Money in the Air

In 1926 a young Harvard Business School graduate named Charles Walton ("Chuck") Deeds who was fiddling around with marine engines in Hamilton, Ohio, found himself with $40 to invest. Long interested in aviation, he decided to buy 200 shares of Pratt & Whitney Aircraft Co. Year before that company had been launched by his father, Col. Edward Andrew Deeds of National Cash Register, and two dissatisfied Wright Aeronautical Corp. executives-- Frederick Brant Rentschler and George Jackson Mead. Pratt & Whitney Aircraft had one small shop at Hartford, Conn, and $1,000,000 worth of debts. On paper its stock was not worth even the 20-c- per share "Chuck" Deeds had paid for it.

By the time, the first twelve experimental Wasp and Hornet engines were sputtering and coughing in the Pratt & Whitney shop, Shareholder Deeds had moved to Hartford to become assistant treasurer, later secretary & treasurer and still later vice president. The next two years were banner years for Pratt & Whiney and for Stockholder Deeds's $40 investment. Pratt & Whitney engineers developed the highest-powered air-cooled motor in existence, fitted with split crankshafts (for greater endurance), new type cylinder heads (for greater cooling). Lindbergh's flight across the Atlantic fired a nation-wide interest in aviation--and aviation stocks. The public rushed into a market already on its way up to its 1929 crest. The U. S. Government bought practically every one of the 261 Pratt & Whitney engines made in 1927, about half of the 1928 production of 953 units. The little group of organizers, all active in the company, kept their shares away from the public, voted a stock dividend of 79 shares for one. Thus "Chuck" Deeds's 200 shares entitled him to 15,800 more.

In 1929 United Aircraft, formed out of the Boeing Aircraft companies, took Pratt & Whitney over as a subsidiary, giving two and a fraction shares for one. Stockholder Deeds exchanged his 16,000 shares for 34,720 of United Aircraft, then selling for $97 per share. Net value: $3,367,000. United's airmail contracts, plus Pratt & Whitney's prosperous engine business, plus the bull market, pushed the stock up to a peak of $162 in May 1929. Mr. Deeds's $40 became $5,624,000. He liquidated holdings worth $1,600,000, but his remaining stock, at last week's price, was still worth $495,000.

Such was the story (with its background) "Chuck" Deeds had inched out of him last week on the witness stand before the Senate Committee investigating airmail contracts. There was no suggestion that he had done anything wrong while being made a millionaire by a lucky combination of aeronautical engineering, business economics and public enthusiasm. But there was a very definite suggestion that something was wrong when great fortunes could be made out of an infant industry--i.e. aviation-- which supposedly would have starved to death without Federal subsidies.

Senator Black, as chief investigator, sent the Deeds testimony to the Treasury to be checked over for income tax purposes and then turned to another United Aircraft official to hear the same story on a larger scale.

Vice Chairman Rentschler, brother of National City Bank's President Gordon Sohn Rentschler, had bought $253 worth of Pratt & Whitney stock, ran up a paper profit of $35,000,000, liquidated most of his holdings for $9,514,000. While "Chuck" Deeds's salary and bonus as secretary-treasurer and vice president had been comparatively modest, Vice Chairman Rentschler collected $1,585,544 in six years--the years during which the U. S. Government paid to United Aircraft's subsidiaries a total of $87,564,988 (half of which it got back from the public in air stamps) for mail contracts, engines, Army & Navy airplanes and equipment. He testified that in 1929 alone he had received from United Aircraft $431,544 in salary and bonuses, that in 1932 his salary had been raised from $148,000 to $192,000.

Senator Black cut in: "Mr. Rentschler, do you think it is right for the U. S. Government to subsidize companies which pay officers in salaries and bonuses as much as $400,000 a year?"

The witness squirmed in his chair. "No -- but it depends some on what the subsidy is."

"If one individual within a period of six years draws salaries and bonuses of $1,500,000, don't you think the Government ought to limit that aid?"

"Yes. I do."

"Then," said Senator Black, "you don't need any subsidy at all." Mr. Rentschler smiled, swallowed, said nothing.

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