4. Organization

The Corporation would consist of a Board of Directors, each of whom would be chosen by the President, subject to confirmation by the Senate. The members chosen would represent the Government, the public, the manufacturers, and the carriers. The Board would establish a corporate organization to carry out its responsibilities and perform its missions, and the cost thereof would be defrayed with funds obtained privately.

5. Capital

Authority would be granted the Corporation to raise capital by issuing and selling bonds, notes, and other evidences of indebtedness (bonds) for the purpose as stated above. The bonds would be obligations of the Corporation, operating under Federal charter, with Government supervision.

6. Description

The conventional features of the Corporation's bonds, such as rate of interest, callable and maturity dates, series and amounts, would be determined at the time of issuance, within limitations set by the Congress. The bonds would carry an "effective" guarantee by the Government with respect to the payment of principal and interest thereon.

7. Legality

The bonds of the Corporation would be lawful investments and acceptable as security for all fiduciary, trust, and public funds, the investment and deposit of which are under the authority or control of any officer or agency of the U.S. Government. The bonds would be exempt both as to principal and interest from all taxation imposed by any State or local taxing authority, except estate, inheritance, and gift taxes.

8. Interest

The Corporation would meet interest charges on its outstanding obligations in either or both of the following methods: (a) By including total anticipated interest requirements in each principal amount of serial bonds offered for sale; and (b) by requesting Congress to appropriate necessary funds.

9. Repayment

The Corporation's outstanding obligations would be repaid by the application of income derived from (a) a predetermined percentage of the profits earned by industry from the commercial production and sale of the aircraft; and (b) royalty payments added to the sale price of the aircraft to the carriers. Income from these sources would continue until the Corporation's indebtedness had been retired.

10. Termination

The Corporation's supervisory responsibility for construction of the prototype(s) would be sharply curtailed and eventually terminated when flight tests prove successful, basic FAA certification is obtained, and the point of production determination is reached. The principal remaining responsibilities of the Corporation would then be to meet interest charges on its obligations and effect the payment thereof, in finality.

11. Transition

Prior to arriving at a point of production determination, the Corporation would engage in preproduction planning, so as to permit an orderly transition from the status of Government development to that of private production. Im

plementation of this phase would provide for the continued use of the services of the development contractors and subcontractors in the production period, together with the full utilization of the Corporation's usable assets and trained personnel.

12. Production

When the Corporation determines production of the SST to be feasible, it would invite the airframe and engine development contractors and principal tier subcontractors to form a privately owned corporate entity for the purpose of carrying out the production task. Thereafter, the Development Corporation and the newly formed Production Corporation will enter into negotiations with the view of consummating an exclusive long-term production and management contract for the latter's account.

13. Transfers and assignments

The proposed production contract, referred to above, would include provisions whereby (a) the useable residuals after development has been completed, such as facilities, tooling, equipment, etc., transferred to and utilized by the Production Corporation, whenever practical; and (b) all designs, drawings, patents, patent rights, prototypes, and other perfections of value owned by the Development Corporation are assigned to the Production Corporation.

14. Consideration

(a) In anticipation of effectuating the transfer of the necessary useable residuals ($200 million depreciated value estimated on the first $1 billion of cost), and in consideration therefor, the Development Corporation would entertain a request from the Production Corporation, whereby the latter would solicit the bondholders of the former, offering to exchange its mortgage bonds for development bonds in a principal amount equal to the value placed on the property to be transferred. Thereafter, the principal amount of development bonds so exchanged would be canceled.

(b) In consideration for the assignment to and exclusive use by the Production Corporation of the patents, prototypes, etc., owned by the Development Corporation, the former will agree to allocate to the latter a predetermined percentage of the profits earned each year from the commercial production and sale of the aircraft. When the Development Corporation's indebtedness has been retired, ownership and title of all patents, prototypes, etc., would pass to the Production Corporation.

15. Proposal merits

(a) The impact resulting from a request to Congress to "appropriate" a huge and inordinate amount of funds for a commercial development project is obviated, and the necessity to budget for such funds is avoided.

(b) Assets in the form of useable residuals and patent rights which are transferred and assigned to the Production Corporation would provide a sound base upon which the latter may then obtain working capital through the sale of its securities (bonds and stock) to the general public.

(c) More effective surveillance of costs is assured because estimates thereof will be based on separate major stages of construction.

(d) Determination of industry's share of the development costs is deferred until all such costs have been computed.

(e) Staff authority and direction of the project is centralized in one agency, established for a limited time only.

53-537-65- -5

Mr. WHITEHEAD. First of all, as Mr. Cole has stated, we have talked to many persons-I guess 35 or 40-that have a basic interest in this project. One of those we talked with one afternoon for 3 hours was Senator Monroney, chairman of the Aviation Subcommittee of the Senate Committee on Commerce.

We gathered that after the meeting that the Senator felt that there should be further research in this area and that there should be more competition in the area.

On the next day I wrote the Senator, and I would like to read two sentences because this later was backed up in editorials by Aviation Week:

What we have suggested is a practical method of embodying many of the pertinent recommendations made by Mr. Black to the President in one entity. There is no reason why a further degree of design perfection might not be pursued under our plan, concurrently with the development of one or more configurations, if that is what is desired.

We feel that is what the Senator was driving at.

A joint endeavor such as here suggested would obviate the unnecessary delay of a year or so in the program which would only work to the detriment of the competitive positions of both the carriers and the manufacturers if imposed. Certainly none of us wish to see such a thing occur. We earnestly hope that you will see the wisdom of going forward together on a project which, once conceived, can only result in great benefit to all segments of the country. This, to be sure, must be the overriding motive.

That letter was dated the 27th of May. Under date of July 5, Aviation Week, which is a recognized spokesman for the industry, reported that:

We think that the President Johnson-McNamara supersonic transport program is pennywise and pound foolish. It will cost the Nation heavily unless it is accelerated in a more realistic technical pace that will offer potential customers some solid assurance of not being left at the post by competitors flying foreign equipment. Now only Congress can change the shape of this program, and we hope that before Congress appropriates another nickel for the supersonic transport development the legislators will dig to the heart of this matter. They should demand either an effective program with a development cycle that offers a better chance to hit the international jackpot or cut loose and scrap the pro

gram now.

In the second editorial, dated August 23, by Mr. Robert Hotz, the same party that wrote the first editorial, Aviation Week stated:

The time gap between the United States and the Anglo-French programs is widening beyond the formal 18-month stretchout. The use of incremental funding procedures and the look-see pause at every development milestone may have their places in military programs where the competitive angles are less apparent, but they are a built-in headwind to any commercial effort and historically have proven unsuccessful. The normal commercial development pace has far more an element of concurrency, where lessons learned from tests can be quickly applied to hardware while the development cycle is still underway. Heavier funding is committed earlier in normal commercial development practice to provide the flexibility that saves both time and money in the long run. We are not Monday morning quarterbacks here, gentlemen, but we foresaw from this lengthy meeting with Senator Monroney what was ahead of us. We appealed to him on the basis of developing the supersonic at the same time additional research was carried on, as indicated in Mr. Schultz' statement to the President under date of August 11.

Mr. EVINS. Mr. Whitehead, we have had presented to this committee two propositions; one is that the Government is engaged in the basic research at this stage; and secondly, that the French and British Concorde is underway and to maintain our superiority we must move rapidly, and if we had a satellite corporation in which stock was sold and subscribed, I understand your plan is similar, it might be long drawn out and we would probably be delayed. So there is an urgency. That is one thing that is presented to the committee.

The Government is in the field of research. Of course, they are now in about the third development stage and no final decision has been made on the financing of the supersonic transport itself. They are just in the research phase. It is entirely possible when the prototype is developed that at that stage they can say, it is going to cost a billion or a billion and a half dollars and maybe private financing is indicated. I believe the basic decision has been made to continue the research up to a stage at which we determine whether or not we are going to go forward with the construction. To repeat for two reasons-speed and Government in research.

Mr. WHITEHEAD. Conversely, we are of the opinion that speed and research can be achieved more rapidly under a private financing arrangement than on the basis of appropriating money. On the last page of our proposal where we have a chart, we have an expectancy offering date of October 15 of this year. We have taken and sectionalized the amounts of funds to be procured publicly based on the workload, as experts have gone over and ground these various functions in the development period. We do not say that you have to develop the thing alone without further research. We do not say that we do not want competition. We say this, gentlemen: That if you do not get on with this thing we are going to be lost to the foreign markets.

Mr. EVINS. You endorse the project and commend the project and say it should go forward. The basic issue is whether the Government should finance it.

Mr. WHITEHEAD. I say the basic research and some of the hardware business should go on concurrently, and we should not wait for 18 months to do nothing except further research. In our discussions we hit probably everybody downtown that was concerned with this. That includes in the first instance Dr. Welsh at the National Space Council and when it appeared to have shifted from his purview it went over to Mr. McNamara and Dr. Welsh wrote a memo to him regarding our approach. We talked to FAA. We talked to Commerce. We talked to Treasury. We talked to Budget. In our discussions with one of the agencies we had the very definite impression that the Government was fairly well along on this research program and that it would not take too much more time and endeavor to make a selection as to getting ready for development operation. We do not say that one contractor should be favored over the other. We certainly do not minimize the element or the necessity of having competition.

The technicians have reviewed this plan and all the contractors, with the exception of General Electric, and have been over it with a fine tooth comb. A friend of my colleague, Mr. Russell here for