States. The composite financial figures of these 11 companies provide a significant basis for revealing the over-all financial position of the industry. By dividing the composite totals by the number of companies represented, Harvard obtained financial figures for an "average aircraft company" typical of the industry.

The Harvard report speaks for itself. We do not propose asking you to listen to long extracts from it, but we believe that a few of its figures will assist your committee in determining the best method of meeting the "termination" problems. We also believe that they will present in the briefest manner possible some of the major financial problems our industry will face when contracts are terminated.

Probably the most conspicuous aspect of the typical airframe manufacturer's financial position, as brought out by the Harvard study, is the small margin by which current assets (namely, cash, accounts receivable, and inventories) exceed current liabilities (i. e., the amounts owed to employees for wages, to suppliers for material and parts, and to the Government for taxes, renegotiation refunds, advances, and progress payments received against expenditures on war contracts).

As indicated by chart I below, at the end of 1942 the typical airframe manufacturer had $1.09 of current assets for each $1 it then owed. At the same date, the average for the nonaviation industrial corporations, used by Harvard in its comparisons, was $2.20 of current assets or each $1 owed.

Putting it another way, the typical airframe company had a cush ion of only 9 cents over each $1 it owed to carry the company through the post-war reconversion period and to convert to peacetime activities. The typical nonaviation corporation had a margin of $1.20 over each $1 that it owed.

CHART I

RATIO OF CURRENT ASSETS

(CASH, MARKETABLE SECURITIES, RECEIVABLES AND INVENTORIES)
TO CURRENT LIABILITIES

(ALL OBLIGATIONS DUE WITHIN ONE YEAR)

420%

1939

Current Liabilities

Working Capital

CHART II

TYPICAL AIRCRAFT COMPANY OWES FAR MORE TO THE GOVERNMENT THAN IT HAS IN "QUICK CASH"

At the end of 1942, the "average aircraft company" had insufficient cash and accounts receivable to pay the amounts owed to its employees, suppliers, and the Government. Worse than that, it did not even have enough "quick cash" assets to pay taxes and renegotiation refunds owed to the Government. It was $20,000,000 short as shown in chart II on the preceding page. This dangerous situation exists because these companies have been forced to put practically everything into inventories and have used their reserves for taxes due, for working capital. Therefore, at termination the "average aircraft company" must convert the greater portion of its investment in materials and parts into cash within a few weeks if it is to have funds to pay the balance of its current obligations and have a fighting chance to survive.

The Harvard study also brings out the fact that the typical company has been called upon to expand to the point where, if it expects to survive, it must receive at termination pretty close to 100 cents on each dollar which it has invested in material and parts for war production. As shown on chart III (see opposite page) a 12-cent shrinkage in value of each dollar invested in inventories would wipe out its entire working capital. Since these materials and parts are not readily salable in the open market and few can be used for peacetime models or in other products, we must rely on Government reimbursement to liquidate such inventories promptly after termination and at book value.

May I repeat, gentlemen? Two items are essential. The reimbursement must be immediate and it must be at full book value. A delay of a few months or weeks, or a shrinkage of less than 12 percent-either one will be fatal for us.

The industry will undoubtedly experience serious difficulty in curtailing pay rolls and outside commitments as rapidly as orders are canceled. This is a worry to all of us since the typical company's net working capital at the end of 1942 was sufficient to meet expenses for pay rolls and materials for only 2 weeks. (See chart IV.)

It is not believed that this shortage of working capital will hamper the industry's present production nor restrict its ability to meet the greatly expanded program which the Government has asked it to perform next year. Financial means are available as long as we are operating on war contracts. But when this work stops-when these contracts are terminated-we will find ourselves with obligations to be paid in dollars and inventory which will then be nonsalable to pay these obligations with. The problem is that of changing such inventory into dollars-at full book value-almost instantly. This constitutes an extremely serious financial hazard in connection with large-scale war-contract terminations and conversion to peacetime operations.

Entirely aside from our own viewpoint, we believe that the figures prepared by an unbiased, disinterested source (Harvard) demonstrate that our industry cannot survive after contracts are canceled, long enough for the General Accounting Office audits to be made. If we are not to be reimbursed substantially, prior to such audits, we will surely die.

We do not know how this problem can be handled by the General Accounting Office rapidly enough to keep alive the industry which gave America supremacy of the air. We are not criticizing that