Another reason you might have may be a change in manufacturing methods whereby a machined or forged part is now made as a casting. Another reason, of course, may be that a mistake was made in calculating requirements.

These are all normal production causes of excess materials. In the aircraft manufacturing industry these are aggravated to a certain degree because there are, for example, over 137,000 different parts used in the manufacture of a modern patrol bomber. Furthermore, modern military aircraft are subject to constant changes during the production process in order to meet combat needs or to improve overall performance. These changes do, of course, tend to generate excess materials.

The major portion of today's aircraft production is being done on a fixed-price basis. The excess inventories that are generated under these contracts are and remain company-owned unless they are due to a Government-ordered change or are the result of a termination. If they are the result of a Government-ordered change or of a termination, they are paid for by the Government as a part of the cost of the change or contract termination. They then become Government property and are disposed of or redistributed in accordance with the internal procedures of the Defense Department.

In addition to excess inventories resulting from changes or termination under a fixed-price contract, all excess materials under costplus-fixed-fee contracts are Government-owned unless they are deemed to be unreasonable in amount, in which case the Government refuses to reimburse the contractor for their costs. There are, however, very few aircraft production contracts now outstanding that are on a costplus-fixed-fee basis.

In May 1951 in an effort to conserve critical materials, the aircraft manufacturing industry recommended to the Aircraft Production Resources Agency that a procedure be established which would permit the prompt redistribution of idle and excess materials to defense production. As a result of these recommendations a reporting system was established whereby each company reports on a quarterly basis their excess company-owned inventories to the Aircraft Production Resources Agency. This Agency then circulates these combined lists of excess company-owned materials throughout the industry. This procedure has been in effect for a relatively short period of time-4 to 6 months-and it is therefore a little too early to determine how effective it will be in redistribution of these excess materials.

It is working, however, and has relieved some critical shortages. This procedure appears to us to be adequate and the most economical method during this time of partial mobilization, to permit the greatest utilization of these company-owned excess stocks.

The primary purpose of this redistribution system is to make available materials that may be critically needed by one defense contractor and at the same time be idle and excess to another. When it is determined that these excess company-owned materials are not required by the aircraft or other defense production programs, we will, if CMP regulations permit, dispose of them through our own organizations and absorb whatever losses may be involved. In other words, we consider these excess inventories of company-owned materials to be the results of a normal business risk and we do not seek to shift that financial risk to the Government.

I might mention in passing that there are other informal methods of having complete advice on the availability of excess materials and other questions. Those activities are going on every day, as you can imagine, at a very high tempo, in an area such as Los Angeles, where there is considerable concentration of the industry.

Mr. HOLIFIELD. By that you mean that different people in charge of the stocks call up as to whether someone has so much material.

Admiral RAMSEY. Yes. In other words, they do much of this work on an informal basis.

Mr. HOLIFIELD. So there is some declaration of excesses between quarterly report periods.

Admiral RAMSEY. Yes.

Mr. HOLIFIELD. As a result of this information on an informal basis, rather than as a result of screening out the quarterly report sheets.

Admiral RAMSEY. Yes; that informal activity goes on all the time. We are unable to be giving you a definite dollar-and-cents figure on the amount of company-owned or Government-owned excess materials now on hand. It would take a very thorough survey to determine these figures.

A telephone survey of some of the leading airframe producers indicates that there is at present a modest amount of company-owned excess materials on hand. Government-owned excess materials located in our plants is estimated to be very low.

As I previously mentioned, as an example, there are over 137,000 different parts used in the production of a modern patrol bomber. This is a single type, and many of our plants are producing a variety of types. Any list of surplus items, therefore, would appear impressive in a number of items, but, translated into dollars as compared with our over-all volume, the amount would probably be very insignificant. Of this relatively small dollar volume figure, it is at this time perhaps safe to say that approximately 80 percent would represent company-owned excesses which are considered normally by us to be a contractor responsibility.

If we maintain our present stretched-out schedule, these excesses should not increase to any great degree, providing our present methods of redistribution are at all effective. However, if the present schedules are not maintained and we do have across-the-board terminations, inventories of excess materials will increase. In the case of wholesale terminations, it will be a matter of surplus disposal rather than one of redistribution.

We understand that the Air Force proposal which was presented to your subcommittee during the early part of these hearings deals primarily with the redistribution of Government-owned excess materials. Our industry has not had an opportunity to study this plan, and we are, therefore, in no position to comment upon it.

That concludes my prepared statement, Mr. Chairman.

Mr. HOLIFIELD. To summarize your statement, Admiral Ramsey, you make the point that 80 percent of the excess materials in the aircraft industry is contractor-owned, and you feel, too, that it is the contractor's responsibility to dispose of those excesses, and you do not seek any Government aid here in the disposal of those excesses? Admiral RAMSEY. That is correct.

Mr. HOLIFIELD. Because of the excess of inventory that is not Government-owned. You do not take a position on the excess which is Government-owned.

Admiral RAMSEY. No, we do not, because, in the first place, I think that is a basic question, obviously, which is going to take planning, which they have in mind, and that, of course, involves very careful study in the economics of the operation, and we are not in position to comment upon it, not having had time to go into that.

Mr. HOLIFIELD. Your testimony is also based on the present program of production and the few terminations that are in effect at this time.

Admiral RAMSEY. Yes.

Mr. HOLIFIELD. And if, as you say in the last part of your statement, the present schedules are not maintained, and we do have across-theboard terminations, then there will be a tremendous amount of this inventory which would become Government-owned, rather than contractor-owned, because of the termination?

Admiral RAMSEY. Because of the contract terminations.

Mr. HOLIFIELD. At that time, in such case, it would be necessary for the Government to have some well-thought-out plan to take care of that situation.

Admiral RAMSEY. Yes.

Mr. HOLIFIELD. Of course, that is in the future, which no one can predict, but assume that the time will come, as it always does after a war or after a period of war production, it would be well for the Government to have a plan at that time, a well-thought-out plan, to take care of the situation then, or do you think the way it was handled after World War II was efficient?

Admiral RAMSEY. The World War II process was quite effective. Mr. HOLIFIELD. You think it was quite effective?

Admiral RAMSEY. Yes.

Mr. HOLIFIELD. You mean, in getting rid of the surpluses or in obtaining the maximum recovery to the Government?

Admiral RAMSEY. Well, both.

Mr. HOLIFIELD. Some of the members of the committee who were studying that might differ with you some on that.

Of the excesses that are contractor-owned, what percentage is sold, and what percentage do you convert and salvage?

Admiral RAMSEY. I would have to try to get that data for you.
Mr. HOLIFIELD. Could you give me a rough estimate?

Admiral RAMSEY. No.

Mr. HOLIFIELD. But in either case, let us assume that the contractor has a million dollars' worth of excess material, and let us assume that he obtains a half million dollars for that material in disposing of it; who bears the impact of that $500,000 loss?

Admiral RAMSEY. Unless it was incident to a change, a Government change, then it would be the contractor's loss.

Mr. HOLIFIELD. It would reduce the contractor's profit that much, but not represent some kind of cost to the Government?

Admiral RAMSEY. If the contractor were operating on a fixed-fee basis, and still had a lot of surplus materials, then, as I see it, that is his responsibility for faulty planning.

Mr. HOLIFIELD. What percentage of those excesses are the result of engineering changes and therefore attributable to the Government operation?

Admiral RAMSEY. Well, that is another statistical figure, which would require study on our part. As you well know, I am sure, the development process goes on all through the production of aircraft and airplanes, which is never completely finished, so that there are a good many changes that are imposed by virtue of the research and development activities, which are always looking for perfection in the finished product.

Mr. HOLIFIELD. If a great many of these changes, engineering changes, are made during the course of production, they will constitute a reason for charging that cost off to the Government, and therefore your own interest would not be vital in obtaining the maximum amount for that excess.

Admiral RAMSEY. No; but if the changes are generated as a result of intervention of a contracting officer, let us say, then obviously any surpluses that are generated in excess stock as a result of that would not be the responsibility of the contractor.

Mr. HOLIFIELD. In that case, do you determine that the material is owned by the Government, or does it go into the disposal-———— Admiral RAMSEY. I think it automatically becomes Governmentowned.

Mr. SMITH. That is right; if the Government requires the change. Mr. HOLIFIELD. Then the figure should show how much of the material you are inventorying as a result of engineering changes, and how much you retain on your own responsibility, as responsible for your own disposal.

Mr. SMITH. The inventory would reflect that.

Mr. HOLIFIELD. Will you furnish the subcommittee a little statement showing approximately what it is?

Mr. SMITH. Yes; we will attempt to do that. It would involve some study.

Mr. HOLIFIELD. Let me put it this way: The subcommittee does not want to require you to go into a costly or extensive analysis of your books, but if you do have available figures which would show approximately the answer to these questions which I have asked-and you will have a copy of the transcript of the testimony of today—we will appreciate it very much. We do not want to impose upon you any undue burden.

Mr. SMITH. You understand our position would be complicated by the fact that in the normal airplane there are hundreds of changes going through every week, and many of those involve minor amounts of material, but some of them may involve a change of the entire aircraft.

Mr. HOLIFIELD. The subcommittee is only interested in this fact, as to the changes resulting in excesses of materials that are left up to the Government to dispose of or redistribute, involving such referrals to the Government.

Certainly your books would show the percentage of excess materials which you dispose of, and the percentage you turn over to the Government as Government-owned for disposal.

Mr. SMITH. That is correct.

22862-52-8

The CHAIRMAN. It should not be too hard for you to approximate the figures over a period of, say, a year.

Mr. SMITH. It may be rather difficult. I would like to point this out, to say just what sources of Government-owned material there are, in warehouses

Mr. HOLIFIELD. Yes.

Mr. SMITH. That are not generated due to changes.

Mr. HOLIFIELD. How could they be Government-owned if they were not generated due to changes?

Mr. SMITH. We may have a set-back in the program, something that the cost-plus-fixed-fee contract, or something of that kind enters into it.

Mr. HOLIFIELD. With reference to the cost-plus-fixed-fee contracts, the testimony was that there are very few of those contracts on a cost-plus basis.

Admiral RAMSEY. We will try.

Mr. HOLIFIELD. I think you would have to have a breakdown in order to be able to know whether there was a substantial amount of this Government owned, and the amount that you are to dispose of. Mr. SMITH. Yes.

Mr. HOLIFIELD. You should have those figures for, say, the last year or so; at least, you should have a summary, and if you run your books on, say, the calendar basis, and if you have got a summary as of January 1, 1952, for the year 1951, we would appreciate having that.

Mr. SMITH. Yes.

Mr. HOLIFIELD. So we could estimate how big a job the Government has in disposing of these Government-owned excesses. Right now we are not concerned too much with the contractor owned; that is his responsibility.

(Subsequently the Aircraft Industries Association advised the subcommittee that the information was not available.)

Mr. DAWSON. I want to thank you, Mr. Ramsey, for your very clear and concise statement, one which I think states your position clearly. I was interested in a statement made in answer to Mr. Holifield's question relative to the disposal of surpluses following World War II. Did I undersand you to say that you thought the Government had done a very fine job?

Admiral RAMSEY. Well, from the point of view of an individual— and my duty during World War II included work with the Bureau of Aeronautics in the Navy Department-I was Chief of the Bureau of Aeronautics, and we worked very closely with the Under Secretary's office on those details, that is, under Mr. Forrestal, and I thought that a creditable job was done. I will not say 100 percent, because I do not think that is possible with all the material we had, and the surpluses that we had at the conclusion of the war. That is just my personal appraisal.

Mr. HOLIFIELD. As a matter of fact, the Department of Defense turned these surpluses over to the War Assets Administration. Admiral RAMSEY. Yes.

Mr. HOLIFIELD. The administration and the work of that operation has been before this committee in thousands of pages of testimony. Mr. DAWSON. The reason I ask the question is this: I read a newspaper article yesterday or the day before, saying that in Australia