May/June, 1979
page five
Report To
Our Stockholders
Editor’s note: At the annual stockholders meeting April 18, a complete transcript
was made of the proceedings. The meeting included a number of outstanding reports.
We thought employees who were not able to attend might like to read an actual
account of the proceedings. Here it is, only slightly edited for clarity.
T. H. Davis: We will call the 1979
annual stockholders’ meeting of Piedmont
Aviation, Inc. to order. First, I want to
extend a very cordial welcome to all of
you, and particularly to those of you who
are not directly associated with the Com
pany. We see quite a number of you here
this morning who have come from some
distance away to be with us. We ap
preciate your interest in the Company, as
evidenced by your going to the trouble
to be with us. We pledge our best efforts
to see to it that your indication of in
terest and confidence is fully merited. The
first order of business will be the appoint
ment of our proxy committee. I’ll ask
Audree Long if he will serve on that
committee along with Mr. David Riggan
of Ernst & Ernst. If you gentlemen will,
please tally the proxies and bring your
report back to us after you have com
pleted the tally.
We normally follow the practice of
giving you time for questions or com
ments after we go through some pre
liminary formalities. We will have
several management reports, the report
from the proxy committee, and take up
the official business that has to be acted
on, as indicated to you in the proxy
statements. I presume all of you have
received those as well as your annual
reports, so we won’t take up too much
of your time repeating what’s in all of
that. However, we will give you some
brief reports on things that might be of
interest to you. After that, and after the
official portion of the meeting, we will
have a period of time at your own
leisure to comment on anything you
might have in mind that you would like
a little elaboration on or ask questions
about or make comments on anything
not previously discussed during the
course of the meeting. Now, we will have
a summary of the minutes of our last
meeting and ask for approval of those
minutes after the proxy committee has
returned with its report. Unless there
is some request or desire on the part of
some of you here that we ask our Senior
Vice President and Secretary, Mr. Mor
ton, to read the whole thing, we’ll just
ask for a synopsis of the minutes of the
last meeting. Since there is no request
for a full reading of the minutes, Mr.
Morton, will you give us a brief sum
mary ?
T. W. Morton: The last annual meeting
of the stockholders of Piedmont Aviation,
Inc. was held here in this room on April
19, 1978 at 10:00 o’clock. T. H. Davis,
president of the Company, acted as chair
man and T. W. Morton acted as secretary
for the meeting. The chairman called the
meeting to order and appointed David
Riggan of Ernst & Ernst and A. F. Long,
of Piedmont, the Company controller, to
serve as the proxy committee to deter
mine the number of shares represented
at the meeting. The president then gave
a report covering the financial results
of 1977 and a number of other items
that were considered to be of interest
to those people attending. He also called
upon R. S. Northington, who gave a re
port of the general aviation activities
during 1977. He called on H. K. Saunders,
who reported the recent acquisitions of
aircraft and other matters relating to
the operation of aircraft in the Company.
He called upon K. E. Ross, who gave a
review of the traffic growth and other
traffic and sales data of the Company for
the past year. He called upon W. R.
Howard, who discussed the status of air
line deregulation legislation and also var
ious new route matters which the Com
pany is involved in. At the conclusion
of these reports, the chairman called for
the report of the proxy committee and
they reported that 73.6 per cent of the
total outstanding shares of common
stock were represented at the meeting.
The chairman declared that a quorum was
present and advised the first item of
business would be the election of a board
of twelve directors. He pointed out that
the proxies held by management of the
Company would be voted for C. G. Brown,
Jr.; E. L. Davis, Jr.,; T. H Davis; Raw-
son Haverty; Lawrence Lewis, Jr.; T. W.
Morton; R. S. Northington; E. M. O’Her-
ron, Jr.; H. K. Saunders; J. F. Watling-
ton, Jr.; M. H Winger, Jr.; and C. W.
Womble. Upon motion made and second
ed, these persons were elected to serve
on the board of directors for the coming
year. Another item of business was the
authorization of the Company to pur
chase up to 30,000 shares of common
stock as treasury stock. This item also
was adopted. The final item of business
was a confirmation of the appointment
of Ernst & Ernst as independent auditors
for the Company for the coming year.
This item was also approved. The chair
man then called for questions from those
persons who were in attendance and there
followed a period of questions and dis
cussion of those questions. The meeting
was adjourned at 11:30 o’clock.
Davis: Thank you, Mr. Morton. As I
indicated, we’ll call for approval of the
minutes later in the meeting. As you all
know from the annual report, and many
of you who follow your Company very,
very closely during the course of the year,
last year was perhaps the greatest year
we have had from the standpoint of
expansion and growth in two major areas.
Number one was the physical expansion
of our system, which Mr. Howard will
elaborate on in just a minute. In addition,
we increased total revenues about 16 per
cent up to a total of $264 million in 1978.
To be honest with you, we’re not real
proud of the results; on the bottom line,
as it were, we slipped back a little bit
from the previous year when we had
earnings of about $7.5 million. In 1978,
earnings were $5.5 million. Despite that
drop, however, 1978 was the second best
year we have ever had insofar as net
earnings are concerned. As I mentioned,
we are not real proud of that and we in
tend to correct that situation. We are in
the process of taking steps which we
hope and believe will do just that. There
were a number of factors, however, that
contributed primarily to the lower 1978
results; not the least of which was the
inordinate number of promotional or dis
count fares which the industry put into
effect during the latter part of last year.
The extent to which that practice was
followed, I think, surprised a lot of them
a little sooner than they expected inso
far as the deterioration of what we call
the yield, that is the revenue per pas
senger mile that we get from our pas
sengers. As an indication, even though
we had received during the course of the
year some broad fare increase approvals
from the CAB, the proliferation of dis
count fares was so extensive that the
average for all fares at the end of last
year was really lower than all the fares
at the end of the previous year. As you
can well appreciate, with the tremendous
increase in costs that all of us have
been experiencing during the year, this
created substantial problems for many
of us. As a matter of fact, during the
last quarter of 1978, if I’m not mistaken,
all, with very few exceptions, in the air
line industry were reporting reductions
in net results as compared to the same
quarter in the previous year. This, despite
the fact that traffic generally has in
creased substantially during the course
of the year. Having recognized the situa
tion during November or December, we
immediately filed for some corrections
to this particular fare problem. Thus, we
eliminated some of our discounts, cut
down on the extent of some of the others,
and made adjustments in the actual fares
that we were charging in certain markets
where we felt adjustments could, and
would, be approved by the Civil Aero
nautics Board. Unhappily, it takes 90
days before something like this goes
into effect. But in any event, we took
that action back late in the year so, ef
fective March 10th of this year, we be
gan to realize the benefits. It has already
begun to show results.
Another problem was, of course, start
up costs of as many new services as we
did during the year. A new route open
ing is always a very costly proposition
for several reasons, not the least of which
is the cost of setting up facilities and
making expenditures necessary to estab
lish a new station. There are personnel
costs and physical facilities costs and
things of that sort. In addition, the
developmental stage of any new route
takes time for the traffic loads to begin
to increase. We’ve been pretty fortunate
in that area in most of our new routes,
however, but it does take a few months
to develop traffic to its full potential. And,
of course, as I’ve also indicated, we’ve
had very substantial increases in infla
tionary cost pressures. All of these fac
tors combined resulted in the deteriora
tion of net earnings toward the end of
1978 as compared to the previous year.
Our general aviation division saved the
day for us. We’ll hear a little bit later
from Mr. Northington that they had a
fantastic year. While the airline earnings
were depressed, the general aviation
earnings increased very substantially.
Many of you have, I’m sure, heard
about or noticed in looking at the stock
reports some pretty wild variations in
the price of our stock during recent
months. If you will recall, we listed our
stock on the New York Stock Exchange
last year. We have had our specialists on
the floor of the New York Stock Ex
change, as well as others in the invest
ment banking community, looking for
any potential lead or indication as to
whether or not there are any single
sources that are trying to accumulate
Piedmont stock for the purpose of take
over possibilities. Thus far, we have been
unable to detect any particular area or
individual or company accumulating Pied
mont stock for purposes of a takeover,
at least to the best of our knowledge. Our
specialists on the floor of the Exchange
indicate that most of the buying has
been what they call retail buying. We
would like to interpret that to indicate
that the purchasers know a good buy
when they see it. In any event, while the
woods are full of rumors every day, we
see nothing of substance to indicate that
there is any definite movement toward
takeover at this time.
For several years, it has been my privi
lege to report to you that your Com
pany has been one of the leaders, if not
the leader, insofar as having the fewest
passenger complaints of any other certi-
hcated airline in the country, as tabulated
by the CAB’s Office of Consumer Affairs.
I regret to say that last year we slid
back some. We were not at the top last
year. However, we weren’t at the bottom
either. But, we got down in the medium
range and we are not a mediocre organi
zation or “average” company. We don’t
intend to be just an average-type organi
zation and we intend to correct that. We
intend to be better than average. I’m
very pleased to report that the last
monthly tally I saw from the CAB does
indicate that we were back up in second
place — second best in the industry. But
that’s just for one month and we’ve got
to stay in that position or top position
through the whole year to wind up 1979
where we want to be and I’m sure that
you would like us to be.
What’s ahead? From all indications,
and from what we see insofar as ad
vanced bookings, passenger traffic and
the general aviation business, 1979 should
be a good year. There are, however, some
very serious problems that we are now,
and will be, confronted with. In the area
of fuel, we’re concerned about fuel price
and fuel availability; both are very
serious problems for us. Our concern is
undertandable, as you will recognize,
especially when you consider the fact that
one cent a gallon increase in our fuel
costs increases our total expenses by
about $1 million a year and we have al
ready had notice of two or three in
creases so far this year. There are a lot
of people around trying to convince the
oil compaiiies that these prices are going
to be higher. There are a lot of fore
casts that they are going to raise prices.
I don’t know why people feel that they
have to go out and tell the oil companies
that their prices are going to be ten or
more cents a gallon higher next year
than they are today. What is to be gained
by those who are not even in the petro
leum business going around making
public forecasts as to how high fuel
prices will be next year? I suppose if
we keep brain-washing the oil companies
to the fact that fuel prices are going to
be X cents a gallon higher six, eight
or ten months from now than they are
today, then they won’t feel too bad
about going ahead and raising them.
Our fuel supply is, as I’ve indicated, pre
sently giving us a problem. In April,
some of our major suppliers allocated
only about 85 per cent of our require
ments. We’ve had to depend on some
additional input from other suppliers
from whom we have not previously been
getting fuel. But even so, we still had
to cut back the weaker flights, the ones
where we will inconvenience the fewest
number of people. But you can’t always,
for equipment positioning reasons, just
cut out the bad flights and leave all the
good ones. Sometimes we have to cut
out a bad flight and then the airplane
winds up in a position where it has to
get back to the maintenance base or
something else and we cut out a good
flight in order to do that. But, in any
event, I do feel that our scheduling de
partment has done a very, very outstand
ing job in eliminating primarily the
weaker flights. In addition to the fuel
problems, we, of course, continue to have
very serious inflationary cost increases
in supplies, services, rents, landing fees,
interest expense and personnel costs. At
this time. I’d like for Mr. Howard to
bring you up-to-date on our route pro
gram and any words that he might have
to say now that deregulation is a fait
accompli, or any other comments. Mr.
Howard, senior vice president of the
Company.