THE WILD BLUE CHIP YONDER

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP74-00297R001001300039-8
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 8
• Document Creation Date: December 27, 2016
• Document Release Date: November 14, 2013
• Sequence Number: 39
• Publication Date: July 1, 1955
• Content Type: OPEN SOURCE

FORTUNE hs..1:2,Elfaified and Approved For Release @ 50-Yr 2013/11/14: CIA-RDP74-00297R001001300039-8
',via,. Bump
The airframe industry at last glimpses pros-
perity on the horizon. But first it must sur-
mount, on the one hand, the hazards of
avionic competition and, on the other, the
threat of a federally enforced dispersal.
The Wild Blue Chip Yonder
by Charles J. V. Murphy
Anybody who spends much time with the airplane builders
nowadays finds two rather old-fashioned words cropping up
in the conversation?stability and maturity. These are terms
that go with an invincible position; and considering that
only seven years ago Douglas Aircraft Co. was down to 15,-
400 employees and that Boeing in 1946 was agonizingly de-
signing aluminum egg beaters, bicycles, and plastic toilet
seats to find products for its dying assembly lines, the notion
that the aircraft industry has at long last outflown its haz-
ardous past may appear highly presumptuous. Nevertheless,
there is no mistaking the savoir-faire, the air of perma-
nence, not to mention the prosperity, that suddenly have
become the easy ornaments of the airplane builders. Van-
ished is the stock figure of the airplane drummer as the
Micawber of the manufacturing world, cursing his lot as the
remittance man of the military and the fall guy of the airline
operators. The feast-and-famine, stop-and-start past has
been succeeded by a prosperous present and an exciting
future. The present is solidly buttressed by a national strat-
egy that is generating a huge demand for the industry's
products; the future is bright with the promise of pre-
dictable, spectacular technical advances that will make for
a dynamic market. Here is the explanation for Boeing's
backlog of $2.13 billion, Douglas' of $2 billion, Lockheed's
of nearly $1.2 billion, and for a total industry backlog for
military aircraft alone of nearly $15.4 billion.
This is not to say, however, that the industry itself is
under any illusions that maturity, stability, and prosperity
mark an end to the long period of trouble. On the contrary,
the industry is rather in the position of one of its products,
which, having shuddered through the transonic barrier and
gained the brighter prospects beyond, is promptly beset by
new problems, complex and unforeseen.
72 FORTUNE July 1955
Maturity and stability, as applied to the aircraft industry,
have special meanings. When, for example, Boeing's Senior
Vice President Wellwood E. Beall uses the word maturity,
he means that the airplane builders no longer need apologize
for their production engineering and techniques. "During
the war," he recalls, "whenever Bill Knudsen and other De-
troit people came out to our plant at Seattle, they used to
rib the hell out of us on account of the impromptu tooling
of the B-17 line. And we certainly had a lot to learn about
interchangeability. Well, that's all changed now. Our tooling
techniques are more sophisticated than Detroit's. Now they
send their people to us to learn from our lines."
And the word stability, as used by Arthur E. Raymond,
Douglas' engineering vice president, means the opposite of
static. It means, rather, a condition of dynamic balance, as
of a ship or airplane buoyant in its medium. Mr. Raymond
maintains that the technical prospects of his industry are
more stable than those of the automotive industry for the
reason that the breakthroughs in jet propulsion, electronics,
and atomic energy present his industry with an entirely new
set of expanding opportunities. "The automotive industry,"
he notes, "is through its period of fundamental major transi-
tion. Practically all it has left is to add chrome?or drop it.
But we have change, big change, continuing change, to
live on."
Yet, if change means opportunities, it also means compe-
tition. For ? one thing, the aircraft industry's bread-and-
butter monopoly?a flying machine controlled by a man---is
being seriously challenged by a wide variety of missiles,
long-range and short-range, tactical and strategic, offensive
and defensive, ballistic and guided. These missiles are poten-
tially capable of taking over many of the tasks now per-
formed by the so-called "inhabited" airplane, and other tasks
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North American Aviation's F-100 interceptor, the Super Sabre jet,
shown in assembly at the company's Los Angeles plant, is the fastest
U.S. aircraft in operational use, somewhat faster than sound. The
fuselage, hardly more than a skin for the J-57 engine and afterburner,
is being "mated" to the wing. Of concern to airframe manufacturers is
the shrinking fraction of the vehicle that they themselves build.
that it could not possibly perform. Moreover, the big techni-
cal changes in which the airplane itself has been caught up,
particularly in electronics, threaten to reduce the vehicle to
the function of a container, or "can," for increasingly com-
plicated and costly electronic gear. Hundreds of companies
are crowding the aircraft companies hard for pieces of the
missile and electronics business. Because of the competition
from new and unexpected quarters, the airframe industry
fears that its share of the total dollar cost of the air vehicle
will be slowly drained off to the designers and makers of
fire-control and navigation systems, computers, scanners,
and other electronic gear.
Nothing in recent years has agitated the airplane makers
r \ so much as the question of how to fend off this competition
and maintain their primacy as designers and assemblers not
only of airplanes but of all air weapons systems. The chal-
lenge and the differing responses to it (discussed in detail
later in this article) have introduced a new and intricate
stage in the industry's development. Meanwhile, however,
the industry's maneuverability in dealing with the issue has
been hampered by Air Force Secretary Harold E. Talbott's
abrupt decision to halt the further concentration of the air-
craft industry on the east and west coasts.
Secretary Talbott throws a scare
Mr. _Talbott has demonstrated in the discharge of his offi-
cial duties a rare talent for confusing a sound issue. The
vulnerability of the Connecticut Valley and southern Cali-
fornia concentrations of the aircraft industry has long given
concern. But in putting the industry on notice that the con-
centration had gone far enough, Talbott conveyed the
impression that the Los Angeles and San Diego complex in
particular was to be dispersed behind the Rockies. Talbott's
later explanation that the government merely proposed to
hold defense business in the area at present levels quieted
the uproar, but it did not entirely reassure the West Coast
aircraft builders, the Los Angeles Chamber of Commerce,
Senators Knowland and Kuchel, or the always sensitive
southern California congressional delegation.
The truth is that neither the Air Force nor the Pentagon
seems to know how much is too big a target, or whether a
genuine dispersal program is worth the economic and social
costs it would entail. The federal attitude appears to be little
more than the impatient expression of a conviction that some
kind of start must be made at dispersal, even if the first
moves seem random and arbitrary. There is now in force a
tentative policy of withholding from the principal coastal
aircraft communities contracts for new items if those con-
tracts require additional facilities and engineers. In
principle the producers in these places will become eligible
for new business only as their existing floor space and engi-
neering talent are released by the completion of work in
progress. But as a practical matter this restriction imposes
a straitjacket upon coastal producers that will make it ex-
tremely difficult, if not impossible, for them to maintain an
economic balance between current production and the phas-
ing in of new developmental items. Moreover, military con-
tracts for certain projects now specifically enjoin the suc-
cessful bidder from doing the work on either coast.
While there is a legitimate case to be made for some dis-
persal, the West Coast producers have not been won over by
FORTUNE July /955 73
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The "Big Five's"
Postwar
Sales and Profits
Fiscal years 1940
BOEING
Sales
14.0
Pre-tax profit 1 -3.7
This chart shows the postwar
growth of the top five airframe DOUGLAS
manufacturers who share 70 per
cent of the airframe business.
Sales
106.7
Pre-tax profit - 2.0
Noteworthy are the rapid shifts in
their relative positions, reflecting
the rise and fall of particular spe- LOCKHEED
cializations. Thus Boeing, which
failed to make the Big Five in
1946 when military business dried
up, has climbed to the top through
its monopolies of medium jet
Sales
112.7
Pre-tax profit 17 8.1
NORTH AMERICAN
Sales
55.8
bomber (B-47), heavy jet bomber Pre-tax profit
(B-52), and jet tanker programs.
Lockheed's and Douglas' pre-Ko-
rean ascendancy recalls the days
when the transport business, how-
ever unprofitable, was the life- Pre-tax profit I 7.14.0
giving fraction of the total.
6.5
REPUBLIC
Sales
29.5
1947
1948 1949
1950
1951 1952
1953 1954
21.7
126.9
286.8
307.3
337.3
739.0
918.2
1,033.2
-0.4 2.9
8.0
24.2
19.8
49.8
58.8
76.7
128.5 118.6
117.4
129.9
225.2
522.6
874.5
915.2
1
-14.8 11.1
10.7
13.2
18.6
33.5
61.5
80.0
134.4
125.6 117.7
173.3
237.2
438.1
820.5
732.9
7.8
6.6
15.1
9.8 17.5
48.3 45.8
19.9 94.1
124.2
143.0
177.7 315.3
634.7 645.8
- 7.3 10.8
11.7
13.6
15.2 20.3 40.1 52.5
38.3
49.8
47.7
57.7
130.4
412.2 411.8
323.5
-5.8
2.8
1.5
4.6
8.1
27.4 29.0
19.6
Millions of dollars
the policy as it has been defined. For one thing, they have
serious doubts that their top technical people would willingly
give up the California life. For another, they find it difficult
to reconcile the dispersal program with strategy-a subject
that they do know something about. The national air-atomic
strategy assumes that any big war would be fought to deci-
sion with the forces in being at the start of hostilities. The
traditional idea of a broad mobilization that would swing
into production at the outbreak of war is presumably as
obsolete as the B-17. The Pentagon civilian secretariat seems
thus to be reversing the clich?hat it is only the generals
who plan for war by starting where they left the last one.
Be that as it may, the West Coast producers tend to interpret
the ban on further expansion by them as a possibly politi-
cally inspired move, favoring hinterland industries that are
aggressively maneuvering for the new military business,
especially in missiles and electronics.
So long as this suspicion persists there will be continuing
concern, at least among the West Coast airframe manufac-
turers, over (a) the extent to which they may be required
to migrate into the hinterlands, with the trials that attach
to decentralization, and (b) the degree to which they may
be excluded from the new weapons business outside and
beyond the classical airframe. North American's expecta-
tions concerning additional missile developments at Downey
have been momentarily chilled by the freeze on further West
Coast growth. Boeing is under orders to move its Bomarc
air-defense missile out of Seattle. Aeroj et-General, another
Los Angeles producer that is developing a propulsion unit
for the Atlas intercontinental ballistic missile, has been told
to transfer its production to Missouri. And Lockheed's plan
to invest $10 million in a missiles laboratory at Van Nuys,
in the hos Angeles area, has been at least temporarily upset
by the Air Force's refusal to give it business.
Congress looks into profits
Another issue unsettling to the industry is the threatened
congressional attack upon its 1954 profits record. Two Demo-
cratic-controlled House bodies-the Armed Services Sub-
74 FORTUNE July 1955
committee under Representative Hebert of Louisiana an6
the Defense Appropriations Subcommittee under Represent-
ative Mahon of Texas-are digging into the subject.
Chairman Mahon has said that defense profits "have been
soaring as though they were jet propelled." In actual fact,
the aircraft industry's average net profit on sales in 1954
was only 3.8 per cent, compared to the national manufactur-
ing average of 5.9 per cent. However, the objective of the
investigation as regards the airframe manufacturers is to
demonstrate that since more than 70 per cent of their tooling
and facilities were provided by the government, the conven-
tional sales-net return ratio is not a valid measurement. It
is the industry's return on net worth that interests Mr.
Mahon. He has already called attention to two unidentified
examples-one, patently Boeing, whose profit last year after
taxes was, by Mr. Mahon's calculation, "about" 45 per cent
of net worth; and another, patently Douglas, whose profit
was "about" 37 per cent of net worth.
A survey by the First National City Bank of the 1954
earning records of thirty-eight aircraft and aircraft-supply
companies shows an aggregate net profit of about $272 mil-
lion for the group, a 54 per cent increase over their combined
1953 total of $176 million. The high, possibly too high, net
of some producers reflects, in part, the elimination of the -
excess-profits tax and, in part, the savings in costs throug ")
increased efficiency under fixed-price contracts as the prc
ducers move along the learning curve. What now disturbs
many in the industry is the possibility that the Renegotia-
tion Board, responsive to the heat from Capitol Hill, may
impose more spartan standards than have so far prevailed.
The Renegotiation Act expired last December. President
Eisenhower has asked that it be reinstated for the two-year
period ending December, 1956. Congress undoubtedly will
do this. Meanwhile the board, having worked through the
1951 docket, is exploring the 1952-53 record, company by
company. Nothing spectacular is likely to come out of its
review of these years. The excess-profits tax having then
been in force, any action by the board to recapture sizable
earnings from any particular producer would be offset by
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4.
In billions of dollars
,Air
25
20
15
10
5
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Growth vs. Automotive and Iron and Steel
1948
1000
Awns
60 uiuia
400
111111
20:11111
1948 '49 '50 '51 , '52 '53 '54
10
Motor vehicles and parts
om NEI INNI Primary iron and steel
Aircraft and parts
'49 '50 '51 '52 '53 '54 1948 '49 '50 '51 '52 '53 '54
*Source: First National City Bank
10
8
6
4
?2
4
?8
?10
12
Profit as per cent of sales
These charts show the growth of
the aircraft industry since 1948 in
terms of sales, employment, and
net worth relative to that of the
automotive and the iron and steel
industries. The key factor is the
net-worth ratio. Despite a 490 per
cent gain in sales, the aircraft in-
dustry's net worth increased only
64.6 per cent, compared to a net-
worth incregse of 60 per cent for
steel (on a 20 per cent gain in
sales) and 82 per cent for automo-
tive (on a 67 per cent sales jump).
Explanation for the gap: the high
proportion of government-owned .
aircraft facilities, 70 per cent of
the industry total.
50
40
30
20
Profit as per cent of net worth
1946 '48 '50 '52 '54
10
Before taxes ti After taxes
20
Return on Net Worth
Based on the experience of seven-
teen companies, this chart indi-
cates rather than sums up the in-
dustry's actual postwar record. It
points up the low return on sales
(3.8 per cent in 1954 and 2.4 per
cent in 1953) and the high return
on net worth (24 per cent in 1954
and 18 per cent in 1953).
corresponding tax credits. However, the 1954 outlook, be-
cause of the political overtones, is tricky. Publicly the major
airplane builders profess confidence that their profit record
will stand any fair scrutiny. In judging what constitutes
a reasonable return, the Renegotiation Board, as well as the
services, has taken into account the comparative efficiency
of individual producers in reducing costs, meeting schedules,
and otherwise fulfilling their obligations. As Roger Lewis,
Assistant Secretary of the Air Force for Materiel, puts it,
"It takes just as much hay to feed a plug as to feed a race
horse?and our rule is to reward quality." Another factor
is also taken into account?what the companies do with their
profits, the ratio between what is shoveled out in dividends
and what is plowed back into the business. Here the record
of the Big Five airframe manufacturers?Boeing, Douglas,
Lockheed, North American, and Republic?is good. Last
year they retained as a group about 65 per cent of their
earnings. The big plowback bespeaks a concerted effort to
reduce their common dependence upon direct government
financing. How far the detachment process can be extended
will depend largely upon the Renegotiation Board's ability
to preserve the present incentive system in the face of the
likely Democratic blast against high profits.
Strategy founds a community
Serious though these problems are, and painful as their
resolution may prove, they cannot obscure the most impor-
tant fact about the aircraft industry and its suppliers. That
fact is that the industry has become the most important
pool of technical talents in the economy. Last year it passed
the automotive industry, for the first time in peacetime, as
the No. 1 manufacturing employer of labor. From July
through October its total working force averaged nearly
756,000 against about 710,000 for the industry that hereto-
fore has symbolized the American productive genius. And
the aircraft industry also claims to have stood first, by an
even wider margin, in the size of its payroll. Its figure for
last year was $4 billion.
To be sure, this eminence was only briefly held. Last
November, Detroit once more moved out in front. As a
result of its tremendous production push behind the 1955
models, the automotive labor force surged in March to about
927,000 workers while the aircraft industry's employment
was dipping slightly to 752,000. Yet even second place is
impressive for an industry that only twenty years ago
ranked 135th among U.S. industries in employment (15,000
workers) and 169th in sales ($45 million) .
Three factors essentially are responsible for this growth.
The first, of course, is the massive buildup of air power, and
especially of the 137-wing Air Force, that began with the
Korean crisis. The second is the gathering momentum of
the shift to a national air-atomic strategy. The third is the
strategic assumption that the power conflict with the Soviet
system may continue, short of general war, for several
decades. In light of that assumption, U.S. air power, being
a wasting asset in the qualitative sense, must be steadily
replaced in line with accelerating technical advances.
Moreover, any assessment of the industry's prospects
must take into account certain psychological and social
factors. The U.S. is becoming, militarily and sociologically,
more and more the world's foremost air community. There
is hardly a village with any pretensions to machine skills
that does not draw income from the aircraft industry. North
American Aviation does business directly with 10,000 firms,
United Aircraft with 7,000. The Aircraft Industries Asso-
ciation estimates that the national web of subcontractors
FORTUNE July 1955 75
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and suppliers includes more than 50,000 different firms. And
in the Los Angeles area, the aircraft plants employ 28 per
cent of the total manufacturing force.
The industry's impress upon the national economic
pattern is deepened by its impact upon national habits. More
Americans now travel by air than use either Pullman or rail
coach in getting about the country beyond commuting dis-
tances. And as a vehicle for crossing the oceans, the air-
plane's margin of popularity over the steamship is even
wider. Sixty per cent of all intercontinental travelers de-
parting from or entering the U.S. use the airlines. Moreover,
the first-quarter statistics of the Air Transport Association
show a 19 per cent increase in the volume of domestic air
travel over the same quarter last year.
Cracking the jet market
The size of the jump surprised the airplane builders. They
had been afraid that the peak of the postwar re-equipment
of the airlines had been passed. Last year the total commer-
cial sales of the leading airplane builders still in the trans-
port market?Douglas, Lockheed, and Convair (a division
of General Dynamics) ?were $283 million (exclusive of the
sales of small private and executive aircraft) . For 1955 the
forecast for the commercial-transport business is about $370
million, and until recently it was gloomily assumed that there
would be a steady fall-off thereafter. But the continuing
boom in air travel has persuaded the plane builders that
the commercial market is actually stronger than had been
anticipated. Moreover, the sharpening competition among
the airlines for traffic, especially on the red-carpet non-stop
continental runs, is certain to bring them into the market
sooner than expected for turboprop and jet equipment.
Douglas, in fact, decided on its own to hurry up the com-
mercial jet market. Without waiting for a firm order from
any of the airlines, it has announced its plan to build the
DC-8 jet transport. This 80 to 125-passenger machine, to
cost an estimated $4,500,000 and to be ready in 1959, will
raise the cruising speeds on the transcontinental routes to
550 miles per hour. Although there were no takers as this
article went to press, Douglas was confident that before long
it would be doing business with the major domestic airlines.
Dr. Simon Ramo, left, and his partner, Dr. Dean Wooldridge, exemplify
the technical revolution agitating the airframe industry. Physicists
both, they are the nation's foremost missile experts. In making them
systems managers of its super-priority Atla rogram for the inter-
continental ballistic missile, the Air Force jo ted the airframe industry.
76 FORTUNE July 1955
Meanwhile, Lockheed has opened the turboprop market b:
winning (against Douglas) American Airlines' design com-
petition for such a craft to replace the piston-powered, forty-
passenger Convair-Liner "340," which today practically
monopolizes the short-haul scheduled traffic. The Lockheed
Electra will seat sixty-four passengers, cruise at 400 miles
per hour plus. American Airlines has ordered thirty-five,
costing $65 million, for delivery in 1958. And between now
and the advent of those models, Douglas and Lockheed will
square off for the last big play of the piston-powered com-
petition?the battle for the transoceanic trade between
Douglas' DC-7C (the Seven Seas) and Lockheed's variant
of the Super Constellation. The first is to go into service late
next year, the latter about mid-1957.
Compared to the military business, the industry's commer-
cial business represents little more than the gravy on the
meat. For example, in the instance of Douglas, whose total
deliveries in the first quarter were running at an annual rate
of $859 million, the commercial side of the ledger accounted
for only 13 per cent of all sales and 18 per cent (or $332
million) of the backlog. In the case of Lockheed, with first-
quarter sales at an annual rate of $760 million, the propor-
tions are as follows: commercial business, at the indicated
annual rate of $167 million, 22 per cent of gross sales, and
15.5 per cent of the backlog.
Douglas and Lockheed together have 92 per cent of th( )
total current commercial business. Convair's commercia
backlog, represented entirely by orders for its medium trans-
port, has dwindled to $10 million. The company withdrew
from American Airlines' competition for the short-haul
turboprop. It has a design for a big jet transport competitive
with Douglas, for which Howard Hughes is negotiating on
behalf of T.W.A. Martin has been out of the commercial
market for the past two years. And though Boeing is strain-
ing to enter the play for the long-range jet-transport busi-
ness, with a model based on its "707" jet tanker, the Air
Force has ruled, at least for the present, that its facilities
cannot be diverted from military production.
At this juncture, then, the blue-chip commercial business
is concentrated, all but a fraction, in two companies?Doug-
las and Lockheed?although it does not follow that Boeing
or Convair will allow the duopoly to continue unchallenged.
And if one were to relate the aircraft industry's total 1954
commercial business to its total sales, the former would
amount to only 4.6 per cent of the aggregate. Yet the $382
million of annual business generated by that fraction is a
healthy portent in an industry whose total sales in 1949
were only $1.8 million.
The Pentagon riddle
Thus, for the first time in peacetime, the aircraft industry
stands on a fairly solid economic base. Yet it is still depend
ent for its existence as a big industry upon national policy.
The significant change in its status is that whereas before
and just after World War lithe controlling aim of federal-
subsidy policy was to keep life flickering in a certain number
of gifted producers as a hedge against war needs, national
strategy today is acutely dependent upon the industry's con-
tinuing productivity and inventiveness. It has become at
continued page 170
Shown on the right is Lockheed's assembly line at Marietta, Georgia,
for its C-130 military turboprop cargo carrier and transport. A com-
mercial turboprop is soon to go into production for the airline trade.
Having won American Airlines' competition, Lockheed is now in a posi-
tion to dominate the future short-haul turboprop market.
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FOPTUNE July 1955 77
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Blue Chip Yonder
continued from page 76
once both the stiffening element in
the national military posture and
also an innovator of broad social
change. To that extent, it has now
ceased to be a marginal and chancy
activity kept alive by sporadic sub-
sidy. Nevertheless, the planned rate
of Department of Defense spend-
ing is the one reliable barometer of
its general condition.
So far $54 billion
The situation is as follows: In-
cluding an estimated appropriation
of 86.1 billion for fiscal 1956 just
beginning, the three services?Air
Force, Navy, and Army?have had
available an aggregate of about
853.8 billion for the purchase of
aircraft and aircraft parts.since the
beginning of the Korean war, only
five years ago. Of this sum about
831.3 billion has already been spent.
There is left, therefore, still unex-
pended but in large part obligated
by contracts, a balance of nearly
$22.5 billion to finance future de-
liveries. The federal payout for mil-
itary aircraft for fiscal 1955 just
ended came to 88.2 billion. The esti-
mate for fiscal 1956 is nearly $7.3
billion, or 11 per cent less.
At the planned rate of expendi-
tures, which roughly reflect deliv-
eries to the military, the Defense
Department presumably will still
have on its books a year hence?
that is, at the beginning of fiscal
1957?an unexpended balance of
nearly 815.2 billion for the further
purchase of military aircraft. This
sum is figured to represent about
twenty months of production at
the tempo presently scheduled for
the period. In other words, without
additional appropriations the Air
Force's program is already financed
into .the spring of 1958. The Navy,
with an unexpended present bal-
ance of about $4.8 billion for air-
craft, will at the same stage be
financed about six months beyond
?i.e., into the fall of 1958.
The buildup of the 137-wing Air
Force is scheduled to be completed
by spring of 1957. Until recently,
Pentagon planning had proceeded
on the conservative surmise that fur-
ther additions to the Air Force's
aircraft inventory would be on a
"sustaining" rate, geared to com-
pensate for obsolescence and opera-
tional wastage. Inevitably this pol-
icy would have meant a drastic
slowdown of production?by one-
third to one-half.
However, recent intelligence re-
ports of Soviet technical progress
have shaken the confidence of the
Pentagon in its estimates of what
should constitute an adequate sus-
taining rate. The Soviet qualitative
progress, even after one discounts
the more sensational "scare" as-
pects, has been impressive in the
two elements bearing most directly
upon control of the air?intercep-
tors and long-range bombers. The
May decision to accelerate the out-
put of B-52's is certain to be fol-
lowed in the near future by another
decision to hasten into production
several models of supersonic inter-
ceptors, now in prototype devel-
opment, whose appearance in the
inventory would otherwise have
been delayed. The combined effect
would be to postpone indefinitely
anything like the big cutback in
appropriations that was hoped for
in the fiscal 1957 budget.
Among the companies certain to
benefit from the new programs are
Lockheed, with its F-104 intercep-
tor, reportedly in the Mach 2 range
(twice the speed of sound); Mc-
Donnell, with its F-101, a long-
range fighter; and Republic, with
its F-105 fighter bomber. The Con-
vair F-102 all-weather interceptor
is already in production and the
present pace is sure to be quickened.
Of two worlds
During the next five years or more
the airframe producers can bank on
at least one and probably two more
major production sequences of the
classical interceptor, of high Mach
number, practically automatic in
flight and action, but still moni-
tored by a man in the cockpit. And
the same promises to hold true of
the long-range bomber, of which at
least one supersonic model (Con-
vair's B-58, the Hustler) is in in-
tense development.
However, during this twilight in-
terval, numerous missile programs,
competitive with the airplane in
practically all of its military uses,
will be gathering momentum. In
fiscal 1955 combined expenditures
in this category by the three mili-
tary services were over 8518 mil-
lion, equal to about 6 per cent of
the federal outlay for aircraft. For
fiscal 1956 estimated outlay will
be about 8675 million, equal to 9
per cent of scheduled federal spend-
ing for aircraft; and for fiscal 1957
tentative schedules call for about
Si billion.
Missiles essentially are automatic
air weapons and therefore present
a logical projection of the airframe
market. But the airframe manufac-
turer's technical ability to dominate
the expanding margin is in doubt.
continued page 172
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Declassified and Approved For Release @50-Yr 2013/11/14: CIA-RDP74-00297R001001300039-8
4
Declassified and Approved For Release @50-Yr 2013/11/14: CIA-RDP74-00297R001001300039-8
Blue Chip Yonder continued
Until recently all that was expected
of him was that his products fly
higher, faster, farther. The various
electromagnetic sensing, comput-
ing, and guidance aids that were
meanwhile developed for more pre-
cise navigation and fire control were
incorporated as "black box" acces-
sories in a vehicle whose flight per-
formance was the prime desidera-
tum. Now, with the stress on auto-
maticity, the emphasis is being re-
versed. It is the "black box" that
has become all controlling; the air-
frame is becoming more and more
an outer wrapping.
Managerial revolution
The whole managerial approach
to weapons development is being
radically changed. Because the ef-
fective solution of specific tactical
situations requires simultaneous ad-
vances in new forms of propulsion,
electronic guidance, and control as
well as aerodynamics, the new trend
is to nominate as weapons-system
manager either a company or re-
search group and make it generally
responsible for developing the weap-
on in all of its various components
in logical sequence. And it is precise-
ly because most of the problem areas
are the specialties of the avionics in-
dustry?a generic term applied to
electronic, electrical, and optical
companies making equipment for
airborne weapons?that the air-
frame industry is worrying about
its franchise in the air. At stake is
the question of which will end up
as weapons-system managers?i.e.,
project managers?of the valuable
programs as they materialize.
Twenty-four major missile sys-
tems, ranging from relatively simple
tactical items to intercontinental
nuclear-armed projectiles, are under
development. The airframe industry
has over-all responsibility for nine of
these; the electrical and/or electron-
ics industry for seven; the automo-
tive and rubber industries for four.
Four other systems are presently as-
signed to government or university
research groups. Only two programs
have produced successful missiles?
the Army's ground-to-air Nike, for
close-in anti-aircraft defense, and
the Air Force's air-to-air Falcon, for
interceptor defense. Both systems
were designed and managed by elec-
tronic organizations?the first by
Bell Telephone Laboratories under
Western Electric Co., the prime con-
tractor, the other by Hughes Air-
craft. The other missile systems are
all lagging from . one to five years
behind schedule. And the recent
crisis in the Atlas program points up
172 FORTUNE July 1955
the acute difficulties besetting the
airframe companies in attempting
to master the province of the ana-
lytical physicist.
Atlas is the code name for a Man-
hattan District type of research
effort to develop for the Air Force a
reliable intercontinental ballistic
missile, known in the trade as the
ICBM. Although still in the rudi-
mentary stage, with the prototype
some years away, the project is mov-
ing along at a $100-million-a-year
pace. It is altogether possible that
five to seven years hence the na-
tional investment in this one weap-
on will approach $6 billion.
The evolution of Atlas is of spe-
cial concern to the airframe indus-
try for two reasons; first, because
the project threatens to intersect
the role of the strategic airplane
and, second, because the missile
itself is potentially so important an
item in the future air-weapons cata-
logue. Convair's predecessor corn-
pany, Consolidated Vultee, began
experimenting with the missile in
1946. The company kept the project
alive after the Air Force lost inter-
est. Then, after Soviet progress with
a comparable weapon finally caused
the American enterprise to be raised,
during the Korean buildup, to the
status of a major research under-
taking, Convair was given systems
responsibility for organizing a team
of subcontractors and suppliers to
bring the ICBM into being.
Trouble developed; the program
lagged. Last winter the Air Force
took over the direction of the entire
project on a "crash" basis. It en-
gaged, as its technical advisers, two
physicists, Drs. Dean Wooldridge
and Simon Ramo, who last year set
up their own electronic firm, Ramo-
Wooldridge Corp., in partnership
with Thompson Products. This is
the same pair whose brilliant de-
velopment of the Falcon missile
and various fire-control systems for
Pigeon Hole Parking
Two brothers, Vaughn and Leo
Sanders, of Spokane, Washing-
ton, have come up with a new
attack upon the parking problem.
Their system, Pigeon Hole Park-
ing, consists of two lines of steel
or concrete tiers, which may be
up to ten floors high. Each tier
has a line of car stalls (see pic-
ture). One or more (sometimes as
many as four) elevators run on
tracks between the tiers. A car
is parked on the elevator, which
automatically lifts and slides it
into a stall. Cars can be returned
to street level in forty-four sec-
onds. In the twen-
ty-seven of tne is have
been built throughout the U.S.,
and two in Venezuela. Nine are
under construction in the U.S.,
Canada, and Venezuela.
The Sanders brothers came to
Spokane from northern Washing-
ton in 1932, looking for work.
Vaughn became a timber broker,
and in 1944 he bought a small
sawmill in Northport, near the
Canadian border. Leo worked
as a truck and bus driver and
after the war bought a service
station in Northport. Their frez
quent trips to Spokane made
them aware of the acute parking
problem, and Leo insisted
the solution lay in perching
cars in roosts. They built
two experimental models
and after demonstrating
them with great success
in downtown Spokane for
the Better Parking Associa-
tion, Vaughn set out to find
financing and a manufac-
turer. He picked the Peters
Co., a Portland, Oregon,
hydraulic-engineering firm,
to make the elevators. The San-
derses undertook to build the rest
of the units themselves.
The first Pigeon Hole Parking
lot was built in Spokane in late
1950. This 142-car unit, four tiers
high, served by one lift, cost $36,-
400. (The largest to date is a 432-
car installation under construc-
tion in Spokane.) In 1951 the
Sanderses formed Pigeon Hole
Parking, Inc., capitalized at $2
million. Since then a lot of stock
has been sold to the public but the
Sanderses retain control; Vaughn
is president, Leo vice president.
Today, the price of equipping
a lot with Pigeon Hole Parking
varies from $900 to over $1,000
per stall, depending on type of
construction (i.e., steel or con-
crete, open or covered). Pigeon
Hole sells franchises to compa-
nies, allowing them the right to
buy the equipment. Franchise
holders also pay a royalty fee per
stall, sometimes spreading pay-
ments over twenty years.
The more new cars, the better
business will be for Pigeon Hole.
Last year the enterprise grossed
$1,680,000, netted $301,180; this
month the Sanderses will pay out
$70,000 in dividends.
Hughes (see FORTUNE, February,
1954, "The Blowup at Hughes Air-
craft") established them as the na-
tion's top experts on missiles and
military electronics. Although Con-
vair is to build the weapon casing
and do the final assembly, it no
longer has system management of
the missile; that role has passed to
Ramo and Wooldridge.
The move was a bitter demon-
stration of the criticism by military-
research experts and physicists that
the industry had been slow to equip
itself in the new technologies. Of
the major airframe companies, only
North American so far has made a
systematic effort to prepare a strong
position. It set up an aerophysics
laboratory in 1946; it is developing
its own rocket engine, as well as its
own fire-control and navigation sys-
tems. "Our business," says Chair-
man James H. ("Dutch") Kindel-
berger, "is the development and pro-
duction of all air weapons?includ-
ing airplanes." North American is
working toward a fully integrated
design and manufacturing position
in the missile and electronic fields
with a view of negotiating the tech-
nical transition as it evolves.
As befits an airframe producer
securely established in lush pas-
tures, Douglas has so far taken a
conservative line. It is satisfied, for
example, to be a subcontractor to
Western Electric in the Army's Nike
program, fabricating the vehicle
and launching device. Douglas is in-
volved in half a dozen different mis-
sile programs, in several of which it
is the prime contractor, but its pol-
icy, expressed by Engineering Vice
President Raymond, is "not to try
to integrate these other operations
under our own roof but to work with
outside specialists."
Gross's choice
Lockheed's strategy, as laid down
by President Robert E. Gross, has
been more opportunistic?"either
to work our way gradually into elec-
tronics or buy into a going company
in that field." Having failed last
year in an effort to buy Hughes Air-
craft, Gross undertook to recruit a
stable of physicists for his own mis-
sile laboratory?a move temporarily
frustrated by the Air Force's ban on
West Coast expansion. However, it
is altogether unlikely that Lock-
heed's maneuverings for a strong
electronic position have ended. On
the contrary, the struggle between
the airframe manufacturers and the
avionics industry for control of fu-
ture air weapons systems is certain
to introduce the most intensively
competitive situation the former
have so far experienced. END
Declassified and Approved For Release @50-Yr 2013/11/14: CIA-RDP74-00297R001001300039-8