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in the Management's Proxy Statement, that "the stockholders and management of Colonial are hereby placed on notice that effective corrective action must be taken—through such mergers, consolidations, or other courses as may be in the public interest—to reverse the trend of mail pay requirements in the near future." They know, too, that the proffered sale on a net worth or net income basis offers much to the stock holders of Colonial. They are more than fully aware of the desperate need of Colonial for new and better equipment that alone will enable Colonial to survive in the face of the growing competition on its routes.

Despite these fact, the Fund opposes the proposed sale. Their reasons for doing so are set forth below.

1. The Future of Colonial. The Fund believes that Colonial as an independent airline has a future. Prior to 1952 the Fund believes that Colonial was seriously handicapped by a lack of confidence, particularly on the part of the Civil Aeronautics Board, in its management. Route extensions, even those essential for an integrated and more economical operation of its existing system, such as New York-Washington and Syracuse-New York, were denied to it.

In the opinion of the Fund, no comprehensive program for new and modern equipment was evolved and pressed, despite the existing competition on its New York-Bermuda run and the competition provided by Trans-Canada on its New York-Montreal run. In fact, Colonial in the past decade has not acquired one piece of truly competitive modern up-to-date equipment. The only equipment of this type ever operated by Colonial has been on short-term leases. Today none of this equipment is available to Colonial despite the threat of competition from Super-Constellations and Boeing Strato-Cruisers on its New York-Bermuda run and Viscounts on its New York-Montreal run.

Since 1952—and that date is chosen because the original "merger" agreement with Eastern (later disapproved by the President of the United States) was made on July 18, 1952—Colonial has been merger-minded. As the Proxy Statement of the Management rightly points out, with a merger pending, "it may be difficult, if not impossible to obtain the necessary capital for suitable aircraft essential for continued operations," as well as to obtain substantial route extensions or revisions for the Company.

Thus, in the opinion of the Fund, true forward planning since 1952 has been at a standstill. Nevertheless, as the Proxy Statement of Management points out, Colonial's traffic has increased 93% in the last five-year period and passenger revenue has increased in that same period by 110%. Also from a net loss of $186,921 in 1952, Colonial in 1953 and 1954 showed a net profit respectively of $125,465 and $90,945.

In the opinion of the Fund, there are large potentialities in Colonial. Their realization depends on three things: (1) the acquisition of new and suitably competitive aircraft; (2) the integration route-wise of Colonial's system, e.g. by the connection of its New York and Washington terminals and its New York and Syracuse terminals, and hopefully some further extensions south and west; (3) the negotiation of suitable interchange agreements which traffic-wise would give some, if not most, of the benefits now alleged to be derivable from Colonial's absorption by a larger airline system, such as Eastern Air Lines. Colonial may, of course, find it difficult to obtain the capital required for the acquisition of such competitive aircraft, or to negotiate suitable interchange agreements. Nor can there be any assurance that Colonial will be awarded the route revisions and extensions referred to. However, although fully conscious that these goals may take considerable time to accomplish, the Fund hopes and sincerely believes that they can be realized.

It must naturally be assumed that Eastern Air Lines in its proposed offer is acting in its own interest and that through the acquisition of Colonial, Eastern will realize for its owners the potentialities inherent in Colonial's system. Any such realization, if the proposed sale goes through, will redound to the interest of all of Eastern's stockholders, in which Colonial's stockholders will share less than 11%, since the interest of Colonial in Eastern, if the proposed sale is accomplished, will be represented by 257,800 shares out of a total of Eastern's then outstanding stock of 2,743,668 shares. If Colonial realized some or all of these potentialities as an independent airline, 100% of that realization and not 11% would redound to the benefit of Colonial's stockholders, although, of course, Colonial would not share in any independent benefits derivable from the growth or success of Eastern's own operations.