights originate or terminate at a point east of
California. Although this does not prevent us from carry-
ing local traffic in the Los Angeles-Hawaii market, it does
force us to extend more Hawaii flights to inland points
than the market justifies and prevents us from originating
or terminating Hawaii flights at Los Angeles, the location
of our main maintenance base. This requirement results
in reduced utilization for overwater-equipped aircraft and
limits scheduling flexibility for Hawaii service.
As a result of other Civil Aeronautics Board decisions,
Western now has competition on every major route it
serves. On the California-Twin Cities nonstop routes, for
example, the addition of competitive trunkline service in
October 1969 has doubled the number of daily flights on
the routes and , while Western has been able to maintain
a good share of the market, the additional service and
slowdown in the economy have resulted in low load
factors and unprofitable operations.
Western is continuing to make improvements in the
quality of its service. On our Hawaii flights, for example,
we have added movies and stereo sound, increased leg-
room for coach and economy passengers and are provid-
ing other new in-flight features. On commuter and other
short-haul routes, we have increased the legroom on all
of our 737 twinjets to the same spacing as first class. We
are redoubling our efforts to improve our on-time per-
formance and have launched other programs internally-
a new employees' suggestion system, a product develop-
ment team and a corporate design study - to enhance
the company's image and increase its load factors.
At the same time, we have carefully pruned schedules
to eliminate those flights that have the least potential for
profit; have reduced the number of employees by nine
percent from our 1969 high; have launched a program
that will permit us to retire our remaining Electras; are
seeking Civil Aeronautics Board approval of an agree-
ment with an Alaska local service carrier to substitute its
service for Western 's on the short-haul segments west
of Anchorage that do not integrate economically with
Western's route system and fleet; and have introduced
strict cost-reduction programs in every department of
the company.
Another factor which makes the outlook for 1970
unclear is the question of how much traffic the Boeing
747 wide-bodied jet will divert from conventional jets.
These new aircraft will make their appearance on Cali-
fornia-Hawaii routes this spring and may be introduced
in competition with Western on other routes in the near
future.
Your management recognizes that its most important
task is to return the company to profitable operations as
soon as possible and gratefully acknowledges the excel-
lent support that is being given by our employees toward
the accomplishment of this goal. We also appreciate the
continuing support of our shareholders. We hope you will
fly Western whenever possible and will urge your friends
and associates to do likewise.
\.A,, .1 IQ. c.
~
Chairman of the Board President
March 5, 1970
Financial Results Western incurred a net loss of
$12,198,860, or $2.49 a share, in 1969, compared to earnings
of $8,435,770, or $1.72 a share, in 1968. Per-share results are
based on 4,903,879 shares for 1969 and 4,901,734 shares for
1968, the number of shares outstanding as of December 31
each year.
The loss from operations totaled $12,400,902, compared
to an operating profit of $19,681,421 in 1968. The application
of other expense-primarily interest-increased the loss
before tax credits to $27,273,860, compared to earnings of
$13,160,770 before taxes in 1968.
The reduction of the loss by reason of tax credits totaling
$15,075,000 represents essentially two factors:
1) The net credit of $12,925,000 generated by the claim for
refund of taxes paid in 1966 and 1967, and
2) The benefit flowing to earnings from the $2,150,000
amortization of investment credits over essentially the
useful life of the related purchased equipment.
(See Note #1 of Notes to Financial Statements.)
Revenues Total operating revenues for 1969 were
$240,351,788, an 8.3 percent increase over the previous year.
Fare increases discussed more fully in a later section
added approximately $7,500 ,000 to 1969 passenger
revenues. Had these increases been in effect for the full year
of 1969 they would have produced in the area of $17 million.
Seattle-Alaska and U. S.-Mexico fare increases for 1970
also should have a favorable influence on yield and revenues.
Revenues from the company's new routes to Hawaii,
although slow to develop, continue to improve. However,
revenues from the California-Twin Cities nonstop flights were
substantially decreased effective October 4 when new
schedule-for-schedule competition was introduced by a
newly certificated major trunkline.
Of Western's revenue dollar, 91 .6 percent was derived
from passenger traffic (80 percent coach and 11 .6 percent
from deluxe) . Express, freight and excess baggage accounted
for five percent" mail, 1.9 percent; other sources 1.5 percent.
Because of the strike and a slowdown in the growth of air
travel, the number of passengers carried in 1969 increased
only one percent. However, because the average trip length
of Western's passengers increased from 675 miles in 1968
to 696 miles in 1969, seat miles sold increased 4.7 percent.
The length-of-haul increase is attributable to the addition of
the long-haul Hawaii routes.
Excluding July and August, which were strike-affected
Review of the Year
months in 1969, the number of passengers carried was 8.2
percent greater and operating revenues 16.3 percent higher
than for the comparable 1 O months of 1968.
The use of discount fares, while still representing 41 .7 per-
cent of all seat miles sold, declined below the volume sold
in 1968, when 43.7 percent were sold at a discount. However,
the latest figures before the strike period showed that the
company's volume of discount travel , on a percentage basis,
was slightly higher than the industry average.
Fare Changes Despite industry fare increases of 3.8 per-
cent on February 20 and 6.3 percent on October 1, Western's
average revenue per seat mile sold increased only 2.6 per-
cent in 1969-to 5.51 cents from 5.37 cents for 1968.
The February increase did not apply to Alaska, Mexico or
intra-California routes. Accordingly, it represented only a 3.1
percent increase over 1968 revenues for Western 's system.
(Although smaller than authorized by the CAB, increases in
California commuter fares became effective on August 2.)
The October 1 increase again did not include Alaska,
Hawaii, Mexico or intra-Californ ia routes and, as a result,
represented only a 3.7 percent increase for Western, in con-
trast to 6. 3 percent for the domestic industry.
An increase in certain Alaska fares became effective on
November 15 and a second increase in California commuter
fares was introduced on December 3. Approved for 1970
implementation were additional increases in Alaska fares,
effective January 1, and a 10 percent increase on all fares
between the U.S. and Mexico, effective March 15.
Inhibiting the growth of the average revenue per seat mile
sold was the lower yield from the Hawaii routes.
An additional development in the domestic fare picture
was introduced early in 1970. Although the October 1 fare
increases were originally approved by the CAB through Janu-
ary 31, 1970, their extension beyond that date was subject to
the negotiation of an agreement between the carriers, modify-
ing the division of interline revenues and introducing lower
interline fares in markets where they did not exist.
Late in January, after a series of meetings in which the
Civil Aeronautics Board threatened to roll back fares to their
September 30 level, Western and other trunklines reluctantly
agreed to a plan which will cause a greater share of revenues
to be paid to the short-haul carriers in interline travel.
As a result, the October 1 fare increases were extended
through April 30, 1970. Prior to that date, the CAB expects
to further consider the interline fare arrangements.
The impact of the new prorate and additional interline fares
on Western's revenues is not significant for 1970, but any
substantial increase in the company's length of haul in the
future would bring about a dilution of Western's interline
revenues.
Expenses Total operating expenses for 1969 amounted to
$252,752,690, a 25 percent increase over 1968.
Operating expenses per seat mile produced increased
from 2.85 cents in 1968 to 2.97 cents for 1969. Adding to
the 1969 unit costs were those expenses incurred during the
strike without corresponding revenue benefit. Excluding the
two strike-affected months, the operating expense per seat
mile produced for the non-strike months of 1969 was 2.89
cents, compared to 2.87 cents for the same months of 1968.
Major factors in the increased expense levels included
the delivery of 19 new jet aircraft during the year, a 20 per-
cent increase in seat miles produced and continuation of the
inflationary trend that is escalating industry costs for wages
and salaries, materials, services, landing fees and rentals.
Wages, salaries and employee benefits costs increased
23.7 percent to a total of $97,156,082, reflecting both addi-
tional employees and material increases in wage rates.
Depreciation and amortization were up 39 percent, reflecting
a full year's charges for the 22 jet aircraft that went into service
in 1968 and the addition of 13 jets in the first half of 1969.
Interest charges increased from $6.5 million in 1968 to
$14.7 million in 1969.
As a result of the increases in both operating and non-
operating expenses, the breakeven load factor increased
from 50.7 percent in 1968 to 53.1 percent for 1969.
Because of the high costs associated with the introduction
of the 30 new Boeing 737s during 1968 and 1969, Western is
amortizing certain of these costs over the first three produc-
tive years of the aircraft. At December 31, 1969, $1,196,176
had been deferred, compared to $1,000,460 at the end of
1968. In a similar manner, $484,274 in Boeing 727 preopera-
ting costs were deferred at the end of 1969.
Finances The company's financial position is sound but
the losses in 1969 (a pattern which commenced in October
1968) have eroded the strength of previous years. An earnings
pattern must be resumed to assure against further slippage.
At this time the outlook is at best cautious.
The ratio of current assets to current liabilities was $1.37
to $1.00, down from $1.73 to $1.00 at the close of 1968. This
position resulted from the year's losses and, in addition, the
planned increases in current maturities of long-term debt
which totaled $16,195,627 at December 31, 1969. The level of
maturities will increase to $22,965,227 at the end of 1970 and
will remain essentially at that level through 197 4.
To improve the working capital position, the company
continued to take advantage of accelerated tax deprecia-
tion which, coupled with the loss for 1969, permitted the filing
early in January 1970 of an application for tentative refund
from loss carryback. This action underlies the account receiv-
able for Federal Income Taxes of $12,285,989, which was
collected in January 1970.
The unamortized investment credit as of the close of 1969
of $16,060,000 represents $2,066,000 remaining from invest-
ment credits utilized by reduction of taxes paid and
$13,994,000 remaining from investment credits applied
against Deferred Federal Taxes on Income. (For further details
see Note #1 of Notes to Financial Statements.)
The Statement of Source and Application of Funds shows
significant elements of such activity. Notwithstanding the loss
for 1969, operations provided $23,967,645 essentially
because depreciation and maintenance reserve provision of
$37,692,055 did not require a cash outlay. The funds pro-
vided were further increased by the return of deposits totaling
$4,625,993 on the Boeing 727-200 aircraft (which were
eventually leased by the company), the drawdown of the
remaining $25 million available under credit agreements with
insurance companies and a $4,706,000 net increase in the
bank revolving fund.
Funds applied were consumed essentially by the purchase
of airplanes, property and equipment totaling $46,196,539
and by providing for the 1970 payments of long term debt
amounting to $16,195,627.
At the beginning of 1969 the company had on order six
Boeing 727-200 trijets. The losses of the year 1969, the result-
ant erosion of working capital, and the fundamental shortage
of funds available on an unsecured basis dictated that those
aircraft be acquired on other than the basis of outright pur-
chase. Further motivation was provided by the desire to
achieve utilization of the investment credit. Hence, a 15-year
lease was arranged through facilities of the Bank of America
on a basis deemed satisfactory to the company.
The lease arrangement resulted in a modification of the
bank revolving fund, which was reduced to $110,006,000 and
converted to a term note on December 31, 1969. (See Note
#2 of Notes to Financial Statements.)
Brief Statement of Earnings
1969*
Western's revenues came from:
Passengers
Coach ...................... $192,659,374
Deluxe . . . . . . . . . . . . . . . . . . . . . . 27,870,293
220,529,667
Express, freight and baggage . . . 11,969,392
Mail . . . . . . . . . . . . . . . . . . . . . . . . 4,502,928
Other income................. 3,705,414
240,707,401
Western's expenses were:
Wages and salaries . . . . . . . . . . . . 87,495,153
Social security, group
insurance and retirement
plans . . . . . . . . . . . . . . . . . . . . . 9,660,929
Property, fuel and
other taxes . . . . . . . . . . . . . . . . . 4,985,938
Aircraft fuels ................ .
Depreciation and amortization .. .
Materials and repairs ......... .
Utilities and services ... . ... .. .
Service to passengers ........ .
Rentals of ground facilities .... .
Landing fees ................ .
Advertising and publicity ...... .
Insurance .................. .
32,857,173
34,820,805
21,442,561
20,399,425
11,926,473
5,029,186
4,360,150
8,210,484
5,148,098
Interest . . . . . . . . . . . . . . . . . . . . . 14,747,559
Other costs . . . . . . . . . . . . . . . . . . 6,897,327
267,981,261
Earnings {loss) before
taxes on income . . . . . . . . . . . . (27,273,860)
Taxes on income (tax credits) . . . {15,075,000)
Net earnings (loss) .. . . .. ...... $(12,198,860)
1968
$174,924,828
30,828,463
205,753,291
9,331,361
4,127,583
3,083,569
222,295,804
71,884,941
6,650,184
3,915,863
27,190,628
25,050,993
17,366,088
16,062,717
11,059,337
4,397,077
3,269,829
5,784,646
4,603,488
6,535,940
5,363,303
209,135,034
13,160,770
4,725,000
$ 8,435,770
'Operations were suspended from July 29 to August 16, 1969 because
of a strike.
Brief Balance Sheet
1969
Western owns:
Cash and short-term securities ... $ 28,454,327
Receivables due from others . . . . 19,408,382
Federal income taxes
refundable . . . . . . . . . . . . . . . . . 12,285,989
Maintenance and
operating supplies
Buildings and
improvements, net
Flight and other
13,016,516
14,007,513
equipment, net ............. 271,616,045
Deposits on new equipment . . . . . 133,087
Prepaid expenses . . . . . . . . . . . . . 2,986,496
Equipment not used in
operations, net . . . . . . . . . . . . . 2,062,898
Deferred charges and other . . . . . 3,616,859
Western owes:
Payables due to vendors
and others ........ ..... .. . .
Federal income taxes-
deferred .................. .
Unamortized investment credits ..
Other deferred items . ........ .
Tickets sold but not yet
367,588,112
34,582,902
17,919,000
16,060,000
1,445,445
used . . . . . . . . . . . . . . . . . . . . . . 4,926,089
Notes payable-current
and long term . . . . . . . . . . . . . . 213,345,215
Excess of what is owned
over what is owed, or
288,278,651
shareholders' equity ......... $ 79,309,461
1968
$ 27,870,420
17,954,873
3,426,967
8,624,401
11,424,108
256,435,162
16,927,291
3,308,028
256,000
2,811,900
349,039,150
30,666,244
20,344,000
15,135,000
558,934
3,251,843
185,220,843
255,176,864
$ 93,862,286
Dividend Action The company paid cash dividends of 25
cents a share on March 3 and May 26, 1969. No dividends
have been declared since that time. The conditions and
requirements which restrict the payment of dividends are
described in Note 2 of the Notes to Financial Statements.
Annual Meeting The 1970 meeting of shareholders will be
held at the Beverly Hilton Hotel, Beverly Hills, California, on
April 23. On or about March 19, stockholders will receive
formal notice of the meeting and proxy material
Shareholders, Stock and Debentures At the close of 1969,
there were 4,903,879 shares of Western Air Lines common
stock issued and outstanding, compared to 4,901,734 shares
at the end of 1968.
At year's end 806,884 shares were reserved for conversion
of the 5 percent convertible subordinated debentures sold
early in 1968 and 186,200 shares reserved for stock options
outstanding or available for grant under the company's quali-
fied stock option plan.
Holders of the company's convertible debentures, which
have a conversion price of $36.75 a share, received interest
at the rate of 5 percent per year on February 1 and August
1, 1969.
The company's stock was held by approximately 20,000
shareholders.
At the 1969 annual meeting of shareholders in Beverly Hills
in April, 7 4.4 percent of all shares were voted in person or
by proxy.
Shareholders' equity in 1969 declined to $79,309,461, or
$16.17 a share, from 1968 equity of $93,862,286, or $19.15
a share.
Aircraft Western took delivery of 19 new aircraft in 1969.
Thirteen Boeing 737s were delivered in the first half of the
year, bringing the company's fleet of the short-range twinjets
to a total of 30.
During the fourth quarter, six Boeing 727-200 trijets, which
were ordered in January 1968, were delivered under a lease
arrangement.
Purchase arrangements announced in January 1969 for
12 other aircraft-three Boeing 747s, five Boeing 707s and
four 727-200s - were cancelled later in the year when :3atis-
factory financing arrangements could not be made.
Western has no other aircraft on order but is following the
progress of all models of the new generation of wide-bodied
aircraft for future needs.
At year's end the company operated a fleet of 70 jet air-
craft: Five 707s, 26 Boeing 720B's (one 720B was sold during
1969), three Boeing 720s, 30 Boeing 737s and six 727s.
In January 1970, the company made plans to retire its
remaining Lockheed Electras. Service with the three all-cargo
Electras was suspended on January 31. Five passeng er/
cargo versions, which were operated on Alaskan routes in
1969, are scheduled to be withdrawn from service this spring.
The eight aircraft, along with four all-passenger Electras that
were previously withdrawn from service, are for sale.
Management Changes Several changes in the company's
management were made at the board and executive levels
during the year.
Early in 1969 a proxy contest developed, involving the
extent to which Mr. Kirk Kerkorian, who had become
Western's largest stockholder, should have representation on
the board of directors. To achieve a harmonious solution, the
board, at its morning meeting on April 24, increased the num-
ber of directors to 21 . Three incumbent directors-Leonard
K. Firestone, Edwin W. Pauley and Howard C. Westwood -
then submitted their resignations and withdrew as nominees
for election at the shareholders' meeting. The resulting nine
vacancies on the 21-man board were filled by election of the
nine members of Mr. Kerkorian 's slate of nominees. The new
directors were: Fred Benninger, Lowell S. Dillingham, Leo
H. Dwerlkotte, Sherwood H. Egbert, Peter M. Kennedy, Mr.
Kerkorian, Walter M. Sharp, William Singleton and John S.
Wiester. The full board of 21 was then elected by the share-
holders at the annual meeting later the same morning.
At the July meeting of the board, Edwin W. Pauley was
elected to succeed Mr. Dillingham, who had resigned . At the
October board meeting , James D. Alj ian was elected to fill
the vacancy created by the death of Mr. Egbert.
At its October meeting, the board elected J. Judson
Taylor president and chief executive officer, Terrell C. Drink-
water chairman of the board, and Mr. Benninger vice chair-
man of the board. Mr. Taylor joined the company in 1942 and
was serving as senior vice president and treasurer; Mr. Drink-
water had served as Western's president since January 1947.
Other re-assignments and promotions of officers and
department directors included : Charles J. J. Cox, vice presi-
dent-finance; Ernest T. Kaufmann , vice president-regulatory
affairs; Lawrence H. Lee, vice president-industrial relations;
Philip E. Peirce, vice president-administration; J. S. Neel, vice
president-ground services; R. 0 . Hammond, treasurer and
assistant secretary; Roderick G. Leith, assistant treasurer and
controller; H. S. Gray, assistant treasurer; David E. Holt,
assistant vice president-agency and tour sales; Neil S.
Stewart, assistant vice president-government and industry
affairs and Dan A. Zaich, assistant vice president-labor rela-
tions.
The company suffered the loss of its vice president-cargo
sales on August 9 when Harold A. Olsen died unexpectedly.
At its first meeting of 1970, the board voted to reduce the
number of directors from 21 to 20 after Otis Chandler, who
had served as a director since 1964, resigned. Goodrich
Lowry, who was elected a director in 1957 and became a
director-emeritus in October 1967, also resigned.
Sales and Service Despite the strike which halted all flights
for 18 days during the peak travel period and resulted in less-
than-usual traffic in the weeks that followed the shutdown,
Western carried a record 5,752,072 passengers during 1969,
compared to 5,692,947 in 1968.
Passenger revenues increased 7.2 percent, from
$205,753,291 in 1968 to $220,529,667 in 1969.
Revenues from air cargo shipments (freight, express, excess
baggage, air mail and regular first class mail) increased from
$13,458,944 in 1968 to $16,472,320 in 1969.
Although showing increases in se&t miles sold that were
higher than the industry average before the strike, the com-
pany was not able to sell a satisfactory proportion of the
increases in seat mile production that were introduced dur-
ing the year. As a result, Western's overall passenger load
factor decreased from 54.1 percent in 1968 to 47.3 percent
in 1969.
Consuming a large share of the company's marketing effort
during the year was the addition of Hawaii to the Western
route system. Recognizing that the majority of Hawaii traffic
is booked several months in advance of actual travel, the
company began early in the year to identify Western with the
Hawaii markets.
Based on an "Islander" theme, a team of sales and service
personnel developed and tested in-flight and ground features
designed to create a Polynesian vacation atmosphere the
moment a passenger checked-in for his flight to Hawaii. The
"Islander" concept was constructed around dining and per-
sonalized service that has since been described by many
Hawaii travelers as "the finest ever provided to the islands."
Despite months of preparation, the company found the
highly competitive Hawaii market difficult to penetrate.
Because of the repeated postponements in the effective date
of the CAB's final decision, and the strike that halted all
operations only four days after Los Angeles-Hawaii service
was inaugurated, the company lost virtually all of its advance
bookings for 1969.
Western's initial pattern of service included 34 roundtrips
a week to Honolulu from the West Coast gateway cities of
Los Angeles, San Francisco, Oakland and San Diego, with
through-plane service to Las Vegas, Phoenix, Salt Lake City,
Denver and Minneapolis-St. Paul and the first direct service
weekly between Alaska and Hawaii.
Weekly Hilo-Los Angeles service was inaugurated on
November 1 and Hilo-San Francisco service on December
15 in order to participate in the group travel that begins a
Hawaiian vacation at Honolulu and departs for the Mainland
from Hilo at the end of the tour.
Western 's inauguration of service to Hawaii was provided
by the five Boeing 707s that were delivered in 1968. The addi-
tion of a 720B to these new routes in December increased
the company's Hawaii service to 48 roundtrips a week.
The 13 Boeing 737 twinjets that were delivered in the first
half of 1969 were used to increase frequency on existing
commuter and short-haul routes and, following the inaugura-
tion of service to Hawaii, to supplant service that had been
provided by the 707s on domestic routes.
Delivery of six new Boeing 727s late in the year permitted
the company to withdraw five additional 720B's from service
in order to convert them to overwater configuration.
In an effort to attract new business travel to Western flights
and stimulate increased vacation travel between the 49th and
50th states, Western introduced an attractive and exclusive
California-Hawaii-Alaska "triangle fare" on October 30. The
fare permits travelers between Southern California and
Anchorage to visit Hawaii on either leg of their trip at no extra
cost. Savings in fare are available from any of the points on
the triangle, with Western receiving the entire long-haul. In
order to increase its applicability, a second weekly Anchor-
age-Honolulu flight was added on December 15.
Although slow to develop, Hawaii traffic has increased
steadily and the all-important tour and group travel that was
not available to the company in 1969 is being booked in
volume for 1970.
On January 15, 1970, Western introduced the first of two
major steps to improve its competitive posture in the Hawaii
markets. In an effort to increase its share of the coach and
economy traffic, the company increased the legroom in each
of these sections to 38 inches, the same as first class. At the
same time, each Hawaii aircraft was equipped with a com-
pany-designed "Aloha table," a portable unit which resembles
the armrest/table that is installed between first class seats.
Whenever the middle seat is not occupied in the coach sec-
tion, the armrests may be removed and the Aloha table
installed to provide wider space and "two plus two" seating
and convenience in the coach section.
The second step in the program will be accomplished by
March 6 when the installation of widescreen movie and stereo
equipment will be completed on eleven aircraft to be used
on Hawaii routes in 1970. Schedule frequency will be increased
to 70 roundtrips a week on March 20.
As it has in other vacation markets it serves, the company
has developed an exclusive , low-cost " Magic Week in
Hawaii " tour package that is being widely promoted . Western
is working closely with ground, sea and other air transporta-
tion companies and hotel and tour operators in the islands in
the production of sports and other recreation tours that will per-
mit the company to participate in every facet of Hawaii travel.
Other major sales programs for Western during 1969
involved its two major Mexico destinations, Acapulco and
Mexico City; Alaska; the company's many Sun Break winter
vacation areas; an annual Ski Country program that included
16 major ski areas; and summer travel to WAL's North Country
attractions -Yellowstone and the national parks of the
Rockies, Minnesota, the Pacific Northwest, and the Canad ian
provinces of British Columbia and Alberta.
Travel agents, who participated in the sale of approximately
40 percent of the company's passenger revenues, tour opera-
tors, hotels and operators of other forms of transportation
again played a major role in Western's marketing activities.
Personnel The company began 1969 with 8,919 employees
on its payroll. Stimulated by the delivery of additional aircraft
and preparations for the inauguration of service to Hawaii, this
number increased 12.4 percent to a record 10,026 employees
at the end of July.
In mid-August, a program to reduce costs was launched
and resulted in a decrease to 9,011 employees by the end
of February .
Wages and salaries for the year amounted to $87,495,153,
approximately 34.6 percent of operating expenses, compared
to $71 ,884,941, or 35.6 percent of operating expenses, in the
previous year.
Labor contracts which will result in increased costs of 14
percent per year in wages and benefits over the next three
years were signed with the company's 2,000 mechanics and
4,000 agents and clerical personnel. Negotiations with these
two groups were concluded in August and September. An
agreement which covers stewardesses is being negotiated
at the present time and a contract covering pilots will be open
for negotiation in September of this year.
Route Development Most important development in
Western's route program during 1969 was the final decision
in the TransPacific case in which the company received routes
to Hawaii it has sought for more than 10 years.
The domestic decision in the case, which gave Western .
routes to Honolulu/Hilo from 11 Mainland points, became
effective on July 22 after several postponements. The decision
was orig inally issued by the Civil Aeronautics Board on Janu-
ary 4 with an effective date of March 5. Western selected
April 27 as the date it would inaugurate service and began
preparing personnel, equipment and facilities for that date.
Because of the delays in the international phase of the
case, however, the domestic decision went through a series
of postponements that made it necessary for the company to
repeatedly delay its service. Neither the five Boeing 707s that
were to be used in Hawaii service or the employees who
staffed the company's Hawaii facilities could be used effi-
ciently during the costly three-month delay for Western.
The company became the first of the new Hawaii carriers
to inaugurate service on July 25 when it operated flights from
Minneapolis-St. Paul and from Phoenix to Honolulu, both
via Los Angeles.
Introduction of Western's Hawaii service from San Diego,
San Francisco, Oakland, Las Vegas, Denver and Anchorage
was delayed until late August by the strike.
Of equal importance in terms of immediate impact on com-
pany earnings was the CAB decision which provided com-
petitive service on the nonstop portions of Western 's most
profitable market, California-Twin Cities. Competitive service
from Los Angeles and San Francisco to the Twin Cities was
inaugurated on October 4. The decision in that case also
made Western 's temporary authority to operate nonstop
service on these segments permanent.
First competitive service also was authorized and inaugu-
rated by other carriers on the company's Denver-Twin Cities,
Denver-Casper, Denver-Billings routes and additional com-
petition was placed on the Denver-Salt Lake City segment.
New authority also was granted to intra-California carriers
KING
SALMON
ANCHORAGE
VANCOUVER
WESTERN'$ ROUTES
PROPOSED ROUTES - - - - - -- - - - - - -
CALGARY
GREAT FALLS
HELENA
BUTTE
W. YELLOWSTONE
BILLINGS
SHERIDAN
CATELL CASPER
GUADALAJARA
PIERR
RAPID Cl
MEXICO CITY
ACAPULCO
operating between Southern California and the San Fran-
cisco/Oakland/San Jose and Sacramento areas.
In an effort to offset the revenue losses suffered by Western
through these and other increases in the level of competition
that have been made by regulatory action in recent years, the
company has intensified its efforts to obtain new routes that
would give it access to the major traffic centers of Chicago
and the East Coast. Applications for these areas are pending
in four cases now awaiting CAB action:
Twin Cities-Milwaukee Long Haul Investigation-A case
to investigate the need for additional service from the Twin
Cities and/or Milwaukee to Portland/Seattle and to Boston,
New York, Philadelphia and Washington/Baltimore. Although
not recommended by the Examiner in the case, Western is
seeking to serve all markets in the case. A final decision is
expected by this summer.
Additional Service to San Diego Case-Western was
recommended for San Diego-Denver, San Diego-New York
and San Diego-Washington/Baltimore nonstop authority by
the Examiner. It also seeks San Diego-Chicago authority.
A final decision is expected soon.
Service to Omaha and Des Moines-Western was recom-
mended bythe Examiner for Seattle/Portland-Omaha, Denver-
Omaha and Omaha-Chicago authority. It is also seeking Los
Angeles- and San Francisco- and Twin Cities-Omaha/Des
Moines authority and routes to New York and Washington/
Baltimore via these Midwest cities. A final decision is ex-
pected by this summer.
Service to Salt Lake City Investigation -a case involving
service between Salt Lake City, Chicago, New York, Washing-
ton/Baltimore and San Francisco. Although a carrier which
already has transcontinental authority was recommended by
the Examiner in the case, Western is seeking to extend its
San Francisco-Salt Lake City authority to Chicago, New York
and Washington/Baltimore. A final decision in the case is
expected by this fall.
In the Phoenix-Portland/Seattle Nonstop Case, in which
Western is seeking authority to eliminate a mandatory stop
at Los Angeles on existing flights, the Examiner has recom-
mended that Western and one other trunkline provide com-
petitive service on the route. The company does not believe
a second nonstop carrier is required and is urging the CAB
to reverse this portion of the Examiner's recommendation .
Final board action is expected late this year.
A route case designed to bring additional competition to
the company's important Pacific Coast routes is the Pacific
Northwest-California Service Investigation. The Examiner
has recommended that three additional carriers be certifi-
cated to provide competitive service in the Seattle and Port-
land to San Francisco/Oakland/San Jose and Los Angeles/
Ontario/Long Beach markets. Western, which would be per-
mitted to eliminate a stop on its San Diego-Portland/Seattle
route, is contending that the Examiner's recommendations
would result in excessive competition in these markets and
has asked the CAB to reverse the decision. A final board
decision is expected later this year.
Awaiting an Examiner's decision is the Twin Cities/Milwau-
kee-Southeast Points Case, in which Western has applied
for routes to Atlanta, Tampa and Miami.
Two cases in which hearings will begin shortly are the
Las Vegas/Reno-Portland/Seattle Nonstop Service Investi-
gation, in which Western is an applicant for nonstop service
from Las Vegas and Reno to Portland and Seattle, as well as
service between the two Nevada cities; and the Alaska
Service Investigation, which will review intra-Alaska service
and routes from Portland and Seattle to key cities in Alaska
(but not Portland/Seattle-Anchorage, which is not an issue
in the case). Pending final outcome of the case, Western
obtained temporary authority from the CAB to suspend
service at Yakutat and Cordova, effective September 11.
Early in 1970, the company reached an agreement with
Wien Consolidated Airlines, an Anchorage-based local
service carrier, whereby service by Wien would be substi-
tuted for that now being provided by Western on routes west
of Anchorage.
On February 2, Western and Wien filed a joint application
with the CAB seeking authority for Western to suspend service
on the Anchorage-Kenai-Homer-Koci iak and Anchorage-
Homer-King Salmon routes and for exemption authority for
Wien to provide the service in lieu of Western.
Because of the local service nature of the routes-Anchor-
age-Kenai, 61 miles; Kenai-Homer, 64 miles; Homer-Kodiak,
137 miles; and Homer-King Salmon, 195 miles - Western
believes these routes can best be served by a local service
carrier based in Alaska.
Western would continue to serve Alaska on Seattle-
Anchorage, Seattle-Ketchikan-Juneau-Anchorage and Hono-
lulu-Anchorage flights.
Financial
Revenues:5
Passenger ... .. . . . .... .. . ... .. ... ... .. . . .... .. . ..... . ... .... . .. .. .
Express, freight and excess baggage .. . .... .. ... ... . . .. . ............ . .
Mail ......... . .... .. . .. .......... .. .... . ........ . ......... .. .... .
Other . . ....... . ..... .. .. ... . . . . .. ...... . .... . . ..... . ... . . . . ... . . .
Total Revenues ... ... . . ... . ..... .. ........... . .. . ..... . ..... . ... .
Operating Expenses:5
Depreciation and amortization ..... . ....... . . . . . ... . ...... . .. .. . . ... . .
Payroll ....... . . .. . .... . .... . ....... . .. . . . . ... .. . . .. .. . . . . .. .. .. . .
Other ... .. . .. .... . . ... .. . .. . . . ......................... . . . ..... . .
Total Operating Expenses .................. . ... . .. . .............. .
Operating Incomes (Loss) .... . . .. . . .. .... . ..... . ....... . ...... . ...... .
Interests .. ... ... . . ............... . ... .... .. . . . . . .... . .. . ... .. ..... . .
Other Income and Expenses-Nets .. ... . . ... . . .... .. ... ... . . . .. . .. .... . .
Earnings (Loss) before Taxes on Incomes .. ..... ... ......... . ... . .... .
Taxes on Income (Tax Credits)s ............................. . ....... . .. .
Net Earnings (Loss) from Operationss .......... .. . . . . . .. ...... . ... . . .
Gain on Major Dispositions of Property (Less
Applicable Income Taxes) 5

Net Earnings5 (Loss) .. ... .. .. ... . ... ... . . . . . .. . . . . . .. . .. ........ . .
Shareholders
Net earnings (loss) from operations per share2

Gain on disposition of property per share2

Total . .. . . ... . . .. . . .. . . . . . . ... .. . .... . . . .... . ....... . . . . . . . ... .
Dividends paid per share:
Cash3

Stock .. .. . ...... . . . ...... . . . . ...... . ... .. ... . .. . .. .. . . . . .. .... . . .
Shares outstanding-actuals ... .. . .. ...... . ...... . .......... . ......... .
- adjusted2

5

Shareholders' equity- total5

Shareholders' equity-a share2

Working capital5

Long-term debts .. .. ..... ... .. . .... . ... ... . . ... . ... . . . . . ......... . .. .
Property and equipment-nets .. .. ....... ... . ... .. .. . ..... . . .. .. ...... .
Total assets5

Operations
Route miles at end of year .. . . .. . . . . ... . .......... .. ... . . . .. . ..... ... . .
Airplanes operated at end of year:
Boeing 720-B . . . . .. .. .... ........ . ...... . .. ......... . . .. ... .. .... .
Boeing 720 . . .. ..... ... ... ... ... .... . ........ . ... . .. .... . . . . .. . .. .
Boeing 707-300C .. . .. .. .. .. ... . . .... . ....... .. . . ......... .. . . . . .. .
Boeing 737 .. .. .. ..... ... . . . . . . . . .... . ...... . . . ...... . .. ... . . .... .
Boeing 727 - leased . .. . . ...... . .... . ..... . . . . . ..... . ....... . ..... .
Other aircraft . . .. . . ...... . ..... . .. . .... . .. .. ... . ...... . . . ..... . . . . .
Airplane miles flown5

Ton miles produced5
.
Ton miles so Ids .. ..... . .... .. ... . . . ... . ............. . . . .. . .. . . . . . ... .
Seat miles produceds . . . ... .. ..... . . . ....... . .... .. .. . .... . ..... . . . . . .
Seat miles sold5

Express, freight and mail ton miles solds . . . ..... . ..... . ... . . .. ....... . ... .
Passengers carried .. .. . .... . .. . . .... .. . . ..... .. . ............ .. ...... .
Express, freight and mail tons carried . . . . . .... . ................. . ... .. .. .
Passenger load factor-actual % .... . .. . ... . ... . ....... . . . . . .. .
- breakeven point % ... . .. .. ....... . . ....... . . .... .
Average length in miles per passenger trip ... . ..... .. .... . .... . .. . .... . .. .
Operating expenses per seat mile produced . . .... . . . . . .. ...... . .. . .... . .. .
Average revenue per seat mile sold ... . ....... . . . . . . ... ...... . .... . ..... .
Employees at end of year . ..... ..... . . . .... . ... . .......... .. ..... .. ... .
10 Years of Growth
19694
$220,530
11,969
4,503
3,350
240,352
34,821
87,495
130,437
252,753
(12,401)
(14,748)
(125)
(27,274)
(15,075)
(12,199)
$ (12,199)
$ (2.49)
$ (2.49)
$ 0.50
4,904
4,904
$ 79,309
16.17
20,447
197,150
285,757
367,588
24,523
26
3
5
30
6
8
72,650
1,077,657
448,420
8,509,441
4,021 ,296
60,514
5,752,072
66,107
47.3
53.1
696
$ .0297
$ .0551
9,225
1968
205,753
9,331
4,128
2,741
221,953
25,051
71,885
105,335
202,271
19,682
(6,536)
15
13,161
4,725
8,436
8,436
1.72
1.72
1.00
4,902
4,902
93,862
19.15
25,764
183,718
284,787
349,039
14,156
27
3
5
17
12
60,125
891 ,001
418,856
7,096,229
3,841 ,864
47,446
5,692,947
58,129
54.1
50.7
675
.0285
.0537
8,919
1967
178,527
7,581
4,221
2,153
192,482
20,085
57,975
89,082
167,142
25,340
(3,011)
17
22,346
10,125
12,221
12,221
2.50
2.50
1.00
4,893
4,893
90,016
18.40
19,585
80,189
183,106
231,342
14,156
27
3
21
51,692
728,200
360,791
5,879,442
3,327,160
38,940
5,107,672
48,579
56.6
49.5
651
.0284
.0537
7,282
All financ ial data in this report give effect, retroactively th roughout the periods prior to 1968, to the merger of Pacific Northern Airlines into Western on July 1,
1967, which was accounted for as a pooling of interests.
2Based on shares of the Company outstanding at the close of the respective periods. adjusted to give retroactive effect to stock dividends, the May 1964 three-
for-one spl it, and the equivalent outstand ing shares of Pacific North ern Airlines, Inc. , merged into the Company on July 1, 1967.
19664 1965 1964 1963 1962 19614 1960
164,186 129,704 121,928 103,183 89,837 67,442 71,577
6,848 5,991 5,897 5,055 4,747 3,833 3,775
4,255 3,135 2,962 2,603 2,659 2,364 2,300
1,895 1,768 2,095 3,472 2,878 2,935 3,022
177,184 140,598 132,882 114,313 100,121 76,574 80,674
15,779 14,676 12,980 12,373 14,605 12,033 11 ,040
47,350 38,731 34,500 30,114 27,108 22,837 23,982
77,708 62,391 57,650 50,969 47,997 38,848 38,740
140,837 115,798 105,130 93,456 89,710 73,718 73,762
36,347 24,800 27,752 20,857 10,411 2,856 6,912
(3,239) (2,553) (2,491) (2,916) (2,725) (1 ,930) (1,428)
775 253 783 621 472 (140) 439
33,883 22,500 26,044 18,562 8,158 786 5,923
15,558 10,337 12,493 9,252 4,130 443 3,365
18,325 12,163 13,551 9,310 4,028 343 2,558
883 191 889 807 86
18,325 13,046 13,551 9,501 4,917 1,150 2,644
3.79 2.52 2.81 1.93 0.83 Q,07 0.53
0.18 0.04 0.19 0.17 0.02
3.79 2.70 2.81 1.97 1.02 0.24 0.55
1.00 0.80 0.65 0.37 0.33 0.33 0.33
5%
4,835 4,826 4,826 1,965 1,965 1,965 1,965
4,835 4,826 4,826 4,826 4,826 4,826 4,826
81,750 67,361 57,748 46,988 39,061 35 ,574 35,854
16.91 13.96 11 .97 9.74 8.09 7.37 7.43
18,047 11,522 8,274 5,031 12,315 5,369 16,757
54,867 47,411 33 ,938 41 ,106 48,856 39,018 25,097
145,771 124,096 99,928 93,284 80,052 69,865 46,833
192,008 157,973 138,335 125,806 115,266 95,258 78,836
13,075 13,075 12,991 12,991 13,086 12,368 12,368
22 18 12 10 7 4
3 2 2 2 2
23 24 33 33 34 39 45
42,830 36,554 36,746 33,388 29,551 25,239 30,410
585,378 483,033 450,856 400,395 348,854 256,572 237,118
314,137 244,588 231,303 191 ,229 159,658 121 ,850 127,609
4,800,901 4,016,921 3,794,648 3,335,083 2,746,549 1,967,313 2,016,690
2,898,088 2,243,695 2,124,582 1,753,037 1,435,992 1,080,189 1,150,785
33,070 26,435 24,625 20,622 19,786 16,315 15,214
4,700,839 3,807,706 3,717,189 2,970,909 2,270,455 1,659,323 1,841 ,863
42,714 33,511 30,956 25,890 25,256 20,378 19,829
60.4 55.9 56.0 52.5 52.3 54.9 57.0
47.9 46.2 44.4 44.3 48.6 55.4 56.5
616 589 572 590 633 651 625
.0293 .0288 .0277 .0280 .0327 .0375 .0366
.0567 .0578 .0574 .0589 .0626 .0624 .0622
6,294 5,068 4,719 4,126 3,713 3,418 3,347
i cash dividends per share for periods prior to January 1, 1967 are stated on the basis of the Company's shares (exclusive of equivalent Pacific Northern
shares) outstandi ng at the date such dividends were declared as adjusted for stock dividends and the stock split.
4Qperations were suspended from July 29 to Aug ust 16, 1969 and substantially curtailed from February 17 to June 1, 1961 because of strikes. Five other
major carriers were struck from July 8 to August 19, 1966.
iooos om itted .
ASSETS
Current Assets:
Cash ................................................. .
Short-term securities (approximating market) ................. .
Receivables ............................................ .
Federal income taxes refundable (Note 1) . ................... .
Maintenance and operating supplies ........................ .
Prepaid expenses ....................................... .
Total Current Assets . .................................. .
Property and Equipment at Cost:
Flight equipment ........................................ .
Ground equipment ...................................... .
Deposits on purchase contracts .. .. ........................ .
Less allowance for depreciation and maintenance ............ . .
Deferred Charges and Other Assets:
Boeing 737 and 727 preoperating costs, net .................. .
Equipment not used in operations, net ....................... .
Other items ............................................ .
See accompanying notes to financial statements
1969
$ 23,472,571
4,981,756
19,408,382
12,285,989
13,016,516
2,986,496
76,151,710
370,020,328
58,954,097
133,087
429,107,512
143,350,867
285,756,645
1,680,450
2,062,898
1,936,409
5,679,757
$367,588,112
1968
$ 21 ,895,337
5,975,083
17,954,873
3,426,967
8,624,401
3,308,028
61,184,689
331,460,810
56,286,880
16,927,291
404,674,981
119,888,420
284,786,561
1,000,460
256,000
1,811,440
3,067,900
$349,039,150
LIABILITIES
Current Liabilities:
Accounts payable ........ . . .. .... . ............ . ..... . ... .
Accrued salaries and wages ....... . . . ... . . . ............ . . .
Accrued liabilities ................ . .... . ....... . . . ....... .
Unused transportation ........ . ........ . .......... . .... . . . .
Current maturities of long-term debt .. ..................... . .
Total Current Liabilities . ...... . . . ..... .. .. . . . ... ... .... .
Long-Term Debt (Note 2) .. . .. . ..... . ......... . .... . .. . .. .
Deferred Credits (Note 1 ):
Deferred federal taxes on income ............ . ..... . . .. .... .
Unamortized investment credits ........... . . . ..... . . . ...... .
Other ................... . ........ .. ...... . .... . ... . ... .
Shareholders' Equity (Notes 2 and 5):
Common stock- $1 .00 par value per share
Authorized 10,000,000 shares
Issued 4,903,879 and 4,901,734 shares . . ..... . . .. ........... .
Capital in excess of par value .... . . . ....... . ..... .. ..... . . .
Retained earnings .... . .. . ......... . ........ . ..... . ..... . .
Balance Sheet
Western Air Lines Inc.
December 31, 1969 with comparative figures for 1968
$
1969
18,227,504
9,421,598
6,933,800
4,926,089
16,195,627
55,704,618
197,149,588
17,919,000
16,060,000
1,445,445
35,424,445
4,903,879
19,235,433
55,170,149
79,309,461
$367,588,112
$
1968
16,189,708
7,971,475
6,505,061
3,251,843
1,502,627
35,420,714
183,718,216
20,344,000
15,135,000
558,934
36,037,934
4,901,734
19,139,909
69,820,643
93,862,286
$349,039,150
Statement of Earnings and Retained Earnings
Western Air Lines Inc.
For the year ended December 31, 1969 with comparative figures for 1968
Operating Revenues:
Passenger ............................................. .
Express, freight and excess baggage ........................ .
Mail .................................................. .
Other ................................................. .
Operating Expenses:
Flying operations ........................................ .
Maintenance ........................................... .
Passenger service ....................................... .
Aircraft and traffic servicing ............................... .
Marketing and administrative .............................. .
Depreciation and amortization (Note 6) ...................... .
Operating Income (Loss) ................................ .
Other Income (Expenses):
Interest expense ........................................ .
Interest income ......................................... .
Other expense - net ..................................... .
Earnings (Loss) before Taxes on Income ................... .
Taxes on Income (tax credits) (Note 1) .................... .
Net Earnings (Loss)
$2.49 net loss per share in 1969 and $1.72 net earnings per
share in 1968 based on shares outstanding at end of each
year ($1.64 net earnings in 1968 assuming conversion
of debentures) ........................................ .
Retained Earnings at Beginning of Year .................... .
Cash Dividends Paid ..................................... .
Retained Earnings at End of Year (Note 2) .................. .
operations were suspended from July 29 to August 16, 1969 becau se of a strike.
See accompanying notes to financi al statements
1969*
$220,529,667
11,969,392
4,502,928
3,349,801
240,351,788
62,799,486
36,954,934
24,918,332
47,384,866
45,874,267
34,820,805
252,752,690
(12,400,902)
(14,747,559)
355,613
(481,012)
(27,273,860)
(15,075,000)
(12,198,860)
69,820,643
57,621,783
2,451,634
$ 55,170,149
1968
$205,753,291
9,331,361
4,127,583
2,740,632
221,952,867
50,056,928
30,114,796
21,086,034
36,943,382
39,019,313
25,050,993
202,271,446
19,681,421
(6,535,940)
342,937
(327,648)
13,160,770
4,725,000
8,435,770
66,278,417
74,714,187
4,893,544
$ 69,820,643
Statement of Source and Application of Funds
Western Air Lines Inc.
For the year ended December 31, 1969 with comparative figures for 1968
Funds Provided:
Net earnings (loss) . .. ........ . ........ . ....... . .... . ..... .
Add back
Depreciation, amortization and maintenance reserve provision
Deferred income taxes . . ........ . ............. . ...... .
Charge (credit) related to investment credits .. . .. . . ... . ... .
Amortization of investment credits .. .. . . .. . .. .... .. .. .. . .
Loss (gain) on dispositions of property ... . .............. .
Total from operations . .......... . ... . . .. . ... . ...... .
Sale of 5 % convertible subord inated debentures ........... . .
Increase in other long-term debt . . . . ........ . . . . .... . ... . .. .
Refunds of equipment purchase deposits ... . . . ...... .. .. .. .. .
Proceeds from disposition of property ..... . . . ... . . . . ... . .. . . .
Exercise of stock options ...... . . . .. .. . . ....... . .. . .. . .... .
Total . . . .... .. . . ........... .. .. . . . ............... .
Funds Applied:
Purchase of airplanes, property and equipment ...... ... . . .... .
Reduction of long-term debt . . ............ . .. . ............. .
Payment of cash dividends ................. . ............ . . .
Boeing 737 and 727 preoperating costs ... . ............. . .. . . .
Other items ...... ... ... . .................. . ............ .
Increase (decrease) in working capital . ..................... .
Total ........... . ............. . .. . .. . .. . ... . ... . . .
*Operations were suspended from July 29 to Augu st 16, 1969 because of a strike.
1969*
$ (12,198,860)
37,692,055
7,000,000
(6,350,000)
(2,150,000)
(25,550)
23,967,645
29,706,000
4,625,993
2,909,046
61 ,208,684
46,196,539
16,195,627
2,451,634
1,483,430
198,337
66,525,567
(5,316,883)
$ 61 ,208,684
$
1968
8,435,770
26,239,220
2,182,000
1,705,000
(2,173,000)
73,462
36,462,452
30,000,000
75,300,000
452,796
39,996
142,255,244
128,421 ,282
1,502,627
4,893,544
1,000,460
817,072
136,634,985
5,620,259
$142,255,244
Notes to Financial Statements
Note 1. Taxes on Income. The 1969 net income tax credit is summarized as
follows:
Income taxes refundable ................ . . .... .......... ... . $(13,575,000)
Provision for deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000,000
Credit equivalent to the reductions of investment credits
previously applied to tax returns ... . ....... ................. ( 6,350,000)
(12,925,000)
Amortization of investment credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,150,000
Net income tax credit ................................... $(15,075,000)
Deferred income taxes arise from timing differences between financial and tax
reporting. These differences are caused primarily by depreciation practices.
Investment credits offset against the balance of deferred federal taxes on
income at December 31, 1969 for application on future tax returns amounted to
$17,921,000-$9,425,000 in 1969 and $8,496,000 in 1968. Of these credits, $907,000
expires in 1972; $2,059,000, in 1973; $2,608,000, in 1974; $9,226,000 in 1975; and
$3,121,000, in 1976.
Of the $16,060,000 unamortized investment credit balance at December 31, 1969,
$2,066,000 remains from investment credits utilized by reduction of taxes paid and
$13,994,000 is related to investment credits not yet utilized for reduction of taxes
paid.
Federal income tax returns have been examined by the U.S. Treasury Depart-
ment through 1967.
Note 2. Long-term Debt {Unsecured). On December 31, 1969, long-term debt was
as follows:
Promissory note (authorized $110,006,000) due December 31,
1975, with quarterly payments commencing on March 31, 1970.
The interest rate (currently 8 %) is % over the bank's
prime commercial rate ..................................... $110,006,000
5 % promissory notes (authorized $30,000,000) due September
1, 1981 with annual payments of $1,000,000 starting September
1, 1970 and increasing to $4,000,000 a year in 1976 . . . . . . . . . . . . 30,000,000
65/e % promissory notes (authorized $40,000,000) due September
1, 1984 with annual payments of $1,000,000 starting September
1, 1970, increasing to $2,000,000 a year in 1975 and further
increasing to $7,000,000 a year starting in 1982 .............. .
5% to 6 % promissory notes due 1970 and 1972 .............. .
Less current maturities ..................................... .
5 % convertible subordinated debentures due February 1, 1993,
with sinking fund payments of $1,500,000 a year starting
40,000,000
3,686,215
183,692,215
16,195,627
167,496,588
in 1979 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,653,000
$197,149,588
The following schedule shows the amount of long-term debt maturing in each of
the five years subsequent to December 31, 1969:
1970 ............. .. ........ . .................. $16,195,627
1971 . . .................. ... ... ...... .......... 22,965,227
1972 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,143,561
1973 ... ... ........................ . ........... 21,462,600
1974 .......................................... 21,462,600
Reserved for the conversion of debentures are 806,884 shares of common stock
at $36.75 per share (subject to adjustments in certain cases.) During 1969, $79,000
principal amount of debentures were converted into 2,145 shares of common stock.
The difference between the debentures surrendered and the par value of the com-
mon stock issued, which net of unabsorbed costs amounted to $75,524, was
credited to capital in excess of par value.
The related agreements with the bank and the insurance companies provide
among other things (including restrictions on additional borrowings) conditions
and requirements which operate to restrict retained earnings from which cash
dividend distributions can be made. The indenture for the debentures also con-
tains a requirement which operates to restrict retained earnings from which cash
dividend distribution can be made. At December 31, 1969, the indenture operated
to prevent any use of retained earnings for cash dividend distribution.
Note 3. Commitments and Contingent Llablllties. The estimated minimum annual
rentals under long-term leases of real property, with expiration dates ranging to
1998, were approximately $2,934,000 at December 31, 1969.
Annual rentals under a lease agreement covering six Boeing 727 aircraft are
approximately $2,992,000 in 1970, $3,843,000 in 1971 and $4,130,000 each year
thereafter through 1984.
At December 31, 1969, various legal actions were pending against the City of
Los Angeles, the company and other airlines, alleging excessive aircraft noise in
the vicinity of Los Angeles International Airport. The company's counsel in these
actions, which also represents most of the other airlines, is of the opinion that
the airlines have substantial defenses to the imposition of any liability.
On February 5, 1970, an interlocutory judgment was entered in one of the cases
against the City of Los Angeles awarding damages aggregating $740,000 to 620
property owners. The City has indicated its intention to appeal.
Note 4. Retirement Plans. The company has retirement plans covering all eligible
employees. The cost of these plans charged to operating expense in 1969 totaled
$3,651,228. The company's actuary is of the opinion that accrued vested benefits
do not exceed the assets of the plans.
Note 5. Stock Options. At December 31, 1969, options were outstanding for the
purchase of 137,500 shares of common stock by officers at an average option
price of $26.71 per share. An additional 48,700 shares were reserved for issuance
of future options.
Note 6. Depreciation and Amortization. Depreciation for book purposes is com-
puted on the straight line basis. Depreciation for 1969 amounted to $33,144,561.
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, 1969 and the related statement of earnings and retained
earnings for the year then ended. Our examination was made in accord-
ance with generally accepted auditing standards, and accordingly in-
cluded such tests of the accounting records and such other auditing
procedures as we considered necessary in the circumstances. We pre-
viously made a similar examination of the financial statements for 1968.
In our opinion, the accompanying balance sheet and statement of earn-
ings and retained earnings present fairly the financial position of Western
Air Lines, Inc. at December 31, 1969 and the results of its operations for
the year then ended, in conformity with generally accepted accounting
principles applied on a basis consistent with that of the preceding year.
Also, in our opinion, the accompanying statement of source and appli-
cation of funds for the year ended December 31, 1969 presents fairly the
information shown therein.
Los Angeles, Calif.
February 25, 1970
Board of Di rectors
James D. Aljian
Secretary-Treasurer, Tracy Investment Company, Las Vegas , Nevada
Fred Benninger
President, Tracy Investment Company, Las Vegas , Nevada, and Vice Chairman of the Board, Western Air Lines, Inc.
Hugh W. Darling
Darling, Hall, Rae & Gute, Attorneys-at-law, Los Angeles, California
Terrell C. Drinkwater
Chairman of the Board, Western Air Lines, Inc., Los Angeles, Cal ifornia
Leo H. Dwerlkotte
Las Vegas , Nevada
Judge James D. Garibaldi
Attorney at Law, Garibaldi & Lane, Los Angeles, Californ ia
Arthur F. Kelly
Senior Vice President-Sales, Western Air Lines, Inc., Los Angeles, California
Peter M. Kennedy
Sen ior Vice President, Dominick & Dominick, New York, New York
Kirk Kerkorian
Chairman of the Board, Tracy Investment Company, Las Vegas, Nevada
Arthur G. Linkletter
Linkletter Enterprises, Inc., Los Angeles , Cal ifornia
Edwin W. Pauley
Chairman of the Board , Pauley Petroleum, Inc., Los Angeles
Walter M. Sharp
President, Commun ity Bank, Huntington Park, California
Stanley R. Shatto
Executive Vice President-Transportation, Western Air Lines, Inc., Los Angeles
William Singleton
Attorney at Law, International Leisure Corporation, Las Vegas, Nevada
J. Judson Taylor
President, Western Air Lines, Inc., Los Angeles, California
Vernon 0. Underwood
President, Young's Market Company, Los Angeles , California
Harry J. Volk
Chairman of the Board, Union Bank, Los Angeles, California
John S. Wiester
Los Angeles, Cal ifornia
Arthur G. Woodley
Vice President-Alaska, Western Air Lines, Inc., Seattle, Washington
Richard W. Wright
President, Mountain States Employers Council, Inc., Denver, Colorado
DIRECTORS EMERITI
Dr. Donald H. McLaughlin
Chairman of the Board, Homestake Mining Company, San Francisco, California
John M. Wallace
Walker Bank & Trust Company, Salt Lake City, Utah
Alexander Warden
Great Falls, Montana
Sidney F. Woodbury
President, Pine Street Company, Portland, Oregon
Terrell C. Drinkwater, Chairman of the Board
Fred Benninger, Vice Chairman
J. Judson Taylor, President and Chief Executive Officer and Director
Stanley R. Shatto, Executive Vice President-Transportation and Director
Arthur F. Kelly, Senior Vice President-Sales and Director
Arthur G. Woodley, Vice President-Alaska and Director
Charles J. J. Cox, Vice President-Finance
Ernest T. Kaufmann, Vice President-Regulatory Affairs
Robert 0 . Kinsey, Vice President and Assistant to the President
Philip E. Peirce, Vice President-Administration
Jack M. Slichter, Vice President-Government and Industry Affairs
Gordon Pearce, Corporate Secretary and Director of Law
Richard B. Ault, Vice President-Engineering
Willis R. Balfour, Vice President-Agency and Interline Sales
Harold W. Caward, Vice President-Flight Operations
Henry M. Debutts, Vice President-Washington
Richard P. Ensign, Vice President-lnflight Services
Anton B. Favero, Vice President-Maintenance
Rick 0. Hammond, Treasurer and Assistant Secretary
Lawrence H. Lee, Vice President-Industrial Relations
Bert D. Lynn, Vice President-Advertising and Sales Promotion
J. P. Maginnis, Vice President-Procurement
J. S. Neel, Jr., Vice President- Ground Services
Gerald P. O'Grady, Vice President-Properties and Facilities
Eugene D. Olson, Vice President-Data Processing and Systems
Luis Pasquel, Vice President-Mexico
Ray Silvius, Vice President-Public Relations
Harry L. White, Vice President-Sales Administration
Peter P. Wolf, Vice President- Communications
Charles S. Fisher, Assistant Vice President-Flight Schedules
Joseph M. Fogarty, Assistant Vice President-Maintenance and Overhaul
H. S. Gray, Assistant Treasurer and Budget Director
David E. Holt, Assistant Vice President-Agency and Tour Sales
Roderick G. Leith, Assistant Treasurer and Controller
S. J. Rogers, Assistant Vice President-Tariffs
Corporate Officers
Neil S. Stewart, Assistant Vice President-Government and Industry Affairs
Dan A. Zaich, Assistant Vice President-Labor Relations
General Offices
Western Air Lines Building, 6060 Avian Drive
Los Angeles International Airport
Los Angeles, California 90009
Stock Registrars
Bank of America National Trust & Savings Assn.
111 West Seventh Street, Los Angeles, California 90014
The Chase Manhattan Bank
1 Chase Manhattan Plaza, New York, New York 10015
Stock Transfer Agents
Security Pacific National Bank
124 West Fourth Street, Los Angeles, California 90014
Chemical Bank
20 Pine Street, New York, New York 10015
Debenture Trustee
The Chase Manhattan Bank
1 Chase Manhattan Plaza, New York, New York 10015
Stock Listings
Listed and traded on
New York Stock Exchange
Pacific Coast Stock Exchange
General Counsel
Hugh W. Darling
Darling , Hall, Rae & Gute
523 West Sixth Street, Los Angel es, California 90014
Independent Accountants
Peat, Marwick, Mitchell & Co.
629 South Spring Street, Los Ang eles, California 90014
Annual Meeting
Fourth Thursday in April