Too Profitable?

Congress, in the person of a subcommittee headed by Louisiana's F. Edward Hebert, has been investigating U.S. aircraft companies on the suspicion that their profits are too high, their executive salaries too big, and their payrolls loaded with retired generals whose chief job as executives is to get military contracts out of the Pentagon.

Most major witnesses--doubtless because they are more engineers than publicists--have done little to disabuse Hebert's subcommittee of this notion. But last week Boeing Airplane Co.'s President William Allen, a lawyer with a clear grasp of finance as well as manufacturing, flew into Washington. He was not only armed with a 1-lb. 6 1/2-oz. printed statement containing charts and figures, he was also armed with the conviction that the air craft industry, not the government, is being shortchanged.

No Cushion. Congress, said Allen, should "not only think about whether we are making too much money, but whether we are making enough, in the light of our responsibilities." He recalled that Boeing, which now sells more than 99% of its output to the Government, had lost money before World War II in developing warplanes, such as the B-17 Flying Fortress. Hence, it was forced to go through the war with no profit base as a cushion against excess-profits taxes, had to pay the maximum tax of 90%.

When the war ended, Boeing again lost money in the struggle to stay healthy for the next war. "It was essential that we preserve as large a nucleus as possible of that know-how that we had built up," said Allen. "We preserved that nucleus by commencing construction of 50 Strato-cruisers without any orders . . . We lost money on them. But it kept our organization together." This organization is now building B-47s and B-52s, backbone of the Strategic Air Command.

Boeing's net profit after taxes in the years 1952-54 was 2 1/2% of sales, compared to 7% for the auto industry and 10% for the chemical industry. Allen pointed out that the Vinson-Trammel Act of 1934, which set up standards for profits on military aircraft and ships, considers a profit rate of 12% entirely reasonable on Government contracts. "But when we made two point something percent after taxes, the Renegotiation Board says, 'That is too much.' Such action is not only shocking and appalling; it is sickening." Out of the $50 million earned before taxes in 1952, Boeing is now being asked to give back $10 million.

No Free World ? Allen said that Boeing has "retained approximately 70% of our earnings in order to do a better job. Industry generally retains about 45%. If we had greater earnings, we could pour that money into laboratories, into developing new articles, just as we did with the 707 [jet tanker-transport], which has saved the Government precious time and money." When Hebert argued that the profits Boeing used for research and development was "Government money, 99%," Allen replied: "Mr. Congressman, I do not consider your salary Government money. I consider it yours."

When Allen was through, Hebert congratulated him on his "well-founded" argument. Massachusetts Republican Congressman William H. Bates went above and beyond the call of courtesy. Said he: "I think you were performing a tremendous service not only to the United States but to the entire free world, because if it were not for Boeing today, perhaps there would be no free world."

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