of reducing military expenditures substantially and at the same time will serve to build up the civilian system so that it can serve as an adequate auxiliary in the time of national emergency. The possibility of retaining indefinitely a large part of the air-transport fleet now in the hands of the military service as a laid-up reserve has also been considered and found to be subject to serious objection. To do so over the long period which would probably elapse before any future war would be an unwarranted expense because of the high cost of storage, protection, and maintenance in airworthy condition and because the developments in aeronautics will be so extensive in the next few years that, by the time it was needed, the reserve would be so obsolete as to be virtually useless. In any event if efficient and vigorous manufacturing and air-transport industries can be maintained, such a reserve will not be necessary. These are some of the general principles which should govern in deciding what is surplus. In determining what should be done with the surplus one of the easiest alternatives would be to sell the airplanes at auction to the highest bidder. That plan would accomplish the early termination of Government responsibility for handling the disposition of such aircraft but would in all likelihood result in the Government's failure to realize any substantial amount on its investment. It would damage the air transport industry severely and would destroy the manufacturer. Brokers might buy large quantities of the surplus equipment and dump them abroad. This plan was adopted at the end of the last war and the market was flooded with surplus aircraft and equipment. The manufacturing industry was practically ruined. In many cases the Government realized practically nothing for the equipment. In addition, since the airplanes would probably be sold under these circumstances "as is," the safety of airplane operation in the country would be threatened and the reputation of the manufacturers of the aircraft might be damaged. In view of the volume of aircraft released Government inspection would be difficult. For all these reasons there should be no hesitation in ruling out this alternative. Another alternative is to turn the surplus aircraft back to the manufacturers who built them for reconditioning, conversion, and sale by them as they see fit. This procedure would eliminate the possibility of flooding the market with damaged and unsafe airplanes for the manufacturers would see to it that any airplane released from the factory was in airworthy condition. However, it would not be possible to turn the whole problem over to the manufacturers without Government control and assistance. If the aircraft were merely delivered on "consignment" the manufacturer would have little incentive to dispose of them. On the other hand, if the manufacturer were required to buy them from the Government it would be necessary for him immediately to flood the market with the surplus aircraft in order to secure the return of his investment. The air lines favor a proposal for application in the case of domestic users which appeers to carry with it the greatest advantages. The Government should retain title to all transport aircraft and lease them to proposed users. For a period of 3 years after the war any financially responsible person wishing to operate an aircraft from the surplus pool could enter into an agreement with the Government by which he would lease the aircraft for a period of not to exceed 5 years. The lessee would be reimbursed for any necessary repairs and desired initial conversion through credits against rent. The maximum rental payment would be equal to 80 percent of the value of the airplane at the time the lease is entered into payable in equal monthly installments. The proposed method of determining the value of the airplane is set forth in some detail in the attached exhibit describing the terms of the lease. In general, the value would be determined on the basis of original cost less depreciation, although provisions are suggested by which lessees would be protected against the effect of any excess cost resulting from wartime purchase by the Government. The lease would be terminable by the Government on grounds of military necessity upon reimbursement of any prepaid rentals. It would be terminable by the lessee on payment of the unpaid portion of the rental or on proof of delivery to him of a new airplane or airplanes of United States manufacture of a capacity at least approximately equivalent to that covered by the lease. If the lessee acquired an airplane of larger capacity he would be permitted to terminate the leases of an appropriate number of other aircraft. In the event of termination upon purchase of a new aircraft the lessee would be entitled to recover prepaid rent. The lessee would be required at his expense to maintain the airplane in airworthy condition and to maintain appropriate insurance to protect the Government. From the standpoint of national interest many advantages would flow from the adoption of this plan. It is designed to return to the Government a higher percentage of the cost of equipment than any other. At the close of the last war the aeronautical surpluses, as well as others, were disposed of as rapidly as possible at auction or on the basis of sealed bids. Part of the material was bought up by brokers at ridiculously low prices and later resold many times, each purchaser taking a profit before he passed it on to another. This would indicate that the low percentage of return on the Government's investment resulted to a large extent from an effort to dispose of the material as quickly as possible without regard for its original cost. The air lines' proposal contemplates a far more orderly system of disposition and one which will place the equipment in the hands of responsible people who will actually operate it. In other words, the air lines suggest disposition direct to the ultimate consumer with the Government taking the middleman's profit. The manufacturing industry which is so vital to national defense would be protected in two ways: First. The interim period between the completion of war contracts and the beginning of new production could be occupied with the repair and reconversion of the surplus aircraft. While lessees would not be required to have this work done by the manufacturer and could utilize any responsible organization for that purpose, the manufacturers would undoubtedly be employed to do a substantial amount of this work. Second. The lease arrangement is calculated to encourage the purchase of new and more modern equipment. The new equipment undoubtedly will be superior in performance and operating economy, and thus it will be the natural desire of aircraft users to secure modern types. If they are forced to purchase old equipment the purchasing of new will be impeded while if they merely lease the equipment, as we propose, that impediment will be removed. In addition, the lessee will be able to terminate the lease without any monetary loss if he buys a new and comparable airplane. It is not anticipated, of course, that the manufacturing industry would thus be maintained at its present level. But the plan would help the industry to readjust gradually to its peacetime size ready to expand again if another national emergency required it so to do. It is unlikely that this plan can be used in all cases exactly as it has been described. In some few cases it may be necessary to make exceptions. The plan should certainly be applied to the disposition of aircraft to United States flag air lines. The air lines have attempted to forecast the number of airplanes that they could take under this plan, but a variety of factors makes any prediction very uncertain. The training of personnel to commercial standards, the rapidity with which new aircraft are developed and the extent to which foreign travel is developed or restricted are some of the factors which make prediction difficult. Whatever may be the number of aircraft that the air lines can take from the surplus the air carriers should be permitted to take the surplus airplanes as they become available until they have expanded their fleets to the point where they can satisfy public convenience and necessity. So long as there is a shortage of transport equipment the units should be distributed among the various air lines in accordance with determinations by the Civil Aeronautics Board. In reaching such determinations the Board should give full consideration to maintaining the relationship which existed between the fleets of the various air lines, including aircraft on firm orders as well as in operation, when production and delivery of commercial transport aircraft were restricted prior to the war. When a group of airplanes becomes available, each air line should have an opportunity to take the number of airplanes which bears the same relationship to the entire group being distributed as the number of airplanes on firm order and in operation it contributed to the United States and its allies bears to the total number of such aircraft so contributed by all the air lines. It will not, of course, be possible to follow this formula with mathematical accuracy with respect to each group being distributed but as other groups become available adjustments may be made to keep the air-line fleets in proper balance. the nonscheduled These enterprises the surplus pool, Another substantial market for the surplus aircraft will be operators, including both the common and contract carriers. will have to be reestablished or inaugurated with aircraft from to be replaced thereafter with new aircraft from the factory. There appears to be no reason why this proposal should not be applied to them. Nor does there appear to be any reason for not applying the plan to noncommercial operators, private carriers, and companies who propose to acquire aircraft for the transportation of officials and company material. Aviation schools should also constitute a substantial market for aircraft and accessory equipment. This is particularly true of schools giving advance flying courses in multiengine equipment and aviation mechanic, instrument, and radio schools. In the case of the acquisition of aircraft by such schools for flight training, this proposal should be applied. They should not be required to invest their capital in obsolete equipment and the sale to them of outmoded aircraft should not be permitted to reduce the market available to the manufacturer. The lease proposal should be applied to acquisitions by governmental units for use by them but the equipment should be leased at a nominal rental or without charge by the disposal authority. Government agencies may be able to use an appreciable part of this equipment. Federal Government agencies such as the Civil Aeronautics Board, the Civil Aeronautics Administration, the Weather Bureau, the National Advisory Committee for Aeronautics, and the Forest Service have never had enough aircraft to engage in many activities which would contribute to the advancement of aviation or otherwise benefit the public. In addition, State agencies can use aircraft for police work, mapping, and other similar activities. Also it seems likely that a substantial amount of this equipment can be distributed to public and private organizations for educational or exhibition purposes. Every effort should be made after the war to continue and expand the aviation educational program which has already been inaugurated. Every high school should provide facilities for teaching elementary aviation subjects and the surplus aeronautical equipment can be used very effectively in furthering this program In view of the fact that this country has been outstanding in the development of transport airplanes it will be in possession of a major portion of the world's air transports when the war is over. It is possible, therefore, that the surplus transports and related equipment can be employed to equip or reequip a large part of the world's air-transportation system. The foreign market under properly regulated conditions will provide an excellent outlet for surplus aircraft and the United States manufacturers will have an unparalleled opportunity to establish themselves in the foreign field. In disposing of aircraft to foreign governments or operators the lease proposal should be altered. No lease should be entered into unless the lessee has placed an order with an appropriate deposit with an American manufacturer for an airplane of comparable and more modern type. If a nation anticipates the immediate establishment of a manufacturing industry of its own, it may turn out to be impossible to impose these conditions upon the purchasers but there will be a great number of nations who will not have any such aspirations. In those cases the manufacturers, by receiving orders for new aircraft, will be able to establish themselves in these markets. In any case our stock of transports should be used as an instrument in international bargaining. The representatives of this Government can certainly take the position that the release of aircraft to foreign governments or operators would have the effect of permitting them to compete more effectively with United States flag air lines operating abroad. Consequently they can urge that substantial concessions should be given in return for giving up this competitive advantage. These are possibilities which should be given the most careful consideration by those in charge of the disposition of aircraft and those participating in international air-transport negotiations. This possibility of disposing of our surplus aircraft in foreign markets is one which will require the most careful and detailed advance planning. Other nations have been building some transports during the war and they will also be anxious to dispose of whatever surplus they have and to establish themselves in the available markets. Consequently, every effort should be made to act with the greatest possible speed when a surplus of aircraft becomes available for disposition abroad. Careful study should be made of available foreign markets and detailed plans established for securing them. Particular attention should be given to studies relating to the development of the air-transport systems of nations which do not have adequate transport systems at the present time. It might be possible in such countries to make a very substantial contribution to the development of the country and at the same time dispose of a large portion of the surpluses. Such a plan would envisage not only the disposition of aircraft but also related ground and flight equipment. These are the markets for the disposition of aircraft and aeronautical equipment. There may be others not considered and others may appear as time passes, but it should be recognized at the outset that when these markets are all exhausted a number of aircraft may remain. In addition, when the manu facturing facilities have again established peacetime production, the leased airplanes will be returned. When that time comes the airplanes should be dismantled and the materials which went into their construction should be preserved as a part of the country's normal future stock pile in order that this country's ability to meet a national emergency will not again be impeded by the acute material shortages that were being experienced not long ago. The disposition of spare equipment and spare parts has not been specifically covered. The Civil Aeronautics Board has established in the Uniform System of Accounts a fairly definite line of demarcation between spare equipment on the one hand and spare parts on the other, spare equipment including the larger units. Spare equipment should be treated in accordance with the same general principles as aircraft although the details will not necessarily be applicable. Spare parts should be disposed of in any way considered appropriate by the agency disposing of the material. One further point should be mentioned. The problems of disposing of surplus aircraft are at hand and are not merely to be anticipated in the far-distant future. Whatever organization is to be established and whatever legislation is to be recommended should be acted upon as promptly as possible for this reason. The air lines have already received a few aircraft and it is possible that additional ones will be released for their use in increasing number as time passes. Whenever an aircraft is released to an air line the air line must buy it outright at a price fixed by the Army and Navy. Every dollar the air lines invest in the obsolete equipment they are now receiving, is a dollar which cannot be spent in buying the more modern, efficient types which will become available later. It is possible that the air lines would find it difficult financially to embark on a reequipment program if their reserves have been used in the purchase of outmoded airplanes. The public is entitled to the best and cheapest transportation, and the air lines can provide it only if they take advantage of aircraft developments as soon as they become available. In addition, the ability of the air lines to buy new equipment is a major factor in supporting the manufacturing industry. For these reasons it should be possible right now for the air lines to follow the plan which has been recommended. In this way they could lease the obsolete aircraft which are being returned to them at a fair rental and undertake to purchase new aircraft from the manufacturer at the proper time. In fact, the plan should be made retroactive to cover aircraft already acquired from the Government by the air lines. By the way of summary: Where aircraft and equipment are being or have been acquired for commercial or private purposes they should be leased to the person desiring to acquire them and the full rental payment should be required. Where the equipment is being acquired for governmental purposes, instruction, exhibition, or for other noncommercial public uses, it should be leased for a nominal rental or without charge. In the latter case appropriate provisions should be inserted in the leases to make certain that the lessee does not use the equipment for commercial purposes, or in competition with private enterprise. SUGGESTED CONDITIONS GOVERNING LEASE OF AIRCRAFT 1. Period of availability.-This shall be 3 years after war's close. 2. Term of lease.-Original term of the lease not to exceed 5 years from date of delivery. 3. Delivery.-Airplanes to be delivered to point designated by lessee. 4. Airworthiness and conversion.-Lessor will be responsible for the expense of overhaul, restoration to airworthy condition (Civil Aeronautics Board standards) and conversion (from military use to commercial use) to the lessee's initial intended If the lessee advances the cost or performs the work the cost shall be allowed as a prepayment of rent. use. 5. Monthly rent.-Eighty percent of valuation of aircraft divided by number of months in term of lease (extension one-sixticth on 5 years). 6. Valuation.--Original cost to the Government at the time of its purchase by the Government, except that such cost shall not exceed the contract price or other reasonable price of a comparable airplane produced under pre-war, peacetime conditions, such original cost to be reduced by due allowance for depreciation for any use prior to acquisition by the Government; (a) less cost of equipment removed and returned to or retained by the Government; (b) less depreciation since purchase by the Government computed on a straight line basis of 5-year life with 20 percent residual value. 7. Termination (domestic user and United States flag operator).-By lessor for military necessity only, on payment of unamortized portion of conversion cost and reimbursement of any prepaid rentals. By lessee on payment of the unpaid portion of the rent or on proof of delivery of new airplane or airplanes of United States manufacture of at least approximately equivalent capacity. If the lessee receives an aircraft of larger capacity than the one under lease, he may terminate the leases of such number of aircraft as may be approximately equivalent in capacity to the one delivered. In the event of termination on delivery of new aircraft the lessee is entitled to recover prepaid rent. 8. Termination (all others).—Same as paragraph 7 except that the lease may be terminated at the discretion of the United States Government. 9. Maintenance.-Must be maintained by lessee in airworthy condition (Civil Aeronautics Board standards) at all times with suitable provision permitting substitution of accessories or equipment and alterations for use. 10. Insurance.-Adequate insurance must be carried by lessee to protect the Government's interest or, on proof of financial responsibility, approved selfinsurance may be carried. 11. Financial responsibility.—The lessee must give evidence of financial responsibility. LEASE OF SPARE EQUIPMENT The general principles of aircraft lease should be followed although detailed provisions would not in all cases be applicable. KELLETT AIRCRAFT CORPORATION, STATEMENT RE ROTARY-WING AIRCRAFT (By W. Wallace Kellett) Rotary-wing aircraft at present are in an extremely crude state of development as compared with the airplane. It is not often realized that, whereas the conventional airplane as we know it today is an engineering development representing several million man-hours of engineering over a period of many years, the present types of rotary-wing aircraft are not fully engineered and represent only a few hunderd thousand engineering man-hours. The further development of rotary-wing aircraft for military and commercial purposes is a question of first, engineering, and secondly, of broad testing in actual use of the types of aircraft which present engineering can produce. The potential military and naval uses of such aircraft have been adequately expressed by many competent military, naval, and Coast Guard authorities and, I believe, are a matter of record in many quarters. The potential commercial uses are indicated by the many applications of transportation companies now on file in Washington for the establishment of passenger and cargo helicopter services and, also, by the expressed interest in this type of aircraft by Government and civilian authorities for forest patrol, geological survey, emergency rescue work, development of oil fields, and as means of transport for the private individual. As I see it, Government interest in the continuance of a strong, healthy American aircraft industry must be based upon, first, our national defense; secondly, the economic well-being of our own people; and thirdly, the position we desire to maintain for our products in the markets of the world. I presume our Government will do everything possible to assure an aircraft industry which can and will maintain the position of our Nation in these respects. It is the opinion of many competent military, naval, Government, and civilian personnel that rotary-wing aircraft when further developed will play a very important part in the achievement of the three above-mentioned factors. Obviously, therefore, we should plan a program for rotary-wing aircraft development in proportion to the program which we undertake for the development of conventional aircraft. In other words, if we plan to devote a billion dollars to conventional aircraft development, it would be inappropriate to devote only a million dollars to rotarywing aircraft development. If and when we recognize this fact and devote a proportionate amount of development funds and efforts to rotary-wing aircraft |