(2 of 4)
Investors are worried not only about falling profits but also about the warning from Defense Secretary McElroy that heavy cutbacks are on the way, probably as much as $1.5 billion. For a middle-sized company that has most of its backlog tied up in a few contracts, such cutbacks can bbring it close to disaster. For example, Fairchild Engine was clobbered by the cancellation of its Goose missile and its J83 jet engine, is in critical condition. Chance Vought hit the canvas when the U.S. knocked out its Regulus missile and F8U fighter, is going through a painful reorganization.
Gone is the day when a company could win a contract for a new plane, confidently count on years of mass production—and stable profits. The new military planes in the future will be turned out in such small numbers that they will be virtually custom-made. One reason is that nuclear bombs make the new planes much more effective than old bombers; the other is that the bombers themselves are becoming so complex and costly that the U.S. cannot afford huge fleets. Each one of North American's 2,000-m.p.h. B70 Valkyries will cost $175 million. Even at that fancy price, there is always the chance that some new project will come along so fast that it will obsolete the Valkyrie before it is really flown. Just to play safe, North American has plotted its future as if the U.S. will cancel out the Valkyrie as well as the 2,000-m.p.h. F108 interceptor, also abuilding. Says President John Leland ("Lee") Atwood: "To do otherwise would be to take a needless and unwarranted chance."
No Guarantees. To learn the new arts of supersonic flight, missiles and space probes, the planemakers have been obliged to spend enormous sums for research. This money has come out of their profits rather than, as often in the past, from the Government. United Aircraft has pumped more than $100 million into research and development in the past two years, plans to spend $60 million more this year and next. "We are willing to sacrifice our near-term earnings to assure long-term growth," says Jack Horner.
Despite the heavy outpouring of cash, the aircraft industry has no guarantee that it will continue to win the bulk of the defense business. While missilery requires a whole new technology for the old-line plane builders, much of this technology, notably in electronics, is well known to giants such as RCA, General Electric, Westinghouse. Wherever the aircraftmakers turn, they find dozens of highly skilled competitors already in the field, and new ones coming in every day. The number of electronics companies, for example, has jumped from 100 to 2,000 in the last several years. Size alone is no guarantee that an aircraft company can compete against the flock of nimble newcomers. Said Douglas Aircraft's President Donald Douglas Jr.: "The little guy can beat your head in with his flexibility and low overhead."