Western Airlines Annual Report 1979

WESTERN AIR LINES, INC.
1979 ANNUAL REPORT
HIGHLIGHTS OF 1979
(in thousands of dollars)
1979
Operating revenues ..................................... $932,119
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 913,883
Operating income .. . . .. ... . . ..... ........ . . ... ..... .
Other Income (Expenses):
Interest expense, net .. ... . ....... .... ................. .
Gain on disposition of equipment ....................... .
Other- net ................. . . ... .. ....... ... ...... . .
Earnings before income taxes and cumulative
effect of a change in accounting principle .............. .
Income taxes . . . . . . .... ................ . .. ..... . ...... .
Earnings before cumulative effect of a change in
accounting principle ............ .. ................ .
Cumulative effect of a change in accounting principle ...... . ... .
18,236
(24,894)
31,332
14,765
39,439
(2,101)
41,540
Net earnings .. ... . . .... . .. . . ..... . . .... . ........... $ 41,540
Passengers carried (000) .. .. ....... ... ............. ... ... .
Available seat miles (000,000) ...... . ... .. ... . ........ . ... .
Revenue passenger miles (000,000) ...... .. ..... . ........ .. . .
Passenger load factor - actual (%) ..................... . .
- breakeven (%) .... .. ................ .
-profit margin (point difference) ......... .
*Not computed.
D escription of Business
11,191
16,630
10,495
63.1
63.2
(0.1)
hange
1978 1979 vs.1978
834,513 12%
779,657 17
54,856 -67
(20,179) 23
6,754 *
3,924 *
45,355 -13
6,808 *
38,547 8
16,201 *
54,748 -24
10,447 7%
16,255 2
10,635 -1
65.4 -4
61.1 3
4.3 *
Western Air Lin s, Inc., is a certificated air carrier engaged in scheduled air transportation of passengers, cargo
and mail. Th company was organized in 1925 and currently s rves 44 cities in 16 states plus the District of
Columbia, Canada and Mexico. Western operates in competition with other airlin s on nearly all route segments.
It is regulat d by th United States and for ign governments.
Cover:
Western inaugurated daily flights into Washington, D.C., through close-in ational Airport, in Jun of 1979.
Using 727-200s, Western offers twic daily nonstop s rvic to Minneapolis/St. Paul and points w st.
1
LETTER TO SHAREHOLDERS
Dominic P. Renda
Fellow Shareholders:
Nineteen seventy-nine was a difficult year for Western
and the airline industry. Western and most carriers in
the industry were bombarded by a series of unexpected
events, and earnings from operations dropped sharply.
Profits for the industry declined from $1.2 billion in
1978 to approximately $340 million in 1979. Profit mar-
gins went from five cents on each dollar of revenue in
1978 to approximately one cent in 1979. In Western's case,
although we had net income of $41.5 million, or $2.99 per
share, our results from operations were disappointing.
In fact, had we not taken prompt action during the year
2
Arthur F. Kelly
to control costs and improve yield, the operating results
would have been even more disappointing.
The major problems faced by Western and others
during the year were:
... the uncontrollable escalation in the price of jet fuel;
. .. the lengthy grounding of the industry's DC-10 fleet;
.. . new and increased competition on many of our
most important routes, as the result of deregulation;
... a decline in traffic, particularly in leisure markets.
Although we had anticipated an increase in the price
of turbine fuel during 1979, the amount of the increase-
from 40 cents per gallon in January to 74 cents per
gallon in December- was much larger than expected.
As a result, we paid almost $71 million more for fuel
in 1979 than we did in 1978, despite the fact that we
used three million gallons less.
In an effort to offset these uncontrollable increases,
we implemented a series of Civil Aeronautics Board-
approved fare increases. Unfortunately, the Board's
actions were not adequate to keep up with the continuing
escalation in jet fuel prices and other major cost increases.
At the same time, we experienced a decline in traffic
which we attribute to increased competition and a
downturn in leisure travel.
This reduction of travel emerged in the third quarter
and became even more pronounced in the fourth quarter.
Also frustrating and costly was the 38-day grounding
of the DC-lOs, which we believe was unjustified. Western
operated only nine of the large tri-jets at the time of the
grounding; however, they produced approximately 29
percent of the company's revenue passenger miles. We
revised schedules for our remaining aircraft; unfortu-
nately, we were able to salvage only a small amount of
traffic normally carried by the DC-lOs and the grounding
proved very costly to Western. The company's DC-lOs
were inspected repeatedly in accordance with Federal
Aviation Administration directives and were found to
be completely free of the structural damages experienced
by a few other carriers. Nevertheless, we were unable to
persuade the FAA that the grounding was unnecessary
or that the grounding order should have been lifted at
an earlier date.
Early in 1979, we concluded that in the latter part of the
year we would experience a slowing in traffic growth. As
a result, we accelerated the retirement of our remaining
four-engine Boeing 720B1s, withdrawing them from the
flight schedule in September. A short time later, we also
made plans to speed up the retirement and sale of our five
Boeing 707s which, like the 720B's, were made uneco-
nomic by rising fuel prices. The 720B's have been sold;
the 707s have been withdrawn from scheduled flying
and are being offered for sale. At the same time, we
also placed stringent controls on headcount and on
other expenditures.
We were, of course, disappointed that the merger with
Continental Airlines was not approved by the CAB. We
continue to believe this consolidation would have been
in the best interests of the two companies, their share-
holders and the traveling public. With the denial of the
merger, we increased our emphasis on expansion into
long-haul international markets and, in particular, to
England where Western had in process route applications
to London from Anchorage, Minneapolis/St. Paul,
Denver and Miami.
The administrative law judge in the Anchorage-London
case has recommended that Western receive the route.
The CAB's decision, which also must be approved by the
President, is expected by late April.
On February 15, 1980, the CAB announced its decision
3
in the "Wild Card Case;' awarding a Minneapolis/St.
Paul-London route to another carrier and overturning, as
it did in the merger case, a decision by the administra-
tive law judge that was favorable to Western.
On March 5, 1980, the United States and the United
Kingdom announced a new agreement in which Denver,
along with several other U.S. cities, was selected for a
nonstop route to London, effective this spring. In the
Wild Card Case, both the law judge and the CAB's
Bureau of International Aviation had recommended that
if the CAB should select Denver- rather than Minne-
apolis/St. Paul - that Western should be designated to
operate the route. Western will be a vigorous applicant in
whatever proceeding is instituted to determine the U.S.
carrier to operate the Denver-London route in 1980.
In the Miami-London case, the administrative law
judge recommended that another airline be given the
authority for that route. However, under the terms of the
new U.S.-U.K. agreement, a second U.S. carrier will be
authorized to operate the route beginning in January 1981.
Nineteen eighty will be a difficult year for the air-
line industry. Western will be no exception. Traffic com-
parisons with last year, particularly in the first half, will
be unfavorable. As a consequence, we reduced scheduled
flying by nine percent for the first quarter and will con-
tinue to make appropriate adjustments to our level of
seat mile production for the balance of the year.
Our primary goals to which we are dedicating renewed
effort are to schedule our aircraft more effectively, to
produce a more competitive product on the ground and
in the air and to outsell our competitors in order to
make 1980 another profitable year for Western.
We shall do our very best to make the year a suc-
cessful one and will appreciate your continued support
in this endeavor.
Arthur F. Kelly
Chairman of the Board
March 12, 1980
A~,-..e1a: ~~
Dominic P. Renda
President and Chief
Executive Officer
4
Revenue Dollar
(dollars in thousands)
Coach passenger service ... . .. $764,874
Percent
of total
82%
Deluxe passenger service . . . . . . 62,801 7
Cargo ..... . . ....... . .... . 61,209 6
Transport related . . . . . . . . . . . 26,137 3
Charter . . . . . . . . . . . . . . . . . . . 9,268 1
O ther . . . . . . . ......... . .
Expense Dollar
(dollars in thousands)
Wages, salaries and
7,830
$932,119
1
100%
Percent
of total
employee benefits ...... .. . $356,621 39%
Fuel ..
Materials and services ..
Depreciation .
Commissions ....... .
Food and beverages ..
Rentals .... .. ... . ........ .
225,682
111,231
75,980
50,058
48,251
28,675
17,385
25
12
8
6
5
3
2
$913,883 100%
YEAR IN REVIEW
Management's Discussion
1979 Versus 1978:
Western's net earnings for 1979 total d $41.5 million,
compared to earnings before the cumulative effect of a
change in accounting principle of $38.5 million in 1978.
The 1979 results included pre-tax gains of $31.3 million
from the sale of aircraft and insurance proceeds from the
loss of an aircraft and $10 million from a settlement with
a vendor. In 1978, pre-tax gains from aircraft sales totaled
$6.8 million. Net earnings of $54.7 million for 1978
included $16.2 million from the cumulative effect of a
change in accounting principle.
Revenues:
Operating revenues for 1979 were $932.1 million, com-
pared to $834.5 million for 1978. The increase resulted
primarily from higher passenger and cargo yields. The
following table shows the increases (decreases) in
operating revenues and traffic:
Operating Revenues
Passenger . . . . . . . . . . . .
Cargo .. . . . . . . . . . . . . . . . .
Other (including charter) ..
Revenue Passenger Miles
48 States and Canada .
Mexico .
Alaska .
Hawaii . . .. . .. .. .... .
Total Scheduled .
Charter (mostly Hawaii).
Total System . .
Cargo Revenue Ton Miles .
1979 Versus 1978
Increase
(Decrease)
Amount Percent
(millions)
$ 93.7 13
4.2 8
(.3) (1)
$ 97.6 12
300.6 5
197.5 27
(102.1) (13)
(326.5) (12)
69.5 1
(209.5) (47)
(140.0) (1)
(14.3) (8)
Percent
of Total
Increase
96
4
100
The passenger revenue growth reflects a 12 percent
increase in the average revenue per passenger mile from
7.20 cents in 1978 to 8.07 cents in 1979. General fare
increases accounted for approximately half of this
growth while declines in discounted traffic and the low-
yield Hawaii market accounted for the remainder. Dis-
counted traffic represented 39 percent of the scheduled
revenue passenger miles, compared to 42 percent in 1978.
Revenue passenger miles on scheduled flights
increased only one percent over 1978. While a strike
against United Airlines in April and May favorably
impacted traffic, the gains were offset by the adverse
effects of the grounding of all DC-10 aircraft for 38 days
during the summer and a strike by Western's Mexico
employees during the first 12 days of July.
The four percent growth in scheduled available seat
miles came from additional aircraft and increased seating
capacity, which were partially offset by the grounding.
This increase, coupled with a one percent increase in
5
schedul d rev nu passenger mil , result din a sch dul d
load factor of 63 perc nt, down from the r cord 65 per-
cent load factor of 1978.
Two of Western's four major market areas showed
growth in scheduled service. Mexico had the largest rate
of traffic growth for the year. Contributing to this growth
was the Los Angeles-Guadalajara service, which was
operated for the full year in 1979 but for only six months
in 1978. A 26-day strike against MexicanaAirlines during
the fourth quarter also enhanced Wes tern's Mexico traffic.
The 48 States and Canada, the other growth market,
continued to be Western's largest market, representing
62 percent of the 1979 revenue passenger miles, up
from 58 percent in 1978. The growth rate in this market
was five percent. New services - including Minneapolis/
St. Paul to Washington, D.C.-accounted for 82 percent
of that growth.
Favorably impacted in 1978 by a strike against North-
west Airlines, the Alaska market declined in 1979. New
traffic over the San Francisco-Anchorage route, inaugu-
rated in May 1979, did not offset the impact of the ground-
ing nor overcome the inflated 1978 traffic volume.
The greatest decrease in scheduled revenue passenger
miles occurred in Hawaii. The decline resulted from the
DC-10 grounding and a planned reduction in available
seat miles. Hawaii was the only Western market with
fewer available seat miles in 1979 than in 1978 .
Cargo revenue was up eight percent over the previous
year as yield (revenue per cargo ton mile) increased 17
percent. An eight percent decrease in revenue ton miles-
attributable primarily to the grounding and increased
competition-partially offset the growth in yield.
Charter revenues declined 41 percent reflecting man-
agement's decision to curtail low-yield charter activity.
Expenses:
Operating expenses for 1979 were $913.9 million, com-
pared to $779.6 million for 1978. The following table
shows the increases (decreases):
1979 Versus 1978
Increase Percent
(Decrease)
of Total
Amount Percent Increase
(millions)
Wages and salaries . $ 39.2 15 29
Employee benefits . 8.0 14 6
47.2 15 35
Fuel . 70.8 46 53
Depreciation . 3.0 6 2
Other
Commissions . ......... . 7.2 17 5
Services purchased . 4.6 18 4
Advertising . . ... .. . . 3.0 22 2
Other ....... (1.5) (1) (1)
13.3 5 10
Total operating expens s .... $134.3 17 100
Available S at Mil s .. 375.6 2
Higher jet fuel prices were responsible for ov r half of
the increase. The average price per gallon increased from
38.6 cents in 1978 to 56.7 cents in 1979, and by December
1979, the price had jumped to 73.5 cents per gallon. Fuel
costs thus rose 46 percent to $225.7 million for 1979,
while fuel consumed decreased one percent.
The second largest component of the increase in oper-
ating expenses-wages, salaries, and employee benefits-
rose to $356.6 million for the year. Approximately 60
percent of the rise was attributable to wage increases,
24 percent to increased personnel and 16 percent to
work rules.
The acquisition of new aircraft during the year
increased depreciation expense. This was partially offset
by a reduction in depreciation of four-engine aircraft;
Western's 720B aircraft became fully depreciated at the
end of 1978.
Commissions to travel agents increased because of
higher fare levels and increased sales made by travel
agents. Almost 65 percent of total passenger sales were
made by travel agents in 1979, compared to 60 percent
in 1978.
Services purchased increased in the areas of janitorial,
cleaning, security and other support services, and in credit
card service fees. Support service increases resulted
mostly from higher rates, while credit card service fees
rose with higher sales volume.
Additional advertising expenses were incurred in the
promotion of Western's new domestic routes.
The decrease in other expenses was attributable to $9 .8
million paid to a struck carrier in 1978 under the Mutual
Aid Agreement. This agreement was terminated effective
January 1, 1979.
1978 Versus 1977:
Net earnings for1978 were $54.7 million, compared to net
earnings of $12.7 million for 1977. The change to the flow-
through method of accounting for investment credits
increased net earnings for 1978 by $29 million of which
$16.2 million was the cumulative effect of the change on
prior years.
Revenues:
Operating revenues for 1978 were $834.5 million, com-
pared to $691.5 million for 1977. The following table
shows the increases in operating revenues and traffic:
1978 Versus 1977
Increase
Percent
of Total
Amount Percent Increase
(millions)
Operating revenues
Passenger. ............ $119.4 19 83
Cargo . . 9.3 20 7
Other (including charter) . 14.3 49 10
$143.0 21 100
6
R v nue passenger miles
48 States and anada .. . 1,057.9 21 58
Hawaii . 372.0 16 21
M xico. 210.8 40 12
Alaska . 172.2 29 9
Total scheduled . 1,812.9 22 100
-
Charter (mostly Hawaii) .. 233.1 109
Total system . 2,046.0 24
Cargo revenue ton miles . 19.0 12
The increase in passenger revenue was attributable to a
22 percent growth in scheduled traffic over the previous
year. Average revenue per passenger mile decreased from
7.34 cents for 1977 to 7.20 cents for 1978. General fare
increases were more than offset by the increased use of
discount fares. Discount revenue passenger miles for1978
increased to 42 percent of the scheduled revenue passenger
miles, compared to 33 percent for 1977.
Revenue passenger miles on scheduled flights in-
creased significantly over 1977, in part because of a strike
against a major competitor, Northwest Airlines, whose
operations were substantially suspended from April 29,
1978, through August 15, 1978. Scheduled available seat
miles increased by only seven percent over 1977. This,
coupled with the 22 percent increase in scheduled reve-
nue passenger miles, resulted in a scheduled load factor
for 1978 of 65 percent compared to 57 percent for 1977.
Of the four major market areas, the greatest rate of
growth in scheduled service was in Mexico, a reversal of a
downward trend in traffic that had resulted from the
devaluation of the peso in September 1976. The new Los
Angeles-Guadalajara route inaugurated June 30, 1978,
accounted for 44 percent of the growth and 12 percent of
total passenger miles in the Mexico market.
The 48 States and Canada continued to account for the
greatest portion of the scheduled market growth with 58
percent of the 1978 total.
Alaska routes, which had a slowing of traffic growth in
1977, experienced a 29 percent rate of growth in 1978, the
increase coming primarily from discount traffic.
Scheduled revenue passenger miles in Hawaii markets
had the lowest growth rate of all the markets for 1978,
but with the inclusion of Hawaii charters-which repre-
sent 80 percent of system charters in 1978- the overall
rate of growth for Hawaii equaled that of the 48 States
and Canada.
Cargo revenue increased 20 percent over 1971 as a
result of the positive combination of a yield increase of 6.7
percent and a 12.1 percent increase in revenue ton miles.
Other revenue increased principally from expanded
charter business in 1978. Charter traffic increased 109 per-
cent and charter revenue increased 120 percent, account-
ing for 60 percent of the growth in other revenue.
Expenses:
Operating expenses for 1978 were $779.6 million, com-
pared to $662 million for 1977. Wag s, alari s and
employee benefits totaled $309.4 million nd fu 1 xpense
totaled $154.9 million.
Passenger Revenue-1975=100%
The following table represents increases in selected
operating expenses:
1978 Versus 1977
Percent
Increase
of Total
Amount Percent Increase
(millions)
Wages and salaries . $ 37.2 17 32
Employee benefits . 9.1 19 8
46.3 18 40
Depreciation . 4.4 10 4
Fuel ... 16.9 12 14
Other
Materials and repairs . 9.6 25 8
Commissions . ........ 9.5 30 8
Services purchased . . 4.6 22 4
Food and beverage .. 3.5 15 3
Travel-flight crews . 2.7 25 2
Passenger service claims . 2.8 72 2
Communications . 1.1 15 1
Other . 16.2 20 14
50.0 23 42
Total operating expenses .... $117.6 18 100
Availabl Seat Miles . . 1,291.1 9
Western achieved a 12 percent
improvement in its yield, or average
revenue per passenger mile, as a result
of fare increases and a decline in the
amount of travel sold at a discount.
- - - - - - Passenger revenue
Scheduled RPM's
7
Yield
% of discounted RPM's to
total scheduled RPM's.
Wages, salaries, employee benefits and fuel had the great-
est dollar impact, accounting for 54 percent of the total
operating expense increase over the previous year.
Higher rates of pay, resulting from scheduled periodic
increases in collective bargaining agreements, were pri-
marily responsible for 65 percent of the increase in wages
and salaries.
Employee benefit costs consist of pensions, group insur-
ance and payroll taxes. Pension costs accounted for 51
percent of the increase in employee benefits and were up
21 percent over the previous year. Three quarters of this
increase was due to improved benefits and higher wages
while the balance was attributable to an increase in the
number of employees. The cost of group medical, dental
and life insurance rose by 15 percent. Payroll taxes
increased 17 percent because of legislated rate increases
and higher wage rates.
Depreciation expense increased with the acquisition of
two DC-10 and five 727-200 aircraft during the first seven
months of the year.
Fuel increased 12 percent, of which 54 percent was
attributable to higher average prices and 46 p rcent to
increas d consumption.
Commissions to travel agents w re higher as a result of
two factors: incr as d traffic and an incr as in sales by
trav 1 ag nts. Sal s by trav 1 ag nts were 60 perc nt of
total pass ng r al in 1978 compar d to 57 p rcent
in 1977.
Fuel Expense-1975= 100%
275%
250%
225%
200%
175%
150%
125%
100%
1975 1976 1977 1979
Services purchased were higher in 1978 primarily in
two areas: credit card service fees and costs of security,
janitorial, cleaning and other support services. Service
fees were related to increased traffic and support services
were related to higher rates.
Food and beverage expenses increased because of a
growth in passenger traffic and to a lesser extent, from
higher prices.
Flight crew travel expenses were up primarily as a
result of a new contract requiring individual accommoda-
tions for flight attendant personnel while away from
their home bases.
Passenger service claims were up because of increased
passenger traffic, weather problems and changes in
mandatory payments related to flight interruptions and
baggage claims.
Communications expense increased with the installa-
tion of additional equipment, increased usage of com-
munications facilities and higher service rates.
Other expenses increased by $16.2 million, attributable
in the main to payments of $9.8 million to a struck carrier
under the Mutual Aid Agreement.
Interest expense increased 15 percent, with t};,.e issu-
ance of equipment trust certificates to finance the acqui-
sition of one DC-10 and five 727-200 aircraft. The gain
on sale of equipment reflects the sale of sev n aircraft
in 1978.
While fue l conservation measures
and flight scheduling reduced ga llons
consumed slightly, fue l costs sky-
rocketed during 1979. Fuel costs rose
46 percent for 1979, while fuel
consumed decreased one percent.
8
Fuel expense
Gallons consumed
Average cost per gallon
Shareholders and Stock
Western's net earnings per common share for 1979 were
$2.99. The 1978 earnings per common share were $2.82
before inclusion of $1.27 per share from the cumulative
effect of a change in accounting principle.
Holders of common stock were paid 40 cents per
share through quarterly cash dividends of 10 cents per
share in 1979 and 1978.
The 1979 net earnings increased shareholders' equity
to $233 million at the end of the year, compared to $199
million at the end of 1978. Equity per share of common
stock (or book value) was $15.56, compared to $12.96 at
the end of 1978.
As of December 31, 1979, there were outstanding
13,030,483 shares of Western common stock held by
approximately 18,000 individuals and institutions.
Western has 2,992,350 shares of common stock re-
served for issuance upon conversion of its preferred
stock and an additional 2,062,078 shares reserved for
issuance upon conversion of its 5 percent Convertible
Subordinated Debentur s. Holders of the deb ntures
receive interest paym nts on February 1 and August 1;
as of December 31, 1979, th debentures were held by
528 individuals and institutions. The $2.00 Series A
Cumulative Convertible Pr f rred Stock was h ld by
1,778 individuals and institutions who ar paid dividends
quarterly.
Western's common and pr ferr d stock wer traded
on th N w York Stock Exchang atth following prices:
Common Stock Preferr d Stock
1979 High Low High Low
First Quarter 97
/s 7 283/s 23
Second Quarter 93/s 77
/s 26 233/s
Third Quarter 12 8 301
/s 24
Fourth Quarter 111
/s 73/s 28 1/4 21
1978
First Quarter 83/s 7 25 1/4 23
Second Quarter 123/s 77
/s 301
/ 2 23
Third Quarter 145/s 107
/s 37 27
Fourth Quarter 117
/s 81
/s 31 25
Marketing
Western's marketing planners recognized early in the
year that 1979 would be a "whole new ball game:' and
programs were geared for a bold introduction of Western
in new markets and for holding market share in the
face of new competition on existing routes.
The new Washington, D. C., flights, as well as those
to Spokane and Milwaukee and new nonstop services
between cities Western had long served, were entered
with lively advertising programs and sales blitzes aimed
at travel agents and commercial accounts. The "Big
Red W" and Western's popular "Very Important Bird"
were featured in newspaper and radio/television cam-
paigns as Western made its debut in new markets.
Heightened foreign interest in the United States as the
best value vacation destination enhanced the effective-
ness of Western's worldwide and inter-airline marketing
activities. Western actively participated in this activity
through its marketing office in Tokyo, and direct repre-
sentation by sales agents throughout Australia, Europe,
the Middle East and Latin America. Advertising in travel
agent and airline publications in these areas supported
this effort.
New competition on Western's important domestic
routes was anticipated, and it came as 15 airlines inaugu-
rated new service over 30 of Western's routes. Compe-
tition for passenger and cargo business was keener than
at any time in the company's history.
Intensified marketing activities by Western and others,
along with the wide variety of discount fares, continued
to strain the industry's reservations telephone capabili-
ties. Recognizing the need for improved efficiency in
handling telephone inquiries, especially those regarding
fares, Western developed an innovative "Super Value
Pricing" concept for its computerized reservations system
in 1979. This industry "first" permits reservations sales
personnel to immediately find the lowest fare and deter-
mine when seats are available at that fare on any flight
segment. While improving service to potential customers,
the new program has benefited Western by reducing the
time spent on the telephone with "fare shoppers" by over
50 percent.
For many years Western has led the industry in recog-
nizing the independent travel agent as its prime passenger .
9
mark ting outlet. N w vacation packag s to Hawaii,
Alaska, Canada, Mexico and Florida w r introduced to
encourage agents to sell the company's s rvices. As a
result, travel agents accounted for approximately 65 per-
cent of the company's passenger sales during 1979, one
of the highest ratios in the airline industry.
Western continues to seek new ways to improve the
travel agent's ability to sell air travel. Working with the
Bell System, Western has developed Direct Access Reser-
vations Terminals (DART), a program designed specifi-
cally to provide for the first time the medium-to-small
travel agency with inexpensive and efficient direct access
to the airline's seat inventory, airfare quotes and booking
capability. Introduced to the travel agent community in
late 1979, DART met with early success as 200 units
were ordered by travel agents within the first two months.
For larger travel agencies, Western serves as co-host
with American Airlines in the installation of SABRE, a
computerized reservations system that provides direct
access to Western's reservations as well as other
advantages.
Western has long been known for its success in leisure
travel marketing. Seeking to balance this strength, the
airline set the increasing of its share of the business
travel market as a prime marketing objective in 1979.
Specialized programs, such as membership in the VIB
Club which offers unique customer discounts and ameni-
ties, were directed to frequent travelers and designed to
make them familiar with Western's services. Selective
approaches were also found effective in cargo marketing
where Priority Reserved Freight and the Speedpak small
package services were featured.
As part of its emphasis on preparing for the new era,
and ensuring that it would have the best ideas and
resources available, Western undertook a full-fledged
advertising agency review in late 1979. Nearly 100 adver-
tising agencies were considered for Western's $12.5
million account and six of the nation's top advertising
companies were selected to make formal presentations.
McCann-Erickson Inc. was appointed as a result of the
evaluation and introduced its first campaign in early
March 1980.
Pricing
Pricing of Western's product in terms of passenger fares
and cargo rates presented a challenge requiring delicate
balance in 1979.
The airline industry in 1979 found itself moving from
an era of declining yields, brought about by the pro-
liferation of deep discount fares, into one of escalating
costs and heightened competition due to deregulation.
Western determined early in the year that it must
improve its yield, or average revenue per passenger mile,
in order to cover increased costs and maintain profita-
bility. At the same time,however, the company was deter-
mined to remain price-competitive in all mark ts.
By taking advantage of fare incr as s granted by the
Civil A ronautics Board during 1979 and by carefully
limiting the availability of discount fares, W st rn was
Load Factor-Actual vs. Breakeven
able to make improvements in its yield starting with the
second quarter.
The Civil Aeronautics Board, taking into account the
rises in the price of fuel and other commodities, allowed
increases in basic fares over all routes in 1979. In total,
these represented increases of 34 percent in the 48 states,
22 percent between the Mainland and Hawaii, and 19
percent between the Mainland and Alaska. With the con-
currence of the foreign governments involved,fares were
increased eight percent between the Mainland and
Canada, 15 percent between Hawaii and Canada, and 20
percent between the U.S. and Mexico . However, most of
the fare increases occurred in the second half of the year,
and as a result the yield for the year was up only 12
percent but increased 19 percent in the third quarter and
27 percent in the fourth, compared to the same 1978
quarters.
While striving to improve its yields, Western has
attemped to maintain its posture as a low fare carrier.
Peak and off-peak pricing concepts were utilized through-
out the year in certain markets, such as Las Vegas, where
passengers who are willing to travel at less-popular
flight times may do so at discounts.
New services, such as those to Washington, D.C., and
Milwaukee, were inaugurated with half-price sal s which
in most cases ran for one month.
Competitive factors played ad cisive role in Western1s
The breakeven load factor, w hich
was heavily impacted by escalating
fuel costs, rose three percent while
the actual load factor declined from
the record 1978 level.
10
Actual
Breakeven
pricing programs during 1979. As new carriers inaugu-
rated services over Western's routes, they too brought
introductory price packages which Western had to meet
in order to maintain its market share.
Since the Airline Deregulation Act of 1978 encour-
ages competitive pricing, the public can expect to see a
variety of price offerings with discount and promotional
fares available during low travel periods.
Western's Fleet
In 1980 1981 1982
Operation* Delivery Delivery Options
DC-10-10 10 2 3
727-200 39 5 3 5
737-200 21
*As of February 15, 1980
Three DC-l0s and twelve 727s are leased.
In response to the escalation of fuel prices and in antici-
pation of a slowing of traffic growth, Western moved
decisively in 1979 to accelerate the retirement of its
remaining four-engine aircraft while taking delivery on
more fuel-efficient three-engine aircraft.
The last nine Boeing 720B's, out of a fl t that had
once numbered 30, were retir d and have b en sold. In
January 1980, Western's fiv Boeing 707s w r removed
from service and offered for sale.
These moves have given W stern th most fuel-
fficient fleet available today and a fleet that, with th
xc ption of th two- ngin 737s, meets federal noise
r gulations well in advanc of the 1985 deadline.
W stern has b n an industry lead r in t rms of daily
aircraft utilization. In 1979, the average daily revenue
utilization for all aircraft types was 8 hours 55 minutes,
up from 8 hours 38 minutes in 1978.As in previous years,
Western continued to lead all DC-10 Series 10 operators
with the 1979 figure standing at 11 hours 30 minutes.
Western's People
The people of Western Airlines have traditionally been
its greatest strength, and, although involved in an increas-
ingly complex and challenging business, Western1s per-
sonnel continue to share a pride in the quality of service
that has been Western's hallmark for 54 years.
Management: The management organization is headed
by a board of directors which represents the business
and civic interests of the major areas the company serves.
Four of the 12 directors are Western officers. They are
Arthur F. Kelly, 67, chairman of the board and of the
board's executive committee; Dominic P. Renda, 66,
president and chief executive officer; Robert 0. Kinsey,
63, senior vice president-finance and administration, and
Richard P. Ensign, 61, senior vice president-marketing.
During 1979, the board of directors elevated Mr.Renda
to president and chief executive officer from president
and chief operating officer.
Donald K. Hall was elected senior vice president,
general counsel and secretary, upon the retirement of
Gerald P. 0 1Grady. Mr. Hall, 61, had been with the Los
Angeles law firm of Darling, Hall, Rae & Cute (Western's
general counsel) since 1953 and while there had handled
the Western account and had been involved in many
phases of the company's legal matters.
Other principal officers of Western include Anton B.
Favero, 66, senior vice president-operations; James L.
Mitchell, 58, senior vice president-corporate planning;
Richard O. Hammond, 50, vice president and treasurer,
and Roderick G. Leith, 51, vice president and controller.
In addition to Mr. Hall, two of Western1s senior officers
have held positions outside the company within the last
five years. Mr. Ensign held senior officer positions with
Pan American World Airways, Inc., between 1971 and
1975, while Mr. Mitchell was a vice president at Con-
tinental Airlines between 1968 and 1977. Both had pre-
viously served as officers of Western.
Employees: Western employed an average of 11,256
people during 1979, compared to 10,787 during 1978.
The company is committed to a policy of equal
employment opportunity with hiring and advancement
being determined on the basis of merit and ability. Con-
sistent with its policies of advancement from within,
Western filled 81 percent of its management and admin-
istrative or technical job vacancies in 1979 with people
already working for the company. W st rn1s results-
oriented affirmative action plans ar submitted annually
11
to government a ncies.
Labor unions r present approximately 93 perc nt of
Western1s employees. These unions include the Airline
Pilots Association, Association of Flight Attendants,
Brotherhood of Railway and Airline Clerks, Interna-
tional Broth rhood of Teamst rs, Sindicato Nacional d
Trabajadores d Aviacion y Similares and the Transport
Workers Union.
Following is the contractual status of each of these
collective bargaining groups:
Number of
Employees Contract Open
Employee Group 1-1-80 Union for Amendment
Mechanics & Related
Employees and
Stock Clerks . 1,959 IBT Jan. 1, 1981
Pilots. 1,603 ALPA Sept.1, 1981
Flight Attendants . . .. 2,076 AFA Dec. l, 1979
(In negotiation)
Agent & Clerical -
U.S . . . . . . . ... 4,171 BRAC June 30, 1980
Canada . 121 BRAC July 1, 1980
Mexico ... .. . . .. 208 SNTA Jan. 18, 1981
Flight Superintendents . . . 29 TWU Oct. 31, 1980
Ground School Instructors 38 IBT Jan. 1, 1981
Route Matters
Although moving cautiously into the deregulated envi-
ronment that resulted from the enactment of the Airline
Deregulation Act of 1978, Western inaugurated a number
of new routes in 1979. The most important of these was
an extension of Western's system into Washington, D. C.,
through National Airport. The landing of Western's first
scheduled flight at the nation's capital represented the
culmination of many years of effort. The Washington
route, which also provided Western service to Spokane,
represented the company's first expansion east from
Minneapolis/St. Paul.
Milwaukee also was added to Western's system with
service from Minneapolis/St. Paul. Western provides the
Wisconsin city with service to cities in South Dakota
and to Denver.
Taking advantage of new domestic route authority,
Western initiated a number of new services between cities
it already served. Included in this program were new
nonstop services between Salt Lake City and Phoenix,
Phoenix and Las Vegas, Reno and Seattle, San Francisco
and Anchorage and Billings-Minneapolis/St. Paul. Daily
Edmonton- Denver nonstops will be added April 1,
1980, and twice-weekly service will be extended to
Nassau, The Bahamas, from Miami on April 27.
Western moved during the year to suspend service to
a number of small cities. Service to Cheyenne, Wyo., was
terminated on November 7, 1979, and to Helena, Mont.,
on January 31, 1980. Although the company had asked
permission to susp nd service to Pocatello, Ida., W st
~ llowstone, Mont., and Sheridan, Wyo., as well, th CAB
Wages, Salaries & Employee Benefits-1975= 100%
has required a continuation of service until replacement
air carriers are found. In other scheduling adjustments,
the company discontinued a number of flights which had
proven unprofitable.
Authority for literally hundreds of new routes was
granted to Western and other airlines during 1979. Under
the current policies of the CAB, this authority is per-
missive rather than mandatory and will continue to give
Western opportunities for expansion into new areas
should it be found profitable in the future.
Western established London authority as its top
international route priority, with four U.S. gateways-
Minneapolis/ St. Paul, Miami, Denver and Anchorage-
as the focal points of these efforts.
Western originally proposed service from the Twin
Cities to London as part of the TransAtlantic Route
Case in 1973. Minneapolis/ St. Paul-London authority
was not granted in that case, but the CAB subsequently
initiated the "Wild Card" case in which one U.S. city and
one U.S. airline were to be selected for new service
to London.
In a meeting January 24, 1980, Minneapolis/St. Paul
was selected for the new nonstop service; however, on
February 15, 1980, the CAB selected Northwest rather
than Western for the new route.
The U.S.-United Kingdom Bilateral Agreement which
authorized the selection of a "Wild Card" city also
While available seat miles increased
two percent, wages, salaries and
benefits rose 15 percent primarily as
a result of wage increases.
12
Wages, salaries & employee benefits
Average number of employees
Available seat miles
contained authority for a U.S. carrier to operate between
Anchorage and London. Because of its existing service
between Honolulu and Anchorage, Western had been
the leading advocate for the inclusion of Anchorage-
London in the bilateral agreement.
The administrative law judge in the Anchorage-
London Service Case has recommended awarding the
route to Western over two other applicants. The decision
is awaiting approval of the CAB and the President of
the United States.
To further enhance its opportunities in the European
market, Western also is an applicant for a Miami-London
route which became available when the CAB approved
a merger between Pan American and National Airlines
but did not approve the transfer of the route, that had
been operated by National, to the merged carrier. The
administrative law judge has recommended another car-
rier for the route. However, under the new agreement
announced on March 5, 1980, between the United States
and the United Kingdom, a second U.S. carrier will be
authorized to operate the route in January 1981.
The new U.S.-U.K. agreement also provides for a
Denver-London route to be served this spring. Western's
request for this route authority will be considered in an
expedited proceeding. Western has been awarded new
authority to the Mexican cities of Zihuatanejo and
Manzanillo as a result of the California/Southwest-
Western Mexico Route Proceeding which was concluded
in 1979. The company now plans to inaugurate service
to these developing resort cities on October 1, 1980.
In the Texas-Alberta-Alaska route case, the administra-
tive law judge has selected Western for authority between
Houston/Dallas/Ft. Worth and Calgary/Edmonton and
between these Canadian cities and Anchorage/Fairbanks.
Legal Proceedings
Western and other airlines are parties to numerous
actions in state courts wherein owners of property
located in the vicinity of major airports, primarily Los
Angeles International Airport, are seeking to enjoin
certain aircraft operations at the airports and/ or to
recover damages because of aircraft noise and engine
emissions.
Most of these cases have been brought in the Los
Angeles County Superior Court against the City of
Los Angeles, which in turn cross-complained against the
airlines for indemnification. The aggregate amount of
damages sought in cases against the city has been
reported by the city to be in excess of $3 billion. The
aggregate amount of damages sought in actions to which
Western is a party as cross-defendant is in excess of
$36 million.
Western and its counsel in these actions feel that the
damages claimed are not a realistic measure of the air-
lines' exposure and that in most cases the request for
relief is wholly out of proportion to any actual damage
that may have been suffered. Western's counsel in these
actions, which also represents most of the other airlines,
is of the opinion that based on the current law, the air-
lines have substantial defenses to the imposition of any
liability. Moreover, in each case to date in which the issue
of the airlines' duty to indemnify the airport proprietor
has been tried the airlines have obtained favorable
rulings.
However, all the issues of law involved in these matters
have not been finally settled, and, pending further clari-
fication, the relative rights and liabilities among such
owners of adjacent areas, the airport owners, the airport
operators, the air carriers and the federal, state and local
governments are not entirely clear. Unfavorable decisions
against Western in these actions could have a materially
adverse effect. Further, any liability of airport operators,
or the granting of any injunctive relief against them,
could result in higher costs to air carriers, through, for
example, higher landing fees.
The California Supreme Court has decided that jet
noise damage litigation is not appropriate for class action
determination because of an insufficient community of
interest to sustain a class suit. This holding has signifi-
cance with respect to the Los Angeles situation where
several of the cases purportedly are on behalf of classes.
In light of this litigation certain communities which
own and op rate airports, including Los Ang les and
San Diego, have impos d or are considering imposition
13
of limitations on frequency and timing of airline flights
or upon the proportion of an airline's fleet which may
continue to operate without complying with federal
noise standards. Enforcement of such restrictions at a
major airport served by Western could have a materially
adverse effect upon its operations.
Western and two other airlines are defendants in an
action brought in November 1973 by a defunct tour
operator-travel agency in the United States District
Court for the Northern District of California in which
the defendants are charged with having conspired and
attempted to monopolize and with actually monopo-
lizing the group leisure tour market in competition with
said agency by packaging their own tours and appro-
priating tour packages developed by said agency. The
complaint seeks injunctive damages according to proof
plus punitive damages. In the opinion of Western's
counsel, the action will not result in any material liabil-
ity to Western.
Several actions have been filed, and more are expected,
both in federal and state courts, against Western and
other defendants, seeking damages for death or injury
suffered in the October 31, 1979, crash at Mexico City.
Western has ample insurance coverage for this type of
accident although punitive damages, which are sought
in several of the actions, may not be covered. Western
does not believe that it will have any material liability
resulting from claims for punitive damages.
Western is also involved in various other litigation,
including certain cases alleging discrimination in
employment practices, that management believes will
not have a materially adverse effect upon Western.
.. ' -- ~ J .. n-.
TEN YEARS OF WESTERN PROGRESS
(in millions except per share amounts and other items indicated by *)
Operating revenues:
Passenger .......................................... . ......... .. .
Cargo, charter, and other .......... . .............................. . . .
Total operating revenues ... ..... ............... .. .... .. ........ .. .
Operating expenses:
Wages, salaries, and employee benefits ... ..... . ... .................... .
Fuel . .... ...... .. .. .... .. . ..... . ............ . .............. . ... .
Othera. . . . . . . . . . . . . . . . . .... .. ........ . .... .. .... ... ........... .
Total operating expenses ..
Operating income . . . . .. . ....... . ... . ......... .
Interest expense, net . . .. . ........... ... ............. . .... . ..... .... .
Other income (expense) net . ......................................... .
Earnings (loss) before income taxes and cumulative effect
of changes in accounting principles ............................... .
Income taxesc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... .
Earnings (loss) before cumulative effect
of changes in accounting principles ..... .. .. . ....... .. ...... .
Cumulative effect of changes in accounting principles6
' c . . . . . . . . . . . . . .
Net earnings (loss) .... . ....... .. ............. . ....... ..... ... .. . .
Preferred stock dividends ......... . .. . .... .... ... . ... . . ... . . ...... . .. .
Net earnings (loss) available for common stock ... . ....... . ..... . .. .. . . .
Earnings (loss) per common shared:
Primary:
Before cumulative effect of changes in accounting principles . .............. .
Net earnings (loss) .... . . .. ............ . .... .. .. . ........ . ......... .
Fully diluted:
Before cumulative effect of changes in accounting principles ... .... . ..... . . .
Net earnings (loss) ........ ....... . ..... . ............. . .. . .. . ...... .
Other Financial Data
Cash dividends paid per share on common stock . . . . . . . . . . . . ..... .
Return on investment (% )* . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... .
Average common shares outstandingd . . . . . . . . . . . . . . ..... . ........ .... .
Shareholders' equity . . . . . . . . . . . . . . . . . . . . . .. ... ... .... . ...... . . .
Long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . ................ . .. .
Property and equipment- net . . . . . . . . . . . . . . . . . . . . . . ... .. . .
Total assets . . . . . . . . . . ........ .......... .. ... .
Operations
Airplanes operated at end of year* . ........... . .......... .. . . .......... .
Passengers carried . . ........................... .. ............. .... .. .
Available seat miles ......... . .. .. .......................... . .. . . .. . .
Revenue passenger miles .. . . . . . . . . . . . . . ..... .
Passenger load factor-actual (%)* ................................... .
- breakeven point (% )* ... . . .. .................. . ... .
-profit margin (point difference)* ....... .. ........... .
Average revenue per passenger mile* ............... .... .... . . . ....... .. .
Average length in miles per passenger trip* ....... ... .... . ... . . ..... .
Operating expense per available seat mile* ........... .. ......... .. ....... .
Cargo revenue ton miles . . . . . . . . . . . ......................... .
Average number of employees* ....... ......... . .... . ................. .
NOTES APPLICABLE TO FIVE YEARS ENDED DECEMBER 31, 1979
(in millions of dollars except per share amounts)
1979
$ 827.7
$
104.4
932.1
356.6
225.7
331.6
913.9
18.2
(24.9)
46.1
39.4
(2.1)
41.5
41.5
2.4
39.1
$ 2.99
$ 2.99
$ 2.31
$ 2.31
$ 0.40
13.2
13.1
$ 232.6
$ 318.3
$ 634.6
$ 821.4
76
11.2
16,630.5
10,494.8
63.1
63.2
(0.1)
$ .0807
926
$ .0550
162.0
11,256
1978
734.0
100.5
834.5
309.4
154.9
315.3
779.6
54.9
(20.2)
10.7
45.4
6.9
38.5
16.2
54.7
2.4
52.3
2.82
4.09
2.15
3.04
0.40
14.0
12.8
198.5
265.7
519.7
710.1
78
10.4
16,254.9
10,634.8
65.4
61.1
4.3
.0720
994
.0480
176.3
10,787
(a) Changes in the estimated useful lives of certain aircraft
were implemented in 1978, 1976, and 1975. These changes
increased net income in 1978, 1977, 1976, and 1975 by approxi-
mately $1.5, or $0.12 per share (primary), $2.4, or $0.19 per
share (primary), $0.6, or $0.04 per share (primary), and $2.6,
or $0.17 per share (primary), respectively.
(b) In 1975 Western changed its method of accounting for costs
of major flight equipment maintenance from one of charg-
ing such costs to reserves (accumulated by charges to
income on an hours-flown basis) to one of direct expensing
of such costs as incurred. The $7.2 cumulative effect of this
change on prior years is included in net earnings for 1975.
16
1977
614.6
76.9
691.5
263.1
138.0
260.9
662.0
29.5
(17.5)
7.8
19.8
7.1
12.7
12.7
.5
12.2
0.96
0.96
0.85
0.85
0.40
9.1
12.7
147.4
214.5
427.9
574.9
77
8.8
14,963.8
8,588.8
57.4
56.1
1.3
.0734
966
.0442
157.3
10,413
1976
544.2
61.0
605.2
226.4
108.3
235.1
569.8
35.4
(16.3)
3.1
22.2
8.2
14.0
14.0
14.0
1.03
1.03
0.92
0.92
0.40
9.5
13.6
112.1
192.5
378.6
515.1
75
8.1
13,450.4
7,833.8
58.2
56.0
2.2
.0705
963
.0424
135.0
9,799
1975
465.1
53.9
519.0
201.7
93.1
211.1
505.9
13.1
(14.4)
4.3
3.0
(1.5)
4.5
7.2
11.7
11.7
0.30
0.77
0.29
0.70
0.47
5.9
15.2
133.9
175.4
367.6
488.3
75
7.5
11,696.5
7,102.9
60.7
59.7
1.0
.0665
942
.0433
108.6
9,357
1974
437.3
51.1
488.4
182.3
71.4
192.5
446.2
42.2
(15.3)
13.8
40.7
17.2
23.5
23.5
23.5
1.55
1.55
1.38
1 .38
0.39
12.4
15.1
129.3
167.4
350.3
448.8
72
7.4
11,123.5
6,747.5
60.7
56.1
4.6
.0660
902
.0401
95.2
9,696
(c) Effective January 1, 1978, Western changed its method of
accounting for post-1971 investment credits for financial
reporting purposes from the deferral to the flow-through
method. The cumulative effect of the change, amounting to
$16.2, has been included in net earnings for 1978.
1973
376.7
44.6
421.3
165.4
44.5
168.3
378.2
43.1
(13.0)
4.2
34.3
14.4
19.9
19.9
19.9
1.32
1.32
1.18
1.18
0.23
11.9
15.1
110.8
178.0
316.4
431.7
74
7.4
11,175.5
6,476.1
57.9
52.5
5.4
.0593
877
.0338
76.5
9,826
1972
342.9
31.1
374.0
147.3
40.1
160.8
348.2
25.8
(11.8)
2.7
16.7
5.9
10.8
10.8
10.8
0.72
0.72
0.66
0.66
0.08
8.5
15.0
94.4
158.6
262.1
372.7
71
6.9
10,300.2
5,995.9
58.2
54.6
3.6
.0578
865
.0338
76.2
9,383
1971
295.8
32.2
328.0
127.1
38.7
144.1
309.9
18.1
(14.2)
4.5
8.4
2.6
5.8
5.8
5.8
0.39
0.39
0.38
0.38
6.8
15.0
84.5
181.6
242.0
372.0
70
6.2
9,776.9
5,252.0
53.7
52.4
1.3
.0577
846
.0317
73.2
8,951
1970
274.8
28.7
303.5
113.l
37.4
140.2
290.7
12.8
(17.6)
1.1
(3.7)
(3 .2)
(0.5)
(0.5)
(0.5)
(0.03)
(0.03)
(0.03)
(0.03)
5.5
15.0
78.7
205.0
275.5
389.3
72
6.2
9,839.3
5,159.1
52.4
52.6
(0.2)
.0542
834
.0295
68.6
8,961
(d) The number of common shares used in computing primary
earnings per share wer 13,084,000, 12,795,000, 12,659,000,
13,601,000, and 15,163,000 for 1979 through 1975, respec-
tively.The number of shares used in computing fully-diluted
earnings per share.were 18,237,000, 18,215,000, 15,913,000,
16,066,000, andl7,628,000 for1979 through 1975, respectively.
17
BALANCE SHEETS
WESTERN AIR LINES, INC.
December 31, 1979 and 1978
(In thousands of dollars)
ASSETS
Current Assets:
Cash (Note 7) ....................... . ...... . ........... .
Temporary investments ................ . .................. .
Receivables (net of allowance for doubtful accounts
of $2,078-1979 and $1,532-1978) .... . . ..... ... ... . . . . ... .
Flight equipment expendable parts at average cost
(less allowance for obsolescence of $13,228-1979
and $12,365-1978) .... .. . .. . ..... . ........ ... ...... ... .
Prepaid expenses and other current assets ... ..... . . ........... .
Total current assets . .................... .. . .. .... . . . .
Properties and Equipment at Cost (Notes 2, 3, 4, and 7):
Flight equipment ..... . ...... .. .............. ... ........ . .
Facilities and ground equipment ... ... .. ....... ........ .. ... .
Deposits on equipment purchase contracts . ...... ....... . . .. . . .
Less allowance for depreciation and amortization . . ... . ...... .. . .
Deferred Charges and Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*Reclassified to conform to the 1979 presentation.
See accompanying notes to financial statements.
18
1979 1978*
$ 11,110 12,506
39,203 58,954
50,313 71,460
105,291 92,039
20,021 14,263
5,769 7,809
181,394 185,571
764,592 694,908
127,710 117,833
50,981 36,820
943,283 849,561
308,642 329,824
634,641 519,737
5,405 4,832
$821,440 710,140
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable . ..... . ... . .. . . .. .......... .. .......... .
Salaries, wages, and vacation benefits payable .... . . ....... .. .. .
Accrued liabilities ......... . .. . ....... .. ..... .. ....... . .. .
Airline traffic liability .... ...... ... . .. .. . ........... . .. . .. .
Current portion of debt . . . . .. .. .... . ...................... .
Current portion of capital leases .... .. . .. ..... . . . ........... .
Total current liabilities ... .... .. . . ....... ... ......... .
Long-term Obligations:
Debt (Note 7) . . ... ..... . ... . ... . . . ......... . .. . ..... . .. .
Capital leases (Note 2) . ..... ...... . .. . .................... .
Deferred Credits and Other Liabilities
Deferred Federal taxes on income (Note 6) .................... .
Other ..... . ....... . ............................. . .... .
Shareholders' Equity (Notes 7, 8, and 9)
Preferred stock-authorized 25,000,000 shares
$2.00 Series A Cumulative Convertible
$25.00 stated value per share
Issued 1,197,000 shares .... . ................... . ......... .
Common stock-authorized 35,000,000 shares
$1.00 par value per share
Issued 13,030,000 (1979) and 13,010,000 (1978) .. . ..... . .. . .... .
Additional paid-in capital ..... . ......................... . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and Contingent Liabilities (Notes 2 and 4)
19
1979
$ 54,353
40,438
22,980
71,014
16,217
6,380
211,382
229,337
89,000
318,337
49,727
9,369
59,096
29,923
13,030
30,959
158,713
232,625
$821,440
1978*
47,530
32,819
20,005
66,588
10,864
6,647
184A53
158,043
107,703
265,746
53,952
7A87
61A39
29,923
13,010
30,792
124,777
198,502
710,140
STATEMENTS OF EARNINGS
Years ended December 31, 1979 and 1978
(in thousands of dollars except per share amounts)
Operating Revenues:
Passenger .. . ........ . .............. .. .................. .
Cargo ............ .. ... .... .............. . ............ .
Charter and other ........ .... ..... . ... .. ................ .
Operating Expenses:
Wages, salaries, and employee benefits (Note 5) ... .. ...... . ..... .
Fuel .................... .............. . ..... ....... .
Depreciation and amortization (Note 3) .. . ......... . ...... . .. .
Other . . .............. . . . ....... .............. . .. ..... .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
Other Income (Expenses):
Interest, principally on long-term obligations .................. .
Interest capitalized . . . . . . ........... ..................... .
Interest income . .... . ........... . ................. .. .... .
Gain on disposition of equipment ...................... . .... .
Settlement with vendor ............. ................. . .... .
Other-net .. ... .. . ....... . .................. ...... ..... .
Earnings before income taxes and cumulative
effect of a change in accounting principle .............. .
Income taxes (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before cumulative effect
of a change in accounting principle .. ... ....... .... ... .
Cumulative effect of a change in accounting principle
(Note 6) ......... . ...... . .... .. . . .... . ........... .. .... .
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per Common Share (Note 10):
Primary:
Earnings before cumulative effect of a
change in accounting principle ............. .. . . ..... .
Cumulative effect of a change in
accounting principle . .. .... .. . . ...... . . ....... . .... .
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fully diluted:
Earnings before cumulative effect of a
change in accounting principle .............. . ....... .
Cumulative effect of a change in
accounting principle ... .... ... . ................... .
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See accompanying notes to financial statements.
20
1979
$827,675
61,209
43,235
932,119
356,621
225,682
50,058
281,522
913,883
18,236
(29,600)
4,706
4,957
31,332
10,000
(192)
21,203
39,439
(2,101)
41,540
$ 41,540
$ 2.99
$ 2.99
$ 2.31
$ 2.31
1978
734,005
56,936
43,572
834,513
309,445
154,876
47,094
268,242
779,657
54,856
(23,089)
2,910
3,666
6,754
258
(9,501)
45,355
6,808
38,547
16,201
54,748
2.82
1.27
4.09
2.15
0.89
3.04
STATEMENTS OF CHANGES IN FINANCIAL POSITION
Years ended December 31, 1979 and 1978
(in thousands of dollars)
Sources of Working Capital:
Earnings before cumulative effect of a change in
accounting principle ...................... .. ..... .. .... .
Add (deduct) items which did not affect working capital:
Depreciation and amortization ...... . .... .. . .. ...... . .. . . .
Taxes:
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred investment credits ... ...... . ..... .
Gain on disposition of equipment .................. . . . .... .
Other ...... . ... . ........ . .. .. .. .. .... . ...... .. ...... .
Total from operations (the cumulative effect of a change
in accounting principle did not affect working capital) . . .... .
Reimbursements of deposits and capital expenditures
upon acquisition of aircraft .. .. . . . ... . ..... . ... . ....... . . .
Proceeds from disposition of equipment . . ... . ..... . . .. ..... . . .
Proceeds from issuance of long-term obligations . .. . ............ .
Total Sources ........ . .. . . . . . .......... . .. . ...... .. . .
Applications of Working Capital:
Purchase of and deposits on property and equipment ...... .. ... . .
Reduction of long-term obligations including
transfers to current liabilities ................. . ....... . . . . .
Cash dividends .. . .................... . ................. .
Other-net . ........ . . . ..... .... ........... . .... . ...... .
Total Applications .. ... . . . . . ..... ... . ....... .. ...... . .
Increase (decrease) in working capital . . . .. . ... . . .. . . . .... .
Summary of Increases (Decreases) in Working Capital:
Cash and temporary investments ..................... . .. . .. .
Receivables ............................ . . .. . . .... . .. . . . .
Expendable parts and prepaid expenses ........... . .... .. .. . .. .
Current liabilities .... . ....................... . .. . ....... .
Net increase (decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*Reclassified to conform to the 1979 presentation.
See accompanying notes to financial statements.
21
1979 1978*
$ 41,540 38,547
49,581 46,715
(4,225) 5,552
(563) (558)
(31,332) (6,754)
(4,706) (2,246)
50,295 81,256
10,563 12,633
50,950 10,794
104,941 71,785
216,749 176,468
182,752 150,747
52,402 20,540
7,604 7,524
5,097 (4,867)
247,855 173,944
$(31,106) 2,524
$(21,147) 19,799
13,252 21,249
3,718 2,048
(26,929) (40,572)
$(31,106) 2,524
STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1979 and 1978
(in thousands of dollars)
Preferred
Stock
$25.00 Stated
Value
Balance at January l, 1978 ..... . . $30,000
Exercise of stock options . . ....
Conversion of debentures ......
Conversion of preferred stock ... (77)
Net earnings ... . . . ..........
Cash dividends:
- Preferred stock . .. . ......
- Common stock .. . .......
Balance at December 3t 1978 . . .. . $29,923
Exercise of stock options .... . .
Conversion of debentures . . ....
Net earnings ..... . .. . .. .. . . .
Cash dividends:
- Preferred stock .... ... ...
-Common stock ..... .. ...
Balance at December 31, 1979
(Notes 7, 8, and 9) .... ......... $29,923
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
(In thousands of dollars except per share amounts)
Note 1. Summary of Significant Accounting Policies.
Property and Equipment
Property and equipment, exclusive of residual values,
are depreciated over estimated useful lives by the
straight-line method. Depreciation expense for assets
recorded under capital leases is included in deprecia..,.
tion and amortization. Maintenance and repairs are
expensed as incurred. Major renewals and betterments
are charged to property and equipment accounts.
Preoperating Costs
Significant costs, such as those for traffic promotion
and personnel training, related to the inauguration
of service over major new routes and to the intro-
duction of new types of aircraft are deferred and
amortized over five years.
Interest Capitalized
Certain interest costs, primarily related to deposits
on aircraft purchase contracts, are capitalized and
amortized over the life of the related asset.
Additional
Common Stock Paid-in Retained Shareholders'
$1.00 Par Value Capital Earnings Equity
22
12,659 27,227 77,553 147A39
33 256 289
310 3,240 3,550
8 69
54,748 54,748
(2,397) (2,397)
(5,127) (5,127)
13,010 30,792 124,777 198,502
17 132 149
3 35 38
41,540 41,540
(2,394) (2,394)
(5,210) (5,210)
13,030 30,959 158,713 232,625
Investment Credits
Investment credits are accounted for under the flow-
through method.
Obsolescence of Expendable Parts
An allowance for obsolescence of expendable parts
is accrued over the useful lives of the related air-
craft types.
Airline Traffic Liability
Passenger ticket sales are recorded as a current
liability until recognized as revenues for services
provided by Western, refunded, or until billed by
other carriers for transportation provided by them .
Note 2. Lease Commitments.
Western leases flight equipment and facilities and
ground equipment. Lease terms for flight equipment
range from 11 to 15 years for 727 aircraft and from
15 to 18 years for DC-10 aircraft. Lease terms for facili-
ties and ground equipment range up to 29 years. The
assets recorded under capital leases are amortiz dover
the life of the lease by the straight-line method. Inter-
est expense is accrued on the basis of the outstanding
obligations under capital leases. Leased equipment
under capital leases is included in the balance sheets
at December 31, 1979 and 1978, as follows:
1979 1978
Flight equipment . $113,219 126,310
Gr und equipment . 3,278 3,278
116,497 129,588
Less allowance for depreciation
and amortization . 42,638 38,944
$ 73,859 90,644
At December 31, 1979, minimum lease payments
under leases expiring after December 31, 1980, were
as follows:
1980 .
1981 ..
1982 .
1983 .
1984 ......... . ... .. ..... .
Thereafter .. .
Total minimum lease payments ...
Less: Amount representing interest .
Present value of obligations-
capital leases ...... .
Less: Current portion of capital
leases ... .. . . . .
Long-term obligations-
capital leases .
Capital Operating
Leases Leases
$ 15,270 11,982
15,270 11,903
15,270 11,552
15,270 11,167
14,886 10,707
77,297 107,928
153,263 165,239
57,883
95,380
6,380
$ 89,000
Rental expense for operating leases for1979 amounted
to $17,384 ($15,239- 1978).
Note 3. Depreciation and Amortization.
The estimated useful lives and residual values of
owned aircraft are as follows:
Estimated
Useful Life
Residual
Value
DC-10 . .
727.
737 ..
707 . . . .. .. . .
. . . 16 years
15 years
14 years
15 years
10%
15%
15%
15%
The estimated useful lives of ground equipment range
from four to ten years. For buildings and improve-
ments on leased property, the estimated useful lives
are generally the periods of the leases.
Note 4. Commitments and Contingent Liabilities.
At December 31, 1979, Western had on firm order
eight 727-200 aircraft which are scheduled for delivery
in 1980 and 1981 and two DC-10-10 aircraft which
are scheduled for delivery in 1980. Advance payments
on these aircraft were made in the amount of $44,057.
The balance of the purchase price payable on or
before delivery of the aircraft will b approximately
23
$141,000. Subsequent to the end of 1979, Western h ld
options to purchas three DC-10-30s (1980 delivery),
and five 727-200s and thr DC-10-lOs (1982 d livery).
Outstanding commitments for flight equipment
modifications and spares amounted to approxi-
mately $14,000 and for facilities and ground
equipment amounted to approximately $5,000 at
December 31, 1979.
For information regarding the status at
December 31, 1979, of legal proceedings, see "Legal
Proceedings" on page '13 in this Annual Report.
Note 5. Retirement Plans.
Western has retirement plans (including a union-spon-
sored plan) which cover substantially all employees.
Western makes contributions to the company-spon-
sored plans which, together with the participants'
required contributions, are sufficient to fund current
service costs annually and prior service costs over
10 to 20 years.Actuarial gains and losses are amortized
over ten-year periods.
The cost of retirement plans, including in cer-
tain plans the amortization of prior service costs
( over periods ranging from 10 to 20 years), charged
to operating expense amounted to $30,304 for 1979
($26,606-1978).
For certain plans, the actuarially computed value
of vested benefits exceeded the pension funds' assets
and related balance sheet liabilities by approximately
$3,500 at the most recent valuation date during 1979.
Unfunded prior service costs of the plans
amounted to approximately $18,600 at the most recent
valuation date during 1979.
Note 6. Income Taxes.
Income taxes are summarized as follows:
Current:
Federal:
Provision. . . ..... .
Investment credits applied .
State.
Deferred:
Provision .
Investment Credits:
Applied .
Transferred to current .
Amortization of deferred investment
1979
. .. $ 18,901
(17,792)
1,109*
1,578
(5,597)
(16,420)
17,792
(4,225)
1978
23,447
(23,447)
1,814
(2,655)
(15,240)
23,447
5,552
(1,538) 7,366
credits . . ......... . (563) (558)
$ {2,101) 6,808
*The Tax Reform Act of 1976 provides f r 100% application of
unappli d investm nt credits against federa l in ome tax liabi lities
for 1978. This 100% application is r due d 10% annuall y until 1980.
Under the Rev nue Act of 1978 th application remains at 80% in
1981 and returns t 90% f r 1982 and b yond.
Effective January 1, 1978, Western changed its method
of accounting for post-1971 investment credits for
financial reporting purposes from the deferral to the
flow-through method. The cumulative effect of the
change on years after 1971, amounting to $16,201, has
been included in net earnings for 1978. The effect of
the change on the results for 1978 was to increase
net earnings by $29,107, or $2.27 per common share
(primary).
Deferred income taxes arise from timing differ-
ences between financial and tax reporting. The tax
effects of these differences on the provision are as
follows:
1979 1978
Depreciation .
Capital leases .
Interest capitalized .
Preoperating expense ..
Employee benefits .
Other.
. $ (4,825)
(114)
1,903
(383)
(1,626)
(552)
$ (5,597)
109
(1,108)
1,124
(502)
(2,201)
(77)
(2,655)
A reconciliation between the amount of reported
income taxes and the amount computed by multi-
plying earnings before income taxes and cumulative
effect of a change in accounting principle by the
applicable Federal statutory tax rates follows:
Taxes on income at 46%/48% ..
Increases (reductions) in taxes
resulting from :
Amortization of deferred
investment credits .
Investment credits recognized on
flow-through method .
State income taxes net of federal
income tax benefit .
Capital gains ... ... ... .
Other .
Income taxes .
1979
.. $ 18,142
(563)
(16,420)
852
(3,800)
(312)
. . $ (2,101)
1978
21,770
(558)
(15,240)
943
(107)
6,808
The Federal income tax returns for 1973 through 1976
are being examined.
Note 7. Debt.
At December 31, 1979 and 1978, long-term debt
included:
1979 1978
Secured:
9.55% equipment trust certificates
due May 1, 1993, with semi-annual
principal payments starting
November 1, 1979 . . $ 93,355
10% equipment trust certificates
due April 1, 1994, with quarterly
principal payments starting
October 1, 1980. 54,991
148,346
71,785
71,785
24
Unsecured:
Senior:
Revolving credit notes .
5 % installment notes due
September 1, 1981, with annual
principal payments on
Sept mber 1 of $4,000 .
65/so/o installment notes due
September 1, 1984, with annual
principal payments of $2,000 on
September 1 which will increase
to $7,000 in 1982 ..
8 % installment notes due
November 16, 1985, with
quarterly principal payments
of $768 starting in 1981 .
Subordinated:
5 % convertible subordinated
debentures due February 1, 1993,
with annual sinking fund payments
of $1,500 starting in 1983 .
10% subordinated sinking fund
notes due April 15, 1984,
with annual sinking fund
payments of $2,300 .. . . .. ..... .
Less: Current portion ....
10,000
8,000
25,000
15,362
58,362
23,817
15,029
38,846
245,554
(16,217)
$ 229,33,
12,000
27,000
15,362
54,362
24,480
18,280
42,760
168,907
(10,864)
158,043
The revolving credit notes represent borrowings
under a $125,000 revolving line of credit. The line
of credit extends to June 30, 1982, at which date it
can be replaced by term notes in amounts not to
exceed $75,000. The term notes will mature on June
30, 1990, with quarterly principal payments beginning
September 30, 1982. The interest rate on funds bor-
rowed is equal to the agent bank's prime commercial
rate until June 30, 1982, increasing by 1
/s of a per-
centage point over prime each year until June 30, 1989,
and then remaining at prime plus one percentage
point until maturity.
The commitment fee under the amended agree-
ment is % per annum on the lesser of the average
unused portion of the revolving line of credit or
$75,000. Although the bank loan agreement does not
require compensating balances, Western has infor-
mally agreed to maintain on deposit average balances
equal to 5% of the total line of credit plus 10% of
borrowings. The balances required by this agreement
at December 31, 1979, were approximately $7,250.
Western1s various debt agreements limited
amounts available for payments of cash dividends
to $57,735 at December 31, 1979. These agreements
also contain, among other things, requirements
pertaining to cash and working capital levels and
provisions which may restrict additional borrowings.
Equipment trust certificates totaling $25,028
(9.55%) and $54,991 (10.00%) were issued during 1979
for the purchase of flight equipment. The total obligations und r equipment trust certificates are secur d by
aircraft and engines with a net book value of $176,453.
The following schedule shows the amount of long-term debt due in each of the five following calendar years:
1980 .. . . . . . . . . . . . . . $16,217 1983. $26,037
1981 ..
1982 ... .
22,287
23,912
1984 . 30,637
At December 31, 1979, 2,062,000 shares of common stock were reserved for conversion of debentures at a
conversion price of $11.55 per share.
Note 8. Stock Options.
Western had a qualified stock option plan adopted in 1964 for officers. This plan, as well as the 75,611 outstanding
options (average price $10.93), expired April 30, 1978. The company presently has a non-qualified stock option
plan adopted in 1974 for officers and key personnel which is summarized below:
1979
Number
of Average
Shares Price
Options granted and outstanding at January 1 ... . 790,835 $8.56
Options granted . . 71,000 8.62
Options exercised .. . ....... . . .... .. . . .. (17,630) 8.47
Options cancelled and expired . . (6,550) 9.12
Options granted and outstanding at December 31 . . .. 837,655 $8.56
Shares exercisable at December 31 . . . .. .... . . . .. 585,887 $8.70
At December 31, 1979, 136,530 shares were reserved for the issuance of future grants.
Note 9. Preferred Stock.
1978
Number
of Average
Shares Price
724,420 $8.68
116,280 7.81
(33,315) 8.69
(16,550) 8.54
790,835 $8.56
484,261 $8.82
The shares of preferred stock are convertible into common stock at the rate of 2.5 shares of common stock
for each share of preferred stock, subject to adjustment under certain conditions, and may be redeemed in whole
or in part at any time at the option of Western. The redemption price at December 31, 1979, was $26.40 per share.
The redemption price decreases periodically until 1987, after which it remains at $25.00 per share. The preference
on liquidation is at the stated value.
Note 10. Earnings per Common Share.
Earnings per common share are based on the weighted average number of shares of common stock outstanding
during the respective periods.
Adjustment of net earnings:
Primary:
Net earnings .
Preferred dividends . ........... .
et earnings ava ilable for common stock . . . ..... ... .............. .
Fully diluted:
Net earnings . . . . . . . . . . . . . ......... .
Reduction in interest expense, net of income taxes, for the assumed
conversion of 5 % convertible subordinated debentures ..
Adjusted net earnings assuming full diluti n .
Adj ustment of shares ou tstanding (in thousa nds):
Primary:
Weighted av rag shar s utstandi ng .
Assumed xercise of stock pti n
25
1979
Net
Earnings
$41,540
(2,394)
$39,146
$41,540
653
$42,193
13,026
58
13,084
1978
Earnings Before
Cumulative Effect
of a Change in et
Accounting Principle Earnings
38,547 54,748
(2,397) (2,397)
36,150 52,351
38,547 54,748
680 680
39,227 55,428
12,795 12,795
12,795 12,795
Fully diluted:
Weighted average shares outstanding
Assumed conversion of subordinated debentures .
Assumed conversion of preferred stock .
Assumed exercise of stock options .
Total average common shares assuming full dilution .
Earnings per common share:
Primary .
Fully diluted ... . ... . . ... . .. . .
13,026 12,795
2,073 2,312
2,992 2,997
146 111
18,237 18,215
$ 2.99 2.82
2.31 2.15
Note 11. Summarized (unaudited) quarterly financial data for 1978 and 1979 is as follows:
1978
Operating revenues .
Operating income (loss) .
Earnings (loss) before cumulative effect of a change
in accounting principle ... .
Net earnings (loss) . . ....... . . .
Earnings (loss) before cumulative effect of a change
in accounting principle per common share:
Primary . .
Fully diluted . . .. . ... .. . . . ... . .
Net earnings (loss) per common share:
1979
Primary .
Fully diluted .
Operating revenues .
Operating income (loss) .
Net earnings .
Net earnings per common share:
Primary. . .. .... .
Fully diluted ....
March 31
$192,200
11,072
10,486
26,687
$ 0.78
0.59
$ 2.06
1.49
$210,601
3,503
12,652
$ 0.93
0.71
Three Months Ended
June 30 September 30
201,870 241,023
11,541 33,226
5,513 25,679
5,513 25,679
0.39 1.95
0.31 1.41
0.39 1.95
0.31 1.41
241,305 251,080
21,870 8,350
14,013 6,477
1.03 0.45
0.78 0.36
12,795
2,312
2,997
111
18,215
4.09
3.04
December 31
199,420
(983)
(3,131)
(3,131)
(0.29)
(0.29)
(0.29)
(0.29)
229,133
(15,487)
8,398
0.60
0.47
Estimates of the annual effective tax rate were made quarterly in 1978. Had each of the 1978 quarterly estimates
been made on the basis of that year's actual effective tax rate, net income (loss) for the first, second, and fourth
quarters of 1978 would have been increased (decreased) by ($1,085) ($0.09 per share), $2,310 ($0.18 per share), and
($1,237) ($0.09 per share). There were no corresponding changes in 1979 because Western utilized the statutory rate
less a pro rata portion of the annual investment tax credit for the quarterly provision for income taxes. Changes
in estimates of employee benefit costs increased net income during the second through the fourth quarters of 1979
by $780 ($0.06 per share), $1,110 ($0.08 per share), and $1,147 ($0.09 per share).
Note 12. Description of Impact of Inflation (Unaudited).
Statement of Financial Accounting Standards No. 33 (SFAS No. 33) prescribes two supplementary income
computations for estimating the impact of inflation. These computations estimate the effects of general inflation
( constant dollars) and the effects of changes in specific prices ( current cost).
SFAS No. 33 defines constant dollar accounting as a method of reporting financial statement elements in dollars
each of which has the same general purchasing power. Current cost accounting is defined as a method of measuring
and reporting assets and expenses associated with the use or sale of assets at their current cost or lower recover-
able amount at the balance sheet date or at the date of use or sale. Both methods involve the use of assumptions
and estimates. Therefore, the resulting measurements should be viewed as estimates rather than as precise indi-
cators of the effects of inflation.
The amounts reported in the primary financial statements have been adjusted for depreciation and amortiza-
tion expense. Revenues and all other operating expenses are considered to reflect the average price levels and have
not been adjusted. Further, there have been no adjustments made to provisions for income taxes.
Constant dollar values were determined by restating historical costs, accumulated depreciation and amor-
tization, and depreciation and amortization expense of property and equipment into average 1979 dollars using
the Consumer Price Index for all urban consumers (CPI-U) published by the Bureau of Labor Statistics. Current
costs of flight equipment were determined by the direct pricing method for those aircraft still in production. Current
costs for aircraft no longer in production were determined by using the recoverable amount based on net realiza-
ble values expected to be derived from the sale of the assets. Current costs for spare engines and capital rotable
spares and assemblies were computed based on the ratio by which the current cost of aircraft fleets exceed the
26
historic cost of such fleets . Current cost for other property plant and equipment w r d t rmined by indexation
using the CPI-U.
An estimate of net earnings adjusted for changing prices for the year ended December 31, 1979, follows:
Net earnings as rep rted in the statements of earnings ..
Adjustm nt to restat costs for the effect of general inflation:
Depreciation and amortization expense .............. .
Net earnings adjusted for general inflation .
Adjustment to reflect the difference between general inflation and changes in sp cific prices ( current c
Depreciation and amortization expense .
Net earnings adjusted for changes in specific prices .
Gain from decline in purchasing power of net amounts owed .
Increase in specific prices (current cost) f property, plant & equipment held during the year*.
Effect of increase in general price level . . . . . . . . . . . ......... .
Excess of increase in specific prices over increase in the general price level .
sts ):
*At December 31, 1979, current cost of property, plant, and equipment, net of accumulated depreciation was $908,586.
$ 41,540
20,610
20,930
9,807
$ 11,123
$ 36,758
$106,528
100,802
$ 5,726
A five-year comparison indicating the effect of adjusting historical revenues, purchasing power gains or losses
on net monetary items, cash dividends, and common stock market price to dollar amounts expressed in terms of
average 1979 dollars as measured by the CPI-U follows:
Year Ended December 31,
1979 1978
Operating revenues $932,119 926,309
Historical Cost Information Adjusted for General
Inflation
Net earnings . $ 20,930
Net earnings per common share ... . ...... . 1.42
Net assets at year-end . . . . . . . . . . 419,335
Current Cost Information
Net earnings . . . . . . . . . .
$ 11,123
Net earnings per common share . . 0.67
Excess of increase in specific prices over increase in the
general price level . .......... . . . 5,726
Net assets at year-end . . . . . . . . . . . . . .... . ... .... .. . .. 536,345
Gain from decline in purchasing power of net amounts owed . $ 36,758
Cash dividends declared per common share . ............. $ 0.40 0.44
Market price per common share at year-end .. $ 10.38 9.16
Average Consumer Price Index . ... ....... 217.4 195.4
ACCOUNTANTS' REPORT
PEAT, MARWICK, MITCHELL & Co.
The Board of Directors
Western Air Lines, Inc.:
CERTIFIED PUBLIC ACCOUNTANTS
555 SOUTH FLOWER STREET
LOS ANGELES, CALIFORNIA 90071
1977
829,757
0.48
9.15
181.5
1976 1975
774,662 700,613
0.51 0.63
12.80 12.49
170.5 161.2
We have examined the balance sheets of Western Air Lines, Inc. as of December 31, 1979 and 1978 and the related
statements of earnings, shareholders' equity and changes in financial position for the years then ended. Our
examinations were 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, the aforementioned financial statements present fairly the financial position of Western Air
Lines, Inc. at December 31, 1979 and 1978 and the results of its operations and the changes in its financial position
for the years then ended, in conformity with generally accepted accounting principles consistently applied during
the period subsequent to the change, with which we concur, made as of January 1, 1978, in them thod of accounting
for investment credits as described in note 6 of notes to financial statements.
February 4, 1980
27
BOARD OF DIRECTORS
Miguel M. Blasquez
President
Inter-American Commercial
Arbitration Commission,
Mexico City, Mexico
Walter J. Hickel*
Victor L. Brown*
Presiding Bishop,
The Church of J sus Christ
of Latter-day Saints,
Salt Lake City, Utah
Arthur F. Kelly*
Chairman of the Board
Hickel Investment Company,
Anchorage, Alaska
Chairman of the Board and
Chairman of Executive Committee,
Western Air Lines, Inc.,
Los Angeles, California
Arthur G. Linkletter John H. Myers*
Television Producer and Broadcaster Assistant to the President,
Chairman of the Board St. John's University,
Linkletter Management, Inc., St. Paul, Minnesota
Costa Mesa, California
DIRECTORS EMERITI
Hugh W. Darling
Attorney-at-Law,
Darling, Hall, Rae & Cute,
Los Angeles, California
Leo H. Dwerlkotte
Las Vegas, Nevada
James D. Garibaldi
Attorney-at-Law
Garibaldi & Sausser,
Los Angeles, California
Cary Grant
Director and Executive,
Faberge, Inc.,
Beverly Hills, California
Dr. Donald H. Mclaughlin
Chairman of the Board
Homestake Mining Company
San Francisco, California
28
Richard P. Ensign
Senior Vice President - Marketing
Western Air Lines, Inc.,
Los Angeles, California
Robert 0. Kinsey
Senior Vice President-
Finance and Administration,
Western Air Lines, Inc.,
Los Angeles, California
Dominic P. Renda*
President and
Chief Executive Officer,
Western Air Lines, Inc.,
Los Angeles, California
Edwin W. Pauley
Chairman of the Board,
Pauley Petroleum, Inc.,
Los Angeles, California
Vernon 0. Underwood
Chairman of the Board and
Chief Executive Officer,
Young's Market Company, Inc.,
Los Angeles, California
Gerald Grinstein*
Attorney-at-Law
Preston, Thorgrimson, Ellis,
Holman and Fletcher,
Seattle, Washington
Bert T. Kobayashi, Jr.*
Attorney-at-Law,
Kobayashi, Watanabe, Sugita,
and Kawashima,
Honolulu, Hawaii
Robert H. Volk*
Attorney-at-Law
Los Angeles, California
*Member, Executive Committee
Harry J. Volk
Chairman of the Board,
Union Bancorp, Inc.,
Los Angeles, California
John M. Wallace
Walker Bank & Trust Company
Salt Lake ity, Utah
Arthur G. Woodley
B Ilevue, Washingt n
CORPORATE OFFICERS
Executive Officers
Arthur F. Kelly
hairman of th B ard and
hairman f th Ex utiv
mmittee
Dominic P. Renda
Presid nt and hief Exe utive
Officer
Corporate Planning Division
James L. Mitchell
Senior Vice Pr sident -
Corporate Planning
Walter Bambrick
Vice President -
Data Processing and Systems
Peter P. Wolf
Vice President- ommunications
Thomas F. Miller
Assistant Vice President - Pricing
Richard G. Peterson
Assistant Vice President-
Schedule Planning
W. Jeffrey Terrill
Assistant Vice President -
Route Planning
Finance and Administration Division
Robert 0 . Kinsey
Senior Vice President-
Finance and Administration
Paul V. Donahue
Vice President- Procurement
Richard 0. Hammond
Vice President and Treasurer
Roderick G. Leith
Vice President and C ntroller
Jordan S. Neel
Vice President-Personnel Relations
Charles F. Schlatter
Vice President-Financial Planning
Donald F. Drews
Assistant Vice President-
Properties and Facilities
Legal Division
Donald K. Hall
Senior Vice President,
General Counsel and Secretary
Howard L. Culver
Assistant Vice President-
Regulat ry Law
Thomas J. Greene
Assistant Vice President -
C rporate Law and
Assistant Secretary
Marketing Division
Richard P. Ensign
Senior Vice Pre ident -
Marketing
Willis R. Balfour
Yi Pr id nt -
Passeng rand arg Mark ting
David E. Holt
Vi Pr ident - Pa ng r S l
Lawrence H. Lee
Vi Pr sident -
Pa ng rand Inflight Servi
Bert D. Lynn
Vi e Pr sid nt -
Advertising and Sal s Prom tion
Jack M. Slichter
Yi e President - Field Management
Paul R. Harding
Vice President - entral Division
Lawrence A. Nichols
Vice President - Northern Division
Harry L. White
Vice President- Southern Division
Lynn D. Zumbrunnen
Vice President -Eastern Division
John I. Good
Assistant Vice President -
Cargo Sales and Service
Operations Division
Anton B. Favero
Senior Vice President-Operations
Anthony Colletti
Vice President-
Maintenance and Engineering
Corporate Affairs
Ray Silvius
Vice President-Corporate Affairs
Wayne B. Lichtgarn
Assistant Vice President-
Consumer Affairs
Government and Industry Affairs
Neil S. Stewart
Vice President-
Government and Industry Affairs
REGIONAL OFFICERS
William J. Grant
Vice President-Denver
Allen F. Hoss
Vice President-Hawaii
Grant G. Murray
Vice President- Los Angeles
Luis Pasquel L.
Vice President-Mexico
Raymond M. Waters
Vice President-Alaska
Registrar /Transfer Agent -Common & Preferred Stock
Ban k of Am ri a National Trust & Savin Assn.
555 So. Fl wer St., Los Ang I , alif rnia 90071.
Debenture & Subordinated Note Trustee
Th has Manhattan Bank
1 N w York Plaza, New York, New~ rk 10015
Exchange Listing - Common & Preferred Stock
Debenture & Subordinated Notes
N w York Stock Exchang
Pacific Stock Exchange
Ticker Symbols
ommon Stock
Preferred Stock
51/4 % Debentures
10% Notes
WAL
WALA
WALK
W
AL
Independent Accountants
Peat, Marwick, Mitchell & Co.
555 So. Flower St., Los Angeles, California 90071
Annual Meeting
Fourth Thursday in April
Notice to Stockholders.
A rule adopted by the Civil Aeronautics Board ("CAB") in July
1970, as amended on December 29, 1972, imposes obligations on
certain stockholders of air carriers. Any person who owns as of
December 31 of any year or subsequently acquires, either bene-
ficially or as a trustee, more than 5% of any class of capital stock
of an air carrier must file with the CAB a report containing the
information required by Part 245.12 of the CAB's Economic Regu-
lations on or before April 1 as to the capital stock owned as of
December 31 and/or a report containing the information required
by Part 245.13 of the CAB's Economic Regulations within 10 days
after acquisition as to the capital stock acquired after December 31.
Any bank or broker which holds as trustee more than 5% of any
class of capital stock of an air carrier on the last day of any
quarter of a calendar year must file with the CAB within 30 days
after the end of the quarter a report in accordance with the pro-
visions of Part 245.14 of the CAB's Economic Regulations.
Any person required to report under either Part 245.12, Part
245.13 or Part 245.14 of the CAB's Economic Regulations who
grants a security interest in more than 5% of any class of capital
stock of an air carrier must within 30 days after granting such
security interest file with the CAB a report containing the informa-
tion required in Part 245.15. 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 Pricing and Domestic Aviation,
Civil Aeronautics Board, Washington, D.C. 20428.
Form 10-K: Stockholders may obtain free of charge a copy of the
company's annual report on form 10-K as filed with the Securities
and Exchange Commission by writing to the Secretary, P.O. Box
92005, World Way Postal Center, Los Angel s, California 90009.
General Offices Western Air Lines Building, 6060 Avion Drive, Los Angeles International Airport, Los Angeles, California 90045