industry and American labor can maintain our country's supremacy in the field of aerospace development. We have the resources, the manpower, and the know-how to do it. All we need now is the go-head. We hope this committee will help to provide it. Thank you very much, Mr. Chairman.

AMERICAN SUPERIORITY IN AIR

Senator MAGNUSON. Now, George, of course, no one is more conscious of the facts of the aerospace industry than the chairman. Mr. NELSON. Yes, Mr. Chairman.

Senator MAGNUSON. I guess about 15 percent of your members come from a place that I know well. I appreciate just what you say. This is true, that we must keep American superiority in the air and as technological changes come along, we should keep up with them.

Now, the Senator from Colorado and I, when you speak about delay in this field, there would have been probably a year and a half to 2 years' delay if we had not 3 years ago insisted on research in this program.

PHASE 2 OF PROGRAM

We continually, every year, for 3 years, did give the Federal Aviation Agency money to go ahead with this research.

We are now in phase 2. I will get the correct total, but I think the total was around $32 million

Senator ALLOTT. $31 million prior to this year, I think.

Senator MAGNUSON. We were the only ones who wanted to proceed. We have quite an argument with the House Members in order to get this program going every year.

Now we are in what they call phase 2, in which they asked the aircraft manufacturers and the engine manufacturers for prospectuses as to how they could go ahead on this matter.

Only yesterday the FAA Administrator formally told two companies, Boeing and Lockheed, to proceed in phase 2. Because when they submitted-they had three engine people and three airframe people their plans, a committee appointed by the President felt, of which Mr. Halaby and all the rest of them were members-it was an interagency committee-that the specs did not quite come up to what they thought should be in the supersonic field.

So they have asked them to go back and keep up. But Halaby has said that the proposals did look so good that he would feel safe in saying that we should proceed.

DECISION ON PHASE 3

Now, there has been no decision made yet, actually, whether we should go ahead with phase 3, in which then you get into the big money-then you are talking about a billion and a half dollars whether we should go ahead and build the supersonic plane. I think the desire on the part of this committee, and I am sure the administration, because I have discussed this only in the last 10 days, is to go ahead if we think it becomes economically feasible, engineeringly feasible, and so on and so forth. So they are working with due dispatch on this other phase. We are hopeful that they will come up with some further answers to the thing.

DEVELOPMENT IN BRITAIN AND FRANCE

Now, in the meantime, Great Britain and France have gone ahead. They pulled back because they had some of the problems that our people anticipated. Russia has announced that she is in this field. The plane that she is talking about, Russia, is going to be used inside. Russia, Russian territory. As far as we know to date, it is not capable, it would not be capable of getting into world airplane competition. But what you point out is true, in time it will; we know that. It is not yet economically feasible. Because we have to have a plane that the airlines, and I see the head of the Airline Transport Association is here, a plane that they can economically, that they can make a profit on or break even, such as the 707 and other jets.

We can do that, but before we ask the Congress to commit itself to over a billion dollars, we and the President and Senator Allott and all of us, and Mr. Halaby, feel that we ought to be real sure that we can deliver what we say we can deliver. And we are proceeding, we hope, with as much dispatch as the situation justifies.

I wish we had gone further. We had about a year in there where the only thing that was being done was at the insistence of this committee, in this field.

Mr. NELSON. We are aware of that.

BALANCE-OF-TRADE DEFICITS

Senator MAGNUSON. I think personally-I only speak for myself— that this can be done. I talked to the Treasury Department only yesterday. When you talk about the balance-of-trade deficits, this is the great new factor in this, as far as we are concerned, in the next decade.

Now, we have orders for--I do not know how many, we put them in the record the other day, from the airlines. America's superiority is going to be challenged if we do not go ahead in this field. But we want to do it right when we do and know what we are doing.

Now, on the matter of the Government versus the private cost, I think you put it very well in your statement here when you say "It isn't so much what the industry wants to underwrite; it is what they can underwrite."

ABILITY OF INDUSTRY TO UNDERWRITE COST

This is the problem. You take a company like Boeing and Lockheed, that are working on this now, with a net value of $300 million. I suppose that is based on the theory that if they closed business tomorrow, they would have $300 million. When they start talking about committing themselves to something 8 or 9 or 10 years in the future for over a billion dollars, they had better be sure where they are. If something happened and we didn't, engineeringwise, get this thing correct, the sheriff would be out to see both of them.

Mr. NELSON. And our members would be out of work, but that is not just the point.

Senator MAGNUSON. And thousands of machinists would be out of work. So I know your organization appreciates the necessity of not too much caution, but to know what we are doing.

Mr. NELSON. We have a deep respect for this committtee and what this committee has done. I want to say, Mr. Chairman, that your

explanation of this for the record today is going to be very helpful in trying to clarify this issue with the public, because there is a good deal of misunderstanding about who is holding up this program.

I think it has been put very concisely and very well here this morning, and it is going to be very helpful to us.

PRESIDENTIAL INTERAGENCY GROUP

Senator MAGNUSON. There is no holding up and there was a great deal of public concern when the President of the United States appointed that interagency group.

But that was again a matter of being sure, because he wanted to, in the administration, have some other group pass on this as well as the FAA alone. And they have acted with dispatch. I think that it was a matter of 30 or 40 days. Mr. Halaby was on there, Mr. Webb and the rest of them.

I think they finally agreed to go ahead. Yesterday the formal announcement was made. I think it was well that these people looked at it, because also on that group were two members of the Committee that was previously appointed by President Kennedy to look into the matter of sharing costs.

Mr. NELSON. Right.

PROCEEDING WITH CAUTION, CARE, AND ECONOMY

Senator MAGNUSON. We are hopeful, and the fact that this is going to take them until 4 or 5 more months to get up to the specifications, Mr. Halaby laid out what was wanted. They were thinking about the economy of the situation, so that if an airline buys one of these things for $22 million or $25 million, whatever they are going to be, and you point out very well that it is difficult to know the exact cost, they will be able to operate them and pay back. This is their concern. Because if something happened and we did not do that-I think we are very wise in this, because without going into details, something happened to the British and French plane and they had to call it back and start all over in certain phases. And the Russians are really going into the field slowly. It is a kind of halfway military plane, too, as I understand it.

Mr. NELSON. That is correct. That is our understanding.

MILITARY SUPERSONIC PROJECT

Senator MAGNUSON. Then another thing should be understood that we have given the Defense Department, the Appropriations Committees of the Senate and the House on two occasions, some money to start a military supersonic project, and they decided not to go ahead. But I do think now, and I am speaking generally, that they feel that there is going to be a great deal of military fallout in this particular plane. As a matter of fact, we are kind of reversing it. The 707 is a fallout of the military B-52. Now, what we are having is a commercial plane that we are hoping we will get military fallout from. We are reversing. I am sure they will find this is true.

So I think the situation is moving as well as can be expected considering that we are talking about a great deal of money.

Senator ALLOTT. Mr. Chairman, could I say a word?

Senator MAGNUSON. Yes. I hope I stated your position right.

Senator ALLOTT. You stated my position and I know that Mr. Nelson is aware of my own interest in this for the last few years-not just a few years, but several years.

BOMBER DESIGN FOR SUPERSONIC TRANSPORT PLANE

There are a couple of things I would like to mention. First of all, the overwhelming testimony on this committee and the Committee on Defense has been that except for the fallout of electronics, the know-how of doing electronics, the fallout of certain design features and structural materials, you cannot design a bomber and make a supersonic transport out of it.

You cannot design a supersonic transport and make a bomber out of it. So the Russians are going to have to do more than they have done before they would be in a position to be more than competitive with either the Concord or our SST. This is the first point I would like to make.

RUSSIAN SUPERSONIC PLANE

Senator MAGNUSON. Could I just interrupt there? I want to state for the record again so this is clear, so there will not be this fear of the Russians. The Russian plane, the supersonic plane, is still basic. Still, if we proceed with the same plan that we have and we hope to proceed with, I can state categorically it is not going to be commercially competitive with the Concorde or the American plane.

Senator ALLOTT. That is right. It would be somewhat like trying to convert the design of the B-58, to a transport.

Senator MAGNUSON. I think you can put that right in the record. Senator ALLOTT. There is one other thing. So the Russians may have this plane and they may have a converted design which will carry a few passengers, but they either have to have a bomber or a transport before we have to be concerned about that, I believe.

I think the chairman would agree with this.
Senator MAGNUSON. That is correct.

DOMESTIC USE OF SUPERSONIC TRANSPORT PLANE

Senator ALLOTT. Now, one other thing which raised a question in my mind in your statement, Mr. Nelson, and I would just like to state my own view about it. The testimony before this committee, and we have been through this many, many times, is that it is doubtful if the supersonic jet would be used in this country at all except on coast-tocoast flights. All of the testimony we have had so far would indicate that you just do not get this kind of fallout, you do not get this kind of economic feasibility from a short-range flight, as, for example, from San Francisco to Denver. What good does it do you to travel 2,000 miles an hour when you can make the trip in a couple of hours in a commercial jet now? Or 3 hours or 3/2 hours from Denver to Washington; Denver to New York; or this sort of thing?

The general impression in the testimony we have had is that it is doubtful if it would be used except on flights of that distance and then, of course, from the United States overseas. So that this statement,

your statement, that they will scramble to replace subsonic with supersonic jets implies that we might have the whole jet system replaced with supersonics and I do not think the economics of the situation would quite indicate that. I think we have to think of a ship which I have always contended, when we are ready to put it in the air, there will be the demand for it, just as there was the demand for our present flight of jets. Everybody said, well, you cannot afford to pay $6 million for a jet and ever hope to have it pay off, but we are doing it. And it is paying off.

LIMITATION ON FAA APPROPRIATION

One other thing which I am not sure is quite clear from the Senator's statement. That is, as you know, we put a limitation in the report language last year as to the appropriation which we made for this fiscal year, for the fiscal year 1964.

Mr. NELSON. This was to the FAA, you mean?

Senator ALLOTT. TO FAA. I think I can say for the record that just quite recently the chairman and myself met with Mr. Halaby, and as a result of that meeting—and of course, he made proper clearances, too—we have gone ahead now with this second design phase, which is a more specific design phase. We feel, although we have not resolved this basic problem which you have come up with and which is a tough one, although we have not solved that yet, we feel that we are proceeding now with all due caution and yet with the prospect of not making this a billion-dollar boondoggle. You do not want that and neither do we.

Mr. NELSON. No, we do not. That is the reason we are here with a statement like this.

FAA PROCEEDING WITH DESIGN

We were very encouraged with the announcement by FAA just the other day that they are going ahead with the design now.

Senator MAGNUSON. This yesterday was formalized.

Mr. NELSON. And for the power units, too. Then we will know a little more specifically what we are talking about, instead of just talking in these generalities.

Senator MAGNUSON. And we shall resolve-I do not think there will be any problem once we know that we are going to say-all right, we are going ahead. On any problem there will be some discussion, I guess, but we shall resolve this cost ratio, participation cost ratio.

FEDERAL GUARANTEE OF PLANE SALES

I have suggested that one other thing we might do to make sure that financially we are all right in this is that maybe some place the Government takes a chance, as it were, and guarantees that a company would sell so many of these planes or that they would be responsible for so many. I do not know what the breakeven point will be, but they have to sell over 200 of these airplanes and maybe we can say, "All right, we will guarantee that you can do this." Because they would be in awful shape if something happened and they could not sell them. Mr. NELSON. That is right.

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