AVIATION: Clearance for Planemakers

Twelve months ago House Armed Services investigators set out to determine whether U.S. planemakers are making excess profits on military contracts (TIME, March 5). Last week, after an investigation of twelve major plane producers, the Congressmen concluded: "There has been no showing that, on the average, the profits allowed are excessive."

Indeed, plane producers showed 1955 profits totaling only 2.5% to 4.6% of sales v. 6.7% for all manufacturing. But the investigators considered this a fair relationship. Said the subcommittee report: "It is not to be expected that the airframe industry, which is almost 100% Government-financed, with low private-capital investment, and large plants plus the large amount of working capital supplied by the Government, should expect an earning power comparable to business with heavy capitalization and the risk of commercial sales and inventories."

Yet, without this Government assistance, observed the investigators, the military aircraft industry would not be able to fill the nation's needs in time of emergency. The subcommittee noted that planemakers do risk huge losses by summary contract cancellations and failure to win contracts, even though large amounts have been spent on preliminary designs. It commended the industry for plowing back 60% to 70% of net earnings in research and development.

The planemakers were lightly slapped for charging large executive salaries and bonuses to cost allowances on Government contracts, for hiring recently retired military generals "fresh from the opposite side of the desk" and giving them nebulous "advisory" positions. Said the report: "Companies whose business is so closely interwoven with the Military Es tablishment ought to lean over backward so that no suggestion of favoritism, influ ence, or 'old school tie' could be read into their conduct."