that was not in a belligerent zone. With regard to transferring these plants from a zone of danger and exposure on the Pacific coast-has that been given serious consideration? General ARNOLD. We have given it very careful and thorough consideration, but when we talk about transferring factories in the United States, we have different conditions than they have in Russia. (Discussion off the record.) Mr. LUDLOW. Do you have definite plans for the removal of any of those plants to interior positions? General ARNOLD. The plan we are working under now is this. It would probably cost us more in airplanes to move the existing plants than to leave them where they are, because the new plants going up in the interior will provide us secondary sources, which may even turn into primary sources as they develop and as they grow. PROCUREMENT OF STRATEGIC MATERIALS Mr. LUDLOW. Do you anticipate that you will be able to procure enough material to carry out this enormous program; and in that connection, what is your aluminum situation? General ARNOLD. I just came back from the Alcoa plant and they have put up several new factories. They assured me that they will be able to turn out aluminum to keep pace with our expanded aircraft program. The magnesium production has been given considerable study by the Raw Materials Section of the O. P. M. and by the War Department, and we have every reason to believe that we will be able to meet our requirements of raw materials. We may have to cut down a little bit here and there, draw in the belt in line with general consumption throughout the United States. But we have got to do that anyhow. Mr. LUDLOW. Then you think the material situation will iron out satisfactorily? General ARNOLD. I think it will iron out, and I think that we have taken the necessary steps to insure that it will iron out to meet this program. CHEMICAL WARFARE APPROPRIATIONS Mr. LUDLOW. I understood you to say that there was an item here of $321,000,000 for the Chemical Warfare Service, is that right? General ARNOLD. Yes, sir. Mr. LUDLOW. There is very little of chemical warfare going on now, is there not? General ARNOLD. Well, incendiary bombs are a part of chemical warfare, and quite an essential part. But we have experts here on that who will go into all of those individual items, from the Signal Corps, Ordnance, and the Chemical Warfare Service. CANCELATION CLAUSE IN CONTRACTS Mr. LUDLOW. Just one other question, and that is this. In view of these tremendous obligations that are being placed on the Treasury, is there any provision for cancelation in case peace should come, so that we may drop this program? General ARNOLD. That is provided in all of our contracts. Mr. LUDLOW. Thank you. INCREASED COST OF PLANES Mr. O'NEAL. General, I would like to ask one question. There is one thing that I cannot understand. Even though the price of materials has gone up, I cannot understand why the unit price of Army matériel, whatever it may be, airplanes or anything else, should be greater as time goes on than it was in the beginning. The statement was made here that the unit costs are larger. General ARNOLD. They have gone up tremendously. Mr. O'NEAL. We have discussed off the record costs of airplanes as such. Take the one item of the airplane engine. As these engines have gone into production, has the unit cost of the engine gone down? I am not referring to the cost of the whole plane, but merely the cost of the engine, after it became an assembly-line proposition. Has the unit cost of that engine gone down? General ARNOLD. I would like to ask Mr. Wright of O. P. M. to make a statement on that. Mr. WRIGHT. No, sir; it has not. It would have gone down had the other factors remained constant; but, as General Arnold has said, those other factors have gone up, and it has more than counterbalanced any of the decreased costs that you would expect from increased production. Mr. O'NEAL. Then you are building a different type of engine? Mr. WRIGHT. No; I am speaking of the same type of engine. The cost has gone up. For one thing, we have had to bring in inexperienced labor, which is another factor to be considered. It costs more to use that labor than to use the skilled labor that we had originally. Mr. O'NEAL. Does not that work both ways, that the longer you use this new labor the more skilled they become, and therefore the lower your costs become? Mr. WRIGHT. But we are getting a bigger percentage of unskilled labor all the time. Mr. O'NEAL. Of course, when you started, they were all unskilled, were they not? Mr. WRIGHT. No. We had the nucleus of an aircraft industry and at that time those men were all skilled. Mr. O'NEAL. I would like to say this, in conclusion, Mr. Chairman. I should like to see in the record some intelligent statement setting forth the reasons why unit costs do not go down, even on the entire airplane; and certainly on some of the integral parts of the plane, such as the engine, or some other item which can be standardized in manufacture. It is very difficult for businessmen to understand why costs for airplanes tend to go up instead of down. (Statement furnished by Mr. Wright:) DISCUSSION OF THE REASONS WHY PRICES TO THE GOVERNMENT FOR AIRPLANES AND COMPONENT PARTS HAVE, IN GENERAL, INCREASED DURING THE PAST YEAR AND A HALF TO 2 YEARS At the hearing before the House of Representatives Appropriations Committee on January 20 the above question arose, and the writer was asked to set down the contributing causes of the situation with which the Government is confronted with respect to airplane prices. The following, therefore, gives the writer's views as to the reasons for the price increases which have maintained during the past period of expansion and which, to some extent, may be anticipated in the future. The increases in airplane quantities which are contained in programs under succeeding appropriation bills have been such that under normal conditions, and with other things being equal, would have resulted in reductions in prices up to as much as 40 percent, depending, of course, on the particular quantities procured under each succeeding order. The factors which have equalized such reduction, and, in fact, have made prices actually more than formerly, are the following: 1. Labor. The cost of labor has increased during this period by 20 or 25 percent, and as labor represents from 25 to 30 percent of the cost of airplanes (depending on the quantity under order) this price increase reflects proportionately as an increase in price. Coupled to this increase in hourly labor rates must be added the more extensive overtime which has been brought about by the justifiable requests from Government to accelerate deliveries. Assuming an average week of 46 hours now, there would result a 12 or 15 percent increase in labor cost incident to overtime at one and half times straight rate for week days and Saturdays and double time for Sundays and holidays. 2. Overhead. In the aircraft industry overhead is usually computed as a percent of direct labor. It has run from 75 to 100 percent (for air frames) and, as many items of cost have increased parallel with increasing labor rates, this fixed percentage has continued to hold. 3. Material.-Prices of material have advanced by at least 10 or 15 percent during the period in question and do not appear as yet to have stabilized. Material represents from 27 to 35 percent of the total cost, so that here again the increase reflects proportionately in the price. 4. Tools.-Unit tool costs increase with size of order and represent from 7 to 12 percent of the total. As tools costs are made up of labor and material, they also have advanced in accordance with the general trend. The same applies for engineering. Combining the above direct costs, it appears that approximately a 20-percent increase in price will be brought about by them alone. 5. To these direct costs, however, there must be added certain intangibles, including such items as: (a) Educational programs for inexperienced labor; (b) loss in efficiency due to thinned-out supervision; (c) recourse to higher percentages of subcontracting, involving not only more work on the part of prime contractors in educating and supervising subcontractors' efforts, but also the inclusion of double profits and general lowering of efficiency. Although the effect of these intangible items is difficult to determine accurately, it is believed reasonable to estimate that their combined effect might easily represent a 15- or 20percent increase in cost. 6. In addition to the above, there is the fact that the airplanes and engines have themselves grown, adding on new equipment which, in turn, has increased the weight. Reference here is made to a specific type and not to the increase in size of airplanes, when going to four-engine bombers, which reflects increase in the over-all cost of a program. Within the period under discussion, airplane specifications have been changed to include self-sealing tanks, armor plate, more extensive technical equipment, and inclusion of highly specialized power equipment. In the case of engines the more general use of modernized equipment has similarly affected the power-plant size. These items themselves have added at least 10 or 15 percent in cost of a specific model of airplane as it has evolved in this period. From the above, it appears that in the last year and a half to 2 years, there is a total increase in cost ranging from 50 to 60 percent above those which existed at the first of the period. When combining this with the decrease, due to increased quantities, there remains a balance of 20- or 25-percent net increase which it is believed approximates the condition that has actually confronted procurement officers. Mr. WIGGLESWORTH. Following Mr. O'Neal's question, you referred, General Arnold, in some comment off the record, to the cost of a typical heavy bomber. I want to call attention to one further statement of the so-called Truman report; and I quote: Costs under the present system are more or less astronomical. For example, four-engine heavy bombers cost, completed, from $477,000 up to $1,161,000 each. Pursuit costs are as high as $120,000 and even primary trainers cost as much as $13,500. Do you care to make any further comment on that, General? General ARNOLD. All of these airplanes have become more expensive, for another reason that has not come out yet; and that is, increased complexity and weight. We used to build the tanks entriely of metal. Now they are self-sealing. We had to put in armor protection. We have had to put new kinds of radio in our airplanes. We have had to have new identification signal devices in them. All of those increased the weight of the airplane. When you add the increased cost of labor and all of these new gadgets as well as the increased number of pounds of aluminum in the plane, the price goes up. Mr. O'NEAL. If the gentleman will yield to me for just a question, just taking the price of your radios, and other items that go into the plane on which they are getting increased production now, are you getting those at a cheaper price? General ARNOLD. I would like to ask the Signal Corps to make a statement as to the relative cost of radios, what we paid a year ago as compared with what we are paying now. Colonel LAWTON. I know that the costs have increased materially. Mr. O'NEAL. Even though you are buying in greater quantities? Colonel LAWTON. Yes, sir. Mr. O'NEAL. And all of those other gadgets that go into the plane, perhaps all of them together, would make for more weight per airplane; but the individual items that you are buying cost more, too? General ARNOLD. Yes, sir. Everything costs more. BASIS OF ESTIMATE PER PLANE Mr. WIGGLESWORTH. I want to ask one further question. Is the committee to understand that the total amount requested here for planes and other items is based on the same unit cost that you paid for planes and other items heretofore? General ECHOLS. Yes, sir. Mr. WIGGLESWORTH. You do not look for any reduction? General ECHOLS. There is no reduction provided for, in the various types and models, in this estimate. Mr. WIGGLESWORTH. Even when Henry Ford gets into production, you do not look forward to a price, in terms of mass production, very much less than what we have had to pay in the past, when there was an absence of mass production? General ECHOLS. We do eventually, but Henry Ford's engine production is being doubled and his airplane production, which is already planned, is being increased again under this program by one-third, which is going to cause him to go through the cycle of a new labortraining program, paying high wages to unskilled labor. Costs for that reason are difficult to reduce, and we did not believe that Henry Ford would agree to any reduction. He has stated, once he has actually determined the cost, he firmly believes he will give us reductions, but he has so far been unable to do it. General ARNOLD. May I say that I am optimistic enough to believe that prices will go down somewhere along the line; but just where, I cannot say. TRUMAN COMMITTEE REPORT-EXTENT OF INFORMATION REQUIRED FROM AIR CORPS Mr. JOHNSON of West Virginia. General, I am always in favor of wholesome criticism. Our good chairman has spoken of the Truman committee. What I would like to know is did you appear as a witness before the Truman committee? General ARNOLD. No, sir; I did not. Mr. JOHNSON of West Virginia. Did anybody connected with your force or administration appear before the Truman committee? General ARNOLD. So far as I have been able to learn, there was not a single Air Corps officer appeared before that committee. Mr. JOHNSON of West Virginia. You gentlemen were charged with a sizable offense. It seems to me you should have been given an opportunity at least to defend your position, and I am just curious to know whether that opportunity was given to you. General ARNOLD. So far as I know, it was not afforded any member of my command. Mr. JOHNSON of West Virginia. Did they ask you to furnish any information? General ARNOLD. I personally never saw any letters. I will ask General Echols. General ECHOLS. Yes; there was certain information furnished by the War Department. I was called on to furnish some, but, so far as I know, it was not relevant to anything contained in the report. Mr. JOHNSON of West Virginia. You furnished the information they requested, did you? General ECHOLS. Yes, sir; in the form of documents, through the Secretary of War. Mr. WOODRUM. If the gentleman will yield for a question, nothing you furnished them would justify anything they said in their report, would it? General ECHOLS. No, sir. There was one little matter concerning Zephyr Aircraft on which we furnished information, and the report contained a paragraph on Zephyr Aircraft. So far as I know, that was the only connection between what we furnished and the report. ABILITY OF WAR DEPARTMENT TO EXECUTE NEW PROGRAM Mr. JOHNSON of West Virginia. General, I know that you are going to spend a lot of money and that some of it is going to go astray. I am not so much concerned about this money situation as I am about winning this war. We have got a tremendous fire in the house and we are not going to quibble about paying the price for the fire engine when we need it. That is what we have got to do. |