years, is Bill Littlewood who is probably the outstanding engineer in the business, is one who reviewed our project.

Mr. EvINS. Is it correct that Mr. Black, formerly of the World Bank, at one time recommended private financing but he is now on a committee that recommends that the Government go forward with the financing of the research phase of the program.

This is our impression.

Mr. WHITEHEAD. Mr. Black in his report, the only report I ever saw, made no mention of private financing at all, sir.

I don't know that he is on the McNamara committee now.

Mr. EVINS. I think he is on a committee that recomends that the Government finance the research phase of the project. That is my understanding. I am asking you to correct or confirm it.

Mr. WHITEHEAD. No, sir, I don't know, that is a fact, sir.

Mr. EVINS. You know there are four contractors-two airframe and two motor-to provide competition in each field.

Mr. WHITEHEAD. That is right.

Mr. EVINS. At the end of the research period a prototype design is to be selected. Thereafter it would seem to me that this would be the point that you and your associates might want to present to all appropriate authorities, the Budget Bureau, FAA, the proposition of private financing.

Mr. WHITEHEAD. We feel that we are at that point now, Mr. Chairman, and we should go forward on a private financing basis, concurrently with a research program further extended, with the actual development with the hardware, and we will save a considerable amount of time.

This is the thing that we are urging, going ahead and trying to close this gap between the Concordia project and our own. We have not found anybody downtown who disagrees with us. This is the startling thing. In the Commerce Department they were assigned the responsibility by Mr. McNamara to make a thorough research. We understand that they made as many as four reports. After the fourth report, Mr. Connor, the Secretary, wrote me and asked us if we would cooperate. We were very happy to do so.

I had a very fine letter from him and we spent over 2 hours with his staff outlining our proposal. At the conclusion, I turned to Mr. Katz, who was in charge of the whole study, and I asked, "What do you think of this proposal at this time?" He said, "It is realistic, practical, and expedient."

They used our approach to this thing in chapter 4 on the financing aspect, and we are happy to have given it to them because we are trying to put something into effect that we think is eminently good for all segments of the country. This has been discussed with a number of investment bankers up in New York. I am authorized to tell the committee today that White, Weld & Co. gave their consent to the use of their name. They are one of the oldest investment banking firms in the country. In 1964 they participated in the sale of $2.9 billion of municipal bonds, 28.3 percent of all that type of financing during the year. They have authorized me to tell the committee that we can go ahead and do this job with private financing from this point on.

The reason we insisted-not insisted, sir, but the reason we were very interested to come here to talk to you today is that, based on the

informal advice that we got from the Treasury Department, this can be done without affecting our debt limit, which is, we think, a good thing. But the form or corpus of the proposal and everything probably would have to originate in another House committee. They urged us to be sure to fully inform the Appropriations Committees and we did not want any kickback of trying to arrange financing through other than the ordinary method of informing these committees.

The Federal credit idea of guaranteed loans is increasing immeasurably every year on certain types of projects which are not in the every day-to-day activity of the Government. Senator Gore, incidentally, a year ago, got on the floor on another matter and expounded at great length that this should be pursued wherever feasible and effective in order to soak up the excessive investment funds that we have in this country, which are tremendous. The President's Council of Economic Advisers in their 1964 report also pointed this out.

Mr. EVINS. Perhaps we shall turn to this method of financing more and more in the years ahead.

Mr. WHITEHEAD. I think that is true.

Mr. JONAS. May I read one statement from Mr. Bain in our hearings the other day, because I would like your comment on it. It has not been published so far. We went into that with him. You would see nothing wrong with that?

Mr. EVINS. Proceed with your questions.

Mr. JONAS. Mr. Bain answered a question about private financing. He said:

All the so-called financing proposals by private sources are based on Government guarantees so that if anything happens the bondholders will receive their money. If we proceed with so-called private financing at possibly a 41⁄2 or 5 percent interest rate and if there is any attempt to amortize this over a small number of aircraft such as 200, which is suggested, the price of the airplane due to the accumulation of the interest will probably be outside the economic range of the airplane.

Mr. WHITEHEAD. Would you like me to comment on that, sir?
Mr. JONES. Yes.

Mr. WHITEHEAD. In the first place, the Air Transport Association has estimated, I believe, a minimum requirement of 400 aircraft, and we are informally advised the Department of Commerce report estimates there will be about 1,000 of these aircraft produced. I do not think the American manufacturers can produce them in the market along with the foreign manufacturers. It has to be one or the other. Mr. JONAS. We did not have any testimony which indicated they would produce or sell anything like that number of supersonic transports in the foreseeable future. They are shooting at 200.

Mr. WHITEHEAD. The Air Transport Association has a special release out on this, sir. Four hundred is their minimum estimate. They have raised that now, as I understand it, to 500 or 600. Of course, if you are going to build only 200 of these, Congressman, then we had better stop right here and now.

Mr. JONAS. They were not talking about a total but only in the foreseeable future.

Mr. WHITEHEAD. Mr. Bain talks about a 41⁄2- to 5-percent interest rate. Some Government issues now are carrying a 412-percent rate. but a more likely rate would be around 334 to 4 percent. It would

be on a 20- or 25-year basis, which is a practical basis upon which to amortize the securities that would be sold.

Mr. EVINS. Of course, the airlines have already made deposits with the reservations on the purchase of some of these.

Mr. WHITEHEAD. Ninety-nine of them, so we understand.

Mr. EVINS. A great number, foreign and domestic.

Mr. RHODES. Sir, your Development Corporation, as I understand it, would have to start from a standing stop, would it not? Mr. WHITEHEAD. I beg your pardon?

Mr. RHODES. There is no such corporation in being at the present time!

Mr. WHITEHEAD. No, sir. It would be similar to the Export-Import Bank, RFC. Commodity Credit Corporation.

Mr. RHODES. How long do you think it would take to obtain the type of expertise that is necessary and weld it into a team so you could go ahead?

Mr. WHITEHEAD. One of the things Mr. Bain said in our meeting with him—and we remember this very particularly-was that this would be an excelent way to keep his team together, the expertise, so to speak. We have talked to industry

Mr. RHODES. Do you have in mind taking over Mr. Bain's team? Mr. WHITEHEAD. No. I have nothing to do with that. The directors of the Corporation would be Presidential appointees.

Mr. RHODES. You are just selling bonds?

Mr. WHITEHEAD. I am not selling bonds. I am trying to sell an effective idea. I have no connection with the securities business, what

soever.

Mr. EvINS. It is the legislative process and then putting the team together that would take the time. This is one of the things they point out as delay. Research is already underway.

Mr. WHITEHEAD. We talked to industry about what it has on hand, and the way they would effectively go to work under this project. It would take but a couple of months to get a good, effective team set up. This Corporation would exercise staff supervision. There would not be a million people on the payroll to do the job.

Mr. RHODES. You want us to stop the SST situation right in its tracks and wait until you get the legislation through?

Mr. RUSSELL. No; we would not stop anything. We are merely putting the financing and development along with this research. We would not stop anything.

Mr. WHITEHEAD. A concurrent path. In other words, there would be two efforts. Both the research and the development operation would concurrently go together under a new scheme of another corporation out from under the FAA, simply because the FAA has a billion dollars worth of business a year as it is. We do not think it is going to go very fast with what the Administrator has to do in the normal course of his ordinary day-to-day business.

Mr. JONAS. How do you propose to go ahead with the procurement of hardware while you are doing this research? They want $140 million for additional research.

Mr. WHITEHEAD. I think that amount is unrealistic, sir. I think there is not that much research business required to get the show on the road.

Mr. JONAS. They say they have four manufacturers attacking it simultaneously.

Mr. WHITEHEAD. Right. But we were led to believe in one of our discussions with a very prominent person in a downtown department that they had already reached a very high degree of perfection.

Mr. JONAS. What you are proposing, in effect, is a corporation similar to Comsat.

Mr. WHITEHEAD. No. Let me stop right there. Comsat has some good features, sir, but it has some bad features, also. There is no common stock at all in our proposal.

Mr. JONAS. You would not want a separate corporate entity to handle research, development, and manufacturing.

Mr. WHITEHEAD. Yes, sir.

Mr. JONAS. You are in the wrong forum. We do not decide policy in here. You have to sell that to the administration or to a legislative committee.

Mr. WHITEHEAD. I tried to explain to Mr. Evins that the Treasury advised us to fully inform the House Appropriations Committee of what we were doing. We do not want a kickback from our efforts. The Treasury suggested that our plan be cleared and evaluated by the House Committee on Appropriations; to advise it of what we propose here simply because it is your prerogative.

Mr. JONAS. What has the Treasury to do with it?

Mr. WHITEHEAD. The Treasury advised us, sir, if we sell these bonds with a technical guarantee and not an effective guarantee, it would not inflate the debt limit, and at the same time the expenditure

Mr. JONAS. That would depend on whether there was a default or not. It would not be reflected in the day-by-day operations.

Mr. WHITEHEAD. I now rely on what Mr. Bain told us, that 2 years ago the manufacturers were not sure that they could build an SST that would fly. He told us in April, "Now they tell us that they can built an SST that will fly and," he said, "I fully concur with it." Mr. JONAS. Is Mr. Bain a technical man in this field?

Mr. WHITEHEAD. I am not in a position to judge that. I think he has done a mighty fine job. I do not think he is a finance man, though. Mr. GIAIMO. Did you get into the question of how these bonds would be repaid?

Mr. JONAS. No, not today.

Mr. SHIPLEY. Let us ask him.

Mr. GIAIMO. Will you tell us?

They

Mr. WHITEHEAD. This is all set out in our program here. would be amortized over a period of some 20 to 25 years. If we were able to sell on a competitive basis the first series would be offered on October 15 of this year. The amount would be $150 million of series A-bonds. That would take care in the first year of the general design and engineering and some tool procurement for the construction of both the engine and also the airframe.

For each of the next 4 or 5 years, certain amounts would be sold to the public in series B-, C-, D-, and E-bonds, staggering the amortization over a period of from 20 to 25 years. By the end of the eighth or ninth year, production income would be forthcoming from the profits at a predetermined percentage to pay off the bonds. At the end of the fifth year we would wash out about $200 million of the total amount

of bonds which would be exchanged for bonds in a proposed production corporation. This would accelerate the pace of reducing the indebtedness of the corporation.

Mr. JONAS. Who would pay the interest?

Mr. WHITEHEAD. The interest is paid in one of two ways.

It could be through funds appropriated each year, or, as is done in the case of revenue bonds, it could be included in the principal amount of securities sold each successive year to cover the interest.

So we reduce the indebtedness after 5 years and the engineers tell us there would be $200 million salvaged from the development operation to use in the production effort. We would start a reduction of the amount of indebtedness outstanding at the end of the fifth or sixth year. There is one point here to also emphasize. I do not really think that the Government and the manufacturers can realistically arrive at a division of financial responsibility in this project. I do not think that 75-25, or 90-10, or 85-15 can be determined before the animal is built and flown.

Incidentally, the Department of Defense, I understand, is using this continuous flow chart in one of their military projections. In the final analysis the Production Corporation would take over from the Development Corporation. Everyone who had a hand in developing the transport would have a participation in the Production Corporation, as would the public. A part of the profits would be predetermined and set aside to pay off the indebtedness of the development project.

To us, it seems more realistic to assess the responsibility percentagewise in dollars and cents after the animal has been built and flown than before.

We understand even at this present time in the meetings and conferences they have had down here, there has been a great disagreement on the 75-25 division of financial responsibility.

You see, if the corporations such as Boeing, Lockheed, and United Corp. were able to undertake this with a combined net working capital of their own, it would not be necessary to come to the Government for any help, but they cannot.

The only one that can come anywhere near achieving this objective is the General Electric Co. But here is the element competition, to be sure. There is some grave doubt the four of them would want to combine and pledge their net working capital into a joint operation. It also involves extensive and tedious arrangements with the obtaining of the stockholders' and bondholders' consent, so they cannot go forward immediately under their own steam.

Mr. EVINS. This is specifically the reason why many maintain the appropriation process should be used to speed the matter along. We are interested in moving forward fast. If we formed the corporation and sold the stock, it would be a delaying process.

Mr. WHITEHEAD. The 18 months in our estimation is wasteful, unrealistic, and unnecessary.

Mr. MINSHALL. Do you feel we are ready to go ahead with the prototype?

Mr. WHITEHEAD. Yes.

Mr. MINSHALL. As of when?