Aviation: Jet Albatross

For most of U.S. industry, recent weeks have been rosy ones—a time for reporting the increased earnings that confirm that recovery is indeed under way. But in the midst of this happy chorus came an ear-splitting burst of cacophony—the news that giant General Dynamics. 15th largest industrial corporation in the U.S.. had suffered a first-half loss of $39.5 million. More sobering yet was the fact that General Dynamics was suffering from a difficulty that besets the biggest names in the commercial airframe industry. Cause of the trouble: the jet transport.

The high operating costs of the glamorous jets are bringing headaches to the airlines (“TIME. July 21). but the airlines’ woes are relatively bearable compared with those of the planemakers. For their manufacturers, jets have two almost insuperable drawbacks: 1) heavy development costs, and 2 ) inadequate markets.

In the U.S., General Dynamics, Douglas Aircraft and Boeing Co. all rushed into a market that might have supported one or two of them in comfort. As the planemakers faced the problems posed by bruising speeds and complicated electronic gear, original cost estimates of the jets got left way behind. Said one airframe executive last week: “We’d sound like damn fools if we told you what we first thought they would cost.” Talk of reaching a break-even point, where costs finally give way to profits, has now faded from the conversation.

Still Developing. General Dynamics, which was late getting into jets, has been hit with one of the highest product development costs in history. To develop its Convair 880, 880M and the long-range 990 (which is not yet certified by the Government), the company has spent $350 million. Of this, $116 million occurred unexpectedly this year, partly because of a wing-flutter problem in the 990. So far. General Dynamics has sold 114 jets and delivered 38. many of which, through controversial maneuvers (see below), have turned up in TWA’s fleet. General Dynamics Chairman Frank Pace Jr. gloomily predicts that “the potential commercial jet transport market indicates no likelihood of full recovery of losses from future sales.” What’s more, warns Pace, the General Dynamics jet program will almost surely engender more “excess costs” before it is finished.

By concentrating on fewer models than General Dynamics. Douglas has managed to keep its cost on the long-range DC-8 jet down to $292 million. But with 172 DC-8s sold and 146 delivered, a Douglas spokesman admits that “we’re still developing the plane.” Back in the halcyon piston days, it cost Douglas only $42 million to bring forth the profitable DC-6. In the last two years the DC-8 has hit Douglas with $53 million in losses after balancing the costs against profits from other divisions.

The Optimist. Seattle’s Boeing gained an advantage over its rivals because it first sold its 707 as a tanker to the Air Force, and got most of its bugs fixed in doing so. (Flight-testing the DC-8 took 2,284 hours at costs of up to $10,000 an hour.) But Boeing earned its advantage by gambling $18 million to build a prototype for the Air Force to look at before it bought. With 40% of the world jet market, Boeing has so far sold 439 of its 707s, its medium-range 720s and its short-range 727s (first deliveries in 1963). Boe ing has succeeded in paying its development costs only by writing them off against its other profitable divisions. Still. Boeing President William M. Allen is the most optimistic company head in the business. Says he: “If present sales trends continue, we should ultimately reach the break-even point on all present jet programs.”

The only other jet maker in reasonably healthy shape is France’s Sud-Aviation, which has already sold or contracted to sell 150 of its medium-range Caravelles and. with the aid of a husky government subsidy, should hit break-even well short of 200. Even subsidies have not turned the trick for Britain’s jet manufacturers. De Havilland, which led the world with the original, ill-starred Comet, has sold only 63 of the redesigned Comet IVs. has scant hope of reaching its estimated break-even point of 80-90 sales. Vickers, which hopes to have its long-range VC-io ready for delivery in 1963. is painfully aware that this is apt to be too late to break the 707’s hold on the market.

As they struggle to shake off the financial burdens of the subsonic jet, the airframe makers are haunted by another specter: the projected supersonic jet transport. To build a plane tough enough to withstand Mach 2 speeds would pose such immense problems that Boeing estimates development costs at $800 million. The most optimistic guess of the potential market for Mach 2s is only 450 planes by 1975; one longtime airline operator puts it as low as 50 (“a national prestige item”). There is every indication that the airframe manufacturers do not need two burnings by jet to learn their economic lesson, will steer clear of the Mach 2 until they can count on heavy Government loans or subsidies.