Western Airlines Annual Report 1970

Western
Airlines
Western Air Lines Inc. 1970 Annual Report
2 Highlights of 1970
3 President's Letter
4 Review of the Year
12 Ten Years of Growth
14 Balance Sheet
16 Operations and Retai ned Earnings
17 Source and Application of Funds
18 Notes to Financial Statements
19 Accountants' Report
Notice to Stockholders
Under a new rule adopted by the Civil Aeronautics Board in
July 1970, any person who owns as of December 31 of any
year or acquires ownership, either beneficially or as a trustee,
of more than five percent of any class of capital stock of an
air carrier shall file with the CAB a report containing
information required by Subpart B of Part 245.13 of the
Board's Economic Regulations. This report must be filed with
the Civil Aeronautics Board on or before April 1 of each
year as to capital stock or capital owned as of December 31
of the preceding year and within 10 days of the acquisition,
unless such person has otherwise filed with the CAB a report
covering such acquisition or ownership. Any stockholder
who believes that he may be required to file such a report
may obtain further information by writing to the Director,
Bureau of Operating Rights, Civil Aeronautics Board,
Washington, D. C. 20428.
Highlights of 1970
Operating 1970
Seat miles produced ................... . 9,839,299,000
Seat miles sold .......... .. . ........ .. . 5, 159,081 ,000t
Passengers carried ..... .... . ... ....... . 6,187,527t
Passenger load factor - actual % ........ . 52.4
- breakeven point% .. 52.7
Financial
Operating revenues ........ ........... , $298,109,620
Operating income (loss) .......... ... . .. . $ 11,811,622
Net earnings (loss) .................. .. . $ 595,374
Cash dividends paid ................... . $
Common stock outstanding .............. . 5,394,266* *
Earnings (loss) per share ............... . $ 0.11 * k
Cash dividends per share ............... . $
Shareholders' equity ................... . $ 79,904,835
Shareholders' equity per share . .... .. .... . $ 14.81 **
Cash and short-term securities .... . ...... . $ 64,601,543
Working capital ....................... . $ 35,238,447
Property and equipment at cost .......... . $413,883,626
Long-term debt . ..... . ................ . $174,184,358
Number of employees at year end ........ . 8,830
Wages and salaries paid . ............... . $100,629,845
*Operations were suspended from July 29 to August 16, 1969 because of a strike .
tOperations of a competing carrier were partially suspended from July 8 to December 14, 1970.
**Adjusted for the 10% stock dividend paid on March 5, 1971.
2
1969* Change
8,509,441,000 +15.6%
4,021,296,000 +28.3%
5,752,072 +7.6%
47.3 +5.1 pts.
53.1 - 0.4 pts.
$240,351,788 +24 .0 %
$ (12,400,902)
$ (12,198,860)
$ 2,451,634
5,394,266 * *
$ (2.26) * *
$ 0.45 **
$ 79,309,461 +0.8%
$ 14.70 ** +0. 8%
$ 28,454,327 +127.0%
$ 20,447,092 +72.3%
$429,107,512 - 3.6%
$197,149,588 - 11.7%
9,225 -4.3%
$ 87,495,153 +15.0%
President's Letter
To Our Stockholders:
It is indeed gratifying to report in the following pages that
Western, despite the adverse circumstances facing the
airline industry, was able to report a modest profit for 1970.
This achievement could not have been accomplished without
the efforts of thousands of loyal and resourceful employees,
whose dedication is hereby acknowledged with sincere
gratitude.
As indicated in last year's annual report, our 1970 goal was to
improve the company's financial condition with concentrated
effort on two fronts: control of costs and capital expenditures
and stimulation of new revenues. These efforts had to be
exerted in the face of continuing inflation on the one haQd and
a sagging economy that slowed the growth of air travel on
the other.
We believe that under such circumstances, our performance
for 1970 was quite remarkable, particularly when compared
to the airline industry as a whole.
Through aggressive marketing programs, for example,
Western was able to obtain a reasonable share of Hawaii
travel, which in turn , permitted us to increase revenues on a
systemwide basis by 24 percent.
For the first time since 1966, the increase in seat miles sold-
28.3 percent-was greater than the increase in seat miles
produced-15.6 percent-as total capacity on routes other
than the company's new Hawaii segments was reduced below
the level of strike-affected 1969.
With the introduction of increased legroom for the more than
90 percent of our passengers who travel in coach or economy,
the significant improvement in our on-time performance and
the extra effort of our employees, the image of Western Air
Lines as an aggressive, efficient and considerate airline was
significantly enhanced .
Nevertheless, Western was unable to show a profit on some
of its key routes during 1970. These routes include Hawaii,
which has excessive competition and an unrealistically low
fare structure, and the California/Coastal operations which
commenced to show a loss in 1968.
Inflation, particularly in the areas of wages, employee benefits
and work rules , is continuing to drive up our costs at a
frightening rate; although projections for the U.S. economy
indicate some improvement in 1971, the degree of traffic
growth remains uncertain; and in the coming months we
expect to be faced with more intense competition from
the wide-bodied jets.
On December 16, 1970, your board of directors voted to
merge with American Airlines. The details of this proposal
were submitted to you for your approval (n our proxy
statement of February 22, 1971.
While awaiting the outcome of the Civil Aeronautics Board
proceedings associated with the merger proposal, your
management will continue to operate Western as an
aggressive company serving the interests of its stockholders,
the traveling and shipping public and its employees.
The airline industry is plagued with many problems and
continues to function without being able to achieve an
adequate rate of return on its investment. The most urgent
need facing the carriers-and the one to which Western is
devoting its full energies in 1971-is to find solutions which
will work toward profitable employment of capital provided by
Western's investors and by lend ing institutions at a level
that will produce financial stability and future growth.
Your continued support in this endeavor will be sincerely
appreciated. We hope you will fly Western whenever possible
and urge your friends and associates to do likewise.
cW~
J. Judson Taylor
President and Chief Executive Officer
March 15, 1971
3
Review of the Year
Earnings
Earn ings in 1970 were $595,374, or 11 cents a share,
compared to a loss of $12,198,860, or $2.26 a share, for 1969.
(Per-share results for both years are based on 5,394,266
shares of stock, the number of shares outstanding at the end
of each year after giving effect to a 1 O percent stock dividend
declared on December 16, 1970, and paid March 5, 1971, to
stockholders of record on January 15, 1971.)
Operating income totaled $11,811,622, compared to a loss
from operations of $12,400,902 in strike-affected 1969. The
application of other expenses-primarily interest- resulted in
a loss of $1,654,626 before tax credits, compared to a before-
tax loss of $27,273,860 in 1969.
After tax credits of $2,250,000 (see Note 1 of Notes to
Financial Statements), net earnings for 1970 were $595,374.
Revenues
Total operating revenues for 1970 were $298,109,620 (after
reduction of $2,711,000 for payments to a struck carrier under
the airlines' Mutual Aid Agreement). This represents an
increase of 24 percent over the $240,351,788 of the previous
year. Western became a participant in the Mutual Aid pact
effective August 3, 1970.
Almost half of the increase in revenues was derived from the
company's Hawaii routes which were inaugurated in August
and September of 1969. The bulk of the remaining net gain
in revenues resulted from increased coach revenues, as
revenues from first class service on Mainland routes declined
below the 1969 level.
Of Western 's revenue dollar, 92.2 percent was derived from
passenger traffic (82.5 percent coach and 9.7 percent first
class). Express, freight and excess baggage accounted for
4.7 percent; mail, 1.6 percent; charter and other sources,
1 .5 percent.
The number of passengers carried increased 7.6 percent.
However, because the average passenger trip on Western
increased from 699 miles in 1969 to 834 miles in 1970, seat
miles sold were up 28.3 percent.
Although the number of seat miles sold at discount fares
increased 13.9 percent over 1969, the percentage sold at a
4
discount decreased from 41 .5 percent of all seat miles sold
in 1969 to 36.8 percent in 1970.
Despite fare increases of 3.1 percent in February and 3.7
percent in October 1969 and more modest adjustments in
1970 ( described in the Fare Changes section of this report),
Western's average revenue per seat mile sold decreased
from 5.51 cents in 1969 to 5.42 cents in 1970. The decline
resulted primarily from the impact of the abnormally low
fare structure on Hawaii routes which represented
approximately 18 percent of all seat miles sold on Western's
system during 1970.
Fare Changes
In 1970, the Civil Aeronautics Board instituted investigations
into the structure and level of domestic and Mainland-Hawaii
passenger fares, domestic freight rates and domestic mail
rates and into the level of return on investment for U.S.
carriers. Upon completion of those investigations, the CAB
may prescribe changes in the structure and level of any or all
such fares and rates.
Although the industry has not been permitted to make broad
across-the-board increases pending the outcome of the fare
investigations sometime later this year, CAB approval was
granted for certain selective fare adjustments.
On July 1, a " round ing-up" of fares to even dollar amounts in
conjunction with the introduction of a new federal travel tax
resulted in a passenger fare increase expected to average
7 /10 of one percent for Western .
On October 15, a 10 percent increase in Alaska fares was
granted which is expected to produce an annual increase in
Western 's revenues equivalent to 8/1 O of one percent.
On December 19, the CAB approved cancellation of
commuter fares between California and Las Vegas resulting
in an additional 8/10 of one percent increase in Western's
annual revenues.
Effective January 11, 1971, the CAB authorized carriers to
increase fares in certain short-haul markets, to eliminate
excursion fares on most trips under 1,500 miles, to reduce
certain fare discounts and to increase first class fares for
trips under 1,200 miles, resulting in an increase in passen-
ger fares expected to average 2.5 percent for Western.
On July 9, 1970, the United States Court of Appeals for the
District of Columbia held that the CAB's order permitting the
October 1969 fare increase and the tariffs filed by the air
carriers pursuant to that order were unlawful, on the ground
that the CAB had not complied with the applicable statutory
procedures. The Court's decision did not require any
reduction in existing fares, nor was any such reduction
effected. On September 24, 1970, after proceedings intended
to comply with the statutory requirements, the CAB issued an
order permitting tariffs identical to those previously approved
to become effective October 15, 1970. While the Court's
decision does not require repayment of fares collected in the
past, on February 25, 1971 , the CAB instituted an investigation
to determine whether such fares were unreasonable, and , if
found to be unreasonable, to determine whether and to what
extent relief, including restoration of overcharge or otherwise,
may and should be granted.
The Court's decision has occasioned a number of actions,
brought in various cities on behalf of air travelers in general ,
naming a number of domestic air carriers (including Western)
as defendants. The plaintiffs in these actions request
repayment of the amounts alleged to have been unlawfully
collected (in one action allegedly $300,000,000) by all the
defendant air carriers since the October 1969 fare increase.
In addition, the plaintiffs in one or more of these actions seek
treble damages, punitive damages and injunctive relief
againstthe continuation by the defendants of air fares at
present levels and ask that the defendants deposit with the
courts in which the actions have been brought the amounts
alleged to have been unlawfully collected and that they
provide the means of identifying and paying the cost of
notifying all persons allegedly damaged . In Western's opinion ,
the plaintiffs are not entitled to any recovery on their claims.
Expenses
Despite continuing inflation and a change in aircraft seating
configuration to give Western 's coach and economy
passengers added legroom, the company was able to
increase seat mile production 15.6 percent in 1970 at an
increase in operating costs of 13.3 percent.
Total operating expenses for the year amounted to
$286,297,998, compared to $252,752,690 for the previous year.
High on the list of inflationary items were wages, salaries
and employee benefits costs which increased 16.4 percent
despite a lower level of employment throughout the year.
Depreciation and amortization was up 5.1 percent to
$36,579,626 and other expenses increased 13.1 percent.
Interest expense totaled $14,586,128, down 1.1 percent from
the previous year.
The change in seating configuration , completed in June,
reduced the number of seats on the company's aircraft in
subsequent months by eight percent and for the year by
six percent.
This configuration change caused an increase in the cost of a
seat mile produced and in the breakeven load factor (as well
as in the actual load factor). The impact of continuing
inflation also tended to cause increases in the same cost
indicators. Nevertheless, the company was able to reduce
seat mile costs for the year to 2.91 cents from 2.97 cents in
the previous year. Breakeven load factor was reduced to
52.7 percent from 53.1 percent in strike-affected 1969.
Finances
Although the consistent earnings pattern which is needed for
sound strengthening and to provide a reasonable return on
investment did not emerge during the year, Western ended
1970 in good financial condition .
Cash and short-term securities increased during the year from
$28,454,327 at December 31 , 1969, to $64,601 ,543 at the end
5
Brief Statement of Earnings
Western's revenues came from : 1970 1969*
Passengers
Coach .................... $246,019,597 $192,659,374
Deluxe . . . . . . . . . . . . . . . . . . . . 28,773,126
274,792,723
Express, freight and baggage 13,993,889
Mail . . . . . . . . . . . . . . . . . . . . . . 4,752,051
Charter . . . . . . . . . . . . . . . . . . . . 3,187,243
Other income.. . . . . . . . . . . . . . 3,405,008
Western's expenses were :
Wages and salaries ......... .
Social security, group
insurance and retirement
plans .................. .
Property, fuel and
other taxes .............. .
Aircraft fuels .............. .
Depreciation and amortization .
Materials and repairs ....... .
Utilities and services ....... .
Service to passengers ...... .
Rentals of flying equipment .. .
Rentals of ground facilities .. .
Landing fees ........ . ..... .
Advertising and publicity .... .
Insurance ................ .
Interest .................. .
Other costs ............... .
Loss before taxes on income ...
Taxes on income (tax credits)
300,130,914
100,629,845
12,486,516
6,750,840
37,357,120
36,579,626
20,424,846
24,737,983
14,511,559
2,992,188
5,301,331
5,211,471
8,780,598
4,174,531
14,586,128
7,260,958
301,785,540
{1,654,626)
{2,250,000)
27,870,293
220,529,667
11 ,969,392
4,502,928
759,991
2,945,423
240,707,401
87,495,153
9,660,929
4,985,938
32,857,173
34,820,805
21,442,561
20,399,425
11,926,473
350,994
5,029,186
4,360,150
8,210,484
5,148,098
14,747,559
6,546,333
267,981,261
(27,273,860)
(15,075,000)
Net earn ings (loss) .......... $ 595,374 $ (12,198,860)
*Operations were suspended from Ju ly 29 to August 16, 1969 because of a strike .
6
Brief Balance Sheet
Western owns: 1970 1969
Cash and short-term securities $ 64,601 ,543 $ 28,454,327
Receivab les due from others . . 21,732,984
Federal income taxes
refundable .............. .
Maintenance and
operating supplies
Buildings and
improvements, net
Flight and other
11,1 04,517
13,364,022
equipment, net . . . . . . . . . . . 234,062,785
Prepaid expenses ..... . .... .
Equipment not used in
operations, net .......... .
Deferred charges and other .. .
Western owes:
Payables due to vendors
and others ........ . ..... .
Federal income taxes-
deferred ................ .
Unamortized investment cred its
Other deferred items ....... .
Tickets sold but not yet
used ................... .
Notes payable-current
4,575,804
2,417,018
3,310,253
355,168,926
37,861,900
17,495,000
13,584,000
3,224,332
5,949,274
19,408,382
12,285,989
13,016,516
14,007,513
271,749,132
2,986,496
2,062,898
3,616,859
367,588,112
34,582,902
17,919,000
16,060,000
1,445,445
4,926,089
and long term . . . . . . . . . . . . 197,149,585 213,345,215
Excess of what is owned
over what is owed, or
275,264,091 288,278,651
shareholders' equ ity ....... $ 79,904,835 $ 79,309,461
of 1970. Cash not required in the daily operations of the
company was invested in marketable securities. In 1970, these
investments resulted in interest income amounting to
$2,021,293. Working capital increased from $20,447,092 at
the end of 1969 to $35,238,447 at December 31, 1970.
The ratio of current assets to current liabilities was $1 .53-to-
$1.00 at December 31 , 1970, up from $1.37-to-$1.00 at the
previous year end .
The Statement of Source and Application of Funds is
constructed to show the major elements involved in the
generation and utilization of cash and marketable securities.
As indicated, operations generated a net contribution of
$39,138,027. This amount included non-cash charges of
$41,529,249 for depreciation, amortization and reserves
against which was offset tax credits amounting to $2,050,000
(for further details see Note 1 of Notes to Financial
Statements). Other funds were provided by a refund of
$12,285,989 in federal income taxes resulting from tax losses
as filed for 1969, by an $11,071,783 increase in current
liabilities, and by $3,220,138 received on disposition
of property.
Funds applied during the year amounted to $29,701,808.
Scheduled payments under long-term debt agreements
accounted for $22,965,227. In 1970, long-term debt was
reduced from $197.1 million to $17 4.2 million (for further
details see Note 2 of Notes to Financial Statements) .
A significant difference between 1969 and 1970 lies in the
area of capital expenditures. The company acquired no new
aircraft in 1970 and additions to plant, equipment and
inventories were kept to a minimum; as a result, expenditures
in these categories declined from $46,196,539 in 1969 to
$4,796,784 in 1970. Without the resumption of a reasonable
earnings pattern, capital expenditures other than those
required to maintain a high level of safety and service will
remain highly restricted.
Stock Dividend
On December 16, 1970, Western 's board of directors declared
a stock dividend of 1/10 of a share of capital stock for each
share outstanding. This dividend was paid on March 5, 1971,
to stockholders of record as of January 15, 1971.
Annual Meeting
The 1971 regu lar meeting of shareholders will be held at
the Beverly Hilton Hotel, Beverly Hills, California, on April 22.
On or about March 22, stockholders will receive formal notice
of the meeting and proxy material.
Shareholders, Stock and Debentures
Although per-share earnings in this report were computed
after adjustment for the 10 percent stock dividend declared
on December 16, 1970, there were 4,903,879 shares of
Western common stock issued and outstanding at the end
of 1970, the same as at the end of the previous year.
At year's end , 806,884 shares were reserved for conversion
of the 5 percent convertible subordinated debentures sold
in 1968. After giving effect to the 10 percent stock dividend,
the number of shares reserved for conversion was increased
to 887,572 and the conversion price was decreased from
$36.75 per share to $33.41.
Holders of the debentures received interest at the rate of
5 percent per year on February 1 and August 1, 1970.
The company's stock was held by approximately 12,000
shareholders at year end.
At the 1970 annual meeting of shareholders in Beverly Hills in
April , 78.9 percent of all shares were voted in person or by
proxy.
Shareholders' equity at December 31, 1970, was $79,904,835,
or $14.81 a share, compared to $79,309,461, or $14.70 a
share, at December 31, 1969, after adjustment for the
10 percent stock dividend.
Aircraft
At the end of 1970, Western operated 72 aircraft-five Boeing
707-300C intercontinentals, 26 Boeing 720B's, three Boeing
7
720s, six Boeing 727-200s, 30 Boeing 737-200s, and two
Lockheed Electra propjets.
Western has no additional aircraft of any type on order, having
cancelled orders for three Boeing 7 47s, five Boeing 707s and
four Boeing 727s in the summer of 1969 when satisfactory
financing arrangements could not be made. The company is
studying the 7 4 7s, DC-10s and 1011 s.
Ten Electras were withdrawn from service during the year
when the company discontinued an all-cargo service which
was not profitable and temporarily transferred short-haul
routes in Alaska to a local service carrier.
Five Electras were sold during 1970 and, after withdrawing
one additional Electra from Alaska service, six others were
sold in February 1971 . One Electra is being retained to
operate the company's Seattle / Tacoma-Kodiak service.
Early in 1970, Western initiated a program to modify the
engines on its 737 and 727 aircraft that will substantially
reduce the visible exhaust smoke from these aircraft. Target
date for the conversion of the 98 engines involved was
December 31 , 1972. As of January 1971, 37 of these
conversions had been completed and it appeared that
Western will beat the 1972 target date by a substantial margin .
Marketing
Western carried a record 6,187,527 passengers in 1970, a
7.6 percent increase over the previous year. Passenger load
factor for the year, favorably affected by the seating
configuration change, was 52.4 percent, compared to
47.3 percent in 1969.
Aided by a 19.3 percent increase in average length of
passenger haul , passenger revenues increased 24.6 percent,
from $220,529,667 in 1969 to $274,792,723 in 1970.
Revenues from air cargo shipments (freight, express, excess
baggage, air mail and regular first class mail) increased from
$16,472 ,320 in 1969 to $18,745,940 in 1970.
Western 's traffic and revenue gains during 1970 were
achieved under adverse circumstances - a slowdown in the
growth of air travel in the U.S. and increased competition .
8
Faced with the urgent need to return to profitable operations
as soon as possible, the company aggressively launched new
marketing programs which were carried out with determined
enthusiasm by Western employees.
Highlighting the company's program for 1970 were:
. .. modification of aircraft interiors to provide every coach,
economy and commuter passenger with the same legroom
as in first class;
... establishment of a program to improve the company's
on-time performance;
. .. greater concentration on group travel (particularly in
Hawaii markets) ;
... increased flexibility of aircraft utilization that would permit
the company to increase its charter business and schedule
extra sections whenever demand was great enough;
... new in-flight service features appropriate to the
passenger's destination and length of flight;
.. . creation of a new corporate " look of the Seventies"
through the establishment of a new company symbol and
coord inated design program;
. .. increased involvement of all company employees in
product improvement through increased communication of
goals, introduction of new service features and marketing
programs to field personnel by a special task force of
department heads, and establishment of a suggestion system
to encourage employee suggestions for product
improvements as well as cost control ideas.
Backing up these programs was a realignment of the sales
division into a broader marketing division and creation of a
new service division along lines that would permit maximum
support to changes in the marketplace.
Public acceptance of the company's increased legroom was
enthusiastic. Using the slogans " Western: First in Space, "
and " You 've Got First-Class Legs, " the company built
its advertising and sales promotion programs around this
system-wide feature wh ich no other airline has been
able to duplicate to date, although several have attempted
to copy it in part.
The legroom feature, coupled with " Islander" in-flight service
and aggressive promotion with tour operators, travel
agencies and hotels, permitted Western to compete effectively
on Hawaii routes.
Western's on-time efforts also were highly successfu l as the
company-seventh in the industry ratings in January-
moved up to No. 1 in June, August, September and October
to rank second in the industry for the year through November.
In addition to working directly with tour operators and travel
agents in developing Hawaii traffic, a high percentage of
which is group travel , Western sought the cooperation of other
airlines that do not serve the 50th state in a " Hawaii-Plus-(a
Western connecting point) " concept to increase revenues
from off-line sources. These were productive programs and
are being continued.
Charter revenues increased from $759,991 in 1969 to
$3,187,243 in 1970. The company also operated more than
700 extra sections for 50,000 passengers who otherwise
could not have been accommodated on scheduled fl ights.
In addition to its " Islander" service on Hawaii flights, in-flight
innovations were introduced in a new " Fiesta" service on
Mexico routes, a " Golden Californian " service on Twin
Cities-California and Pacific Northwest-California routes.
A new " Western 's World " in-flight magazine was introduced
for the enjoyment of passengers on all Western flights,
with advertising space paying the majority of its cost.
Western 's new corporate symbol, which is shown on the cover
of this report, is the key element of the company's " new
look. " The new design format is being introduced to graphic
material, equipment and facilities on a normal replacement
basis in a controlled program to insure a coordinated and
modern visual appearance to the company's many publics.
In 1968, Western introduced its computerized ACCU-RES
reservations and flight information system. In 1970,
the company became the first airline operating into Mexico
to provide " on-line" communication to its central
reservations computer; in January 1971, this same servi ce
was extended to Anchorage and, in March, will include
Juneau and Ketchikan, thereby giving every city on Western's
system direct access to al l pertinent customer service
information stored electronically in the computer.
Personnel and Management
As of December 31, Western had 8,830 employees, compared
to 9,225 at the end of 1969.
In 1970, wages and salaries amounted to $100,629,845,
35.1 percent of operating expenses, compared to $87,495,153,
or 34.6 percent of operating expenses, in the previous year.
Company contributions to Social Security, group insurance
and employee retirement plans amounted to an
additional $12,486,516.
Approximately 85 percent of the company's employees are
covered by agreements with unions. A contract was
signed during the year with the company's stewardesses and
negotiations with the pilots' union were begun . Agreement
on the pilot contract was reached on February 26, 1971.
Other contracts covering employees will be open for
amendment as follows : dispatchers, July 1, 1971; mechanics
and related employees, November 1, 1971; stores employees,
November 1, 1971 ; stewardesses, March 31 , 1972; and
clerical , office, fleet and passenger service employees,
October 1, 1972.
At the board of directors' July meeting, Kirk Kerkorian was
elected chairman of the board of directors to succeed
Terrell C. Drinkwater, who had retired as chairman and
resigned as a director effective May 31.
Mr. Drinkwater had served as the company's president from
January 1947 until his election as chairman in 1969.
In order that Western may continue to avail itself of his
9
extensive experience and knowledge of air transportation,
he has agreed that he will be available to serve as a consultant
to the company.
Elected to the board to fill the vacancy created by
Mr. Drinkwater's resignation was actor-producer Cary Grant.
At its first meeting of 1971, held on January 25, the board voted
to increase the number of directors from 19 to 20 members
and elected George Mason, vice president of Tracinda
Investment Company, to fill the newly created vacancy.
Officer changes during 1970 were: Gerald P. O'Grady,
vice president-corporate affairs and secretary from vice
president-properties and facilities; and Philip E. Peirce, senior
vice president-service from vice president-administration.
Arthur G. Woodley, who founded and was president of
Pacific Northern Airlines until its merger into Western in 1967,
retired as vice president-Alaska effective February 28,
1971, but will remain as a director.
Route Development
During 1970, the Civil Aeronautics Board completed action
on a number of major route applications involving Western.
As a result, the company received the following new authority:
Minneapolis/ St. Paul to Portland and Seattle/Tacoma:
First competitive service on these new routes was inaugurated
by Western on September 15;
Phoenix to Portland and Seattle/Tacoma Nonstop Service:
This award permitted the company to eliminate a mandatory
stop at Los Angeles on flights between Arizona and the
Pacific Northwest. The nonstop flights were inaugurated in
January 1971;
San Diego to Denver Nonstop Service: This award lifted a
restriction which required that Western flights stop at Phoenix
enroute between San Diego and Denver. The nonstop
service was inaugurated on June 8. The matter of competitive
service on this route is still pending.
In the CAB's Pacific Northwest-California Service
Investigation, Western was authorized to provide Seattle/
Tacoma and Portland-to-San Diego nonstop service but has
not yet inaugurated the service because of current market
conditions. Although little new service was authorized
10
between the Pacific Northwest and major airports at Los
Angeles and San Francisco in this proceeding, new authority
was granted to another carrier between the Pacific
Northwest and Ontario/Long Beach/Burbank/Orange
County, nonstop or via Oakland or San Jose.
On September 1, Western temporarily transferred, pending
the decision by the CAB on the route alignment proposals
in the Alaska Service Investigation, its short-haul routes west
of Anchorage to an Alaska-based local service carrier.
An examiner's decision in the case, which was established to
review intra-Alaska service and the route pattern from
Portland and Seattle/Tacoma to key cities in Alaska (other
than Anchorage) , is expected shortly.
On January 29, 1971, the examiner in the Las Vegas/Reno-
Portland/Seattle Nonstop Service Investigation recom -
mended that Western be given nonstop authority between
Las Vegas and Portland and Las Vegas and Seattle/Tacoma.
The company will continue to seek Las Vegas-Reno and
Reno-Portland/Seattle routes which also are at issue in the
case. Final board action is expected later this year.
In other route cases Western's applications for urgently
needed access to major traffic-generating points on the East
Coast were denied. There are no proceedings before the
Civil Aeronautics Board which would give Western the
opportunity to serve these long-haul, high-density routes in
the foreseeable future.
Pending before the CAB are the company's applications for
routes to Tokyo from Seattle/Tacoma, nonstop and via
Anchorage; to Guadalajara from California; and to Texas
points from Minneapolis/St. Paul.
Western's Route System
Western 's Routes
Pending Route Applications - - - - - - - -
11
10 Years of Growth
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)s ... .. . . .. ... ......................... . . . .. .
Net Earningss (Loss) .. . .. . ... ......... . .. .. ... .. .. .. ............ . .
Shareholders
Net earnings (loss) from operations per share2

Gain on disposition of property per share2

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

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

s .. .... .. .... . .. . . ... ... ... .. ... ... . .. . .
Shareholders' equity - totals . ................................. . ....... .
Shareholders' equity-a share2

Working capitals . .. . . . ........ . ...... . ...... . ... . ....... . .... .. ..... .
Long-term debts .................................... . .......... . .... .
Property and equipment-nets .......... . . ... . . . . . . ................... .
Total assetss ........ . . ..... ..... .. .... ...... .... . . .. . ..... . .... . ... .
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 -200 - leased .... . . ..... . . . ... .. . . ... . .... . ... . . . . . ..... .
Other aircraft .... . ... . . ... . . .... ........................ .. ... . . . .. .
Airplane miles flowns ............ . ......... . ..... .. .. . ...... .. ....... .
Ton miles produceds ................................................. .
Ton miles sold s ....................... . ..... .. ....... . ............ . .
Seat miles produceds ....... .............. . ........ . ... .... . ... . ..... .
Seat miles sold4

s ....... . . ............... .. ........... . . . ............ .
Express, freight and mail ton miles saids ..... . . . . .. ... ... . ......... .. . . .. .
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 . . .... . ... . . ....... . . ....... ....... ..... ..... .
1970
$ 274,793
13,994
4,752
4,571
298,110
36,580
100,630
149,088
286,298
11,812
(14,587)
1,120
(1,655)
(2,250)
595
$ 595
$ 0.11
$ 0.11
$
4,904
5,394
$ 79,905
14.81
35,238
174,184
247,427
355,169
26,891
26
3
5
30
6
2
86,298
1,266,124
584,554
9,839,299
5,159,081
68,646
6,187,527
73,140
52.4
52.7
834
$ .0291
$ .0542
8,830
19694 1968
$220,530 205,753
11,969 9,331
4,503 4,128
3,350 2,741
240,352 221,953
34,821 25,051
87,495 71,885
130,437 105,335
252,753 202,271
(12,401) 19,682
(14,748) (6,536)
(125) 15
(27,274) 13,161
(15,075) 4,725
(12,199) 8,436
(12,199) 8,436
(2.26) 1.56
(2.26) 1.56
0.45 0.91
4,904 4,902
5,394 5,392
79,309 93,862
14.70 17.41
20,447 25,764
197,150 183,718
285,757 284,787
367,588 349,039
24,523 14,156
26 27
3 3
5 5
30 17
6
8 12
72,650 60,125
1,077,657 891,001
448,420 418,856
8,509,441 7,096,229
4,021 ,296 3,841,864
60,514 47,446
5,752,072 5,692,947
66,107 58,129
47.3 54.1
53.1 50.7
699 675
$ .0297 .0285
$ .0551 .0537
9,225 8,919
1
AII financial data in this report give effect, retroactively throughout the periods prio r to 1968, to the merger of Pacific Northern Airlines into Western on Ju ly 1,
1967, which was accounted for as a pooling of interests.
2Based on shares of the Company outstanding at the close of the respective period s, adjusted to give retroactive effect to the 10% stock dividend paid March 5, 1971,
the May 1964 three-for-one split, and the equivalent outstanding shares of Pacific Northern Airlines, Inc., merged into the Company on July 1, 1967.
12
1967 19664 1965 1964 1963 1962 19614
178,527 164,186 129,704 121,928 103,183 89,837 67,442
7,581 6,848 5,991 5,897 5,055 4,747 3,833
4,221 4,255 3,135 2,962 2,603 2,659 2,364
2,153 1,895 1,768 2,095 3,472 2,878 2,935
192,482 177,184 140,598 132,882 114,313 100,121 . 76,574
20,085 15,779 14,676 12,980 12,373 14,605 12,033
57,975 47,350 38,731 34,500 30,114 27,1 08 22,837
89,082 77,708 62,391 57,650 50,969 47,997 38,848
167,142 140,837 115,798 105,130 93,456 89,710 73,718
25,340 36,347 24,800 27,752 20,857 10,411 2,856
(3,011) (3,239) (2,553) (2,491 ) (2,916) (2,725) (1,930)
17 775 253 783 621 472 (140)
22,346 33,883 22,500 26,044 18,562 8,158 786
10,125 15,558 10,337 12,493 9,252 4,130 443
12,221 18,325 12,163 13,551 9,310 4,028 343
883 191 889 807
12,221 18,325 13,046 13,551 9,501 4,917 1,150
2.27 3.45 2.29 2.55 1.75 0.76 0.07
0.17 0.04 0.17 0.15
2.27 3.45 2.46 2.55 1.79 0.93 0.22
0.91 0.91 0.73 0.59 0.33 0.30 0.30
4,893 4,835 4,826 4,826 1,965 1,965 1,965
5,382 5,318 5,308 5,308 5,308 5,308 5,308
90,016 81,750 67,361 57,748 46,988 39,061 35,574
16.73 15.37 12.69 10.88 8.85 7.36 6.70
19,585 18,047 11,522 8,274 5,031 12,315 5,369
80,189 54,867 47,411 33,938 41,106 48,856 39,018
183,106 145,771 124,096 99,928 93,284 80,052 69,865
231,342 192,008 157,973 138,335 125,806 115,266 95,258
14,156 13,075 13,075 12,991 12,991 13,086 12,368
27 22 18 12 10 7 4
3 3 2 2 2 2
21 23 24 33 33 34 39
51,692 42,830 36,554 36,746 33,388 29,551 25,239
728,200 585,378 483,033 450,856 400,395 348,854 256,572
360,791 314,137 244,588 231 ,303 191,229 159,658 121,850
5,879,442 4,800,901 4,016,921 3,794,648 3,335,083 2,746,549 1,967,313
3,327,160 2,898,088 2,243,695 2,124,582 1,753,037 1,435,992 1,080,189
38,940 33,070 26,435 24,625 20,622 19,786 16,315
5,107,672 4,700,839 3,807,706 3,717,189 2,970,909 2,270,455 1,659,323
48,579 42,714 33,511 30,956 25,890 25,256 20,378
56.6 60.4 55.9 56.0 52.5 52.3 54.9
49.5 47.9 46.2 44.4 44.3 48.6 55.4
651 616 589 572 590 633 651
.0284 .0293 .0288 .0277 .0280 .0327 .0375
.0537 .0567 .0578 .0574 .0589 .0626 .0624
7,282 6,294 5,068 4,719 4,126 3,713 3,418
3Cash dividenos 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) outstanding at the date such dividends were declared as adjusted for the stock dividend and the stock split
Operations of a competing carrier were partially suspended from July 8 to December 14, 1970, Western 's operations were suspended from July 29 to
August 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.
sooos omitted.
13
Balance Sheets
Western Air Lines Inc.
December 31 , 1970 and December 31 , 1969
ASSETS
Current Assets:
Cash .......... . .............. . .... . .. . ...... . ...... . .. .
Short-term securities (at amortized cost, including
accrued interest, which approximates market) .. ... . . . .. ..... .
Receivables (net of allowance for doubtful accounts
of $350,000 in 1970 and $275,000 in 1969) .... . ............ .
Federal income taxes refundable ... .. ...... . ....... . ...... . .
Maintenance and operating supplies (at average cost) . . .. . . ... .
Prepaid expenses . . ... . ... . . . . . ... . .. . ........ .. ....... . .
Total current assets ............ . ...... . ... . .. . . . ...... .
Property and Equipment at Cost:
Flight equipment ..... . .... . .. . .... . .. . ........ .... ..... . .
Ground equipment . . .. . . . .. . .......... . .... . .. .. .. . ..... .
Less allowance for depreciation and maintenance . .. .. .. . . . .. . .
Deferred Charges and Other Assets:
Boeing 737 and 727 preoperating costs, net . .. .... . . . . .... . .. .
Flight equipment not used in operations, net ..... . ... . . . .... . . .
Other items ....... . ... . ........ .. . . .. .. .. .. .. . .. ... .... .
See accom panying notes to financial statements.
14
$
1970
16,590,875
48,01 0,668
21 ,732,984
11,1 04,517
4,575,804
102,014,848
354,507,609
59,376,017
41 3,883,626
166,456,819
247,426,807
712,078
2,417,018
2,598,175
5,727,271
$355,168,926
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
59,087,184
429,107,512
143,350,867
285,756,645
1,680,450
2,062,898
1,936,409
5,679,757
$367,588,112
LIABILITIES
Current Liabilities:
Accounts payable ........ . .............................. .
Accrued salaries and wages .. . . .. .. ...... ... . ............. .
Accrued liabilities ......... . .. .. ......................... .
Unused transportation ...... . . . ........ . ... ..... .. . ....... .
Current maturities of long-term debt (Note 2) ... . ... . ... . ..... .
Total current liabilities . .......... . . . . . ............. . . .. .
Long-Term Debt (Note 2) ... .. . .. . ................ . ... . .. . .
Deferred Credits and Other Liabilities (Note 1 ):
Deferred federal taxes on income .. .......... .... ......... . .
Unamortized investment credits ...... . .. . ... . ...... . ....... .
Other ... .... . ....... . .. . ..... . .. . ........ . . . .......... .
Shareholders' Equity (Notes 2, 5 and 8):
Common stock-$1 .00 par value per share
Authorized 10,000,000 shares
Issued 4,903,879 shares ...... . . . ..... . ..... . . . . . ... . ... .. .
Capital in excess of par value .............................. .
Retained earnings .... . . . . . .. . .. . .................... . ... .
1970
$ 18,698,697
11,731,118
7,432,085
5,949,274
22,965,227
66,776,401
174,184,358
17,495,000
13,584,000
3,224,332
34,303,332
4,903,879
19,235,433
55,765,523
79,904,835
$355,168,926
$
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
$367,588,1 12
15
Statement of Operations and Retained Earnings
Western Air Lines Inc.
For the years ended December 31, 1970 and December 31, 1969
Operating Revenues:
Passenger ..... . . . ............... . ......... ... ....... . . .
Express, freight and excess baggage ... . .................... .
Mail . . ........................... . .................. .. .
Other (Note 7) ................................. . ........ .
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)
$0.11 net earnings per share in 1970 and $2.26 net loss
per share in 1969 based on shares outstanding at end of
each year (adjusted for the 10% stock dividend paid
March 5, 1971) (Note 8) ................................ .
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 because of a strike.
See accompanying notes to financial statements.
16
1970
$274,792,723
13,993,889
4,752,051
4,570,957
298,109,620
74,615,549
37,658,485
31,371,846
52,693,576
53,378,916
36,579,626
286,297,998
11,811,622
(14,586,128)
2,021,293
(901,413)
(1,654,626)
(2,250,000)
595,374
55,170,149
55,765,523
$ 55,765,523
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
Statement of Source and Application of Funds
Western Air Lines Inc.
For the years ended December 31, 1970 and Decemoer 31, 1969
Source of Funds:
Net earnings (loss)
Add back:
Depreciation , amortization and maintenance reserve provision.
Deferred income taxes ........... .. . .. .. . ............ .
Charge (credit) related to investment credits ....... . .. .. .. .
Amortization of investment credits ... . . .. ... . ........... .
Gain on disposition of property ........ . ....... . ....... .
Total from operations .......... . ... . ............... .
Proceeds from issuance of long-term debt .. .... ...... . .. . ... .
Refunds of equipment purchase deposits . .. .... ..... . .. . . . .. .
Federal income taxes refunded . .. . . . . .. .. .... .. ..... . ..... .
Proceeds from disposition of property . . . . .. ..... . ... . . . .... . .
Increase in current liabilities . . .. .. ............. . ........... .
Application of Funds:
Purchase of airplanes, property and equipment .. ............. .
Increase in inventories, receivables and prepaid expenses .. ..... .
Long-term debt transferred to current liabilities .. . .. ... . ...... .
Cash dividends . . .... .. .. . ........... . . .. . . ..... .. . . . . .. .
Boeing 737 and 727 preoperating costs ...... . .............. .
Other (net) . . ...... .. ............. . ..................... .
INCREASE IN CASH AND MARKETABLE SECURITIES .. . ...... .
CASH AND MARKETABLE SECURITIES
BALANCE AT:
Beginning of period ............ . ... . ..... . ....... . .. .
End of period .. .... .. .. .. ... . . . ..... . ............. . . .
*Operations were suspended f rom July 29 to August 16, 1969 because of a strike.
See accompanying notes to Financial Statements.
1970 1969*
$ 595,374 $ (12 ,198,860)
41,529,249 37,692,055
(850,000) 7,000,000
(6,350,000)
(2,050,000) (2,150,000)
(86,596) (25,550)
39,138,027 23,967,645
29,706,000
133,087 4,625,993
12,285,989
3,220,138 2,909,046
11,071,783 20,283,904
65,849,024 81,492,588
4,796,784 46,196,539
2,001 ,911 14,383,114
22,965,227 16,195,627
2,451 ,634
1,483,430
(62,114) 198,337
29,701 ,808 80,908,681
36,147,216 583,907
28,454,327 27,870,420
$ 64,601 ,543 $ 28,454,327
17
Notes to Financial Statements
Note 1. Taxes on Income.
The 1970 net income tax credit is summarized as follows:
Current income taxes . .. .. . . . . . ..... . ... $ 650,000
Deferred income taxes (credits) . . . . . . . . . . . (850,000)
Amortization of investment credits . . . . . . . . . (2,050,000)
Net income tax credit . .. . ... . . ... . . . .. $(2,250,000)
Deferred income taxes arise from timing differences between
fi nancial and tax reporting. These differences are caused
primarily by depreciation practices.
Investment credits generated and unapplied on tax returns
amounted to $1 8,510,000 at December 31 , 1970. Of this
amount, $17,496,000 has been offset against the balance of
deferred taxes on income and expire as follows: $897,000 in
1972, $2,069,000 in 1973, $2,870,000 in 197 4, $9,030,000 in
1975, and $2,630,000 in 1976. The investment credits not
offset against deferred taxes amounted to $1 ,014,000 and
expire as follows: $984,000 in 1976 and $30,000 in 1977.
Of the $1 3,584,000 unamortized investment credit balance at
December 31 , 1970, $1,510,000 remains from investment
credits utilized by reduction of taxes paid and $12,074,000 is
related to investment credits not yet utilized for reduction
of taxes paid.
Federal income tax returns have been exam ined by the U.S.
Treasury Department through 1967. The federal income tax
return for 1968 is being examined .
Note 2. Long-Term Debt (Unsecured).
On December 31 , 1970, long-term debt was as follows:
18
Promissory note due December 31 , 1975 with
quarterly payments from March 31 , 1970.
The interest rate is% over the bank's
prime commercial rate ......... . .. . . . .. $ 97,312,997
5 % promissory notes due September 1,
1981 with annual payments of $1 ,000,000
from September 1, 1970 which will increase
to $4,000,000 a year starting in 1976 . . . . . 29,000,000
6% % promissory notes due September 1,
1984 with annual payments of $1 ,000,000
from September 1, 1970, which will increase
to $2,000,000 a year starting in 1975, and
further increase to $7,000,000 a year
starting in 1982 . . . . . . . . . . . . . . . . . . . . . . 39,000,000
5% to 6 % promissory notes due 1971
and 1972 ... .. ...... . . . . . . . .... .. . . . .
Less current maturities . .. . . . . . ... .. .. . . .
5 % convertible subordinated debentures
due February 1, 1993, with sinking fund
payments of $1 ,500,000 a year starting
in 1979 . . ..... ...... . . . . . . . ... .. ... .
2,183,588
167,496,585
22,965,227
144,531 ,358
29,653,000
$174,184,358
The following schedule shows the amount of long -term debt
maturing in each of the five years subsequent to December
31 , 1970:
1971 . . .. ...... . . .. ... . ... . . . . . .. . ... . . $22,965,227
1972 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,143,561
1973 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,462,600
197 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,462,600
1975 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,462,600
Reserved for the conversion of debentures are 806,884 shares
of common stock at $36.75 per share which is subject to
adjustments in certain cases. After giving effect to the 10%
stock dividend, the shares reserved for conversion are
887,572 and the conversion price is $33.41 .
The related agreements with the bank and the insurance
compan ies 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 contains a requirement which operates to restrict
retained earn ings from which cash dividend distributions can
be made. Since the second quarter of 1969 the indenture
has operated to prevent any use of retained earnings for cash
dividend distribution.
Note 3. Commitments and Contingent Liabilities.
The estimated minimum annual rentals under long-term
leases of real property, with expiration dates ranging to 1998,
were approximately $2,500,000 at December 31 , 1970.
Annual rentals under a lease agreement covering six Boeing
727 aircraft aggregate $2,992,000 in 1970, $3,843,000 in 1971
and $4,130,000 in each year thereafter through 1984.
At December 31 , 1970, various legal actions were pending
against the City of Los Angeles and various actions and
cross actions were pending against Western and other
airlines, alleging excessive aircraft noise in the vicinity of Los
Angeles International Airport. Western '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. An interlocutory judgment has been
entered in one of these cases against the City of Los Angeles,
awarding damages aggregating $740,000 to 620 property
owners. The City has appealed.
Western is also a defendant, together with numerous other
airlines, in a purported class action relating to charges for
in-flight services.
Western believes these actions will not result in any material
liability to the company.
For information regarding fare increases and re lated litigation
see last two paragraphs under " Fare Changes".
Note 4. Retirement Plans.
The company has retirement plans covering all eligible
employees. The cost of these plans charged to operating
expense totaled $3,651 ,228 in 1969 and $4,660,611 in 1970.
During 1970, reductions in annual pension costs due to a
revision of an actuarial assumption were partially offset by
increased annual costs due to improvements in pension
benefits adopted during the year and the partial assumption
by the company of a portion of contributions formerly
paid by employees. The company's actuary is of the opinion
that the assets under the plans exceed the accrued vested
benefits of the plans.
Note 5. Stock Options.
At December 31, 1970, options were outstanding for the
purchase of 109,500 shares of common stock by officers at an
average price of $26.64 per share. An additional 76,700
shares were reserved for issuance of future options. (After
giving effect to the 10% stock dividend declared December
16, 1970 and payable March 5, 1971, the number of shares
subject to outstanding options is 120,450; the average option
price is $24.22, and the additional shares reserved are
84,370.)
Note 6. Depreciation and Amortization.
Depreciation for book purposes is computed on the
straight-line basis predicated on estimated useful lives,
which for flight equipment are ten to fifteen years.
Note 7. Mutual Aid Agreement.
The company's participation in the Mutual Aid Agreement
with several other carriers became effective August 3, 1970.
From this date through December 31, 1970, $2,711,000 was
provided for payments to a struck carrier. This amount was
charged to " Other" operating revenues.
Note 8. Stock Dividend.
A 10% stock dividend was declared on December 16, 1970,
and paid on March 5, 1971 to shareholders of record on
January 15, 1971 . The dividend will be recorded in 1971 by a
transfer of $490,387 to common stock and $10,482,022
to capital in excess of par value. After giving effect to this
dividend the shares outstanding are 5,394,266.
Note 9. Proposed Merger.
On December 16, 1970, the Board of Directors of Western
approved an Agreement of Merger providing for the merger
of Western into American Airlines, Inc. This agreement as
subsequently amended and restated was approved by the
Board of Directors as of January 14, 1971. The proposed
merger is subject to certain conditions including the approval
of shareholders of both companies, the lending institutions,
certain regu latory authorities, and the President of the
United States.
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 1970 and the related
statements of operations and retained earnings and source
and application of funds for the two years then ended. Our
examination was made in accordance with 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, such financial statements present fairly the
financial position of Western Air Lines, Inc. at December 31,
1969 and 1970 and the results of its operations for the two
years then ended , in conformity with generally accepted
accounting principles applied on a consistent basis. Also, in
our opinion , the statement of source and application
of funds for the years ended December 31, 1969 and 1970
presents fairly the information shown therein .
Los Angeles, Calif.
March 5, 1971
19
,
Board of Directors
James D. Aljian
Secre"tary-Treasurer, Tracinda Investment Company, Beverly Hills, California
Fred Benninger
President, International Leisure Corporation, 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
Leo H. Dwerlkotte
Las Vegas , Nevada
James D. Garibaldi
Attorney at Law, Garibaldi & Lane, Los Angeles , California
Cary Grant
Universal City, California
Arthur F. Kelly
Senior Vice President - Marketing , Western Air Lines, Inc., Los Angeles, California
Peter M. Kennedy
Vice President, Dominick & Dominick, New York, New York
Kirk Kerkorian
Chairman of the Board, Western Air Lines, Inc., and Chairman of the Board, Tracinda Investment Company, Beverly Hills, Cal ifornia
Arthur G. Linkletter
Linkletter Enterprises, Inc., Los Angeles, Cal iforn ia
George Mason
Vice President, Tracinda Investment Company, Beverly Hills, California
Edwin W. Pauley
Chairman of the Board, Pauley Petroleum, Inc., Los Angeles , Cal iforn ia
Walter M. Sharp
President, Community Bank, Huntington Park, Cal iforn ia
Stanley R. Shatto
Executive Vice President - Transportation , Western Air Lines, Inc., Los Angeles, California
William Singleton
Vice President and Assistant to the President, Metro-Goldwyn-Mayer, Inc., Cu lver City, California
J. Judson Taylor
President, Western Air Lines, Inc., Los Angeles , Cal ifornia
Vernon 0. Underwood
President, Young's Market Company, Inc., Los Angeles, Cal iforn ia
Harry J. Volk
Chairman of the Board, Union Bank, Los Angeles, Californ ia
Arthur G. Woodley
Bellevue, 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
20
Corporate Officers
Kirk Kerkorian, 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- Marketing and Director
Philip E. Peirce, Senior Vice President-Service
Charles J. J. Cox, Vice President - Finance
Gerald P. O'Grady, Vice President- Corporate Affairs and Secretary
Robert 0. Kinsey, Vice President and Assistant to the President
Richard B. Ault, Vice President- Engineering
Willis R. Balfour, Vice President-Agency, Interline & Group Marketing
Harold W. Caward, Vice President- Flight Operations
Henry M. deButts, Vice President-Washington
Richard P. Ensign, Vice President- Service (Staff)
Anton B. Favero, Vice President- Maintenance
Rick 0. Hammond, Treasurer and Assistant Secretary
Ernest T. Kaufmann, Vice President- Regulatory Affairs
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- Service (Line)
Eugene D. Olson, Vice President - Data Processing and Systems
Luis Pasquel, Vice President- Mexico
Ray Silvius, Vice President- Public Relations
Jack M. Slichter, Vice President- Market Planning
Harry L. White, Vice President- Marketing Administration
Peter P. Wolf, Vice President- Communications
Charles S. Fisher, Assistant Vice President- Product Development
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- Product Pricing
Neil S. Stewart, Assistant Vice President- Market Development, Pacific Region
Dan A. Zaich, Assistant Vice President- Labor Relations
General Offices
Western Air Lines Building, 6060 Avion Drive
Los Ange les 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 Angeles, California 90014
Independent Accountants
Peat, Marwick, Mitchell & Co.
629 South Spring Street, Los Angeles, California 90014
Annual Meeting
Fourth Thursday in April