Planemakers Grounded?

Most puzzled stockholders in the U. S. are those with aircraft shares. While the aviation industry is U. S. defense beneficiary No. 1, its stocks act as though their gas lines were plugged. Last week, industrial stocks had risen more than 20% over their 1940 lows. But aircraft stocks had risen less than 15%. Brokers, tipsters and statistical services had two standard explanations: 1) uncertainty over the excess-profits tax; 2) the possibility of Britain's going under.

Both explanations made some sense. If the excess-profits tax, which came out of conference this week, takes up to 50% of profits above the 1936-39 average, the airplane makers (who made little or no real money before 1939) will be harder hit than more mature firms.

Britain is scheduled to buy 40% of U. S. plane production for the next two years. If Britain falls, the industry will still have its hands full with domestic orders. But British orders yield 20 to 30% net. Although the Vinson-Trammell profit limitation on Army and Navy plane orders is being repealed, U. S. Government contracts will never be as cushy as that. Nor can investors envision a peacetime market for planes anywhere near the present demand.

For planemakers, 1940 is the most prosperous year in history. The six leaders netted $22,250,000 in 1940's first six months, more than double the same period of 1939. U. S. aircraft exports in August ($37,000,000) were three times those of a year ago, may reach $350,000,000 for the full year. Total estimated output in 1940 will pass $600,000,000 (representing 7-8,000-odd planes), more than twice 1939's. But far more impressive than its production is the rate at which the industry's unfilled orders are piling up.

In 1929 the U. S. aircraft backlog was $50,000,000 or less. Last October it was $392,000,000. Last week, for 28 airplane, engine and parts makers, it was over $2,500,000,000. In this figure were $627,000,000 for Curtiss-Wright, $395,000,000 for Douglas, $373,000,000 for United Air craft, $218,000,000 for Lockheed. Backlogs of the smaller fry (called "marginal producers" less than a year ago) were scarcely less dizzying. Sample: 46-year-old Lawrence Doane Bell's Bell Aircraft (Airacuda, Airacobra), whose books bulge with $60,000,000 in orders, up from $7,500,000 last year, $50,000 in 1935.

Such backlogs made tax and export doubts look niggling. Yet aircraft stocks have not fattened on the feast. Among Wall Street philosophers, another explanation has been gaining currency: perhaps aircraft orders were altogether too big for the industry to handle.

For really big profits, the young aircraft industry is not technologically equipped. In spite of many improvements in manufacturing technique, it has achieved its present production level (about 900 planes a month) without basically altering the hand-tailored methods by which it made 275 planes a month last year. Its expansion has been rapid but lateral--chiefly in floor space and men. Fixed costs per unit do not fall very fast that way. Last week Scripps-Howard Columnist Ernie Pyle described a trip through Buffalo's vast Curtiss-Wright plant, No. 1 U. S. producer of combat planes. Each of the 154,000 rivet holes in a P-40 was drilled by hand. Said he: "It is almost like building a house." Good planes may not be susceptible to mass production, but until they are, aircraft makers are not capable of mass-production profits.

Nibbling like beavers at their forest of orders, aircraft makers have had no time to experiment with new techniques. Nor could private capital be expected to back so costly an experiment. Reason: nobody knows how long the limitless defense demand for planes may last. But post-war problems do not immediately concern Defense Commissioner William Knudsen. When he came to Washington (an auto man) he counted out Henry Ford's futuristic offer of "1,000 planes a day," quickly allayed planemakers' fears that he might try to move their industry to Detroit. But last week, having watched the industry shoot up to deceptively adult size, he was pondering ways to teach it some adult Detroit tricks.

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