Mystification

Enough aircraft makers had reported their second-quarter 1941 earnings by last week to prove one startling fact: despite the industry's terrific production pace, its first-half profits rose less than run-of-the-mill industrials. Five top-flight plane builders (Curtiss-Wright, Douglas, Martin, North American, United) netted $27,229,000 in the first six months, only 21% over 1940. But a cross section of U.S. industry (135 motors, steels, oils, etc.) was able to boost profits 30% (TIME, Aug. 11).

Taxes were most obviously to blame--chiefly the excess-profits tax, which feeds on the aircraft industry's low pre-war profits and small capitalization.

In 1941's first six months, five big companies set aside some $48,000,000 for taxes, more than 500% above 1940. (Taxes on the 135 industrials rose 250%.) Shareholders were bewildered by the way some planemakers deducted everything within reach. Examples:

> Big United Aircraft increased its first-half gross 210% over 1940 to a record $121,830,000; net-before-taxes to $25,883,000, also a record. Then it whacked off 80% of this for Federal taxes, thus cut net to $5,583,000 v. $6,228,000 in the first half of 1940 (when taxes were computed at 22%). Under existing or proposed tax law, the 1941 write-off looked as if it discounted the moon.

> Douglas Aircraft (bombers, transports) went easier on itself, set aside 30% of net for taxes. So first-half profits rose from $3,389,000 to $4,200,000, highest ever.

> No. 1 planemaker Curtiss-Wright (pursuit ships, Wright Whirlwind motors) keeps its taxes a deep secret, but apparently took the middle road. The result: first-half shipments were up 200% to $142,273,000; net was up 71% to $10,664,000.

> Aside from United, only big producer to show lower profits than a year ago was bomber-builder Glenn Martin, bitten by production bugs (aluminum shortages, redesigning, etc.), as well as by taxes. Its first-half sales rose only 36% over 1940; profits--after computing taxes at 60%--dropped 31% to $2,950,000.

One thing all planemakers showed plenty of: backlog. This now totals $5,500,000,000 for the industry, enough for three to five years of capacity operations at current production rates.

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