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EASTERN AIR LINES, INC. 1965 ANNUAL REPORT CONTENTS: 2 President's Letter 27 Notes to Financial Statements 4 Year at a Glance 28 Accountants' Opinion 6 Report to Stockholders 29 Source and Application of Funds 22 Financial Review 30 Ten Year Financial and Statistical Summary 24 Balance Sheet 32 Directors and Officers 26 Statement of Income Fold-out Present and Proposed Routes

TO THE STOCKHOLDERS:

The plans and programs begun in 1964 came to fruition in 1965, and I am pleased to report the first profitable year for Eastern Air Lines since 1959. The leadership shown by our management and the dedication of all em­ ployees to reliable, courteous service materially enhanced the regard of the traveling public for Eastern Air Lines and resulted in significant gains in our share of the air travel market. In the final months of 1964, we took vigorous steps to assure reliability in every phase of our activities, from the customer's first contact with us to his arrival at his final destination. During 1965, promptness in answering reser­ vation telephone calls set a standard matched by few companies in the air­ line industry. Ninety-nine per cent of the flights scheduled in our timetable were completed. Better than 88 per cent originated within 15 minutes of their scheduled departure times and more than 85 per cent terminated within 15 minutes of their scheduled arrival times. We accelerated employee training programs, with constant emphasis on service to our customers. The Customer Services Division reviewed all in­ flight services and developed new, attractive equipment to permit our cabin attendants to provide more gracious dining services, even enhancing the cuisine supplied by the Famous Restaurants in many of our major cities. Skycaps and ticketing personnel received special courses emphasizing greater courtesy. To assist passengers at our terminals, more than 100 spe­ cial-services ground hostesses completed a unique training program before being assigned to our major stations. Reliable, customer-conscious service

2 became the hallmark of the "New Eastern," as it has come to in civic and cultural development in St. Louis. On the same be known among our employees. day, Major General James McCormack, at the time Vice While maintaining these new standards of service, we con­ President of the Massachusetts Institute of Technology, also currently undertook a company-wide effort to reduce operating became a Board member. He brought with him a broad back­ costs. We made progress in every area. The Engineering and ground of technical knowledge and administrative capability. Maintenance Division made a most significant contribution, General McCormack was recently elected Chairman of the and Flight Operations, through the use of computer-calcu­ Board of the Communications Satellite Corporation with of­ lated flight plans, achieved major savings in fuel costs. fices in Washington, D.C. In December, William Wood Prince, Finance and Administration contributed substantially through Chairman of the Board of Armour and Company, who has had close control of corporate-administered expenses. a distinguished career as the head of that outstanding corpo­ From the base of sound operating and service standards, ration and a long record of civic contribution in Chicago, was management launched a most aggressive marketing program. the third addition to the Eastern Board. Consumer research studies analyzed those travel markets It is with deepest regret that we pay our last respects to where extensive use of air travel has already been established General Thomas D. White, an active and admired member of and identified new markets and groups of potential custom­ our Board who died in late December after a lifetime of dis­ ers. A new, highly creative advertising campaign began to tinguished service to his country. convey to the traveling public our higher standards of reli­ The successes of 1965, although most gratifying, leave ability and service. much yet to be accomplished. The relatively short length of Although our profit plan called for a substantial increase in the average passenger trip on Eastern Air Lines makes our revenue, our Marketing Division set an even higher goal—to operations more expensive per passenger mile than those of push the company's revenue over the half-billion mark for the our competitors who enjoy longer route segments. Therefore, first time in its history. we must work diligently toward the acquisition of long-range Eastern achieved almost every objective set for 1965 and routes. Moreover, our company still needs delivery of a sub­ surpassed most of them. The public so responded to our stantial number of new jet airplanes to replace high-cost improved service programs that revenue passenger miles piston equipment and to maintain leadership in an increas­ increased 23.7 per cent over 1964 and total revenue reached ingly competitive industry. an all-time high of $507.5 million. The effect of recent fare reductions, the majority of which Prudent application of funds and the successful offering of are promotional in character, is not yet known. Altogether, a limited amount of common stock combined with retained they may reduce our revenue without an equivalent reduction earnings to reduce our debt-to-equity ratio from nearly six- in expenses. It is most important that our company gain a to-one to approximately two-to-one. This compares well with higher share of the travel market in order to compensate for other airlines at a comparable stage of major equipment short-haul limitations and any losses in revenue incurred acquisition. Concurrently, stockholders' equity increased by through fare reductions. 184 per cent, from $43.3 million to $122.9 million. Our greatly improved service, our continuously expanding We made major strides in the long-range programming of jet fleet, and our strengthened financial position form a sound equipment needs and took important steps in the implemen­ basis for further growth. Assuming continued strength in the tation of these plans. During 1965 we placed orders for 59 national economy, and with the support and dedication of the new aircraft, all particularly suited to the special character­ people of Eastern, we enter 1966 with confidence that our istics of Eastern's system. We ordered seven of the advanced company will continue its progress. Series 61 version of the Douglas DC-8; these will give us significantly greater capacity on our important high-density Sincerely, routes. The 42 DC-9's ordered will bring new passenger com­ fort and convenience—with turbine economies—to the short- haul routes of which we have so many.We ordered ten Boeing 727 "Quick Change" aircraft, which will give us our first mod­ /J, ern cargo-carrying capacity. F. D. Hall During the year, three new directors joined our company. President and Chief Executive Officer Theodore R. Gamble, President of the Pet Milk Company of St. Louis, Missouri, joined the Board on April 27, 1965. Mr. Gamble is an outstanding business executive and a leader March 15,1966 Eastern's people, veteran and new, provided the traveling public with the Improved and Increased services which made 196S a record-breaking year.

Eastern Air Lines, Inc. THE YEAR AT A GLANCE

Percentage Financial Results 1965 1964 Increase

Revenues $507,524,000 $414,265,000

Net Income $ 29,671,000 d $ 5,831,000 Per Share Outstanding $ 7.04 d$ 1.80

Funds Provided by Operations $ 80,240,000 $ 33,926,000

Stockholders' Equity $122,886,000 $ 43,315,000

Per Share Outstanding $ 29.16 $ 13.37

Shares Outstanding at Year End 4,214,000 3,239,000

Operating Results

Revenue Passengers Carried 14,672,000 12,775,000

Revenue Passenger Miles 7,955,672,000 6,432,845,000

Passenger Load Factor 57.3% 55.5%

Jet Aircraft in Fleet at Year End 74 56 Per Cent of Available Seat Miles in Jets 70 60

d - deficit

Our new city ticket office at Fifth Avenue and 54th Street in New York epitomizes the look and service of the new Eastern. With spacious lounge areas to accommodate them, our customers need not wait in line for service.

IMPROVING SERVICES ised in our timetables. During 1965 Eastern ranked first among the major domestic trunk carriers in terms of on-time We began 1965 by inviting the traveling public to Fly Eastern performance. and see how much better an airline can be. Nearly 14.7 million We began extensive additions and improvements to equip­ passengers accepted the invitation, and we devoted our ment and facilities to better serve our passengers and our efforts to showing each of them that Eastern is now an airline aircraft. These covered a wide spectrum, including new air- of substance, considerate of their individual comfort and con­ conditioning units for cabin comfort on the ground, installa­ venience, dedicated to making all its services truly excellent. tion of public address systems, new gate facilities and To honor the pledge implicit in our invitation, we made the departure lounges, refurbishment of Falcon lounges for first- improvements inaugurated in 1964 the full-scale, company- class passengers, and miscellaneous ground equipment for wide programs of 1965. improved baggage handling, aircraft servicing and related The most conspicuous and basic improvement was the functions. increased volume of operations conducted with jet aircraft. Our Famous Restaurant service, introduced on certain first- During 1965 we took delivery of 18 Boeing 727 Whisperjets, class flights in 1965, was received with overwhelming favor by one of the finest airplanes in the history of commercial avia­ passengers. We added fine wines, linens, Rosenthal china tion. These deliveries brought to 74 the number of pure jets and crystal, and Reed & Barton silver service. On selected in our fleet and enabled us to introduce pure jet service to 22 flights outside normal meal hours, brunches and champagne cities on our system which we had not previously served with buffets were introduced. We completed a program of modern­ this equipment. In our important New York—Miami market we ization and redesign of the dining service equipment on our instituted hourly on-the-hour service southbound and hourly aircraft. These steps added measurably to the gracious on-the-half-hour schedules northbound between 9:00 a.m. service we offer our passengers in flight. and 6:30 p.m., with additional services during the peak travel Eastern's ground hostess program, begun on an experi­ periods and popular evening hours. mental basis in 1964, was formalized and expanded. There A second major gain was in schedule reliability. Eastern's are now 20 stations on Eastern's system where our pas­ aircraft fulfilled 98.8 per cent of the scheduled mileage prom­ sengers are receiving courteous assistance from more than 100 of these specially trained young ladies. Of additional the Boston-LaGuardia and Washington—LaGuardia seg­ importance to foreign visitors is the fact that many of these ments. Beginning April 24, 1966, the Boeing 727 Whisperjet hostesses speak several languages fluently. We added other will begin replacing the Electra in these services, and the ground services personnel at our stations to enable us to Electra will be assigned to first-section schedules on the provide faster, more convenient processing of our passen­ Boston-Newark and Washington-Newark services. These gers in the ground phase of their journeys. are intermediate steps in our long-range program directed toward use of jets on all first-section schedules and the use The Air Shuttle of the Electra for extra sections as needed. Eastern's Air Shuttle linking the financial and governmental Eastern is introducing a variety of promotional and dis­ capitals of Boston, New York and Washington is a unique, count fares on the Air Shuttle for the benefit of personal trav­ premium service. It is the only air service in the world in elers arid those who are able to use the service in off-peak which a passenger can be sure of a seat at his choice of hours. This means that Eastern will offer these important regular and convenient times throughout the day without cities the finest in modern equipment and service at the low­ having to make a reservation or secure a ticket in advance. est available fares. In addition, we have improved Air Shuttle The backup aircraft necessary to furnish passengers with the terminal facilities at LaGuardia and Newark airports, and we guaranteed seat which distinguishes the Air Shuttle make it will make further improvements in 1966. Our commitment to a service of relatively high operating cost. Under the present the excellence of this unique service is a matter of major fare structure, however, we are able to continue to devote corporate policy. major resources to improving this service. In 1965 we began a program of upgrading the equipment Service to Our Communities used on the Air Shuttle. We introduced the faster, more com­ Transportation by itself, however, is not the sum of an air­ fortable Electra into service on all first-section schedules of line's full contribution to the nation and its communities. Eastern's three million yearly Air Shuttle passengers have benefited from continuing improvement in this important service and can soon fly in iet aircraft at lowest tares in the area.

Eastern also participates in the life of each community we are privileged to serve through individual and corporate sup­ port of local activities. Employee contributions to United Fund drives in 1965 far exceeded those of previous years, with an extremely high percentage of the employees at many of our stations responding to these appeals. We have also actively promoted the Visit U.S.A. policies of our government and have supported the Plans for Progress program of the President's Committee on Equal Employment Opportunity. We have taken an active part in recent steps by the airlines to establish promotional and discount fares designed to bring to each of our communities the benefit of improved technol­ ogy and increasing management economies. These include a recent 25 per cent excursion fare discount applicable to most of our system, the system-wide 50 per cent discount youth fare, and, on the Air Shuttle, new family plan, weekend ex­ cursion, and off-peak-hour discounts. Eastern operates the most extensive system of night coach and special thrift fare service of any carrier in the country. These services are priced some 20 to 25 per cent below Eastern's network of night coach and thrift fare regular day coach jet fares and constitute a third and lower flights shown here is the most extensive in the air­ level of fares. In addition to our low thrift fare service to San line industry. It is designed to make low-cost air transportation increasingly available to travelers. Juan, we operate night coach flights in our major markets on virtually all routes except those to Mexico and Bermuda. Eastern has long offered an extensive system of off-peak higher and more exacting standards of personal service of season excursion fares at a discount rate 20 to 30 per cent the New Eastern. lower than day coach jet fares in a continuing effort to Similarly, we began recruiting pilots for the first time in develop tourist markets. In addition, Eastern offers the regu­ several years. In the face of keen industry-wide competition, lar discounts provided by the industry generally for family we were able to meet our hiring needs without relaxing travel, military space—available standbys and children's Eastern's traditional high standards. To train these new men half-fares. Passenger use of these services is extensive. and to provide refresher courses for our veterans, we in­ Altogether in 1965 approximately 36 per cent of Eastern's vested more than $11 million in flight training activities in passenger miles were flown at these special lower fares. 1965. We reorganized our flight training school and placed renewed emphasis on advanced teaching aids. People Plus Training We reviewed, improved and tightened the administration of To meet the demands of better service and more passengers, our flight standards program, which is administered at each Eastern's total personnel increased from 19,848 to 22,314 dur­ of our six pilot bases by a team of carefully selected, highly ing the year. Five thousand new employees were required to experienced supervisory pilots assigned to each aircraft type meet these needs and replace normal attrition. They bene­ flown. To meet the need for closer supervision of the growing fited greatly from the experience and loyalty of our veteran number of flight personnel, we began training supervisors of employees, 8,500 of whom have ten or more years of service flying in advanced management techniques. with the company. In many of these training programs we made extensive use We placed special emphasis on selection of cabin attend­ of new technology. For example, we expanded the use of ants, increasing their numbers from 1,500 to 2,000. We dou­ closed-circuit television in certain phases of our flight in­ bled the facilities of our In-Flight Training Center at Miami, struction. Our use of flight simulators and systems training where our stewards and stewardesses are schooled in the aids was further stepped up in 1965. Our emphasis on training was not confined to flight. We The record of Eastern's highly trained people, new and improved our maintenance training through the use of re­ veteran, was a proud one in 1965. To achieve profitability and vised curricula and advanced technology. In line with our in­ to provide the new high level of service we pledged to the creased emphasis on professional management, 600 of our public, our employees turned in a truly remarkable perform­ key people attended seminars arranged with the American ance, one which made airline and business history. Management Association, the University of Miami, outside consultants, and members of our own management. Some 500 first-line supervisors also received training in the basic prin­ LIFTING REVENUES ciples of supervisory management. The first prerequisite of Eastern's return to profitability was Other gains were made: the skills, work experience, and increased revenues. Eastern's newly staffed Marketing Divi­ educational background of nearly 3,000 members of manage­ sion was assigned the task of mobilizing our employees to ment were recorded in a new inventory system. An organiza­ sell our improved total product. Marketing began by estab­ tion manual was developed in depth and position descrip­ lishing the "Committee for Half A Billion in 1965." Through­ tions defined for more than 350 key management people. To out the year this group generated a flow of sales suggestions make our pay levels competitive with the industry, we devel­ and incentives to all company personnel and kept a daily rec­ oped, and announced early in 1966, a comprehensive wage ord of progress as revenues mounted toward the $500 million and salary administration program which increased salary goal. A color motion picture, "Sunrise at Eastern," told the opportunities in many jobs. story of the New Eastern to our more than 22,000 employees As 1965 came to a close, 600 top level personnel from and to outside groups. It lifted morale and won several our entire system gathered in Boston for Eastern's third national awards for its excellence. annual corporate management conference. Here, the year's Intensive market research produced vital data on our progress was evaluated, and our key executives briefed com­ customers and their attitudes toward our services. Thus we pany managers on plans for 1966—officially titled "The Year gained a better informed base for our efforts at more effective of Excellence" to signify the company's determination to penetration of the air travel market. continue the pace of improvement in our performance. Measured in revenue passenger miles, Eastern's share of Eastern's stewardesses receive special training in grooming as well as service. We doubled the size ot our flight attendant training school and graduated 945 ot these attractive, helptul young ladies in 1965.

Eastern's training programs are making increased use ot advanced training aids. Here, closed-circuit television and electronic panels are employed to instruct flight personnel in details ot a Whisperjet. the market increased. That ever-sensitive barometer of cus­ for handling special problems of the traveling public, we 1966. Cargo accounted for $16.3 million in revenues in 1965- airline industry, costs are especially crucial. Profits or losses tomer satisfaction, letters from our passengers, began to added significantly to our supervisory staff at both ticket 12.9 per cent more than in 1964. can mount with great rapidity when revenues exceed or fall climb in Eastern's favor so that by year-end we were receiv­ offices and ticket counters. Divisions of Eastern not normally associated with sales below the break-even point. ing significantly more compliments than complaints, a sharp In keeping with improved services throughout the system, also helped to build our revenues. The most outstanding ex­ Eastern for the last several years has been in a vulnerable contrast with earlier years. we put fresh emphasis on the appearance of our city ticket ample was the Engineering and Maintenance Division, which cost position because of the predominantly short-haul char­ Given the relatively intangible nature of the airline indus­ offices, many of which are completely new, and on the train­ during the year sold $3.5 million in maintenance services to acter of our route structure and our continued heavy reliance try's product, advertising can play an especially important ing and appearance of our ticket office employees. An out­ other carriers, including extensive contract overhaul work at on piston-engine flight equipment with its high operating role in airline marketing efforts. Eastern's advertising in standing example of this extensive program, still in progress, our Miami maintenance base. Sales of flight training to other expenses. Efforts to acquire new long-haul route authority 1965 set new standards for the industry in tone as well as is the company's newest such facility, which opened in De­ carriers and to the Federal Aviation Agency made an addi­ take time, and re-equipment programs are both lengthy and content and won a number of prestigious awards, among cember at Fifth Avenue and 54th Street in New York. tional contribution. Data Services is now providing the bene­ costly. During 1965, however, the improved scheduling of our them a first prize at the Cannes Film Festival for our television Eastern's sales staff cooperated actively with travel agents fits of Eastern's computerized reservations system to three expanding jet fleet over existing routes enabled us to raise commercials. Special emphasis on the use of television re­ to increase the volume of Eastern's business originated by local service carriers. Two more of these carriers will be our average flight length by 11.8 per cent, and this resulted sulted in a new dimension of effectiveness in describing the these important and knowledgeable retailers of air travel. added in the first half of 1966. in major economies as well as more convenient service for full range of quality air transportation. Eastern undertook A significantly increased portion of our advertising called the In our report last year we outlined Eastern's concept of our passengers. exclusive nationwide sponsorship of the National Broadcast­ public's attention to the many services offered by travel total marketing. We believe that activities in 1965 exemplify Under a company-wide cost-improvement program, we ing Company's coverage of President Johnson's inauguration agents. In all, we increased our business from this source the effective implementation of that concept. The number of greatly expanded our ability to monitor operating costs by in January and, in September, of its 31/2-hour special "Amer­ more than one-third over 1964 levels. passengers we carried rose 15 per cent above 1964 levels, extending down to lower supervisory levels the specific re­ ican White Paper: U.S. Foreign Policy 1945-1965". Both were Sales to convention groups improved by 56 per cent. revenue passenger miles increased 23.7 per cent, and our sponsibility for detailed expense planning and control. For praised as good advertising and good corporate citizenship. Concurrently, we launched a major campaign to build our total operating revenues exceeded $500 million for the first the first time, field management was held accountable for Eastern's new Field Sales Division had its first full year of revenues from air cargo operations. Special efforts were time in Eastern's history. budgetary preparation and compliance, and a regular system activity in 1965. By year-end we were manning augmented directed at correcting the imbalance between our space-at-a- of review was established. district sales offices in 42 cities on the Eastern system. In premium southbound traffic and the under-utilized capacity All our operating divisions made major strides under this addition, we had, for the first time, off-system marketing of­ on northbound flights. We added air freight service sections IMPROVING COSTS program, and the examples of achievement are many. We fices in such important cities as Seattle, Los Angeles, Hono­ in New York, Atlanta and Miami to provide centralized han­ Controlling the cost of providing excellent service is as im­ expanded our new fuel-management plan, under which we lulu, London, Paris and Frankfurt. To increase our capability dling of cargo. A fourth section will be set up in Chicago in portant to profitability as achieving higher revenues. In the purchased an increasing percentage of our aviation gasoline

13 On-time performance and operational reliability, in which Eastern was a leader in 1965, result from the coordinated efforts ol a team. The respon­ sibility of each member ol an Eastern ground crew is readily identifiable from the color of his hard hat.

Round-the-clock maintenance helps assure reliability and the fullest use of equipment. Here, Whisperjets and Boeing 720 s undergo regularly scheduled "phase checks" at Eastern's let hangar in Miami.

at low-cost stations while reducing purchases at higher-cost stations. Improved methods of handling our passengers in terminals resulted not only in better service but in lower unit costs. Through better analysis of the lifetimes of aircraft parts and better scheduling of maintenance programs, the Engi­ neering and Maintenance Division was able to contribute to improved schedule reliability and absorb delivery of 18 new jet aircraft, while still reducing overall maintenance costs 3.3 per cent. We are making increasingly broad use of computer tech­ nology in our cost-improvement programs of today and in planning for those of tomorrow. We now benefit from highly refined computerized flight-planning that makes possible substantial fuel savings on our flights. We are using com­ puters to assist in controlling inventory of aircraft spare parts. Eastern is also working with the International Business Machines Corporation on the development of an airborne computer with a maintenance recorder, which will monitor continuously the functioning of approximately 300 parts of an airplane in an attempt to predict maintenance needs in ad­ vance. The full development of this program will have revolu­ tionary effects on concepts of maintenance management. In January, 1966, we announced a $34 million expansion of our computer operations. We will build in Miami a new data services building to house International Business Machines'

14

Wider, more imaginative use of computer technology promises significantly lower costs and more personalized service to the traveling public in the future. Eastern's Charlotte computer center, shown here, will Increas­ ingly become the nerve center for operational data.

advanced Series 360 equipment, which will provide a fully Even with this deliberate upgrading of services, cost in­ automated passenger name reservations system. The Miami creases for the year were limited to 13.7 per cent while reve­ computer complex will serve more than 1,600 reservations nue passenger miles increased by 23.7 per cent and our oper­ agents in eight reservations centers when it becomes fully ating revenues increased 22.5 per cent. operative in 1968. By freeing reservations agents from almost all manual activity, this system will make possible further improvement in the personalization of Eastern's reservation FINANCIAL service. At the same time, we reported plans to install new Sperry Rand UNIVAC 494 equipment in Charlotte, North RECOVERY AND Carolina. This city will assume an increasingly important RECONSTRUCTION role as the company's nerve center for the computerization of operational data. The sum of all these efforts was Eastern's return to profit­ As our 1965 cost-improvement program began to bring ability in 1965. Our operating revenues of $507.5 million and results, and revenue increasingly surpassed the goals we expenses of $467.0 million yielded an operating profit of had set earlier, we were able to move ahead with actions $40.5 million and a net profit of $29.7 million. calculated to accelerate our progress toward bettering our Matching these advances were dramatic accomplishments service and revenues. In deliberate steps, we increased the in the improvement of Eastern's critical debt-to-equity ratio, level of our expenses in areas where the greatest needs which was the highest of any domestic trunk carrier at the existed and where these increased expenses would produce beginning of 1965. Our company entered 1965 with $6.00 in the most additional revenue. Specific examples of the latter debts for every $1.00 in stockholders' equity, a ratio of six-to- program are the introduction of ground hostesses, the hir­ one. By year-end the ratio was reduced to approximately ing of additional field sales personnel, new interiors for our two-to-one. This major improvement was achieved through aircraft and ticket offices, the upgrading of our food service, three essential processes. First, we retained 1965 earnings and sharply increased expenditures for advertising. All these in our company, adding to the value of each stockholder's steps brought us closer to the high profit levels we seek. interest and to overall equity. Second, as Eastern's stock became more attractive to investors, holders of our con­ New Equipment vertible debentures exercised their conversion privileges. Eastern's jet re-equipment program is progressing well. All Each such change of position liquidated debt and created 60 Boeing 727 Whisperjets on order will have been delivered additional equity. And third, the sale of 375,000 shares of to us by the end of 1966. Ten of these will be the "Quick common stock in November enlarged equity and also aug­ Change" Whisperjets, convertible from passenger to cargo mented the book value of shares already outstanding. configuration in less than one hour. These will be our first Our improved debt-to-equity ratio, which is higher than truly modern cargo aircraft, and their acquisition reflects our the industry average but compares well with other airlines intention to develop aggressively the air cargo markets on at comparable stages in major equipment acquisition pro­ our routes. grams, has strengthened significantly our capital structure. We were the first air carrier to begin service with the This increased strength and financial flexibility place the Whisperjet. When deliveries begin this fall, we expect to be company in a better position than in several years to meet the first domestic airline to put in service the advanced ver­ future needs on a sound and economic basis. sion DC-8, the "Super 61," of which we have seven on order. For Eastern, 1965 was indeed a breakthrough year. The "Super 61" will carry some 200 passengers and is ideally suited for our longer-haul, high-density segments. We will have the first of these aircraft in time for the 1966 winter HORIZONS season. An important element of Eastern's business is to look toward We take delivery of our first Douglas DC-9 Whisperjet in the future, to plan for it and contribute to it. We are doing April, and an additional 20 are scheduled for delivery during this in many ways. Our major efforts are concentrated on the remaining months in 1966. Twenty-seven of the 42 on our continuing jet re-equipment program and the revision of order will be the advanced "Series 30" model, which has our route structure. significantly greater capacity and seat-mile economy than the early "Series 10" version. The DC-9's will enable us, for ments, Eastern is expanding its service to Mexico and the first time, to bring the passenger comfort and conven­ Canada. We began service to the Pacific coast resort of ience of turbine technology to many short-haul routes, with Acapulco in January, 1966, and expect to provide non-stop the promise of improved economic results. New York—Acapulco service in July, assuming approval by Deliveries of jet aircraft during 1966 will bring Eastern's the C.A.B. of our pending application. Our schedules to total of pure jets to 116 by the end of the year. By the begin­ Mexico City from New York and New Orleans have been in­ ning of 1967, 87 per cent of our available seat miles will be creased to 17 round trips per week. This summer we expect flown in jet equipment. to inaugurate a new route from Toronto, Canada, to Miami, via such important cities as Buffalo, Pittsburgh and Atlanta, Route Development and by year-end, non-stop service to Tampa. In addition, In order to serve properly the markets of the future, improve­ non-stop service between Toronto and Miami will begin in ment in our route structure is as basic a need as new aircraft. November, 1967. Primarily this involves the addition of major long-haul routes We recently received permanent Board certification of our and increasing the length of our average passenger journey. present route from Miami to Dallas and Forth Worth. The trial There has been progress toward the latter objective. In examiner's decision on our proposal to merge with Mackey 1965, the Civil Aeronautics Board granted Eastern permission Airlines is expected this spring. If approved, this will enable to suspend service at the smaller cities of Brownsville, Texas, Eastern to provide through-plane service from cities through­ and Florence, South Carolina. In March, 1966, the Board out the East and much of the Midwest to the principal resorts took the same action regarding Beaumont/Port Arthur, Texas, of the Bahamas. Also before a trial examiner is the Pacific and Lake Charles, Lafayette/New Iberia and Baton Rouge, Northwest-Southwest Service Investigation, in which Eastern Louisiana, where Trans-Texas Airways has been selected has proposed an extensive pattern of service linking the to provide replacement service. The issue of suspension of defense and aerospace industries of the Pacific Northwest, Eastern's service at several other smaller cities is pending the Southwest and the Southeast via a "Space Age Corridor." before the Board. We expect a final decision by the C.A.B. in this case late As a result of recently executed bilateral air service agree­ this year. Eastern reached the Pacific Coast tor the first time at year- end with the introduction of jet service to Acapulco from New York and New Orleans.

The DC-9, shown here under construction at the Douglas factory in Long Beach, Cali­ fornia, will enable Eastern in 1966 to bring the passenger comfort and convenience of jets to many more small cities for the first time. Designed by the renowned Minoru Yamasaki, Eastern's $11 million Boston terminal will set new standards tor the indus­ try in passenger convenience, from indoor parking to minimum walking distances between check-in and boarding stations. Construction begins this spring.

The most extensive of Eastern's route development efforts ticularly in Southeast Asia. Australia is increasingly oriented are our applications to the Civil Aeronautics Board to pro­ toward the United States; American investment in the econ­ vide a wholly new concept of air service for the Pacific. omy of this important Pacific ally now totals more than $1.5 The Pacific Ocean area is the fastest-growing air travel mar­ billion. Yet there exists no direct U.S. flag routing from the ket in the world and is of great and growing economic and vital industrial and population heart of the United States to strategic significance to our country. As such, it is of increas­ Australia, and no American carrier currently offers a truly ing importance to the citizens and businesses of the eastern comprehensive air service to the Pacific area as a whole. half of the United States, which Eastern serves so com­ The relationship between these fast-developing markets prehensively. and the industrial and financial centers of our country will Our applications would link the industrial heart of the be fundamental and inseparable. As the carrier most broadly United States by direct Great Circle routes from New York mandated to serve the eastern heart of the United States, we and the eastern seaboard via Mexico to New Zealand and believe we are the best situated among the various airlines Australia in the south and, in the north, from Atlanta and the to foster that relationship. South following a line through Seattle to Japan. These two Advancing technology, expanding international purchasing Great Circle arms would be joined along the western edge of power, vast overseas development programs, and especially the Pacific by a pattern of service from Japan to Taiwan, the pace of change all point to a foreshortening world in Hong Kong, the principal cities of Southeast Asia including which there will be great growth in international routes and Saigon and Bangkok, and south to Australia. This great trans­ air service. portation system in the Pacific would have Hawaii as its hub; It is Eastern's desire to build a transportation system Eastern flights from the 50th state would reach to Seattle, responsive to the interrelated needs of these increasingly Sydney, Tokyo and Manila. We have also applied to link the important markets and the area we serve today, and to industrial heart of the United States with Hawaii by direct non­ bring excellence in public service wherever we are privi­ stop jet service from principal cities on the Eastern system. leged to operate. There is a compelling logic to these servhce proposals. The future will be full of challenge. We build for it with Our country is increasingly committed in the Pacific and par­ confidence.

FINANCIAL REVIEW

Revenues Total operating revenues in 1965 were $507.5 million, $93.3 million or 22.5 per cent above 1964. Revenues came from the following sources: 1965 1964 Increase

(all amounts In thousands) NET BOOK VALUE Per Cent Per Cent 1965 OF FLIGHT EQUIPMENT of of Over (amounts in millions) Amount Total Amount Total 1964 Passenger $474,262 93.4% $384,865 92.9% 23% Mail 8,472 1.7 7,130 1.7 19 Freight 16,294 3.2 14,427 3.5 13 Express 3,299 0.7 3,112 0.8 6 Charter 2,301 0.4 2,163 0.5 6 All Other 2,896 0.6 2,568 0.6 13 Total $507,524 100.0% $414,265 100.0% 23%

Domestic revenue passenger miles increased 19.9 per cent to 6.57 billion, compared with an industry-wide increase of 17.5 per cent. Those on foreign and overseas routes increased 45.5 per cent to 1.39 billion, with total reve­ nue passenger miles up 23.7 per cent to 7.96 billion. Seventy per cent of total passenger miles was flown in jets, compared with 60 per cent in 1964. Average yield per passenger mile was 5.93*, slightly below the 5.95* yield in 1964. Although there will be continuing downward pressure on this yield

22 because of excursion fares recently introduced and various our program for the elimination of DC-7B piston aircraft went discount fares which Eastern recently adopted on the Air forward and all DC-7B operations were terminated early in Shuttle, the significant reductions represented by these pro­ January, 1966. motional fares carry with them the opportunity of accelerat­ Equipment selection decisions early in 1965 resulted in ing the rate of increase in air travel. commitments for 15 standard Series 10 Douglas DC-9 twin- Air freight revenues increased 12.9 per cent to $16.3 million, engine jets, 24 advanced-model Series 30 DC-9's, and four with air freight ton miles up 15.7 per cent to 64.4 million. advanced Series 61 DC-8's. The 15 standard DC-9's will be operated under a two-year lease renewable at the company's option, and lease arrangements cover ten Series 30 DC-9's. Operating Expenses The manufacturer agreed to accept 5% notes for the normal Total operating expenses of $467.0 million were 13.7 per cent advance payments prior to delivery and $20 million of 5% ($56.3 million) higher than in 1964, including a 22.2 per cent subordinated notes upon delivery. A new revolving credit was ($8.9 million) increase in depreciation and amortization arranged with a group of 20 banks under which $50 million charges. The increase in this expense item reflects the re­ is available to the company until December 31, 1968, with the duction of deferred training and preoperating costs from $9.1 balance then outstanding repayable over the following five million at the beginning of the year to $1.8 at year-end as years; this credit permitted the retirement of $45 million of more fully described in Note (E) to the Financial Statements. short-term notes issued under the 1963 refinancing agree­ A 19.9 per cent increase in available seat miles was ments. achieved, compared to a gain of only 4.5 per cent in 1964. Orders were placed for ten Boeing 727 QC (Quick The cost of producing a seat mile dropped five per cent, Change) passenger-cargo aircraft, and the initial orders for from 3.54* to 3.36*, and available ton-mile costs were four Series 30 DC-9's and Series 61 DC-8's were each increased per cent lower. The passenger load factor in 1965 (percentage by three aircraft. of available seats occupied) rose to 57.3 per cent, 1.8 per­ Registration statements were filed in 1965 permitting pub­ centage points above 1964 and the highest since 1957. With lic offerings of the convertible notes privately placed in 1963 this more productive use of capacity, the cost per revenue by the holders thereof together with 419,825 shares of com­ ton-mile dropped nine per cent from 58.07* to 52.83*. mon stock issuable in exchange for 60 per cent ($15,000,000 in principal amount) of a convertible note issued in 1958. As a result of these offerings during the last half of 1965, approxi­ Financial Results mately $19,000,000 of outstanding debt was retired, with a Eastern earned an operating profit of $40.5 million in 1965 corresponding increase in stockholders' equity. compared with $3.5 million in 1964. To strengthen our capital structure in anticipation of future After interest expense of $11.0 million, other non-operating equipment needs and higher levels of activity, 375,000 shares expense of $0.2 million, and a profit of $0.4 million on disposal of common stock were sold in a public offering in November, of equipment, net profit was $29.7 million. This compares with 1965. Proceeds of $30,412,500 were added to general corpo­ a net loss of $5.8 million in 1964. There were no income tax rate funds. charges in either year because of losses in earlier periods. Our year-end fleet composition, actual and (for 1966) fore­ Net profit per share of stock outstanding at year-end was cast, is: $7.04 compared with a net loss of $1.80 per share in 1964 on the lesser number of shares then outstanding. 1966 1965 1964 Operations generated funds of $80.2 million, and working Douglas DC-8 17 17 17 capital increased $23.9 million to $60.0 million at year-end. Douglas DC-8, Series 61 3 Boeing 720 15 15 15 Boeing 727 Whisperjet 60 42 24 Equipment and Financing Douglas DC-9 Whisperjet 21 Equipment and its financing were of special importance in Pure jet total: 116 _74 _56 1965. The delivery of the initial order of 40 Boeing 727's, which Electra turbo-prop total 39 ~39 ~39 was supplemented by an order of ten more late in 1964, con­ Four-engine piston aircraft 19 "44 "77 tinued throughout 1965. By the end of the year, 42 727's were Twin-engine piston aircraft 20 20 20 on hand with the remaining eight scheduled for delivery in Piston total 39 _64 _97 early 1966. As the Whisperjets were phased into our jet fleet, Total, all aircraft 194 177 192 Assets December 31, December 31, 1965 1964

Current Assets: Cash $ 18,516,473 19,525,198 Short-term investments, at cost 36,617,361 3,990,243 Accounts receivable, less allowance for doubtful accounts of $700,000 and $600,000 39,661,985 33,920,993 Materials and supplies, at average cost less valua­ tion reserves of $15,544,272 and $11,972,561 .... 27,211,224 31,074,266 Prepaid expenses and other current assets 4,658,081 2,339,556

Total Current Assets 126,665,124 90,850,256

Other Investments 1,096,720 1,246,759

Property and Equipment: Flight Other Equipment Property and Cost: (Note A) Equipment 1965 $497,366,227 $61,579,798 558,946,025 1964 503,798,444 57,651,974 561,450,418 Accumulated depreciation and amortization: 1965 $237,074,066 $38,331,877 275,405,943 1964 276,685,767 35,706,967 312,392,734

Eastern Air Lines, Inc. 283,540,082 249,057,684 BALANCE SHEET Advance payments for new equipment 30,075,786 13,533,403 313,615,868 262,591,087

Deferred Charges: Deferred training costs and costs of introducing new types of flight equipment, less amortization (Note E) 1,841,293 9,063,699 Other 2,544,567 2,637,640 JET AIRCRAFT AT YEAR-END 4,385,860 11,701,339 80

$445,763,572 $366,389,441

'61 '62 '63 '64 '65

24 Liabilities and Stockholders' Equity December 31, December 31, 1965 1964

Current Liabilities: Accounts payable and accrued liabilities $ 41,777,256 Air travel plan deposits 5,498,609 Unearned transportation revenue 19,378,272

Total Current Liabilities 66,654,137

Non-Subordinated Long Term Debt (Note A) 217,039,433

Subordinated Long Term Debt (Note A) 34,471,386

Deferred Credits and Other Long Term Liabilities: Reserve for aircraft overhaul 3,211,014 All other 1,501,555

4,712,569

Stockholders' Equity (Notes A through D) Common stock, $1.00 par value: Authorized—15,000,000 and 5,000,000 shares Issued—4,213,578 and 3,239,030 shares 4,213,578 Capital in excess of par value 76,216,798 Earnings retained for use in the business 42,455,671

122,886,047 Less-Treasury stock, 765 shares, at cost

122,886,047

Commitments (Note G) $445,763,572 Year Ended Year Ended December 31, December 31, 1965 1964 Operating Revenues:

Passenger $476,562,332 $387,028,020 Mail 8,472,513 7,129,720 Express 3,298,664 3,112,074 Freight 16,294,532 14,427,275 Other 2,895,990 2,567,773

Total Operating Revenues 507,524,031 414,264,862

Operating Expenses: Flying operations 131,503,585 120,572,949 Maintenance 86,591,985 82,514,862 Passenger service 42,749,649 33,815,461 Aircraft and traffic servicing 75,009,150 68,820,392 Marketing and administrative 82,203,104 64,970,549 Depreciation and amortization (Note E) .. 48,932,940 40,026,626

Total Operating Expenses 466,990,413 410,720,839

Operating Profit 40,533,618 3,544,023

Non-Operating Income and (Expense): Eastern Air Lines, Inc. Interest income 857,463 320,998 STATEMENT OF Interest expense (11,895,826) (10,942,094) INCOME Profit on disposal of equipment 369,667 1,474,822 Other, net (194,365) (228,931) and Earnings Retained for Use in the Business (10,863,061) (9,375,205) Income or (Loss) Before Federal Income Taxes 29,670,557 (5,831,182) Federal income taxes (Note F)

NET INCOME (amounts in thousands) $30,000 Net Income or (Loss) for the Year 29,670,557 (5,831,182)

20,000 Earnings Retained for Use in the Business: Balance at beginning of year 12,785,114 18,616,296

Balance at end of year $ 42,455,671 $ 12,785,114

-10,000

-20,000 '61 '62 '63 '64 '65

26 is convertible prior to December 1, 1973, at the holder's op­ NOTES TO FINANCIAL tion into 276,197 shares of common stock and the 5V«% convertible junior subordinated debentures (not callable until STATEMENTS December 1, 1968) are convertible prior to December 1, 1983 at the holders' options into 726,020 shares of common stock. Note A: Long Term Debt 1965 1964 Note B: Mackey Airlines, Inc. Non-subordinated: Pursuant to an agreement of merger, 200,096 shares of the company's stock are reserved for issuance to stockholders Bank and insurance company of Mackey Airlines, Inc. The merger, which has been ap­ loans, 5.25°/o due 1966-1968. $ — $45,000,000 proved by the stockholders of both companies, is subject to Bank loans, 5.25% revolving the approval of the Civil Aeronautics Board and the President credit, issuable up to of the United States. $50,000,000 30,000,000 Bank loans, 5.25% due 1968- Note C: Stock Options 1971 80,000,000 80,000,000 At December 31, 1965, options were outstanding for the pur­ Insurance company loan, 4.15% chase of 71,550 shares of common stock by certain officers due 1968-1974 90,000,000 90,000,000 and employees at prices ranging from $19.25 to $58.50 per share. An additional 73,000 shares were reserved for the Manufacturers' advance pay­ issuance of future options. During the year, options for ment notes, 5% due 1966- 26,508 shares were exercised at prices ranging from $18.75 to 1968 17,039,433 $45.50 per share. The difference between the par value of $217.039.433 $215.000.000 shares issued and the option prices has been credited to Subordinated: capital in excess of par value. Installment purchase obliga­ Note D: Stockholders' Equity tion, 5.5% due 1987-1970... $ 1,741,654 $ 1,427,364 Changes in common stock and capital in excess of par value Manufacturers' subordinated for the year were as follows: notes 6%, due 1974-1975, is­ Capital in suable up to $10,000,000 4,579,232 1,717,212 Excess of Convertible subordinated prom­ Common Stock Stated/Par Shares Amount Value1 issory note, 5%, due 1976- Balances, December 31, 1978 10,000,000 25,000,000 1964 3,239,030 $4,048,788 $26,502,040 Convertible junior subordinated Shares issued on conver­ 3 debentures, 5 /e%, due 1977- sion of debt securities. 573,805 702,971 18,146,529 1983 18,150,500 22,000,000 Shares issued under $ 34,471,386 $ 50,144,576 public offering 375,000 375,000 29,981,260 Shares issued under Amounts outstanding at December 31,1968, under the revolv­ stock options exclusive ing credit agreement are convertible into a 5.25% term loan of 765 shares of treas­ repayable in equal quarterly installments from 1969 through ury stock reissued 25,743 31,279 642,509 1973. The manufacturer's advance payment notes mature Transfer of excess of upon delivery of DC-9 and DC-8 Series 61 aircraft and are stated value over par included in outstanding equipment acquisition commitments. value of stock' - (944,460) 944,460 At the time of delivery, the company may pay such notes or, Balances, December 31, in the alternative, may issue 5% manufacturer's subordinated 1965 4,213,578 $4,213,578 $76,216,798 notes, up to a maximum of $20,000,000 payable in equal semiannual installments in their third through twelfth years. Substantially all flight equipment, including the company's 'On September 22, 1965 the Board of Directors approved rights under aircraft leases for more than two years, is mort­ the restatement of common stock to par value, thereby gaged as collateral to the bank and insurance company debt. eliminating stated value. For purposes of comparison, this The mortgage includes provisions relative to maintenance of restatement has been retroactively reflected in the balance net worth and working capital, and contains restrictions sheet by reclassification of $809,758 at December 31, 1964. which, among others, limit the payment of cash dividends to $10,000,000 plus 50 per cent of defined net income accumu­ Note E: Depreciation and Amortization lated subsequent to December 31,1965. Effective January 1,1965, the company adopted the policy of Minimum repayments of long term debt outstanding are charging all costs of introducing new flight equipment to ex­ scheduled as follows: pense as incurred, rather than amortizing them over a period after the equipment was placed in service. In addition, based 1968 $31,000,000 upon a review of unamortized balances at January 1,1965, in 1969 29,500,000 the light of changes caused by a new pilot contract and other Annually—1970-1973 31,000,000 factors, the unamortized balances as of January 1, 1965, of After 1973 48,229,732 deferred costs applicable to introduction of four-engine jet The above table excludes repayment of the 5.5% install­ fleets were eliminated by accelerated amortization charges ment purchase obligation and retirement of the manufac­ in 1965 and the remaining balance related to B-727 aircraft turer's 5% advance payment notes, and assumes that the is being amortized over an 18-month period ending June 30, $30,000,000 revolving credit will be converted to a five-year 1966. term loan at December 31, 1968. In evaluating the future utilization of Electra aircraft, the Based upon December 31, 1965 conversion prices, the 5% company extended their useful life from eight years to ten convertible subordinated note (presently callable at 104'A%) years, effective October 1, 1965. The net effect of these changes was to increase deprecia­ tion and amortization expense for the year by $2,200,000 and to include in other operating expenses approximately $3,000,000 which would have been deferred under the pre­ vious accounting policy, thereby reducing net income by $5,200,000. Note F: Tax Loss Carry-Forward Because of the carry-forward provisions of the Internal Revenue Code, no provision for income taxes is required for the year 1965. If there had been no carry-forward losses, a provision of approximately $10,700,000 would have been re­ quired based on the 1965 tax rate and application of $3,600,000 of available investment tax credits and assuming use of the flow-through method of accounting for the invest­ ment tax credit utilized. There is available for deductions against future income which would otherwise require provisions for payment of Fed­ eral Income Tax the net amount of approximately $16,100,000 resulting from losses through December 31, 1964. An additional $25,300,000 is available at December 31,1965, for deductions against future taxable income but upon which provision for deferred taxes will be made because of differ­ ences between taxable income and reported income to date. Of the total carry-forward of $41,400,000, approximately $14,200,000 expires in 1968, $9,200,000 in 1969, $8,000,000 in 1970 and $10,000,000 in 1971. In addition, there is available approximately $15,000,000 of investment tax credit carry-forward which may be utilized to offset 25 per cent of the federal income tax payable in any year through 1970. Approximately $1,500,000 expires in 1967, $600,000 in 1968, $8,000,000 in 1969 and $4,900,000 in 1970. These amounts are all subject to adjustments, if any, that may be made by the Internal Revenue Service upon examina­ tions of tax returns filed for 1961 and subsequent years. Note G: Commitments ACCOUNTANTS' OPINION Outstanding agreements provide for the purchase of seven­ teen DC-9-30 aircraft, seven DC-8 Series 61 aircraft and eighteen Boeing 727 aircraft scheduled to be delivered in the years 1966 through 1968 at an estimated cost of $204,000,000 To the Directors and Stockholders of exclusive of spare parts, against which advance deposits of $28,000,000 have been made (including $16,300,000 in the Eastern Air Lines, Inc. form of notes). The company leases 23 jet aircraft. Fifteen aircraft are under ten-year leases at aggregate annual rentals of In our opinion, the accompanying balance sheet and related $9,282,000. These leases expire, in the case of ten Boeing 720's, in 1971 and, in the case of five Boeing 727's, in 1974. statement of income and earnings retained for use in the The lease relating to the Boeing 720's provides for purchase business present fairly the financial position of Eastern Air of the aircraft by the company in 1971 at the lessor's option for $4,775,000 or, if the lessor does not require purchase, the Lines, Inc. at December 31,1965, and the results of its opera­ company may extend the lease for three years at an annual tions for the year, in conformity with generally accepted rental of $1,605,000. Three DC-8 fan-jet aircraft are operated under two-year leases which expire in 1966 at aggregate accounting principles applied on a basis consistent, except annual rentals of $2,706,000 with provisions for renewal for for the changes described in Note E to the financial state­ additional two-year terms at the company's election. Five ments, with that of the preceding year. Our examination of Boeing 727 aircraft are operated under four-year leases at aggregate annual rentals of approximately $2,400,000 with these statements was made in accordance with generally options to renew for two additional two-year terms at aggre­ accepted auditing standards and accordingly included such gate annual rentals of approximately $3,000,000. The com­ pany will acquire 15 Douglas DC-9-10 aircraft in 1966 under tests of the accounting records and such other auditing pro­ renewable two-year leases which provide for annual rentals cedures as we considered necessary in the circumstances. of $4,500,000. In 1966 and 1967 the company will acquire ten Douglas DC-9-30 aircraft under renewable two-year leases at approximate annual rentals of $4,350,000. In addition, the company has non-cancellable leases cov­ Price Waterhouse & Co. ering numerous ground installations.There are approximately 64 major leases covering such facilities with expiration dates through the year 2002. Rental expense under these leases New York, N. Y. (excluding aircraft leases) approximates $9,800,000 per year for the next five years. February 11,1966 (All amounts in thousands) December 31. 1965 Funds provided from: Net profit (excluding $370,000 gain on disposal of equip­ ment) $ 29,301 Depreciation and amortization 48,933 Overhaul reserve accruals, net 2,006 Funds provided from operations $ 80,240

Proceeds from sale of common stock: Public offering 30,356 Stock options exercised 674 31,030 Issuance of manufacturers' subordinated notes 2,862 Proceeds from disposition of property and equipment... 2,583 Total funds provided $116,715

Funds used for: Flight equipment purchases and advances 84,822 Less: Notes issued for certain advances 17,039 $ 67,783 Ground equipment purchases 6,198 Bank and insurance company loans retired (net of $30,000,000 of new borrowings and exclusive of debt conversions) 15,000 Other, net 3,805 Eastern Air Lines, Inc. Total funds used $ 92,786 STATEMENT OF SOURCE AND APPLICATION Increase in Working Capital $ 23,929 OF FUNDS Working Capital, December 31, 1964 36,082 Year Ended December 31, 1965 Working Capital, December 31, 1965 $ 60,011

29 1965 1964 1963 1962 1961 1960 1959 1958 1957 1956

Total assets $ 445,764 $ 366 £ (^^18,749 $ 328,790 $ 342,449 $ 337,789 $ 306,281 $ 258,939 $ 219,024 $ 194,990

Net working capital 60,011 36,082 33,710 23,825 21,853 28,847 44,067 38,564 35,057 18,257

Stockholders' equity 122,886 43,315 49,068 86,809 100,157 110,553 117,369 107,281 102,148 91,199

Stockholders' equity per share $29.16 $13.37 $15.17 $26.84 $30.96 $34.18 $37.01 $35.45 $34.97 $32.00

Shares of common stock outstanding at year-end 4,214 3,239 3,235 3,235 3,235 3,234 3,171 3,026 2,921 2,850

Operating revenues $ 507,524 $ 414,265 $ 354.989 $ 288,111 $ 295,353 $ 293,776 $ 298.307 $ 246,228 $ 262,477 $ 228.040

Operating expenses (excluding depreciation and amortization) $ 418,057 $ 370,694 $ 322,150 $ 258,431 $ 276,253 $ 261,752 $ 252,665 $ 215,183 $ 222,998 $ 176,603

Depreciation and amortization 48,933 40,027 45,318 45,932 43,139 39,422 30,259 19,768 28,800 23,007 $ 199,610 Total operating expenses $ 466,990 $ 410,721 $ 367,468 $ 304,363 $ 319,392 $ 301,174 $ 282,924 $ 234,951 $ 251.798

Operating profit or (loss) $ 40,534 $ 3,544 $ (12,479) $ (16,252) $ (24,039) $ (7,398) $ 15,383 $ 11,277 $ 10,679 $ 28,430

87.53% Operating ratio 92.01% 99.14% 103.52% 105.64% 108.14% 102.52% 94.84% 95.42% 95.93%

$ 3,049 $ 1,055 Non-operating income and (expense)—net $ (10,863) $ (9,375) $ (7,577) $ -(2,757) $ (3,935) $ (2,390) $ (2,580) $ (724)

(3,475) (4,350) (14,750) Taxes on income 400 4,114 13,000 4,175 (5,700) $ 14,735 Net profit or (loss) $ 29.671 $ (5,831) $ (19,656) $ (14,895) $ (14,974) $ (5,613) $ 7,103 $ 7,078 $ 9,378

— 4,106 — Special items (18,104) 1,546 5,366 2,002 4,300 $ 13,484 $ 14,735 Eastern Air Lines, Inc. Total profit or (loss) after special items $ 29,671 $ (5,831) $ (37,760) $ (13,349) $ (9,608) $ (3,611) $ 11,403 $ 7,078

^(11.67) $(4.13) $(2.97) $(1.12) $3.60 $2.34 $4.62 $5.17 TEN YEAR Per share of stock outstanding at year-end $7.04 131 FINANCIAL 126,443 108,446 AND Revenue plane miles—including charter 142,190 126,061 121,268 98,525 122,302 127,063 144,404 121,600 8,031,337 8,064,131 6,787,369 STATISTICAL Available seat miles 13,886,972 11,585,974 11,092,033 8,343,758 9,116,119 8,835,667 9,676,328 4,264,640 4,838,479 4,137,580 SUMMARY Revenue passenger miles 7,955,672 6,432,845 5,601,246 4,127,510 4,756,834 4,764,341 5,015,802 (All amounts in thousands) 53.10% 60.00% 60.96% Passenger load factor 57.29% 55.52% 50.50% 49.47% 52.18% 53.92% 51.84% 9,567 8,065 8,876 7,662 Revenue passengers carried 14,672 12,775 11,094 7,873 8,978 8,964

1,206,550 909,423 1,051,801 941,189 Available ton miles—including charter 1,830,661 1,544,230 1,465,681 1,105,209 1,220,082 1,163,123 509,099 529,386 446,458 503,673 458,914 Revenue ton miles—including charter 883,914 707,233 607,066 451,083 513,324 49.09% 47.89% 48.76% Weight load factor—including charter 48.28% 45.80% 41.42% 40.81% 42.07% 43.77% 43.88% 97.28% 97.66% 97.79% Per cent of scheduled miles completed 98.80% 97.38% 96.62% 96.70% 96.33% 95.29% 97.40%

REVENUE PASSENGER MILES OPERATING REVENUE (amounts in millions) (amounts in thousands) 8,000 $600,000

500,000

400,000

300,000 .1

200,000 •t

100,000 I I I

0 •61 '62 '63 '64 '65 Eastern Air Lines, Inc. William W. Prince Walter G. Conrad Division Vice President— 10 Rockefeller Plaza, Chairman of the Board, Armour and Company, Chicago, III. Field Sales New York, New York 10020 Paul E. Reinhold William V. Costello Honorary Chairman of the Board, Staff Vice President— Foremost Dairies, Inc., Regulatory Affairs Jacksonville, Fla. Thomas E. Creighton McGregor Smith Vice President and Chairman of the Board, Florida Corporate Secretary Power & Light Co., Miami, Fla. Richard D. Eiland Fred J. Turner Division Vice President- Retired Chairman of the Board, Flight Operations Planning Southern Bell Telephone and and Administration Telegraph Co., Atlanta, Ga. Ernest E. Hahn Harper Woodward Assistant Controller Rockefeller Brothers and Wesley G. Kaldahl Associates, New York, N. Y. Staff Vice President—Schedules Maurice Lethbridge Officers Staff Vice President- Civic Affairs Floyd D. Hall Robert J. Mahn, Jr. President and Chief Assistant Controller Executive Officer David J. McLaughlin Todd G. Cole Staff Vice President — Senior Vice President— Personnel Relations Finance and Administration John P. Mead Arthur D. Lewis Staff Vice President — Directors Senior Vice President and Industrial Relations Todd G. Cole General Manager Robert F. Moore Senior Vice President Division Vice President — of the Corporation William M. Crilly Aircraft Maintenance Vice President— Planning Everett R. Cook Thomas Oakes _ Chairman of the Board, Cook & George S. Gordon Division Vice President—Fiigi^k Co., Inc., Memphis, Tenn. Vice President-Marketing M. Willson Offutt, III Paul M. Davis* John H. Halliburton Division Vice President— Advisory Director, Vice President — Passenger Sales Programming First American National Bank, Flight Operations Robert B. Parsons, Jr. Nashville, Tenn. Samuel L. Higginbottom Staff Vice President- Vice President — Data Services James A. Elkins, Jr. Chairman of the Board, First City Engineering and Maintenance B. Craig Raupe National Bank of Houston, Edward W. Jacobson Staff Vice President— Houston, Tex. Vice President and Federal Affairs Executive Assistant to the Theodore R. Gamble Thomas J. Richert General Manager President, Pet Milk Company, Division Vice President— St. Louis, Mo. Frank Sharpe Engineering E. Smythe Gambrell Vice President- Jonathan Rinehart General Counsel of the Customer Services Staff Vice President— Corporation and Senior Partner Charles J. Simons Public Relations in the Law Firm of Controller George A. Smith Gambrell, Harlan, Russell & Moye, Ralph H. Skinner, Jr. Staff Vice President— Atlanta, Ga. Vice President— Industrial and Properties and Facilities Roswell L. Gilpatric Personnel Relations William Van Dusen Partner in the Law Firm of Dwight D. Taylor Staff Vice President Cravath, Swaine & Moore, Vice President — Public Affairs New York, N. Y. James C. Warlick Assistant Secretary Floyd D. Hall John B. Andersen President of the Corporation Division Vice President- Francis E. Williams Advertising and Sales Promotion Division Vice President — Arthur D. Lewis Flight Services Senior Vice President Wilfred L. Cambre of the Corporation Division Vice President— Major General James McCormack Ground Services Eastern Air Lines, S. A. Chairman of the Board, John N. Carty Reforma y Morelos, Mexico, D. F. Communications Satellite Treasurer and Assistant Alberto Sanchez Llorente, i Corporation, Washington, D.C. Secretary President I

*Honorary Director

PRINTED IN USA Eastern Air Lines, Inc. PRESENT AND PROPOSED ROUTES

Executive Office: General Counsel: Eastern Air Lines Building Gambrell, Harlan, Russell & Moye 10 Rockefeller Plaza Citizens & Southern National Bank Building New York, N. Y. 10020 Atlanta, Georgia 30303

Corporate Office: Washington Counsel: 229 South State Street Pogue & Neal Dover, Delaware 19901 1001 Connecticut Avenue N.W. Washington, D.C. 20036 Stock Transfer Agent: Chemical Bank New York Trust Company Auditors: 20 Pine Street Price Waterhouse & Co. New York, N. Y. 10015 60 Broad Street New York, N. Y. 10004 Registrar: Morgan Guaranty Trust Company Common Stock: 30 West Broadway Listed and traded on the New York Stock New York, N. Y. 10015 Exchange and the Midwest Stock Exchange TOKYOA m0

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