Western Airlines Annual Report 1980

WESTERN AIR LINES, INC.
1980 ANNUAL REPORT
HIGHLIGHTS OF 1980
(in millions of dollars)
Operating revenues . ..... . . . .. ... . . . . .. . ... . ....... . . ....... .
Operating expenses .... ... . . .... .... .. . . . .. . . . .. .. ... ...... .
Operating income (loss) . . .. . . . . . ........ ..... . . . . .. . ... . .
Other Income (Expenses):
Interest expense, net . . . . .. . ... . . . . .. .. . . ......... .. ... . . . ... .
Ga in on disposition of equipment .. ... . . ................. ... . .
Other-net . ....... . . . .......... . . ........ . ... . . .. . . .. ...... .
Earnings (loss) before income taxes ... . .... . . . . . . ... . .. . .... .
Income taxes ........ . .... . .. .. . . . ....... . ............ .. . ... . .
Net earnings (loss) . ...... . ........ . .. . . . ... . . .. . ... . ..... .
Passengers carried (000) .. . ... ... ......... . . . . . .. . .. . ... . ..... .
Available seat miles (000,000) ........... . ...... .. ........ . .... .
Revenue passenger miles (000,000) .......... . ... ... ... .. ..... . .
Passenger load factor-actual (%) . . ... . ..... . ....... .. ..... .
-breakeven (%) ... . .... . ........... . ..... .
-profit margin (point d ifference) ............ .
"Not computed.
Description of Business
1980
$ 995.7
1,041.5
(45.8)
(38.5)
32.1
3.0
(49.2)
( 19.6)
$ (29.6)
9,130
15,516
8,832
56.9
62.0
(5.1)
1979
932.1
913.9
18.2
(24.9)
31 .3
14.8
39.4
(2.1)
41 .5
11,191
16,630
10,495
63.1
63.2
(0. 1)
%Change
1980
vs.
1979
7
14
55
3
( 18)
(7)
( 16)
( 10)
(2)
Western Air Lines, Inc., is a certificated air carrier engaged in scheduled air transportation of passengers,
cargo and mail and as such is not dependent on a single or few customers. The company was originally
organized in 1925 and currently serves 40 cities in the United States, Canada, Great Britain, Mexico and The
Bahamas. Western operates in competition with other airlines on nearly all route segments. The business of the
company is seasonal in nature, with highest revenues of the year normally being reported in the third quarter.
It is regulated by the United States and foreign governments.
LETTER TO SHAREHOLDERS
Nineteen eighty was an extremely disappointing year for
Western as the company experienced its first net loss since
1970- $29.6 million, or $2.46 per share.
The reasons were not unique to Western. The scheduled air-
line industry, feeling the effects of the recession, experienced
a five percent decrease in traffic for the year, the largest
decline in history. When combined with continuing inflationary
pressures on costs, especially fuel costs, the downturn in air
travel produced a record loss for the industry.
In Western's case, scheduled traffic, as expressed in revenue
passenger miles, declined 14 percent from the 1979 level pri-
marily for these reasons:
.. . Western's markets are heavily leisure-oriented and such
traffic is particularly vulnerable to changes in economic
conditions;
.. . As a consequence of deregulation, the carriers serving the
western part of the United States, and especially Western,
have been subjected to extensive competition and
... The company eliminated or reduced service in a number
of markets which no longer could support the level of service
provided.
Despite the decline in traffic, operating revenues increased
seven percent because of fare increases which produced a
25 percent increase in yield ( average revenue per passenger
mile).
The fare increases were needed to offset the continuing
escalation in costs, particularly the price of jet fuel. However,
yield did not increase to the same extent as fares because of
greater use of discount fares by our passengers. Fifty-seven
percent of all passenger traffic on Western's system moved on
discount fares, compared with 39 percent in the previous year.
For the most part, discount fares are offered by Western to
match fares introduced by competitors who are new to our
markets and who are attempting to obtain a foothold in these
markets-or by existing carriers with unused fleet capacity
who are seeking to increase their load factors.
Operating expenses increased 14 percent and would have
increased more had we not taken drastic action to reduce
and control costs. More than 50 percent of the increase was
caused by the escalation in the price of fuel. We spent 31
percent more for jet fuel in 1980, although we used 14 percent
fewer gallons than in 1979. Wages, salaries and benefits in-
creased eight percent despite the fact that we reduced the
number of employees by eight percent during the year.
In addition to the elimination of certain flights and reduc-
tion in the number of employees, the company accelerated
its plan to dispose of older, fuel-inefficient aircraft and others
that became surplus to our needs. During the year, we sold our
one remaining four-engine 720B, four 707s and six 737s.AII of
these aircraft were sold at prices in excess of book values.
Our remaining 707 has been leased to an international carrier
and is for sale.
The sale of these a ircraft, plus the delivery of two DC-10s
and five Boeing 727-200s in 1980, has provided Weste~n with
one of the most modern and fuel-efficient fleets in the indus-
try. In fact as of September 30, 1980, according to a Boeing
report, Western's fleet had an average age of 6.35 years, the
youngest of any U.S. trunkline.
While attempting to reduce and control costs, we also
devoted a great deal of our attention and effort to increasing
revenues. Recognizing that profitable route expansion is diffi-
cult to accomplish during a recession, we concentrated our
efforts on our existing route system.
Although evaluation of flight schedules is an ongoing pro-
cess in the airline industry, in the second quarter- when it
2
Dominic P. Renda
became apparent that the recession would be more severe
than anticipated- we undertook an intensive study of our
schedule pattern to determine how we might be more com-
petitive in markets that had a potential for profit, and how we
might reduce service in markets that were not profitable.
As a result of this study, we immediately improved the timing
and frequency of flights on high density routes and eliminated
or reduced service on other routes.
Although these efforts did not produce a return to profitable
operations, they did provide noteworthy improvement in our
operating performance and helped minimize our losses. In
the fourth quarter of the year, our load factor showed a three
percent increase and our operating loss was reduced by more
than $5 million from the same quarter in 1979. It should be
noted that 94 percent of our operating losses for 1980 occurred
in the first six months.
On October 27, Western inaugurated service to London from
Anchorage and Honolulu, completing the first step in the
company's lengthy effort to obtain routes to the United King-
dom. On April 24, we will complete the second step of this
expansion into long-haul international routes when we inaugu-
rate the first nonstop service between Denver and London.
These routes are developmental in nature and may not be
profitable in the first full year of operation. However, we believe
they are important to the future of the company.
Last August we announced plans to once again attempt
to merge Western and Continental Airlines. We took this action
because we believed that the factors that may have led the
CAB to disapprove the same merger in July 1979 no longer
existed due to deregulation of the airline industry.
On February 6, 1981, the Civil Aeronautics Board Administra-
tive Law Judge who heard the evidence recommended
approval of the proposed merger and concluded that what-
ever objections may have existed before no longer prevailed
in the industry.
On February 9, the next business day after the law judge's
decision was announced, Texas International Airlines, Inc., a
subsidiary of Texas Air Corp., announced plans to make a
tender offer for a minimum of four million shares of Continental
stock, with an option to purchase up to an additional two
million shares. In its announcement, Texas International dis-
closed that it already owned a total of 1,459,200 shares, or
approximately 9.5 percent, of Continental's outstanding stock.
On February 13, Texas International announced the com-
mencement of its tender offer and stated that its purpose in
making the offer was to acquire a significant minority interest
in Continental and, subject to CAB approval, to exercise
control over Continental's business and operations.
Purchase of shares by Texas International was subject to
a number of conditions, including the tender of at least four
million shares and the approval by the CAB of Texas lnterna-
tional's acquisition of up to 48.5 percent of the outstanding
Continental stock and the deposit of such stock in a voting trust
providing, among other things, that the trustee vote against
the Continental-Western merger.
On March 2, the Civil Aeronautics Board unanimously ap-
proved the proposed Western-Continental merger, instructing
its staff fo prepare an order that would be sent to the White
House prior to March 31 for necessary presidential review. At
the same meeting, the CAB also approved Texas lnternational's
plan to attempt to purchase up to 48.5 percent of the shares
of Continental stock and to place those shares in a voting
trust, with authority in the trustee to vote the shares against the
Continental-Western merger.
Both Western and Continental had scheduled meetings
of shareholders for March 12 for the purpose of voting on the
proposed merger. However, after Texas International an-
nounced on March 10 that it had acquired in excess of 43
percent of Continental's outstanding stock, Continental can-
celled its shareholders' meeting and Western, upon advice of
counsel, held its meeting but did not take a vote on the
proposed consolidation.
The issues raised by the Texas International actions must be
further studied by Western's board of directors and share-
holders before any shareholder action could be taken on the
Western-Continental merger. Shareholders will be advised of
further developments in this matter at the appropriate time.
On December 18, 1980, Western received an unsolicited
request from UNC Resources, Inc. of Falls Church, Virginia, to
negotiate a merger between Western and UNC.The request
recognized that Continental and Western have an existing
merger agreement with which a merger with UNC would be
inconsistent. No definitive merger proposal has been sub-
mitted by UNC, and no negotiations between Western and
UNC for a merger of the two companies have taken place.
Western is unaware of the intentions of UNC.
The outlook for the airline industry in 1981 is not bright. Traffic
for the first half of the year is expected to be down slightly
from 1980. We hope there will be an upturn in the economy
and traffic during the third quarter, but to date there are no
positive signs that this will occur. Significant improvement in
industry traffic may not come until late in 1981 or 1982.
At the same time, we see no apparent relief in 1981 from
the inflationary pressures on costs that have buffeted our indus-
try in recent years. The decontrol of domestic oil prices and
recently announced increases in the price of imported crude
will escalate the price of jet fuel during the coming year. There
has been no softening in the demands of labor unions for
improvements in wages and benefits. Travel agency com-
missions will be up as a result of the newly deregulated environ-
ment which allows for individually negotiated commission
rates. Interest expenses will be higher because of higher inter-
est rates and increased borrowing to finance new aircraft.
Despite this outlook, the management of your company is
confident it can return Western to profitability. We now have an
efficient fleet of aircraft. The actions taken in 1980 have
improved our productivity. We are better able to compete.
The task will not be easy, but we believe we have the company
properly postured to take advantage of the turnaround in the
economy which we hope will occur later this year.
Your continued support and understanding will be
appreciated.
-4v~
~
3
Arthur F. Kelly
Chairman of the Board
Marc h 13. 1981
Dominic P. Renda
President and Chief
Executive Officer
MANAGEMENT'S DISCUSSION
Results of Operations
Results of operations during the last three years were
seriously impacted by a combination of circumstances
over which Western had no control. The factor which
had the most direct effect on operating results in the
1978-1980 period was the nationwide recession which
became progressively worse during those three years.
Western suffered a modest decline in traffic in terms
of revenue passenger miles between 1978 and 1979
but between 1979 and 1980 revenue passenger miles
decreased by 16 percent. Western's markets are heavily
leisure-oriented and such traffic is particularly vulner-
able to changes in economic conditions. As a con-
sequence Westem's revenue passenger load factor,
which is an index of profitability in the airline business,
declined steadily from 1978 to 1980.
Inflation affected results in all three years, but infla-
tionary pressures on costs were largely offset by traffic
gains in 1978. In 1979 and 1980 the increases in wages,
salaries and employee benefits and in the price of
fuel ran far ahead of revenue growth. For example,
wages, salaries and employee benefits increased by
nearly 25 percent between 1978 and 1980 principally
as a result of collective bargaining. Fuel expenses
almost doubled during the same period although the
amount of fuel consumed declined. Together these
4
Revenue Dollars Percent
(dollars in thousands) of total
Coach passenger service ....... $ 821 ,748 83%
Deluxe passenger service . . . . . . . 66, 153 7
Cargo . . . . . . . . . . . . . . . . . . . . . . . . 63,821 6
Transport related . . . . . . . . . . . . . . . 32,158 3
Charter . . . . . . . . . . . . . . . . . . . . . . . 2,538
Other . . . . . . . . . . . . . . . . . . . . . . . . . 9,337
$ 995,755 100%
two items of expense accounted for more than 82
percent of the increase in operating expenses during
the period. Western is unable to predict when inflation
in these two areas will be brought under control. Fuel
expense is expected to increase substantially in 1981
because of decontrol; the extent to which this can be
offset by fare increases authorized by the CAB is
presently unknown.
Depreciation and interest expense also increased
over the three year period which was the direct result
of the acquisition of new aircraft at inflated prices.
These purchases were financed largely by additional
long-term debt which, coupled with escalating interest
rates, produced substantial increases in interest
expense. For further discussion of the impact of inflation
on operating results see Note 12 to Financial Statements.
Another factor which seriously impacted operating
results in the 197 8 -1980 period was deregulation of the
airline industry. Passage of the Airline Deregulation
Act in November 1978 marked the transition from an
era of controlled competition to an era of unrestricted
entry. The Act also gave carriers complete freedom to
reduce fares by as much as 50 percent and to increase
fares by as much as five percent. As a consequence
Western has been subjected to increased competition
on many routes and has been faced with the necessity
to meet discounted fares put into effect by both old
and new competitors.
Since January 1, 1978, the Civil Aeronautics Board
has granted periodic increases in excess of five per-
cent in standard first class and coach fares designed
to meet increases in operating expenses. These fare
increases were the sole reason for the increase in
passenger revenues in 1980. Nevertheless, the fare
increases have not been sufficient to offset the decreas-
ing load factors resulting from excessive competition
and the dilutive effect on yield of low discount fares.
Also affecting 1979 operating results was the ground-
ing of all DC-10 aircraft for 38 days during the summer,
the effect of which was partially offset by traffic gains
realized as a result of interruption of service on United
Airlines and Mexicano Airlines because of labor
problems.
Liquidity and Copital Resources
As is characteristic of the airline industry Western oper-
ates with very small, and often negative, working capital.
Generally, the cash generated through operations is
sufficient to fund current operations and amortization
of long-term debt. Proceeds from long-term obligations
5
Expense Dollars
(dollars in thousands)
Wages, salaries and
Percent
of total
employee benefits . . . . . . . . . S 384.201 37%
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . 296,365 28
Other . . . . . . . . . . . . . . . . . . . . . . . . . 106,644 10
Material and services . . . . . . . . . . . 84,855 8
Depreciation . . . . . . . . . . . . . . . . . . 61 ,310 6
Commissions. . . . . . . . . . . . . . . . . . 57,672 6
Food and beverages ........ . . . 28,419 3
Rentals . . . . . . . . . . . . . . . . . . . . . . . 22,050 2
$1,041 ,516 100%
and the disposition of equipment, together with internally
generated funds, have been relied on to finance the
purchases of new aircraft. Purchases of aircraft at stead-
ily escalating prices over the last ten years have resulted
in substantial increases in Western's long-term debt.
As additional aircraft have been acquired and
additional long-term debt incurred, certain relevant
ratios have been adversely affected, for example:
Current assets to current liabilities ....
Long-term debt to total capital .
Long-term debt to equity ....... . . .
1980 1979 1978
.78 .86 1.01
.69 .58 .57
2.20 1.37 1.34
With the addition of three 727-200s and one long-
range DC-10 Western believes that its fleet of three-
engine and twin-engine aircraft will be adequate to
operate its system for the next two years. Nevertheless,
Western like every other airline is constantly reviewing
its need for new and improved types of aircraft, espe-
cially the new generation of more fuel efficient aircraft
which are now being developed.
Western presently has on order three Boeing 727-200
aircraft for delivery in the spring of 1981, and six of the
new model Boeing 767 aircraft for delivery in 1983 and
1984. Western's total commitment for the purchasing of
Passenger Revenue- 1976= 100%
175%
150%
125%
75%
1976 1977 1978 1979
these aircraft is $303,400,000 of which $30,100,000 has
been recorded as advance deposits at December 31,
1980. Equipment trust financing is contemplated for the
purchase of these aircraft. Also available to Western is
capital lease financing. Western will lease a long-range
DC-10 aircraft which is required to operate nonstop
between Denver and London.
Another source of funds which might be utilized to
finance a portion ofWestern's capital requirements is the
$75,000,000 balance remaining under a $125,000,000
revolving line of credit with a group of banks, although
the amount actually available at any one time may
be limited by certain lender restrictions. At December
31, 1980 Western had borrowed $50,000,000 under
this lineofcreditforgeneral corporate purposes.At June
30, 1982 borrowings under the revolving line of credit
must be repaid or replaced by a term note in an amount
not to exceed $75,000,000, maturing in eight years.
Shareholders and Stock
Western's results for 1980 represented a loss of $2.46
per common share, compared to earnings of $2.99 per
share in 1979.
Holders of common stock were paid 10 cents per
share in each of the four quarters of 1979 and in both
the first and second quarters of 1980 and five cents
1980
6
The 25 percent increase in yield gave Western a
seven percent increase in passenger revenues despite
the drop in revenue passenger miles. Traffic moving on
discounted fares increased to 57 percent of a ll
passenger traffic .
Passenger revenue
Scheduled RPM's
Yield
% of discounted RPM's to
total scheduled RPM's.
per share in the third quarter. As a result of continuing
losses, the board of directors voted following the third
quarter not to pay a dividend on the company's com-
mon stock. Certain agreements relating to Western's
long-term debt limit the amounts available for payment
of cash dividends. At December 31, 1980, the amount
available for that purpose was $34,304,000.
The 1980 net results brought shareholders' equity
to $197,346,000 at the end of the year, compared to
$232,625,000 at the end of 1979. Equity per common
share ( or book value) was $12.85, compared to $15.56
at the end of 1979.
As of December 31, 1980, there were 13,030,915 shares
of Western common stock outstanding. This stock was
held byapproximately17,000 individuals and institutions.
Western has 2,992,350 shares of common stock
reserved for issuance upon conversion of its preferred
stock and an additional 2,040,000 shares reserved
for issuance upon conversion of its 5% Convertible
Subordinated Debentures. Holders of the debentures
receive interest payments on February 1 and August 1;
as of December 31, 1980, the debentures were held
by 511 individuals and institutions. The $2.00 Series A
Cumulative Convertible Preferred Stock was held by
1,651 individuals and institutions who are paid dividends
quarterly. There were 1,196,940 shares of preferred
I
..
Fuel Expense- 1976= 100%
300%
275%
250%
225%
200%
175%
150%
125%
100%
75%
1976 1977 1978
stock outstanding at December 31, 1980.
1979
Western's common and preferred stock were traded
on the New York and Pacific stock exchanges at the
following prices:
Common Stock Preferred Stock
1979 High Low High Low
First Quarter 9 7 28% 23
Second Quarter 9% 7 26 23%
Third Quarter 12 8 30 24
Fourth Quarter 11 Ya 7% 28 21
1980
First Quarter 11 % 6 29 19
Second Quarter 7 6 23 19
Third Quarter 8 6 24 21
Fourth Quarter 10 6 25 20%
Route Matters
Western's long and determined efforts to seNe London
were realized in 1980 as the Civil Aeronautics Board
awarded the company new nonstop routes from
Anchorage and Denver to London.
The London-Anchorage route was inaugurated in
October with two flights a week which continue on to
Honolulu. Western's entry marked the first U.S. airline ser-
vice between London and Anchorage and opened the
Despite continued reductions in fuel consumption,
fuel expense escalated as the price per gallon rose to
8 7 cents in 1980. Availability of fuel continues to be
dependent on national and international petroleum
industry conditions and assurance of adequate future
supplies cannot be given.
Fuel expense
Average cost per gallon
Gallons consumed
1980
7
shortest air route between Great Britain and the Pacific.
Western's inauguration of Denver-London seNice on
April 24 represents a significant move for both the com-
pany and the State of Colorado as well as the Rocky
Mountain area. This will give Denver its first nonstop
seNice to and from Great Britain. Under terms of the
bilateral agreement, Western's authority on this route
will be exclusive for a three-year period
In another international route case, Western was
selected for authority between Texas, Alberta and
Alaska.The initial phase of this seNice will be started
April 26 with a daily round trip between Houston, Dallas/
Ft. Worth and Calgary. Concurrent with this, Western will
discontinue the equipment interchange with Braniff
International between Calgary, Denver and Dallas/
Ft.Worth .
On its domestic routes, Western d id considerable
restructuring during 1980 as costs escalated, traffic de-
clined and competition increased. SeNice was sus-
pended to Helena, Pocatello, Sheridan, Kodiak, Hilo,
Milwaukee and Spokane, between San Diego and
Honolulu and numerous schedule patterns were
changed
E
arly in 1981, the company also dec ided to suspend
seNice between Miami and Nassau, The Bahamas.
The suspension will be effective April 26.
Load Factor- Actual vs.Breakeven
70%
65%
60%
55%
1976 1977 1978 1979
Since the passage of the Airline Deregulation Act of
1978, Western and other certificated airlines have been
given authority for literally hundreds of new routes
throughout the United States. In that this authority is per-
missive rather than mandatory, it provides opportunity
for expansion into new areas or for the connection of
areas currently served whenever it is deemed econom-
ically appropriate.
Marketing
Selling Western's product in the face of a declining
economy, new competition and escalation of basic
fares represented a monumental challenge in 1980.
The nationwide recession had a noticeable impact
on leisure traffic, which is so important to Western. In
the Hawaii market, which represented about 24 percent
of Western's passenger business, the company's traffic
was off 13 percent for the year.
In the 48 states and Canada, which produced
approximately 59 percent of Western's passenger traf-
fic, new competition was experienced on every prime
nonstop segment, and this along with a general decline
in travel resulted in traffic over these segments declin-
ing 18 percent, compared with 1979. Western's third
largest market- Latin America- experienced a three
percent decline in traffic, and Alaska, which repre-
sented six percent of Western's traffic, was off 21 percent.
1980
8
Western was able to achieve a two percent reduction
in breakeven load factor in 1980 despite higher cost;
however, actual load factors dropped 10 percent.
Actual
Breakeven
Western moved aggressively to capture new business
travel. In the summer of 1980, the company introduced
a unique program in Travel Pass, a card which is vali-
dated each time a customer flies over selected seg-
ments. After five validations, the customer can redeem
the card for $50 in travel anywhere on Western's system
or 10 of the cards may be saved up for a total of $500
off. This program, which is aimed at the frequent traveler,
had been expanded by mid-February 1981 to 85 flights
a day throughout Western's system.
The inauguration of Honolulu-Anchorage-London
service in October and the Denver-London nonstops
being started in April, will give Western an advanta-
geous position with the burgeoning influx of British and
European travelers who are attracted to the United
States by vacation values. Western also is using its
leisure travel expertise to develop value vacations
in Great Britain.
Airline deregulation advanced a step farther in
mid-1980 as the Civil Aeronautics Board ruled that the
unified industry commission structure for travel agents
was unacceptable and prescribed open commissions.
Travel agents handled nearly 70 percent of Western's
passenger business in 1980,and consequently,Western's
commission rates must be competitive with other
carriers. Initially, Western offered U.S. travel agents an
eight percent commission on coach and economy
travel and 10 percent on first class and promotional
Wages, Salaries & Employee Benefits- 1976= 100%
175%
150%
125%
100%
1976 1977 1978 1979
fares, compared with a four-tier structure ranging from
seven to 11 percent just prior to the effective date of
the new commission environment. In January 1981, com-
petitive circumstances required an increase in the
eight percent level to nine percent.
Basic fares increased in all of Western's markets
during 1980; the compound effect of those increases
was approximately 43 percent. Western's yield, or aver-
age revenue per passenger mile, however, increased
only 25 percent, from 8.07 cents in 1979 to 10.10 cents
in 1980. This discrepancy between fare and yield
increases results from the proliferation of discount fares
and their increased use during 1980. Discount fare
traffic represented 5 7 percent of Westem's passenger
traffic during 1980.
Cargo, including mail and freight, represented six
percent of Western's total revenues. It is an important
market in that Western's cargo shipments move on
scheduled passengerflights. Especially in wide-bodied
DC-10s, considerable cargo capacity is available, and
Western has developed strong marketing programs
around its cargo capabilities.
Deregulation of air cargo in late 1977 permitted
all-cargo carriers to move into routes which had pre-
viously been confined to passenger/cargo operations;
this resulted in considerable new competition for
Western and other passenger carriers. Additionally, it
has made it possible for large freight forwarders to
Reductions in seat-mile capacity and the number of
employees made it possible to hold wages, salaries
and employee benefits to an eight percent increase
over 1979.
Wages, salaries & employee benefits
-------- Average number of employees
1111111111111111111111111111111
Available seat miles
1980
9
develop their own air carrier capability.
Western's Fleet
In 1981 1983/84
Operation Delivery Delivery Options
DC-10-10 12
DC-10-30 1 3
727-200 44 3
737-200 13
767 6 6
As of March 15, 1981. Three DC-10s and twelve 727s are leased.
Having completed the retirement of its four-engine jet
fleet in January of 1980, Westem's fleet now is one of the
most modem in aircraft technology and fuel efficiency.
In early 1981, Western made preliminary arrange-
ments for the lease of one DC-10-30 for use on the
Denver -London route. Those arrangements included
a lease-option for a second DC-10-30.
The next step toward improved fuel efficiency in
medium-to-long range commercial aircraft will come
with the introduction of the Boeing 767 and 757. In
preparation for this, Western has placed orders for six
767 twinjets and taken options for an additional six.
Deliveries of the 767 will begin in the Spring of 1983.
Westem's present fleet is in compliance with federal
noise regulations with the exception of the two-engine
737s. An undetermined number of these aircraft will be
retrofitted at a cost of approximately $255,000 each in
advance of the 1985 deadline for compliance.
Recognition of Western's environmental conscious-
ness as it relates to noise came in the form of an award
of merit from the National Organization to Insure a
Sound-Controlled Environment. In additon to its con-
formance to federal noise regulations, Western has
structured its take-off and landing patterns to lessen
the noise impact on neighboring areas.
Western's aircraft utilization remained at a high level
in 1980, despite schedule cutbacks. Average daily
hours flown on all aircraft during 1980 was eight hours,
24 minutes, and as in the past several years, Western
continued to lead all DC-10 Series 10 operators with a
daily utilization of 10 hours, 46 minutes compared with
an all-operators average of eight hours, 40 minutes.
Ground Properties and Equipment
Western's general offices and principal overhaul and
maintenance base are located at Los Angeles Inter-
national Airport. These facilities, including a DC-10
hangar and a parking structure completed in 1975,
have been built by the company as improvements on
leased land. The lease on the land and buildings
expires in 1993, subject to the right of the City of Los
Angeles to terminate the lease on March 31, 1988, or
any March 31 thereafter.
Western also leases hangars at Seattle/Tacoma,
Denver,San Francisco and Minneapolis/St. Paul, as well
as terminal facilities at all airports served, plus ticket
and administrative offices throughout its system. Public
airports are utilized for flight operations under contrac-
tual arrangements with municipalities or agencies
controlling them.
Western's People
The challenges of a difficult 1980 touched every one of
Western's employees. The company employed an
average of 10,657 during 1980, down from the 11,256
average in 1979.
MANAGEMENT: The board of directors which heads
Western's management organization represents the
business and civic interests of the major areas the com-
pany serves. Four of the 11 directors are Western officers.
They are Arthur F. Kelly, 68, chairman of the board and
chairman of the board's executive committee; Dominic
P. Renda, 67, president and chief executive officer;
Robert 0. Kinsey, 64, executive vice president and chief
operating officer, and Richard P
. Ensign, 62, executive
vice president-marketing.
Other principal officers of Western include Donald
K. Hall, 62, senior vice president, general counsel and
secretary; James L. Mitchell, 59, senior vice president-
long range planning; Roderick G. Leith, 52, vice presi-
dent- finance; Rick 0 . Hammond, 51, vice president
and treasurer, and Glen L. Stewart, 38, vice president
and controller.
10
Two of Western's principal officers have held positions
outside the company within the last five years: Mr. Hall
was elected to his present post in 1979, coming to the
company from the Los Angeles law firm of Darling,
Rae & Gute, where he had been since 1953. Mr. Mitchell
was a vice president at Continental Air Lines between
1968 and 1977. He had previously served as an officer
of Western.
EMPLOYEES: Western is committed to a policy of equal
employment opportunity with hiring and advancement
being determined on the basis of merit and ability.
Results-oriented affirmative action plans are submitted
annually to government agencies. Consistent with its
policy of advancement from within, Western filled 68
percent of its management and administrative or tech-
nical job vacancies in 1980 with people already work-
ing for the company.
Labor unions represent approximately 93 percent of
Western's employees. These unions include the Air Line
Pilots Association, Air Transport Employees, Association
of Flight Attendants, Brotherhood of Railway and Airline
Clerks, International Brotherhood of Teamsters, Sindi-
cato Nacional de Trabajadores de Aviacion y Similares,
and the Transport Workers Union.
Following is the contractual status of each of these
collective bargaining groups:
Number of
Employees Contract Op en
1-1-81 Union for Amendment
Mecha nics & Related
Employees and
Stock Clerks 2,150 IBT Jan.1, 1981
(In mediation)
Pilots 1,515 ALPA Sept. 1. 1981
Flig ht Attendants 1,917 AFA Dec.1.1981
Agent & Clerical-
U.S. 3,886 ATE June 30. 1982
Canada 123 BRAC July 1. 1982
Mexico 189 SNTA Jan.18, 1982
Flight Superintendents 33 TWU Oct. 31, 1983
Ground School Instructors 31 IBT Jan.1.1981
(In mediation)
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 cer-
tain aircraft operations at the airport and/or to recover
damages because of aircraft noise and engine emis-
sions. Most of these cases have been brought in the
Los Angeles County Superior Court against the City of
Los Angeles, which in a number of these cases has in
turn cross-complained against the airlines for indem-
nification. The aggregate amount of damages sought
in cases against the City has been reported by the City
to be in excess of $57 million.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, O'Melveny &
Myers of Los Angeles, believe that the damages
claimed are not a realistic measure of the airlines'
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, based on the current state of the law,
that the airlines have substantial defenses to the imposi-
tion 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 judicial clarification, the
relative rights and liabilities among such owners of
adjacent areas, 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
on the company. Further, any liability of airport oper-
ators, or the granting of any injunctive relief against
them, could result in higher costs to a ir carriers, for
example through 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 com-
munity of interest to sustain a class suit. This holding hds
significance 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 operate a irports, including Los Angeles and
Son Diego, have imposed or are considering imposition
of limitations on frequency and timing of airline flights
or upon the proportion of an a irline's fleet which may
continue to operate without complying with federa l
noise standards. Enforcement of such restrictions at a
major a irport served by Western could have a materia lly
adverse effect upon its operations.
Western, three other airlines and the Internationa l Air
Transport Association are defendants in a n action
brought on November 19, 1973, by a defunct tour
operator-travel agency in the United States District Court
in Sa n Fra ncisco in which the defendants are charged
with having conspired and attempted to monopolize
and with actually monopolizing the group leisure tour
market in competition with said agency by packaging
their own tours and appropriating tour packages devel-
oped by said agency in violation of the Federal anti-
trust laws. In 1980 summary judgment was entered dis-
missing the action as to Western, which judgment is
subject to appeal in due course.
A number of actions have been filed, in both federal
and state courts, against Western and other defen-
dants seeking damages for death or injury suffered in
11
the October 31, 1979, crash of a Western aircraft at the
Mexico City airport. Western has ample insurance cov-
erage for this type of accident, although insurance
may not cover liability for punitive damages which are
sought in several of the actions premised on bodily
injury. Western does not believe that such claims for
punitive damages will result in any material liability to
Western.
Western is also involved in various other litigation,
including cases alleging discrimination in employment
practices. Western does not believe that any of such
cases will result in material liability to Western.
Western/Continenta l interchanges _______ _
E
ffective in April
.....
..............
..............
..............
...._
(In millions excep l per shore amounts and other items indicoled by ")
Summary of Operations
Operating Revenues:
Passenger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... .
Cargo, charter, and other. . . . . . . . . ..... . .... . ..... . ... . ..... .
Total operating revenues ... .
1980
$ 887.9
107.8
995.7
1979
827.7
104.4
932.1
============================,.====
Operating Expenses:
Wages, salaries, and employee benefits . . . . . . . . . . . . . . . . . . . ..... .. ..... .
Fuel . . . . . . ... .. . .... . ... . . .. . .... . ....... . .. . .... . ... .. ..
Other0
. . . .. . . . . .. . . . . . . . . . .. .
Total operating expenses .
Operating income (loss) . .... . ......... . . ..... . ...... ... . .. . .
Interest expense, net ..
Other income, net . .. . . .. . .. . ... . . . . . .. . . . .. . . . ........... . .
Earnings (loss) before income taxes and cumulative effect
of changes in accounting principles . . . . . . . ..... .. ... . .... . . . .. .
Income taxes.. .. ... ... .. . ...... . . . ... . ... . ... . . ... .. . .. . ...... . .
E
arnings (loss) before cumulative effect
of changes in occounting principles . . . . . . . . . . ... .. .. .. . . .... .. .
Cumulative effect of changes in accounting principles ... . ...... . . .
Net earnings (loss) . .. .... .. .... . . . .. . .... . ........................... .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... .
Net earnin s (loss) available for common stock ... . .. . .. . ..... .
Earnings (Loss) per Common Share:
Primary:
Before cumulative effect of c hanges in accounting principles . . .... . . . . . . .
Net earnings (loss) .. .. ..... . ... ...... . . . ... .. . . . . . ... . .... . . ... .. . . .
Fully Diluted:
Before cumulative effect of changes in accounting princip les .. . .... . . . . .. ... .
Net earnings (loss) . ... . . .......... .. ..... . .. . . . . . .. ... . .. .... . . .
Number of Shares Used to Compute Earnings (Loss) per Share:
Primary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... . ........... .. . .. .
Fully diluted .. ... . .... .. .... . ... . . .. . . . . ...... . ......... . .. . . ... ... . ....... . ... . .
Other Financial Data
Cash dividends paid per share of common stock . . .. . .......... . . . .. .. . . . .
Total assets . . .. . .... .. . . ............ . ....... . ........ . . . . . . . . . . . .. . ......... . .
Property and equipment-net ...... . .... . .......................... .. .. . ........ .
Long-term obligations ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... .
Shareholders' equity . . ........... .. .. . . . ..... . . .. .................... .. ........ .
Return on investment(%)* .. ... ........ . ... . . ... .... . .. . ... . . . ....... .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .......... .
(in millions of dollars except per share amounts)
$
$
$
384.2
296.4
360.9
1,041.5
(45.8)
(38.5)
35.1
(49.2)
(19.6)
(29.6)
(29.6)
2.4
(32.0)
(2.46)
(2.46)
$ (2.46)
$ (2.46)
13.0
13.0
$ 0.25
$ 917.0
$ 718.8
$ 435.1
$ 197.3
(4.0)
71
9.1
15,515.6
8,832.1
56.9
62.0
(5.1)
$ .1010
965
$ .0671
163.2
10,657
( a) Changes in the estimated useful lives of certain aircraft were implemented in 1978 and 1976. These changes increased net
income in 1978, 1977 and 1976 by approximately S
1.5, or S
0.12 per share (primary), S
2.4, or S
0.19 per share (primary), and S
0.6,
or S
0.04 per share (primary), respectively.
14
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
13.1
18.2
0.40
821.4
634.6
318.3
232.6
13.2
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
16.2b
54.7
2.4
52.3
2.82
4.09
2.15
3.04
12.8
18.2
0.40
710.1
519.7
265.7
198.5
14.0
78
10.4
16,254.9
10,634.8
65.4
61 .1
4.3
.0720
994
.0480
176.3
10,787
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
12.7
15.9
0.40
574.9
427.9
214.5
147.4
9.1
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
13.6
16.1
0.40
515.1
378.6
192.5
112.1
9.5
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
15.2
17.6
0.47
488.3
367.6
175.4
133.9
5.9
75
7.5
11 ,696.5
7,102.9
60.7
59.7
1.0
.0665
942
.0433
108.6
9,357
===
1
974
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
15.1
17.6
0.39
448.8
350.3
167.4
129.3
12.4
72
7.4
11 ,123.5
6,747.5
60.7
56.1
4.6
.0660
902
.0401
95.2
9,696
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
15.1
17.5
0.23
431 .7
316.4
178.0
110.8
11 .9
74
7.4
11 ,175.5
6,476.1
57.9
52.5
5.4
.0593
877
.0338
76.5
9,826
~==
1
972
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
15.0
17.5
0.08
372.7
262.1
158.6
94.4
8.5
71
6.9
10,300.2
5,995.9
58.2
54.6
3.6
.0578
865
.0338
76.2
9,383
1
971
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
15.0
17,5
372.0
242.0
181 .6
84.5
6.8
70
6.2
9,776.9
5,252.0
53.7
52.4
1.3
.0577
846
.0317
73.2
8,951
(b) Effective January 1, 1978, Western c hanged 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 S
1
6.2, has been
included in net earnings for 1978.
15
December 31, 1980 and 1979
(In thousands of dollars)
ASSETS
Current Assets:
Cash (Note 6) . . ... ........ .. ... ......... . .. ... ... . .... . . .. . .. ..... .
Temporary investments . . ...... ..... . .... . . .. ... . ..... .. . . ... .... .... .
Receivables (less allowance for doubtful accounts
of $2,379-1980 and $2,078-1979) ..... . . . .... ....... ... .... .. ... .. .
Flight equipment expendable parts at average cost
(less allowance for obsolescence of $14,062-1980
and $13,228-1979) ......... .. ......... .. ....... . . . ...... .. .. .. .. . .
Prepaid expenses and other current assets . ... .. . . .... .. ..... . . .. ..... .
Total current assets . .. .. . .. .. ..... .. . .. ... .... . . . ...... . ... ... .
Properties and Equipment at Cost (Notes 2, 3, and 6):
Flight equipment .... ... . ..... . . . .. . ..... . ....... . ............. . .... .
Facilities and ground equipment . .. ......... . ........................ .
Deposits on equipment purchase c6ntracts ... . .. . ............. . ...... .
Less allowance for depreciation and amortization ............. . ........ .
Deferred char es and other assets . ... . ... ..... .. . . . . . ............... .
See accompanying notes to financial statements.
16
1980 1
979
$ 8,759 11,110
25,579 39,203
34,338 50,313
121,859 105,291
26,908 20,021
8,025 5,769
191,130 181 ,394
848,111 764,592
130,703 127,710
37,966 50,981
1,016,780 943,283
297,962 308,642
718,818 634,641
7,100 5,405
$ 917,048 821,440
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................. . ....... . .. . ... .
Salaries, wages, and vacation benefits payable .......... .. ........... .
Accrued liabilities . ..... . . . ........ . .... . . . ................ . . . ...... .
Airline traffic liability .. . . . . . . ............ .. . . .......... . ......... .. . . .
Current portion of debt (Note 6) .. . .. .. ... ..... . ... ...... . . . ... . . . .... .
Current portion of capital leases (Note 2) ... . ... . . . . . . . . . ... ... ..... .. . .
Total current liabilities . ......... . ...... . ..... .. ............... .
Long-term Obligations:
Debt (Note 6) .. . ..................................... . ... ... ..... . . .
Capital leases (Note 2) ............ . .... ........ . .. . . ..... . . .. .. . ... .
Deferred Credits and Other Liabilities:
Deferred taxes on income (Note 5) . ... ........ ..... .. .. . . . .... .. .. . .. .
Other ....... . ....................................... .. .. .. ... ..... .
Shareholders' Equity (Note 6, 7, 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-1980 and 1979 ........ . ................. . .. .
Common stock-authorized 35,000,000 shares
$1.00 par value per share
Issued 13,031,000-1980 and 13,030,000-1979 . .. . .. ... .............. .
Additional paid-in capital ................... .. ................ . .... .
Retained earnings .................. . ... . ........ .. . . . . .. .. .. . ..... .
Commitments and Contingent Liabilities (Notes 2 and 3)
17
1980
$ 58,965
43,624
22,947
90,058
23,756
7,183
246,533
353,525
81,526
435,051
29,067
9,051
38,118
29,923
13,031
30,963
123,429
197,346
$917,048
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
Years ended December 31, 1980, 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 4) ............
Fuel ...... . . . ......... ... .... ... . .. .. ...... ..... . .. . ...
Depreciation and amortization ...........................
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....
Operating income (loss) .. .... ..... . .. .. ...... .. .
Other Income (Expenses):
Interest, principally on long-term obligations .. .... ... . ......
Interest capitalized ............ ... ... . .. . .... ..... .......
Interest income .........................................
Gains on disposition of equipment . .......................
Settlement with vendor ...................................
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings (loss) before income taxes and cumulative
effect of a change in accounting principle ........
Income taxes (Note 5) .....................................
Earnings (loss) before cumulative effect
of a change in accounting principle ......... . ...
Cumulative effect of a change in accounting
principle (Note 5) .... ... ...... ........... ........... .. . .
Net earnings (loss) ... ........... .. .. ...... ..... .
Earnings (Loss) per Common Share (Note 8):
Primary:
Earnings (loss) before cumulative effect
of a change in accounting principle .............
Cumulative effect of a change in
accounting principle ...........................
Net earnin s (loss) ................................
Fully Diluted:
Earnings (loss) before cumulative effect
$
$
$
$
of a change in accounting principle . . . . . . . . . . . . . $
Cumulative effect of a change in
accounting principle .......................... .
Net earnings (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
See accompanying notes to financial statements.
18
1980
887,901
63,821
44,033
995,755
384,201
296,365
61,310
299,640
1,041,516
(45,761)
(43,507)
4,940
3,168
32,099
(178)
(3,478)
(49,239)
(19,607)
(29,632)
(29,632)
(2.46)
(2.46)
(2.46)
(2.46)
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
~~;;,\,Ll..l,,;;l.A~.
Years ended December 31, 1980, 1979 and 1978
(In thousands of dollars)
Sources of Working Capital:
Earnings (loss) before cumulative effect of a change
in accounting principle .. . .. . .. ... . . .. . .... . .. ........ .
Add (Deduct) Items Which did not Affect Working Capital:
Depreciation and amortization . . ... .. ............ . ..... .
Deferred income taxes ............... .. ... . . .. . .. ..... .
Amortization of deferred investment credits ....... . ... . .. .
Gains on disposition of equipment . .. ..... . .... . . .. . . .. .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
Total provided (used) by 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 Ion -term obli ations .... . ..... . .
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 a lications ........ . . . ....................... .
Increase (decrease) in working ca ital . ............. .
Summary of Increases (Decreases) in Working Capital:
Cash and temporary investments ......................... .
Receivables ... . .. . ..... .. .. .. ... . .... . .............. . . .
Expendable parts and prepaid expenses ................. .
Current liabilities ....... . .. .. ........................... .
*Reclassified to conform to the 1980 presentation.
See accompanying notes to financial statements.
19
1980
$ (29,632)
60,146
(20,660)
(559)
(32,099)
(3,557)
(26,361)
10,746
50,120
198,350
232,855
171,123
81,667
5,652
(172)
258,270
$ (25,415)
(15,975)
16,568
9,143
(35,151)
$ (25 415)
1979
41,540
49,581
(4,225)
(563)
(31,332)
4,706
50,295
10,563
50,950
104,941
216,749
182,752
52,402
7,604
5,097
247,855
(31 ,106)
(21 ,147)
13,252
3,718
(26,929)
31 ,106
1978
38,547
46,715
5,552
(558)
(6,754)
2,246
81 ,256
12,633
10,794
71,785
176,468
150,747
20,540
7,524
(4,867
173,944
2,524
19,799
21,249
2,048
(40,572
2,524

Years ended December 31, 1980, 1979 and 1978
(In thousands of dollars)
Preferred
Stock
$25.00 Stated
Value
Balance at January 1, 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 31, 1978 ....... 29,923
Exercise of stock options ... . .... .. .
Conversion of debentures .........
Net earnings .....................
Cash Dividends:
Preferred stock .................
Common stock .................
Balance at December 31, 1979 .. .... . 29,923
Conversion of debentures .........
Net loss .. ......... .. .......... ..
Cash Dividends:
Preferred stock .. ... , .... ... ....
Common stock .................
Balance at December 31, 1980
(Notes 6, 7, and 9) ................ $29,923
See accompanying notes to financial statements.
(In thousands of dollars except per share amounts)
Note 1. Summary of Significant Accounting Policies
Property and Equipment
Common Stock
S1.00 ParValue
12,659
33
310
8
13,010
17
3
13,030
1
13,031
Additional Total
Paid-in Retained Shareholders'
Capital Earnings Equity
27,227 77,553 147,439
256 289
3,240 3,550
69
54,748 54,748
(2,397) (2,397)
5,127 (5,127)
30,792 124,777 198,502
132 149
35 38
41,540 41,540
(2,394) (2,394)
(5,210) (5,210)
30,959 158,713 232,625
4 5
(29,632) (29,632)
(2,394) (2,394)
3,258 3,258)
30,963 123,429 197,346
Owned property and equipment, exclusive of residual values, are depreciated over the estimated useful lives by the
straight-line method. Assets recorded under capital leases are depreciated over the life of the lease by the straight-line
method. The estimated useful lives and residual values of owned aircraft are as follows:
DC-10 .
727
737
20
Estimated
Useful Life
16 years
15 years
14 years
Residual
Value
10%
15%
15%
Estimated useful lives of ground equipment range from four to ten years. Buildings and improvements on leased property
are depreciated over the life of the lease. Depreciation expense for assets recorded under capital leases is included in
depreciation and amortization expense.
Interest Capitalized
Certain interest costs, primarily related to deposits on aircraft purchase contracts, are capitalized and amortized over the
lives of the related assets.
Investment Credits
Investment credits are accounted for by the flow-through method.
Obsolescence of Expendable Parts
An allowance for obsolescence of expendable parts is accrued over the estimated useful lives of the related aircraft types.
Airline Traffic Liability
Passenger ticket sales are recorded as a current liability until recognized as revenues for services provided by Western,
refunded, or billed by other carriers for transportation provided by them.
Note 2. Lease Commitments
Western leases certain 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 facilities and ground equipment range
up to 29 years. Interest expense is accrued on the basis of the outstanding obligations under capital leases. Leased equip-
ment under capital leases is included in the balance sheets at December 31, 1980 and 1979, as follows:
Flight equipment ........................ .
Ground equipment .
Less allowance for depreciation .
1980
$113,219
2,006
115,225
49,028
$ 66,197
At December 31, 1980 minimum lease payments under leases expiring after December 31, 1981 were as follows:
1981 .
1982 ........... .
1983 .
1984 ............ .
1985 .
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
Leases
15,270
15,270
15,270
14,886
10,757
66,541
137,994
49,285
88,709
7,183
S 81 ,526
Rental expense for operating leases amounted to $22,050, $17,384 and $15,239 in 1980, 1979 and 1978, respectively.
Note 3. Commitments and Contingent Liabilities
1979
113,219
3,278
116,497
42,638
73,859
Operating
Leases
13,516
13,331
12,694
12,010
11,843
104,489
167 883
At December 31, 1980 Western had on firm order flight equipment which included three 727-200 aircraft scheduled for
delivery in 1981, six 767-200 aircraft scheduled for delivery in 1983 and 1984 and three 767 engines scheduled for delivery in 1983.
Western recorded advance deposits on these orders which amounted to $30,100 as of December 31, 1980. The balance of
the purchase price payable on delivery will be approximately $273,300.
Western has options to purchase six 767-200 aircraft for delivery in 1984 and 1985, and three DC-10-30 aircraft for delivery
by 1984. Deposits on these options amounted to $1,400 at December 31, 1980. Outstanding commitments for flight equipment
modification and spare parts amounted to approximately $4,000 and for facilities and ground equipment amounted to
approximately $5,100 as of December 31, 1980.
For information regarding the status at December 31, 1980 of legal proceedings, see "Legal Proceedings" on page 10
of this report.
21
Note 4. Retirement Plans
Western has retirement plans, including a union-sponsored plan, which cover substantially all employees. Western's con-
tributions to the Company-sponsored plans, together with the participants' required contributions, are sufficient to fund
current seNice costs annually and prior seNice costs over ten to twenty years. Actuarial gains and losses are amortized
over ten year periods.
Western participates in a collectively bargained multi-employer pension plan and is therefore subject to the provisions of
the recently enacted Multi-employer Pension Plan Amendments Act of 1980.
Under this complex law the union plan Board of Trustees, as sponsor, is required to obtain an actuarial valuation of the
present value of vested and nonvested accumulated plan benefits. Western will be provided with an estimate of its share of
the liability for unfunded vested benefits in this plan. Western has been advised that this information is not available at this
time. Accordingly, the table that follows excludes data applicable to this multi-employer pension plan.
A comparison of accumulated plan benefits and plan net assets for the Company-sponsored defined benefit plans is
as follows:
Actuarial Present Value of Accumulated Plan Benefits:
Vested .
Nonvested ....
Net assets available for benefits.
1980
$137,246
9,876
$147,122
$139,000
January 1,
1979
114,597
9,015
123,612
111,559
The weighted average assumed rate of return used in determining the actuarial present value of accumulated plan benefits
was six percent for both years.
The cost of the retirement plans, including the union-sponsored plan, charged to operating expense, was $34,193, $30,304
and $26,606, for 1980, 1979 and 1978, respectively, which included amortization of prior seNice costs over periods ranging
from ten to twenty years for certain of the plans.
Note 5. Income Taxes
Income taxes are summarized as follows:
Current:
Federal:
Provision.
Investment credits applied .. .. .
State.
Deferred:
Provision
Tax loss carryforward .
Investment Credits:
Applied .
Transferred to current .
Amortization of deferred investment credits ........... .
1980
$ (3,647)
5,751
2,104*
(492)
(5,073)
(15,533)
5,697
(5,751)
(20,660)
(559)
$(19,607)
1979 1978
18,901 23,447
(17,792) (23,447)
1,109*
1,578 1,814
(5,597) (2,655)
(16,420) (15,240)
17,792 23,447
(4,225) 5,552
(563) (558)
(2,101) 6,808
'The Tax Reform Act of 1976 provided for 100% application of unapplied investment credits against Federal income tax liabilities for 1978. This
100% application was reduced 10% annually until 1980. Under the Revenue Act of 1978 the application remains at 80% in 1981 and returns to
90% for 1982 and beyond
Effective January 1, 1978 Western changed its method of accounting for post-1971 investment credits 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 S2.27 per
common share.
Deferred income taxes arise from timing differences between financial and tax reporting. The effects of these differences
on income taxes are as follows:
1980 1979 1978
Depreciation .
' ' ' '
... ' ' .
$(3,454) (4,825) 109
Capital leases .. .. ' . ' . ' '
.. ''. ' '
...... ' '
(1,084) ( 114) (1,108)
Interest Gapitalized . ..... '.'. .
. '
. . . '
. . 1,140 1,903 1,124
Employee benefits . (718) (1 ,626) (2,201)
Preoperating expense. (393) (383) (502)
Other. . ' ' ' '
..... ' . ' ' ' ' . ' ' ' .
(564) (552) (77)
$(5,073) (5,597) (2,655)
22
Reconciliations of income taxes at the United States statutory rote to the provision for income taxes follow:
Income taxes at the United States statutory rate.
Inc reases (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 .......... .
1980
$(22,650)
(559)
5,697
(266)
(1,829)
$(19,607)
1979
18,142
(563)
(16,420)
852
(3,800)
(312)
(2,101)
1978
21,770
(558)
(15,240)
943
( 107)
6,808
Investment credits available to reduce future years' Federal income tax liability for financial and tax purposes amount to
$22,000 at December 31, 1980. For income tax purposes, $5,800 expires in 1986 and $16,200 expires in 1987.
Note 6. Debt
At December 31, 1980 and 1979 long-term debt included:
Secured:
9.55% equipment trust certificates due May 1, 1993, with semi-annual
principal payments of $3,458 starting November 1, 1979 . , ....... .
10% equipment trust certificates due April 1, 1994, with quarterly
principal payments of $1,000 starting September 30, 1980 .
Floating-rate equipment trust certificates due June 30, 1995, with
semi-annual principal payments of $2,609 starting June 30, 1984 ..
13.29% installment notes due May 1, 1995, with semi-annual principal
payments of $1,100 starting November 1, 1980 .
Unsecured:
Senior:
Revolving credit notes . . . . . . . . . . . . . .......... .
5% installment notes due September 1, 1981, with annual principal
payments of $4,000 on September 1 .
6%% installment notes due September 1, 1984, with annual principal
payments of $2,000 on September 1 which will increase to $7,000 in 1982 .
7% installment notes due May 4, 1986, with semi-annual principal
payments of $352 starting November 4, 1981 .....
Notes payable to manufacturers, 8% and % above prime, payable
in varying installments to 1985 . . .............................. .
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 ...... .
=============================
1980
$ 86,440
52,991
60,000
31 ,900
231,331
50,000
4,000
23,000
2,869
29,844
109,713
23,562
12,675
36,237
377,281
23,756
$353,525
1979
93,355
54,991
148,346
10,000
8,000
25,000
15,362
58,362
23,817
15,029
38,846
245,554
16,217
229,337
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 dote it con be replaced by term notes in amounts not to exceed $75,000. The term notes would mature on June
30, 1990 with quarterly principal payments beginning September 30, 1982. The interest rote on funds borrowed is equal to the
agent bank's prime commercial rote until June 30, 1982, then increasing by Ya of a percentage 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 agreement is % per year on the lesser of $75,000 or the overage unused portion of the
revolving line of credit. Although the bank loon agreement does not require compensating balances, Western has informally
agreed to maintain on deposit overage balances equal to 5% of the total line of credit plus 10% of borrowings.The
balances maintained at December 31, 1980 were $11,250.
Western's various debt agreements limited amounts available for payments of cash dividends to $34,304 at December 31,
1980. These agreements also contain, among other things, requirements pertaining to cash and working capitol levels and
provisions which may restrict additional borrowings.
Floating-rote equipment trust certificates totaling $60,000 and 13.29% installment notes totaling $33,000 were issued during
1980 for the purchase of flight equipment. The total obligations under equipment trust certificates and the 13.29% installment
23
notes are secured by aircraft and engines with a net book value of $270,108.
The following schedule shows the amount of long-term debt due in each of the five following calendar years:
1981 .. S23.756 1984 .
1982. 29,3 17 1985.
1983 . 43,541
44,045
31,862
At December 31, 1980, 2,040,000 shares of common stock were reserved for conversion of debentures at a conversion price
of S11.55 per share.
Note 7. Stock Options
Western had a qualified stock option plan for officers, which was adopted in 1964 and expired in 1974. The 75,611 options
(average price $10.93) still outstanding under that plan expired on April 30,1978. The Company presently has a non-qualified
stock option plan adopted in 197 4 for officers and key personnel. This plan provides for options to purchase a maximum of
1,030,000 shares of Western's common stock at prices not less than the fair market value of the stock at date of grant. The
options are exercisable in equal annual increments over a five-year period. The options expire ten years after the date of
grant. A summary of activity in the 1974 plan follows:
Options granted and outstanding at December 31, 1977 .
Options granted .
Options exercised .
Options cancelled or expired ..
Options granted and outstanding at December 31, 1978 .
Options granted .
Options exercised .
Options cancelled or expired.
Options granted and outstanding at December 31, 1979 .
Options granted . . . . . ........ .
Options cancelled or expired .
Options granted and outstanding at December 31, 1980 .
Options Exercisable at:
December 31, 1980 ...
December 31, 1979 .
Number of
Shares
724,420
116,280
(33,315)
(16,550)
790,835
71,000
(17,630)
(6,550)
837,655
21,500
(12,500)
846,655
683,493
585,887
Average
Price
S8.68
7.81
8.69
8.54
8.56
8.62
8.47
9.12
8.56
7.27
8.65
S8.53
S8.63
S8.70
At December 31, 1980, 128,280 shares (137,280 shares at December 31, 1979) were reserved for the issuance of future grants.
Note 8. Earnings (Loss) per Common Share
Earnings (loss) per common share are calculated as follows:
Adjustment of Net Earnings (Loss):
Primary:
Net earnings (loss).
Preferred dividends .
Net earnings (loss) available for common stock ..
Fully Diluted:
Net earnings (loss) .. . ........ .
Preferred dividends .
Reduction in interest expense, net of income
taxes, for the assumed conversion of 5 %
convertible subordinated debentures ...
Adjusted net earnings (loss) assuming full dilution .....
==========================
24
1980
Net
(Loss)
$(29,632)
(2,394)
$(32,026)
$(29,632)
(2,394)
$(32,026)
1979
Net
Earnings
41,540
(2,394)
39,146
41,540
653
42,193
1978
Earnings Before
Cumulative Effect
of a Change in
Accounting Principle
38,547
(2,397)
36,150
38,547
680
====-iiiiiiiiiiiiiii
39,227
Net
Earnings
54,748
(2,397)
52,351
54,748
680
55,428
1980 1979 1978
Earnings Before
Cumulative Effect
Net Net of a Change in Net
(Loss) Earnings Accounting Principle Earnings
Adjustment of Shares Outstanding
(in thousands):
Weighted overage sho res outstanding . . . '
. . . . ' ' '
. ' ' '
13,031 13,026 12,795 12,795
Assumed exerc ise of stock options . 58
T
ota l overage common shares for prima ry . 13,031 13,084 12,795 12,795
Adjustment Assuming Full Dilution
(in thousands):
Weighted overage shares outstanding . . . ' ' '
. ' '
. . . '
. . .. ' ' ' . '
.. 13,031 13,026 12,795 12,795
Assumed conversion of subordinated d ebentures . . .. ' . . . '. '
2,073 2,31 2 2,31 2
Assumed conversion of preferred stock .. 2,992 2,997 2,997
Assumed exercise of stock options .. 146 111 111
T
otal overage common shares assuming full dilution .
' 0 I I > o o I I
13,031 18,237 18,215 18,2 15
Earnings (Loss) per Common Share:
Primary . . . '
. ' '
. . . .
'
$ (2.46) 2.99 2.82 4.09
Fully diluted . . '
. . . . . '
.. ... .. ' '
.. . '
. '
. . . . ' ' '
$ (2.46) 2.31 2. 15 3.04
The exercise of stoc k options and conversion of the convertible subordinated debentures and/or the preferred stock into common shares
hos not been assumed, since the effect of suc h on assumption would be anti-dilutive.
Note 9. Preferred Stock
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, 1980 was S
26.40 per share. The redemption price decreases
periodically until 1987 after which it remains at S
25.00 per share. The preference on liquidation is at the stated value.
Note 10. Proposed Consolidation
The Company hos entered into on Agreement of Consolidation with Continental Air Lines, Inc., to consolidate the two
companies into a new company The Boards of Directors of both companies hove approved the Agreement, and it is now
subject to approval by the stockholders of both companies, certain of their lenders, the Civil Aeronautics Board and the
President of the United States. For information regarding further developments, see Letter to Shareholders on page 2.
Note 11. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data (unaudited) for 1980 and 1979 is as follows:
1980
Operating revenues .
Operating income (loss)
Net (loss) ...
Net (Loss) per Common Share:
Primary .. .
Fully diluted .......... .
1979
Operating revenues .
Operating income (loss)
Net earnings .
Net Earnings per Common Share:
Primary . . ..................... .
Fully diluted .
iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii===iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii=
'
... . '
.. .
March 31
$232,153
(23,006)
(8,868)
s (0.72)
(0.72)
$210,601
3,503
12,652
s 0.93
0.71
Three Months Ended
June 30 September 30 December 31
237,707 273,720 252,175
(20,177) 7,658 (10,236)
(5,379) (6,397) (8,988)
(0.46) (0.54) (0.74)
(0.46) (0.54) (0.74)
241 ,305 251,080 229,133
21 ,870 8,350 (15,487)
14,013 6,477 8,398
1.03 0.45 0.60
0.78 0.36 0.47
Changes in estimdtes of employee benefit costs increased net income during the second throug h the fourth quarters of
1979 by S780 (S0.06 per share), S
1,110 (S0.08 per share), and S
1,147 (S0.09 per share). Western normally p rovides taxes qua rterly
based on the statutory rote less a pro rota portion of the estimated annual investment c redit. In the third quarter of 1980
Western reversed previously recorded investment credits of S
12,507 (S
0.96 per share) since they would not c urrently be utilized.
25
Note 12. Description of Impact of Inflation (Unaudited)
Statement of Financia l Accounting Standards No. 33 (SFAS No. 33) prescribes 1wo 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 financia l 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 recoverable 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 indicators of the effects of inflation.
The amounts reported in the primary financial statements have been adjusted for depreciation and amortization 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 amortization, and
depreciation and amortization expense of property and equipment into average 1980 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 realizable values expected to be derived from the sale
of the assets. Current costs for spare engines and capital ratable spares and assemblies were computed based on the
ratio by which the current cost of aircraft fleets exceed the historic cost of such fleets. Current cost for other properties and
equipment were determined by indexation using the CPI-U.
An estimate of net (loss) adjusted for changing prices for the year ended December 31, 1980, follows:
Net (loss) as reported in the statement of operations . . ........ .
Adjustment to Restate Costs for the Effect of General Inflation:
Depreciation and amortization expense ..
Net (loss) adjusted for general inflation .. . ............... .
Adjustment to Reflect the Difference Between General Inflation and Changes in Specific Prices (current costs):
Depreciation and amortization expense . . . . . . . . . . . . .......... .
Net (loss) adjusted for changes in specific prices ..
Gain from decline in purchasing power of net amounts owed .
Increase in specific prices (current cost) of properties and 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 ..
At December 31, 1980 current cost of properties and equipment, net of accumulated depreciation and amortization, was $1,177,709.
S (29,632)
27,126
(56,758)
14,260
S (71,018)
S 46,847
$240,784
(126,705)
$114,079
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 1980
dollars as measured by the CPI-U follows:
Year Ended December 31,
1980 1979 1978 1977 1976
Operating revenues .... $995,755 1,062,616 1,051,486 940,391 877,547
Historical Cost Information Adjusted for General Inflation:
Net earnings (loss) ... . . . '
. . . . '
. . '
. (56,758) 23,860
Net earnings (loss) per common share . $ (4.54) 1.62
Net assets at year-end . ........... . . . . . '
. . . . . . . . . . . . 439,568 478,042
Current Cost Information:
Net earnings (loss) . ' '
. . ......... '
..... ' '
.. '. (71 ,018) 12,680
Net earnings (loss) per common share . . . . . . ' '
. ' '
. '
. . . . $ (5.63) 0.76
Excess of increase in specific prices over increase in
the general price level . '
.. ' '
. ... '
114,079 6,528
Net assets at year-end . . 671 ,939 611,433
Gain from decline in purchasing power of
net amounts owed . 46,847 41,904
Cash dividends declared per common share . $ 0.25 0.46 0.50 0.54 0.58
Market price per common share at year-end . $ 9.13 11 .83 10.40 10.37 14.50
Average Consumer Price Index . ... 246.8 217.4 195.4 181 .5 170.5
26
Peat, Marwick,Mitchell &Co.
The Board of Directors
Western Air Lines, Inc.:
Certified Public Accountants
555 South Flower Street
Los Angeles, California 90071
We have examined the balance sheets of Western Air Lines, Inc. as of December 31, 1980 and 1979 and the related
statements of operations, shareholders' equity and changes in financial position for each of the years in the three year
period ended December 31, 1980. 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, 1980 and 1979 and the results of its operations and the changes in its financial position for each of the years
in the three year period ended December 31, 1980, 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 the method of
accounting for investment credits as described in note 5 of notes to financial statements.
January 30, 1981, except for Note 10
which is as of March 13, 1981
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 beneficially 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 Regulations 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 provisions 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 information 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 Angeles,
California 90009.
27
Miguel M. Blasquez
President
Inter-American Commercial
Arbitration Commission,
Mexico City, Mexico
Victor L. Brown
Presiding Bishop,
The Church of Jesus Christ
of Latter-day Saints,
Salt Lake City, Utah
Richard P. Ensign
Executive Vice President-
Marketing,
Western Air Lines, Inc.,
Los Angeles, California
Hugh W. Darling
Attorney-at-Law,
Darling, Rae & Gute,
Los Angeles, California
Leo H. Dwerlkotte
Las Vegas, Nevada
James D. Garibaldi
Attorney-at-Law,
Los Angeles, California
Gerald Grinstein*
Attorney-at-Law,
Preston, Thorgrimson,
Ellis & Holman
Seattle, Washington
Walter J. Hickel
Chairman of the Board,
Hickel Investment Company,
Anchorage, Alaska
Arthur F. Kelly*
Chairman of the Board and
Chairman of the Executive
Committee,
Western Air Lines, Inc.,
Los Angeles, California
Dr. Donald H. Mclaughlin
Chairman of the Board,
Homestake Mining Company,
San Francisco, California
John H. Myers
Assistant to the President,
St. John's University,
St. Paul, Minnesota
Edwin W. Pauley
Chairman of the Board,
Pauley Petroleum, Inc.,
Los Angeles, California
28
Robert 0. Kinsey
Executive Vice President and
Chief Operating Officer,
Western Air Lines, Inc.,
Los Angeles, California
Bert T. Kobayashi, Jr.
Attorney-at-Law,
Kobayashi, Watanabe, Sugita
and Kawashima,
Honolulu, Hawaii
Arthur G. Linkletter
Television Producer and
Broadcaster,
Chairman of the Board,
Linkletter Management, Inc.,
Costa Mesa, California
Vernon 0. Underwood
Chairman of the Board and
Chief Executive Officer,
Young's Market Company, Inc.,
Los Angeles, California
Harry J. Volk
Union Bancorp, Inc.,
Los Angeles, California
Dominic P. Renda*
President and
Chief Executive Officer,
Western Air Lines, Inc.,
Los Angeles, California
Robert H. Volk*
President,
Martin Aviation, Inc.
Santa Ana, California
Member, Executive
Committee
John M. Wallace
Walker Bank & Trust Company,
Salt Lake City, Utah
Arthur G. Woodley
Bellevue, Washington
Arthur F. Kelly
Chairman of the Board and
Chairman of the Executive
Committee
Dominic P. Renda
President and Chief Executive
Officer
Robert 0. Kinsey
Executive Vice President and
Chief Operating Officer
Richard P. Ensign
Executive Vice President-
Marketing
Donald K. Hall
SeniorVice President,
General Counsel and Secretary
James L. Mitchell
SeniorVice President-
Long Range Planning
Willis R. Balfour
Vice President-
Passenger and Cargo Marketing
Anthony Colletti
Vice President-
Maintenance and Engineering
Paul V. Donahue
Vice President- Procurement
Richard 0. Hammond
Vice President and Treasurer
Paul R. Harding
Vice President-Central Division
William J. Grant
Managing Director-
United Kingdom and Europe
Allen F. Hoss
Vice President-Hawaii
Registrar/Transfer Agent-
Common & Preferred Stock
David E. Holt
Vice President-Passenger Sales
Lawrence H. Lee
Vice President-
Passenger and lnflight Services
Roderick G. Leith
Vice President-Finance
Fred E. Luhm
Vice President-
Data Processing and Communications
Bert D. Lynn
Vice President-
Advertising and Sales Promotion
William E. Newell
Vice President-
Flight Operations
Lawrence A. Nichols
Vice President-Northern Division
Charles F. Schlatter
Vice President-Financial Planning
Ray Silvius
Vice President-Corporate Affairs
Jack M. Slichter
Vice President-Field Management
Glen L. Stewart
Vice President and Controller
Neil S. Stewart
Vice President-
Government and Industry Affairs
Harry L. White
Vice President-Southern Division
Grant G. Murray
Vice President-Los Angeles
Luis Pasquel L.
Vice President-Mexico
Raymond M. Waters
Vice President-Alaska
Bank of America National Trust & Savings Assn.
Ticker Symbols
Common Stock
Preferred Stock
5% Debentures
10% Notes
555 South Flower St., Los Angeles, California 90071
Lynn D. Zumbrunnen
Vice President-Eastern Division
Howard L. Culver
Assistant Vice President-
Regulatory Law
Donald F. Drews
Assistant Vice President-
Properties and Facilities
John I.Good
Assistant Vice President-
Cargo Sales and Service
Thomas J. Greene
Assistant Vice President-
Corporate Law and Assistant
Secretary
Wayne B. lichtgarn
Assistant Vice President-
Consumer Affairs
Richard G. Peterson
Assistant Vice President-
Schedule Planning
W. Jeffrey Terrill
Assistant Vice President-
Route Planning
Donald W. Vena
Assistant Vice President-
Personnel Relations
WAL
WALA
WALK
WAL.
Debenture and Subordinated Note Trustee
The Chase Manhattan Bank
1 NewYork Plaza, New York, New York 10015
Independent Accountants
Peat, Marwick, Mitchell & Co.
Exchange listing-Common & Preferred Stock
Debenture and Subordinated Notes
New York Stock Exchange
Pacific Stock Exchange
555 So. Flower St., Los Angeles, California 90071
Annual Meeting
Fourth Thursday in April