tion depression fell upon the industry this, coupled with the comparatively short-term certificates issued to the local-service carriers and the large surplus of DC-3 type aircraft at extremely low prices and other factors, made it advisable for all of the manufacturers to scrap their development programs and take advantage of loss-carryback provisions of Federal tax laws.

By spring of 1950 most of the local-service airlines had operated a sufficient period of time with their obsolete DC-3 aircraft to have a rather firm picture of exactly what they needed in a modern shorthaul transport. The rapidly increasing public demand for the service offered by most of these carriers was by this time assurance to all concerned that the principle of local-feeder air service was here to stay for those companies who conducted efficient operations over logical route patterns. Furthermore, many of these companies had an earnings record on which sound equipment-financing plans could be based. Thus, at this point, many of the unknown quantities had vanished and again there was interest on the part of some manufacturers in developing a DC-3 replacement aircraft.

Of course, it is well known to all of us that hostilities in Korea shortly thereafter put these plans on the shelf immediately.

Within the past year, however, there has been a lot of talk, on the part of the operators and the manufacturers, about the possibility of proceeding now with the development of this sorely needed aircraft. As a result, during a meeting of most local-service airline presidents in January of this year, the basic specifications of the airplane we need were approved and adopted. At the same time a committee was ppointed and given instructions to visit all aircraft manufacturers who had indicated an inerest in producing such an aircraft and to ind out once and for all the answers to four basic questions. They were: (1) Whether or not the manufacturers regarded an aircraft meeting the specifications adopted by the local-service carriers as conomically attainable and practical. (2) The approximate cost nd time required to produce such an aircraft. (3) How the direct perating cost of such an aircraft would compare with that of the JC-3. (4) What companies were interested in the development of e aircraft and under what conditions would they agree to proceed. The last question included a discussion of what type of Government upport, if any, would be desirable or acceptable to the manufacturer. To date, this committee has visited six manufacturers. They are oeing Airplane Co., Consolidated Vultee Aircraft, Canadair, Ltd., ouglas Aircraft Co., Fairchild Aircraft Co., and Lockheed Aircraft

In addition the managing director of Fokker Aircraft Co., of msterdam, came to this country for a discussion of their plans in this onnection. At this point, gentlemen, I would like to say that in spite the minuteness of any immediate orders these manufacturers could pect from our segment of the industry as compared to the orders ey now have from the military and the large domestic and foreign unk airlines, we received the most cordial reception. It was highly couraging to note the genuine interest and concern with which they garded our problem. In practically every case the presidents of ese companies and their chief executive officers devoted a great deal time to our discussion.

As to the first question we posed to these manufacturers it isn't necsary to take the time of this committee to go into great detail.

Suffice it to say, all of the manufacturers regarded the basic specifications of the aircraft we need as practical and realistic. They sug gested, however, that by relaxing our maximum runway-length requirement by three to five-hundred feet we would obtain considerable economic benefits and that by increasing the suggested capacity from 24 passengers to approximately 28-32 passengers the aircraft would have substantially greater earning capacity with only a very slight increase in purchase price and operating cost. Our committee is in agreement with these suggestions.

There was considerable variation as to the estimated total cost of development of this aircraft. The estimates ranged from $8,000,000 to $12,000,000. Presumably the variance in estimates resulted in the degree to which production tooling would be accomplished simultaneously with the development program.

Similarly, estimates as to the time required for such a project varied from 3 to 5 years. These estimates were predicated on there being no all-out war and the time period permitted immediate production in reasonable quantities after that point.

In view of recent substantial increases in production costs, the manufacturers estimated the airplane would cost from $4,600,000 assuming a minimum market of 200 airplanes. An interesting sidelight here was one estimate that it would cost at least $350,000 to produce a DC-3 even though all developmental costs have long since been writ ten off the books. The general consensus of opinion was that the direct hourly operating cost of the new aircraft would, however, be approximately the same as that of the DC-3. Nevertheless, all agreed that the seat-mile operating cost would be substantially less than that of the DC-3. In other words, the new aircraft would be able to operate profitably without mail pay at reasonable attainable load factors of 50 to 60 percent. In comparison, some operators today must have an almost unattainable load factor of 85 or 90 percent to barely break even with the DC-3. Furthermore, it is a discouraging fact that continued use of DC-3 aircraft will bring further increases in operation costs because of obsolescence and vastly higher parts replacement costs when the present surplus supplies are exhausted. Before discussing the final question as to what is necessary to get some manufac turer to proceed with the project, I should like to point out what has been accomplished in this connection to date and to say a word about the immediate problem confronting all of the designated companies insofar as starting work on the project is concerned.

Without exception all of the domestic companies said that their shortage of engineering talent was so acute that it would be impossible for them to begin work for at least a year. Presumably all of their engineers are now assigned to military projects or other commercial work in process or to large jet transport projects. They pointed out, however, that if the military should place a production order for an aircraft meeting these basic specifications, then engineers engaged in other priority military work would probably be immediately allocated to this project.

Quite a different situation exists with the Canadair Co. and the Fokker Co. Both of these manufacturers apparently have a sufficient number of engineers and production workers to undertake the project

It was gratifying to find that four of the plants visited had already completed preliminary design studies of aircraft conforming in all important respects with our specifications. Some had gone into greater details than others. Some indicated that as a result of our discussions they would proceed even further with their design studies to the extent that they could without interference with military projects.

Subsequent to our visit to Canadair in Montreal, we were advised that on the following day their board of directors had agreed to proceed with detailed design engineering, construction of a full-scale mock-up, and completion of wind-tunnel tests of their proposed local service aircraft which they have designated the CL-21. It is a 32passenger high-wing aircraft with conventional engines. It embodies all of the basic requirements of a modern short-haul transport. We understand that this company will concurrently undertake a worldwide survey to determine the potential market and the detail requirements of the various operators. After completion of these undertakings, their directors will then decide whether they should proceed with actual production. In this connection, Mr. Chairman, I think the Canadair Co. should be commended for their foresight.

The Fokker Co. of Amsterdam, one of the oldest manufacturers of aircraft in the world, has also submitted an interesting proposal. They have proceeded through the preliminary design stage and have built a full-scale mock-up of their proposed model F-27, which is a high-wing aircraft which meets in general the requirements of the local-service airlines. It is a 28-passenger aircraft.

In contrast with the American companies, Fokker is planning to equip their aircraft with turboprop engines rather than conventional engines. They would, of course, produce the airplane with conventional engines if the purchaser so required and they have submitted performance specifications for both types of power plant. This company is apparently convinced that within the next 2 or 3 years the turboprop engine will be developed to the point that it will be equally as reliable and more efficient than conventional engines.

It is possible that, barring high tariff provisions, the Fokker would be available at substantially lower prices than domestic models. The average labor rate in their plant is less than one-third the rate in American plants. It is estimated that this would make possible production of the complete aircraft, including materials, at about half the cost of United States production. Furthermore, we understand that Fokker has a large number of highly skilled engineers and production mechanics who will soon be surplus to their requirements unless the company undertakes a sizable new project.

Of course, most airlines in this country, I believe, prefer to buy aircraft from American companies, not only because we like to do business with home folks but also because of the more accessable service facilities and source for spare parts. The Fokker Co. has given some thought to solving this latter problem by licensing a domestic manufacturer to handle service and spares requirements in this country. It was also suggested that the American licensee would collaborate from an engineering standpoint in the design of the aircraft so that domestic operators would be assured of a so-called American airplane with standard-size threads on nuts and bolts and other desirable features.

In reply to our final question, while we found varying degrees of interest in producing this new aircraft among all of the manufacturers, the group was fairly evenly divided as to whether or not Government aid in one form or another would be the determining factor as to whether they would proceed with the project. It was interesting to note that only one of the manufacturers indicated a preference for pure out-and-out Government prototype development funds. Two others were primarily interested in an assured military order before they would begin serious work on the projects. The others said in effect that they would be willing to proceed on risk capital provided they first could be assured that: (1) There was general industry agreement on the type of aircraft wanted. (2) That there would be a continuation of the so-called second-level air-transportation system. (3) That these carriers would have certificates of suffi cient duration to permit adequate financing.

Mr. Chairman, we believe that there is today sufficient evidence to affirmatively answer these questions. We believe that at least some of these manufacturers have also been convinced of this fact.

Now, obviously, there does not appear to be a big enough market for this type of aircraft to justify several manufacturers competing in this field. I say this in spite of the fact that it is our conviction that such an aircraft would have a substantially greater market than have any of the other types of transport aircraft produced since World War II. As we see it, it will simply be a case of "the firstest with the mostest," and the first company to come up with a good airplane will have plenty of orders.

The market for such an aircraft will not be limited to the localservice airlines. If some of the trunk lines who are now providing short-haul local service over their routes expect to continue this service, they, too, will need an aircraft of this type.

Furthermore, the foreign market should be substantial as well as the corporation-owner market. The military services apparently need an aircraft of this type very badly even though they have not as yet seen fit to support any programs, legislative or otherwise, to obtain the aircraft. They are now spending large sums of money to modify their DC-3 type aircraft to Super DC-3's at a unit cost of not much less than the cost of a brand new modern DC-3 replacement. In addition, they are buying back large numbers of DC-3's from civilian operators who less than 5 years ago bought them out of military surplus. All of which indicates that the Air Force and the Navy will have a continuing need for an efficient short-haul aircraft capable of operating from relatively small airports. Consequently there appears to be no need for concern as to the salability of the airplane.

Gentlemen, in the light of the preceding information, it is our recommendation that no legislation be enacted at this time which would provide for the expenditure of Government funds to develop a local service transport aircraft. We make this recommendation with a feeling of deep gratitude for your interest and your willingness to devote so much thought to this important subject. However, we do not believe that those of us in the industry have yet exhausted

from your committee, the CAB, and other Government agencies, we can create the incentive necessary to get some manufacturer to undertake the project with private capital.

This is, of course, the quickest and most satisfactory way of reducing or eliminating the taxpayers' investment in our local service air transportation system. Our recommendation, however, is not altogether altruistic in that we believe there is a possibility of getting the completed airplane quicker without Government funds, and that there is a distinct possibility that it will be a better airplane.

If, after we have exhausted every other alternative, and still have not been successful in obtaining the aircraft, it is our sincere conviction that it would be in the public interest to provide Government funds for this purpose. In that event, and at that time, we will urge the Congress to enact such legislation.

The work of our industry committee is not complete. We are, of course, gratified with the progress that has been made. However, there are other manufacturers who have indicated an interest in the project with whom we have not yet had an opportunity to meet. We do not intend to leave any stone unturned to get this aircraft built if at all possible without the need of Government aid. We are as anxious as anyone to eliminate the need for subsidy in any form by the air transportation industry. One of the quickest ways to do it is through the development and use of a more efficient aircraft. We earnestly and respectfully request the continued active interest of your committee, the Congress, the military, the CAB, the CAA and other Government agencies in this program.

Thank you, sir.

The CHAIRMAN. I would say that is a very fine paper, Mr. Davis. Thank you for making your statement.

Admiral L. B. Richardson.

STATEMENT OF LAWRENCE B. RICHARDSON, SENIOR VICE PRESIDENT, GENERAL DYNAMICS CORP. (FORMERLY ELECTRIC BOAT CO.)

Mr. RICHARDSON. My name is Lawrence B. Richardson. I am senior vice president of General Dynamics Corp., formerly Electric Boat Co. until April 25, 1952, on which date the change of name occurred. I am honored to appear before this committee as representative of Mr. John Jay Hopkins, chairman and president of General Dynamics Corp. Mr. Hopkins appreciated very much Senator Johnson's invitation to attend these hearings and regrets that a previous business commitment prevents his doing so. Mr. W. K. Ebel, Canadair vice president, engineering, is here also. Mr. Ebel was chief engineer and vice president of the Glenn L. Martin Co. for about 20 years. For a number of years he was also test pilot of all the Martin Co's. newly developed airplanes.

Canadair Ltd., of Montreal, is a subsidiary of General Dynamics Corp. Canadair was acquired in 1947 by the Electric Boat Co. It has operated continuously as a manufacturer of aircraft and aircraft parts since the early part of World War II. During the period 1947-49 Canadair produced 71 four-engine transport airplanes (a modified DC-4, with Rolls-Royce engines) under license from Douglas Air