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October 2, 2003
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June 24, 1953
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Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 AIRCRAFT PROCUREMENT HEARINGS PREPAREDNESS SUBCOMMITTEE NO. 1 COMMITTEE ON ARMED SERVICES UNITED STATES SENATE EIGHTY-THIRD CONGRESS FIRST SESSION ON CONTRACT AWARD OF C-119 CARGO PLANES BY AIR FORCE Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 AIRCRAFT PROCUREMENT HEARINGS PREPAREDNESS SUBCOMMITTEE NO, 1 COMMITTEE ON ARMED SERVICES UNITED STATES, SENATE EIGHTY-THIRD CONGRESS FIRST SESSION ON CONTRACT AWARD OF C-119 CARGO PLANES BY AIR FORCE JUNE 2, 3, 4, 5, 23, AND 24, 1953 Printed for the use of the Committee on Armed Services UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON : 1953 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 COMMITTEE ON ARMED SERVICES LEVERETT SALTONSTALL, Massachusetts, Chairman STYLES-BRIDGES, New Hampshire RICHARD B. RUSSELL, Georgia RALPH E. FLANDERS, Vermont MARGARET CHASE SMITH, Maine ROBERT C. HENDRICKSON, New Jersey FRANCIS CASE, South Dakota JAMES H. DUFF, Pennsylvania JOHN SHERMAN COOPER, Kentucky LYNDON B. JOHNSON, Texas ESTES KEFAUVER, Tennessee LESTER C. HUNT, Wyoming JOHN C. STENNIS, Mississippi STUART SYMINGTON, Missouri PREPAREDNESS SUBCOMMITTEE NO. 1 STYLES BRIDGES, New Hampshire, Chairman RALPH E. FLANDERS, Vermont HARRY FLOOD BYRD, Virginia JAMES H. DUFF, Pennsylvania STUART SYMINGTON, Missouri FRED B. RHODES, Chief Counsel JAMES ANTON, Special Counsel HAROLD M. DEPLIN, Accountant Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 CONTENTS Statements of- Page Beall, Hon. J. Glenn, United States Senator______________________ 351 Boutelle, Richard S., president, Fairchild Engine & Airplane Corp_ 457 Cook, Lt. Gen. Orval R., Deputy Chief of Staff, Materiel, USAF- _ _ _ 57 G ilpatric Roswell L., former Under Secretary of the Air Force-__ 150 Kaiser, ' dgar F., president, Kaiser Motors Corps ----------------- 260 Kaiser, Henry J., chairman of the board, Kaiser Motors Corp------- 259 Mautner, M. F., supervisory auditor, eastern district, Auditor General, USAF------------------------------------------------------ 118 McCone, John A., former Under Secretary of the Air Force--------- 5 Miller, Michael, executive vice president Kaiser Motors Corp------- 362 Potter, Hon. Charles E., United States genator____________________ 258 Solomon, Sidney, resident auditor, USAF, Kaiser-Frazer----------- 119 APPENDIXES Appendix A-------------- ----------------------------------- 412 Appendix B------------------------------------------------------- 427 Appendix C ------------------------------------------------------- . 454 Appendix D------------------------------------------------------ 457 Appendix E------------------------------------------------------- 459 Appendix F-------------------------------------------------- Facing 462 Appendix G------------------------------------------------------- 462 Appendix H------------------------------------------------------ 467 Appendix I------------------------------------------------------- 471 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 AIRCRAFT PROCUREMENT TUESDAY, JUNE 2, 1953 UNITED STATES SENATE, PREPAREDNESS SUBCOMMITTEE No. 1, ARMED SERVICES COMMITTEE, Washington, D. C. The subcommittee met, pursuant to call, at 10 a. m., in room 212, Senate Office Building, Washington, D. C., Senator Styles Bridges (chairman) presiding. Present: Senators Bridges, Flanders, Duff, Byrd, and Symington. Also present: Fred Rhodes, chief counsel; James Anton, special counsel, and Harold M. Devlin, accountant. The CHAIRMAN. The hearing will come to order. First the chair- man wants to read a short prepared statement on these hearings. Copies will be distributed. The purpose of these hearings by the Subcommittee .on Aircraft Procurement of the Senate Armed Services Committee is to inquire into the matter of whether the country is getting a dollar's worth of defense for each dollar spent in the purchase of airplanes. On the basis of the facts uncovered, we believe the appropriate authorities will take corrective action. The resulting efficiency from such ac- tion should strenghthen America's defense and security in these times of crisis, and through the resultant efficiency and productivity of performance the benefit should go to the American taxpayer. The makeup of the Senate committee, undertaking this vital task, is itself a validation of the integrity with which the purpose of this committee is to be carried out. M distinguished colleagues, mem- bers of this subcommittee with me, bear witness to the good faith of this committee. We are interested in facts as a basis for action, not in merely performing an investigation. There are many hearings going on both of Senate and House committees today. The work that this committee is doing is vitally important, because in this new administration we are reevaluating and reexamining many of the elements that relate to our national security and our national welfare. If we are to insure an adequate and effec- tive Air Force, we must also insure that wasteful and inefficient practices are eliminated. We must insure justice to our country, the taxpayer, and the business system upon which our national strength rests. National security and efficiency are not mutually exclusive. To have one does not moan that we cannot have the other. It is our purpose to secure both. Our committee intends to proceed to the goal I have just stated to you on an objective basis. We intend to get them for the country regarding awards to producers and the performance of these contracts. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Apprord For Release 2003//1C0/A NO : ~C1 00346R000400050003-4 We intend to evaluate price relative to performance, to examine whether there is waste, extravagance, or inefficiency in the companies which are suppliers to the Air Force. In other words, we are going to look into the record. In September and October 1952 reports appearing in the newspapers throughout the country indicated that the Kaiser-Frazer contract with the Air Force for the production of C-119 cargo planes was about to be canceled because of excessive costs. These reports reflected that the Air Force had estimated the Kaiser-Frazer C-119 unit cost at $688,365 as compared to the $260,000 unit cost to Fairchild Aircraft Corp. C-119 plane. After consulting with Senator Lyndon B. Johnson of Texas,' chair- man of the Senate Preparedness Subcommittee, it was agreed that staff members should be assigned to conduct a preliminary investiga- tion into this program. At the same time, I requested the Secretary of the Air Force to furnish certain facts concerning the C-119 pro- duction contract. The reports coming to the committee from both sources were alarm- ing. Instead of the estimated cost of $688,365 per unit to Kaiser- Frazer, it developed at that time that the unit cost would be approxi- mately $1,200,000. Our preliminary inquiry further revealed that the development of the C-119, the Flying Boxcar, commenced in 1945 with production contracts being awarded to Fairchild in 1947. To date the Air Force has accepted 615 units from Fairchild. On December 15, 1950, a decision was reached to award a contract for the production of 134 C-119 planes to the Kaiser-Frazer Corp. as a second source supplier. Under the contract as presently amended, the number of planes calls for a total of 159. It was of some concern to the committee that a decision of this nature was reached within a span of 10 days. Furthermore, the investigation showed that the Kaiser-Frazer proposals were submitted on December 19, 1950-4 days after the decision had been made to award the contract to Kaiser-Frazer and 1 day prior to the award of the letter of intent. The committee has further information that the Fairchild Corp. was vigorously opposed to the Air Force award of the Kaiser-Frazer contract and yet had to provide technical assistance and engineering data to Kaiser-Frazer as well as a large number of parts. As a further result of its investigation the committee further noted that the Kaiser-Frazer C-119 program was being phased out 7 months after its initial award. It appears unreasonable to the committee that a program which was strategic and urgent in December 1950 suddenly became less important in June 1951, when the Air Force decided to phase out the Kaiser-Frazer contract. On February 20, 1953, the Preparedness Subcommittee No. 1, Aircraft Procurement by the Air Force, was formed by Senator Leverett Saltonstall, the chairman of the Senate Armed Services Committee. At this time I would like to introduce the members of the subcommittee, and here with me at this table at my left is Senator Duff, and at my right is Senator Symington. For the record, I want to have inserted a copy of a letter I sent to Air Force Secretary Harold E. Talbott, dated May 26, 1953, and his reply of May 29, 1953. (The documents referred to are as follows:) Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleastilopM /pIAC 1 p?64B00346R000400g50003-4 Hon. HAROLD E. TALBOTT, Secretary of the Air Force, The Pentagon, Washington, D. C. MY DEAR MR. SECRETARY: In November 1952, at my urging, the chairman of the Senate Preparedness Investigating Subcommittee, Senator Lyndon B. Johnson, instituted an investigation into the procedures and methods used in the procure- ment of airplanes. The investigation has continued since the above date. At that time my attention was drawn to this matter from numerous newspaper stories alleging certain cost dissrepancies between two manufacturers of the same plane known as the C-119 cargo transport. On February 20, 1953, the Preparedness Subcommittee No. 1, Aircraft Procure- ment by the Air Force, was formed by the chairman of the Armed Services Com- mittee. The members of the subcommittee are as follows: Senator Styles Bridges, chairman, Senator Ralph E. Flanders, Senator James H. Duff, Senator Harry Flood Byrd, Senator W. Stuart Symington. At a recent meeting of the subcommittee it was agreed that hearings on the C-119 airplane contract awards would commence June 2, 1953. During the hear- ings the committee will elicit testimony concerning procurement procedures and methods, including supervision and administration of contracts and the effects of the Department of Defense policy in broadening the industrial base. We are also interested in hearing whether our present program is best meeting defense needs and how to avoid waste, duplication, and excessive costs to the Government. In this connection we anticipate hearing the testimony of Lt. Gen. Orval Ra Cook; Maj. Gen. Mark E. Bradley; Col. Harley S. Jones; Sidney Solomon, Willow Run auditor; Edward Meek, Fairchild auditor; R. D. Benson; as well as any others that the Air Force and the committee may deem it necessary. The details as to the time of appearance for these persons will be worked out between counsel for the Air Force and the subcommittee. I know the problems set forth in this letter are of deep concern to you and I feel certain that through our mutual cooperation many constructive recommenda- tions can be made as a result of these hearings. I invite you to submit any suggestions you may have concerning these hearings, and I assure you they will be duly considered. With best wishes. Sincerely yours, STYLES BRIDGES, Chairman, Subcommittee on Aircraft Procurement. DEPARTMENT OF THE AIR FORCE, OFFICE OF THE SECRETARY, Hon. STYLES BRIDGES, Washington, May 29, 1953. United States Senate. DEAR SENATOR BRIDGES: In reply to your letter dated May 26, 1953, I assure you that you will have our full cooperation in the forthcoming hearings to be held by your Preparedness Subcommittee No. 1. It is my understanding as set forth in your release of May 19, 1953, that the first phase of the committee's activities will be to hold hearings, beginning June 2, on the procurement of the C-119. The witnesses which you requested in your letter will of course be present. The studies which you propose to undertake after these hearings are broad in scope. As you outline them, they would include procurement procedures and methods, and the basic policies underlying procurement, as well as the fundamental question of the adequacy of our current program to meet defense needs. As you proceed, you will no doubt wish to specify particular fields of inquiry which appear to be most directly related to the achievement of effective air power on an eco- nomical basis. We would then be in a position to assist the committee in a continuing and effective manner. Sincerely yours, HAROLD E. TALBOTT. The CHAIRMAN. During the hearings the subcommittee will call as witnesses the following in an order to be determined: ,, 1. Mr. John A. McCone, former Under Secretary of the Air Force for Procurement. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 200W 41W: CIACR 0346R000400050003-4 2. Mr. Roswell Gilpatric, former Under Secretary of Air, Force Procurement. 3. Lt. Gen. Orval R. Cook, Deputy Chief of Staff, Materiel, Air Force. 4. Lt. Gen. K. B. Wolfe (retired), former Deputy Chief of Staff, Materiel. 5. Maj. Gen. Mark E. Bradley, former Director of Procurement and Production, Air Materiel Command. 6. Col. Harley Jones, Director of Procurement and Production, Air Materiel Command. Mr. M. F. Mautner, supervisory accountant, Air Force, Eastern Procurement District. 8. Mr. Sidney Solomon, Air Force resident auditor, Willow Run. 9. Mr.'C. D. Seftenberg, Air Force Deputy for Contract Financing. Our first witness this morning will be Mr. John McCone,'former Under Secretary of the Air Force. At this point in the record I would like to insert a- biographical sketch of Mr. McCone which re- flects that he was noninated for the office of the Under Secretary of the Air Force on May 31, 1950, confirmed by the Senate on June 7, 1950 and took office June 15, 1950. (The biographical sketch referred to follows:) Mr. John A. McCone was born in San Francisco, Calif., on January 4, 1902. He was graduated from the University of California with a bachelor of science degree in 1922. He began as construction superintendent of Llewellyn Iron Works of Los Angeles, Calif. In 1929 he joined Consolidated Steel Corp. of Los Angeles as superintendent and in 1933 was named executive vice president and director of that organziation. Mr. McCone left Consolidated -Steel in 1937 to form the Bechtel-McCone Corp. of Los Angeles, a firm engaged in the design, engineering, and construction of process plants, refineries, and powerplants. A major project of the Bechtel- McCone Corp. was the building of the Birmingham Modification Center at Birmingham, Ala., for modification of B-24's and B-29's in World War II. It was one of the largest modification centers operated by the Air Force during the war. Mr. McCone was a member of the President's Air Policy Commission. In this capacity he assisted in the drafting, particularly on the military phases, of the Commission's report Survival in the Air Age, issued on January 1, 1948. He was nominated as Under Secretary of the Air Force by President Truman on May 31, 1950. He was confirmed by the Senate June 7 and sworn into office June 15, 1950. At present 1V.Ir. McCone is president and director of Jushua Hendy Corp., Los Angeles; chairman of the board, Pacific Far East Line, Inc., San Francisco. The CHAIRMAN. Mr. McCONE, if you will come up and take the witness chair, we will proceed. Do you solemnly swear that the testimony you are about to give will be the truth, the whole truth and nothing but the truth, so help you God? Mr. MCCONE. I do. The CHAIRMAN. Mr. McCone, it is a pleasure to have you here this morning before the committee. You have been before the full committee many times during your service as Under Secretary. The purpose of the committee is to find the facts and to look at the record in the public interest and take action to remedy any bad situation we find if it needs remedying. I understand that you would like to present a brief statement before you submit to questioning? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaseA?Mg/;RaCgl&-- W1,64B00346RQ00400Q50003=4 "TESTIMONY OF JOHN A. MCCONE, FORMER UNDER SECRETARY OF THE AIR FORCE Mr. MCCONE. I would, Mr. Chairman, because I think the state- ment will be of assistance to the committee, and its objectives as outlined. I would like to say, before reading my statement, that I believe the objectives of the committee are constructive and good will come out of the work of this committee in this particular field and others that you will investigate. May I read my statement? The CHAIRMAN. Certainly, sir. Mr. McCoNE. Gentlemen, I am advised that this committee is inquiring into Air Force contracts for procurement of the Fairchild C-119 aircraft and that you have called me to testify. I was Under Secretary of the Air Force from June 1950 until October 1951. My responsibilities were, of course, Air Forcewide, but because of my background of industry, procurement, and produc- tion of aircraft became my particular concern. Moreover, I had studied this area intensively in 1947 as a member of the President's Air Policy Commission; and later as a special deputy to Secretary Forrestal in the newly organized Defense Department. In discussing the C-119 contracts, and particularly those with the Kaiser-Frazer Co. at Willow Run, I am dealing with the award of the contracts and not the performance of the contractor. I regret very much to hear that its performance is reported as not satisfactory. Negotiations for the contracts in question began in December 1950. They were incidental to the broad buildup of the Air Force that was already in motion at that time. They reflected national and Air Force policies, generated by the crises of the Korean war and other ominous international developments. Four considerations bore on those particular contracts and, indeed on the whole Air Force procurement program as it developed during this period: 1. President Truman, in his state of the Union message on January 8, 1951, after having declared a national emergency, pronounced the policy to be followed by the Air Force when he said, and I quote: * * * Our present program calls for expanding the aircraft industry so that it will have the capacity to produce 50,000 modern military planes a year. * * * We are not now ordering that many planes * * * and we hope that we never have to, but we mean to be able to turn them out if we need them. 2. The Secretary of Defense, in a statement entitled "Broadening the Industrial Base of the Procurement Program," directed the services to spread contracts across industry as widely as possible; and to accomplish this by the wider use of negotiation versus formal bidding procedure; to avoid concentration of contracts with a few leading suppliers; to utilize existing open industrial capacity to the maximum, and, among other things, to utilize available manpower in distressed employment areas. The idea was simply this-it is better to arrange production where plant capacity is open and labor readily available, than to build up defense plants in drumtight labor markets and suffer the attendant consequences of reckless bidding for every available man, and also bear the costs involved by the migration of workers. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 (j AIRCRAFT PROCUREMENT 3. It was the agreed policy in the National Production Authority, the Defense Department, and the Air Force to establish multiple sources of supply for all important items. This policy was intended to be a protection against complete loss of production of any needed article from bombing, sabotage, or other enemy action. 4. The Air Force was itself in the process of a rapid buildup of its forces inbeing. From an authorized strength of only 42 wings in June 1950, the desired force level had been raised during the inter- vening months, first to 58 wings, then to 69, then to 95 and, eventually, to 143. The industrial base from which the Air Force began its post-Korean growth was unsatisfactory, to say the least. The aircraft industry had shrunk to a bare minimum of operating plants. Many of these plants were inadequately equipped. Our production of combat aircraft was substantially under 100 a month. Practically all of the Government-built plants had either been sold or were held in idle status-tools removed, organization liquidated. New requirements demanded the expansion of existing plants, the bringing into production of idle plants, and the employment of non- aircraft manufacturers for the production of airplanes, engines, elec- tronic equipment, and instruments. The controlling policy was essentially this, that while the Air Force undertook to build up and equip its forces inbeing in the shortest possible time, it would simultaneously provide an industrial base possessing a reserve potential capacity twice and in some instances three times that which was called for by the scheduled production. I was in accord with this policy and supported the actions taken. Now, as regards the Fairchild C-119: This aircraft is a two-engined, propeller driven, medium military transport. It is usually operated by the Air Force in support of the ground forces for transportation and parachute operations. The plane was developed, designed, and built by the Fairchild Engine & Airplane Corp., a most competent organization, under an Air Force development contract. The Air Force paid the total cost of the development of this plane. Also, the Air Force, as is customary in such cases, retained the right to arrange for the manufacture of the plane with sources of its own choosing. Before Korea, Fairchild was our sole sourse of supply of this plane, manufacturing them in a Government-owned plant at Hagerstown, Md. The production rate at that time was approxi- mately 8 per month. The combined Air Force 95-wing program, the military aid pro- gram, the Navy and the Royal Canadian Air Force requirements called for a total of about 1,800 of this type of plane. This require- ment and the desired production rate of about 135 planes per month, to be reached by mid-1953, was formally approved by the Air Force, -the Office of the Assistant Secretary of Defense, Comptroller, and the Munitions Board between late 1950 and early 1951. The Air Staff and the Air Materiel Command first scheduled the Fairchild, Hagerstown, plant at its then full capacity of about 33 planes per month, to be reached as rapidly as possible' The Air Force then sought a second source to provide the needed planes and also the desired manufacturing capacity in reserve. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleasL&IMg DA1&Pc> -4R1W64B00346R000400Q50003-4 Mobilization studies had been made of utilizing a standby plant in Omaha under Fairchild management as an additional source. This facility, however, had become the headquarters and home of the Strategic Air Command and use of this plant was, therefore, rejected, because of the problems involved in relocating the Strategic Air Com- mand. An alternate standby plant in Chicago was also considered. There were several reasons why it was decided not to reactivate this plant at this time. First, the plant-of wooden construction-had deterio- rated. Therefore, extensive reconstruction would have been necessary. Furthermore, the labor situation in the area was acute as contrasted with other sections of the country, particularly Detroit, and finally, the production capacity of the plant, while sufficient to meet the immediate requirement, gave little capability for further expansion if requirements increased. Marietta was considered, but was needed in the B-47 jet-bomber program, and, finally, the Birmingham Modification Center was rejected, because the plant layout, being specially designed for modifi- cation work, was not considered efficient for manufacturing. Willow Run was also considered and its choice dictated by the following considerations: The ant was already in the Air Force industrial mobilization plan for the production of medium bombers. The owners, the Kaiser- Frazer Co., had for some time held study contracts for planning bomber production. Therefore, the use of this facility for aircraft production was not a new or hastily conceived idea. The plant had been sold to Kaiser- Frazer under a contract containing a national security clause which made it available for defense purposes in an emergency. The contract provided also that the plant be operated under the management of the purchaser unless he refused to do so or could be proven incapable. By reopening the wartime plants at Tulsa, Marietta, and Wichita, we were certain that we would have adequate capacity for our me- dium bomber requirements, plus a substantial reserve. Willow Run, therefore, was switched to the C-119 program. The plant was considered open capacity and was located in a distressed labor area and, therefore, its use met the directive of the Secretary of Defense in these respects. Overall costs of tooling and initial produc- tion, though high, were considered by the Air Materiel Command to be comparable to those expected elsewhere in newly created facilities. The plant, it was estimated, was easily capable of producing the currently required monthly production of about 100 planes per month, and in addition was estimated to possess in all-out production capacity of about 260 per month. Since Willow Run was not required in the bomber program, its use for production of C-1 19's was logical for the reasons given and the fact that it possessed ultimate production capacity much greater than an other available factory. I wish to emphasize one point. The Air Force at all times recog- nized that costs realized on initial production from new sources would greatly exceed those of established producers. In the instance of the C-119, it was obvious that initial costs from any second source would be, in the nature of things, high. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Apprc$ied For Release 200184 '(Y:Tf r ~ IR00346R000400050003-4 In any case, this particular decision was never a choice between the existing source, at Hagerstown, versus Willow Run. The Hagers- town facility was, from the beginning, scheduled to capacity. The choice was Hagerstown plus Willow Run, or Chicago, or Omaha, or elsewhere; and the Air Force selected Willow Run for the reasons mentioned The tentative decision was reached at a meeting at Wright Field attended by all of the principal officers of the Air Materiel Command, the Deputy Chief of Staff Materiel, several civilian assistants and myself. This problem and several other similar problems of plant activation were discussed and tentative decisions reached in -each instance. I concluded that the reasoning behind the command and staff recommendations on the several problems discussed, including the use of Willow Run, was sound and offered the best possible solution to our production problems, and I, therefore, approved the recommenda- tions. Immediately thereafter I reported -the decisions to my superior, the Secretary of the Air Force. On his concurrence, I authorized the staff and the Air Materiel Command to engage in active detailed negotiations and if satisfactory terms could be agreed upon, to con- sumate binding letter contracts which would get work under way at once. In all of these decisions there was an element of urgency. The Air Force had been reduced to only 42 partially equipped wings. When the Korean war broke out it was hard pressed to fulfill its mis- sion in Korea, let alone other missions. We were aroused to the danger and we took fast action. It is my opinion that the officers in the Air Staff and the Air Materiel Command met the challenge capably and efficiently. It may well be that the C-119 program at Willow Run has faltered. Nonetheless, the overall result of the Air Force procurement program is manifest in a production rate of planes and engines that is now almost eight times what it was on the eve of the Korean war-and this production comes from plants that can, if called upon, increase their rate of pro- duction severalfold in a minimum time. Those of us who over a period of years have had knowledge of the great and growing strength of Soviet airpower, are very glad to note the interest being taken by the Congress, as exemplified in these hearings, in the production of modern military planes in the United States. The CHAIRMAN. Thank you, Mr. McCone. Before we start ques- tioning, I want to show the committee particularly these planes. These are the 2 models of the 2 planes. This plane is the one made by Fairchild. The white indicates the part of the plane that Fairchild itself manufactured. The red indicates the part of the plane which they subcontracted to others. The black indicates that furnished by the Government. So you can see that Fairchild produced a substantial part of this plane. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 AIRCRAFT PROCUREMENT 9 Here is the same plane produced by Kaiser-Frazer. You will see again that white designates what was produced by Kaiser-Frazer, the red what they subcontracted, and the black was furnished by the Government. You can see a striking difference between what Fairchild did and what Kaiser-Frazer did on their own, so that we can get a clear picture of what these planes are. I think it will give you perhaps a little better picture than you could otherwise have. Mr. McCone, in your opening statement, you referred to the per- formance of the Kaiser-Frazer contract as unsatisfactory. When did this come to your attention first? Mr. McCONE. I referred to it as being reported as not satisfactory. It did not come to my attention during my tenure of office. I resigned as Under Secretary on October 15, 1951, and they had scarcely started production by that time. Since leaving I have naturally read the reports in the paper and in talking with my former associates have heard of some of the problems. The CHAIRMAN. Do you recall anybody specifically bringing it to your attention? Mr. MCCONE. No. The CHAIRMAN. 't'here were just general reports in the papers? Mr. MCCONE. Just general reports. I think it first came to my attention about a year ago, in May 1952, when, as I remember, it was brought to the attention of a committee of the House. I think that is the first time.1 really had cognizance of such matters. The CHAIRMAN. In your opening statement you gave as a reason for the award of this contract that Detroit was a distressed labor area. On page 65 of the United States Department of Labor Summary of March 1951 it is indicated that the Detroit area in November 1950 had a tight or balanced labor supply with a slight decrease in January up to a slight labor supply. What is your comment on those facts? In other words, your statement would indicate a situation during the time when those negotiations were on, and the United States Department of Labor would indicate that the situation was not as you have indicated. Mr. MCCONE. I alrm not familiar with that particular report. It is my impression-and I gained this impression not from surveys that were made by me or by my office but from information that came to me from various sources-that the cutback in automobile production, which was then quite precipitous because of shortages of material, was developing a situation in Detroit that was becoming alarming. The CHAIRMAN. We will put in the record the report from the Labor Market and Employment Security for March 1951, issued by the United States Department of Labor. (The report is as follows:) Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : &C P 00346R000400050003-4 10 AIRCRAFT PR C py i?~a ?Cy~? II va~a. yqqa q a ~~bNa d~ moo 01Voi L1~ l^ajid i pp 91 d*'~.~~g p,N -,.a 8 mWWmo 0I''c+0 ~Ay O.~~p".FA~~?o~d?OF:A O'er?PVro? .?S gro~mci'~+~`dgr,euy m maa~i;q qqu o'd 'g-d?. ?.7 ?~'?oaroi .. q?o,d po ro oc?J.oa3 q? m?; jMlli ?V yy ~ o ~p Nag Aacmi i.Rocm.~opajj "oroa?~.+~4! ddo~q d,G~? ?dd ?,~yo $ cc ddd ? c~ F y ro o cAcpp ; d q o 3 m ~ ti o +?> o GAS < < < < z __ VI q i a A 10 ~ L ~,Iy F?W I ti ~ d 9 41t - w + `j I I m 00 4^?9^ N 0- I Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release $~18i~Pfg4B00346R000400(20003-4 aq82 Aa~?~~g Aa?~ ~a~~qz~ ~ca ga~p~UN ~o.. aqj ~a27 ca M A ?q tip dd7 U~ nlooa~7~d. R amain 'f-E3 ~gaoq'98~800.. wa p ,q w'O'v ?o a4, w ro q m c. ~ f'y II!ll!!ifl b ; a app s" ~m 8 ~ a ? U. ~~q q..o ay?q Foa m ~ ~ ~A c~pp to cV moo 18 Wow do cd. ""a?i a b o ? h Zy d o.?q C W ..c R ip ~ ~ 0 oFq40 'gbo~b~n o 0 0 Fm~vlrti Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appr1ied For Release 200 1tO1Oi!IObk4%MMAB00346R000400050003-4 The CHAIRMAN. Mr. McCone, directing your attention to Decem- ber 5, 1950, under what circumstances did you first discuss the award of a contract for the C-119 cargo transport plane with anyone from the Kaiser-Frazer Corp.? Mr. MCCONE. That matter first came to my attention in this way: Mr. Henry Kaiser, Sr., and Mr. Edgar Kaiser, called me in my office on December 5 and told me that their plant was available for the manufacture of planes or other war materiels and they were desir- ous of utilizing it for that purpose. During the meeting, I called in Lieutenant General Wolfe, Deputy Chief of Staff, Materiel, at that time, but now retired. During the discussions between General Wolfe and General Rawlings, now Commanding General of the Air Materiel Command, but then Comptroller of the Air Force-and his presence was interdepart mental and by coincidence rather than official, because his responsi- bilities did not extend to this procurement area at that time-during that discussion which had started out with the idea of the production of the B-47 jet bomber, General Wolfe brought up the idea of the utilization of the plant for the production of the C-119. That is the first time I heard about it. The CHAIRMAN. In the course of your conversations, did Mr. Edgar Kaiser state that the Reconstruction Finance Corporation had insisted that Kaiser-Frazer Corp. obtain defense contracts as a, condition to the granting of an RFC loan? Mr. McCoNE. No, he did not. The CHAIRMAN. Are you aware that at 10 a. m. on December 5, 1950, the same day we referred to, that the Reconstruction Finance Corporation announced that it had made a loan to Kaiser-Frazer Corp. in the amount of $25 million? Mr. MCCONE. I. was told at that luncheon that that had taken place. I did not know that it had taken place at that particular time, but I knew and was told by Mr. Kaiser that he had arranged a loan with the Reconstruction Finance Corporation for working capital. The CHAIRMAN. Would you state exactly what the proposals were that Mr. Edgar Kaiser submitted for your consideration in the utilization of the Willow Run plant for the Air Force? Mr. MCCONE. At that meeting? The CHAIRMAN. Yes. Mr. McCONE. He did not submit any proposal that I recall. What he said was this: This financing had been arranged and the Reconstruction Finance Corporation had suggested that they en- deavor to obtain some defense work for the plant. He did not say that it was a condition of the loan. He said that they had sug- gested-and I am very clear on that; I am very clear in my memory in that regard. We immediately discussed the production of the B-47 bomber, and the reason we did that was because the Kaiser-Frazer Co. had been involved in industrial mobilization planning and production planning of the medium bomber, first the B-50, and then subsequently, the B-47 when the B-50 was phased out by this new airplane. The CHAIRMAN. Considering the fact that they had a contract with Kaiser-Frazer for studies to be made for the utilization of Willow Run for the B-47 program, why was it not necessary to have a similar Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releasfi2AAa$OicP64B00346R000400950003-4 study made with regard to the utilization of Willow Run for the pro- duction of the C-119? Mr. McCown. The Air Force is thoroughly familiar with first, the Willow Run facility, and, secondly, the tooling and the layout re- quired to produce the C-119 or any other plane in their program. I felt thatkwith the experience possessed at Wright Field a decision concerning the adaptibility of Willow Run or any other plant for the production of a plane such as the C-119 could be reached without a study of the type that had been engaged in with the medium bomber. The CHAIRMAN. Do you think that inasmuch as you made a study on the B-47 of the Willow Run plant utilization in connection with that, and you did not-not that you did not, but there was none made so far as the C- 119 was concerned-that that revealed an incon- sistency of a proper liaison between the planning group and the procurement group of the Air Force? Mr. MCC ONE. No, I do not think so. The CHAIRMAN. On December 5, 1950, a contract was entered into between the Boeing Aircraft Co. and Kaiser-Frazer concerning studies to be made on production of the B-47 at Willow Run. Would this contract have had any influence on any decision which you may have ultimately reached insofar as production at Willow Run was concerned? Mr. McCONE. No. The CHAIRMAN. Directing your attention again to the meeting of December 5, 1950, did you advise the Kaiser-Frazer Corp. to submit proposals to the Air Force for the production of both the B-47 and. the C-119 planes? Mr. McCONE. No, I did not advise the Kaiser-Frazer Co. to submit proposals on anything. The CHAIRMAN. At 2 o'clock on the afternoon of December 5, 1950, Lt. Gen., K. B. Wolfe called the Fairchild Aircraft Corp. and informed it that Messrs. Edgar and Henry Kaiser would appear at its plant at 10 o'clock the following morning in order to obtain engineering and technical data to be used in producing the C-119 at Willow Run. Do you not consider this a highhanded method of informing the designer of a military aircraft that another company was going to stop in and produce its plane-that they should get that without warning in that respect? Mr. MCCONE. I do not like to say that it was highhanded. I will say and I always felt that it would have been more appropriate for the Air Force to have first given the Fairchild Co. maybe more warn- ing, and, secondly, handled the matter with greater formality. In defense of General Wolfe, however, I would like to point out to this committee that in those days he was working 14 and 16 hours a day. Senator Symington knows far better than I the pressure that those men are under at times like that. I think it was a regrettable incident, for which I do not think the man or his office can necessarily be criticized. The CHAIRMAN. Do you not think a lot happened on December 5, 1950? Kaiser-Frazer got a $25 million loan from RFC, they ap- peared at your office, they start producing the C-119, there was no study made of Willow Run, Fairchild is told that Kaiser-Frazer people are appearing there to get the plans and produce the plane, that being the first they have heard of it. 34931-53-pt. 1--'2 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 ApproJ4d For Release 200`'1I`}WT: &A 0346R000400050003-4 December 5 was a very important day and a very quick-moving day, all in all, was it not? Mr. MCCoinu. Yes, it was a quick-moving day. All of the days were quick-moving in those days. The CHAIRMAN. Can you think of another day where as many things happened in this connection as that? Mr. MCCONE. A great many more things happened on December 15, Mr. Chairman, which was 10 days later. I would like to point out that here this man came to my office and said that his :plant was available. The logical thing for me or for any Secretary to do was to turn the man over to the proper authorities on the air staff, and that is what I did. General Wolfe was dealing with a problem of the second source for C-1 19's at that time, and had come to the conclusion that apparently the plant was not required in the medium bomber program field, the B-47 program, So he turned to the possibility, he desired to explore the possibility of its use on C-119's. That was the action that he took on that day. He did not make the decision on that day. But he started the exploration on that day. I do not think that was particularly precipitous. I think that had time permitted., and had he been able to have gotten in touch with Mr. Boutelle about it personally, that it would have been a more consider- ate thing to do. The CHAIRMAN. What were the reasons for Kaiser having the plant available at that time? Mr. McCoNE. As explained to me, the plant was available because the material shortages had greatly reduced his automobile production and he forecasted that as the defense program built up the shortages would become increasingly acute and automobile production might even be ceased entirely. The CHAIRMAN. Who reduced the automobile production? Mr. MCCONE. I do not know that I can answer that question specifically. It is my impression that in the fall of 1950, as the defense effort built up and as the National Production Authority started its operations, the first step was the voluntary allocation of material between producers as a step preliminary to actual allocation of materials under a controlled materials plan. I think at that time the shortages of material were due first to a hardening of the market, and, secondly, to the voluntary allocation. It seemed to prevail throughout the industry because representa- tives of a great many automobile companies and other commercial manufacturers were coming to us, several a day, wondering what they were going to do with no materials to carry on the manufacture of refrigerators and automobiles and radios and televisions and so forth. It was quite a problem. The CHAIRMAN. Mr. McCone, prior to December 5, 1950, did you direct General Wolfe to look into the feasibility of putting a plane other than the B-47 'into production at Willow Run? Mr. MCCoNE. Not to my memory, I did not. I may have dis- cussed it but I. do not recall that I discussed it. It was not the function of my office to direct the staff or the Air Materiel Command concerning the placement of planes, particular planes in particular factories. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release AM/A1IQ/1 f0 R 4B00346R000400Q50003-4 The CHAIRMAN. Did you discuss with anybody in the Air Force, General Wolfe or anybody else, prior to December 5, 1950, the placing .of a contract with Willow Run? Mr. MCCONE. Not to my knowledge. The CHAIRMAN. Did you discuss with anybody else-- Mr. MCCONE. I would like to qualify that. During those months, say from the first of November on through, we were meeting almost continuously on this problem of creating this industrial base that we had to have to accomplish the production I mentioned in my state- ment. Whether Willow Run came up in those meetings I really have forgotten. I have no record of it. The CHAIRMAN. Did you discuss with anybody outside the Air Force, Willow Run. being used? Mr. MCCONE. Not to my knowledge, no. The CHAIRMAN. Senator Flanders, do you have any questions? Senator FLANDERS. Not now. The CHAIRMAN. Senator Duff? Senator DUFF. Not now. The CHAIRMAN. Senator Byrd? Senator BYRD. No questions at this time. I may have some later. The CHAIRMAN. Senator Symington? Senator SYMINGTON. Mr. Chairman, are you going to continue to .ask questions? The CHAIRMAN. Yes. Senator SYMINGTON. Then I have none at the present time. The CHAIRMAN. Mr. McCone, what action or investigation did you undertake in this matter between December 5 and December 15, 1950, when you made the decision to award the C-119 contract to Kaiser- Frazer? Mr. MCCONE. I did not make the decision. The CHAIRMAN. Who made the decision? Mr. MCCoNE. Except for continual conferences with General Wolfe and men on his staff, and occasional meetings with General Cook, I took no action whatsoever. The CHAIRMAN. Who made the decision? Mr. MCCONE. The decision was made by the Air Materiel Com- mand in reaching a conclusion concerning several plant activation problems, and that was in the form of a recommendation made to General Wolfe, Deputy Chief of Staff, Materiel, and to me. We .approved that recommendation. The CHAIRMAN. Actually they made the recommendation but you made the decision. Is not that right? Mr. MCCoNE. I approved the recommendation. The CHAIRMAN.. It was your final decision? Mr. MCCoNE. Yes, I suppose to the extent that anything is final., this area was delegated to me by the Secretary. When I approved it I suppose that I made the decision, yes. The point I want to make is that in the order of things in the Air Force there is a big organization engaged in studying these problems and reaching some conclusions, and they come up with recommendations. When they do, about the only thing that a Secretary s office can do is test them for their logic and correctness and how they fit into the Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appr lied For Release 260M&tOp..rOb 6r4'B00346R000400050003-4 broad picture and either approve them or make suggestions as to how they might be changed. The Secretary's office, as it was organized under me and as it is now organized, does not have a staff that makes investigations and studies parallel to those of the command and the military staff. The CHAIRMAN. Prior to December 15, 1950, what discussions con- cerning the production of the C-119 at Willow Run did you have with any procurement officials at Air Materiel Command, Wright Field, Dayton, Ohio? Mr. MCCONE. .[ did not have any discussions at Wright Field at all with anyone on the production of C-1 19's. In fact, I do not think I had any discussions prior to about December 5 on the subject. Between December 5 and December 15, at the time that the matter was first brought to my attention at this meeting which I spoke of, it was discussed several times at my office but not at Wright Field. I did not go to Wright Field. The CHAIRMAN. Were any of the officials from Wright Field there? Mr. McCONE. I presume so, yes. I have no records of those meet- ings but I presume that the officers from Wright Field were in and out quite frequently. I cannot answer positively in that regard. The CHAIRMAN. Prior to December 15, did you discuss this matter with any departments or defense agencies in the Government? Mr. McCoNE. No. The CHAIRMAN. Did you discuss this matter with the Fairchild Aircraft Corp. which designed the plane and was producing it? Mr. MCCONE. Not prior to December 15, no, sir. The CHAIRMAN. Did you know whether or not Kaiser-Frazer had been negotiating with the Army for a tank production contract prior to that time? Mr. MCCONE. No, I did not know that. I knew that in October Kaiser-Frazer had had some discussions with the Department of the Army over the production of jeeps but I did not know about the tanks. The CHAIRMAN. Referring to December 15, the day the decision was made to award the contract for the production of the C-119 to Kaiser-Frazer, would you please tell the committee your recollection of the proceedings with reference to this contract? What happened that day? Mr. McCoNE. We convened a meeting with Wright Field. The Deputy Chief of Staff, Materiel, convened a meeting with the staff at Wright Field on December 15 for the purpose of reviewing a number of problems on which tentative decisions had to be made in order to permit the Air Materiel Command to proceed with its procurement action. This committee undoubtedly is familiar with the fact that procurement action is delegated by the Secretary's office to the Chief of Staff of the Air Force and by the Chief of Staff to the Deputy Chief of Staff, Materiel, and the commanding general at Wright Field. It is customary for the Under Secretary's office to take cognizance over these matters for the Secretary. This meeting was called to review many problems that we had. We were right at the time when we had to take action in connection with additional sources of supply of engines and of various types of aircraft. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaseA29"1Q/ .Q;d JR64B00346R0004001'?0003-4 It was a meeting attended by a large number of the staff. General Chidlaw, the commanding general of Wright Field, Air Materiel Command; General. Cook, who was in charge of the Procurement Division, and their subordinates. I was there with Assistant Secretary Zuckert and a number of our civilian assistants, and General Wolfe was there with some of his staff. The CHAIRMAN. In the discussion regarding a decision to award a contract by the Air Force, is it not customary or is it not the customary procedure, to carefully scrutinize cost estimates? Mr. MCCONE. No. Under the circumstances then it was impos- sible to do so. We had to analyze the broad picture and to indicate the procedure that we thought was the best to follow. The CHAIRMAN. I do not want to interrupt you but to get it straight. Do you mean to say it is not customary for the Air Force to scrutinize cost figures in awarding a contract? Mr. McCONE. The Air Materiel Command scrutinizes costs in great detail. But in conceiving this whole matter of production there were many uncertainties, and so much cost information that was not available to us, that we had to proceed on a program of developing what seemed to be a comprehensive production program which would meet our requirements and conform to the directives we had.. , We did not have the detailed estimates by the various contractors so that we could compare them price by price and bid for bid. In this particular instance it was some months before definitive estimates were submitted to the Air Force. The CHAIRMAN. What estimates, and would you describe them, were presented on December 15 as to the possible cost of producing C-11.9's at Willow Run, and where did these come from? Mr. McCoNE. I can only speak from my recollection, Mr. Chair- man, because I have asked the Air Force to locate for me the various charts and schedules that were presented. My recollection of the meeting was this: procurement officers briefed the meeting on the program in general, the alternate plans and their ideas of the produc- tion rates, and the probable tooling costs that could be obtained. There were no specific presentations from the contractors involved. In many of the instances the contractor himself was not nominated. In the case, for instance, of the Tulsa plant, which was under dis- cussion at that meeting, as I remember it the North American Aviation Co. was considered as the operator but it later turned out that it was shifted to Douglas. The purpose of the meeting was to develop a pattern for the best possible use of the floor area that was available to us for the production of airframes and engines. The CHAIRMAN. Is it your impression that the cost estimate for the production of the C-119 at Willow Run were contained in proposals submitted by the Kaiser-Frazer Co.? Mr. MCOONE. No, not at that time. The CHAIRMAN. Did the cost estimates actually come from pro- posals submitted by Kaiser-Frazer? Mr. McCONE. No. I understand that the proposal from the Kaiser-Frazer Co. was received a few days after the meeting, and in reviewing my own office records I find that I was advised that that proposal was to come in on December 19, 4 days after the meeting. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Apprt)$ed For Release 20SM4M PIQl.ftOPAMB00346R000400050003-4 In connection with this I would like to emphasize a point that I made in my statement and that is that what we authorized, what the Secretary's office authorized, was for the staff and the Air Materiel Command to engage in active detailed negotiations, and if satis- factory terms could be agreed upon, to consumate binding letter contracts to get the work under way at once. The CHAIRMAN. Mr. McCone, did you tell our staff that it was your impression that your estimate came from the Kaiser-Frazer proposals? Mr. McCoNE,. Mr. Anton and I have a difference of opinion of that discussion, Mr. Chairman. I am very clear that -I did not say that. He is equally clear that I did. There were no notes or no records made of this discussion which lasted for some 6 or 7 hours. I can only say that upon review of my own files, which I made at the time to clarify Iny own thinking, I find that on December 19 I was told that this proposal was to be in the hands of the Air Materiel Command on that day. The CHAIRMAN. Mr. McCone, if the Air Force's records should indicate that the decision to award the contract for the C-119 to Kaiser-Frazer was reached on December 15, and that the proposals were delivered by Kaiser-Frazer to the Air Materiel Command on December 19, 4 days later, and that the letter of the contract of intent was awarded to Kaiser-Frazer on December 20, what would you say? Mr. MCCONE. I would say that that action, though apparently fast, was proper under the sense of urgency that we were operating. The CHAIRMAN. It is even faster than fast, is it not? Mr. MCCONE, It is pretty fast; you bet. The CHAIRMAN. If one could take place on the 15th, and the proposals that it was awarded on were not delivered until the 19th and the letter of intent was delivered on the 20th, it is pretty rapid work. Mr. McCoNE. Mr. Chairman, I am proud of the dispatch attached to the Air Staff and Air Materiel Command's action in these areas of procurement. I feel that it is an evidence of their skill and their courage and that they took fast action, and that as a result one of the things we have not worried about too much is aircraft production. There are other items of production which this committee or other committees have concerned themselves with where decisions have not been made and the consequences have been serious. We try to, avoid that. The CHAIRMAN. Suppose these things occurred. On what basis did you award the proposal on December 15, the other dates involved being the 19th and the 20th? Mr. McCoNE. The thinking behind it was this: the experienced officers in the Air Materiel Command can, from the knowledge of the plants they have built and grown up with, they can very easily calculate what the production is going to be, and they know just about what the tooling costs will be. The officers-General Cook and his men-'knew more about what the tooling and what the production at Wallow Run would be than the Kaiser-Frazer Co, ever- did because they were professionals in the business, and here was the contractor, who -was an amateur. So they could reach a conclusion very easily, very easily, that this plant could be used properly for the Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release manufacture of the plane, and they likewise knew that certain long lead time machine tools would have to be purchased or gotten into production; there was need for the plane, irrespective of where it was produced. That is what they wanted to get under way. That is why they issued that letter promptly. I think that there was only four or five million dollars that was authorized at that time for ex- penditure for these particular long lead time items. Getting that started then they could proceed in a more orderly fashion with other details of the negotiations. That to me seemed to be a proper urocedure and one pursued in a great many other cases. The CHAIRMAN. You said that part of the reason for awarding this, at least I understood you to say, was the policy laid down by the Department on a second source of supply. Mr. McCoNE. Yes, that is correct, although we needed this second source not to conform to that policy but to actually meet the require- ments. The CHAIRMAN. I want to point out that we have these dates of December 5, where you talked with Kaiser and Kaiser got the $25 million loan; then we have December 15, when you awarded the contract; December 19 when the Kaiser-Frazer Co. submitted the proposals; and December 20 when the actual letter of intent of award was sent. Do you know that the policy established by the Defense Department by Secretary of Defense George Marshall was not issued or established until December 18, 1950? Mr. MCCONE. Yes, I am familiar with that, but I also know that it was in drafting stages and we were all working over it for several weeks, and it was a known policy. Like so many things, true, they might be subject to change before actual issuance, but it had been a subject of common discussion among us, the Secretaries and Under Secretaries, for some time; therefore we felt that we were conforming to the established policy as developed in conference, although I do know that the actual paper which I quoted here was not issued until December 18. The CHAIRMAN. Mr. McCone, I would like to read a letter written by John A. McCone on January 19, 1953, to Mr. James Anton, of the Senate Preparedness Investigating Subcommittee. I will read two paragraphs: Dear Mr. ANTON: Casual reading of your memorandum of our conference on January 7, 1953, prompts me to write you offering the following clarifications. In doing so, however, I wish to repeat that I think the memorandum is a splendid summary of a several-hour discussion which reviewed a complicated transaction in considerable detail. Now I will read from the first paragraph on page 2: Page 4, paragraph 2: This point I believe is of importance. It is my definite recollection that my testimony was to the effect that no Kaiser-Frazer studies were in evidence at the meeting. However, I went on to say that I assumed the information presented was secured from Kaiser-Frazer. What probably hap- pened-and this could be readily determined from questioning the officers involved-is that during the period Kaiser-Frazer was preparing the studies and before their formal presentation to AMC, certainly essential data was given to AMC for use at the December 15 meeting. This is supposition on my part but I think it could be determined if this was so and is the point I wish to make in my testimony. Do you have any comment on that? Mr. McCoNE. No; I feel just the same as I did in that letter. It would not be unlikely at all if the officers, the young officers at Wright Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 ApprQjed For Release 24QMOM rfd B00346R000400050003-4 Field had been in touch with the Kaiser organization almost daily on this thing. I do not know that to be a fact, but thinking back into when I, as a manufacturer, was doing similar operations for the Air Materiel Command during the time of the preparation of our proposal-and this was for a plant in World War II-our engineers were in Wright Field continuously. The CHAIRMAN. Do you think that it is customary for the Air Force to jump the gun, anticipate decisions of the Defense Depart- ment, such as the Marshall order to broaden the base? Mr. MCCONE. No, I do not think that. I think that quite to the contrary they are careful not to take any irrevocable action. But I think if they feel the urgency that we all felt then, it is proper to plan and to anticipate the thing, but not take irrevocable action. The CHAIRMAN. If you were going to jump the gun, so to speak, or anticipate, why was it important to jump the gun on the C-119 which was a cargo transport, instead of the vitally needed fighting aircraft such as the B-47 bomber or the F-84 fighter or some of those planes which were vitally needed, right on the front? Why did you jump the gun on a cargo plane? Could you point out examples where you jumped the gun. on others? Mr. MCCONE. I cannot answer that exactly because in the first place I did not jump the gun. But at the meeting which laid the foundation for these various procurement actions, there were several other second-source decisions made for engines and aircraft. I am not familiar with the dates of the procurement actions that followed that meeting in other areas but it would not surprise me if they came along at the same time or later. I really do not know that. The CHAIRMAN. Mr. McCone, I would like to ask you an important question. Would you say that the policy of broadening the industrial base is justified in a situation where the second-source contractor produces the same item at a cost to the Government of the United States of four or more times the cost of the prime contractor? In other words, to go back to my statement earlier, where I pointed out that the cost of producing the plane at Fairchild was $260,000 per unit cost and it developed that the cost at Kaiser-Frazer was $1,200,000, by any stretch of imagination can you say that you could justify the reason- ableness of broadening the base of a supply when the cost jumped from $260,000 to 4 or 5 times that, or to $1,200,000? Mr. McCONE. I would like to answer that question in two ways. In the first place, as indicated in your statement, the apparent differ- ential of cost is not in the order of 4 or 5 times but it was in the order of $605,000 to $275,000. I do not recall your figures. It was some- thing in the order of 2 or 2l to 1. The 4 or 5 to 1 seems to have de- veloped from the performance of the contractor rather than from the figures that were anticipated earlier in the game. Senator FLANDERS. May I ask the witness to give those compara- tive figures again? The CHAIRMAN. Yes. Mr. McCONu. Could I refer to your statement? Senator FLANDERS. These are the figures that the committee has given? Mr. MCCONE. Yes, sir. The CHAIRMAN. My statement was that the reports coming to the committee from both sources were alarming. Instead of the esti- Approved For Release 2003/10/10 :. CIA-RDP64B00346R000400050003-4 Approved For Release, h0Mi@ovt1 64B00346R00040d50003-4 mated cost of $688,365 per unit to Kaiser-Frazer, it actually developed at the time that the unit cost would be approximately $1,200,000, and the cost to Fairchild was approximately $260,000. Mr. MCCONE. I think had the estimated cost at that time been $1,250,000, the whole matter would have been reviewed very, very carefully to find out how a second source that more closely approached the cost of the prime source could be developed, and therefore it is the performance that has thrown the thing so far out of balance not the figures that were apparent in the early stages of the negotiations I would like to make another point and that is that the prime source was scheduled to its full capacity of 30 or 35 per month. So it was not a matter of comparing the cost of the second source to the cost of the prime source but it was a problem of creating a second source to meet the requirements which had been approved and presented to the Air Materiel Command to do something about. In other words, to repeat my statement, it was not Hagerstown versus Willow Run,. It was Hagerstown plus Willow Run, or plus Chicago, or plus Omaha. That was the decision that was made. If Hagerstown had had a capacity of substantially more planes then. I think the proper action would have been to have sponged up that capacity and maybe started the second source on a very minimum number of planes so as to reduce to the minimum the overall cost to the Government. The CHAIRMAN. Do you recall Gen. Hoyt Vandenberg, Chief of Staff of the Air Force, coming to you subsequent to December 15, 1950, and stating to you that he was concerned over dedicating Willow Run to the C-119's? Mr. MCCONE. Yes. The CHAIRMAN. What was your reaction when the Chief of the Air Force came to you and said he was concerned over that? Mr. MCCONE. I told him that I would go into the matter with the staff and the command. He told me he was concerned about dedi- eating it to C-119's when it was such a large and important producing unit for the B-47's, The subject was brought up at the meeting of December 15 and unfortunately the transcript of that meeting is not available. But the notes from the meeting indicate that it was dis- cussed, that the subject was discussed. It was decided that because we were bringing Tulsa and Marietta in addition to Wichita, into the B-47 program, that, we had ample capacity for our requirements plus. a very substantial reserve for expansion if need be, and, therefore, we did not have to antic' ate Willow Run in the B-47 program. The CHAIRMAN. What did Mr. Finletter, Secretary of Air, say?' What reaction did he give you when you reported the decision made on December 15 to award the C-119 contract to Kaiser-Frazer? Mr. MCCONE. He offered no objection and approved it and on that basis the Deputy Chief of Staff, Materiel, was authorized to proceed. (Discussion off the record.) Senator FLANDERS. Mr. McCone, during the fall of 1950 the Air- Force was planning for a 95-air-wing program. Under this contem- plated program, could the requirements for the C-119 aircraft have been met by the Fairchild Aircraft Corp. which had designed this plane and was then producing it? Mr. McCONE. The 95-wing program,-plus the military-aid require- ment which was developed concurrently, together with a small. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approdd For Release 2OG3 ttOEO: C1800346R000400050003-4 requirement for the Navy and a requirement for the Royal Canadian Air Force which we were supplying, produced a total requirement of about 1,800 airplanes. That is not an exact figure, but that is very close to it. They were to be produced as rapidly as possible reaching a production rate of 135 planes per month by mid-1953. {'he Fair- child Co. did not have that capacity. The requirement of 1,800 planes, more or less--- Senator FLANDERS. Is this 1,800 of C-119's? Mr. MCCONE. Yes, sir; 1,800 of C-119's. And the production rate was approved by the Office of Secretary of Defense, Comptroller for Financing, by the Munitions Board, and, of course, by the Air Force, and was incorporated in the combined aircraft procurement program of the Defense Department at that time. Senator FLANDERS. For my information will you tell me whether, when we say we have a 95 air wing program, does that include the cargo planes or only the fighting planes? Mr. MCCONE. It includes the cargo planes that are Senator FLANDERS. Assigned to the Air Force? Mr. McCoNE. No, that operate in the medium and heavy troop carrier wings. There are, in addition, some miscellaneous squadrons of transport planes that are always in addition to the 95 wings. Senator FLANDERS. When we say 95 wings, that includes some wings of cargo planes? Mr. MCCONE. Yes, that is correct. Senator FLANDERS. You told us a little earlier what the capacity per month was of the Fairchild Co. Will you give us that again? Mr. McCoNE. Yes. It was estimated at about 35 per month. I think the exact figure that was estimated was 33. Senator FLANDERS. Another question related to this is Was not this figure of 1,800 C-119's a mobilization production figure rather than a current figure at that time, in the fall of 1950? Mr. MCOONE. No, sir; it was an actual requirement and it was set forth in schedule A-13 of the Air Force and, as I say, that schedule was approved by the various authorities and authorized for procurement. Senator FLANDERS. It was a current schedule and a recognized requirement. It was not a mobilization figure? Senator BYRD. May I ask a question? Senator FLANDERS. Certainly. Senator BYRD. How many planes have we in the 95 wing program? Mr. MCCONE. I cannot answer that, Senator Byrd. The Air Force could get that figure easily. Senator BYRD. We hear so much about the air wing programs, I would like to know how many planes there are involved. Mr. MCCONE. I agree with you, sir. I think the figures, dealing with wings, are somewhat illusory. Senator BYRD. If you can in answering these questions, I would rather that you give the planes rather than how many wings there are. Mr. MCCONE. I am sorry I do not have that information. I hope the committee appreciates that I have been out of the Air Force since October 1951 and therefore Senator BYRD. Is it not true that in the Air Force they have differ- ent numbers of planes in the wings, that they call it a wing and not have any standard number? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaseRgR/11Pn?~4B00346R00040000003-4 Mr. McCoNE. That is correct. Different types of wings have different numbers of planes. Senator BYRD. It really does not mean anything, does it? Mr. MCCONE. The numbers assigned to a wing range from 32 or 33 up to 75 or 80, or even more. Senator FLANDERS. Mr. McCone, can you tell us exactly when that program for 1,800 C-119's, at the rate of 135 a month, was approved? Was it approved, had it been approved in the fall of 1950 or was the approval given later? Mr. MCCONE. It was developed, as I recall, in November of 1950. It was formally issued by the Air Force on December 31, 1950. It was approved by the Office of the Secretary of Defense and the Munitions Board formally on February 5, 1951. Senator FLANDERS. So it was not an official program in the fall of 1950? Mr. MCCONE. No. That is correct. But it was sufficiently firm for the purposes of action because it was agreed, an approved program .of the Joint Chiefs of Staff. Senator FLANDERS. Can you recall what the steps were that were .made at this time to determine whether Fairchild could meet the C-119 requirements? Any special effort made to see whether they -could? Mr. MCCONE. I cannot answer that. I think that General Cook and his officers could answer that question. Senator FLANDERS. I have in my hands a copy of a letter dated October 23, 1950, wherein it is recommended by Gen. Orval R. Cook, Chief of Procurement and Industrial Planning, that Fairchild be given a contract to open a facility in Chicago on December 1, 1950, as the most reasonable and economical way of meeting the requirements of the needs for the defense assistance program and the 95-wing program. Will you examine this before it is inserted in the record? We will place this letter in the record. (The letter follows:) OCTOBER 23, 1950. Subject: Facilities expansion project C-199 requirements. To: Director of Logistics Plans, Headquarters, USAF. Attention of Industrial Planning Division, Washington, D. C. 1. There is a requirement to activate an additional facility to meet the require- ments of the MDAP program for C-119 airplane and to provide capacity potential for C-119's in the 95-ggroup program. 2. Programed MDAP C-119 requirements begin at 2 in October 1951 and raise to a peak of 13 per month in January 1953. Proposed Air Force and Navy requirement under the 69-group program is 12 in July 1951, rising to a peak of 15 (95 group) in November 1952, then leveling off in 1953 at 40 per month. Total Air Force and MDAP requirement is then 53 per month through 1953. Available information establishes potential capacity at Hagerstown of 40 per month under extremely adverse conditions, and with a subcontracting program which would require upward of $10 million for facilities. Additional buildings, machinery, and equipment for Hagerstown to reach 40 per month is estimated at $5 million. Lack of capacity at Hagerstown to meet the peak 95-group and MDAP require- ment, plus the above-estimated facility costs required to support a peak of 40 per month, clearly illustrates the requirement for selection and activation of an addi- tional facility for C-119 production. A review of available facilities indicates that Air Force plant No. 3, Tulsa; Air Force plant No. 6, Marietta; Air Force plant No. 8, Chicago; and Air Force plant No. 1, Omaha, should be considered in this selection. Further, the Curtiss-Columbus, Bell-Niagara Falls, and Birming- ham Modification Center facilities were reviewed but eliminated from further consideration because: (a) The Curtiss-Columbus facility is scheduled for use by North American for F-86 MDAP requirement; and (b) the Bell facility is pri- Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Apprd4ed For Release 2O. AD T?DAuROMBOO346ROOO4OOO5OOO3-4 vately owned and not available for use by another contractor; and (c) the modification center at Birmingham, Ala. (1,700,000 square feet) is adaptable to small-scale production but lacks flight-test facilities, and does not have the mobilization pot?ntial desirable in this case, without extensive additions and alterations. The plant is owned by the city of Birmingham and reportedly under option to Chase Aircraft Co. An analysis of the aforementioned Air Force plants for C-119 production discloses the following advantages and disadvantages in each case: (1) Air Force plant No. 3, Tulsa (a) Advantages. --1. Favorable climatic conditions permit extensive outside operation. 2. Less vulnerable to air attack than sites in highly industrialized areas. 3. Good labor market. (b) Disadvantages.-1. Assembly building, 4,000 feet by 320 feet precludes ex- tensive production and subassembly operations, thus limiting this plant generally to final assembly unless additions were constructed. 2. Existing AMC S. and N. Depot now operating in the main assembly building would require relocation and interruption of operations in event subject plant is selected for C-119 production. 3. This plant is already scheduled for production of B-47 aircraft in event of mobilization. (2) Air Force plant No. 6, Marietta (a) Advantages.? 1. Favorable climatic conditions permit outside operation. 2. Less vulnerable to air attack than sites in highly industrialized areas. 3. Fair labor market. (b) Disadvantages.-1. Total area of 3,950,000 square feet is considered to be excessive for this operation. 2. Plant should be retained for planned M-day pro- duction of B-47 aircraft. (3) Air Force plant No. 8, Chicago. (a) Advantages. --1. Plant size and layout lends itself readily to the planned C-119 production although the plant as a whole requires more rehabilitation than at Tulsa, Omaha, and Marietta. 2. Relocation of existing tenant activities would not be serious and it is considered that the relocation costs would be con- siderably less than would be the case at Tulsa, Omaha, or Marietta. 3. Fair labor market. (b) Disadvantages.-1. More vulnerable to air attack because of industrialized location than other sites considered. (4) Air Force plant No. 1, Omaha. (a) Advantages.---1. Assembly and production area of approximately 1,750,000 square feet makes this facility ideal for the C-119 production contemplated. 2. Not considered as vulnerable to air attack as other sites in highly industrialized areas. 3. Good labor market. (b) Disadvantages.-1. Selection of this facility for C-119 production would necessitate expensive removal and relocation of a large part of the AF Industrial Reserve now in storage thereat. 2. Joint use by Headquarters, Strategic Air Command would seriously complicate both operations. (1) Air Force plant No. 8, Parkridge, Ill. (2) Air Force plant No. 1, Omaha. (3) Air Force plant No. 3, Tulsa. (4) Air Force plant No. 6, Marietta. 4. In consideration of the above analysis, it is considered expedient and to the best interests of the Government to activate Air Force plant No. 8 (Douglas) Park Ridge, Ill., under Fairchild management. Initial cost is estimated at $15 million all of whichis chargeable to the MDAP requirement. Additional facilities in the amount of $9 million (not included in this proposal) are planned from AF funds in order to provide capacity for 45 per month. 5. The estimated costs of reactivating the Chicago plant are estimated to be $15 million broken down as follows: Approved For Release 2003/10/10 : CIA-RDP64BOO346ROO0400050003-4 Approved For Releaklek AO (1~ ~~URCI , WP64B00346R000429050003-4 Schedule II. Building installations and rehabilitation - - - - - - - - - - - - - $849,000 Schedule III: Machine tools and related production equipment - - - - - - - - - - - - - 11, 200, 000 Building installations (mechanical) -------------------------- 815, 000 Furniture and fixtures_____________________________________ 1,060,000 Schedule IV: Portabletools - ------------------------------------------ 578,000 Motorized equipment------------------------------------- 498, 000 Total------------------------------------------------- 15,000,000 6. Work under schedule II includes complete rehabilitation of wood frame and trusses, construction of service pits, power distribution system, heating and venti- lating, et cetera. Schedule III includes general and special machinery, related production equipment, repairs and additions to cranes and hoists, and furniture and fixtures, including a large quantity of shop and storage fixtures. Schedule IV includes the customary run of portable tools (drills, welders, grinders, etc.) and motorized handling and transportation equipment. Facilities furnished from the AF industrial reserve will be replaced with items-of equal value. 7. As indicated in paragraph 4 above, all of the proposed expansion in the amount of $15 million is required to meet the MDAP program requirement for C-119 airplanes. If it were not for the MDAP C-119 requirement, the activation of an additional facility would not be required to support the USAF requirements. 8. It is proposed to lease the plant to Fairchild on a no-rental basis, since there is no competitive element involved. Lower cost of end item is considered to be adequate consideration. 9. It is hereby certified that there is no existing active productive capacity available or suitable for the contemplated C-119 production by Fairchild. The estimated costs are considered to be reasonable, and lower than estimated costs of activating other possible selections. 10. Upon approval of this project, it is recommended that your headquarters notify CONAC, other services, agencies and tenants involved to vacate the prem- ises. Partial occupancy by Fairchild is recommended by December 1, 1950. For the commanding general: ALFRED H. JOHNSON, Brigadier General, USAF, Chief, Industrial Planning Division. Approval recommended.. ORVAL R. COOK, Major General, USAF, Director, Procurement and Industrial Planning. Senator FLANDERS. Do you have a recollection as to this letter, Mr. McCone? Mr. McCONE. No, I have no recollection of the letter. I see it was to be approved by General Cook. I do not know whether he approved it or not.. I have never seen it. That letter was never brought to my Senator FLANDERS. This is the first time you have seen that letter? Mr. MCCONE. The first time I have seen the letter; yes, sir; although I knew Senator SYMINGTON. Will the chairman yield? Senator FLANDERS. Yes. Senator SYMINGTON. Here it says, "Wherein it was recommended by General Cook." Was it written by General Cook or written by a subordinate and given to General Cook? Senator FLANDERS. This is signed by Brig. Gen. Alfred H. Johnson and approval is recommended. Senator SYMINGTON. Was the original letter signed by General Cook? Senator FLANDERS. General Cook signed his approval. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approu`dd For Release 20031*01 T @I ~PUtB O346R000400050003-4 Senator SYMINGTON. I note here on another question, the top of the next page, you -say also that the C-119 recommendation was going to be made and scheduled for Omaha, Nebr. So presumabl r some people recommended Omaha, and some people- recommended Chicago, and some people recommended Willow Run. All of these preliminary papers, Mr. Chairman, with respect to a decision, _I respectfully submit are comparable to -exactly what you-. and I would have done in business. We would have gotten-a good many recommendations from a good many different :people and then we would have made a decision. As to whether that decision was sound or not, I am not commenting on. In my experiences in the Air Force there were times when you could get as many as 20 recommendations with respect to how an airplane should be made, where it should be made, when it should be made, how many should be made, and what the cost of the airplane was. Thank you. Senator FLANDERS. Did you, Mr. McCone, receive any recommen- dations of this sort for the Willow Run plant? Any documented recommendation? Mr. McCoNE. No, I did not. The recommendation I received was, the recommendation that evolved in the meeting which I have discussed, and I have opened my notes here and I find that at that meeting there was in attendance General Cook, and also Gen., A. H. Johnson. Is ho the party that signed that letter? Senator FLANDERS. Yes; Gen. A. H. Johnson. Mr. MCCONE. He was also in attendance at the meeting. So I can only draw the conclusion that between October 20 and the 15th of December a reconsideration of the entire production program caused. a change in the position of the command. And that of course is unanswerable. Senator FLANDERS. I would like to interpose a question at this. point. You have expressed some difference of opinion as to the figures, of the ratio of cost of Willow Run to the ratio of cost at Hagerstown. Even though ibis two and a half to one or two to one, or four or five to one, as it appears from our figures, does it not seem that it was a mistake to give the contract to Willow Run? Mr. MCCONE,. It is very easy to Sunday-morning quarterback these things, Mr. Chairman. I do not feel that those who entered into this decision could have, in December 1950, anticipated the costs which are reported to have developed. I have not examined those costs myself. Senator FLANDERS. Of course that in a way is reaching the end of' this investigation before we get there. But I have been impressed, as we have gone along, from question to question and answer to answer, with how you feel that everything was done regularly and in order and. with good judgment, until we finally bump up against this end result. I am just wondering whether there was not some point along in there, in the orderly progression, at which a caution should have been indicated which was not used. Mr. MCCONE. I was concerned over the matter of putting aircraft production in a commercial plant that was out of its commercial production because of the possibility that labor and more particu larly overhead would find itself way into aircraft production and inflate the cost unnecessarily. For that reason, I wrote a memoran- Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releasg,0%1gjA64B00346R00040(A50003-4 dum, and I would like your permission to make reference to it and to insert it in the record. Senator FLANDERS. You may do so. Mr. McCoNE. This was written on January 5, 1950. It was addressed to General. Wolfe, General Chidlaw, who is the commanding general of the Air Material Command Senator.SYMINGTON. I do not believe you mean January 5, 1950, do you? You were not in the Air Force at that time. Mr. McCoNE. I beg your pardon. It is 1951. I am reading from the staff papers. Also General Cook. Copies of it were sent to Assistant Secretary Zuckert, General Rawlings, who is the comptroller of the Air Force, and to Mr. Frank Roberts, who is my special assist- ant on renegotiation matters. I would like to read 2 or 3 paragraphs of this letter, if I may. I said: I have been thinking about the contracts that you are or soon will be negotiat- ing with General Motors and Kaiser-Frazer and others who are to manufacture airframes and components for us in facilities now producing commercial products. Senator SYMINGTON. I did not understand that. Would you mind starting off again and reading it so we can all hear it? Senator FLANDERS. I may say we come to this a little later. I do not think there is any objection to your reading it now. But it is one of the things on which we have : some questions. Mr. MCCONE (reading) : I have been thinking about the contracts that you are or soon will be negotiat- ing with General Motors and Kaiser-Frazer and others who are to manufacture airframes and components for us in facilities now producing commercial products. It seems to me that these contracts will be quite unusual and therefore I believe should receive the personal attention of the senior people in the Air Materiel Command. What concerns me most is the danger that work will become "loaded" with a great many costs that are properly attributable to the commercial enterprises that are being terminated and therefore are not properly a part of the cost of Air Force work. Definition of "cost" must be studied carefully. All companies who go through a period of transition from commercial to defense production will have a vast readjustment in their overhead organization. Many departments necessary for commercial activities, most particularly the sales department, have very little, if any, part to play in a company or division producing exclusively for the Air Force. The same is true to an extent with a large segment of the engineering depart- ment, particularly that portion of the engineering department devoted exclusively to commercial product development. Also there will be a great deal of direct and indirect labor that will not be usefully engaged on our work until tooling has been completed and production lines started. Naturally, the manufacturers will desire to hold this labor, but if they do this to the extreme, idleness and excessive costs will result. We must be protected from this eventuality. Another point is the depreciation on excessive facilities. And then I close: I would suggest that in negotiating the contracts, careful attention be given to the definitions of admissible costs and other features of the contracts designed to protect us against unusual features of the above transactions. Senator SYMINGTON. Would the chairman yield for one more question? Senator FLANDERS. Yes. Senator SYMINGTON. Mr. MCCone, just to get the facts on the table, did you not write that memorandum because you were afraid Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appr2 ed For Release 20,qjj1 WM ~3 PP00346R000400050003-4 that the not going too well automobile overhead of Kaiser-Frazer would be dumped on the aircraft contracts? Mr. MCCONE. That is what it said, yes, sir. Senator FLANDERS. Will you explain to the committee why you thought that Kaiser-Frazer would be a satisfactory contractor when you have so clearly expressed the necessity for watching them? Mr. MCCONE. I did not confine that letter, nor did I confine my views at the time, necessarily, to Kaiser-Frazer, although I think their situation was of greater concern. May I point out that we were activating General Motors at Kansas City, we were putting engines in Buick and in Chevrolet and Ford and elsewhere. We were also employing other important subcontractors, such as Brill and A. O. Smith. So the problem was industrywide, although in answer to your question, Senator Symington, I think it was concern over the Kaiser- Frazer situation that led me to write this particular letter. In answer to your question, Mr. Chairman, I felt then and I still feel that it is a controllable situation. I do not think that it was sufficiently compelling to dictate a policy on our part of not using commercial producers for our requirements. I felt care should be exercised in the administration of the contract, and I have made inquiry since, incidentally, and I am satisfied that the Air Force has been very careful. They have had many, so they report to me, many audit teams and have selected their best men for Air Force representatives in these particular situations. Senator FLANDERS. When did that cautious and intense activity begin, do you know? or,. MCCONE. I do not know, sir. I know it began with me on January 5 because I wrote the letter. Senator FLANDERS. I am just wondering whether there was not a stepping-up of that activity along in July 1952 when we began to get interested in it? Mr. MCCONE,. It might have been. I was out of the Air Force then so I cannot answer that. Senator FLANDERS. Going back to the Chicago project you said that quite evidently General Cook had changed his point of view with regard to the Chicago-Fairchild recommendation. Senator SYMINGTON. Excuse me, Mr. Chairman, does the record show that General Cook approved that memorandum? Senator FLANDERS. Yes, it does. Senator SYMINGTON. Thank you. The copy did not show it. Senator FLANDERS. The copy of course does not have his signature, but the indications are that this is a correct copy that he approved. Senator SYMINGTON. Thank you. Senator FLANDERS. Can you give any explanation, Mr. McCone, as to why the recommendations in that letter of October 23, seemed to have been ignored when the decision was made on December 15 to award the contract to Kaiser-Frazer? Mr. MCCONE. No. Senator FLANDERS. You were present at the meeting? Mr. MCCONE. Of December 15, yes. Senator FLANDERS. Do you have any recollection of any discussion as to why the Chicago-Fairchild project was abandoned? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Relea%gtg 1 k'1ij]g#fP64B00346R000429050003-4 Mr. McCoNE. It was discussed at the meeting. It was not dis- cussed in the light of this particular recommendation. But the use of Chicago and Omaha and other plants were discussed at the meeting. I recall that definitely. General Cook said, and I would like to read to the record-I cannot put my hands on it now and I do not want to delay you-what General Cook said at the meeting was that if our problem was securing immediate production of a specific and limited number of planes which required a source in addition to Hagerstown, then he would favor the activation of a standby plant under Fairchild's management. But if the problem was both the procurement of planes and at the same time the establishment of the broadest possible base for future expansion along lines of the directive of the President and the Secre- tary of Defense, then he would favor the Willow Run facility. The notes of the meeting also show that General Chidlaw, who is the commanding general of Air Materiel Command, confirmed the point of view of General Cook. I would think-he would be a much bettor witness on this subject than I-I would think that what happened is between October 20 and the December 15 meeting the Air Materiel Command became more- impressed with the policies of higher authority in connection with this broad mobilization base, the establishment of productive capacity for 50,000 airplanes per year, whether we were going to buy the airplanes or not. That grew slowly and finally was pronounced vaguely in a speech by the President on the 15th of December, but specifically in his state of the Union message on January 8, 1951, and also in his budget message on January 15, 1951. Senator FLANDERS. However, that point of view had been infor- mally expressed to the Department of Defense before the public pro- nouncements of those dates that you have given? Mr. McCONE. Oh, yes, many, many times. Senator FLANDERS. There is a mobilization plan of the Air Force No. MA-5, effective as of November 10, 1950, which calls for a some- what similar plan to the Fairchild-Chicago, only in this case it is Fairchild-Omaha. Can you tell why this plan was never put into effect? That was for 185 airplanes per month at that facility. We are still talking about C-119's. Why was that not put into effect? Mr. MCCONE. In answering that question, I would like to take a minute to comment on this whole matter of mobilization planning. In 1946 or 1947 the Air Force, as well as the other departments of the military, felt that they must have plans for their production in the event of all-out mobilization. You are very familiar with that, Mr. Symington. The thinking was what would we do if we had to go into all-out mobilization, what plants will we use, what will we put here and what will we put there. These studies were conducted over a period of years for the utilization of the available facilities in the United States. It was conceived that mobilization would be on, that commercial and civilian production would be reduced to a minimum as it was during the war, that all of our resources would be consecrated to the war effort. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approg?d For Release 20Qat&Otitor: f#,@,e .0346R000400050003-4 It was that type of thinking that went into this so-called mobiliza- tion planning. The end product could not be divided off. You could not very well take 5 percent of it or 10 percent of it or you ran into many problems where in many instances the plan was impracticable, except in a case where our total resources were devoted to war, Omaha was one of those examples. Here we had, in the Omaha plant, housed the Strategic Air Command. We had, and still have, several hundred officers there and a very, very sensitive organization. Senator FLANDERS. What do you mean by a sensitive organization? Mr. McCoNE. It is the center of a very important communications system. The moving of those men and the relocating of them, and the moving of the facilities that they operate, was a big job. It was a costly job, but likewise it was a disturbing thing to do. Normally, in all-out mobilization you would do that because you could take a Federal building in Kansas City, maybe, and put them there, or you would have other places to go. But that was not quite the situation this time. We would have to go out and build new facilities, relocate the Strategic Air Command, and then turn the factory over to manufacturing. In a period of partial mobilization we chose not to do that. That is why, in this instance and in many of these mobilization studies, they just didn't apply to this partial mobilization that we were working out. I wanted to explain that to the committee. Senator FLANDERS. Do you feel that you have given a sufficient answer to the question as to whether this MA-5 was revised as of December 12, 1950, to substitute the Kaiser-Frazer plant? Mr. McCoNE. I am really not familiar with MA-5, Mr. Chairman. I assume I was at the time, but I have-forgotten it and cannot identify it or recall it to my mind by the symbol number. Senator SYMINGTON. Will the Chairman yield at that point? Senator FLANDERS. Yes, I will yield to the Senator. Senator SYMINGTON. Mr. Chairman, the Strategic Air Force is the center of the strategic air power of the free world. It was put into Omaha-I think I approved of that myself-after a great deal of investigation and General LeMay's approval and others. It would seem incredible to me, regardless of any staff study made in the Air Force, that in order to make a cargo plane, a secondary source for a cargo plane, that you would root up this Strategic Air Force where you spent a good many million dollars over a period of years to get it established at that point, not too close to the border, not too far south, and other classified things, in order to make a cargo plane. I don't know who made the MA-5 study with respect to Omaha. I don't think it. would have been sound to have moved the Strategic Air Force in order to build a C-119 cargo plane. Senator FLANDERS. May I ask a question of the Senator as well as the former Secretary? Senator SYMINGTON. It will be a pleasure. Senator FLANDERS. I take it that this Strategic Air Force was located in manufacturing-type buildings. Senator SYMINGTON. That is largely correct, except those buildings at the time, as I remember it, were not being used for manufacturing use but for tool storage. Is that correct? Mr. McCONtE. That is right. It was a shutdown plant. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 20 .?6 j,J P 00346R000400059?03-4 Senator SYMINGTON. Also you have an operating field there, per so, and with relatively slight additions you had a field. And there were very few fields like it that could handle the B-36. Senator FLANDERS. The point that you are making, Senator, is that while you would naturally shift this over at an advanced stage of war production, you would not do it as an initial stage of expansion? Senator SYMINGTON. My only point is that this was a staff study and there are probably a great many staff studies that recommend some- thing in addition to the C-119. But inasmuch as you felt that it was important that he answer the question on this particular study, I just wanted, in an effort to support the witness, to say that I don't see how you could make that decision of moving the Strategic Air Force from Omaha in order to put a secondary source for the C-119 into that establishment. Senator FLANDERS. As a matter of fact the revised production schedule is exactly the same as the original, except that Fairchild Omaha is erased from this point and replaced by Kaiser-Frazer. So it was a definite shift, without any other shift, from one producer to another. Who directed Air Materiel Command at Wright Field on December 5, 1950, to revise this mobilization plan MA-5 so that the Kaiser- Frazer Willow Run plant would be included in it? Mr. McCONE. I cannot answer that question. I do not know. Senator FLANDERS. Is it not the usual procedure, prior to the award- ing of an airplane contract, that the Air Force makes a facility study in order to determine the usability of a plant and its need in the Air Force program? Mr. McCoNE. Generally, yes, except where it involves the produc- tion of a plane or an engine that is thoroughly familiar to the engineers and the officers of the Air Force, and in that instance detailed studies are not necessary. The situation was unique with regard to the B-47. That was a new plane. It was the first jet bomber to be produced and the pro- duction of a jet plane of that type involves techniques of manufac- turing entirely different from the manufacture of a plane of the C-119 type. The C-119 is a very conventional article, a very good article, but the manufacturing techniques are very similar to those employed through the years. Senator FLANDERS. It is my recollection that in answer to an earlier question you indicated that the Wright Field investigation, or interest in the Kaiser-Frazer plant at Willow Run, was based on available space and available labor. Mr. MCCONE. Yes, sir. That is correct. Senator FLANDERS. Do you know whether they made an investi- gation as to the additions to the productive machinery that would be required? Mr. McCoNE. I presume that they did. I am sure that they did. What they needed was a complete line of tools and tooling for the production of an aircraft, because there were none in the plant at all. Senator FLANDERS. So it was a question of space and labor. Do you know whether they made any investigation as to the efficiency of the organization as an organization? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 proved For ReleaseA (;9/lq0 64B00346R000400050003-4 Mr. MCCONE. I think that the officers who were actually in touch with the organization and carrying on the detailed negotiations would be better witnesses than I on that question. Senator FLANDERS. Would you think that such a study would be a proper part of any investigation as to the-- Mr. MCCONE. Yes, I think they should and undoubtedly did satisfy themselves concerning the capability of the management. Senator FLANDERS. Again I feel like I am jumping ahead to the end result but I will forebear. In a letter to a Congressman, dated June 10, 1952, you pointed out that studies were made of production of several types of aircraft at Willow Run, including the Fairchild C-119, after December 5, 1950. Can you tell the committee what planes were studied and who made them? Mr. McCoNE. As I explained to the staff, that letter, which was written in Los Angeles and purely from memory, was in error insofar as apparently the only specific detailed studies that were made were in the production of the B-50 medium bomber and later the B-47 jet bomber. Senator FLANDERS. Can you have the Air Force furnish a copy of these studies for the record? Mr. McCONE. I can. If the chairman would request the Air Force-I have no authority to request the Air Force to release their studies. I am sure they would be very glad to do so. Senator SYMINGTON. You are a Republican, aren't you? Senator FLANDERS. We will leave that on the record. I am glad to find an official during the Democratic administration who was a Republican. What was the recommendation that you received from Air Materiel Command and the Air Staff, providing for the establishment of a production line of C-119's at Willow Run? Mr. MCCONE. It was an oral recommendation made at the meeting of December 15, at which time the various alternate possibilitiesfor the accomplishment of the C-119 production were discussed in view of, first, the requirement and, secondly, the excess production capacity desired. The recommendations I think ran in this way: If our problem was for the quick production of a limited number of planes, then it would be best to utilize the Fairchild Co. in a shadow plant by activating the plant. If on the other hand we wanted to accomplish production and in addition create a broad base for further mobilization if need be, consistent with the directive of the President and the Secretary of Defense, then it would be their recommendation to utilize Willow Run. Senator FLANDERS. Do you at this time wish to affirm or disaffirm a statement you made in a letter to a Congressman dated June 10, 1952, in which you indicated you approved the contract award to Kaiser-Frazer sometime in January of 1951? Mr. MCCONE. I think I approved it before that. What I did, sir, was that following these recommendations to which we gave tentative approval on December 15, 1950, I conferred with the Secretary of the Air Force and then I released the Air Materiel Command to take Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release aQl?,IW(l,RQBMB00346R0004000?9003-4 procurement action, subject, however-to' the working out of proper contractual arrangements with the contractor involved. Senator SYMINGTON. May I ask a question? Senator FLANDERS. Senator Symington? Senator SYMINGTON. Who is the Congressman involved? Mr. MCCONE. The Congressman was Representative Alvin O'Konski. Senator SYMINGTON. You wrote him a letter on June 10, 1952? Mr. MCCONE. That is correct. Senator SYMINGTON. "To a Congressman" has been referred to several times. Would you care to discuss the circumstances about that? I do not know them and perhaps the Chair would be interested in that. Why were you writing him and why was he writing you? Mr. MCCONE. I am very glad to discuss that. On May 21, 1952, Congressman O'Konski delivered a speech on the floor of the House in which he bitterly criticized Mr. Henry Kaiser and all of his activities and he made this statement, among other things, and this appears on page 5784, column 3 of the Congressional Record: Now get this, while McCone was Under Secretary of the Air Force he was merely on leave of absence from his position of president of Bechtel-McCone Corp. Now in turn the Bechtel family happens, just accidentally, to be holders of 4,200 shares of Kaiser-Frazer common stock. So Mc Cone gets a convenient leave of absence from a Kaiser outfit, becomes Under Secretary of the Air Force and arranges a nice fat gift for Kaiser, and that is how Kaiser manages to con- tinue to suck defense dollars while our boys in Korea die for lack of planes and plane equipment. He went on to say in a later part of his speech and referred to me "as a possible link in Henry Kaiser's chain of influence in Wash- ington." I wrote Congressman O'Konski to deny that statement because that was an untrue statement, and it was an attack on my conduct of my affairs in public office. I did not think that it should stand in the Record since it was definitely not true. Senator SYMINGTON. Mr. Chairman, may I suggest that the witness read that letter and that it be placed in the record at this point? Mr. McCoNE. Yes. Senator FLANDERS. You have already read down to and including that first reference. Mr. MCCONE. I will read the following opening paragraph: My DEAR MR. O'Koxsxr: I have just received photostatic copies of the Con- gressional Record of May 21 in which your remarks concerning contracts between the Air Force and the Henry J. Kaiser interests are recorded. I am writing you because in your statements you make reference to my activities as Under Secre- tary of the Air Force, which position I held from June 15, 1950, until October 12, 1951. Your statements in my regard involved, in my opinion, an attack on my in- tegrity while in public office, and since they are erroneous, and furthermore, are drawn from statements of conditions in my personal affairs which are not consis- tent with fact, I think my position should be clarified. With specific reference to page 5784, column 3, you state, and I quote: "Now get this, while McCone was Under Secretary of the Air Force he was merely on leave of absence from his position of president of Bechtel-Mc Cone Corp. Now in turn the Bechtel family happens, just accidentally, to be holders of 4,200 shares of Kaiser-Frazer common stock. So McCone gets a convenient Senator FLANDERS. If you will do so. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appggved For Release 2M~f'i( 10pRgd&IR B00346R000400050003-4 leave of absence from a Kaiser outfit, becomes Under Secretary of the Air Force and arranges a nice fat gift for Kaiser, and that is how Kaiser manages to continue to suck defense dollars while our boys in Korea die for lack of planes and plane equipment." The facts are these: The Bechtel-McCone Corp., which was owned principally by S. D. Bechtel, K.K. Bechtel and me, but in which Mr. Kaiser at no time owned an interest directly or indirectly, was dissolved in December, 1945, and has not engaged in business activities since that time. Going out of context from the letter, that is the corporation from which I presumably had taken leave of absence to go with the Kaiser outfit. It had been dissolved for several years and secondly Kaiser never owned any interest in it whatsoever. Going on with the letter: Messrs. Bechtel and I own stock interests, or joint venture interests, with others in various enterprises, including shipping companies, insurance companies, and construction activities. It was from two of these companies that I took leave of absence to serve as Under Secretary of the Air Force. Mr. Kaiser did not, directly or indirectly, possess any interest whatsoever in either of these com- panies, nor has he, for a great many years, possessed an interest in any company, joint venture, or any business undertaking that has been under my direction. Conversely, at no time have I been in the employ of Mr. Kaiser nor any corporation controlled by him. While the Kaiser companies and companies owned by the Bechtel interests and myself held interests in corporations or joint ventures which were engaged in war working during World War IT, all such mutual interests were dissolved shortly after the conclusion or World War II and many years prior to the time I under- took the assignment as Under Secretary of the Air Force. With regard to the Bechtel family's ownership of Kaiser stock, I have no knowledge whatsoever. Undoubtedly, Mr. Bechtel purchases stock in the market from time to time, but I am not familiar with his personal holdings. While I do not know whether he did or did not own the 4,200 shares of Kaiser-Frazer stock to which you refer, certainly such a holding would have absolutely no effect upon me. On page 5787 you mention Walston Brown and Clay Bedford and me as possible linksin Henry Kaiser''s "chain of influence." I believe this statement is mislead- ing because I have had no business relationship with Kaiser for years; I took no leave of absence from any company in which he possesses an interest; I have no benefit to gain from the affairs of his companies. The statement, therefore, that was a link in Henry :[,Kaiser's "chain of influence" should be corrected. The balance of the letter deals with the C-119 problem, and is repetitious of what we have been discussing. I would be glad to read it if it would be of value. I can submit it for the record. Senator SYMING7roN. May I suggest, Mr. Chairman, that he not read the rest, which he says is repetitious, and put it in the record, because that has to do with the C-119? .Senator FLANDE:as. He can put that into the record. (The remainder of the document is as follows:) Now with regard to the award of a contract to Mr. Kaiser to build first the Fairchild C-119 airplanes, and later the Chase C-123 aircraft, the situation was as follows: Ever since the acquisition of the Willow Run plant by the Kaiser-Frazier Co., the plant had been considered as part of the industrial mobilization plan of the Air Force, having been so assigned by the Munitions Board. The plant was sold with so-called national -emergency provisions included in the contract. These provisions stipulated that, in the event of certain emergency conditions, the plant could be called upon for production of essential war materials. The Congress further provided that the plant should be operated by the purchaser, unless the purchaser either refused, or was proven incapable of so doing. I am recalling these provisions from memory, as I have no files available, but you are undoubtedly fully familiar with the provisions of the law in this regard. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2QiQA61" Pik i00346R000400059803-4 From time to time the Air Force had arranged. for Kaiser-Frazer to study the use of the Willow Run plant for the production of several different planes, includ- ing fighters, bombers, and transports. Mr. Kaiser called on me in December of 1950, offering the services of the Willow Run plant and his organization, for any use for which we desired. He pointed out that Willow Run was assigned to the Air Force by the Munitions Board, and stated that curtailed automobile production made available a sub- stantial production capacity and a large organization of trained men. He went further to state that if 'the Air Force did not wish to make use of the plant, he would like to have us release it from our industrial mobilization reserve, so that the plant could be made available to other services for the manufacture of other types of war equipment. I introduced Mr. Kaiser to the Deputy Chief of Staff for Materiel, Lt. Gen. K. B. Wolff, who arranged with the commanding general of the Air Materiel Command at Wright Field for an investigation of the use of the facility and the determination of its need in our program. Studies were made of the production of several types of aircraft at Willow Run, including the Fairchild C-119.. It was Defense Department policy to create multiple sources of all major items of equipment, including air frames, engines, etc., and in compliance with this policy additional sources for several planes were needed. To meet this requirement, the Air Force considered the use of operating plants that could be made available and as an alternate, the reopening of standby facilities. Both were used. About a month after our initial discussion, I received a recommendation from the Air Material Command, and the Air staff, providing for the establishment of a production line of C-119's at Willow Run. This involved a sizable initial con- tract with Kaiser-Frazer. This I approved. The Air staff and I both recognized that the Kaiser organization had not had aircraft experience, but it was agreed that the Willow Run facility was needed in the program, and the available manpower being released from automobile produc- tion would be most useful. The recommendation to employ Kaiser-Frazer on the C-119's, rather than a more complicated plane such as the B-47 jet bomber, was based on the assumption that an inexperienced organization could proceed with less difficulty on the less complicated aircraft such as a cargo type, and furthermore, the Willow Run facilities were more readily adaptable to the construction of the 0-119 than to the manufacture of other types of aircraft. My purpose in reviewing this negotiation is merely to explain the reasons for the decision to initiate aircraft production in the Willow Run plant under the direction of the Kaiser-Frazer Co. In summary, the Air Force felt that its program demanded the use of the Willow Run facility, which had been sold to the Kaiser-Frazer Co., the sales contract in- cluding the national defense provisions. A study by the Air Force developed that desired use of the facility was in the construction of the C-119 aircraft. Having reached the decision that the Willow Run facility was necessary under the Air Force program, we were obligated to employ the Kaiser-Frazer Co. in the opera- tion of the facility providing they were willing to operate the plant for us, and were capable of so doing. These were the only considerations that entered into my decision in this matter, Since you make reference to the Reconstruction Finance Corporation, I would like to say that no officer, director, or employee of the Reconstruction Finance Corporation discussed the Kaiser-Frazer matter with me or to my knowledge with anyone connected with my office, or in the Air Force, directly or indirectly, during the negotiation. I would very much appreciate any steps that you might take to correct the record, as I think that you will agree with me that the record, as it now stands, wrongfully condemns me for indiscretion in public office. Yours very truly, JOHN A. MCCONE. Senator FLANDERS. I would now suggest that we adjourn until 2 o'clock, but before we adjourn it would be proper for either of the other two Senators to ask questions on the material we have been over to this time. Mr. Duff? Senator DUFF. You will be here this afternoon, will you not? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appjpved For Release 20lAshl'1.OxcCt*4NOM4B00346R000400050003-4 Mr. MCCONE. Yes, sir. Could I read the final paragraph in this letter? Senator FLANDERS. You may. Mr. MCCONE (reading): I would very much appreciate any steps that you might take to correct the record, as I think that you will agree with me that the record, as it now stands, wrongfully condemns inc for indiscretion in public office. Representative O'Konski has chosen not to answer that letter. He has refused to accept me at his office or phone calls from me. One thing I am going to ask this committee to do, if they will, is to correct the Congressional Record for me. Senator SYMINGTON. Mr. Chairman, may I ask a question? Senator FLANDERS. Just a moment. Let me see what is involved in that. You say correct the Congressional Record? Do you mean to go back to the House Record and insert this letter? Mr. McCoNE. No, sir. Just make a statement of the facts, which I think that your staff has assembled. Senator FLANDERS. We will take that up before the full committee, that is, the full investigating committee. Senator Duff? Senator DUFF. I. wonder if we could adjourn until 2:15 instead of 2 o'clock? Senator FLANDERS. Yes, we will when we adjourn. Senator SYMINGTON. Could I ask a question? Senator FLANDERS. Yes. Senator SYMINGTON. The implication which you have just read is that you might have been working down here to give contracts to the Kaiser-Frazer Co. because there was some pecuniary or other relationship between you and the Kaiser-Frazer Co. Would you please comment on that? Mr. MCCONE. Yes. There was no- relationship, and the indica- tion that I had anything to gain directly or indirectly is entirely wrong. It is true that during the war my companies, as I have stated, together with the Kaiser companies and a number of other companies, were engaged in joint venture undertakings, some of which took the form of corporations, in shipbuilding and other activities. But those had long since been liquidated. I gave some serious thought at the time that this matter was up to disengaging myself from this decision because it might be said that this background, however remote, might have influenced my decision. I came to this conclusion: That I had been asked to come here to do a job for the Air Force. Since my relation with Kaiser and any other business interests that were doing business with the Air Force was not such as to in any way influence my decisions, I felt that I would be derelict of duty if I failed to join with my associates in the Air Force in these matters. If my relationship had been such that I could not, without prejudice, engage in the decisions, I would have readily removed myself from the decision. But as Senator Tydings will recall, when I -appeared before you Senator Byrd asked me this specific question, and I said, and I think the companies which I had taken leave from filed letters with your committee, Senator Tydings, to the effect that they had no interest whatsoever in any activities with Kaiser-Frazer. Senator FLANDERS. Any further questions? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaselapolfQ/1? b&j&a 4B00346R0004009;0003-4 Senator SYMINGTON. I have no further questions until after lunch. Senator FLANDERS. The committee is adjourned until 2:15. (Whereupon, at 12:18 p. m. the committee recessed, to reconvene at 2:15 p. m.) The subcommittee met, pursuant to recess, at 2:19 p. m., in room 212, Senate Office Building, Senator James H. Duff presiding. Present: Senators Duff (presiding), and Symington. Also present: Fred Rhodes, chief counsel; James Anton, special counsel, and Harold M. Devlin, accountant. Senator DUFF. Mr. McCone, is it fair to assume that if there had not been the urgency in getting the C-119's in a short period, that it would have been reasonably easy to have found some other builder that could have duplicated the performance of the Fairchilds? Mr. MCCONE. No. Any new source would have been in the initial stages very much higher in cost than Fairchild was experiencing at Hagerstown. Fairchild themselves, at another plant, where they would have to go through the problems of starting operations and the so-called learning curve-an expression common in industry-would have experienced costs which would have been very much higher than they were then experiencing at Hagerstown. We knew that and, as I mentioned in my statement, at no time did the Air Force suffer under any illusion that this matter of starting new facilities in prQduction, whether it be in engines or in airframes, was without very considerable cost. Senator DUFF. Nevertheless, if there had been long-range planning instead of a hurry-up job, the expense could have been vastly reduced from the ultimate figures that appeared that the Kaiser-Frazer people charged for these planes. Mr. MCCONE. There is no question about the fact that if long-range delivery planning had been done, the minimum cost would have been realized. It also must be borne in mind that as to this plan of activating the second source for the C-119, as a second source, whether it be Willow Run or some other location, the thought in the mind of the Air Ma- teriel Command and the Air Staff was that they were tooling a plant to produce not less than a thousand of these aircraft. In fact, the schedule A- 13, which I have referred to and which was the accepted agreed schedule upon which this procurement action was taken, called for 1,061 airplanes to be delivered from this second source. You average the tooling costs, the plant arrangement costs, the learning and experience factors over a thousand airplanes and you find you get a very much different answer than when you have 159 or 160 as a divisor. I do not say that in any way in defense of what appear to be some very high costs, and I am sure from the questions of the committee that the committee feels that way. But I do say that, the large number of planes to be procured was a factor that affected the judgment of the Air Materiel Command in making their recommendations on which the staff and my office acted. Senator DUFF. As a civilian taking for granted what I assume is generally recognized, that the Russians in their air force have con- tinuously built up and expanded their air arm from the very end of Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appr S ed For Release 2Q tQtW p O0346R000400050003-4 World War II, would not a quicker appraisal of what Russia was doing have enabled us, by longer range plan and procurement on that basis, to have prevented the vast amount of excess costs here? Mr. MCCONE. Most certainly. I just could not agree with you more, Senator. I would like in that connection to point out that had we not only an earlier appraisal made, but had the Government authorities acted on the appraisals that were available in 1946 and 1947 and started an orderly buildup of the Air Force, then some of these serious problems and high costs that we witnessed in 1950 and thereafter would not have occurred. I would like to go further and say that if the administration had not impounded but had spent the money that was appropriated by the Congress for the procurement of aircraft, the situation would have been alleviated. Senator DUFF. In other words, excessive costs are definitely asso- ciated with failure to take a long-range view, especially when you have a hurryup like you did on the C-119's. Mr. McCoNE, And allother aircraft. I could go on on that subject for a long time but I do not want to take the time of the committee. This start and stop in the field of not only the production of weapons but in all other :phases of military establishment, the training and the operational end of it, is just expensive beyond belief. Senator DUFF. I mentioned the Air Force only because that is the subject under immediate investigation. I assume that that observa- tion would apply to the whole military setup in the country? Mr. MCCONE. That is correct. Senator DUFF. You mentioned this morning that you were con- cerned about the possibility of producers charging off costs to Govern- ment work which should have been carried by their civilian production. You said specifically that you were concerned about the Kaiser interests. I wonder if you have any knowledge about the condition of their automobile business that prompted that feeling and resulted in your memorandum of ]1951? Mr. MCCONE. No, I had no specific information. No specific information. I had the general knowledge that you gain from gossip and the articles that you see in the paper on the production of various auto- mobile companies and so forth. That is all, I suppose, that influenced my thinking. But I had no specific information on it. Senator DUFF. One other question. You mentioned a goal of 1,800 planes of the C-119 class. We have had presented to us a list of actual production. At no time when you were in that position did they approach that production, did they? Mr. McCONE. Oh, no sir. You see, it was long after I left the Air Force before any planes were produced from Willow Run. The Fairchild Co., which in June of 1950 was producing at the rate of eight, was building up gradually and I do not have the figures on where they were by October 1951, but they were only part way in their expansion. Senator DUFF. Senator Symington? Senator SYMINGTON. Thank you, Mr. Chairman. Mr. McCone, you first became interested in our airpower picture, did you not, as the military adviser to the Finletter commission, is that correct? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 24103fl (I?ng'd,B00346R000400030003-4 Mr. MCCONE. Yes. That was the first time that I started to. see the problem from a, let us say, Government standpoint. I had been interested in it from a civilian standpoint before that. Senator SYMINGTON. You became a member of the Finletter com- mission upon the retirement of Mr. Henry Ford, II, did you not? Mr. MCCONE. That is correct. Shortly after that commission was established Henry Ford, as you will recall, was one of the members. I was asked to be the technical adviser on military matters and then when he resigned, which was only a few days after the commission started its work, :[ was asked by the President to become a member and I did so with the understanding that I could continue on as the military adviser in addition to being a member of the commission, But I served in a dual capacity. Senator SYMINGTON. As I remember that Commission, some of us persuaded the President of the growing importance of airpower and you were appointed in the summer of 1947. You made your report in January 1948, is that correct? Mr. MCCONE. Yes. I think that is correct. Senator SYMINGTON. In that report you had a unanimous recom- mendation of the Commission that the minimum air force, the necessary air force for the minimum peacetime security of the United States was a 70-group air force, is that right? Mr. MCCONE. That is right. We made two recommendations: One, the 70-group air force. Then we made specific recommendations concerning the maintenance of the air arm of the Navy. We were deeply impressed with the role of airpower. While we felt that the Air Force was going to carry the heavy end of it, we thought both air arms of the Defense Establishment should be kept right up. Senator SYMINGTON. At that time you also had a committee called the Joint Congressional Aviation Committee, which was chaired for the House by Congressman Hinshaw, and for the Senate by Senator Brewster? Mr. MCCONE. That is correct. Senator SYMINGTON. In a Republican-controlled Congress? Mr. MCCONE. That is correct. Senator SYMINGTON. I remember that everybody was worried about the fact that the report of that committee might differ on the down side with the Finletter Commission report that you were on, but ac- tually they, counting reserves, recommended more airpower than you did, is that correct? Mr MCCONE. Yes. As I recall their report came out about 3 months after ours. Their activity forces were substantially the same as ours. They made some recommendations concerning war reserves that were greater than ours. Senator SYMINGTON. Then later on in that year, 1948, you became in effect an adviser to Secretary Forrestal, did you not? Mr. MCCONE. Special Deputy. Senator SYMINGTON. And you were aware of some of the-if I may use the phrase-fiscal manipulations that went along in the budget at that time, is that correct? Mr MCCONE. I do not know that you are always aware of all of those things. I might have been aware of some of them. Senator SYMINGTON. But you were aware of a very definite dis- agreement between the Air Force and the Department of Defense Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 f noqa pA4B00346R000400050003-4 Appl6ved For Release ~99A91 with respect to what was necessary in the way of money to do the job that had been prescribed. Am I correct on that? Mr. MCCONE. Yes. I think I was asked by Secretary Forrestal to take that particular post because he felt that I had an appreciation of the Air Force probjem and also the naval air problem. There was a problem there, too. Senator SYMINGTON. Mr. Chairman, I want to say that I have not discussed this with Mr. McCone prior to this hearing but I would like to ask in all frankness if there are not some characteristics going on today that are remarkably similar to what went on in 1948? I would ask that you answer this in a true bipartisan spirit. Mr. MCCONE. I have not had the benefit of any studies of the air program or the budget. I have been told something of how the num- hers were arrived at. Other than that, I only know what I read in the papers. I only hope that without in any way commenting on whether the figures are adequate or are not adequate, that the matter is approached in a way that the judgment of the men who are most familiar with the problems is brought to bear on problems before the answers are finally arrived at. I think it is highly important in all these things to get the judgment of the officers and the technicians who are working on these things continuously because they are the men who really know. Senator SYMINGTON. Mr. Chairman, I would like to pursue that line of questioning but I do not think it is proper in this hearing because it does not involve it. I would like to take up something the chairman just mentioned and that is the question of planning and programing. Let's run through some figures. At the end of World War II we had around 245 groups to the best of my knowledge. Do you think that would be about correct? Mr. MCCONE. That is right; yes, that is the figure. Senator SYMINGTON. It was my dubious pleasure under instructions to cut that as rapidly as possible to where, in 1947, we were down to 38 groups. Then we recommended 70 groups due to the increased suspicion that the Russians might not be as friendly as was originally thought at the end of the war. We recommended 70 groups and got 58. Is that correct? Mr. MCCONE. Forty-eight or fifty-eight? Senator SYMINGTON. Fifty-eight? Mr. MCCONE. Yes. Senator SYMINGTON. So we go from 245 to 38 to 58. Then in 1949 we went to 48. Is that your memory? Mr. MCCONE. That is correct. Senator SYMINGTON. Then, due to money that was impounded within the Department of Defense itself, we went to 42? Mr. MCCONE. And that is where we were at Korea. Senator SYMINGT'oN. In your statement, you have given me some figures. By that time I had left the Air Force. You have some figures, following Chairman Duff's thought about planning, in which you said that we went back from 48 to 52, I think you then said. Mr. MCCONE. To 58. Senator SYMINGTON. We go from 42 to 58. Then we went to 69. Mr. MCCONE. That is correct. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 .Approved For Release 20 Q fjflk*:IQ614JQR&W00346R00040005Q 3-4 Senator SYMINGTON. Then we went to 95, is that correct? Mr. McCONE. That is correct. Senator SYMINGTON. Then we went to 143? Mr. McCoNE. That is right. Senator SYMINGTON. Now we are going to something that we do not know yet what it is, from what you know? Mr. MCCONE. That is correct; from what I know. Senator SYMINGTON. Mr. Chairman, the service that it has been considered necessary to build up-because of the recognition primarily on the part of the Congress and air experts-in importance and to have a reasonably adequately adequate growing strength, has been changed in its basic program about 8 times in the last 5 years. I would like to make a comment on that. At one time General Le- May was running the research and development program at Wright Field, before he went to SAC. He told me that there had been so many changes in that year with respect to the amount of money that he could have, the Air Force, the changes in the Department of De- fense and another change in the Bureau of the Budget, and another change in the White House and a final change in the Congress, and then another change because the money was not spent that Congress appropriated, that there had been no research and development done of any kind whatever during that year. All the time of the engineers, operators, and accountants had been spent in adjusting to the change in the money. No time had been spent in research and development for a better Air Force. Mr. McCone, you are generally acknowledged to be one of the out- standing successful industrialists in this country. Based on the way that the programing and planning of the Air Force has been handled, do you honestly feel, with your experience, that you could run a hamburger stand. efficiently? Mr. McCoNE. No. I feel this way, Senator: That had we accepted, had the administration accepted the report of the Commission which the President appointed Senator DUFF. Which year was that? Mr. McCoNE. 1947. [Continuing:] In 1948, and the subsequent report of the Congressional committee, and had it gone forward with the program to build to 70 groups in an orderly, thoughtful way, as you suggested, that there would have been two results: One, we would have not had the extreme feeling of great urgency upon the outbreak of the Korean war because we would have had forces in being which could have met that challenge and given us forces to meet other im- pending dangers throughout the world, and furthermore, we would have had a base on which to expand to any reasonable higher level that the world situation demanded. The very difficult problem was that having shrunk down so low we had nothing to build on. As I mentioned in my statement, the air- craft industry had shrunk to a bare minimum of operating plants. Just think, Mr. Chairman, of the problem that the planners in the military faced. Here they were suddenly confronted with the need for 1,800 aircraft of a certain type and at a rate of 135 a month. And the only operation they had in being, efficient as it was, and capable as the organization was, were producing 8 or 9 planes a month. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 42 AIRCRAFT PROCUREMENT That is just 1 problem of 1 airplane. But that existed with every bomber and every fighter and every transport plane. So it was really a, very serious problem. Senator DUFF. What was the amount of funds that was impounded at the time of the outbreak of the hostilities in Korea? Mr. MCCONE. There were four or five hundred million dollars. I think you could answer that, Senator. Senator SYMINGTON. I was out at the time of Korea. Mr. MCCONE. At Korea? Senator DUFF. Yes. Mr. MCCONE. I cannot answer that accurately. I can get it. Senator DUFF. What was the maximum impounded at any time during the interim period? Senator SYMINGTON. Mr. Chairman, I think in 1948 the amount that was impounded by the administration was $700 million. In 1950 the amount that was impounded by the Department of Defense beyond what was impounded-and that figure I do not know-by the administration, was .254 million in the early spring of 1950, of which some $175 million was new airplane money for procurement. Senator DUFF. In other words, you had substantially a billion dollars that was provided and available and not used? Senator SYMINGTON. Yes, Mr. Chairman, I would thing that the record would prove, over a period, agood deal more money. Senator DUFF. I understand that. I mean in this particular situation. Senator SYMINGTON. .In 1948, sir, it ran 700 million. In 1950, about a quarter of a billion dollars. May I ask a question? Senator DUFF. Surely. Senator SYMINGTON. Mr. McCone, we have had some hearings here, some fine hearings on the shortage of ammunition. In that case there was criticism and in my opinion justifiable for a lack of a product. In this case there is criticism for excessive effort to get a product. Without passing on it, from the standpoint of judgment, I think these hearings are very fine. As usual, Senator Bridges gets in some- thing worth while. To me it shows that unless you do have long- range planning you are bound to have shortages in some cases and overages in others, and above all, you are bound to have a lot of waste as a manufacturer which you have had as much experience in as anybody I know of your age. Do you agree with that? Mr. MCCONE. Yes, I agree with that completely. Senator SYMINGTON. Wouldn't you say that the waste in the Pentagon Building with which you have been intimately connected since the first days of unification, that there have been billions and billions of dollars of sheer waste due to the constant reprograming and replanning, and that that waste is far more than any other waste that they can put their hand on in that building? Mr. MCCONE. Yes, I think that is a fair statement. Senator DUFF. Could you add reprograming to that? Mr. MCCONE. No, I think reprograming, rather than lack of planning, is a cause of the waste. _I think if the military had some reasonable assurances that a set of program objectives, once estab- Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 29Q WJQ~11O p rARf O0346R00040005403-4 lished-even though they took a matter of 4 or 5 years to accomplish- were going to be kept firm and buried only through compelling changes in the international situation, or because of scientific development, then I think they could most capably plan. They are well organized to do a good job of planning. But where they are in trouble is the constant reprograming due to vacillation and changes in policy of higher authority. Senator DUFF. So that everything that they have planned has been periodically changed? Mr. MCCoNE. That is correct. Senator DUFF. I think we all agree that this is a vastly necessary investigation because surely the might of the Russian air power compared with ours, when you realize what we had at the end of World War II, is something that concerns every American citizen. It is also evident that if we continue as we have been we are not going to be prepared when the great day comes. Senator SYMINC rON. Mr. Chairman, I sat on the National Security Council for a couple of years as the Secretary of the Air Force and then was retired by law and went back on it as Chairman of the National Security Resources Board. We have one of the great authorities on air power in this country even if he was a ground officer in his day in Senator Millard Tydings. He knows-he is with us in this room-he knows as well as I do that there never was a national policy expressed in the long-range strategic military plan in this country until long after the Russians exploded their first atomic bomb, and long after Korea. There never was a long-range strategic military plan that was not essentially a compromise between the three services. The fact is that the 143-group program was the closest thing we over got to national policy and it was a compromise in that the Air Force thought that the 163-group program was right. But they took 143 in order to get national policy. The way they got to 143 groups as of June 30, 1954, was because it was estimated by that date that the Soviets would have enough long-range bombers- which everybody now knows they have-and enough atomic bombs by that date to make a sudden all-out atomic attack on the United States. That 143-group program which, incidentally, recently has been subject to considerable ridicule, was only based on an Air Force that would be adequate to meet the Soviets at the time it was considered that they were ready. Last summer that was chiseled because they said we will not be ready in 1954; we are going to postpone it until 1955. Last January it was chiseled further. They said we are not going to be ready in 1955, we will just hope that they do not hit us until 1956. That was bad enough to me, Mr. Chairman. But now it is all gone out the window. We will not be ready in 1956 and what is more important, we are not going to shoot for any target date. We do not plan any more to consider it is important to be ready with adequate defense when the Soviets, we believe, as our military ex- perts do, are ready to attack us. I claim if that is going to be our new policy it should be based on certain knowledge as, for example, whether or not the Soviet air force is becoming weaker instead of stronger. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Ap roved For Release AaQOJ3k I1UoClAE 64B00346R000400050003-4 But you and I were both here when the Chairman of the Joint Chiefs of staff told us fairly recently that despite our postponement on the basis of pay-less-and-hope-more, and this reprograming which in itself costs more than a good air force would cost in my opinion, despite the fact that we are doing this to our own Air Force, the figures which we have seen showed that the Russian air force, the Soviet air force, is not only stronger but very, very much more strong than it was even a year ago. I was interested to note that in May, you might call it, of the great announcement of the theory that we will be stronger by planning to become weaker-that General Bradley himself said there had been no evidence of any kind that the Soviet had stopped their efforts to become supreme in the air. I welcome these hearings. If anybody knows this subject, Mr. Chairman, it is Mr. McCone, because first he worked on the Finletter Commission, then he worked as a special adviser in this particular subject with Mr. Forrestal, and then he became Under Secretary of the Air Force. I might add that I was glad to see him take that job; I urged him to take it-he did not want to take it because he felt that he might be criticized for some of the things that he would do. I might say in that case he was a pretty good prophet. But I think that the more of this information that we can have on the table as to why we have this waste, in this case and in other cases, the more truth we can get at in these hearings, the more chance we will have as of June 30, 1954, to have a reasonable Air Force. Senator DUFF. I agree with that 100 percent. I am very sure that there is no subject that the average American citizen is more inter- ested in than a great Air Force. I am also sure that they have been deeply concerned about the public statements of the difference be- tween the cost of one procurement agency and another when it amounted to almost 4 or 5 times as much. I think it is enormously important that all the factors entering into that situation be under- stood by the public because otherwise they would be very strongly inclined to believe that there were things in the background that did not appear on the surface that might cause such a great discrepancy as $260,000 and $1,200,000 for the same type of plane at the same time. Senator SYMINGTON. Mr. Chairman, could I ask one more question of the witness? Senator DUFF. Certainly. Senator SYMINGTON. You know about the Van_ ce report? Mr. McCoNE. Just as I read it in the paper. I have never seen the report itself. Senator SYMINGTON. If you do not know about it I will not ask any questions about it,. Senator DUFF. :1 would like to ask these questions for the record. What was the first-cost-per-unit figure that came to your attention with respect to the C-119 as produced by Kaiser-Frazer? Mr. McCONE. .[ cannot answer that. I would be calling on my memory. I would like to get that information, or I am sure it will be developed in later testimony. I think it was consistent with the six- hundred-and-odd thousand dollar figure that the chairman mentioned. Senator DUFF. Naturally offhand you would not have either figures or dates without referring to records? Mr. MOCONE. That is correct, sir. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 24DAtA PQA700346R000400059803-4 Senator DUFF. Was there ever any discussion in the Air Force as to the advisability of canceling the Kaiser-Frazer contract due to exces- sive cost during the period of your tenure in office? Mr. MCCONE. Not while I was there; no. Senator DUFF. Would you like to ask anything else? Senator SYMINGTON. I would like to make one observation. There are many bearings going on, and I have to get to the next one. When the loans were made through RFC I was not with the RFC but I was opposed to the entrance of the Kaiser-Frazer Co. into the aircraft business on this contract and I so told Mr. Kaiser. I felt that it would be wrong because I thought it might be difficult to segregate their operating expenses between their automobile business and the aircraft business. The loans that the RFC had at the time I went with it were pretty closely tied up with the inventory. That is correct as I remember it. I was glad that Mr. McCone put into the record the letter that he wrote in which he pointed out that there might be that particular difficulty with respect to this and other companies. Senator DUFF. I think it would be generally agreed by all of us that the circumstance of their getting this contract, the granting of the loan, and the very excessive cost as compared with the cost of the standard procurement at that time, would raise a question in the public mind as to whether it was not political rather than in reality a business transaction based on the facts. I am not making that charge. I am merely stating that I am very sure that as a reader of the public press I would come to the conclusion, without knowing the facts, that there were those entangle- ments. I think it is valuable for you to make the statement that you did with respect to how that operation took place. Mr. MCCONE. Without in any way commenting on what appear to be the very excessive costs, I think that the circumstances were such that the Air Force officers who appraised this decision appraised the capability of the facilities and the capabilities of the plant, in looking at it objectively and from a distance, I just cannot see how they might have forecast the performance. Everything was there that should have led to reasonably good performance. But it must always be admitted that the initial cost of a second source, whether it be at Willow Run or elsewhere, is not comparable with the cost of an established, going concern. The comparison therefore must be one of whether this article cost, in plant A, what it would have cost in plant B. The Hagerstown facility, as I have said, was booked to capacity, therefore we had to reach out to some other source. And we would have suffered high costs in any event. Senator DUFF. There is not any doubt in your mind, however, that in the public appraisal of the situation where the one was practically five times the cost of the other, there are very large question marks in everybody's mind as to the connection between those costs, good judgment, and the contract. Mr. MCCONE. I can see how that might readily come up.' My view on it, however, Mr. Chairman, is that this committee might well take a very good look at why those costs are high and what the per- formance was, really what happened. I really do not know. But I, as a former officer of the Air Force, cannot in all conscience criticize the decision, the recommendation and the decision in view of the Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 ApKoved For ReleaseA?P 149/14o(C1 64B00346R000400050003-4 known facts and the urgency of 2% years ago. It is disappointing and it is regrettable, and I am saddened to see what appears to be the result, but sitting in that meeting on December 15, I, who should have known more about it than any other man in there, cannot say now in all honesty that I saw on the horizon danger signals other than the one I wrote the letter about, and that I felt contract administration could take care of. Senator SYMINGToN. Do you see any danger signals now, with what is going on right now with respect to the Air Force budget, based on your experience in 1948, 1949, and 1950? Mr. MCCONE. My view on the Air Force budget is this and I have expressed this to everyone: I think that in the Air Force and in any of the military organizations there are opportunities for savings. You and I have talked about it many times. I would first, before making my plea, effect every possible saving that I thought was possible in manpower and money. I would eliminate all unnecessary noncombat planes that are not essential, either to the combat effectiveness of the Air Force or the necessary and essential support of training facilities. I would eliminate duplication of command and duplication of other structures. I would make every saving possible in the Air Force and in the other departments. Having done that, then I think that we should have the money appropriated which would provide the combat effectiveness of the Air Force without impairment. I do not think, at this time, it would reduce the combat effectiveness of the Air Force. Whether the money appropriated will do it or not I do not know. There is a difference of opinion. I understand that the Secretary of the Air Force is to testify tomorrow on it. Certainly without having studied it I cannot comment. But one thing is certain, I think that we must not-I cannot see anything in the times that would warrant a reduction one iota, one bit, in the combat effectiveness of the Air Force. But -I would insist on all the economies. Senator SYMINGTON. You were on the record once, I think, that if you had a real programing and planning program instead of this constant reprograming and planning that you could get equal defense for a third less money. Is that not correct? Roughly something like that? Mr. MCCONE. Yes, sir. Senator SYMINGTON. You mentioned the Secretary of Air Force testifying tomorrow. I noticed a story this morning that there was a disagreement between the comptroller in the Department of Defense and the Secretary of the Air. Force. Does that touch you with a little nostalgia as far as the past is concerned? Does that follow any pattern? Mr. McCoNE. Could I go off the record? Senator SYMINGTON. Yes. (Discussion off the record.) Senator DUFF. Another conspicuous conclusion that has to be drawn is'that instead of fits and starts it is absolutely imperative, if we are going to have a proper defense, that there must be this long-range planning. Mr. MCCONE. There must be, there cannot be anything else. Senator DUFF. :[t cannot possibly be done any other way, can it? Mr. MCCONE. It cannot possibly be done any other way that I know of. It must be done intelligently. and carefully and with an Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10: CIA-RDP64B00346R000400~50003-4 AIRCRAFT PROCUREMENT eye to doing it as economically as possible. We must recognize the need to save money, particularly in this very expensive arm of the defense establishment, but not at the cost of combat effectiveness. I want to differentiate very clearly between economies and cuts in strength. The first I am for, the second I am opposed to. Senator DUFF. I think that is a distinction that is pretty generally recognized. Mr. McCoNE. I wish I could be of more help on this. I have not been studying the current figures and I really do not know about them. Senator DUFF. Any other questions? Senator SYMINGTON. No, Mr. Chairman. Senator DUFF. That is all I wanted to ask you, sir. Mr. McCoNE. Thank you very much, Mr. Chairman. Senator DurF. The staff would like me to ask you these questions, beginning with No. 43, for the record, which I will read seriatim and you can answer them. Did Fairchild Corp. make any protest to you concerning the award of the C-119 contract to Kaiser-Frazer? Mr. McCONE. Yes. Either late in December or the first day or two in January. Senator DUFF. What was the basis of their protest? Mr. MCCONE. Their protest was that this had been a precipitious :action and that careful consideration had not been given to it, and that they had made a mobilization study of performing this work elsewhere, and furthermore that it involved really taking away from them and turning over to others a know-how that was a fundamental part of their business. We discussed the need for them to enter into a technical assistance contract with the Kaiser-Frazer Co., and some discussion arose in my discussions over that matter. A day or two later Mr. Boutelle met with General Vandenberg and Secretary Finletter and myself and we made assurances to him that what we were doing was creating a second source, that if and when requirements were reduced and a second source was no longer required, then his basic business would be protected. We went so far as to say that if we were not in office we would still use our influence to see that that commitment was lived up to. We had Mr. Edgar Kaiser come down the next day or a day later and we told him what our position was. That apparently satisfied the Fairchild people because they wrote me following that meeting and expressed satisfaction and immediately thereafter they created an organization to render this technical assistance, and so far as I know it has gone along all right ever since. But there was a protest. Senator DUFF. 'Would you make a statement as to the reason that you subsequently made a decision to phase out the production of the C-119 at Willow Run? Mr. MCCONE. In May the Kaiser-Frazer Co. acquired a 49 percent interest and management control of the Chase Aircraft Co. Chase Aircraft people had designed a successful assault transport which was a competitive article to the C-119. The Army, who are the ultimate user of this plane, had made the decision somewhat against the will of the Air Force, that their mission could be better accomplished by the use of the C-123 for certain as- Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro4d For Release 20QUtGkt :iW&4ROR O0346R000400050003-4 Sault operations, rather than using the C-119. Therefore, it was necessary to furnish both planes. I took that matter up personally with General Collins and General Hull and they in turn took it up, with General Mark Clark because the production of the C-123 created a great many problems for us, and a particular embarrassment because it put the Kaiser-Frazer Co. where they had a grip on two competitive articles, and it also violated the spirit of the understanding with Mr. Boutelle and Mr. Kaiser that I just spoke of. We solved the problem after long conferences. I could go into, the detail of it, but will merely state we made the decision to phase the Willow Run out of the C-119 and let them proceed with the C-123 and to depend upon Fairchild for the entire requirement of the C-119. Since Hagerstown did not have the capacity, we decided to then activate the Chicago plant, which had been a source of some discussion. Senator DUFF. We have a call to go to the Senate on a vote, and I am afraid we will have to go. Was it your idea to be here again tomorrow, sir? Mr. MCCONE. That is what the chairman asked. Senator DUFF. We will return shortly. (Thereupon, a short recess was taken.) Senator DUFF. I will ask you these staff questions. Mr. MCCoNE. Could I ask if the reporter would read the last part of my statement? Senator DUFF. Yes. (The statement was read.) Senator DUFF. The next question: How did you propose at this time to meet the mobilization potential requirements which you have previously outlined to this committee as existing in December 1950? Mr. MCCoNE. The production of Hagerstown and the Willow Run together, to my memory, met the mobilization requirements of this airplane. Senator DUFF. The next question: Is it to be inferred that the urgency of reaching a mobilization potential, which was the com- pelling reason for the awarding of the C-119 contract in December 1950, was being ignored in June 1951? Mr. McCONE..No, I do not think that could be inferred because the situation changed materially by the bringing in of two aircraft, the C-119 and the C-123. In effect what you had was the produc- tion potential of three plants: Hagerstown; Park Ridge, Chicago; and Willow Run. So there was no reduction in the mobilization potential. Senator SYMINGTON. Mr. Chairman, may I ask a question? Senator DUFF. Certainly. Senator SYMINGTON. Did the Air Force propose to Kaiser-Frazer that they buy the stock in the Chase Co. Mr. MCCONE. No, sir. Senator SYMINOTON. Did they disapprove it? Mr. MCC ONE. They did not feel that it was within their province to tell Kaiser-Frazer what he should do with his money. Senator SYMINGTON. Mr. McCone, what do you think was the reason that the Kaiser-Frazer people bought the Chase stock? I am only asking as a matter of interest. I cannot remember. Mr. MCCoNE. :I do not know that I can answer that, Senator Symington. I do not know why they bought it, except that I think Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release ?Aq 1i%1(~i B00346R00040005o003-4 that they had a strong desire to be in the aircraft business. They felt, as a second source for the Fairchild C-119, they were temporarily in the business but not permanently in the business. I think they gambled that by acquiring the Chase stock it would put them in a position as a basic supplier. I did not feel in a position to comment on it although I did not say that I thought, when I was told of the decision-and that was at a time when the statement was made that the Chase Co. was obligated to sell but the Kaiser Co. was not obligated to buy during the option period there when I was told about it-when I was told about it I said that I felt it was a distinct violation of the commitments made to Secretary Finletter, General Vandenber and me. Senator SYMINGTON. On the part of Kaiser-Frazer? Mr. MCCONE. On the part of Kaiser-Frazer. Senator SYMINGTON. By their becoming interested in what I understand is a fine airplane, the C-123? Mr. MCCONE. Yes, sir, but becoming interested in an article that was a direct competitor of the aircraft which the Fairchild Co. were teaching them how to build. Senator SYMINGTON. Incidentally, have you ever heard any crit- icism of the Fairchild Co. from the standpoint of it not helping the other companies build the plane? Mr. McCONE. No, I have never heard any criticism which I felt was authoritative. Senator SYMINGTON. Did you ever get any formal protests from the Kaiser-Frazer people about it? Mr. McCONE. I did not. I do not know of any, either. Senator SYMINGTON. I would like to pursue this, Mr. Chairman. Senator DUFF. Oro ahead. Senator SYMINGTON. The Fairchild Co. lost quite a little volume due to the decision. I want to say that I think you have made, to me, a very effective and intelligent analysis and presentation of the reasons why you felt that was advisable. But then there was, as I remember it, some disagreement with respect to the merit of the C-123 and the C-119-that is correct, isn't it?-between the Army and the Air Force, as to which plane would be the better plane to put into production? Mr. MCCONE. There was no disagreement as regards the relative merits of the plane. I think that the evaluation team of the Air Force and the evaluation team of the Army, or the representatives of the Army that were on the evaluation team, were in agreement that for the mission that Chase aircraft seemed to perform better. But as, you know, the decision of an evaluation team does not constitute a decision to buy an airplane. The Air Force felt that the differences were so little and there were so many problems involved in bringing g-a new airplane into the program that they felt that the C-119 could be modified so that it would per- form in the mission. just as well as the C-123, and all of the problems of manufacturing another airplane and "de-bugging" it and then sup- porting it logistically could be eliminated. That was the Air Force's position. Senator SYMINGTON. One more question, Mr. Chairman. The Fairchild Co. had a fine record of production. First, they were asked to split their production because of their lack of capacity, which I Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appoved For Release 20VM*0'F1W4CL44qgMB00346R000400050003-4 fully understand. Then as I get it you were trying very hard to be fair with the Fairchild Co. So you felt that if in addition to getting all the know-how, in effect free, they could add it to the cost from the Fairchild Co. with respect to the C-119, if the Kaiser-Frazer Co. then went out and bought a major interest in the C-123 that that would make it possible for them not only to obtain free the know-how from. the Fairchild people but also they might plug the C-123 to the point. where they eliminate all the production at Fairchild. Is that a fair inference? Mr. MCCONE. That is the way we appraised it, and it was for that reason that we decided at some cost and some inconvenience to undo. this arrangement and to depend on Fairchild exclusively for the C-119s and to get Kaiser out of the C-119 business just as quickly as possible. Senator DUFF. That is the reason you decided to reactivate' the Chicago plant which before you had decided not to reactivate? Mr. MCCONE. That is right. We felt that Willow Run was no longer a source for C-119's but we still had need for two plants on the C-119's although the need was less than it was before. Consequently we were satisfied with the Chicago plant. Senator DUFF. Was it ever indicated by the so-called higher author- ity in Government that they were anxious for Kaiser-Frazer to have an airplane contract? Mr. MCCONE. No. No. I would like to be clear on that. There was at no time any indication made to me or to my knowledge to anyone else in the Air Force, concerning a desire to have Kaiser- Frazer have an airplane contract. Senator DUFF. As far as I know that is the end. Senator,, do, you have anything further? Senator SYMINGrON. No; Mr. Chairman, I do not. Senator DUFF, We will reconvene at 10 o'clock tomorrow morning. The committee is now adjourned. (Whereupon, at 3:29 p. m. the committee was adjourned, to recon- vene at 10 a. m., June 3, 1953.) Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 AIRCRAFT PROCUREMENT JUNE 3, 1953 UNITED STATES SENATE, PREPAREDNESS SUBCOMMITTEE No.1, ARMED SERVICES COMMITTEE, Washington, D. C. The subcommittee met, pursuant to adjournment, at 10 a. in., in room 212, Senate Office Building, Washington, D.. C., Senator Styles Bridges (chairman) presiding. Present: Senators Bridges, Flanders, and Duff. Also present: Fred Rhodes, chief counsel; James Anton, special counsel, and Harold M. Devlin, accountant. The CHAIRMAN. The subcommittee will come to order. At the beginning of this session the Chairman would like to say that I am sorry that I was called away from the session yesterday by the press of another engagement at the White House and the Floor of the Senate. I want to thank Senators Flanders and Duff for carrying on for me in the chair. Turning to the testimony of Mr. McCone, I would like to point out, in summary, some of the more important points which appear there. It had been known for some time that there would be in- creased demands for cargo-type aircraft in the fall of 1950. It was estimated that a substantial number would be required to fill the needs of the Air Force, the other services, and mutual defense require- ments. The plane in question is the C-119 which was then being produced at the Fairchild plant at Hagerstown, Md. It was stated by Mr. McCone that the capacity of the Fairchild plant was 35 per month, but as a result of increased requirements additional sources were necessary. At a luncheon meeting with Henry and Edgar Kaiser on December 5, 1950, Mr. McCone told the committee they expressed a desire to get into aircraft production. He said that Mr. Kaiser, who had just recently arranged for a loan of $25 million from the RFC told him that his automobile business was suffering cutbacks. Mr. McCone knew that they had previously tried to get into jeep production at Willow Run. At a meeting on December 15,1950, it was decided to give the Kaisers a contract to build the C-119 plane, as a second source, at the Willow Run plant. Later a letter of intent was written under date of Decem- ber 20, 1950. Thus in the span of 15 days a new producer is brought into the business of building airplanes, and is given the know-how by the Fairchild Aircraft Corp. at the direction of the Air Force. It was interesting to note that the decision of the 15th of December was made in haste without the benefit of cost estimates. Mr. McCone told the committee that he did not feel this was unusual since there Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 App52ved For Release 2,oQafilQ/fl (Qi RL 64B00346R000400050003-4 was considerable pressure to get into production with the second source of the C-1:19. Mr. McCone also said, and significantly, on January 5, 1951, hehad written a letter in which he warned his appro- priate subordinates that they must watch the cost of all Air Force contracts with producers of automotive -goods to insure that they did not load on to the Air Force costs which should have been charged to civilian business. In this connection he mentioned contracts with the General Motors Corp. and the Kaiser-Frazer Corp. In response to a direct question of Senator Symington, Mr. McCone stated that he felt that there was the possibility that the Kaiser-Frazer Corp. might try to have the Air Force absorb some of the losses of their automobile business. Senator Flanders made the observation to Mr. McCone, "Why did you think Kaiser-Frazer would be a satisfactory contractor when you so clearly expressed the necessity for watching them?" It can be assumed that the Air Force set up a system to check on these costs. We are interested to find out what the Air Force did in this regard, and we certainly are interested to learn why a second source should overrun a prime source by a factor of 5 to 1 in cost. Mr. McCone said that he was disappointed that the performance of the contract by Kaiser-Frazer was unsatisfactory. Senator Symington pointed out that he was opposed at that time to the Kaisers entering the aircraft industry and so told Henry Kaiser. It was also observed here yesterday that the costs of the contract were excessive and Mr. McCone agreed. In reference to the award of a C- 123 contract to Chase Aircraft in June of 1951, Mr. McCone made the observation that when he learned of the purchase of a substantial part of Chase Aircraft stock by Henry Kaiser, he felt this was a distinct violation of the commitments made to Secretary T. K. Finletter, Gen. Hoyt Vandenberg and to himself by the Kaisers. Considerable mention was made of the tempo of the times. Of course this committee has been aware of the menace of the Soviet Union for at least several years piror to the time in question. I point out the so-called Unification Act was stimulated by the growing threat of international communism. The witness of yesterday pointed out that despite this threat our preparedness was continually hampered by what he described as reprograming. This is a procedure whereby one program is cut back to utilize funds for another program which may have a higher priority. The point should be made clear here that the exorbitant costs at Kaiser-Firazer were not the result of any reprograming and Mr. McCone did not undertake in any sense to say otherwise. His statement on reprograming referred to the general problem of general comprehensive planning in the Air Force and not to any one particular contract. I think this committee is unanimous in its feeling that the Con- gress has been thoroughly acquainted with the peril this country has been in for a number of years. The Congress has been responsive to the requests for money, and particularly is this true in the case of the Air Force since all of us realize that our air potential is a first line of defense or offense. - Despite this, we are told that the previous administration took action to curtail the Air Force, and that it was this curtailing action Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 AIRCRAFT PROCUREMENT 53 which has kept as from growing to the size and strength the people of this Nation have a right to expect. I am speaking of the past. I was glad to hear that Mr. McCone stated that cuts could be made in our Air Force budget without hampering our air strength. He also said that the inefficient producers had to be eliminated from the procurement program. With that, of course, the committee is in agreement. Mr. McCone, who was the witness yesterday, would like to clarify some statement that he made. Mr. McCone, we will be glad to hear you. TESTIMONY OF JOHN A. MoCONE, FORMER UNDER SECRETARY OF THE AIR FORCE-Resumed Mr. McCoNE. Thank you, Mr. Chairman. I tried to be eminently fair in my remarks and I think, however, that I was perhaps too strong in a statement that appears on page 49 of the transcript of my testimony, in which I said: When I was told about it- and this is referring to the Kaiser-Frazer acquisition of the stock in the Chase Co.- I said I felt it was a distinct violation of the commitments made to Secretary Finletter, General Vandenberg, and me. I would like to amend that by saying that I thought that it was inconsistent with the spirit of the arrangements made with Secretary Finletter, General Vandenberg, and me. I do not like to have the record appear that the Kaiser Co. violated a commitment which might in effect be a violation of a contract or a moral obligation. Previously, in commenting on the same subject, I stated that this transaction "caused particular embarrassment because it put the Kaiser-Frazer Co. where they had a grip on two competitive articles and it also violated the spirit of the understanding of Mr. Boutelle and Mr. Kaiser" that I just spoke of. I think that is a more temperate and proper wording and I would like to substitute it if I may. The CHAIRMAN. Certainly. Mr. MCCONE. There is one other point I would like to elaborate on. On page 127, in response to a question by Senator Symington, as to whether I had heard of any criticism of the Fairchild Co. from the standpoint of not helping the other companies build the plane, I answered, "No, I have never hoard of any criticism which I felt was authoritative." In expanding on that, I had been told by representatives of the Kaiser-Frazer Co. that there was some dragging of the feet on the part of Fairchild in. rendering technical assistance to Kaiser-Frazer. I have not received from our Air Force representatives at the plant or from the Air Materiel Command, or the staff, any statement to the effect that Fairchild had in any way failed to fulfill the spirit and letter of their contract with the Air Force to render technical assistance to the Kaiser-Frazer Co. That is why I worded my answer by saying that I had not received criticism which I felt was authoritative. The only criticism that my office would accept would be that which came through command and Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 54 AIRCRAFT PROCUREMENT staff channels. We would not accept as authoritative a statement of any contractor. Mr. ANTON. Mr. McCone, who made the statements to you in reference to what you just explained? Who were the Kaiser-Frazer personnel who made; the statement to you that things were not going all right at the Fairchild plant? Mr. MCCONE. Mr. Edgar Kaiser, president of the Kaiser-Frazer Co. Mr. ANTON. You were talking about a commitment, and now you changed it to an arrangement. Could you explain to the committee just what those arrangements were? Mr. MCCONE. Yes. Mr. Boutelle, representing the Fairchild Co., at the request of Secretary Finletter, met with the Secretary and the Chief of Staff and me to discuss the technical-assistance contract between Fairchild and Kaiser-Frazer which the Air Force were anxious for Fairchild to engage in. In that he protested this entire arrangement because he felt that the end point would be the absorption of the Fairchild airplane manufacturing activities by this company which he looked upon as a larger and more powerful company. We assured Mr. Boutelle that we were bringing Kaiser-Frazer in as a second source; that Kaiser-Frazer would manufacture the Fair- child airplane; and. that when conditions developed so that we could retire to a single source, then we would preserve Fairchild in the picture and it would be Kaiser-Frazer that would be removed. We went further to say that we could make that commitment while we were in office but we could give him assurance that we would use such influence as we had at a later time, should we not be in office, to see that the commitment was carried out. That satisfied Mr. Boutelle. The following day we met with Mr. Kaiser and reviewed exactly the same subject. We told him that we wanted it distinctly understood that the Kaiser-Frazer Co. was being brought in as a second source in the manufacture of the Fair- child airplane. It was not to be advertised as a Kaiser airplane, it was not to be labeled as a Kaiser-Frazer airplane, it was a Fairchild airplane; that he was receiving valuable technical know-how and help from the Fairchild Co. and that we wanted him to respect the fact that he was being given that assistance, and furthermore that when the time came that the two sources were no longer needed or could be operated with reasonable economy at both, that it would be Air Force policy to remove the Kaiser-Frazer Co. and throw the entire production into the Fairchild Co. Mr. ANTON. You mentioned the fact that this was a meeting between Secretary Finlebter, General Vandenberg, yourself, and Mr. Boutelle. Had you had any prior meetings with Mr. Boutelle? Mr. McCoNIr Yes, I had. Mr. ANTON. Would you tell the committee about those meetings and the first time that Mr. Boutelle approached you? Mr. MCCONEE. Mr. Boutelle approached me a few days prior and protested this entire transaction, as I stated yesterday, and at the same time said that he did not think it was fair to ask-I am not trying to quote him, I am trying to give my recollection of the meeting that took place over 2 years ago-to ask the Fairchild Co. to render technical assistance. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2ja1ATIOpp~*-PDP64BOO346R0004000 O03-4 He furthermore stated that he intended to protest this transaction. The meeting became very heated. I would be less than frank with you if I did not tell you that. It was because of the unsatisfactory conclusion of that meeting that this second meeting was held at which time the problems that were worrying the Fairchild Co. were thoroughly aired and the commitments made on our part which I have just outlined. Following that Mr. Boutelle wrote me a letter in which he said that the understandings were thoroughly satisfactory, that the Fairchild Co. would proceed with the technical assistance contract, and they did so. They furthermore employed a Mr. Frizzell, I believe his name is, as a vice president and assigned him a staff to handle the problem of carrying out this technical assistance contract with Kaiser-Frazer. Mr. ANTON. Prior to the letter that was sent to you by Mr. Boutelle, is it not true that following the first meeting he had with you he sent you a telegram? Do you have a copy of that telegram? Would you please read it? Mr. MCCONE. I am reading it from a reprint of it in your statement of our conference on this subject. I do not have the original telegram but I imagine this is the correct copy. This is to John McCone, Under Secretary of the Air Force: In the interests of the successful defense effort my directors and I have decided to take whatever steps we can to, appeal your decision today delivered to me in such a threatening manner. Therefore, it would seem improper for me to meet with you tomorrow. Despite our objections, but in order to cause no delay in the mass-production program, you have my assurance nothing will be allowed to interfere with the cooperation we were requested to give and consented to give Mr. Kaiser. These orders have been carried out under my instructions to the letter. We will continue to cooperate with Mr. Kaiser and his people as long as they are in the program. I will, of course, meet with Mr. Kaiser tomorrow as originally planned. It is signed R. S. Boutelle, president of Fairchild. Mr. ANTON. You. answered that? Mr. MCCONE. Yes, I answered that in this way: This will acknowledge your telegram of January 3, which I appreciate. A copy of the telegram is being transmitted to Secretary Finletter, General Vandenberg, and also Generals Chidlaw, Cook, and Wolfe. I regret you feel it would be improper to meet with me today as agreed. Since you or your directors obviously doubt the wisdom of the decision of the Air Materiel Command and the staff and this office in connection with the program for the production of C-119, I believe it proper that you make any appeal that you feel appropriate. I shall be happy to meet with you to discuss this matter or any other matter of mutual interest at any time you desire to drop into the office. JOHN MCCONE. Mr. ANTON. You indicated yesterday that there was an extreme urgency in December 1950 for the procurement of C-119 cargo planes. Seven months later, however, the program was phased out, and I was just wondering if that extreme urgency had suddenly vanished or if it still existed. Isn't it true that the potential mobilization still existed for that plane? Mr. MCCONE. Yes, that, is correct. The plane was not phased out. Mr. ANTON. You explained also that the C-123 was going to take its place. Is that the understanding? Mr. MCCONE. No. In the first place the C-119 was not phased out but there was a reduction in the total requirement for assault Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 AppSoved For Release ikl9t4 %iz B00346R000400050003-4 transports. That was the first thing that took place between Decem- ber 31, 1950, the date of the A-13 schedule, and sometime in May or June of 1951 when the next agreed schedule was adopted. The reason for that reduction was one of the reprograming that revolved largely through the elimination of war reserves. War reserves had been included in the early schedules. By "war reserves" I mean a stockpile of finished articles of sufficient size, sufficient quantity, rather, to take care of the estimated attrition losses in the early days of the war before production can be stepped. up to replace the losses. That matter of the accumulation of war reserves was considered in the spring of 1951 by a committee set up by~ Secretary Lovett consisting of then Under Secretary of the Navy Kimball and Assistant Secretary of the Army Vendetsen, and me as the Under Secretary of the Air Force. We set out some so-called ground rules for planning purposes and programing purposes, guidelines for the services, and one of the things that we did was to cut down war reserves, feeling that we could depend more on the production potential rather than this sterile business of accumulating planes and putting them in mothballs around the country. That accounted for a substantial part of the reduction in the requirement of assault transports. Also between December 1950 and June 1951 we finally decided that the C-119 was not an acceptable article for the assault transport mission of the Army, and that in effect. split the C-119 requirements into two 119's for certain missions and 123's for other missions. So you had two things occur: You had a reduction in the total quantity for various reasons, of which I have mentioned only one, and I do not mention the others because I would have to refer to the planning papers to do so, and the fact that the requirement was divided between two articles. Mr. ANTON. In your opening statement yesterday you gave as one of the reasons why the Chicago facility was not considered as adequate for production that the building had deteriorated. Seven months later, in June 1951, a decision was made to activate Chicago and put Fairchild in as a producer. Would you please explain how that decision in June can be reconciled with your statement made in your opening statement yesterday? Mr. MCCONE. Yes. It was the only available plant and the deterioration we had to face up to, doing such maintenance work and repair work as was necessary. Actually there was a substantial amount of money programed to be spent in the refurbishing of the Chicago plant. YI think that the Air Force could supply this com- mittee with first the money that was actually spent, and secondly that which was anticipated. And it was quite substantial. Mr. ANTON. Is. it not true that management is a consideration that the Air Force looks into when it is deciding to award a contract? Mr. McCONE. Yes. Mr. ANTON. The subcommittee had prepared for it by the Air Force sometime ago a manual on procurement practices and procedures Some of the things that have to be done when procuring, on page 57 of this manual, are as follows: Are the present facilities of the firm satisfactory to perform the contract being considered for award? Is the present financial stability of the firm sufficient to perform the contract being considered for award? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release l'/'IM1&n~~4B00346R0004000003-4 I would like to know if these were taken into consideration in this contract award in 1950? And if they were, was a record made of these and could we have a record of them? Mr. McCONE. I could go into that. I cannot answer that question offhand. I am not familiar with that particular directive. But I am sure that representatives of the Air Materiel Command and the staff, which the chairman has indicated he is going to call, can answer that question much more accurately than I. The CHAIRMAN. Senator Duff? Senator DUFF. No questions. The CHAIRMAN. Thank you, Mr. McCone. Mr. McCoNE. Thank you, Mr. Chairman. The CHAIRMAN. We will call next to the stand Gen. Orval R. Cook. Will you raise your right hand and solemnly swear that the testi- mony you are about to give will be the truth, the whole truth, and nothing but the truth, so help you God? General Coox. I do. TESTIMONY OF GEN. ORVAL R. COOK The CHAIRMAN. Your full name is what? General Cooic. Orval R. Cook. The CHAIRMAN. And your rank is what? General Coox. I am a lieutenant general, United States Air Force. The CHAIRMAN. Your assignment is what? General Coox. I am presently Deputy Chief of Staff, Materiel, United States Air Force. The CHAIRMAN. And your headquarters is here in Washington? General Coox. My place of duty is Headquarters, United States Air Force, Washington, D. C. The CHAIRMAN. General Cook, do you know of a facility study in the fall of 1950 of Willow Run conducted by the Air Force to deter- mine its capability for the production of the C-119 plane, and what were the conclusions? General Coox. I do not recall the details of that. That was one of many studies that were being made at that time for production of various aircraft. I do recall that a study was made. As I said before, I do not recall the details of the study. The CHAIRMAN. Would a copy of that be available? General Coox. I do not know whether a copy is available. The CHAIRMAN. Would you make an effort to see if you can locate that and furnish it to the committee? General COOK. Yes, sir. (The statement referred to is as follows:) You have requested a copy of any facilities study made of Willow Run in December 1950 for C-119 production. No such study was made because the capacity and layout of the plant were completely known to Air Force procure- ment and facilities personnel. The plant had, of course, been used for aircraft production in World War II and had been under study for some time for mobili- zation production of the B-47. The CHAIRMAN. Do you recall any discussions or conferences that you may have had with the Air Force personnel regarding the pro- duction of the C-119 airplanes prior to December 5, 1950? General COOK. No; I do not recall any. Approved For Release 2003/10/10 CIA-RDP64B00346R000400050003-4 Apppgved For Release 2d108t0t110pRG 1A 1 B00346R000400050003-4 The CHAIRMAN. Between December 5, 1950, and December 15, 1950, did you institute any studies or investigations regarding the utilization of the Willow Run plant? If so will you comment on these reports? General Coox. I do not recall instituting any investigations re- garding the use of the Willow Run plant between-for the C-119 production-between the 5th of December 1950 and the 15th of December 1950, although it may have been done because, as I have stated before, there were many such projects under way at that time. The CHAIRMAN. Did you propose any changes in the C-119 pro- duction program during the first .2 weeks of December 1950 whereby Willow Run was substituted for a plan to utilize another plant for Fairchild? General Coox.. I do not recall having done so, sir. The CHAIRMAN. On November 10, 1950, mobilization plan MA-5 called for production of the C-119 by Fairchild as a second source at Omaha, to reach a peak of 185 planes a month. On December 12, 1950, this plan was revised to substitute Kaiser. Frazer at Willow Run as a second source for C-119's. Will you tell the committee why that revision was made? General Coox. During the consideration of Omaha-the Omaha plant, the Government-owned plant at Omaha-for production of aircraft, we were continually faced by the fact that part of the plant and practically all of the administrative space available there was occupied' by Headquarters, Strategic Air Command. That difficult problem was resolved and it was finally resolved by a. decision not to move the headquarters of the Strategic Air Command at that time. One of the considerations, I believe-I am not definite on the dates that you mentioned-one of the considerations, as I recall the facts at that time, that, probably led to the selection of Willow Run was that Willow Run was one of the finest aircraft plants in the United. States as a plant. It had been built for the production of aircraft. It had been pur- chased by Kaiser and, as I recall the agreements that were made with different contractors who had purchased war-time plants with a secur- ity clause in the deed, it was that the management of those plants, would have the right of refusal for any production which would be scheduled for those plants. The CHAIRMAN. What factors were taken into consideration when. a contractor was selected and a contract awarded? And would you give them in the order of their importance? General Coox. Certain circumstances at the time sometimes change the importance of the factors that I am about to enumerate. I would like to say that at the time that this matter was being con- sidered, there was a great deal of urgency for the Air Force to get orders placed for the aircraft that it was to buy, and to get production rolling. As Director of Procurement and Industrial Planning of the Air Materiel Command at the time this was considered, I was very,] very conscious of the need to expedite production as rapidly as possible. I was also cognizant of the fact that proposals were being made in the early part of September for the President to declare a state of national emergency. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release, 1 Wlpc;& FP64B00346R00040W50003-4 That was one of the things that made it apparent to us out there that we should not lose any unnecessary time. The answer to your question, provided an adequate management is available, one of the first things that we considered at that time was the availability of adequate facilities to manufacture the prod net that we needed. The CHAIRMAN. You say considering adequate management. Where does management come in? Management certainly is a factor. General Coon, It is it very important factor, Mr. Chairman. The CHAIRMAN. Where would you put management? You put facilities first, do you? General Coolc. As I said before, that is a very difficult question. to answer because of the circumstances that exist at the time. In some cases I would put management first. In other cases I would put facilities first and then depend upon our ability to get the management properly organized to got the thing on its feet later on, depending on the urgency of the situation. The CHAIRMAN, In this case you put facilities first, is that right? General COOK. I do not recall whether facilities were placed first in this. But facilities certainly had an extremely important bearing on this decision. The CHAIRMAN. You speak of management. What experience- successful experience--did Kaiser-Frazer have in airplane production? General Coox. Kaiser-Frazer during part of World War II-I do not know whether everyone would agree that it was successful- Kaiser-Frazer during World War II-Kaiser did-operate the Brews- ter Co. over at Jonesville, Pa. The CHAIRMAN. What happened to the Brewster Co. after they operated it? General Cool. I am not familiar with that. The CHAIRMAN. Do you not think you should have been? Is it not a fact that the Brewster Co. went broke after the Kaisers operated it? Wouldn't that be a first consideration and that you, as head of the Air Materiel Command, should say, "If Kaiser-Frazer's only exper- ience was operating it plant that went broke after they operated it, certainly that is a factor that should be taken into consideration." General COOK. It certainly should be considered, yes, sir. The CHAIRMAN. Then the only experience they had was operating Brewster? General CooK. No, sir. The CHAIRMAN. What other experience did they have? General Coox. They operated another organization called Fleet- wing, at Bristol, Pa. The CHAIRMAN. Was Fleetwings one of their own companies, or did they operate it for another corporation? General COOK. As I recall it, they purchased the thing outright. and operated it as one of their own companies. The CHAIRMAN. What kind of planes did they manufacture there? General COOK. They did not manufacture aircraft. They manu- factured aircraft parts, as I recall it. The CHAIRMAN. What kind of parts? General Coox. Parts for B-17's, which, as I recall most vividly,, -ere one of our leading combat aircraft in World War II. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro@9d For Release 20Q IW : > &-fQRfi4R00346R000400050003-4 The CHAIRMAN. How much of a part did they manufacture? General COOK. The part of the control surfaces of the B-17 were manufactured there, among parts of other aircraft. I do not recall all of those but I can get them for the record if you desire. The CHAIRMAN. I would like to get that. (The statement referred to is as follows:) You asked concerning aircraft parts produced by Fleetwings at Bristol, Pa., in World War II. As this work was basically subcontract work for various prime contractors, both for the Army Air Corps and the Navy, the Air Force has no method of determining the exact nature or volume of this business. Kaiser- Frazer Corp. stated to the Air Force in December 1950: "At the Kaiser-owned Fleetwings plant at Bristol, Pa., the Kaiser organization produced wing and control parts, surfaces, and small parts for Corsairs, Avengers Flying Fortresses, Havocs, Sea Wolves and Hughes F-11's. In addition, Fleet- wings made hydraulic valves, fuel and oil tanks, half-pontons, pylons, helicopters and many other aircraft and assemblies which are still confidential. The dollar volume of the Fleetwings plant was $73 million." You have also asked concerning the present aircraft production by Fleetwings. The name of Fleetwings was changed in September 1949 to Kaiser Metal Prod- ucts. This company now has subcontracts with Republic for the aft section of the F-84-F and with Glenn L. Martin Co. for B-57 wings. The CHAIRMAN. What happened to Fleetwing? Is it in existence today? General COOK. Yes, sir. The CHAIRMAN. Who is running it today? General COOK. As I recall, Kaiser. The CHAIRMAN. What is it used for today? General COOK. It is used for the production of aircraft parts today. The CHAIRMAN. And it is a successful operation so far as you know? General COOK. As far as I know, it is a successful operation, produc- ing parts for combat aircraft. The CHAIRMAN. Is there any other experience they had, directly or indirectly in producing planes? Fleetwing was just for plane parts and not the whole plane. Any others? General COOK. I do not recall any at this time. I would have to research the records. The CHAIRMAN. If you find any others, we would like to have them. (The statement referred to is as follows:) I know of no other Kaiser experience in producing aircraft prior to December 1950. The CHAIRMAN. The committee has received a report that on December 15, 19 50, you attended a meeting of the Air Materiel Com- mand at which it was decided to award the C-119 production contract to Kaiser-Frazer as a second source. Will you inform the committee who was present at this meeting and what transpired? General COOK. This is all from memory, Mr. Chairman. To the best of my memory, Mr. McCone, Under Secretary of the Air Force, Mr. Zuckert, then Assistant Secretary of the Air Force, General Wolfe, Deputy Chief of Staff, Materiel, some additional officers from head- quarters, Air Force, I believe General Edwards, who was then Deputy Chief of Staff, Operations, was one of the people present, General Chidlaw, the commanding general of the Air Materiel Command, myself, and several additional officers whose place of duty was the Air Materiel Command at Dayton. I do not recall all of their names. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 AIRCRAFT PROCUREMENT, 61 The CHAIRMAN. Concerning this meeting, would you inform the committee what recommendations you made concerning the produc- tion of C-119's at Willow Run? General COOK. As I recall the occurrences at that zneeting, I had initially been in favor of producing the C-119, that is using as a second source for the C-119 either the Omaha facility or the Chicago facility, to be operated by the Fairchild Aircraft Corp. At that meeting many things were discussed, many factors bearing on this problem were discussed. There were many other production problems of aircraft and engines discussed at the same meeting, but one of the factors, as I recall it, was that the Chicago plant would require the displacement of some tenants that were in the plant, that would require considerable rehabilitation. These tenants could not be removed quickly because one of the tenants, as I recall it, was the ATC, or CAA Communications Control Center, which could not be removed very rapidly. The other one was doubtful as to whether or not the plant could support all of the additional production required for the C-119. I am a little vague on that one but I believe that was one of the considerations. The CHAIRMAN. You personally did not recommend Kaiser- Frazer or Willow Run? You were for Chicago or another plant? General Coox. I cannot. say that I personally did not finally recommend that after all these considerations had been brought into the problem. The CHAIRMAN. But you went to the meeting for Chicago or some other plant?. General Coox. When I went to the meeting, I went to the meeting as I recall it initially for Chicago or some other plant. The CHAIRMAN. You must have had very good reasons for that. General COOK. Yes, sir; I believe I did have good reasons. The CHAIRMAN. What would it have cost to rehabilitate this Chicago plant which at the time was considered too impossible to select, yet 7 months later was selected? General COOK. I do not recall that figure but I will procure it and furnish it for the record. The CHAIRMAN. I: would like to have that. (The statement referred to is as follows:) There have been several estimates of the expenditure necessary to rehabilitate the Chicago-Park Ridge facility for C-119 production. A study by Fairchild dated June 8, 1951, listed the plant activation cost at $3,164,103. The estimate later submitted by Fairchild for renovating the plant in connection with the latter facilities contract awarded to Fairchild on August 1, 1951, amounted to $1,380,849, which was subsequently increased on an Air Force survey to $2,078,000. These costs are exclusive of machinery, equipment, tooling and other such items necessary to place the, plant into production. The CHAIRMAN. What occurred between the time it was rejected as not fit to produce planes, or not being desirable, and a few months later it was desirable? What occurred? General CooK. As I recall the circumstances, that was the only thing we had left at the time except Omaha, and we still had the problem of Strategic Air Command Headquarters at Omaha. The CHAIRMAN. Mr. Anton? 34931-53-pt. 1-5 . . .. i Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 62 AIRCRAFT PROCUREMENT Mr. ANTON. Could you estimate what it would cost to rehabilitate the Chicago plant? General Coox. No, I cannot estimate that, Mr. Anton. The plant was built during the war. I am very familiar with it. The plant was built during World War IT. It had a wooden roof, wooden truss construction and it was built of unseasoned or improperly seasoned timber at the time it was put up. It has been a constant maintenance problem. What the cost of rehabilitating would be, I am not prepared to estimate. Mr. ANTON. 'Would you say it would be less than $5 million? General Coor. No, sir; I am not prepared to estimate the amount. The Chairman. At the meeting did you have Kaiser-Frazer's proposal? General COOK. At the meeting of the 15th of December? The CHAIRMAN. Yes. General COOK. To the best of my knowledge I did not have.' The CHAIRMAN. Did you have their cost-estimates? General COOK. I did not have. The CHAIRMAN. Then you-I say not you, but the meeting- arranged this blindly? General Coox. No, sir. The CHAIRMAN. You had no proposals, no cost estimates, yet you went ahead and gave a tremendous contract. General Coox. We knew that the Kaiser Co. had had some exper- ience in manufacture of aircraft and aircraft parts. We knew that they had experience in manufacture. We knew the plant. We were very familiar with the plant. We knew the floor space, we knew the kind of construction, and we knew what its wartime record was as a facility. Under Ford operation we also knew what the costs of the C-119 were at Fairchild and we also knew that we could watch and control those. The CHAIRMAN. General, you are getting in pretty deep, are you not, if you knew what the costs were at Fairchild and we are going to develop at this hearing what the costs were at Willow Run? You testify now that you could control them. I do not want You to get in any deeper than you want to get in. General Coox. I am talking of what we thought at the time, what we considered we could do at the plant under the urgent circumstances of the times. The CHAIRMAN. Is it the practice for you, General, or for the Air Force, to award contracts, major contracts, without having cost esti- mates, without having any definite proposals? General Coox. Not ordinarily, but during that particular time, between June 25, 1950, and early in 1951 to the best of my recollection there were several contracts or agreements, commitments, that were entered into without full information as to cost. - The CHAIRMAN. This was entered into without any, was it not? General COOK. No, sir. The CHAIRMAN. Why? You had no proposals, you had no cost estimates? General Coox? We knew the plant, we knew the aircraft that was- to be produced there. So we had information, but it was not, as T Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release R~R/1Al1pop~4B00346R0004000003-4 recall it, from1Kaisor-it was our own information that we had ac- cumulated at Headquarters, Air Materiel Command. The CHAIRMAN. Members of the staff of this committee reported to us that in a discussion with you concerning the procurement of planes you stated that first you find out if you get the planes, then you deter- mine the cost. That is an interesting statement. What do you mean by that statement? General Coox. In times of emergency we have got to be sure that we can get the aircraft first and then of course an extremely important consideration is the cost. But we are certainly interested in first getting the aircraft. We cannot, I do not believe, subordinate the necessity for ammunition or aircraft, munitions of war, when we are in an extremely urgent period of danger, complete l to cost. The CHAIRMAN. &eneral, you state that you knew what the cost should be. What should they have been? We know what they were, but what should they have been? General Coop. With regard to costs, sir, the distinguished chair- man mentioned some costs here yesterday which I understood to be offered as comparable costs. I do not believe that the facts will support those costs as comparable costs. So that with the chairman's permission, I would like to have entered into the record by one of our cost experts, Mr. Whipple, the basis for comparable costs between Fairchild and Kaiser-Frazer. The CHAIRMAN. General, our intention is to call Mr. Whipple, as well as some others. We would like to complete your testimony first, and then we will call him. General Coox. On this matter of comparable costs, I would like to defer to Mr. Whipple because he is very familiar with the details of the whole thing; and I am not. The CHAIRMAN. For a moment we will not talk about comparisons. You say you know what they should have been. What should they have been, laying aside comparable costs? General Coox. I would have to go back to the record of that time, sir. The CHAIRMAN. Will you do that and furnish us that information? General Coop. Yes, sir. Mr. Whipple has prepared that infor- mation. (Statement referred to appears elsewhere in the record.) The CHAIRMAN. On October 23, 1950, you wrote a letter as Chief of the Procurement and Industrial Planning in which you recom- mended that Fairchild be given a contract to open a facility in Chicago on December 1, 1950, as the most reasonable and economical way of meeting the requirements of the C-119 in the 95-wing program. Was this recommendation made in this letter based on a study of available facilities and analysis of their respective merits? General Coox. I believe it was, sir, at that time. At that time the Willow Run facility was scheduled for production, or we had either started or planned to start on a study for production of the B-47 airplane at Willow Run. The CHAIRMAN. My general information is that you considered a number of plants at that time, and you came up with Chicago as the ?st of all of them. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 App(Wed For Release 20W4OP ?4B00346R000400050003-4 General Coop. A number of plants were considered at that time, but Chicago, sir, was not considered the best of all of them. I. would say that at that time I recognized that Chicago probably was the worst plant of all from the standpoint of facilities, labor availability, and so on. But I considered at that time it was the best available plant for the production of the C-119. So far as the physical plant was concerned I considered it, I can assure you, the worst plant that we had. The CHAIRMAN. Are you testifying here that you recommended the worst plant? General Coox. No, sir. I recommended available plant, the best plant that was available for that production. The CHAIRMAN. You do not mean that it was the worst available plant. It was the best available plant but it was a bad plant. General Coox. I mean it was the best plant available for that particular work at that time but as a plant, both from the standpoint of its structure and from the standpoint of its location for labor availability, I did not think it was very good. Had I had another choice that would have been better from the standpoint of labor availability, and structure, I would have picked another. The CHAIRMAN. Now we have the Air Force plant No. 8 at Chicago. You cite the advantages: Plant size and layout lends itself readily to the plan C-119 production although the plant as a, whole requires more rehabilitation than Tulsa, Omaha, or Marietta. Two, relocation of existent tenant activities would not be serious and it is con- sidered that the relocation cost would be considerably less than would be the case at Tulsa, Omaha, or Marietta. Three, a fair labor market. Now the disadvantages: "One, more vulnerable to air attack be- cause of the industrialized location than other cities considered." That is a summary of it. You have not changed your mind on that, have you? General Coox. I do not think I have. I did not read those details before I gave the testimony but I do not think I have changed my mind on that. The CHAIRMAN. What was the compelling reason -that caused you to change your mind and abandon the C-119 production by Fair- child in Chicago between October 23 and December 15? General COOK. I do not recall any compelling reason, Mr. Chair- man. There was a combination of factors. One reason, one factor that entered into it was the desire at that time to get work into automobile-producing areas where it was anticipated that there would be a sharp decline in employment in normal automobile pro- duction, and there was considerable, I will not call it pressure but there was considerable urging at the time on the military services to place production in areas where labor would be displaced by cutback in normal commercial production. That was one factor, and I think a rather important one. Another factor was the desire-and as I recall it it was one of national policy at the time-to broaden the production base -so that in going into Willow Run we were not only buying an airplane-and I would like to emphasize this-we were not only buying an airplane but we were buying insurance to produce additional aircraft in the event that the United :=Mates became embroiled in a third world war. AI at that time it did not appear too improbable that the United Stw Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release ~flffAA619,~4B00346R000400(W003-4 would become embroiled in it because, as I say, I knew at the time that a. declaration of a state of emergency was being prepared for 'the President and I was also informed, I do not believe officially, but I was informed that it was imminent. We were under compulsion to look forward to the possibility of a third world war and being adequately prepared for going into it if it occurred. So that I would like to emphasize again and repeat that we were not only buying an airplane. Had we been faced with the necessity of buying just an airplane at the lowest price that we could procure it, we would not have done it that way. The CHAIRMAN. You say you were buying insurance? General Coox. Yes, sir. The. CHAIRMAN. It was pretty high-priced insurance, was it not? General Coox. It all depends on the point of view, Mr. Chairman, whether it is high priced or not. I believe that had a war occurred at that time, or shortly afterwards, or within several months after- wards, that we would not have considered it high priced at all. It probably would have been very cheap insurance. The CHAIRMAN. Members of our staff were advised that a wire recording was made at a meeting held at the Air Materiel Command in Dayton, Ohio, on December 15, 1950. They were also told that no transcript was ever made from this recording and that the recording cannot now be located. Can you inform the committee how it could happen that such an important record could be misplaced or can you produce this recording and record it for the committee? General Coox. I cannot produce the recording or transcript of the meeting. To the best of my recollection the recording equipment failed to properly record, and it could not be' transcribed for that reason. I might say that I have had other, similar experiences. The CHAIRMAN. When the letter of intent contract was awarded to Kaiser-Frazer on December 20, 1950, for 134 C-119 airplanes, is it true that a fixed-price contract was contemplated? General Coox. We contemplated a modified fixed price form of contract at that time and that modified fixed-price contract is one in which, after the contractor has performed a certain part of the work called for, a redetermination of the price is made by audit of his records and by assessment of his performance, and then from that point forward it becomes a fixed-price contract. As I recall the circumstances, particularly in view of the fact that we were appre- hensive that all of the automotive companies and other companies which produced commercial articles ordinarily were being brought into this program and might possibly load some overhead-that could not be strictly allocated to aircraft production-on to our production contracts, we decided to make this a cost-plus-a-fixed-fee type of contract in order that we could watch the costs more closely. The CHAIRMAN. What do you mean by "cost-plus-fixed-fee"? Just for the record. General Coox. The contractor agrees to-we estimate what the cost of the end items should be, and an agreement is arrived at between the contractor and the Government as to what the estimated price will be on which to base a fee, and then a fixed fee is agreed upon to apply to those estimated costs. He may perform at a lower cost than he estimated cost, or he may perform at a higher cost than the timated cost. But the fee is fixed and cannot be changed unless the Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 App(Wed For Release 2 lOFEI r 4B00346R000400050003-4 work to be performed under the contract is changed, and then the fee is changed. It is not a cost plus a percentage of the cost type of contract which is illegal. The CHAIRMAN. General, what is a letter of intent contract? Will you explain that? General Coon.. A letter of intent was used and is occasionally used in order to enable the contractor to get started after it is decided that the work will be done by a certain contractor. It is to enable a contractor to get started on engineering, plant preparation, tool design, and matters of that kind while definitive estimates are being prepared for negotiation of the definitive contract. The CHAIRMAN. General, here is a document entitled "Findings and Determinations" which was signed by you on February 27, 1951. Would you please verify this to be your findings and determinations with regard to the award of the C-119 contract to Kaiser-Frazer?. General COOK. This is mine. The CHAIRMAN. When was the letter of intent contract amended to provide for a cost-plus-fixed-fee contract? General COOK. The letter contract was amended, according to my records, on the 25th of January 1951. The CHAIRMAN. Under what authority was the Kaiser-Frazer letter of intent amended on January 25, 1951, to provide for cost- plus-a-fixed-fee contract when your findings and determinations were not issued until February 27, 1951? General Coox. It probably was done under my authority at that time to carry out Mr. McCone's admonition concerning the possible loading of costs. That is the only reason that I can give for that. At that time we were not able to make our paperwork keep up with our decisions. The CHAIRMAN. In your findings and determinations to support a cost-plus-a-fixed-fee contract for producing the C-119 at Willow Run you indicate that the contract would cover 176 C-119's at an estimated cost of $82,225,896. On what basis did you arrive at the estimate which is equivalent to $467,000 per plane? General CooK. As I recall it, that estimate was based upon Fairchild's costs. The CHAIRMAN. In your findings and determinations to support a cost-plus-fixed-fee contract for producing the C-1 19's at Willow Run you also state the cost of performing this work cannot at this time be forecast with a reasonable degree of accuracy. How do you reconcile this statement with the estimated cost figure which you cite in the previous paragraph? General COOK. As I previously stated, sir, that as I recall it was a budget figure based upon Fairchild costs. I might say that we anticipated that the Kaiser costs would be higher. This was a budget cost. We anticipated that the Kaiser costs would be higher for many reasons which Mr. Whipple will bring out in his detailed testimony to you later. The CHAIRMAN. Is it not true that in September of 1951, 24 C-119's were added to the Kaiser-Frazer letter of intent contract at an estimated total cost of $17,106,200, or equivalent to $713,000 per plane? General CooK. ][ do not recall that amendment. The CHAIRMAN. The committee has in its possession a purcha request No. 55039 which is signed by Mark E. Bradley, Jr., Brigae Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releaser> OMciCb%4WP64B00346R00040050003-4 General, Acting Director of Procurement and Industrial Planning, which verifies the statement preceding the question which I asked. In other words, the costs even from your department are moving rapidly upward from the $467,000 per plane, and in the purchase order signed by General Bradley for the 24 additional C-119's the cost has gone up to $713,000 per plane. In other words, it is moving very rapidly up. In view of the fact that Kaiser-Frazer was supposedly being phased out of the C-119 program commencing June 1951, what were the reasons for ordering 24 additional planes in September 1951? General COOK. I cannot give you the reasons. I might speculate but it would be pure speculation. I think that I had better defer to The CHAIRMAN. Who could tell us that, General? General CooK. I believe either Mr. Whipple or General Bradley could tell you that. The CHAIRMAN. Is it not true that the contract for Kaiser-Frazer for producing the C-119 was not finally definitized and approved for 200 planes until May 17, 1952? General CooK. As I recall it, that is true. (The document referred to above is as follows:) The USAF proposes to enter into a contract with Kaiser-Frazer Corp. on a cost-plus-a-fixed-fee basis covering procurement of 155 C-119C aircraft for the Air Force, and 21 C-119C aircraft for MDAP, including spare parts, special tools, and ground handling equipment, data and tooling, at an estimated cost of $82,225,896, chargeable to fiscal year 1951 funds, projects 113, 121, and 133. I hereby find that present conditions warrant the use of a cost-plus-a-fixed-fee contract in connection with the procurement of airplanes, spare parts, special tools, and ground handling equipment, data and tooling. This is the first pro- duction contract covering airplanes from this contractor and due to the con- templated increase in production to a peak rate of 250 airplanes per month, the cost of performing said work cannot at this time be forecast with a reasonable degree of accuracy. I therefore determine that such method of contracting is likely to be less costly than other methods due to the unknowns involved in this procurement. This determination is authorized by section 4 (b) of the Armed Services Procurement Act of 1947, Public Law 413, 80th Congress. ORVAL R. COOK, Major General, USAF, Director, Procurement and Industrial Planning. The CHAIRMAN. Under section 3, paragraph 408, procurement regulation of 1947, amended as of June 1, 1950, it is required that a contract for procurement shall be definitized as soon as possible after the issuance of a letter of intent. Do you consider 18 months "as soon as possible" within the meaning of the term? General COOK. Yes, sir; I do. That may be The CHAIRMAN. May I point out, General, that the letter or con- tract, or letter of intent under the revised rules, revised to June 1, 1950, says "The letter, contract, or letter of intent shall be super- seded as soon as possible by a final definitive contract." General CooK. Yes, sir. The CHAIRMAN. Do you consider 18 months "as soon as possible"? General CooK. In some cases 18 months is as soon as possible, lecause on entering into an arrangement where we are not certain of 'iat the costs are going to be, and are anxious to proceed on as busi- Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro d For Release 2008fIlOttO C1 800346R000400050003-4 nesslike a basis as possible, combined with a reluctance on the part of contractors occasionally to agree on a fee or a target rate of profit that we do not agree with, our negotiations sometimes cover months. We do not blindly accept the contractor's-seldom, if ever-accept blindly the contractor's initial offer as to what he will perform for. We never do, blindly. The CHAIRMAN. Under the definitized contract of May 17, 1952, for the purchase of 200 C-119's and spares from Kaiser-Frazer, is it not true that the total amount allocated to this contract was $180,437,399, or an equivalent of $902,000 per plane? General Cooii. I would have to refer to the record to verify that, Mr. Chairman. The CHAIRMAN. The cost is going up. It started at $467,000 on September 1951, then $713,000, and now, on May 17, 1952, it is $902,000. Is it not true that subsequent to May 17, 1952, the number of C-119's to be purchased from Kaiser-Frazer was reduced from 200 'to 159, without any reduction in the total amount of money allocated under the contract? General Cooic. I do not know the answer to that question, Mr. Chairman. I would have to refer to the record. The CHAIRMAN. I will ask Mr. Anton to read that in. Mr. ANTON., You said that as far as the amount was concerned- this is a copy of the contract-under "amount allotted" the amount is for 200 C-119 airplanes and spare parts, $180,437,399. The CHAIRMAN. Is it not true that the total amount allocated under the Kaiser-Frazer C-119 contract was increased again on December 4, 1952, to $198,722,204? General Cooic. It could be, and I would like to say at this point, if I may, that frequently the amounts on such contracts are increased or decreased and independently of the number of aircraft that may appear on the contract. Those increases and decreases can be charged to changes in spare parts requirements or other work to be done under the contract separate from the production and' assembly of the airframe itself. The CHAIRMAN. At the present time the staff members of this com- mittee have informed the committee that they, in turn, have been told that Mr. Edgar Kaiser has made a request of the Air Force for the addition of $10 million to the Kaiser-Frazer C-119 contract, mak- ing a total of $208 million if granted. In your opinion if this amount is granted will it be sufficient to complete the contract for the 159 airplanes? General Cooic. I am not qualified at this point to answer that question, sir. The CHAIRMAN. Mr. Anton? Mr. ANTON. I have here a letter addressed to the commanding general, Air Materiel Command, Wright-Patterson Air Force Base, from S. A. Gerard, vice president of Willys Motors, Inc., which is the new name for Kaiser Manufacturing Corp. In this letter he states: Supplementing our letter of April 3, 1953, reference (a) above, we submit herewith in accordance with clause 8 (d) of subject contract a new estimate of total expenditures, to be made thereunder. .As you know, under the provisions of a contract, once 75 percent of theeO costs are incurred by the contractor he has 30 days within which _- submit new estimates in which to increase the allotted amount of Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releamtl r OItOetX 1 R P64BOO346R0004 50003-4 contract. If he does not do that he will not be paid any more than he is allotted under the agreed contract. Evidently at this point, May 8, 1953, the contractor had incurred 75 percent of $198,240,655. Therefore it was incumbent upon him to make these estimates for additional funds, or else he would have had to build these 159 planes for $198 million. This is a copy of the estimate which was sent to the commanding general at Wright-Patterson. The total asked for is $208,595,966. The question that I think the committee would be interested in-and I merely want to point this out-is this: take two items in this. One is direct labor. This direct labor cost, prior to May 8, under the most recent change order that the Air Force has agreed to under the con- tract, amounts to $20 million. The estimate provided by the Kaiser- Frazer Corp. here to complete this contract now as of May 8 is $23 million. That means that there is an additional $3 million which they need to finish the contract. The incurred cost as of April 30, under this contract, is $17 million. That leaves $6 million under which the contractor feels he can finish this contract. At the present moment his current rate is running at $1 million per month. Do you feel that he can possibly come within this direct labor estimate which he is now proposing? General Coox. The question you have asked me can be more authoritatively answered by Mr. Whipple, who is familiar with those figures. I am not familiar with those figures. I understand that that proposal is under study by the Air Materiel Command and that would not under normal circumstances reach me at all. The CHAIRMAN. The committee will take it up with Mr. Whipple. Mr. ANTON. One more thing: The estimated cost for factory bur- den, as indicated in this letter, under the latest change order agreed to by the Air Force, is $62 million. The contractor is now asking, as of May 8, 1953, for $79 million in order to complete this contract. The incurred cost as of April 30 is some $46 million. The average is running around $3 million a month. That leaves $32 million. That indicates that he estimates that possibly in the next 10 months he can finish the contract under that figure. The CHAIRMAN. 'We will take it up when Mr. Whipple gets here. Mr. Rhodes? Mr. RHODES. General Cook, when did you go to AMC? General Coox. As I recall the date, I reported to the Air Materiel Command on the 21st of July, 1948. Mr. RHODES. I believe at that time you were director of procure- ment and industrial mobilization planning, Air Materiel Command. Was that your initial job? General Coox. No, sir, it was not. I had been sent out there as a deputy director of procurement and industrial planning but I never assumed that duty. I assumed the duty of director-I did not as- sume the duty at that time-I did assume the duty as director of procurement and industrial planning in September of 1949. I do not recall the exact date. Mr. RHODES. This biographical information was submitted to us by the Air Force and shows that shortly after your arrival at Dayton you became deputy to the commanding general for operations. Is that correct? General Coox. That is correct. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro7Od For Release 20Q Mflr: 6 0346R000400050003-4 Mr. RHODES. Generally speaking were you not familiar with the fact that the Air Force had for a considerable period of time been sending teams around the country to do planning surveys of available plants? General Coos:. Oh, yes. Mr. RHODES. I take it that your understanding of the potential of these plants to produce came from that source; and that you were quite familiar with it. General Cook:. No, it didn't come from that source. I was per- sonally familiar with practically all of the aircraft plants that produced aircraft during World War II because during that time I was chief of the production division of the Air Materiel Command and I visited all these plants on one or more occasions. Several of them many times during that period. Mr. RHODES. You were then thoroughly familiar with the produc- tion capacity? General Coos:. I was personally familiar with the plant layouts in most cases, the type of structure and the type of labor they had, and so forth. Mr. RHODES. General Cook, I believe you were here yesterday. General Cooxx:. Yes, sir. Mr. RHODES. Were you present during the time the chairman, Senator Bridges, was questioning Mr. McCone about the activities which followed the December 5 luncheon meeting, at which time he first became interested, he said, in the Kaiser-Frazer Corp. as a pro- ducer of aircraft? When did you first learn that they were going to be phased into the C-119 program? General CooKK:. I do not recall the exact date that I first learned about it. I do not recall the exact date. It was as near as I can recall on or about or after the 15th of December. Mr. RHODES. Between the 5th and the 15th of December you had no knowledge then that there was any consideration? General Coop?;. I do not recall. I may have had. At that time we frequently discussed these problems by telephone, personal visits, and as I say, there were many other problems being considered at that time. This was just one of many. My memory is not that good. Mr. RHODES. It may be that I misunderstood you. -I believe you said that at the December 15 meeting that took place in Dayton that the die was pretty well cast to go ahead and use the Kaiser-Frazer Corp. to manufacture C-119's. Is this not correct? General Coos:. Yes, at that meeting. But you asked me whether any discussions had been held. Mr. RHODES. I wondered had you been forewarned prior to this meeting. General Coops:. I do not recall that I was. But I may have dis- cussed it with someone before that. Mr. RHODES. But you had not written Willow Run out of your mind entirely, because you had considered it for other use? General CooK:. Oh, yes. It was one of the best aircraft ,plants that we had during the war and still, as a structure, as a plant,'' is one of the best we have. Mr. RHODES. At the meeting it was then decided that the Kaiser- after I believe it was Mr. McCone's testimony-correct me if this `_ Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaseA)j;9/ol-HPR,P4B00346R000400fI50003-4 not the case-that on December 20 the letter of intent was prepared which in effect gave them the contract to produce C-119 aircraft? General COOK. It started them out, yes. Mr. RHODES. Following this you are familiar with the testimony of Mr. McCone and also I assume that you are familiar with the memorandum which he prepared of January 5, 1951, is that true? General COOK. I am familiar with that. Mr. RHODES. Did this have the force and effect of a directive, would you say? General Coox. Yes. Mr. RHODES. To you at the Air Materiel Command? General Coox. Yes. Mr. RHODES. You look on this as a directive? General COOK. I most certainly did. Mr. RHODES. To above all things watch costs on these contracts? General COOK. Yes, sir, Mr. RHODES. I believe also-and correct me if this is not the case- in rating personnel, one of the factors you consider is their ability to watch costs, is that not true? General Coox. That is correct. Mr. RHODES. flow long has that been in effect as a requisite for rating? General Coox. I do not recall the exact date. I would have to go back to the records. Mr. RHODES. But it has been a long time. General Coon. It has been for several years; yes, sir. Mr. RHODES. So there is no question about the fact that everyone knew that cost consciousness was a guiding principle at that time? General Coox. That is correct. Mr. RHODES. And thereafter I assume you set up, as deputy, or someone in AMC set up a means of controlling costs, or watching costs; is that true? General COOK. We had means of watching and controlling costs, yes. We have had for a long, long time. Mr. RHODES. I understand. Would you briefly describe the system which was established whereby costs were watched? General COOK. The system that was established for watching costs did not stem from the change in the officers' effectiveness report at all. It was started years before that. Mr. RHODES. I did not mean that. It is in principle. General Coon. Yes. The Air Materiel Command is set up as a business organization on a business-it is a business-type organization although it is operated by a military service. We have cost analysts, competent cost analysts to analyze costs. We have auditors, auditors independent from the Air Materiel Command organization, but the services of the auditors are utilized to see that costs incurred are properly charged. They also are utilized to call to the attention occasionally of the contracting personnel what they may consider improper charges to see whether or not something could be done about correcting what they consider improper charges. They are not always correct, I mean in determining whether or not a charge is an improper charge wr not. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 ApprG2ed For Release 2098 FI1 00346R000400050003-4 But it is their duty to bring to the attention of the operating and surveillance people, to determine whether charges are improper. As to our contract-administration people and district officers, we have districts that administer contracts after they are negotiated by the Air Materiel Command. The inspectors are charged also with seeing that the services that are procured are delivered as specified. They are charged with seeing that we get what we pay for. In other words, if the dollar is used efficiently insofar as possible, watching for loafing in the plant, misuse of materiel. We have procedures for watching the contractors scrap rate, watching the utilization of people under CPFF. There are a lot of details connected with it. If you would like a statement of that we can make it available. Mr. RHODES. There is no indecision in your mind about the fact that you had the ability to watch costs? General Cooic. Not at all. Mr. RHODES. Is there any indecision in your mind about the func- tioning of that system to sound a warning at the proper levels when these things begin to _get out of hand? General Coo--K. I would say that in all cases it has not worked as well as I would have liked to see it work. That gets into something that this committee is not concerned with, but it gets into the problem of qualified people. Up to the 25th of June 1950, the _Air Materiel Command was engaged in the process of reducing its procurement personnel and we had gotten our procurement and related administrative personnel down to what I considered at the time a dangerously low figure, and in the succeeding months that force had to be built up. We were not always able to get the qualified people that we wanted and needed to do the job. No reflection on the people that we have at all, but they had not had experience in that particular game. Mr. RHODES. The system was good, there was not inability on the part of those people to report and there was a review system up above along the line? General CooK. That is correct. Mr. RHODES. Regardless of whether these people were good or bad reporters, the reports would travel forward through the system? General CooK. They would, provided they always knew what to report and how to report it. Mr. RHODES, .I would like to recall to your mind some answers which you gave to Senator Bridges earlier. In the matter of previous experience of the Kaiser-Frazer Corp., I believe you indicated to him that they had had some experience, but I believe I am correct in interpreting that they had never had any assembly experience. General Coox.. They had assembly experience. Mr. RHODES. On this type of aircraft? General CooK. No; not on this type of aircraft. I believe it was a fighter aircraft during World War II. Mr. RHODES. Comparable experience, would you say? General COOK. It was experience that should qualify them to be informed on some of the problems that they would encounter in aircraft production. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release QkVl*Q/%b&jpRf64B00346R0004009J0003-4 Mr. RHODES. They had a smattering of experience which you counted in your estimate when you sat at the December 15 meeting? General COOK. Yes. Mr. RHODES. I believe you said that you went into the December 15 meeting with Fairchild costs in hand, right? General Coox. No; I didn't mean to give that impression. Mr. RHODES. I believe you answered Senator Bridges on a similar question, and I think-- General Coox. The meeting was held at headquarters, AMC. If any information was needed in the meeting as the meeting developed, we had people available at headquarters, Air Materiel Command, with information that they could bring into the meeting at any time it was. needed. As I recall it that was an unusual procedure at that time but we had Fairchild costs available there at Air Materiel Command. Mr. RHODES. That was your yardstick, in other words, the Fair- child costs were your yardstick? General COOK. Yes, sir. Mr. RHODES. I believe you said that you had some misgivings about the use of Willow Run in the matter of management, in response to a previous question this morning. General COOK. My misgiving, as I recall it, about the use of Willow Run, was the business of having a mixed production in the plant, automobiles and airplanes being built in the plant at the same time. But because of the fact as I said there was a great deal of urgency to place work in areas where automobile workers would be laid off, I probably considered that that was more important than just an ideal production situation. It was not an ideal production situation in my view. The CHAIRMAN. Senator Flanders? Senator FLANDERS. General, I would like to go back to an earlier question. The question was "Isn't it true that the Kaiser-Frazer C-119 letter of intent contract was amended on January 25, 1951, so that instead of a fixed-price incentive contract it contemplated a cost-plus-a-fixed-fee type of contract?" If I understood you the change was made in part at least under the influence of Mr. McCone's letter asking for strict supervision of overhead costs and other things that might get out of line. That puzzled me a little bit, particularly in view of your subsequent testimony as to your organization or following through costs. Just why was it possible to follow those costs and correct inequities in it on a cost-plus-a-fixed-fee type of contract in any better way than on a fixed-price incentive contract? General Coox. On a cost-plus-a-fixed-fee type of contract, Senator Flanders, we have many more people in the plant. We have resident auditors watching the assignment of allocations of cost. We have procedures for watching the operation of the contractor under the contract more closely than we have in any fixed-price type of contract. Senator FLANDERS. Would you not have installed those auditors and watchers in any event in response to the directive of Secretary McCone? General COOK. Not in the plant; no, sir. Senator FLANDERS. I rather get the impression from what you said ter that you had a pretty good cost following team anyway? General Coox. Yes, sir. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Apprred For Release 20*0M F00346R000400050003-4 Senator FLANDERS. And you would not have felt justified in putting in the same sort of controls on this fixed-price contract in spite of that directive from Mr. McCone unless you had changed the contract? General COOK. Under the fixed-price type of contract, Senator Flanders, we would have watched the performance of the contractor much more closely, but our ability to get into his books would not have been as good under the fixed-price type of contract as it would on the CPFF type where the auditors get daily looks at what is going on. Senator FLANDERS. You feel there would be legal restrictions in the way of your following the same supervision? General Coon:. I would not say the same legal restrictions, but I think it would be perhaps more correct to say there were procedural restrictions. Senator FLANDERS. It does seem, offhand, a little strange to me that that directive should have required a change in the type of con- tract, that is, it does not appear readily and quickly to anyone that that would be the natural result of that directive. General CooK:. I certainly did not mean to imply that that directive required us to go to a cost-plus-a-fixed-fee type of contract. It was one- of the things which, as I recall it, influenced that decision at the time. Senator FLANDERS. Is it not true that you have full access to the accounts, the costs and so forth at Fairchild? General CooK. It is true. Senator FLANDERS. Could you not have had the same degree of access to the Kaiser-Frazer account? General CooK. Yes, sir; we could have, but all of Fairchild's costs- Fairchild is occupying a Government-owned plant and their work is all for the Government in that plant. It is easier to get hold of their costs there than it would be in a mixed operation such as the operation at Kaiser-Frazer. Senator FLANDERS. Although the mixed operation needs closer looking at? General Coox. It needs closer looking at; yes, sir. The CHAIRMAN. Senator Duff? Senator Dui-!. General, under your method of keeping tab from time to time on rising costs, is there any place along the line where you would feel it necessary to stop the whole operation as a result of that manufacturing cost as in this case, where apparently there has been a tab every time the estimated cost has risen over the previous estimates? General Cook:. I am not prepared to say that the costs have been constantly rising. I believe -Senator DuiF. I mean on the basis of the statements that we have before us. General Coop-,. It may be true on the basis of some of the state- ments that had previously been made but I am not prepared to say that the costs were constantly rising. I believe that that will be developed, whether they were or not, in later testimony. Senator Du:FF. Of course my question is based upon the assumption that the figures that we have are a correct statement of what those Approved For Release 2003/10/10 CIA-RDP64B00346R000400050003-4 Approved For Releasezz ?OMc P64B00346R00040'DO50003-4 General COOK. Those figures, Senator Duff, I do not believe in my opinion can be used factually for direct comparison. We have some-the Air Force has some figures that will be presented in later testimony on cost estimates. The CHAIRMAN. You do not deny the figures are accurate, do you, General? General COOK. I do not deny that the figures are accurate, but there are many ways in which those figures could have been arrived at, and I will give some examples. In the first place, as I stated in my earlier testimony, at Willow Run we were not only buying air- craft, we were buying insurance. Therefore we expected to pay more for the aircraft that were produced in that plant than we would pay for aircraft that were produced in another Government-owned plant at Fairchild where the operating conditions were very efficient, that is the plant was being used almost to its maximum capacity. Costs can be taken at different periods on the learning curve. The CHAIRMAN. General Cook, because of the time element and because of meetings which both Senator Flanders and Senator Duff have to attend besides the chairman having to handle an appropria- tions bill on the floor of the Senate this afternoon and opening the Senate for the Vice President, which requires me to get there about 12, we would recess at this time and call you back at 10 o'clock tomorrow morning, if that is convenient for you, sir. General CooK. Yes, sir. The CHAIRMAN. We will recess until 10 o'clock tomorrow morning. (Whereupon, at 11:45 a. in., the committee adjourned, to reconvene at 10 a. m., Thursday, June 4, 1953.) Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 AIRCRAFT PROCUREMENT THURSDAY, JUNE 4, 1953 UNITED STATES SENATE, PREPAREDNESS SUBCOMMITTEE No. 1, ARMED SERVICES COMMITTEE, Washington, D. C. The subcommittee met, pursuant to adjournment, at 10 a. m., in room 212, Senate Office Building, Washington, D. C., Senator Styles Bridges (chairman) presiding. Present: Senators Bridges (presiding), Duff, Byrd, and Symington. Also present: Fred Rhodes, chief counsel; James Anton, special counsel; and Harold M. Devlin, accountant. The CHAIRMAN. The committee will come to order. As indicated at the close of our session yesterday, we have asked General Orval Cook, Deputy Chief of Staff, Materiel, Air Force, to appear before us again today to complete his testimony, and to answer some additional questions which his testimony of yesterday raised. There is one point of the proceedings of yesterday which I feel that I must comment on at. this time. It was developed that on December 15, 1950 a very important meeting took place at the Head- quarters of the Air Materiel Command. It was at this meeting that the decision was made that a contract, would be given to the Kaiser- Frazer Corp. to build. C-119 planes. This meeting was felt to be of such importance that a wire record- ing was made. General Cook, who had participated in this meeting, stated that to the best of his recollection the recording equipment had failed, and that no transcript was made of the meeting. He said that he was unable to produce the recording or a transcript of the meeting. Since no one minimized the importance of the meeting, and it can be assumed that the failure of the recording device was soon discovered, it seems to me to be almost incredible that some record was not made of the meeting when the events were clear in the minds of all the participants. Certainly someone could have, and I would like to say, should have made a record of what took place at this gathering. I was interested to note that the meeting was held, and a decision was reached to award a contract without the benefit of cost estimates or a contract proposal from the contractor. Later cost determinations were computed from Fairchild costs, although General Cook stated that he knew that the Kaiser-Frazer costs would exceed those of the Fairchild Corp. He stated that the Air Force was buying something in addition to C-119 planes-they were buying insurance. Let me repeat my com- 77 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appr red For Release 2(IOWI@ Oi!lIDMAROPS4B00346R000400050003-4 ment that this is very costly insurance. At this point it should be noted that this insurance did not provide the Government with the productive capacity of a full plant-Willow Run. It gave the Gov- ernment a part of the productive capacity of Willow Run. General Cook described this as a mixed operation. I take this to mean that automobiles and planes were being produced at the same time. General Cook seemed to have some doubts about the work- ability of such it plan. In these hearings we always seem. to be returning to the matter of costs. Yesterday in the hearings at several points totals were read to General Cook of the money which had been allocated to the Kaiser- Frazer contract, These figures came from the Air Force. By the simple procedure of dividing the number of planes into the total amount of money allocated estimates were gained as to what these planes were costing. General Cook repeatedly referred these questions to the fiscal people for verification of the totals. In response to a question from Senator Duff, General Cook, referring to the growing total sums of money said: "I am not prepared to say that the costs have been constantly rising." Let me point out that these Air Force figures certainly indicate that it is costing us more money that was initially programed for this purpose and we are getting fewer planes. In order to avoid any confusion, I feel that some clarification should be made of the C-119 and the C-123 airplanes and their respective missions. The C-119 airplane was developed by Fairchild Corp. in 1945. Its function is to carry troops and/or large, bulky or heavy freight considerable distances. . The G-123 airplane was designed by the Chase Aircraft Co. It is a plane considerably smaller in size than the C-119 and it is designed to carry troops and cargo to bases somewhat forward of those which could be used by the C-119. Before we go on with this, the chairman received a letter this morning from the Henry J. Kaiser Co., from Chad F. Calhoun, vice president, asking that the letter, because it pertinently refers to state- ments made yesterday, be read into the record this morning. In order to be fair, the committee is so doing. It is addressed to the committee, and myself as chairman: At the hearing of your subcommittee this morning, when General Cook was appearing as a witness, there was a strong implication left that our aircraft manufacturing experience prior to the C-119 contract did not amount to much and that one of the companies had gone broke. The actual fact is that we took over the operation of the Brewster Aeronautical during World Wax II at the request of the Navy, increased production from 4 Corsair Navy fighter planes to.a monthly production of 123, and sharply reduced man-hours and costs per plane. It is a record of which we are all extremely proud, and for which we were highly commended by top Government officials. We did this as a patriotic service at no fee. We had no interest in the company, which had been taken over by the Navy, and we continued to produce the Corsair planes until the Navy canceled out toward the end of the war. Also, while our Fleetwings Co. (now Kaiser Metal Products) did not produce planes in production quantity (Fleetwings did produce some experimental planes), it did, nevertheless, produce a tremendous amount of major component assemblies for Corsairs, Avengers, B-17's, Havocs, and the Hughes F-11. I am attaching copies of statements made by us in affidavit form last year covering the wartime production of our management period of Brewster Aero- Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaseI/r1 Q/1@2c64B00346R0004(50003-4 I wish to request that in order that the matter of our prior experience be clarified in your committee hearings, that this letter and its attachments be read into the committee record at the hearings tomorrow morning. Yours sincerely, HENRY J. KAISER CO. By CHAD F. CALHOUN. I have read the letter and I will make the letter and the attachments a part of the record. (The attachments referred to are as follows:) The following are the facts concerning the Kaiser operation of Brewster Aero- nautical Corp. during World War II: The material below is from an affidavit signed by Henry J. Kaiser, Edgar F. Kaiser E. E. Trefethen, and Chad F. Calhoun, prepared in answer to charges made May, 1952, by Congressman O'Konski. This affidavit was incorporated in a speech made in the House of Representatives June 17, 1952, by Representa- tive James Morrison of Louisiana and appears at pages 7759 et seq. in the Con- gressional Record for that day. Kaiser donated management of Brewster free to the Government; Corsair production was multiplied 30 times; man-hours were cut to one-third of the starting figure and debts were reduced 50 percent. In 1943, Kaiser was asked by the Navy and the Government, specifically by the Under Secretary of the Navy, James Forrestal, to help rescue Brewster Aeronautical Corp., which at that time was described as "the scandalous crazy house of United States war production." For more than 18 months prior to the time that Kaiser help was sought, Brewster Corp., in which the Navy had invested millions of dollars, was con- sidered the Navy's prime production headache. Seven different managers had resigned, and chaotic labor-management relations had brought about a congres- sional investigation. In more than 1 year under previous managements, the Brewster Corp. had produced only 8 Corsair fighting planes, vitally needed by the Navy. Kaiser initially declined the Navy's request to take over the management, but Henry Kaiser did agree to become chairman of the board, and on March 16, 1943, assumed the office. Within 6 months Navy officials requested that Mr. Kaiser assume a more direct control of Brewster and take over the active man- agement. On October 7, 1943, Henry Kaiser yielded to an urgent appeal from Navy Department oWcials to become president of Brewster Corp. and brought in his own staff. Two weeks later, the Kaiser organization staked its reputation in a pledge to the House Naval Affairs Subcommittee that he would boost Brewster production many times over. We ironed out labor-management strife, dissolved a strike threat that hung over Brewster, reduced the number of employees, cut down the number of man- hours per plane, reduced the cost of each plane to the Navy, and-most im- portant-increased plane production tremendously. Kaiser's production record, at Brewster The September 1943 production record under the old management at Brewster was 4 Corsair fighter planes. Under the Kaiser staff, the delivery record was as follows: 1943: 1944: October-----------..-------- 14 January-------------------- 160 November---------..-------- 40 February------------------- 74 December------------------ 73 March--------------------- 101 April---------------------- 123 In September 1943, prior to the time Kaiser took over, the man-hour record per plane was 24,000. In October, after Kaiser assumed control, the figure was dropped to about '0,000; in March 1944, it was decreased to 10,000; and in May, to 8,000, or one- 'ird that achieved before he took over. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro'Jd For Release 200 A$r: OkAdRMSAM0346ROO0400050003-4 From October 1943, to May 17, 1944, personnel was reduced from 21,500 to 11,500-nearly a 50-percent cut-and yet plane production steadily increased as shown above. During the 7 months that Kaiser managed Brewster, executive and adminis- trative payrolls were reduced by approximately $2,750,000 a year, and a Navy- guaranteed bank loan to Brewster was reduced from $50 million to $25 million. During these 7 months, in addition to the production of Corsairs, existing contracts with Holland and Great Britain for other types of planes also were fulfilled. By May 1944, the monthly rate of production at Brewster was stabilized at approximately 120 planes-a standard acceptable to the Navy Department-and Mr. Kaiser asked to be relieved. Kaiser refused. any fee or profit from the Brewster operations, which were undertaken only as a public service to the country. Charles E. Wilson, Chairman of the World War II Aircraft Production Board, wired Kaiser as follows at different times on records established at Brewster: February 3, 1944: "The Aircraft Production Board is pleased to note that you met your January schedule, and looks forward with confidence to your ability to sustain this achievement in future months." March 3, 1944: "The Aircraft Production Board notes with pride that our confidence in your company's ability to meet your February schedule has been wholeheartedly proven as indicated by your fine production record for that month." April 1, 1944: "The Aircraft Production Board recognizes your steady record of sustained production in recent months and congratulates you for your new high in March." - May-3, 1944: "`For your April on-schedule performance the Aircraft Production Board extends its congratulations." Other commendations were received from the Under Secretary of the Navy, James Forrestal, and Artemus Gates, the Assistant Secretary of the Navy for Air, as follows: James Forrestal, Under Secretary of the Navy, wrote Henry Kaiser March 14, 1944: "We are deeply appreciative of the patriotic task which you and the other members of the board of directors and operating committee have undertaken in improving production at Brewster. For the past several months the rate of pro- duction of Corsairs at Brewster has steadily increased and there is every indication that further improvement in production would be made under the present manage- ment." Artemus L. Gates, Assistant Secretary of the Navy for Air, wrote Henry Kaiser May 17, 1944: "I would like to thank you for the fine work which you have done at Brewster and the very real contribution you have made to the war effort. You may be sure that the Navy Department is very appreciative of the task performed by you." The following are the facts concerning the Kaiser operation of Fleetwings, Inc.: The material below is from an affidavit signed by Henry J. Kaiser, Edgar F. Kaiser, E. E. Trefethen, and Chad F. Calhoun prepared in answer to charges made May 1952 by Congressman O'Konski. This affidavit was incorporated in a speech made in the House of Representatives June 17, 1952, by Representative James Morrison of Louisiana and appears at pages 7559, et seq. in the Congres- sional Record for that day. Kaiser Fleetwings (former Kaiser Cargo, Inc.) was purchased in 1943 and at that time was operating two plants producing component parts for wartime airplanes. These parts were supplied for the World War II Corsairs, Avengers, B-17 Flying Fortresses, Havocs, Seawolf, and Hughes F-11. This company also made hydraulic valves for aircraft. In addition, it made various experimental air- craft, including a confidential experimental dive bomber, experimental helicopter, several experimental planes, and a secret radio-controlled flying bomb. All told the company built over $73 million worth of aircraft parts and components during World War II. The plants operated by Fleetwings were never constructed, tooled, or laid out for the production of entire airplanes in quantity, but were established anc operated primarily to provide the component parts, such as wings, fusela Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releasa1 1fhOI1ij j 64B00346R00040j50003-4 sections, tail sections, etc., under subcontract for the types of planes men- tioned above. After the end of the war, when wartime plane procurement was drastically cut back, the company reconverted to peacetime production. It manufactured commercial articles for General Electric; Sears, Roebuck; Kaiser-Frazer, and other companies. In addition, during the postwar years, it did classified work for the United States Navy. The company is now owned jointly by the Kaiser interests and Scars, Roebuck. In addition to producing automobile doors and deck lids for Kaiser-Frazer, it also manufactures bathroom and kitchen equipment for Sears, Roebuck. Some time ago, the name of the company was changed to Kaiser Metal Products, Inc. The stockholders of Kaiser Metal Products have invested and advanced cash in the aggregate amount of $10,490,000, all of which remains in the company as of this date. In addition, the company, with the cooperation of the stockholders, arranged for a $4,500,000 bond issue for private placement in 1949. The common stock of Kaiser Metal Products, Inc. is owned approximately 40 percent by Sears, Roebuck and 60 percent by Henry J. Kaiser Co. There are no other stockholders. In 1943 an RFC 10-year loan for $1 million at 4 percent interest was obtained. This loan was paid off in full in 2 years and 9 months. In addition to the nonmilitary items which the company produces, it currently has under subcontract two very substantial aircraft component programs; namely a subcontract with Martin Aircraft for the production of wings for the Canberra jet and a subcontract for major component parts for the Republic F-84-F jet. The Kaiser Fleetwings Co. under Kaiser management in World War II re- ceived praise and commendations from the Army Air Corps for its production. records and was awarded the "E" many times. One of the major reasons that this company was selected to provide the wings for the important Canberra jet and the tail sections for the outstanding Republic F-84-F was the record of achievement it made in such aircraft component production during World War II. The CHAIRMAN. General Cook, will you come forward please? TESTIMONY OF LT. GEN. ORVAL R. COOK, DEPUTY CHIEF OF STAFF, MATERIEL, UNITED STATES AIR FORCE-Resumed The CHAIRMAN. The Air Force, General Cook, had a facilities contract with Kaiser-Frazer in the amount of $8,450,000, including $935,745 of overhead in addition to the regular supply contract for C-119's. Will you explain to the committee what this facilities contract covers? General COOK. Mr. Chairman, I do not have the facilities contract before me. However, in a facilities contract of this nature, I can only tell you what they generally cover. They generally cover plant rearrangement where a contractor has to move machinery out that he has in the plant. They cover production equipment, machine tools and sometimes rehabilitation. The CHAIRMAN. Is it not also true that the Air Force has furnished to the Kaiser-Frazer Co. tools of a value of $3,547,987 out of the Air Force tool reserve for which the Air Force received no income? General COOK. I am not familiar with the exact dollar value of the machine tools that have been furnished to the Kaiser-Frazer Corp. in connection with the production of the C-119 aircraft. I do know that tools were furnished from the Air Force machine tool reserve which is a practice that has been followed with many, many other corporations, including General Motors and others. The CHAIRMAN. This committee has an estimate from the Air Force that the Fairchild plane costs approximated $265,000, is that ue? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Apprc d For Release 209 j9k Q :A, 800346R000400050003-4 General Coox? On costs, I am not prepared to say what the exact cost of the Fairchild plane is today. Senator SYMINGTON. Would the Chairman yield? The CHAIRMAN. Yes. Senator SYMINGTON. I do not think that was the question, was it? The question that the chairman asked was about the Fairchild costs. Do you not roughly know what that is, General Cook? General COOK. I know that that figure has been used. Senator SYMINGTON. Have you not any record in the Air Force what the cost of the airplane is? General Coox. Yes, sir; I have that record. Senator SYMINGTON. But you do not know what it is this morning? General Coop:. I do not know definitely what it is now. That cost sounds to me as though it is the cost of the airplane, the airframe, exclusive of tooling and other costs that are generally associated with the aircraft. Senator SYMINGTON. Mr. Chairman, may I ask another question? The CHAIRMAN. Certainly. Senator SYMINGTON. I am sorry I was not here yesterday but the Appropriations Committee had a hearing on the Air Force, and I attended that.. Somebody told me that yesterday you talked about the cost of the plane from an insurance standpoint. General COOK. Yes, sir. Senator SYMINGTON. Would you mind describing that? General Coon. During the period between June 25, 1950, and even as late as now, the Air Force has been following what we have been told is a national policy in preparing a broad base from which increased and accelerated production could take place in the event of war; that we were not only engaged in modernizing an Air Force in being but we are also preparing for the eventuality of war. We did that in many cases by providing excess capacity, tooling of a quality that was greater than would be required to produce just the number of aircraft that were ordered; tooling that could be expanded to produce aircraft engines and other equipment at a higher rate than ordered. Senator SYMINGTON. When you placed an order with Fairchild you knew roughly what that additional cost would be, did you not? In other words, the excess cost over the Fairchild cost when you placed the order with Kaiser-Frazer? General COOK. We thought we knew roughly what it would be. Senator SYMINGTON. What did you think it was? General Coox. I would have to go into the record. Senator SYMINGTON. Mr. Chairman, may I suggest that be made part of the record? The CHAIRMAN. Certainly. (Statement referred to appears elsewhere in the record.) Senator SYMINGTON. Would you not want to examine at least periodically the difference between that estimated additional cost to take care of the points you made and the actual cost? General Coox. Yes, sir. Senator SYMINGTON. Do you know what that difference is? General Coox. That can be furnished you later on, Senator Syming- ton. I do not have that at my fingertips. Senator SYN[INGTON. May we have that put in the record. also? The CHAIRMAN. Certainly. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releasee?AM~"Q/lqo 61,AW,164B00346R00040g50003-4 Senator SYMINGTON. Thank you. (Statement referred to appears elsewhere in the record.) The CHAIRMAN. Mr. Anton? Mr. ANTON. General Cook, on at least 20 different occasions in your testimony of yesterday, in response to questioning, you replied as follows: "I do not recall," "I do not know," "It may be so," "I am not qualified to answer." When asked about an important meeting which resulted in an expenditure of some quarter of a billion dollars, you said "I cannot remember much about this." When asked about an admitted vital study, you said "I do not recall." When asked about an important amount concerning a contract, you said "I will have to look at the record." When asked about the allotments of vast sums of money, you said "It may be so." The answers to these questions are in the documents in the possession of your office, and many of them are now in the hands of able counsel sitting on your left. Is able counsel advising you to say "I do not recall", "I do not know", "It may be so", and "I am unqualified to answer", or is this an attempt to hold this committee up to ridicule? Mr. Chairman, this is a letter from the Secretary of the,Air Force wherein he points out to you: It is my understanding, as set forth in your release- and so forth- that the fullest cooperation will be given to the committee. The CHAIRMAN. Mr. Talbott, the Secretary of Air, says: Senator Bridges, in reply to your letter of May 26 I want to assure you that you will have the full cooperation in the forthcoming hearings to be held by your Preparedness Subcommittee No. 1. He goes on to say that he wants to assist the committee in a con- tinuing and effective manner. In other words, General Cook, the committee feels that you are head of a very important branch of the Air Force and it is a very important part of defense spending how the Air Force money is spent. We feel that if there were any individual in the Air Force that we could turn to for expert answers and a thorough knowledge you would be the one. The committee, in examining the record, is disappointed that you have exhibited a lack of knowledge of the information we seek, or an unwillingness to give it. We would like to have as positive answers in the future as we can. Since the spare parts for the C-119 planes produced at Willow Run were also supplied by Fairchild Corp., can you tell the committee why the fee to Kaiser-Frazer was not adjusted and reduced accordingly? General CooK. No, sir; I cannot tell you that, without referring to the records. The CHAIRMAN. Will you refer to the records and furnish that to the Committee? General CooK. Yes, sir. (Statement referred to is as follows:) It is not clear from the question raised as to whether the committee desires in- formation in regard to priming parts furnished under the technical assistance 4greetnent or "spare parts" as stated in the transcript. Accordingly, the following atement covers both situations. t the time of the first negotiation with Kaiser for 200 airplanes, the costs of 14 jets, priming parts, and assemblies were excluded from the Kaiser estimated Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Apprg4ed For Release 20OSMO,FtO iQ1A 00346R000400050003-4 cost price. Therefore, no fee was computed on this amount by reason of the fact that it was- never included in the estimated cost. Subsequent to this time it became necessary to increase the total quantity of priming parts so as to cover the next block of Kaiser-Frazer airplanes, namely shop sequence numbers 15 through 30. Since this did not represent a 100 percent prime, Kaiser's fee was not immediately reduced until it could be determined from exhibits to the Fairchild technical assistance agreement what parts were actually furnished and in what quantity. This was determined by early May 1953, and negotiations with the contractor took place at Headquarters, Air Materiel Command, on or about May 20 which resulted in an agreement to reduce the Kaiser fixed fee by some $40,000 to reflect the work deleted. There will be sorn.e small additional quantity of selected parts beyond ship 30 which will be furnished by Fairchild under technical assistance agreement and the Kaiser contract fee reduction necessitated by this action will be determined on the same basis as was the reduction for parts assistance on the ships 15-330. In regard to spare parts, there have been from time to time transfers of spares requirements from Kaiser to Fairchild, but during the same time period, addi- tional funds were allotted to both contracts to allow provisioning (i. e., deter- mination of individual items and quantities thereof) of higher percentages of spare parts to meet projected support requirements for these airplanes in service. There was no change in fee on the contract since spare parts moneys are made as a bulk allotment and the individual arrangements of pricing are not established until the items and quantities are selected by a provisioning team. After pro- visioning, the contractor submits a priced spare parts exhibit at which time the bulk allotted moneys are utilized as required for this purpose and the actual spare parts-exhibit is broken down by- estimated cost and proportional fixed fee. Since only bulk allotments of moneys were removed from one contract and applied to the other and no transfer of actual spares orders as reported by contract exhibits, there has been no requirement or justification for changing the fee on the Kaiser contract. The CHAIRMAN. Can you tell the committee how many second- source contracts the Air Force has awarded for the production of airplanes? General CooK, I can enumerate some of -them. I cannot tell you the exact number. The B-47, produced by Boeing, has a second and third source. The F-84, produced by Republic, was a second source. Those are the only two in which another contractor other than the prime design contractor that I recall at this time-other than the prime design contractor-manufactures in another plant. There is a second source for fighter airplanes manufactured by North American, which they operate at Columbus, Ohio. The CHAIRMAN. They operate themselves? General CooK. They operate themselves; yes, sir. The CHAIRMAN. The B-47 and F-84 are the only two separate contractors operating and building planes? General CooK. There is another one: Canadair is also building the F-86, which is a North American production, and they are in Canada. And Canadian Car Foundry, I believe, is building the T-34, which is a Beech. The CHAIRMAN. Let's take the B-47, which is a jet bomber, and the F-84, a modern fighter plane of the combat type. What were the dates when the second sources were established for these? General CooK. May I ask the Chairman to please read that ques- tion again? The CHAIRMAN. The B-47 and F-84, which you referred to, where second sources had been established, what the committee would like to know is, since they are vital combat planes, on what dates did youl create second sources for those types of planes? _ Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releasq (YA@6:,qP64B00346R00040050003-4 General CooK. May I refer to the record for that information? The CHAIRMAN. Certainly. General COOK. I will furnish it to you later. The CHAIRMAN. Can you not recall that? Don't you know, General Cook? What we want to establish hero is; was the contract which you awarded to Kaiser-Frazer for cargo planes the first second source, or an early second source, as compared to these combat fighter and bomber planes which were so vitally needed? Which did you do first? General CooK. My recollection, and this is purely from memory, is that the B-47 was decided upon first. That may, however, be in error. I would have to consult the records for that. The CHAIRMAN. Our information indicates-and you can furnish it for the record-that it was after the C-119. General CooK. I will have to furnish that. (The statement referred to follows:) You have asked on what dates the Air Force created second sources for the B-47 and F-84. There were two second sources established for the B-47. A contract was awarded to Douglas on December 28, 1950, for production of B-47's at Tulsa, and a contract was awarded to Lockheed on March 26, 1951, for B-47's to be produced at Marietta. Facilities contracts to support these two second sources were dated January 11 and February 4, 1951, respectively. A second source for the F-84 was established by contract dated December 22, 1950, awarded to General Motors for production at Kansas City. On January 4, 1951, a contract was awarded to North American for production of F-86's at a second plant to be operated by North American. It is apparent from this information that the entire second source structure for the B-47, F-84, F-86, and C-119 was established contemporaneously as part of the base-broadening program. The CHAIRMAN. That is something that is interesting that we should be in such a vast hurry to award these second-source contracts for cargo planes even before we established a second source for insurance on the most vital bomber and fighter combat planes that we had. Do you recall how quickly we approved second sources for B-47's and F-84's? General CooK. I do not, sir. As I stated yesterday, Mr. Chairman, there were a great number of different planes being considered at this particular time, and it is impossible for me to recall from memory all the details of all those planes without going into the record. The CHAIRMAN. The point that the committee is interested in is the jet bomber, the B-47. Here is a modern jet fighter, the F-84, vitally needed in combat. We are in a desperate situation. Suppose we were attacked. You say you went into the C-119's for insurance-that was one of your principal reasons. Did you need insurance so badly on a cargo plane or did you need it on the most vital fighting planes that we have? Our records show that your hurry was in awarding the contract for cargo planes, and not in the fighting or combat types. It certainly makes a very interesting story as to the course of the Air Force in awarding contracts. Whether you were prodded into it or whether you did it on your own judgment or the combined judgment of the group that worked with you on that situation. We would like he records on that developed. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro &d For Release 2003110M OT C R@0346R000400050003-4 I am sorry that you are not familiar with them so that you could furnish them to us at this time. Do you consider that the policy of broadening the industrial base required the creation of second sources even though costs at the second source might be five or more times greater than they were at the primary source? General COOK. In discussing costs again, sir; the starting costs of production on aircraft we know are always higher than the costs that are achieved much later in a program. I do not recall the exact figures but I believe that the original costs of the first few aircraft that were delivered to us by Fairchild were in the neighborhood of two or three million dollars apiece. Therefore, you have got to take the same point on the learner's curve at. each plant and you have to consider what the loading of the floorspace is; the capacity of the tools and tooling, in order to get a direct comparison. Senator DUFF. May I ask a question? The CHAIRMAN. Certainly, Senator Duff. Senator DUFF. Would not the experience of the one place be avail- able for the next place when they were in the learner's condition, so that the second place would not have to go through all the mistakes and experiences and experiments that the first did when they were making their setup? General Cooic. That is only partially true, Senator Duff; the people themselves who do the work with their hands have to be trained to do it. The supervisory people also have to be trained. That takes time, and it costs money. It may be that by hindsight this business of difference in cost does look too great. But at the time that this project was initiated, we had requirements for a much larger number of aircraft to be produced than we have today. The CHAIRMAN. Senator Symington? Senator SYMINGTON. Presumably a lot of this information, all of this information has been. asked, and you will find the answers and submit them for the record. General COOK. Yes, sir. Senator SYMINGTON. You might make a graph showing the costs of the Fairchild plane per numbers, and the cost of the Kaiser-Frazer per numbers. General Cooic. That can be done. Senator SYMINGTON. From what we understand, the cost of the Kaiser-Frazer articles appear to be against the normal concept of the learner's curve. The costs seem to be going up instead of down. Do you happen to know about that? General Cooxc. I cannot give you definite figures, Senator Syming- ton, but I do know that the estimates-from looking over some figures, I do know that the estimates have risen recently. Senator SYMINGTON. Have you seen any evidence that the Fairchild people have not cooperated with Kaiser-Frazer? General Coax. I have not personally seen any evidence that they have not. Senator SYMINGTON. What do you mean by "personally"? General Comc. To my personal knowledge. I have heard rumor- that they did not, but they are just purely rumors. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releas?tIappAN$Ob1 ~g p 64B00346R00040g950003-4 Senator SYMINGTON. You had no complaint made to you by the Kaiser-Frazer people? General COOK. I did have a complaint; yes, sir. Senator SYMINGTON. Who made it? General CooK. I believe it was Mr. Edgar Kaiser. Senator SYMINGTON. What was the nature of it? General CooK. The nature of the complaint, as I recall it, was that they had not gotten engineering information when they required it in order to complete their tooling. But at the time, in all justice to Fairchild, I must say that at the time Mr. Kaiser, as I recall it, said that he did not think that that was too unusual because of normal difficulties of communication between the engineering department of one company and the engi- neering department of another. And this is an unusual situation. Senator SYMINGTONv. Did the Air Force investigate that? General CooK. I believe it did. Senator SYMINGTON. Was a request made to Fairchild that more cooperation or faster cooperation should be given to Kaiser-Frazer? General CooK. To the best of my knowledge a request was made. Senator SYMINGTON. If that is true, and this is the' point of my question, if that is true and there was that type of cooperation, would it not be a less costly operation from the standpoint of your design and tool engineering and shop practices? They had all that for nothing and would not have to learn it. Therefore, would you not expect that the cost of the Kaiser-Frazer plane would be less per unit than the Fairchild plane? General CooK. No, because, under the circumstances I do not believe that would be true because I believe that most of the initial engineering on the C-119 aircraft had already been amortized in Fair- child costs. am not certain about that. Senator SYMINGTON. You would show that in your learning curve graph. You would show the cost while it was being amortized and you would show the cost after it was amortized and then you would also show the recognized additional cost that you felt would be in- cidental to starting a, new plane in a hurry and so forth, that you mentioned as one of the reasons why the cost would be higher. What I think the committee would like to know is whether or not the estimates, the original estimates of the higher costs, first, the justification for them, whether or not the original estimates were far exceeded by Kaiser-Frazer in the operation which is the rumor that we hear. General COOK. May I read some information that I have prepared on that subject? This is a recitation of some factors which are causing higher costs for C-119 airplanes procured from Kaiser-Frazer, and on the same type procured from Fairchild. Senator SYMINGTON. General, I would like to interrupt before you read that, you would have to ask the chairman if it is satisfactory to read it. Secondly, the point is not whether the costs were higher. I think that there has been justification in the testimony that the costs could be higher. The question is whether the amount of the height means that a good job was done, or a poor job was done. In other words, what the chairman has been trying to find out, and counsel, as I have been following it, is whether or not the Kaiser- Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approggd For Release 20 X IAfr: fli ARP 8.00346R000400050003-4 Frazer Co. stuck to what you though the cost would be, or whether there was a wasteful operation beyond what that estimate was-or poor operation would be a better word. I can see why it would be higher, but the question is should it be 5 times as high, or 6 times as high, whatever the differential is. Is that not the question, General?' General Coox. I believe it is. Senator SYMINGTON. If you have anything to show why it is that much higher then -I suggest that you give it. If you have not, I sug- gest you file anything that you have for the record. General Coox:. I believe that this statement that I have can answer some of those questions. The CHAIRMAN. How long is it, General? General Coox:. It is about three and a quarter pages. The CHAIRMAN. We will see if it is pertinent. Go ahead and start.. General Cool?. I believe it is pertinent. The Kaiser-Frazer direct labor man-houurs per airplane are over three times as great due to the fact that they do not have the benefit of learning curve experience which Fairchild has gained on the continuance and repetitive manu- facture of over 500 equivalent airplanes of the same model. This is not a peculiarity of Kaiser-Frazer but would exhibit itself to sub- stantially the same degree with any new manufacturer. The CHAIRMAN. Can you cite other manufacturers that it has applied to? General Coo K. Yes, sir. The CHAIRMAN. Which ones? General Cooi.. It has applied to the F-84F in Kansas City; it has applied to Lockhead at Marietta on the B-47. The CHAIRMAN. Labor costs have run three times as much on the F-84? Is that what you said? General Cooic. No, sir. The CHAIRMAN. What did you say? General Coox. I said this is not a peculiarity of Kaiser-Frazer but would exhibit itself to substantially the same degree with any new manufacturer., The CHAIRMAN. I understood you to say that the labor curve on Kaiser-Frazer was three times that of Fairchild. Is that what you said? General Coox. The direct labor manhours per airplane, that is what I said; yes, sir. The CHAIRMAN. I asked you if there were any other companies where the direct labor hours would equal that. You said the F-84. General Coox. No, sir. I am not sure that they would be three times. I thought what you were referring to was the next statement that I made, that this is not a peculiarity of Kaiser-Frazer. The CHAIRMAN. That would be true of anything. On something new the costs might be slightly more. It is hard to visualize going into three times the cost of labor. General Coox. The variation is especially marked in comparing the producer with Fairchild, whose current direct hours per pound of airframe weight are one of the lowest in the industry. When com- pared to current industry averages of comparable production incre- ments, the Kaiser-Frazer direct manhours are not excessive. The CHAIRMAN. That is quite a statement, General. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2D"A1A11 pWR$4B00346R000400 General Coox. It is the direct man-hours at the beginning of the contract compared to the 500-plane direct man-hour accumulation that I am talking about, sir. The CHAIRMAN. Why is the cost, every time we get a picture of the cost, going higher as the months go on and the costs mounting, if you are talking about it as it applies only at the start? General COOK.- The Kaiser company had just produced a few air- planes on this contract and they really are at the beginning of the con- tract as compared to Fairchild who had been manufacturing the same airplane for a considerable period of time. The CHAIRMAN. How much money have we paid Kaiser-Frazer to date if they are just starting? You say they produced a few planes. The contract is roughly 2l years old. I would like to know, if they just started in and produced a few planes, how much money the United States Government paid them. General COOK. As of the 30th of April 1953, according to our records, incurred costs, which represent payments made, were $150,363,058. The CHAIRMAN. That is a lot of money to pay somebody who is just starting a contract and who has just produced a few planes, is it not, General? General COOK. That is. The CHAIRMAN. '.Phis committee is interested in the Air Force part of this. The Air Force is responsible for the spending of the money. We are having hearings before another committee, a subcommittee, which is part of the committee that the chairman of this committee is also chairman of, and that we will have to pass on, as to whether or not the Air Force budget is a tight budget. If the Air Force itself is not a responsible organization for the expenditure of money, the Appropriations Committee of the United States Senate, which holds the pursestrings in this thing, has to look over the Air Force budget very much more carefully and we cannot go too much on faith. In, other words, the Kaiser costs are high, in my judgment, but after all, the Air Force approved it and we are dealing with the Air Force, are we not? General Coox. Yes, sir. The CHAIRMAN. The Senate of the United States has nothing to do directly with Kaiser-Frazer. We have to turn to you as our agents in dispensing this :money to protect our interests, and therefore we have to have the frank, straight answers from you and we have to see that you are handling the taxpayers' money which we appropriate in a manner in which we get the most planes for the least dollars possible. That is really the objective of this hearing, to see whether we are getting production of the defense items as far as airplane procurement is concerned for the least dollars. Are we getting a dollar's worth of defense for a dollar spent? Therefore, we have to point pretty directly to you and your associates in this respect. Mr. ANTON. General Cook, as of April 30, 1953, can you tell the committee how many planes have been accepted by the Air Force? General Coon. Forty-four airplanes, I am told. Mr. ANTON. The committee has information that to produce those 4 airplanes the number of man-hours it took to do that at the Kaiser- -,atzer plant is four-million-five-hundred-thousand-some man-hours. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 App99ved For Release 2 OPPO1A IIP64BOO346R000400050003-4 Fairchild, on the other hand, we have information, has produced 412 airplanes for 13,933,000 man-hours. What is interesting about this is that at this point the contract at Kaiser-Frazer is about one- third through. Is that not right? About one-fourth through? General COOK. That is so far as deliveries of aircraft, it is. But on man-hours expended it is much more than one-fourth through. It has to be, or the contractor will not be able to complete delivery of the completed aircraft in the next year. The CHAIRMAN. General, I want to go back to some questions Senator Symington asked you. He asked you if you had ever heard of any complaints by Kaiser-Frazer against Fairchild. You said you heard rumors. Later you said that Edgar Kaiser had complained to you directly. That was more than a rumor, was it not? General CooK. Yes, sir. I had heard rumors before Mr. Kaiser came to me. I had heard rumors of it. The CHAIRMAN. Did you ever see the letter from the Kaiser- Frazer people complaining about it? General COOK..1 would have to go through my records at the time. Mr. -ANTON. Did you-ever receive any telegrams or written messages from Kaiser-Frazer complaining about Fairchild? General COOK, :I may have but I would have to go through the records to verify that. The CHAIRMAN, Would you, and see if you received any written or formal complaint? General CooK. Yes, sir. (The statement referred to is as follows:) You have asked whether I ever received a written complaint by Kaiser-Frazer against Fairchild for lack of cooperation. I recall no such written complaint, and a search of our files fails to indicate that I ever received any written complaint. The CHAIRMAN. When Edgar Kaiser complained to you, he did it verbally, I understand? General CooK, As I understand, he did; yes, sir. The CHAIRMAN. Proceed. General CooK. Kaiser-Frazer special tooling which is sufficient to support the originally planned -production rate at Willow Run of almost four times the Fairchild current rate is fully amortized over the initial contract quantity, which is normal Air Force procurement prac- tice. This means, however, that each airplane's cost from Kaiser-Frazer includes over $130,000 for special tools. Had Kaiser-Frazer not been phased-out of C--119 production and the originally planned large follow-on quantities of over 1,000 airplanes been procured, there would be no further charges for tooling. This condition exists now with Fairchild, who have charged off all project tool acquisition costs on previously completed contracts. The basic manufacturing plan, process planning, flow sequence and supporting machine tool requirements in Willow Run were established and physically iniplemented when the required production goal' was to establish manufacturing conditions to support optimum production at a rate of 93 airplanes per month. Such an expanded layout with-production support operations estab- lished for high rate production suffers very adversely in regard to pro- duction overhead when operated at a small percentage of capacity so that the unit cost of each article produced at low rate bears a sl Approved For Release 2003/10/10 : CIA-RDP64B00346R00040Qb50003-4 Approved For Releasel2QOJAI$/1? ,b&J& 4B00346R0004009f 0003-4 burden charge of much higher values than would be experienced at shop load factors more nearly approaching saturation. Fairchild by comparison has a mobilization capacity of only 35 airplanes per month, is geared to a basic manufacturing plan for rates even lower than this, and operates in a total plant area of about 40 percent of the floor space devoted to C- 119's alone in Willow Run. The Kaiser-Frazer organization, at all levels, was to a large degree unfamiliar with the arts and skills peculiar to the production of aircraft. The unit cost of each of the relatively small quantity of C-119's on order includes a significant, but perhaps not directly assessable, cost incurred for training that organization to build airplanes. It is emphasized that this conversion of skills necessarily took place primarily within the incumbent personnel structure, since wholesale proselyting from other manufacturers then performing to their capacity on equivalent or higher priority programs could not be, and was not tolerated by either Kaiser-Frazer or the Air Force. In other words, the C- 119 contract is paying not only for a specific airplane and future potential for that airplane, but it is also serving as a vehicle for paying for the creation of a hitherto nonexistent capacity in being for the supply of any other type airplane the require- ments for which could not be fulfilled in a timely manner from existing sources. Again, in direct comparison to Fairchild, current Fairchild prices include no such costs because Fairchild has had over 20 years' experi- ence as an airplane producer, the last 10 of which have been in rela- tively large volume programs. Kaiser-Frazer wage scales are somewhat higher on a labor area basis than Fairchild's, and it is also quite possible that individual productivity per dollar expended is greater at Fairchild because of their more stable labor market. The cost of plant rearrangement, that is, the compression of an operating automobile manufacturing plant into 40 percent of its original area at Kaiser-Frazer, is entirely charged to the 159 Kaiser- Frazer airplanes. Fairchild costs include no such item since their plant layout has gradually evolved with no radical changes during 7 years of continuous manufacture of the C-119 and its parent, the C-82. In early stages of the program, Kaiser-Frazer quoted delivery schedules which resulted in such abbreviated manufacturing flow times that orderly, balanced, and efficient shop operations were seriously jeopardized. No such condition exists at Fairchild, which is reflective of the relative degree of aircraft experience of the two manufacturers. The configuration of the airplane ordered from Kaiser-Frazer had not been subject to manufacturing proof by the licensor-Fairchild- prior to Kaiser-Frazer's entry into its production. This was caused by a slippage in delivery schedules of the R-3350 engine which did not allow support of earlier phased deliveries of C-119's being produced at Fairchild with that engine. Under the "broad base" program policy of production support, Kaiser was encouraged to subcontract considerable work, and that, I may add parenthetically, is the reason why there is a difference between the red portions on those two models. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appi&ed For Release 260=tlTOr.FCM64B00346R000400050003-4 At that time we were told to broaden the subcontracting base, to get subcontractors into the picture so that more people would be trained in aircraft production and aircraft accessory production. Although their subcontracting was moderate-30 percent of air- frame-in comparison to some programs, it is considerably greater than Fairchild's, and involved the same problems of activation in the subcontractor's plants as were experienced by Kaiser-Frazer in Willow Run. All of the costs of activating these new subcontractors are included in the total cost of the 159 C-119 airplanes at a unit price effect of over $250,000. Kaiser-Frazer's direct labor base for aircraft operations has been almost wholly supported by the C-119 aircraft and concurrent spare- parts program. Fairchild has the advantage of spreading fixed over- head over spares reorders which not only increase the direct shop load but tend to smooth out variations in shop loading. The "stretchout" of the reduced C-119 program at Kaiser-Frazer to maintain a balanced working force availability for the subsequent C-123B airplane, which is still in its early stages, has caused addi- tional charges, primarily in overhead-as a function of time-to the C-119 program which are conservatively estimated at $6 million. This was considered a more desirable alternative than closing down and subsequently reactivating for the C-123 program. In conclusion, there can be little comparison between 2 contractors, 1 operating a large plant at a low rate and the other a small plant at a higher rate; 1 experienced and in going production, the other inexperienced and requiring tooling and training; 1 preparing for a high-peak rate of production as mobilization insurance, the other already in the process of achieving its peak and a considerably lower peak; each with the varying concepts of tooling, overhead, and management common to their particular industry. Even their methods of computing direct labor hours and overhead differ, making costs in this area not comparable. Under the Kaiser contract, the Air Force set out to create new productive capacity and insurance-both for a growing Air Force and for mobilization reserve and not merely a specific quantity of aircraft. Because the original quantity has dwindled and production has extended over a longer period of time, the costs per unit necessarily increase and the costs do not proceed as far down the learner's curve as they would with additional volume. But this is recognizable as part of the cost of buying new capacity. The CHAIRMAN. Mr. Anton? Mr. ANTON. Under the schedules prepared by the Air Force-I want to point that out--at the same point, that is, as of April 30 of this year-Kaiser-Frazer Corp. has expended in man-hours 8,409,287. At the same point under the Fairchild contract, in their operation they had expended 4,223,307 hours, which is approximately one-half at the same point in production phases. That mounts to man-hours? per plane for Kaiser-Frazer of 117,000 man-hours, and for Fairchild of 59,000 man-hours per plane. Can you tell us how many vacation hours are included in the 8,400,000 at the Kaiser-Frazer plant? General COOK. No, sir; I am sorry I cannot, but I can get those figures if there are any vacation man-hours included. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release ~UM'W1 DRcCUPFWP94B00346R00040060003-4 May I ask you a question, Mr. Counselor? Do those Fairchild figures cover a-119 aircraft exclusively? Or do they also cover C-82 aircraft? Mr. ANTON. They cover the C-119. General COOK. Exclusively? Mr. ANTON. Yes, sir. [The committee was advised that records are not available to supply the information requested.] The CHAIRMAN. General Cook, you testified to the fact that on January 5, 1951, you had a letter from the Under Secretary of the Air Force, Mr. John A. McCone, which cautioned you to watch the Kaiser- Frazer contract carefully. You also told the staff that you had received repeated admonitions of a like nature from others. Was this something specially invited to your attention as far as the Air Force contract with Kaiser-Frazor was concerned or did you get similar warnings by letter or otherwise about other contracts which the Air Force had? General COOK. We were continually cautioned about costs. It was one of my major purposes-to see that we could reduce costs. I have on many occasions orally and in writing admonished ourcontractors to watch costs. I have admonished our own people who have the direct responsibility for that, to watch costs. That is not peculiar to the Kaiser-Frazer contract at all. Does that answer your question? Senator DUFF. May I ask a question? _ The CHAIRMAN. Senator Duff. Senator DUFF. It is my understanding, General, that in order to keep track of costs and in order toget some measuring stick to to by, that the Air Force :has a practice of making an estimate at the begin- ning of a contract like Kaiser-Frazer as to what in their opinion under all the circumstances the .costs ought to be. Is that correct? General COOK. Yes, sir. Senator DUFF. When was the first of those made in the Kaiser- Frazer contract? General CooK. The first definitive cost estimates, as I recall, were made sometime around June of 1951. Senator DUFF. What were they? General COOK. The first cost estimate based on the Willow Run situation was the Kaiser Manufacturing Co.'s proposal presented to the Air Force in July 1951. This was the contractor's proposal prepared as a basis for negotiat- ing a definitive contract to supersede the December 1950 letter contract. It was related to the quantity of 200 C-119's and totaled $175,917,- 000, or a unit cost of $879,565. Senator DUFF. Prior to that, in July 1951, at the time that you gave the letter to the Kaiser-Frazer people, proceeding on the basis of your desire to have them make this plane, was there no estimate made as to what the possible cost would be at that time? General CooK. Under normal circumstances, a rough estimate would be made. I would have to go to the records to find out whether or not a rough estimate was made. 34931-53-pt. 1--7 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 App$6ved For Release 21009'A (FRtq3B00346R000400050003-4 Senator DUFF. .1. think it is very necessary, Mr. Chairman, for the record to have the approximate estimate at the original time of entering into this letter of intent as to what the costs are to be. Because by using that base then we would be able to determine not only efficiency of the Kaiser-Frazer contract but also the alacrity with which the Air Force was watching its follow-through. (The statement referred to is as follows:) I indicated in my testimony that the first definitive cost estimate was made in July 1951. I further stated that I would have to go to the records to find out whether or not a rough estimate was made at the time the letter contract was awarded to Kaiser-Frazer in December 1950. We have found no record of an estimate at that time. It is my recollection that at the December 15, 1950, meeting to which reference has been made, there was some discussion of costs, but we have been unable to locate at Air Materiel Command any presentation on this subject. I do not recall whether these costs referred specifically to the C-119 or to the general program which was then under discussion. For the purpose only of reserving funds to permit the contract to proceed until cost proposals could be prepared, a figure of $342,000 per airframe unit was mentioned on January 10, 1951. This was expressly stated to be exclusive of all the starting load costs such as tooling, plant rearrangement, preproduction engineering, and similar costs. The committee has referred to a figure cited in a finding and determination signed by me in February 1951. This figure was $82 million for 176 aircraft or a unit price of $467,193. This figure again was not based on any formal or informal cost proposal received from the contractor. At that early date, Kaiser- Frazer did not have firm subcontract orders or other real bases for cost estimates, and therefore an estimate was based on current Fairchild prices in order to obligate funds for Kaiser-Frazer to place orders for long lead-time items. It ? as realized at that time that the Kaiser-Frazer costs, with the substantial starting load involved, would require substantially more than this amount. Neither of these estimates were related to amounts expressed at any time in the contract itself and were used for 'hiternal administrative use only. As was stated in my testimony, the first real contract estimates were made in July 1951, in the form of a Kaiser proposal. This related to a quantity of 200 C-119's and totaled $175,917,000, or a unit cost of $879,585. This estimate was discussed with and considered unacceptable by Air Materiel Command and as a result, a second proposal was presented in November 1951. This proposal became the basis for the definitive contract as finally approved in May 1952, at a total of $167,991,000, or a unit cost of $839,952. In the spring of 1952, the quantity to be purchased from Willow Run was reduced to 159 andthe delivery schedule was extended along with the stretch-out in all aircraft to extend the production over an additional 9 months. A new proposal was therefore negotiated in the summer and fall of 1952 and resulted in a total cost of $177,505,000, or a unit cost of $1,116,383. All of these figures are exclusive of spares. In December 1952, and again in February 1953, a survey team was sent to Willow Run from Air Materiel Command to make a new estimate. This estimate amounted to $201 million, exclusive of spares. This represents a unit cost of $1,267,665. The total airframe cost, exclusive of tooling and plant rearrangement, was estimated at $997,470, or a total of $158,597,730. Summarizing the situation, it can be said that from the time of the original estimate in July 1951, until the present date, the total program cost has increased from $175,917,000 to 201 million. The CHAIRMAN. In June 1951, when the decision was made to produce the C-123 plane at Willow Run, why was not the C-119 contract canceled at that time? General Coox. As I recall the circumstances, Mr. Chairman, the company had already-the Kaiser-Frazer Co. had already started and had completed considerable plant rearrangement for producing the C-119. They had also commenced to get their organization together to do it. Had we canceled out the C-119 at that time we considered that it would have added considerably to costs that otherwise would have Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2000 Yt1.0?U RD B00346R000400090003-4 been incurred and in addition to that we had a requirement, as I recall the circimstances we had a requirement for aircraft-C-119 aircraft- which could not be satisfied at the rate at which Fairchild could produce them. The CHAIRMAN. During the fall of 1951, when the stretch-out policy was in operation--was first contemplated and then put in operation- was consideration given at that time to the cancellation of the C-119 contract? General Coox. I believe it was. I am not certain of that. The CHAIRMAN. Do you have any particular reason why, when it was considered, it was not carried out? General Coox. The only reason that occurs to me at this time as to why it was not carried out is again a requirement for C-1 19's at a rate greater than Fairchild could produce them, and the still existing requirement for C-123's. The CHAIRMAN. Mr. Anton? Mr. ANTON. General Cook, here is a program schedule prepared by the Air Force, with revisions from time to time made in the contract. Under the original production schedule as contained in the letter contract of December 20, 1950, what was the completion date for the 134 planes in that contract? General COOK. .1 will have to consult the record. The completion date at that time was May 1952. That is of the planes then on order. Mr. ANTON. May 1952 was the completion date? General COOK. Of the planes then on order. Mr. ANTON. When was the first plane completed at Willow Run under this contract? General COOK. May 1952. Mr. ANTON. Originally it was contemplated to complete 134 planes by May 1952, isn't that correct? General COOK. That is correct. Mr. ANTON. Why was there a slippage in the schedule? General COOK. That original schedule was completely unrealistic, which we recognized on the 28th of February 1951. That schedule at that time, the 28th of February schedule, calling for 176 aircraft, called for delivery of 2 aircraft in January 1952. Mr. ANTON. What was the date of completion when the contract was amended on February 26, 1951? General CooK. December 1952. Mr. ANTON. How many planes had been accepted by the Air Force by December 1952? General COOK. Fifteen, according to my records. Mr. ANTON. What was the date for completion when the contract was amended on September 17, 1951, by increasing the number of planes to 200? Genral COOK. March 1953. Mr. ANTON. How many planes have been delivered as of March 1953? General COOK. Thirty-seven-according to my record. Mr. ANTON. Would you explain why these slippages occurred in these schedules? Are all of these schedules unrealistic? Is that the way you make these schedules out? General COOK. I think that if we will go to the record that it can be said that practically all aircraft and a lot of other munitions sched- Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 App4, ved For Release 20 1SM0?4 B00346R000400050003-4 ales at the beginning, are unrealistic, and the reason that they are is because if a schedule is not set up to reach an objective that we feel is a little beyond what the people who have to perform the job say they can do, we will not get what we need when we need it. We are generally quite optimistic about it. This one was subjected to what we called a stretchout as a result of the so-called stretchout which the entire aircraft program underwent in January 1952. That was one of the reasons. Another reason was failure of the contractor to meet his estimates, which is not unusual at all. Mr. ANTON. When was the last realistic schedule proposed, and what was the completion date for 159 planes? General CooK. February 5, 1953, for 159 aircraft, and the com- pletion date on that was scheduled for December of this year-1953. Mr. ANTON. In other words, 2 years after the initial estimate is made, the Air Force is still making realistic schedules. That is actually 26 months. Do you feel, or do you have any knowledge that this schedule will be met? In other words, will 159 planes be delivered and accepted by the end of December of this year? General COOK. I: do not believe that 159 aircraft will be completed by the end of this year. Mr. ANTON. How much longer beyond December do you feel it is going to take to get these 159 planes? General COOK.']. believe that the 159th plane can be delivered during March of 1954-next year. Mr. ANTON. What was the estimate as of January 31 of this year as to what it would cost to deliver 159 planes by the end of December, according to your last realistic schedule? General CooK. According to the last survey that we made of that, which was in February, a group of people from the Air Materiel Command estimated that the total cost of the contract would be $201,558,688, exclusive of spare parts. Mr. ATON. That is for the planes. General CooK. Yes, sir. Mr. ANTON. Does that include the $3 million under the technical- assistance agreement which the Government is paying Fairchild for showing Kaiser-Frazer the know-how? General COOK. No, sir. Mr. ANTON. So that actually makes it $204 million, is that not correct? Roughly $204 million? General CooK. ][f you include the $3 million to Fairchild; yes. Mr. ANTON. The $3 million that Fairchild is being paid? General CooK. Right. Mr. ANTON. That is for 159 planes? General COOK. Correct. Mr. ANTON. Provided that those 159 planes are delivered by De- cember 31. You just told the committee that it would probably take until the end of next March. Is it not true then that that is not a valid estimate, and that the cost will go up because your es- timate is based on a December date, and now you say it is going to take 3 more months to complete this contract? General Coox. It may possibly go up some; yes. But the greater part of the work, Mr. Anton, on the aircraft, will be completed long before the aircraft are delivered, the man-hours. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2A4RPLJ( JT1 QP oCIA-RD P64B00346R0004000550003-4 Mr. ANTON. Is it not true that you quoted a figure of some $160 million as having already been incurred as of around April 30? General Coox. That is correct. Mr. ANTON. Under the estimate that leaves some $40 million in which to complete and deliver 115 planes. Do you believe that that can be done within that figure? General Coox. That is under study now and I am not prepared to say whether I believe it can be done within that figure. The CHAIRMAN. Mr. Rhodes? Mr. RHODES. I have just a couple of questions. I believe yesterday you said, General Cook, that when you participated in the December 15, 1950, meeting that the Willow Run plant had been marked off by your people for bomber production; is that correct? General Coox. As I recall it; yes. Mr. RHODES. They would have been a secondary source for bomber production? General Coox. Yes. Mr. RHODES. As of December 15, 1950, how many second-source contracts had you? General Coox. I do not know how many second-source contracts had been let at that time, Sir. At that time I am sure there had been many decisions made. Mr. RHODES. But the only 2 that you can remember are the 2 that you told the chairman about? General COOK. Yes, sir. Mr. RHODES. I would like to call to your attention a question which you answered as to unrealistic schedules. I believe you said you must take for granted? General Coox. No. I said that that has been our experience. In most manufacturing operations and production. operations it is necessary to set a higher goal most of the time than you are reason- ably certain that you can meet, for obvious reasons. It has not been unusual, though, in this program that we have had for us to have unrealistic, what I term "unrealistic schedules." An unrealistic sched- ule is a schedule that sets a goal far beyond one that you could expect reasonably to meet. Those unrealistic schedules have resulted from several different factors. At the time that these schedules were first made in the latter part of 1950 and the early part of 1951 we contem- plated that we would have some controlled-materials plan that would enable our contractors to get the materials. That controlled-materials plan did not materialize. Other things came into the picture. Mr. RHODES. I believe there are other factors that you may have touched on or probably will touch on that would affect it. The point that I would like to bring to your attention is your testimony of yesterday in which you indicated that there was some question as to how much managerial assistance the Air Force was going to have to lend in this contract, because I believe you said it was a mixed con- tract where there would be production of two things in the same plant? General Coox. Yes, Sir. Mr. RHODES. And that caused you some bother. Therefore, with your familiarity, which you testified to yesterday, of the Willow Run plant and its World War II record, you went into it knowing pretty well what that plant could produce? General Coox. Yes, sir. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Mr. RHODES. How much of that plant were you planning to use in actual production when you set your first schedule at or around December 1950? General Coox. As I recall-and I would not like to be held to the exact figure-it was around 40 percent. Mr. RHODES. You were going to use around 40 percent of the plant? General Coox. As I recall. Mr. RHODES. Sao you went into it with misgivings realizing General Coon. Realizing that we were going to have trouble of some kind. But at the-same time the urgency of the situation was such that we had. to get the planes. Mr. RHODES. I have one other question, Mr. Chairman. You referred in the written statement which you read to the experience difficulty, and this proved a problem to the Kaiser-Frazer people because you said they were an inexperienced organization. I think this runs in conflict to your testimony of yesterday when you said, I believe, that they were picked for the C-119 program because they had had previous aircraft manufacturing experience. Would you want to clarify that? General Coox_ Yes. The top people, as an organization, had had aircraft manufacturing experience. But the management, the people at Willow Run had not had. However, there was some labor avail- able around Detroit that had had previous experience in the old Ford plant. But relatively I would say that they were not. Mr. RHODES. These are all factors that you knew and considered? General Coox. Yes, sir. Relatively they were not as experienced as Fairchild was, for example, or other aircraft companies which were in production. The CHAIRMAN'. Mr. Anton? Mr. ANTON. General Cook, in your testimony yesterday you stated that there were two factors which you had taken into consideration in the procurement of airplanes. Those two factors were facilities and management. Is that not true? General Coox. Facilities, management; yes, sir. Mr. ANTON. You also told the committee that the facilities at Willow Run were excellent. Is that not correct? General Coox.. That is correct. Mr. ANTON. You also stated that you had some misgivings about management at Willow Run due to the mixed-business operation of automobiles and airplanes. Is that not correct? General COOK. That is correct. Mr. ANTON. At that time, since you say that the facilities were excellent and you had some misgivings about management, did you investigate the :history of this management at Willow Run in De- cember of 1950? General Coos:. MayI ask in what manner do you mean, investigate the history of the management? Mr. ANTON. Under the procurement regulations which we were dis- cussing yesterday one of the requirements was that a financial, report should be made on the financial background of the company. I won- dered if you had looked into the company insofar as the history of its background is concerned since you were about to utilize it as a producer of airplanes? General Coox. I am certain that was done at the time. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400Q 0003-4 AIRCRAFT PROCUREMENT yy Mr. ANTON. If you did you must have known that Kaiser-Frazer lost $39 million in 1949 and had lost, as of September 30, 1950, some- where in the neighborhood of $10 million. General Coox. Yes, I knew that. The CHAIRMAN. As far as you were concerned, in going ahead, did you have confidence that you were buying insurance? General COOK. Their losses had been in another type of business, a very highly competitive type of business that they were breaking into, I should say, at the time, or attempting to break into. That fact was known to us. The CHAIRMAN. With the loss of the money. were they financially able to carry on all right at that time? General COOK. Under the arrangements that were made for financ- ing, as I recall it, they were. The CHAIRMAN. What do you mean by the "arrangements made for financing"? Do you mean as a result of advances on the Gov- ernment contract or what? General COOK. I would have to call on some of our financial people to advise on that matter. The CHAIRMAN. Would it have to do with the RFC? General Coox. I am not sure that it would have to do with the RFC. The CHAIRMAN. What we are interested in, General, as you know, is this contract which you said was to provide insurance and what steps you took to protect the Government in awarding a contract to a company, as Mr. Anton said, which had lost money the previous year. What assurance did you have that it was good insurance, with respect to its capabilities to perform? You must have done some in- vestigating of that? General Coox. Our financial expert at Headquarters, Air Force, took steps to see that the Government was protected financially, to the best of my knowledge. Mr. Seftenberg, who is in Headquarters, Air Force, could give more details on that. The CHAIRMAN. So that you did have advice from your financial authority as to their ability to perform so far as the financial aspects of the company were concerned? General Coax. Yes, sir. The CHAIRMAN. From your own people who had made the inves- tigation, headed by whom? What was his title? General Coox. Mr. Seftenberg. He was not in the initial pro- ceedings on this but he later got into the matter. I believe Mr. Loufborrow-I have forgotten exactly who it was who handled that, but I believe it was Mr. Loufborrow at Dayton. The CHAIRMAN. But you at all times, as far as you were concerned, took steps so that you felt in your own mind you were protecting the Government's interests in their ability to perform? General Coox. Yes, sir. Senator BYRD. Could I ask a question? The CHAIRMAN. Certainly. Senator BYRD. Did you. make any unusual advances to the Kaiser- Frazer Co. beyond your ordinary policy? When you made the con- tracts did you make advance payments that you are not accustomed to make? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appr168d For Release 2 0 A 9 R // C J / F Q P J P 003468000400050003-4 General COOK. I do not recall that we did, Senator Byrd. I do not recall that there were any advance payments made. I do recall, however, at the time that in making progress payments the Air Force changed its policy sometime I believe in 1951, perhaps it was early in 1951, to change the partial payment or progress payment percentage from 75 percent to 90 percent of the incurred costs. Senator BYRD. You mean that is before delivery of the planes? General Coox. Yes, sir; before delivery. Senator BYRD. In other words, you paid 90 percent before you tried the planes out to see if they were satisfactory? General Coox. Before they had been flown; yes, sir. Senator BYRD. Is that the customary plan? General Coox. Yes, sir. Senator BYRD. There was no departure from that so far as Kaiser- Frazer was concerned? General Coors. No, sir. Senator BYRD. As I understand the testimony General, it cost the Government five times as much per unit for the planes that were made by Kaiser-Frazer. Is this just one instance of that, or have you other contracts that would indicate the same increased costs? General Coop:. The same degree of difference? Senator BYRD. Approximately the same. General Coox. I do not recall of any other contract in which there was the same degree of difference. Senator BYRD. Do you have any that have other degrees of differ- ence? Say twice as much? This is five times as much. In other words, is that a general practice of the Air Force to make contracts in that way that cost them 4 or 5 times as much as with some established firm? General Coox. Whenever a new contractor is brought into pro- duction, Senator :Byrd, and has to go through the processes of tooling up and learning, the costs may be several times the cost of an item that is being procured from an old established manufacturer who has amortized his costs. Senator BYRD. In other words, you subsidize in a sense a new manufacturer. Does he ever pay any part of that subsidy back when he gets into established production and he gets further con- tracts? General Coox. Regardless of who does it, sir, all of those costs are absorbed. The same thing was done in this particular case. The Government paid all the costs of Fairchild, too, in their initial starting. Senator BYR:o. What do you mean? Do you pay the costs plus profit? General Coox. The Government paid the costs of the develop- ment on the C-82 aircraft which was the predecessor of the C-119; the costs of the development of the C-119, and the tooling and production costs of the airplane itself, and the costs of tooling, the learning costs, were all amortized in the cost of the aircraft. Senator BYRD. Do. you do the same thing with a new company that takes an established model? You are speaking of new models? General Coox. Yes, sir. Senator BYRD. Suppose a model has already been established, that you have the know-how and you know how to do it. Do you still Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2WOWW10RoaPA RS4B00346R00040df.0003-4 subsidize a new company that goes into the construction of an old model that has been tried out and that you know all about? General COOK. Yes, sir. Senator BYRD. So there are two elements to it. One is where you have a new type of plane and the other is where you take a new company that manufactures an old type of plane, and both of them are subsidized? General CooK. In both of them,'the learning costs, the tooling costs, are amortized in the cost of the aircraft. Senator BYRD. I can see some justification for a new type of plane but it seems to me that unless it is a matter of supreme urgency that you should not pay 5 times as much for a plane that has already been manufacture and about which all the technique is known. General COOK. Senator Byrd, we do not want to pay any more than the lowest possible cost that we can get an aircraft or engine for, unless the aircraft or engine cannot be delivered from the low-cost source in time to meet our requirements, and'then we have to go somewhere else. Senator BYRD. Here is the most extreme example, you say 5 times as much. Have you any 4 times or 3 times as much, with other contracts? General CooK. I would have to go through the record to establish that, sir. Senator BYRD. I think, Mr. Chairman, it would be pertinent to this inquiry to see what other contracts have been made along this same line. The CHAIRMAN. I think so, too. Senator BYRD. In other words, any contracts that are in excess of the cost of an established company. I realize there has to be some latitude but when it gets to 4 and 5 times as much I think it is all out of reason. I would like to ask, Mr. Chairman, that a complete statement be made to the committee of any new companies that start to manufacture planes, and what was paid them in excess of some other company that was making them on the same basis, and the reasons for them. (The statement referred to is as follows:) Summary-Airframe cost data, initial quantities for selected airplanes Initial budget estimate Initial contract price Anticipated cost F-84F, Republic--------------------------------------------- $131,954 $195,182 $402,440 F-84F, General Motors ---------------------------------------- 237, 047 671,431 751, 826 F-86F , NAA, Inglewood ----------- ______________________ 208, 531 111, 710 126,785 F-86F, NAA, Columbus--------------------------------------- 309,100 146, 533 191,851 B-47D , Boeing ----------------------------------------- -------- 2,603,378 1,897,413 2,153,140 B-47B, Lockheed--------------------------------------------- 1,777,123 1,933,762 1,862,716 B-47B, Douglas ---------------------------------------- ------- 1,379,312 1,657,014 1,657,014 Senator BYRD. Your contracts are made on a firm basis, are they? And old firm like Fairchild, do they get a firm contract? Do you make a firm contract or is it cost-plus or how is it made? General CooK. There are in general three different types of con- tracts that we use. One is the straight fixed-price contract. That Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appr d For Release 28fl &1'OPrCI* ?1'B00346R000400050003-4 means a flat price where everything is to be delivered. The other type Senator BYRD. That is what I would call a firm price, a definite price, unless there are changes in design. General COOK. Unless we make changes in the statement of work, or of the design of the aircraft. Senator BYRD. Is that a customary method of purchasing planes? General Coox. Unfortunately, it is not. Senator BYRD, "What percentage of them are purchased in that wa? General Coox. The straight flat price? I do not recall of any air- craft that are purchased on the straight flat price basis today. Senator BYRD. 'Then you would eliminate that. That is not one of the ways that you buy them. What is the way? General Coox. The next is a modified fixed price or firm price contract in which, a target price is established initially, and after the contractor has completed a portion of the work under the contract, a fixed price is redetermined. From there on out, from that point on out, the contractor accepts the risk for whatever judgment Senator BYRD. It is to be redetermined on some basis of profit. You have to have some basis of what profit they should have. General COOK. Ordinarily some target profit is set up. Senator BYRD. What is it? What percent? General COOK. It may vary from around 4 percent to 9 or 10 percent. Senator BYRD. 'Why should it vary? General Coorc,. It all depends on many factors, Senator Byrd. One thing that we take into consideration is whether or not the con- tractor is using his own facilities or whether he is in a Government- owned plant; whether or not the machine tools in that plant are his, or whether they belong to the Government; what his net worth is, how much he is risking in the enterprise, the volume of the business' that is being considered. Senator BYRD. What is thehighest percent that you could pay? General COOK. This would be a very rough figure, Senator Byrd. As I recall it some of our aircraft accounts have turned out to be around 9 or 10 percent. Senator BYRD. That is 9- or 10-percent profit on the amount that they received for the plane; is that correct? General Coox. Yes, sir; on cost. Senator BYRn. If a plane costs $100,000 they would make 10 per- cent, or $10,000 profit? General Coox. Yes, sir. Senator BYRD. Out of that profit would the depreciation be de- ducted? Or taxes? Or anything like that? Would it be a net profit? General COOK. No, that is not the net. The net profit runs much lower than that. That is profit before taxes. Senator BYRD. It would be profit after depreciation, though, would it not? General Coox:. If they had depreciation added into it, yes, sir;': that is one of the elements of cost. Senator BYRD. They have depreciation. If they have machinery they have to depreciate. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2i i'4W''1 <cCtA4RDMB00346R000400M003-4 General COOK. That depends on whether they own the machinery or whether the Government owns it. Senator BYRD. In other words, what is known as profit before taxes. General CooK. Yes, sir. Senator BYRD. That is one way. You say you don't buy any of them on a firm basis, any planes. What is the second way that you purchase them? General CooK. The third way Senator BYRD. Make it second, because you have only one. General CooK. Cost-plus-fixed-fee type of contract. Senator BYRD. Explain how that works. General COOK. That is not a cost-plus-a-percentage-of-cost. The Government and the contractor negotiate on an estimated cost. That is a target cost. They decide on a fixed fee on that cost. That fee remains fixed whether or not the contractor's costs are under or over the estimate. Senator BYRD. That is based more or less on a percentage, is it not? General CooK. It is based somewhat on a percentage; yes, sir. If the contractor, of course, runs under for a fixed fee, there has been no change in the statement of work under the contract, then his per- centage is higher, relatively, than if his costs run over investment. The percentage of profit that he makes is higher, relatively. Of course if a change is made in the statement of work, or change is made in design that did not enter into the original estimates, then a fee is calculated on that, also. But if there is no change, there is no change in the fee, regardless of what his costs may be. Senator BYRD. Which plan is the best plan for the Government and the fairest one to the contractor? General CooK. You are asking my opinion, sir? Senator BYRD. Yes. General COOK. In my opinion the best plan for the Government, if we could secure it, would be a firm price contract. Senator BYRD. But you have not made any firm price contracts. General COOK. No, sir. That is my opinion. But there are prac- tical reasons why it was impossible to get any contractors to agree to fixed price, straight fixed-price contracts. Among those practical reasons is the great amount of bank borrowing that they would have to resort to, changes in prices of materials and changes in labor costs that they could not accurately predict in a time of operation on a seller's market, I should say. So that they were not willing to take that risk without way over- pricing what we were trying to buy. So we have had to resort to the other forms of purchase. Senator BYRD. You have the other two forms. Which is the better of the two? General COOK. I believe if a contractor is going to produce a large number of items that the modified fixed price contract is the best one, if he has had experience in the manufacuture of the item, and the only things that he may be hedging against are fluctuating labor and material prices. That is the best, I think, for the Government. Senator BYRD. You explained the second one. How about the third one? Do you think the second plan is the best plan? You call it the second, but it is really the first plan because there are only two plans. You don't use the fixed-price plan. The first plan you think Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appre4fed For Release ,Q"1o 1('i tAA B00346R000400050003-4 is the better plan whereby you let the contract go along and reajdust it from time to time, as I understand it. Is that it? And pay out a percentage of profit? General Cook. Oh, no. It is adjusted at predetermined periods. Senator BYRD. It is adjusted during the time of manufacture? General Coox. 'Yes, sir. Senator BYRD. That is what I mean, it is adjusted from time to time and then you give a percentage profit which you said ran from 4 percent to 5 percent or 10 percent; is that right? General Coox.. Yes, sir; but that is on a target price and not on actual costs. Senator BYRD. That is the second plan? General Coox,. 'Yes, sir. Senator BYRD. ][ want to get them in my mind. The first plan as I understand is a plan whereby you fix a price to start with and then you readjust it during the period? General Coox. Yes, sir. Senator BYRD.. 'Then they get a General Coox. Forward looking. Senator BYRD. 'Then at the end they finally get a percentage based on certain factors such as you say-how much capital they have, and how much business they get from the Government, et cetera? General COOK. No, sir, not at the end. I would like to correct that, Senator Byrd. It is not a cost-plus-a -percentage-of-cost proposition. During intervals or periods in the life of the work that is being per- formed, the contractor estimates what it is going to cost him forward and that is a target estimate, but he is paid a profit on that target estimate. He can reset that target later on but he does not get a fixed percentage on his costs during that period. He gets a percentage based on his estimates during the period. We must agree to those estimates. Senator BYRD. If his estimates are correct, he gets a percentage on the costs? General COOK. Yes, sir. Senator BYRD. In actuality it pretty nearly gets down to a cost- plus basis. You accept his estimate, do you, without investigation? General Coox. No, sir, we do not accept his estimates. Those are negotiated. Senator BYRD. What is the difference between that plan and a straight-out cost. plus? You have the right, of course, after the first estimate is made, to either reject it or accept it. General Coox.. That is correct. Senator BYRD. But he still gets a percentage? General Coox.. He can lose money on one, but he cannot lose money on the other. That is the difference between the two. Except on cost-plus-a-fixed-fee contracts, if the contractor accumulates costs that are not covered in the contract, and he attempts to collect them under the contract, we disallow those costs. Senator BYRD. How could he lose money if you readjust the cost of it during the time that it is being manufactured? He makes an estimate and if that estimate is too low he can ask for readjustment, can't he? General Coox.. Only in forward, not for what he has completed: Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2Q9Ut.Q tO pJe 00346R0004000M&03-4 Senator BYRD. How often can he ask for that?. What percentage of the plane has been completed when he can ask for another estimate, which is what it is. General Coox. Those vary. Normally we set the target at around 30 percent completion of the contract. Senator BYRD. In that case he stands to lose only 30 percent. General COOK. He stands to lose only 30 percent. If he guesses wrong on the additional 70 percent, he stands to lose on that, also. Senator BYRn. As a matter of fact very few would lose on that, basis, would they? General Coox. Not if they are good businessmen. Senator BYRD. Do you know of any that have lost? General COOK. Not offhand. Senator BYRD. Certainly Kaiser-Frazer did not lose, did they? General Coox. I do not think they have lost any yet. But there have been some disallowances. Senator BYRD. I still think that the plan whereby you permit them to refix the estimate upon which they-get a percentage is pretty nearly the same as a straight cost-plus contract. General COOK. On the Kaiser-Frazer contract, sir, that is a cost- plus-a-fixed-fee. That is not the modified fixed price type of contract. Senator BYRD. I understand. I am talking about this particular type. Let's finish on that first. You contend that it is not a cost- plus. Of course it is a modified cost-plus. General COOK. It is a modified fixed-price also, sir. Senator BYRD. It is modified only to the extent that the contractor makes an estimate and then after he completes 30 percent of it he can make another estimate or ask for a reconsideration of it. General COOK. We can do the same thing by another method, Senator Byrd. We can make a series of fixed-price contracts on the same amount of work which would achieve the same result in the end. In other words, if we could assure him legally that he was going to get the whole order-using as an example 100 airplanes-if we could assure him that he was going to get an order for 100 complete air- craft, and then after 30 percent of the work has been done on the 100 aircraft he accepts the risk on the first 30 percent of meeting a fixed price, if we could divide the 100 up into 30, 30 and 40 lots and have fixed price contracts on each one of those lots, we would achieve about the same result. Senator BYRD. It is based on the principle, pretty much, of a cost-plus contract; percentage plus cost. It is on that basis, but it is not entirely so. It is modified. General COOK. It is based upon the principle of not paying in- ordinate cost prices for something that the contractor feels that, in order to enter into a fixed-price contract for, he must set an excep- tionally high price on in order to protect himself against rising costs of materials and labor. Senator BYRD. I can see it is better than a straight cost-plus, but it is somewhat along the same basis. The second plan, the fixed fee, is that the one you prefer? General COOK. No, sir; I don't prefer that one. Senator BYRD. Which one do you prefer? The one we have just been discussing? General Coox. I prefer the No. 1, fixed price. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Apprved For Release 2igff1Wli%b EWR64B00346R000400050003-4 Senator BYRD. T'here is no use talking about that because you have not made any contracts on fixed price. Let's eliminate it. Have you any idea that you will make a contract on a fixed price? General Coox. Not under the circumstances. Senator BYRD. Then let's not talk about it. Let's talk about something realistic. Let's not talk about something that never happened yet and that you do not think will happen. General COOK. It has happened in the past, sir; years ago. Senator BYRD. But you have just said that you do not expect it to happen, so I do not see why we should confuse this inquiry by brining that in. Explain the 2 that you think are going to happen within the next 12 months. Let's confine it to that. Which one do you think is the better for the Government? General Coox. I believe that the best one for the Government is for a large quantity of aircraft to be produced by a contractor who is an experienced aircraft contractor, with a modified fixed price form of contract. I believe that is best. That is the first one that you and I have been talking; about. Senator BYRD. That is better than the fixed fee? General Coox. Cost-plus-fixed-fee, yes. Senator BYRD. With cost-plus-fixed-fee, no matter how much it costs, the fixed fee does not change, is that correct? General Coox. That is correct. Senator BYRD. You have to fix the fee when you first start. General COOK. That is a fixed fee; yes, sir. Senator BYRD. What protection have you got that the costs are not unduly excessive or that companies that manufacture automobiles, like Kaiser-Frazer- General COOK. We place auditors in the plant. We have residencies established in the plant, inspectors, auditors, contracting officers, whose duty it is to watch these costs. What it really amounts to, I believe, finally, is that the Government really retains a contractor to operate a plant for the Government. Really that is what it gets down to. But as his costs are incurred, he submits invoices. For example, material is shipped in to his plant. He submits the invoice to the resident auditors and inspectors who check to see whether or not the material actually was received, and then that invoice is paid by the Government. Senator BYRD. Paid direct? General CooK. It is paid to the contractor by the Government. He in turn pays his supplier. That is, roughly, the mechanics that are followed. Senator BYRD. In a plant like Kaiser-Frazer that has another business, like the automobile business, how do you divide the plant and figure the depreciation that is chargeable to the airplane and the part that is charged to the automobile production? General Coox. Our intention is to charge, on the depreciation and the overhead and. maintenance and other costs that may be incurred in the plant, only that part which is properly chargeable to the air- plane production . Senator BYRD. Is it possible to do that? General Coo:K. Yes, sir; it is possible. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releaj,1Nt@ud?P64B00346R000'A050003-4 Senator BYRn. Did Kaiser-Frazer send in any bills or statements that you thought were excessive along those lines, or not? General COOK. I believe that Kaiser-Frazer has submitted invoices. Senator BYRD. I am advised here that Kaiser-Frazer, in this plant, have 65 percent charged to airplanes, of the entire plant overhead, labor formula and depreciation, and for automobiles only 35 percent. Is that a fair distribution, or not? General COOK. It depends upon the work that is done, Senator Byrd, in that plant. I would have to ask our auditors to testify on that. Senator BYRD. It seems to me that is a pretty important factor in this particular contract, with 65 percent charged to airplanes-I know nothing about it. They are making automobiles also. General COOK. Yes, sir; they are. Senator BYRD. It may be excessive. All that is gone into, then if they bill the Government in excess of what you think it ought to be, you don't pay it? General Coox. No, sir; that is disallowed. Senator BYRD. Don't you pay it and then disallow it later? I saw some figures. General COOK. The, usual procedure is to disallow it and not to pay it. Senator BYRD. Isn't it true that Kaiser-Frazer was paid some money that they are now supposed to pay back to the Government, that had been disallowed after the Government paid it? General COOK. I do not know whether that is correct or not, sir. Senator DUFF. I think it is important, General, at the hearing tomorrow that we have those figures on your first estimates of cost. That is going to be the basis upon which observations can be made as to your familiarity with the overall picture at the time that you made those estimates, and that would have some bearing on the overall operation all the way through. I think it would be fine to have that the first thing. I would like to ask you, in view of the questions yesterday and today, whether it is not a correct observation that in considerable part very grossly excess costs are charged as a result of not having any fixed long-range policy, this hurry-up business, like this job was here, if it had not been hurry-up, but had been a part of a policy to provide a certain type of plane over a period of years, that you would not have been subjected to the excess costs that you have in this situation? General Coox. Senator Duff, that is very, very true. I feel- may I expand upon that? Senator DUFF. Yes, I would like to know. General COOK. I feel that the United States has been subjected to the unnecessary expenditure of, I will say, billions of dollars be- cause of the fact that the aircraft production and all munitions pro- duction-I will not stick to aircraft production alone-that the pro- extremely low at one time and high at another time, and haste alwaamyis cost money. Regardless of how efficient people may be, waste always accom- panies haste. Sometimes it is very discouraging to those of us in the military service who are conscious of what these things mean in cost, to be placed in the position where, to get the aircraft, the equipment, Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 ApprovWor Release 200 1AtCl Q0346R000400050003-4 the munitions that we are sure are needed to protect this country, it costs us unnecessary money. Senator BYRD. In other words, -regular contracts and regular orders would get you lower prices? General Coox. Oh, yes, sir. Senator BIRD. The manufacturing plant would adapt itself? General COOK. Yes, sir. Senator DUFF. That kind of program would save billions of dollars in the Air Force in the protection of the country? General COOK. In the long run it would, sir. I will expand on that and say that it not only would apply to the Air Force but to the other Armed Forces as well. Senator DUFF. Mr. Anton? Mr. ANTON. General Cook, in view of the discussion this morning regarding the slippages in the production schedules, in the semiannual report of the Secretary of the Air Force for the period January 1 to June 30, 1952, it is stated: In January 1952 the armed services agreed upon a basic policy for terminating defense contracts under which production had not been completed. This policy provides guidance and procedures for the termination of contracts entered into under the Armed ServicesProgram Act of 1947. Will you explain why it was not applied to the contract for the 159 C- 119 airplanes which had been awarded to Kaiser-Frazer? General COOK. That policy applies to the complete termination of aircraft or a contract for any equipment. There was not a complete termination at Kaiser-Frazer, to my knowledge. There was at Park Ridge, with Fairchild. Mr. ANTON. What do you mean by "complete termination"? General COOK. The contract was not canceled. Mr. ANTON. I believe the committee would like to know why this policy was not implemented. If you will recall the question, the question was that the policy was laid down for termination of the contracts which had not been completed. These schedule slippages indicate that the contract is not being completed at the time it was supposed to have been completed according to your schedules. General COOK. We still needed the aircraft and we were quite certain that we would get the aircraft. Also we thought we needed the capacity at the time. It was not our desire to terminate at that time. Mr.ANTON. Then the issue is that capacity General COOK. We would have applied that policy to that contract had it been terminated. Mr. ANTON. Then the issue is that actually plant space was what you needed and what you were going to keep regardless of the cost? General COOK. No, sir. We needed the aircraft also. Senator BYRD. When was the last contract made with Kaiser- Frazer? General COOK. There was only one contract made. Senator BYnD. In your programing do youintend to make further contracts with Kaiser-Frazer? General COOK. For these C-119 aircraft? Senator BYRD. Are you going to make any further contracts on the same basis that you now have? Approved For Release .2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releas I Qj1 04'%(~J DP64B00346R000400050003-4 General COOK. At the present time I do not know of any that are contemplated, no. Senator BYRD. In other words, you do not expect to use the Kaiser- Frazer plant although you have practically CooK. Oh, yes, sir. This C-119 aircraft production that is being accomplished at Willow Run at the present time will be followed by production of some C-123 aircraft in the same plant. Senator BYRD. What kind of contract will you make then? General COOK. As far as I know it will be the same contract as now. Senator BYRD. In other words, you will continue to pay 6 or 7 times as much to Kaiser-Frazer as you do to some other plant? I am wondering when you are going to stop subsidizing Kaiser-Frazer. There ought to be some time when they are subsidized enough, espe- cially in view of the fact that they have got tremendous Government loans, starting with $89 million. Are you going to make the same kind of contracts with Kaiser- Frazer whereby it costs six times as much as it does in other plants? General CooK. The contracts that we will make, sir, will be what we consider the most advantageous to the Government. Senator BYRD. You said, as I understood you a minute ago, that, you were going to contract in the same manner as you did in the past. General CooK, We might consider that the most advantageous to the Government. Senator BYRD. Certainly it has not been advantageous in the past, has it? Anything that costs 5 or 6 times as much as another plant -that puts out the same plane I do not call that very advantageous. General Coox. Those figures, sir, are based upon low-volume pro- duction. I would expect the costs to go down as this company proceeds with its contracts. Senator BYRD. It certainly should go down, should it not? General COOK. Yes, sir. Senator BYRD. Can you furnish the committee a statement of what you have programed for Kaiser-Frazer from now on? General COOK. Yes, sir. Senator BYRD. And what would be the total cost of the planes and how long you expect delivery on them to take and so forth? General Coox. Yes, sir. (The statement referred to is as follows:) The program for Willow Run as it has been developed is for the completion of the present 0-119 contract and for the major portion of the production of C-123's which has already begun and which will be completed on present sched- ules in January 1955. A change in the C-123 program is presently under study, but the present C-123 situation, as reflected in existing contracts, is as follows. The Air Force entered a letter contract with Chase Aircraft Co., Inc., under date of March 12, 1951, initially for necessary preproduction engineering on this airplane. On June 5, 1951, the production of C-123's was ordered under this contract. A definitive contract superseding this letter contract was negotiated and was finally approved on February 17, 1953. This contract now calls for 243 C-123 aircraft, a static test article, spare parts, special tools, training parts and units, engineering services and handbook data. One aircraft has been built by Chase Aircraft under this contract. Further deliveries begin in September 1953. The contract is an incentive type cost-plus-a-fixed-fee contract entered into with a target cost of $225,873,282, wihch covers not only the airframes but the tooling, spare parts, starting load of subcontractors and other such items. Of course this estimated amount will be revised if there is a reduction in the present program. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro 14 For Release 20OV4 T:IMOP 4500346R000400050003-4 Chase Aircraft Co. has a subcontract with Willys Motors, Inc. (formerly Kaiser Manufacturing Co.), under which the major portion of the work will be done at Willow Run. Although it cannot yet be determined exactly what portion of the costs are allocable to the work done by Willys Motors, Inc., this portion will be substantial, as the initial tooling and the subcontractor's starting costs will be incurred by Willys Motors under its subcontract. Senator BYRD. You expect to continue to use the plant? General COOK. Yes, sir. Senator BYRD. In about the same measure that you are now using it? General COOK,. Yes. About the same. Senator BYRD. Could you make some estimate of how much more you would have to pay Kaiser-Frazer for these future contracts than you would some other company that is operating more economically? General COOK. We cannot make accurate estimates at this time on that because the plane that they are to build is one that has not been manufactured in quantity before. Any estimates that we make on that would be nowhere near as accurate as estimates that could be made on other types. Senator BYR:D.. It seems to me that this has been unduly costly with Kaiser-Frazer. I can understand it costing twice or three times as much. When it gets to 5 or 6 times as much, that is getting into a field that you should look into. If it is unduly costly and if it is inefficient and not managed properly, I do not see why you should continue to give a contract to a company that will cost 5 or 6 times as much as another manufacturing plant. There must be a time coming sometime where either Kaiser-Frazer- get efficient or they will never get efficient. Is that correct? General COOK. Yes, sir; that is true. Senator BYRD. Has that time come yet or not? General COOK. We expect it to come. Senator BYRD. I hope it will come someday. That is all that I have Mr. Chairman. Senator DUFF. We will stand adjourned until 10 o'clock tomorrow morning. (Whereupon, at 12:03 p. m. the committee adjourned, to reconvene at 10 a. m., June 5, 1953.) Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 AIRCRAFT PROCUREMENT FRIDAY, JUNE 5, 1953 UNITED STATES SENATE, PREPAREDNESS SUBCOMMITTEE No. 1, ARMED SERVICES COMMITTEE, Washington, D. C. The subcommittee met, pursuant to adjournment, at 10:05 a. in., in room 212, Senate Office Building, Washington, D. C., Senator Styles Bridges (chairman), presiding. Present: Senators Bridges, Flanders, Duff, and Symington. Also present: Fred Rhodes, chief counsel; James Anton, special counsel, and Harold M. Devlin, accountant. The CHAIRMAN. The committee will come to order. At the outset the Chair would like to make an observation which was touched on at our hearings yesterday. For the purpose of emphasis, so that there will be no doubt as to the desire of the com- mittee, these hearings have been slowed up by reluctance to answer questions. There have been all too many statements that information would have to be secured for the record. I would like to point out that these hearings come as no surprise to the Air Force. Our staff has kept the Air Force informed regarding the matters which this committee desired to pursue. Long conferences have been held, and there has been ample opportunity for the Air Force to prepare. This investigation has been going on since the fall of 1952, and by June of 1953 there is no excuse for witnesses failing to respond to basic questions which relate to matters of this importance. Several significant points were brought out in yesterday's testimony. I expect that all of these points will be amplified and developed in the hearings today and next week, but I would like to comment here on two of these points in particular. General Cook asserted that Kaiser-Frazer was only a beginner in its C-119 contract. He further said that this beginner had already received in excess of $150 million since December 1950. It occurs to me that, after spending 30 months and $150 million of Government funds, a company should be doing more than just starting in perform- ing their contract with the Government. General Cook also made the statement that practically all aircraft schedules are unrealistic. This is an admission which should be of great interest not only to this committee but to all Members of Con- gress and the taxpayers at large. It is about time that we stopped kidding ourselves and found out the truth about our aircraft program. We have heard a great deal about the purchase of insurance. I believe in insurance, but I also believe that the American public should not have to pay a greater price for insurance than is necessary Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approjf6jj For Release 20Q3AlNJj : 1 j 4 O0346R000400050003-4 to provide the desired protection. The American taxpayers are be- coming more and more aroused to the threat of national bankruptcy. There is a reason to be alarmed when hard-earned tax dollars are spent imprudently and with little or no thought to the impact of careless extravagance on the country's economy. Senator Byrd expressed my thinking very well yesterday when he said, "I realize that there has to be some latitude, but when it gets to be 4 and 5 times as much, I think it is all out of reason." There has been some question about the actual figures involved in the C-119 contract at Willow Run and the C-119 contract at-Hagers- town. We have with us the resident auditor from Willow Run and the supervisory accountant for the eastern procurement region. Both of these men are Air Force employees and I believe that we will hear from them today. Following the auditors, the committee will hear from Gen. K. B. Wolfe, former Deputy Chief of Staff, Materiel: General Cook has asked us for permission to make a statement. We will be very glad to hear from you.. TESTIMONY OF LT. GEN. ORVAL R. COOK, DEPUTY CHIEF OF STAFF, MATERIEL, UNITED STATES AIR FORCE---Resumed General Coo K. Mr. Chairman, before I make the statement I would like to amplify on my statement that I made yesterday about unrealis- tic schedules. I believe that that statement requires clarification. My intention was to emphasize the fact that in the beginning new schedules generally have been found to be unrealistic, not after we have accumulated a. certain amount of experience in production by a contractor. If I may, I would like to read my statement. The CHAIRMAN. Certainly. General Coox. Mr. Chairman and members of the committee, be- fore completing ray testimony I would ask the privilege of placing this. brief statement in the record. May I assure the committee that the Air Force and myself per- sonally are anxious to present all figures and facts as requested by the committee as soon as possible. To that end the record of these hearings is being studied and will be studied. Under conditions as they were and are, I believe it was right for the Air Force to rush the establishment of a second source for the C-119 airplane; and I know that any fairminded person will agree it was only natural for the first planes produced from this new second facility to have cost more than those planes which were coming from the previously established facility. The margin of that difference, however, is another matter; and one we have been looking into with apprehension and regret. Our records show that the original estimated contract cost for the C-119 from the Kaiser-Frazer facility was some $840,000 per plane on a lot of 200 planes. This figure included roughly $130,000 per plane for tool-amortization cost; and $250,000 per plane for sub- contractor buildup. It is our understanding now, however, that the current estimated cost by the contractor for each of these planes is over $1,200,000 with a strong possbility that that figure will be further increased. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releas~JQQOW/?QQf&4?QW4B00346R000400003-4 The Air Force is disappointed, therefore, in the performance of the Kaizer-Frazer operation. We have been attempting to hold these costs down to the best of our ability. That has been somewhat difficult because of the constant reprograming and replanning the Air Force has been forced to under- take during recent years. In consideration of the cost of this operation I would respectfully request that the performances of the some 2 dozen other airplane facilities now producing for the Air Force be given that consideration by the committee which the committee feels proper. The Air Force appreciates the interest of this committee in this matter; and we will. do our best to keep all production costs to a minimum. We believe that our airplanes. in the future will be purchased at greater value to the taxpayer as a result of the committee's interest. Thank you, Mr. Chairman. The CHAIRMAN. Thank you, General Cook. We will call Mr. M. F. Mautner to the stand now. Will you raise your right hand? Do you solemnly swear that the testimony you are to give will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. MAUTNER. Yes, sir. TESTIMONY OF M. F, MAUTNER, SUPERVISORY AUDITOR, EASTERN DISTRICT HEADQUARTERS, AUDITOR GENERAL, USAF The CHAIRMAN. Your full name is what? Mr. MAUTNER. Maximilian F. Mautner. The CHAIRMAN. You work for the Air Force as supervising auditor? Mr. MAUTNER. I am a supervisory auditor attached to the eastern district headquarters of the Auditor General, USAF. The CHAIRMAN. The committee would like to ask you, Mr. Maut- ner, some questions about the C-119 planes. How many contracts for the production of the C-119 planes have been awarded to Fairchild by the Air Force? Mr. MAUTNER. Four contracts in all, to date. The CHAIRMAN. How many C-119 planes were awarded under each contract? Mr. MAUTNER,. Contract W33-038-ac-19200. Mr. ANTON. Is that C-82 or C-119? Mr. MAUTNER. C-119. W33-038-ac-19200 called for 412 planes. Contract AF-33(038)18499 called for 440 planes. AF-33(600)22285 was a letter contract and I understand that a definitive contract is now in the possession of the contractor but has not yet been signed. That is my last understanding. It called for 146 planes. Then there was a contract which was to be formed at Park Ridge calling for 165 planes which was terminated in January 1952, without any deliveries. The CHAIRMAN. Will you explain to the committee the type of contract awards under the original contract 19200 and under the present contract 18499? If Mr. MAUTNER. The two contracts which were definitized were what we call firm fixed-price redeterminable contracts. The first contract, 19200, called for price revision retroactively after the 36 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Apprlygd For Release 20AWM49 p JR? 00346R000400050003-4 planes had been delivered, and at the same time prospectively for the runout portion of the contract, and other price redeterminations during the course of the performance of the contract at the call of either the Government or the contractor, but such price redetermination would be made prospectively and not retroactively. The CHAIRMAN. What date did the production under the original 19200 contract begin, and what date was the last plane delivered to the Government? Mr. MAUTNER. Production on the 19200 began late in 1947. The first delivery was made in April 1949, and the last plane was delivered in November 1952. Mr. ANTON. How many planes were delivered under that contract? Mr. MAUTNER. 412. The CHAIRMAN. What date did production under the present con- tract 18499 start, and how many planes were completed at the date of the last price redetermination? Mr. MAUTNER. - It is difficult to state just when production started because the two contracts were being produced simultaneously. The first plane was delivered in September 1952. At the time of the price redetermination in March and early April of this year 188 planes had been delivered. Mr. ANTON.Do you know what the price, the redetermined price for this plane is at the present moment? Mr. MAUTNER. On the forward quantity? Mr. ANTON. Yes. Mr. MAUTNER. The forward quantity was negotiated at a price of-that is the run-out quantity of 252 planes to come, was negoti- ated at a price to the Government of $265,067 per plane. The CHAIRMAN. Mr. Mautner, have you got a schedule which could be put in the record at this time indicating the cost of the tech- nical assistance given to Kaiser-Frazer by Fairchild to April 30, 1953, or the last date that you had, in accordance with the terms of the contract between the Air Force and Fairchild? Is this it? Mr. MAUTNER. This is the statement, sir. The CHAIRMAN. Would you identify it, and if that is the correct statement, we will put it in the record. Mr. MAUTNER. Yes, sir, it is. The CHAIRMAN. It may be a part of the record at this point. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releasgl0~la6xq;&~64B00346R0004PR50003-4 FAIRCHILD AIRCRAFT DIVISION, FAIRCHILD ENGINE AND AIRPLANE CORP. Cost to the Government of parts and other assistance furnished to Kaiser-Frazer through Apr. 30, 1953 14 ship sets of parts Airplane parts: Labor hours-------------------------------- Labor; dollars ------------------------------- Overhead---------------------------------- Material---------- ------------------------- Subcontract__------------------------------ Subtotal ------------------------------- General and administrative expense-------- Total cost-------------------------------- Profit---------------------- --------------- $266, 972 402,327 635, 209 112, 414 1,416,922 67,729 1,484,651 148,465 16 ship sets of parts I $76, 815 112,150 185,031 105, 773 470,769 18,471 498,240 49,824 Replacement parts $30,893 45,104 81,878 62,294 220,169 8,526 228,694 22,870 Selling price of parts--------------------- 1, &33,116 548, 004 261, 564 Other assistance: Year 1951------------------------------------------------------------------------------ Year 1952 ------------------------------------------------------------------------------ January through April 1953------------------------------------------------------------ Total assistance to K-F through April 1953------------------------------------------- Total assistance to K-F by years: Year 1951------------------------------------------------------------------------------ Year 1952.---------------- ----------------------------- ----------------------------- January through April 1053------------------------------------------------------------ Total assistance to K-F through April 1963------------------------------------------- $374, 680 559,581 902,118 280,481 2,116, 860 94,725 2,211,585 221,159 812, 824 411, 566 61,334 1,275,724 2,445,940 1,174, 309 88, 219 PRIMING PARTS FOR KMC EXCLUSIVE OF PARTS REQUESTED ON CALL CONTRACTS Fourteen ship sets The 14 ship sets of priming parts included 2 sets of major assemblies and 3 sets of subassemblies. '.Phis order started in April of 1951. Approximately 90 percent of the details were taken directly from stock and subassemblies and major assemblies were shipped according to schedule. There were a total of approxi- mately 350,000 pieces shipped and 98 percent of all shipments, including details, had been made by October 1951. Sixteen ship sets The work on the 16 ship sets was started March of 1,952 and approximately 90 percent of these pieces were shipped directly from stock. The total number of pieces shipped was approximately 361,000 and shipments were completed in April 1952. The CHAIRMAN. Please explain this table to the committee, explain- ing the amounts for parts furnished Kaiser-Frazer and other assistance given. Mr. MAUTNER. The amount of the assistance given by the delivery of parts and assemblies totals $2,432,744. Other assistance rendered was $1,275,724, making a total of $3,708,468. I think the other assistance represented technical assistance, engineering services, and so forth. Mr. ANTON. Under this schedule that you have there, isn't it indicated that there were 14 ship sets parts delivered, and also 16 ship sets parts delivered? Could you explain that those 14 ship sets parts consisted of, and how they were delivered? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approir4d For Release 2001ttld ADr: eR N 0346R000400050003-4 Mr. MAUTNER. There were 14 sets of certain parts of assemblies necessary for the production of a complete plane, not the complete sets. There are certain parts and assemblies. Mr. ANTON. Would you call those major assemblies? Mr. MAUTNER. I would call those major assemblies, yes. Mr. ANTON. 'Those major assemblies were shipped by Fairchild to Kaiser-Frazer so that they became part of the first 14 planes? Mr. MAUTNER. Yes, Sir. Mr. ANTON. Is it true that Fairchild took those sets right out of its inventory and shipped them to Willow Run? Mr. MAUTNER. I understand that is where they took them, out of the inventory. Mr. ANTON. All in all there are 30 ship sets parts. Mr. MAUTNER. Yes, sir. Mr. ANTON. Plus many other parts? Mr. MAUTNER. Yes, replacement parts. The CHAIRMAN. Mr. Mautner, did you, at the request of the committee, prepare a schedule which can be inserted in the record at this time indicating, (a) the total unit cost for the first 71.4 C-119 planes produced by Fairchild under the original contract No. 19200, and (b) the total and unit cost for the first 159 planes, C-119s, pro- duced under this contract, and (c) the total and unit cost for the 412 C-119 planes produced under this contract? Mr. MAUTNER.. Yes, Sir. (The material is as follows:) - Fairchild Aircraft Division, Fairchild Engine c~ Airplane Corp.-Contract T+33-038 ac-19200 cost to the Government of the 1st 71.4, 159, and 412 C-119 airplanes Airplane manufacture: Labor hours---------------------------------------- Labor dollars------- -------------------------------- Overhead------------------------------------------- Material-------------------------------------------- Subcontract---------------------------------------- Flight test------------------------------------------ Subtotal------------------------------------------ Engineering and experimental---------------------- Tooling --------------------------------------------- Preproduction-------------------------------------- Subtotal------------------------------------------ General and administrative_________________________ Total cost----------------------------------------- Profit----------------?---------------------------------- Selling price-------------------------------------- Average unit selling price_______________________________ Unit airframe weight, pounds___________________________ Dollars per airframe pound----------------------------- Ave rage unit production hours__________________________ Unit airframe weight (less subcontract) pounds--------- Hours per airframe pound (less subcontract) -___________ Total, 71.4 airplanes $5,580,355.14 7, 406, 445.45 6, 845, 055.74 327, 319.51 491,773.35 20,650,949.19 2, 832, 358.68 3, 861, 611.61 72,670.64 27, 427, 590.12 1, 793, 798.36 29,221, 386. 48 2,922,138.71 32,143, 525.19 $450,189 27,207 $16.55 59, 150 23,942 2. 47 Total, 159 airplanes $9,752,696.57 12, 642,131.25 15, 217, 612.49 770, 329.48 792, 991.28 39,184, 661.07 3,651,317. 81 4,414,199.40 72, 670.64 47,322, 848.92 2, 844, 864.17 50,167, 713.09 5,004, 538.40 55,172,251.49 $346, 995 27,988 $12.40 45, 383 23, 700 1.91 Total, 412 airplanes $20,274,371.22 28, 433,146.67 40, 846, 251.20 4,944,900.78 1,741, 960.41 96,240, 630.28 5,983,162-24 6,923, 691.06 72, 670.64 109,220,154.20 5,537, 668.84 114,757, 823.04 10,851, 214.51 125,609,037.55 $304,876 28,462 $10.71 33,820 22,564 1.50 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10: CIA-RDP64B00346R0004ff50003-4 AIRCRAFT PROCUREMENT The CHAIRMAN. Mr. Mautner, will you explain this schedule to the committee, generally, indicating the total and unit costs, for the 71.4 planes and the 412 planes produced under the contract? Senator FLANDERS, May I inquire why the decimal? The CHAIRMAN. That is what I am inquiring about. Will you explain that before we go forward? Mr. MAUTNER. I understand that the production of Kaiser-Frazer, or the costs of production of Kaiser-Frazer, represent the equivalent of 71.4 planes. The CHAIRMAN. Do you mean Fairchild or Kaiser-Frazer? Mr. MAUTNER. Kaiser-Frazer, the production to a certain date represented the equivalent of 71.4 airplanes. Senator FLANDERS. I don't want to fly that .4 plane. Mr. ANTON. Is it not true, Mr. Mautner, that by "equivalent planes" that does not mean planes already accepted, or out of the door, but parts in process that would equal 71.4 planes as of April 30 this year? Is that correct? Mr. MAUTNER. Yes, sir. That is the work performed. * What factors were used in arriving at that, I do not know. The CHAIRMAN. Will you explain, indicating the costs for the 71.4 planes, 159 planes, and 412 planes produced under the Fairchild contract? Mr. MAUTNER. Yes, sir. The cost to the Government on the first 71.4 airplanes was $32,143,525, showing an average unit selling price of $450,189 per plane. Mr. ANTON. That included all preproduction costs; did it not? Mr. MAUTNER. On that contract; yes, sir. Mr. ANTON. It included all tooling; did it not? Mr. MAUTNER. On that contract. They might have had some tooling from the previous contract. I would not know what they would use on that. The CHAIRMAN. Now, the 159 planes. Mr. MAUTNER. The 159 planes showed a total cost to the Govern- ment of $55,172,251 with an average unit selling price of $346,995. The CHAIRMAN. And the 412 planes? Mr. MAUTNER. On the total contract the cost to the Governemnt was $125, 609,037, with an average unit selling price of $304,876. The CHAIRMAN. Did you, at the request of the committee, prepare a schedule which can be inserted in the record at this time indicating, (a) the total and unit costs for the first 188 C-119 planes produced under Fairchild, under the present contract 18499, and (b) the rede- termined total cost and unit price for the remaining 252 C-119 planes to be produced under this contract, and (c) the total cost and the average unit cost for the total 440 C-119 planes to be produced under this contract? Is this the schedule? Mr. MAUTNER. That is the schedule; yes, sir. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approge For Release 200 AQ 9ffiRPfh ,PP0346ROO0400050003-4 FAIRCHILD AIRCRAFT DIVISION, FAIRCHILD ENGINE & AIRPLANE CORP.-CON- TRACT AF33(03S)-18499, COST TO THE GOVERNMENT OF 440 C-119 AND R4Q AIRPLANES Prices through change order No. 21 plus revisions negotiated in the 2d redetermination conducted in March 1953 [This contract is a follow-on to contract W33-038-ac19200 which covers the procurement of 412 C-119 and R4Q airplanes] Total, 1st 188 airplanes Total last 252 airplanes Total, 440 airplanes Labor hours------------------------------- Labor dollars-------------------------- --------------------- $7, 072, 265 -------------- -------------- Overhead----------------------------------------------------- 10,619,367 ------------ -------------- Material------------------------------------------------------ 19, 110, 821 -------------- -------------- Subcontract-------------------------------------- ----------- 4,302,792 -------------- Flight test ---------------------------------------------------- 663,020 -------------- Subtotal------------------ -------------------- ------ 41, 758, 265 -------------- Engineering and experimental-------------------------------- 859,205 -------------- Tooling --------------_ ------------------------------------- 1,085,277 -------------- -------------- Subtotal ----------------------------------------------- 43, 702, 747 General and administrative ___________________________________ 1,729,183 Total cost ---------..------------------------------------- 45, 431, 930 Profit-------------------------- ---------------------- 3,644,387 Selling price-------------------------- ----------------------- 49,076,317 $66,796,861 $115, 873,178 Average unit selling price------------------------------- 261, 044 265,067 263,348 Average unit airframe Weight ------------- ----------- pounds- - 28, 554 28,891 28,747 Dollars per airframe-pound----------------------------------- $9.14 $9. 17 $9.16 Average unit production -hours ___________________________ 21, 784 -------------- -------------- Unit airframe weight (less subcontract)--------------pounds-- 21, 058 20,892 20,963 Hours per airframe-pound------------------------------------ 1.03 -------------- -------------- I In accordance with the terms of the contract, the last 252 airplanes were redetermined on Mar. 20, 1953 (60 days prior to the scheduled delivery date of the 189th article). Prices shown are the redetermined prices although an approved supplemental agreement covering these prices had not been executed as of the prepara- tion of this report-Apr. 23, 1953. No detail by elements of cost is available as the redetermined price was negotiated on a package basis and not by elements of cost. The CHAIRMAN. Will you tell us the cost of the first 188 planes? Mr. MAUTNER. The cost to the Government was $49,076,317, showing an average unit selling price of $261,044. The CHAIRMAN. Will you tell us the redetermined unit price for the 252 planes to be completed and the date of the last determination? Mr. MAUTNER. The 252 planes constituting the runout portion of the contract were negotiated at $66,796,861, with an average unit selling price of $265,067. That would make a total for the entire contract of 440 airplanes of $115,873,178, with an average unit selling price of $263,348. The CHAIRMAN. Will you inform the committee the cost to the Government for each Fairchild C-119 plane under the last price redetermination again? Mr. MAUTNER. That is the runout portion of 18499, which con- situtes 252 airplanes, and the price, the redetermined price was $265,067 per plane. The CHAIRMAN. Just one other question. In your position as auditor for the Air Force in the eastern district, did you ever receive any complaint that Kaiser-Frazer was not getting cooperation from Fairchild or that Fairchild had been uncooperative in furnishing the know-how to Kaiser-Frazer? Mr. MAUTNER. Yes, there was some talk of that-and of shipping improper parts. What the outcome of the investigation was, I do not know. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2 C 0 0 3/10/11 gd \ F64B00346R0004 50003-4 The CHAIRMAN. It was not made to you personally? Mr. MAUTNER. Not to me personally. The CHAIRMAN. You did not get any letter or telegram or no one ever came to you personally? Mr. MAUTNER. No. I officially did not receive any notification. The CHAIRMAN. Senator Duff, do you have any questions? Senator DUFF. No question, sir. The CHAIRMAN. Mr. Rhodes? Mr. RHODES. No, sir. The CHAIRMAN. Thank you very much, Mr. Mautner. We will call now on Mr. Sidney C. Solomon. Do you solemnly swear that the testimony you are about to give will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. SOLOMON. I do. TESTIMONY OF SIDNEY SOLOMON, RESIDENT AUDITOR, AUDITOR GENERAL, KAISER-FRAZER RESIDENCY The CHAIRMAN. Mr. Solomon, what is your full name? Mr. SOLOMON. Sidney C. Solomon. The CHAIRMAN. What position do you hold? Mr. SOLOMON. Resident auditor, auditor general, Kaiser-Frazer residency. The CHAIRMAN. Are you a certified public accountant? Mr. SOLOMON. Yes, sir. The CHAIRMAN. How long have you been working for the Air Force in an accounting capacity? Mr. SOLOMON. Since 1941. The CHAIRMAN. Mr. Solomon, will you please inform the committee what the costs per plane will be as estimated by the Willow Run Air Force Audit Section at the request of the Air Force contracting officer under the Kaiser-Frazer C-119 contract and the total amount for the 159 planes? Mr. SOLOMON. The total expenditures estimated for the 159 planes, by me, are $212,923,341. The CHAIRMAN. What would that be per plane? Mr. SOLOMON. That figure, divided by 159, would equal $1,339,140 cost to the Government per plane. The CHAIRMAN. May I point out that one of the purposes of this committee is to bring out whether or not excessive costs have been incurred here in the procurement of these planes. I point out that the testimony just given us shows that the cost of the C-119 produced by Kaiser-Frazer is $1,339,140, as contrasted with the same testimony this morning by another auditor of the Air Force for Fairchild of $265,067. Do these figures include the cost of the technical-assistance con- tract between the Air Force and Fairchild amounting to $3,708,468, as of April 30, 1953? Mr. SOLOMON. No, sir. The CHAIRMAN. They do not? So that actually it would be substantially more per plane than the figure you gave us, if those were included? Mr. SOLOMON. Yes, Sir. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approq For Release 200 A{1pl: qA[R0346R000400050003-4 The CHAIRMAN. The Air Force's estimate to complete this con tract for the 159 C-119 planes is $212,923,341. For approximately the same figure the Government has received the following from Fairchild: The Fairchild Hagerstown plant building, including machinery and equipment; the design and engineering from the ground up of the first Fairchild cargo plane; 3 experimental cargo planes; 219 C-82 cargo planes, including tooling; 360 C-119 cargo planes, including tooling; a total of 582 cargo planes. In addition, the Government still owns the-Fairchild Hagerstown. building, including machinery and equipment. Will you please put the copy of your estimate into the record so that we may have it? Kaiser Manufacturing Corp., Willow Run, Mich.-Total contract costs as estimated by .AF accountant-Contract No. AFSS(038)-18481 Tota (159 shi l ps) Production materials --------------------------------------- ___________ $14,368 ,938 $90,371 Directlabor----------------------------------------------------------------- 28,474 ,992 179,089 Factory burden --------..---------------------------------------------------- 87, 520 , 468 550, 443 Engineering----------------------------------------------------------------- 4,695 ,942 29,534 Administrative-------------------------------------------------------------- 9,012 ,046 56,679 Subcontracts------------------------------------------------------- --------- 36,187 , 711 227,596 Production estimated costs, airplanes -________________________________ Special tooling ---------- ._ 19,353, 892 121, 723 Plant rearrangement --------------------------------------------- ----------- 2,400, 333 15,096 Portable tools--------------------------------------------------------------- 1,793, 931 11, 283 Subtotal---------------------------------------------------------------- 23, 548, 156 148,102 Contract clause 4 (no fee items)______________________________________________ 3,038, 567 12,821 Subtotal--- ----------------------------------------------------------- 206, 846, 820 1,294,634 Fixed fee---------------------------------------- -------------------------- 7,076, 521 44,506 Total estimated costs (excluding spares)_______________________________ 213, 923, 341 Spares cost and fixed fee ------------------------------------------------------ 10, 070, 784 The CHAIRMAN. Mr. Solomon, when was a permanent residency established at Willow Run to administer the audit under the C-119 contract? Mr. SOLOMON,, April 1951. The CHAIRMAN. When you first set up the Air-Force Audit Section under the C-119 contract at Willow Run, did you disagree with the methods being employed by Kaiser-Frazer Manufacturing Corp. with respect to the allocation of costs under the defense contract? Mr. SOLOMON;. Yes; at the initial stages I disagreed with the method of allocation of the preproduction costs. The CHAIRMAN. Will you please explain to the committee the nature of the disagreement which you had with the methods of alloca- tion being employed by the Kaiser-Frazer Manufacturing Corp.? Mr. SOLOMON,. At the initial stages of the contract the only type costs that ever was extended by Kaiser-Frazer under the contract was overhead in nature. Naturally there was no production and after review by my office we determined that certain charges were arbitrary and Kaiser-Frazer had not firmed up on a firm method of allocation. In reviewing it after our initial review, we discussed the matter with top management at Kaiser-Frazer and they concurred in a revised Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releasep 1/11 QI4 j> fi P64B00346R0004@ 050003-4 method wherein certain departments not rendering any service at the earlier stages of the contract-- Mr. ANTON. In other words, is it not true that automotive costs were being charged to the defense contract? Isn't that what you mean to say? Mr. SOLOMON. In effect. The only activity in there was automo- tive. So any allocation, improperly, or that we disagreed with, would naturally be automotive costs. The CHAIRMAN. What was the amount of these so-called improperly allocated costs for the first quarter of 1951, before you had set up your audit section at Willow Run for the C-119 contract? Mr. SOLOMON. The difference between the contractor's book costs and the Air Force audit costs under the C-119 program amounted to $406,000. The CHAIRMAN. How much was the total dollar amount charged to the C-119 program at Willow Run for the first quarter of 1951? Mr. SOLOMON. The original book figures amounted to $1,154,778. The CHAIRMAN. How much would you say, then, were the improper allocations challenged by you for the first 3 months under the contract for the C-119 airplane at Willow Run? It would amount to what percentage of the dollar value, or dollar amount? Mr. SOLOMON. $406,000, or 35 percent of $1,154,000. Approxi- mately 35 percent. The CHAIRMAN. Then you had to challenge 35 percent of the total costs as being improperly allocated to the C-119 in the first 3 months of 1951? Mr. SOLOMON. Yes, Mr. Chairman. Kaiser Manufacturing Corp., Willow Run, Mich.-Detail on recorded costs before audit and after audit period: Jan. 1, 1951-Mar. 31, 1951-Contract No. AF33(038)- 18481 Supply contract: Direct charge overhead___________ $269,631.01 $256, 215.53 $3,315.48 Allocated overhead_______________ 186, 754.70 302, 023.64 (115, 268.94) Subtotal, overhead______________________________________ 440, 285.71 558, 239.17 111,953.46) Direct costs----------------------------------------------- 0 183, 078.89 183, 078.89) Subtotal, supply--------------------------------------- Facilities contract: Direct charge overhead----------------------------------- 152, 693.09 152, 603.00 Allocated overhead_______________________________________ 60, 625.29 60, 525.29 Subtotal, overhead-------------------------------------- 213, 218.38 0 213,218.38 Direct costs ----------------------------------------......- 495,274.32 7,452.73 487, 821.59 Subtotal,facilities -------------------------------------- Total, supply and facilities------------------------------ I Parentheses denote credit. NoTH.-Above figures do not include any costs or audit adjustments applicable to the reinstallation o automotive facilities (460,000 work-order series). The CHAIRMAN. What were the total charges made by the con- tractor against the C-119 contract at Willow Run as of May 31, 1953? Mr. SOLOMON. Approximately $162 million. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro For Release 200W9W05. Ctc#M0346R000400050003-4 Kaiser Manufacturing Corp., Willow Run, Mich.-total incurred costs and fixed fee as of May 31, 1963-contract AR 33 (038)-18481 Actual costs incurred as of Apr. 30, 1953 (does not include un- audited liabilities) ------------------------------------- $157, 272, 765.26, Add fixed fee as accrued by contractor--------------------- 51500:837.00 Total actual incurred costs and fixed fee as of Apr. 30, 1953--------------------------------------------- 162,773,602.26 Estimated costs incurred during May 1953, per contractor-_-- 5, 389, 952. 37 Add estimated fixed fee accrual --------------------------- 267, 866.00 Total estimated costs and fixed fee for month of May 1953---.----------------------------------------- 5,657,818.37 Total estimated incurred costs and fixed fee as of May 31,1953-.--------------------------------------- 168,431,420.63 No2Es.-(1) Above figures do not include provision for unaudited liabilities. The amount of,unaudited liabilities as of May 3L, 1.953 was not available. (2) Above figures represent all costs incurred under Contract AF 33 (038)-18481, including the spares program and production material purchased but not yet released to the production line. The CHAIRMAN. Have you by your auditing processes been able to be sure that no automotive costs were improperly allocated to the C-119 contract since you set up the audit residency at Willow Run? Mr. SOLOMON. Under the selective-audit procedure in effect it is my opinion that no costs not allocable to defense contracts have been reimbursed. The CHAIRMAN. If you had not set up your auditing procedures and the same percentage of automobile costs had continued to be improperly allocated to the C-119 contract at Willow Run as was done the first 3 months, this would run pretty high, would it not? Mr. SOLOMON. Yes. The CHAIRMAN. Under the same proportion, what would it have run? Mr. SOLOMON. In effect you are asking what is 35 percent of $162 million? I would say it is approximately $56 million. The CHAIRMAN. That is something that the Air Force should be commended for, for sending an auditor to the Willow Run plant and making sure that the taxpayers of the country were not forced to absorb automobile or automotive costs under this. I am delighted that you were on the job, Mr. Solomon. Mr. SOLOMON. Thank you. The CHAIRMAN. In addition to the improper allocations that you referred to, have you found any other improper costs being charged to C-119 contracts at Willow Run? If so, will you briefly describe them to the committee? Mr. -SOLOMON. Some, yes; there were additional adjustments during the life of the contract. May I say, sir, that the CPFF contracts, in those contracts we normally do find, with all contractors, adjustments. Did you want a description of some of these? The CHAIRMAN. Yes, so that the committee will be informed. What else did you find that you considered of an improper nature? Mr. SOLOMON. There was the question of vacation payments, fur- ther explanation of vacation payments adjustments, which would be personnel working in one division earning their vacation in that divi- sion and moving into the aircraft area and being paid in the aircraft area and charged to the aircraft. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaseI20 Ok' IDC1c l DP64BOO346R0004WQQ50003-4 Inasmuch as their earnings, the vacation was actually earned in the automotive or other areas, the actual payments should have been charged to that phase instead of to defense. The CHAIRMAN. In other words during the period where they earned the vacation, they were working in the automotive section of Kaiser Frazer? Mr. SOLOMON. Yes, sir. The CHAIRMAN. Then they transferred to the section making C-119's. Then they took the vacation and then there was an attempt to charge the cost of the vacation into the cost of the C-119 airplane when it should have been properly charged to their automotive section. which is the period they worked when they got the vacation? Mr. SOLOMON. Where they earned their vacation. Mr. ANTON. What is the total amount that was disapproved by you for vacation payments? Mr. SOLOMON. $715,631. Kaiser Manufacturing Corp., Willow Run, Mich.-Summary of suspended, dis- approved, and nonallowable costs, including cost of Edgar Kaiser's open letter published in reply to Senator Styles Bridges-As of Feb. 28, 1953, contract No. AF 33(0,38), 18481 Suspended costs: Pending proper documentation ------------ $24,544.92 Pending proper approvals----------------- 45, 775. 61 Total suspended costs-------------------------------- $70,320.53 Disapproved costs concurred in by Kaiser: Labor: Vacation payments - - - - _ - $715,631.44 Other labor costs adjust- ments---------------- 213, 885.95 Miscellaneous: Payroll taxes -------- 100, 829. 63 Duplicate charges ();ur- den and direct) -------- 612, 347. 90 Other burden adjust- ments----------------- 505, 652. 99 Direct charges reac- counted-------------- 87,161.60 B. Kaiser's Senator Bridges letter.. _ - - - _ - - - 4,864.65 Total concurred in by Kaiser------ 2, 240, 364. 16 Not concurred in by Kaiser: Burden adjustments due to shifting of vaca- tion hours in burden bases-------------- 350,281.29 Total disapproved costs---------------------------- 2, 590, 645. 45 Nonallowable costs (note 1) : Interest expense -------------------------- $1, 362, 267. 76 Dedication of first C--119 airplane --------- 61, 620. 65 Traveling and entertainment expenses----_- 72, 533. 12 Miscellaneous expenses------------------- 132, 038. 85 Total nonallowable costs----------------------------- 1, 628, 460. 38 Total suspended, disapproved, and nonallowable costs---- 4, 289, 426. 36 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approl d For Release 200NI : Ak ' rWTi?00346R000400050003-4 Mr. ANTON. Could you explain in this schedule what you mean by a disallowance for payroll taxes? Or rather, a disapproval for payroll taxes? Mr. SOLOMON. All payroll taxes incidental to any disallowed or adjusted costs had to follow along with the adjusted costs. If we eliminated $100 of payroll as nonallowable, and if payroll taxes equal 5.3 percent of that, we would remove 5.3 percent or $5.30 from payroll taxes from aircraft to nonallowable. Mr. ANTON. In other words, that would be tied in somewhat with the vaction payments when you disallowed certain payroll expenses? Mr. SoLOMO:v. Yes, sir. Mr. ANTON. What about the duplicate charges amounting to $612,347? What does that consist of? Mr. SOLOMON. Basically charges that were made indirect charges. Being a CPFF contract, claims are made periodically, weekly, month- ly, et cetera, as a direct charge to contract, as well as overhead alloca- tions. In a stream of recordings quite often the charge will be sub- mitted to us for direct reimbursement and also would be found in the overhead allocation. These are charges of this nature. Mr. ANTON. There is an item in your schedule entitled "Edgar Kaiser's Letter to Senator Bridges." Would you explain to the committee why that was disapproved and what that was all about? And the amount? Mr. SOLOMON. The amount disapproved is $4,864.65, and covers Edgar Kaiser's open letter to the newspaper answering Senator Bridges. The CHAIRMAN. In other words, the letter Edgar Kaiser wrote me protesting because I issued a public statement, he inserted as a public advertisement in newspapers in my State and all over this country, and he attempted to charge in to the cost of the C-119 planes? Is that correct? Mr. SOLOMON. A portion of it. The CHAIRMAN. What portion? Mr. SOLOMON. It would probably be about 65 percent. The CHAIRMAN. Why do you suppose he decided 65 percent of the attack on me was chargeable -to the C-119 planes and 35 percent was not? Mr. SOLOMON. That was based upon the fact that it went into the overhead pool.. At that time our portion of the allocation within that pool was approximately 65 percent. The CHAIRMAN. It would be rather costly to run airplane contracts with companies, for the Air Force, and the taxpayers, if we had to be charged for letters to Senators who made comments on the costs of producing planes. That is a new wrinkle at least. Mr. ANTON., In this schedule, Mr. Solomon, there is an item called nonallowable costs. These costs are contract costs, is that right? Are these costs contract costs or are they not? Mr. SOLOMON. From an accounting standpoint they are contract costs, but not reimbursable. Mr. ANTON. Listed under these nonallowable costs you have the following items: Interest expense, dedication of first C-119 airplane, Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releas2,399BJ0%t~ CIRDP64B00346R0004H850003-4 traveling and entertainment expense, and some miscellaneous expenses. As I look at this interest expense, I believe that is interest on RFC loans, the Government mortgage on the building, and on the V-loan. When the contractors sat down to discuss these with you, what was your decision as to the allowability of these costs? Mr. SOLOMON. That these costs, in my decision, based upon the armed services procurement regulations and equitable distribution, the fact that these costs were not allowable and the contractor agreed- although from an accounting standpoint it was necessary to allocate all costs, allocable costs to all projects-that they would book it as nonallowable and not claim reimbursement. Mr. ANTON. What is the total amount that you have disapproved or not allowed under this C-119 contract to date? Mr. SOLOMON. $4,289,426, which incidentally is over 60 percent of their fee. Mr. ANTON. Would you tell the committee whether or not the con- tractor has concurred in these disallowances and disapprovals? Mr. SOLOMON. Not with all of them. Mr. ANTON. How much has he not concurred in? Mr. SOLOMON. $350,000, approximately. Mr. ANTON. Out of a total of $4,289,426, the contractor has not concurred in some $300,000 worth of disallowances, is that correct? Mr. SOLOMON. That is right, sir. Mr. ANTON. Did you prepare at the committee's request a schedule showing the original definitized contract amounts for the C-119 con- tract, awarded to Kaiser Manufacturing Corp., and itemized subse- quent changes in this contract amount which can be inserted in the record at this time? Mr. SOLOMON. Yes, Mr. ANTON. Would you identify this as the schedule for insertion in the record. Mr. SOLOMON. Yes, sir. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approy For Release 200 %: f,6c~,00346R000400050003-4 s s $so s :? :?s Ho 9 d 9 9 9 9 E 4 N m N. gg N8 N V l o ooh o ~ s S i S i$ .OiO C~ ~ S N N NN W ' "' y v] 00 000 w M O pppp yy pp . u'+ O e pp 00 OOO e~p ~ pnp ' 0 4 N m $ S O O O W n n ti Iti n `_ ~ I n ti ti ti $ $$$ ? odco ` w o tiN mng ncv m y $ .n "'m'" m- ao~ N o m$ ~$ Mc"'o p d O 0) N v M N by C5~ ~~ ,ny .n-i ' T ,ti .y - d ~O U - + 8 _ pp 8 - O -0 O O O O ^J ^ a C Fll O 0 N i N N N N N Q~ N N Q ~ N - m p ~ CV p ~ m ~N9 Q~ ~N,~ I ; oars _ .y ~I ' ~,' ~ P e?JU~pco- ~ o o t o o o rn o c . Z I { n rn w rn rn rn d {'"' O ~j Cl C1 i pv N Q ~ N N ~'J arJ u'J Sri ' _ y O _ y ~ H3 -d HW 1 N I` rD t0 t0' ~O __ O S r O 0 S ~" O O O O bA o0 O p o p p ` ' 'I N ?~ ~ ni .n+ .nr .nr .OW ~epM y~ cD ~y, ~p aO CDONW Cry ~p t~V m t0 pi O gciL 0 o C' -64.6 Qi g~gg~e o6 co 8? 8 C"J ~ ti O CV GV ~ O n-i t> .i N' ti U b? 0 16 04.~O iby0 GO P 00d y p A Ob U W'O 00 y d N+'+',~ ? . 4 .R~ p~~ gaoQO m ocp b~ ~ 0 F qoq ? F ?~ 4-. g F '30 Hro ~ ~ P .n WA P -WAW FAn AF ~p W Approved For Release 2003/10/10 : CIA-RDP64BOO346ROO0400050003-4 ApprovpggFor Release 200,VJ@f1 t C } i Q0346R000400050003-4 EXHIBIT I Chase Aircraft Co., Inc., consolidated with major subcontractor Kaiser Manufactur- ing Corp., estimated cost comparisons-244 C-128 airplanes Negotiated costs Production costs: Production material_________________________________________________ $22,308,348 $17,517,736 Subcontractors csts-_______________________________________________ 43, 470, 093 44, 470, 052 D rectlabor--------------------------------------------------------- 20232,459 22,566,584 Manufacturing expense______________________________________________ c 41:035,680 50,239,112 Production engineering______________________________________________ 7, 561,134 5,294,800 Administrative eacpense______________________________________________ 16, 265, 098 6,049,004 Home office expense------------------------------------------------- ---------------- 1,486,204 Total production costs_____________________________________________ Nonrecurring costs (including major subs): Project tools and purchase designs----------------------------------- 24,771,342 30, 776,690 Basic engineering -------------------------------------- ------------ 4,337,905 4,733,600 Plantrearrangement ------------------------------------------------ 17,409,059 7,450,052 Total nornecuning costs___________________________________________ Total costs----.--------------------------------------------------- 177,391,018 190, 284, 740 Fixed fee ---------------------------------------------------------------- 9,662,888 9,662,888 Estimated contract requirements__________________________________ 187,053,906 200, 247, 628 Unit requirements ------------------------------------------------------- 766,014 820,687 c The amount included in "Rearrangement expense" includes transfers of funds (estimated:by AMC) from "Manufacturing;, administrative, and home office expense accounts" to cover nonrecurring starting costs. 2 Includes addition ~l tooling to meet peak rate increase of 10 per month from 25 to 36. EXHIBIT J C-123 SCHEDULE FORECAST The C-123 schedule, currently called for in WA-20, provides for delivery of the second,and subsequent airplanes (243) from Willow Run on the following schedule which represents an approximate 6 months' slip from the negotiated contract schedule and increases the contract schedule peak of 25 per month to 35 per month so as to attain total inventory requirement of C-123 airplanes (on contract and pending) at a date approximately the same as that which would have been attained had this program not been subject to prior slippages. 1953 1954-Continued September-----..--------------- 1 June----------------------- -- 19 October-------...-.-------------- 1 July-------------------------- -22 November-----. ---------------------- 2 August------------------------ 25 December ---------------------- 3 September------------------ -- -28 October----------------------- 31 1954 November--------------------- 34 January -------.--------------- February------- --------------- December------------------ -- 26/9 March--------..--------------- 1955 Apri1---------.--------------- May------ ---..--------------- January-------------------- -- 35 The additional increment of 10 airplanes per month follows the same initial acceleration and to attain 35 per month instead of 25 per month is not cotlsidered a major problems, provided the initial delivery rate can be met. This schedule is an extremely tight one, both from the standpoint of initial delivery require] cent and subsequent acceleration. As of the date of this survey, it still appears to be attainable insofar as Willow Run effort is concerned, and the survey team recommends that no change be made, unless subsequent review indicates some slippage in detail schedule elements which would prevent its attainment. Factors pertinent to this recommendation are: Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaseA20M#0/14oc fi3 364B00346R00040M0003-4 (a) Cost forecasts are highly dependent upon schedules. It will be cheaper .for the Air Force to pay for overtime and other premium production make ready expense now than to allow a general slip in this schedule with the attendant increase in overhead incurrence over an extended time period. (b) A realistic tool tryout program based on schedule requirement can meet the manufacturing requirement dates for the balance of the Willow Run un- screened tools. (c) Willow Run assemblies for the No. 2 airplane are on schedule, and if West Trenton promise dates are met, fixture loading will be substantially on schedule. The subsequent manufacturing atd assembly schedule allows reasonable time for assembling of a first airplane. (d) That portion of detail manufacture required for lot 1 and 2 airplanes (4 and 10 airplanes respectively) is on or ahead of schedule. (e) C-119 lots 6 and 7 are being combined in fabrication to allow additional machine loading capacity for C-123 parts. It is recommended that a detail production progress reporting system, preferably in graphic form be established by the C-123 project office which will portray both West Trenton and Willow Run progress on an integrated basis against the required index schedule. This should be reviewed on not less than a monthly basis from the date of this survey and substantiated by actual plant verification as necessary. By such action the continuing supportability of this schedule can be determined and a proper decision made as to whether a subsequent reschedule is necessary. EXHIBIT K CORRECTION OF PRIOR DEFICIENCIES The following is a list of deficiencies summarized by the November 1952 survey team for which specific corrective action was requested of the contractor in exhibit C, along with a brief summary of corrective action taken as of the date of this survey. .1. Contractor's inability to forecast and maintain realistic manufacturing schedules Substantial progress has been made in correcting this deficiency. The so-called Jones schedule which is the pickup schedule laid down by Kaiser Manufacturing Corp. in early January 1953 to allow completion of the C-119's by December 31, .1953, appears to be realistic in relation to their attained and potential shop per- formance. As of the date of this survey, the contractor was on or slightly ahead of this schedule in all manufacturing departments. Realistic scheduling ability is generally dependent upon proper interpretation of past performance on similar jobs. The contractor now has methods of reporting shop performance and appears to be willing to use this factual information rather than quoting impossible target schedules. Realization of schedules depends upon an adequate production con- trol system with sufficient check points therein to forecast and isolate delay factors early enough to allow corrective action. Continuing improvements in this production control system are being made although its current status is probably acceptable as a minimum. The C-119 program will still be accomplished more on a "brute force" shop loading basis than is desirable, since the past sins cannot be entirely washed out by a relatively newly installed system. The C-123 production planning, scheduling and control requirements should, however, have the benefit of a workable system which can maintain balanced shop loading. General relations with the collective bargaining group give the general appearance of overall improvement. 2. Lack of control of labor and overmanning This prior deficiency has been subject to major corrective action and can be subject to still further improvement. A greatly accelerated tempo of production operations is visible in the factory, and this observation is readily verified by comparison of work output versus direct labor available. The slowdown of deliv- eries to fill up the factory pipeline has had a major effect since the shop is now pushed from fabrication and there are no open work stations. By rigid enforce- ment of move schedules and a steady availability of parts and assemblies, the available labor is forced to work by schedule which probably produces better labor utilization than any amount of direct supervisory pressure in this particular shop, if not in general. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Apprq,gi@d For Release 200W&H aC M 8tB00346R000400050003-4 The following tabulation portrays the general reduction in manpower in the facility during the 90-day interval between the two Headquarters AMC surveys. It is interesting, to note that automotive production has remained practically constant, C-119 production has substantially doubled and the C-123 started in fabrication concurrent with this personnel reduction: Direct --------------- ---------------- 2301 , 3,885 1, 595 (-706) I 3, 486 - (-399) - Indirect--------------- ---------------- 4 , 436 8, 610 3,884 (-552) 7,650 (-960) Total ---------- . -- 6, 737 12, 495 5, 479 (-1,268) 111, 11,136 i(-1,359) Ratio indirect direct-------------------- 1. 93 2.22 2 44 2.19 Total employment----. ---------------- 19,232 16,615 (-2, 6 17) NOTE. -Parenthetical figures show reduction in 90 day period surveyed. 8. Substandard o ,erall product quality control - Specific actions accomplished to improve quality levels are as follows: (a) Application of floor inspection to each operation on a "first-piece" basis before running the entire lot of part . Although about one-half of 300,000 parts in process were built prior to the institution of the system, a noticeable effect on parts quality lies already been evidenced by this inspection breakdown. The so-called 100 percent crib inspection, (a complete finished part inspection on a lot sampling basis) will be continued as a check on the successive operation inspection, but may eventually be reduced in scope as the earlier inspection gains full force. It appears also that lower inspection skills can be used on such an inspection breakdown. Since application of this inspection philosophy,: initial rejection rates hove risen which does not indicate poorer parts being produced, but does indicate that defective items. are being found much earlier in the: manu- facturing cycle with consequent reduction in rework and repair cost:. The scrap rate has reduced from nearly 10 percent to about 6 percent. (b) Tool quality and coordination, which basically determines parts quality has improved to a minimum acceptable level on the C-119 program more or less by schedule generated force. It appears that further improvements: on the C-119 will not be great due to the limited production run outstanding. The C-123 tool progi-am holds promise of causing much less trouble than has the 0-119, because of the following features: (1) Tool subcontracts were for a complete family of tools required to pro- duce a detail part, and wherever possible, the tool vendor was required: to fur- nish the tool family with associate drawings and templates for build of .a proof part from the tool at a central point. (2) Approximately 5,000 of the 9,500 detail parts required have the first lot run completed and 1,100 more are in first fabrication run. The remaining tool families are being subjected to a rigid screening check with priority geared to manufacturing sequence requirements before release to shop. (3) The assembly tools appear to be of excellent quality and the mastering program should assure assembly coordination. The only deficiency in this area appears to be the major concentration of work in the fuselage assembly: fixtures which will have to be subject to continuing scrutiny to determine if further subassembly breakdown can be made. - (c) Tool control problems have been greatly lessened by the simple expedient of storing detail tools for a particular cost center in a crib immediately adjacent to the using shop. Furthermore, all templates required for a shop order are released with the order and material and stay with the job until inspection is complete in the 100 percent crib. - - (d) The "cab'i)age patch" of semiprocessed and unidentifiable parts has been cleaned out. To prevent its recurrence, the production control system has gone to the extreme of providing individual pasteboard tote boxes for all parts in process, with the shop- orders and templates traveling in the same. box. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release < /A*o>;t MR64B00346R0004Q(TQ50003-4 EXHIBIT L PROBLEMS OP THE GENERAL NATURE CONCERNING THE CHASE-KMC-KF PROGRAM 1. The question of the financial capability of Kaiser Manufacturing Corp. and Chase to perform, as related to the overall Kaiser-Frazer financial adequacy, cannot be determined until or unless balance sheets and profit and loss statements of December 31, 1952, and January 31, 1953, are made available to AMC. On Friday, February 27, Messrs. Miller (vice president) and Hollis (comptroller) deferred furnishing such figures pending outcome of directors' meetings being held in New York City. Attention is called to the fact that certain allocable overhead (manufacturing, administrative, and home office expense) is charged to automotive and aircraft on the basis of direct man-hours expended in those divisions. Reduction of automo- tive man-hours because of one 2-week and one 1-week shutdown or curtailment of operations in January and February 1953 are reflected in the higher percentage of overhead chargeable to aircraft operations during those months. Fu+ure curtailment of automotive production will have a similar effect on aircraft costs. In view of the continuing losses in the automotive division, and the consequent shrinkage of a large part of the value of the Kaiser-Frazer guaranty, additional working capital is required to insure completion of existing contracts by Kaiser Manufacturing. 2. Chase organization.-Proper performance of the C-123 contract requires complete administration of all aspects of the program at the major production site, Willow Run. This administration must be conducted in accordance with good business practices. In the Chase organization the board of directors, by virtue of the certificate of incorporation and corporate bylaws, is charged with managing the affairs and business of the corporation. The board is composed of 8 members, 4 controlled by the 51 percent ownership, Mr. Stroukoff, and 4 by the 49 percent ownership, the Henry J. Kaiser Co. In accordance with the corporate bylaws and certificate of incorporation, in the event of a vacancy in the board of directors, the replacement for the vacancy shall be appointed by whichever of the stockholders controlled the vacating member. (This arrange- ment is effective until September 1954, and Chase has agreed to extend the arrangement through performance of the contemplated follow-on contract). The president of the corporation, Mr. Bedford, executes the policies of the board of directors. Mr. Bedford is also a director appointed by the Kaiser The.board of directors was unable to agree on a corporation organization chart until the Kaiser interests recently agreed to accept an organization proposed by Mr. Stroukoff. Mr. Bedford requested a legal opinion of the Chase counsel, Mr. Wood (who is also a Stroukoff-appointed director) as to whether he, as president, might establish an organization of his own liking in the absence of agreement by the board of directors. Mr. Wood provided him a written opinion to the effect that the president did not have the prerogative of establishing an organization to his own liking in the absence of board approval. Subsequently, Mr. Bedford has obtained a written legal opinion from the counsel of the Kaiser 49 percent ownership indicating that the opinion of the Chase attorney is in error and that Mr. Bedford would be exercising proper prerogatives if he should draw up his own organization chart. The organization chart drawn up by Mr. Stroukoff was presented by the Chase Co. to the local Ai' Force at Willow Run for recommendations. Chief, Central Air Procurement District and the Air Force plant representative reviewed the organi- zation chart and the contract and decided that the organization chart submitted did not comply with the terms of the contract, in that actual administration of all aspects of the production program would not be centered at Willow Run. Con- sequently, he instructed the administrative contracting officer to write Chase and advise them to submit an organization chart by March 28 which will indicate that all phases of the production program will be controlled at Willow Run. One of the agreements between the Air Force and Chase when the C-123 contract was awarded was that the Kaiser interests would furnish proper management of the Chase organization. It was pointed out to Mr. Bedford that an even split of the board and control of the presidency by Kaiser interests indicate that sufficient tools are available to the Kaiser interests to manage the Chase organization. Mr. Bedford indicated that the Kaiser interests are reluctant to exercise those prerogatives which are being resisted by the 51-percent ownership for fear of a stockholders' suit. The Kaisers feel that a stockholders' suit at Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro e2d For Release 2O0gWg : fir- 4113OO346ROOO4OOO5OOO3-4 present will jeopardize their position in certain negotiations being conducted in regard to a merger with Willys-Overland. - 3. Facilities.-'When Willow Run was set up to produce C-119 aircraft, ap- proximately $12% million was made available for Government facilities to produce 93 C-119 aircraft per month. When the 0-119 program was reduced and the C-123 aircraft ws s phased in, it was with the understanding that C-119 facilities would be utilized where possible. An additional $13 million was made available to Kaiser-Frazer for facilities-at Willow Run and slightly less than a million dollars was made available to Chase for facilities at West Trenton. This distribution was based on the understanding- existing at the time distribution was made that no production would be accomplished at West Trenton. Subsequently, this headquarters recommended favorable consideration of a certificate of necessity for construction of 163,000 square feet of new brick and mortar facilities by Chase at West Trenton. The certificate of necessity was eventually -approved. This headquarters and Chase have agreed that production of all doors, 'ramps, hatches, etc., for he C-123 will be accomplished at West Trenton. As a! result, Chase has recently requested $900,000 worth of additional facilities. In the meantime, appro::zimately $4 million of the original $12~z million provided Kaiser-Frazer at the inception of the C-119 program was declared surplus. When Chase requested a certificate of necessity for the new building at Trenton, it was with the understanding that the new building would be sufficiently com- pleted prior to June 30, 1953, so that the presently occupied Navy facilities at Trenton could be vacated by that date. As of February 20 the construction contract had not yet been let for the new facility and it is apparent that. it will not be ready by June 30, 1953. It is expected that Chase will request another extension of occupancy of the Navy facilities. If this is the case, it appears that the production facilities required by Chase will have to be installed in the Navy facilities and subsequently removed and reinstalled in the new facilities: if the West Trenton C-123B assistance program schedules are to be met. A substantial j;>ortion of the facilities money allotted to West Trenton has been expended for a low volume type of production tools which will not be suitable for any quantity production. This type of machine tools will now have to be superseded by the tools contemplated in the $900,000 presently requested by Chase. 4. Production planning.-Since the inception of the C-123 contract, the! Chase production plan has changed many times. At one time nose sections and flaps were scheduled to be produced at West Trenton. At another time outer! panels and flaps were scheduled to be produced at West Trenton, with the rest at Willow Run, except for ether normal subcontracting. Then no production was to be accomplished at Trenton. Next the plan was for five sets of priming details to be produced at Trenton. Now the plan is for certain major components for a few airplanes to be constructed at Trenton, in addition to the priming details, and for continuing production to be accomplished on the doors, hatches, ramps, etc., mentioned above. Each time the basic production plan was changed, obviously the program has acquired a new direction. Realinement of facilities has been necessary. Personnel, purchasing, and material requirements have been basically changed. All of these difficulties, plus the duplicate purchasing facilities men- tioned above, can be traced back to the fundamental organization problems. 5. New C-128 programs.-Headquarters, USAF has directed procurement of a prototype C-123 in a special configuration for E. and E. and ARS missions. A production quantity of 128 of these aircraft has been mentioned in correspondence. The firmness of this requirement should be reviewed at this time and if the re- quirement does Wrist, a determination must be made as to where (Willow Run or Trenton) and hove (modification or new production) the aircraft shall be built. In addition to the prototype airplane mentioned above, another prototype the pantobase configuration, is being ordered by ARDC. Whether to build the prototype airplanes by new production or modification methods must be resolved. 6. Air Force Administration: At Chase, West Trenton, from August 1951 until the present there have been six different contracting officers assigned. Most of these changes were due to circumstances beyond the control of the Air! Force. It is recommended, however, that, due to the complex situation outlined; above,. special emphasis Ibe placed on selecting the appropriate personnel and obtained continuity in theadministration of this program, both at Trenton and at Willow Run. 7. C-123B second source subcontract program as related to PAIP.-Although current 0-123 subcontract structure is sufficient to support all production up to 35 per month rates, the PAIP requirements for up to 200 per month rates become critical in relation to landing gear and nacelle requirements. Headquarters, Approved For Release 2003/10/10 : CIA-RDP64BOO346ROO0400050003-4 Approved For Releas6 83 UlMa IP64B00346R0004QQQ50003-4 AMC had previously directed that Chase obtain second subcontract source on these assemblies but to date the contractor has accomplished no definitive action in this regard. It is recommended that the AMC requirement for this second source be withdrawn since a major cost increase would be involved for such a program and this would represent an increasingly unwise and premature expendi- ture of funds in the event of any further program slippages on the C-123. DOCUMENT NO. 3 MAY 4, 1953. Subject: Omaha package it's origin as regards K-F's C-119-program. To: Resident Auditor, dentral Air Procurement District, Willys Motors, Inc., Willow Run, Mich. (Attention: Mr. W. S. Sprague) In response to your recent inquiry, you were informed that following K-F's further study of the subject matter, you would be advised of their findings. Of the present K-F organization, Mr. L. E. Jagnow, K-F's coordinator of Gov- ernment-owned facilities, is the one most qualified to advise concerning the origin of the "Omaha package" as regards K-F's C-119 program. As he recalls, it was at a meeting in late December 1950, following the award of K-F's letter supply contract AF 33 (038)-18481 that K-F was apprised of the existence of an industrial mobilization plan. The meeting was held at Wright Field in Colonel Andrews' office who, at the time, was head of the Facilities Branch. The meeting was attended by Mr. Jagnow and Mr. Harvey Smith (formerly K-F's manager of aircraft operations) and other K-F management personnel. Mr. Jagnow recalls that at the conclusion of the meeting, Colonel Andrews showed Mr. Smith four volumes of an industrial mobilization plan prepared by Fairchild Aircraft Corp. and lent them to Mr. Smith for initial orientation work and study in connection with K-F's program. On January 10, 1951, at Wright Field, Mr. Paul Packard, Civilian Chief, Airframe and Engineering Branch, advised Mr. Jagnow concerning Fairchild's contract with the Ak Force covering the Omaha study. Mr. Packard advised that under the contract, Fairchild was to prepnre and maintain current the neces- sary technical data, prints, surveys drawings, reproducibles, and other items covering all phases of a plan to activate an aircraft installation at Omaha, Neb. He advised that there were 18 4-drawer files of the technical data at GAP No. 1- Omaha, Neb. It was Mr. Packard's thought that the above information would be helpful to K-F. Accordingly, he advised that he was issuing instructions to ship the files to Willow Run and also that he was issuing instructions to Fairchild and to the Air Force accountability officer at Hagerstown to ship any other information applicable to the Omaha study to K-F at Willow Run. From the above and to the best of the knowledge of those whom we have been able to contact, K-F did not at any time make a direct request for the "Omaha package." Rather, it seems that they gratefully accepted that which was made available to them through the offices of Colonel Andrews and Mr. Packard. Apparently, in accordance with Mr.. Packard's above-mentioned instructions, the "Omaha package" was shipped to K-F at Willow Run. The complete package was received as follows: (a) United States Government Waybill No. WX-8604623, 83 pieces, records, received January 25, 1951. (b) Hagerstown shipment No. 1 received January 30, 1951, delivered by C-119, Colonel Cleveland. (c) Hagerstown shipment No. 11, FAD shipping order No. 25680, received April 30, 1951. A meeting held at Willow Run on May 21, 1951, was attended by the following: AF PERSONNEL K-F PERSONNEL Maj. C. F. Barclay, contracting officer John Hallett, vice president Maj. R. C. Ulrey, AF plant representa- M. Miller, vice president tive S. A. Girard, vice president Capt. F. P. Bretney, administrative H.. V. Lindbergh vice president contracting officer L. K. Covelle, If F Wright Field repre- Lieut. Gen. G. Whipple, project officer sentative Paul Pate, civilian employee S. F. Patyrak, contract administrator 34931-53-pt. 1 12. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 ApproV'Ml For Release 20@NT8/ ' : P+900346R000400050003-4 At the meeting it was agreed "All information supplied by USAF to K-F from industrial mobilization planning file shall become a part of engineering data and manuf;i,cturing data, along with such data as will be received from Fairchild under the technical assistance agreement. No separate file shall be maintained. A Letter confirming the above agreement reached with Captain Packard of USAF is to be written by K-F to USAF through contracting officer." The above quote was excerpted from the minutes of the above meeting which were distributed to both Major Ulrey and Captain Bretney. Apparently the letter was not written. As the TAA data applicable to subsequent planes started to arrive at :Willow Run, the "Omaha package" data became less useful and finally was, in effect, tirely supplanted by the more current data furnished under the TAA. In view of the agreements outlined in the minutes of the above meeting of May 21, K-F proceeded until June of 1951 on the basis that they would not be re- quired to reassemble the "package." At a meeting of June 13, 1951, at ,Willow Run, in compliance with a request from FAD's Mr. Landers, Major Barclay instructed that the "package" be reassembled for FAD's use in connectign with the then propo.,ed FAD Chicago Chicago C-119 facility were canceled, FAD did not take custody of the reassembled "package." Rather, it remained at Willow Run until July 1952. On May 15, 1h52, K-F wrote to Colonel Ulrey requesting instructions ~regard- ing disposition of the reassembled "package". On June 23, Captain Bretney responded with lrastructions to ship the data to the Birmingham modification center. As explained in K-F's August 6 letter, the "package" was shipped on July 2 and 3 in r ceordance with the captain's instructions. The shipments were made under shipping officers vouchers No. CV-53-1 and CV-53-2. It is to be noted that as a result of the normal usage (wear and loss) K-F was not able to completely reassemble the "package." The shortages were indi- cated. both in Captain Bretney.'s June 23 letter and in K-F's letter of Auigust 6, 1952. The July 2 and 3 shipments were comprised of the complete "Omaha package" excepting the above-mentioned shortages. In conclusion it can be said that the "Omaha package" served its purpose--it provided K-F with some of their earliest preliminary data applicable to FAD's early C model C-119 airplanes. Similarly, the technical assistance agreement served its purpose-at the outset it provided K-F with a source of more complete and more current C-119 data. It included all of the engineering changes which had then been approved. Subsequent data furnished under the technical assist- ance agreement Supplemented and revised portions of the earlier information to comply with subsequent engineering changes. Further, the technical assistance agreement provided assistance not included in the "package"; i. e., priming parts, exchange of personnel, and other tangible assistance. Any further questions which you may develop will be given our prompt atten- tion. S. F. PATYRAK, Defense Contracts Administrator (For Willys Motors, Inc.). Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleasL*IWUS DAWPOtA RDP64B00346R0004QGO50003-4 DOCUMENT NO. 4 Kaiser Manufacturing Corp., Willow Run, Mich.-Schedule of costs incurred contract AF33(038)-18481 Period: Dec. 20, 1950, through June 13, 1953] Accumulated costs through May 31, 1953 Estimated costs incurred, June 1to13 1953 Total estimated costs incurred through June 13, , 1953 Direct reimbursement costs: Production material-------------------------- $17, 942, 755. 98 $17 942 755 98 Subcontractor 's costs_________________________ 34, 010, 062. 39 , , . 34, 010 062.39 Directlabor ---------------------------------- 18, 284, 097. 71 $510,000.00 , 18, 824, 097.71 Prolect tools ---------------------------------- 13, 357, 976.07 ------------------ 13 357 976 07 Portable tools and equipment_________________ 1, 391, 462. 47 ------------------ , , . 1 391 462 47 Plant rearrangement__________________________ 934, 703.18 ------------------ , , . 934 703 18 Contract termination_____________________________ V h i h t 647,974.45 , . 647, 974.45 ouc er reg s er c arges---------------------- ------------------ 911, 956.21 1911, 956.21 Subtotal ------------------------------------ Oveihead costs: Manufacturing expense_______________________ 64, 368, 331. 69 1, 192, 860.00 65 561 191 69 Engineering expense__________________________ 3, 932, 576. 15 52, 170.00 , , 3 984 . 746 15 Administrative expense_______________________ 5, 804, 169. 84 128, 310.00 , , 5 932 . 470 84 Home office expense____________________ 1, 610, 463. 66 36, 660.00 , , 1, 547, . 123. 66 Subtotal----------------?-------- -------- 75, 615, 541.34 1 410 000 00 77 025 541 34 Other costs: Partial occupancy costs_______________________ 2, 028, 737.20 , , . , , 2, 028, . 737. 20 Total incurred costs -__-_..__________________ 164, 213, 310.79 167 075 267 00 Fixed fee accrued. _------ _..__________________ ------------- 5, 501, 894. 00 , , 5, 501, . 894.00 costs and accrued fee__--____ 1 Voucher register totals cannot be readily broken down by cost element at this time. The total includes production material, subcontractor's costs, and overhead costs. DOCUMENT NO. 5 Kaiser Manufacturing Corp., Willow Run, Mich., Schedule of costs incurred on contract AF 33(038)-18481 [Period: Dec. 20, 1950 through May 31, 1952] Accumulated costs I. Costs subject to fee: through May 31 1952 , Production material______________________________ $11, 942, 117. 10 ' Subcontractor s costs_____________________________ 13, 291, 589. 40 Direct labor -------------------------------------- 3, 748, 075. 31 Manufacturing expense___________________________ 29, 772, 754. 35 Engineering expense ------------------------------- 2, 531, 910. 31 Project tools and purchased design services---------- 12, 597, 933. 40 Portable tools and equipment---------------------- 1, 420, 260. 69 Plant rearrangement (ordinary) - - - - - - - - - - - - - - - - - - - - 686, 102.87 Administrative expense___________________________ 2, 539, 527. 95 Home office expense______________________________ 653, 683.36 Contract termination costs - - - - - - - - - - - - - - - - - - - - - - - - 347. 15 Subtotal------ ------------------------------- 79, 184, 301. 89 Partial occupancy costs--------------------------- 1, 699, 768. 61 Unaudited liabilities______________________________ 1, 598, 810. 78 Subtotal-------------------------------------- 3, 298, 579. 39 III. Accrued fee------------------------------------------ 3, 183, 763. 00 IV. Total incurred costs and accrued fees------------------- --------------- 85, 666, 644. 28 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro For Release 20QBItOA'1M: PM00346R000400050003-4 DOCUMENT NO. 6 KAISER-FRAZER CORP., Willow Run, Mich., July 2,1951. Subject: Conditions Causing Excessive Costs. To: AF Plant Representative, Central Air Procurement District, Kaiser-Frazer Corp., Willow Run, Mich. 1. A system survey in process by the resident auditor, Auditor General, USAF, at Kaiser-Frazer Corp., Willow Run, Mich., and the current audit of costs sub- mitted for reimbursement by Kaiser-Frazer Corp. under prime contracts AF 33(038)-18481 and AF 33(038)-18485 discloses unfavorable conditions that, in the opinion of the resident auditor, USAF, result in excessive costs to the Government. 2. Unfavorable conditions are listed, in part, as follows: (a) Factory employees tamper with time clocks and time clocks in many instances record from 1 to 2 hours later than the actual time. (b) Factory employees damage clocks intentionally. In excess of 20 percent of the 130 clocks are continually in process of repair. On June 30, 1951 there were 24 clocks damaged. (c) Employees avoid plant protection guards by climbing the fence. (d) Factory eniLployees on the first shift stop working approximately 30 minutes before the shift ends and the time to punch their timecards. (e) Clock cards show many erasures, changes, and omissions of clock-time stamp. In correction of omission of clock time-stamp, in many instances the time is entered 'in pencil without authorized approval evidenced by initials or signature of authorized supervisory personnel. (f) The contractor does not make attendance floor checks. (g) Plant-prot~;etion guards are not stationed at the clock stands to prevent employees from clocking more than one clock card. (h) Employee cannot be readily identified or badges are not properly worn. 3. The above conditions are submitted for the AF plant representative's information and attention, in accordance with AFR 175-36. SIDNEY C. SOLOMON, Resident Auditor. cc: Contracting officer, K-F Corp., AFAUDC-I. DOCUMENT NO. 7 JULY 5, .1951. Subject: Conditions causing excessive costs. To: Kaiser-Frazer Corp., Willow Run, Mich. (Attention: Mr. Stanley F. Patyrak, contracts administrator.) Attached hereto is a copy of a letter dated July 2, 1951, on above subject. In regard to paragraph 2c of enclosed letter, it is suggested that the plant-protection guards at the gales be rotated at nonscheduled hours in order that the employees will not become familiar with a particular guard at a particular station. In regard to paragraph 2e it is suggested that supervisory personnel be cautioned to use more diligence in pursuing this matter. With reference: to paragraph 2f it is recommended that attendance floor checks be made a standard routine function. In reference to paragraph 2g it is recommended that additional plant-protection guards be hired to be stationed at the clock stands. It is understood that the cost of such additional guards is a proper charge under the supply contract. RAY C. ULREY, Major, USAF, AF Plant Representative. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release,i0/4,Qdcn64B00346R0004q(50003-4 DOCUMENT NO. 8 KAISER-FRAZER CORP., Willow Run, Mich., July 6, 1961. Subject: Conditions causing excessive costs, Ulrey/ej/8414 To: AF Plant Representative, Central Air Procurement District, Kaiser-Frazer Corp., Willow Run, Mich. This will acknowledge receipt of your letter dated July 5, 1951, to which you have attached a copy of a letter from Mr. S. C. Solomon, resident auditor, dated July 2, 1951. (1) With reference to paragraph 2 (a), (b), and (e) of Mr. Solomon's letter, we would like to discuss these matters as one related problem. It is the tampering with time clocks and its resultant damage, as mentioned in (a) and (b), which causes the majority of the errors in the clock cards mentioned in (e). In order to properly account for an employee's time, these errors must be manually cor- rected by the timekeepers, which corrections they have always been authorized to make. Timekeepers will be instructed to do their work legibly and more neatly, and to initial changes as they make them. In addition to the above, all time clocks will be tested prior to checkout time and any that have been thrown out of order will be made inoperative and the employees routed past a functioning time clock. Plant-protection officers will be on hand to assist in rerouting the flow of employees. (2) With reference to paragraph 2 (c), which is the matter of installation of new fencing and the repair of old fencing, this subject was discussed as a matter of general plant security with the Air Force personnel early this spring. This item of fencing was submitted in the appendix to the facilities contract on June 29, 1951, for consideration by the Air Force and authorization for expenditure of funds. An early approval of this item will be appreciated. With respect to repair of old fencing, we wish to inform you that we are im- mediately undertaking repairs to existing fencing as may be necessary. (3) With reference to paragraph 2 (d), the factory management will insist that supervision keep all employees on their jobs until quitting time. (See attached memorandum from the Works Manager to Supervision.) (4) With reference to paragraph 2 (f), our present procedure is that the time- keepers observe the ringing of clock cards, both in and out, at the clock stations, and receive, each day, a report from each foreman certifying the number of hours that the employee worked and the jobs on which he worked. The hours reported by the foreman are verified to the elapsed time recorded on the clock card. We have felt that this system is adequate; however, since you apparently feel that attendance floor checks on the part of the timekeepers are necessary, we will study this matter and will be, prepared to make a recommendation within two weeks. (5) With reference to paragraph 2 (g), plant-protection officers will be stationed at the clock stations from 1 hour before quitting time to one-half hour after quit- ting time on all shifts and will be instructed to make every effort to stop violations of proper procedure. (6) With reference to paragraph 2 (h), the corporation is currently in the process of securing new and larger picture badges which will be equipped with a clasp in order that they may be properly worn. Plant protection has been instructed that, when the new badge system is installed, all employees must display their badges properly or will be refused admittance to the plant; further, that badges must be properly displayed at all times when employees are within the plant. (7) With reference to your suggestion that patrolmen be rotated, the following is the procedure currently in use by plant protection: Each plant guard is assigned to a new post each day when reporting for work. During the day, plant guards stationed on the gates alternate with those walking beats within the building. It is our feeling that this affords the maximum amount of rotation possible without the necessity of employing extra guards. The Kaiser-Frazer Corp. shares equally the interest of the Air Force in adopting any policies or procedures which will keep the cost of production of aircraft to a minimum. We hope that the measures adopted, as outlined above, will satis- factorily answer the questions raised in your letter of July 5, 1951. Sincerely yours, S. F. PATYRAI, Contracts Administrator. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Apprgr d For Release 20 Aj W[j ~ PR00346R000400050003-4 To: All manufacti:iring supervision From: John Tacke;, operations manager. Subject: Shop rub.: violations. In August of 1SP50, we issued a bulletin regarding early quitting. Let us not forget the importance of this bulletin. We are again faced with the problem of early quitting and violation of other shop rules. The following abuses are occurring regularl;,7:: Quitting early. Lining up at the clock stations before quitting time. Jumping the fences. Ringing othe::? employees' clock cards. Tampering with the time clocks. Effective immediately, all supervisors are expected to carry out the following instructions: (1) Concerning quitting work early, lining up at the clock stations before quitting time, and jumping the fences: If a foreman has all of his employees so concentrated that he can see their individual stations, be is to instruct his employees to remain at their work Station until the 5 minute whistle blows. An employee on relief can be instructed to return to his work station before the 5 minute whistle. An employee who fails to observe these ij:istructions is to be warned with a written reprimand. A second violation will call for a 3 day disciplinary time off; a third violation, 1 week disciplinary time off; a fourth violation, discharge. The foreman whose employees are distributed about the plant to the extent that he cannot visually supervise their actions, is to inspect his assigned clock station at least 3 times weekly on varying days prior to the 5 minute whistle. Any of his employees found in the vicinity of that clock station, or in other words away from their assigned work area, are to be given disciplinary action as in the preceding paragraph. (2) Concerning ringing other employees' clock cards: First offense, 2 weeks disciplinary time off; second offense, discharge. (3) Concerning; tampering with the time clocks: First offense, 2 weeks disciplinary time off; second offense, discharge. DOCUMENT NO. 10 INTEROFFICE CORRESPONDENCE SEPTEMBER 18, 1951. To: Mr. R. J. Je:,persen, assistant controller, Mr. S. C. Solomon, resident auditor, USAF. From: J. F. Greenwald and Lt. R. E. Powers, USAF. -Plant or office: Willow Run. Subject: Survey of canceled parts resulting in possible cancellation claims. JOINT AUDIT SURVEY NO. 1 During the process of an audit of the purchasing department procurement practices, examination of certainpurchase order files indicated that cancellations were in process. - Since theseirotances were numerous, it. was decided to briefly study the can- cellation files in production planning to determine- 1. Reasor s for cancellation. 2. Volume: of canceled- parts. 3. Dollar volume of claims. A study has b,en made to the extent indicated above, and the following facts- were evidenced: - 1. -Requisition:3 were prepared and purchase orders placed committing for requirements as set forth in the "Omaha" bill of material to cover production requirements for 22 ships worth of purchased parts and 66 ships worth of raw materials, and also based on the assumption the entire plane would be fabricated at Willow Run. Progressive developments proved the "Omaha" bill of material Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaW,r Q Ji1q/g &M~r~64B00346R00041( 50003-4 to be obsolete or incomplete, in part, thereby resulting in numerous cancellations of purchase orders. 2. To date, there are approximately 1,500 cancellation claims in file represent- ing canceled parts, of which it is estimated approximately 47 percent are con- tributable to the "Omaha" bill of material. An examination of a representative group of the claims in file revealed the following: (a) No action has been taken, except to advise vendors to stop work, since there is no published procedure detailing the processing of claims. (b) It was noted that claims are dated as early as March 1951. (c) The stop order confirmation provides a space for the vendor to indicate a cost or no cost to Kaiser Manufacturing Corp. A substantial number of the confirmations indicate no cost; however, purchase orders may have been partially or entirely completed prior to issuance of the stop order. A group of such orders was tabulated and reveals parts valued at $6,896.30 have been received at Willow Run and $6,457.62 of this amount has been included in public vouchers. (d~ A number of stop-work orders have not been confirmed, and the files indi- cate they have not been followed on a current basis to obtain confirmation. (e) It was noted "returned-material orders" of a series used in automotive were used to return aircraft material to vendors. 3. Since procedures have not been invoked to permit further processing of claims, it is impossible to determine the dollar volume involved, except to the extent as explained in paragraph 2 (c) above. The foregoing is presented for informational purposes; however, it is the inten- tion of the accounting systems department in conjunction with the industrial engineering department to provide a procedure to conform with Air Force regula- tions to adequately process and administrate cancellation claims. J. F. GREENWALD, Director of Accounting Systems and Auditing. R. E. POWERS, Lieutenant, USAF. Prepared by It. R. E. Powers, L. C. Fodal. Cc: Messrs. J. L. Cook, E. M. Craig, S. H. Hailey, C. M. Hollis (2), O. E. Johnson, H. A. Koop (3), L. S. MacKay, S. F. Patyrak, A. L. Webb. DOCUMENT No. 11 INTEROFFICE CORRESPONDENCE DECEMBER 18, 1951. To: C. M. Hollis, vice president, S. C. Solon-ion, resident auditor, USAF. From: J. F. Greenwald and M. L. Simpson, USAF. Plant or office: Willow Run. Subject: Tooling inspection and rework. JOINT AUDIT SURVEY No. 11 This report is presented in connection with a joint audit survey conducted by the audit staffs of Kaiser-Frazer Corp. and the resident auditor, USAF, on the subject of tooling inspection and rework. SCOPE OF AUDIT I. Review procedures established for the inspection of tooling. II. Review procedures established for accumulating costs and rebilling tool suppliers for rework caused by faulty construction on their part. III. Review procedures established for accumulating cost and rebilling carriers for rework due to damages incurred in shipping to Willow Run. 1. Review of procedures A review of aircraft procedures disclosed that the following instructions contain partial coverage of the subject matter, as follows: A. Aircraft Quality Control Bulletin No. 503 pertains to Initiation andA'Use of Tool Disposition Tag under Tool and Gage Inspection. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approlgo For Release 2O 1 i ADr: AdR AM0346R000400050003-4 B. Aircraft Quality Control Bulletin No. 504 pertains to Acceptance of New and Reworked Aircraft Tooling. C. Aircraft Procedure No. 5 pertains to Freight Claims. D. Aircraft Procedure No. 24, pertains to Rework of Production National Ma- terial. It was determined that there are no existing procedures that adequately provide for tooling inspection and rework. II. Examination of current practices. Due to the absence of procedures, this survey was necessarily limited to an examination of existing conditions and present methods adopted by supervision. The absence of any records precluded an audit of rework costs by tool; however, the following information was obtained on six items: TOOL NO. AND REWORK REQUIRED RESPONSIBILITY 110-113058-21-3vlF-3 Rework in accordance with revised engi- Definitely not the vendor's respon- neering design. sibility. 110-113011-21-1)J Fixture hole off and angle off according Vendor's responsibility. Estimated re- to match, plate. work time, 3 hours. 110-313115-1-DJ Dimensions off and screw interferes with Fault of print, not vendor's responsi- jig. bility. 110-727619-31-]q F Two locating hales to be redrilled at Undecided. Either tool print was proper angle wrong or vendor work. Estimated rework time, 3 hours. 110-726014-21-DJ Detail for drilling 2 holes in web to be Tool drawing incorrect, not vendor's reworked. responsibility. 110-310101-AJ** Out of line both horizontally and verti- Damaged en route to Willow Run. cally. Carrier's responsibility. The last item (**) is a main mating fixture built by Koestlin Tool and Die Corp. at considerable cost. This fixture was received in poor condition, being out of line both horizontally and vertically as the result of a Fisher cartage truck not clearing an overpass while delivering the fixture to Willow Run. The damage was extensive, requiring considerable rework on the part of the vendor and also by the Kaiser-Frazer tool room. Although this rework cost many thousands of dollars, there was no evidence of any claim filed against the carrier. This is a prime example of recoverable damage cost that has been lost due to the lack of effective action by responsible supervision in the absence of procedures. The carrier, Fisher Cartage Co., has acknowledged a certain degree of: respon- sibility for the d Lmages, and has agreed to accept a claim, subject to their review. Recommendations.-It is recommended that Mr. J. V. Banks, chief production engineer, submit a review of the circumstances surrounding the dam uge and rework of the subject tool, to the recipients of this report. This review should include a statement of the number of hours expended on reworking this tool by the K-F toollroom, and the costs incurred by the supplier, Koestlin; Tool & Die Corp. Upon receipt of this information, a claim will be prepared for sub- mission to the carrier. III. General comment With minor exceptions, the reworking of all tools was accomplished in the Willow Run toclroom. A review of available evidence indicated that no claims have ever been filed against vendors or carriers, for tools not built to specifications or damaged in transit to Willow Run. Supervision was contacted in various affected K-F departments and the United States Air Force Inspection Department. It was the general opinion of re- sponsible indivii luals, with due consideration of the element of time and other Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releak&Appl1ktQjERQP64B00346R000050003-4 factors involved, that the reworking of tools was handled in the most practical and expeditious manner. There were many contributing factors for the inadequate inspection of tooling on the C-119 program. The principal factor was the incomplete and obsolete information contained in the Omaha bill of material. This resulted in numerous engineering changes which were incorporated into the tools, wherever possible, by the manufacturers in conjunction with Kaiser-Frazer representatives. In addition, die tryout subsequently revealed that certain completed dies would not produce the required parts. These dies, in most cases, were reworked in the K-F toolroom. This was considered the most expeditious method of handling inasmuch as rework responsibility could not be established in most instances, due to incomplete prints and other required data. It should be recog- nized that, under the circumstances, inspection control of tooling for the C-119 program could not be accomplished in accordance with normal accepted pro- cedures. We have been advised that engineering and design information relative to tooling for the C-123 program is more complete and current, therefore, an im- proved inspection control can be expected. Recommendations.-It is recommended that the industrial engineering depart- ment proceed at the earliest practical date to draft an aircraft procedure covering .the inspection and rework of tooling. The procedure should provide a method of determining the responsibility for rejected tools, and for rebilling charges to vendors and carriers. J. F. GREENWAI.D, Director of Accounting Systems and Auditing. W. E. SIMPSON, Staff Auditor, United States Air Force. DEPARTMENT OF TIIE AIR FORCE COMPTROLLER-AUDITOR GENERAL FEBRUARY 4, 1952. To : Air Force plant representative, Willow Run, Mich. 1. Joint Survey No. ll, conducted by the Kaiser-Frazer Corp., audit staff and the Auditor General, USAF, resident office, entitled "Tooling Inspection and Rework," dated December 18, 1951, made the following recommendation. "It is recommended that the industrial engineering department proceed at the earliest practical date to draft an aircraft procedure covering the inspection and rework of tooling. The procedure should provide a method of determining the responsi- bility for rejected tools, and for rebilling charges to vendors and carriers." Dur- ing the process of this survey on or about November 5, 1951, various Kaiser- Frazer Corp. personnel were apprised of the situation that no procedure was being followed for charging back vendors for rework of tooling which was the vendor's responsibility and that no rework charges for tooling had been billed to tooling vendors. 2. This same situation exists at this date. Inspection is not attempting to de- termine where the responsibility lines for the tooling that is being reworked at Kaiser-Frazer Corp. or at special rework of tooling vendors and no attempt is being made to bill back vendors for tooling that is their responsibility. 3. As is. generally known the rework of tooling is now increasing at a fast rate. It is imperative that Kaiser-Frazer Corp. initiate and enforce procedures for affixing responsibility for the poor tooling and charging back to vendors the proper amount to eliminate excessive costs to the Government on the following contracts: AF 33(038) 18481 and AF 33(038) 72446. SIDNEY C. SOLOMON, Resident Auditor, USAF. DOCUMENT NO. 12 This document appears in the testimony of Mr. Solomon of June 5. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approvejdj or Release 2003k'}pblAF~ p 346R000400050003-4 DOCUMENT NO. 13 TRANSCRIPT OI' TELEPHONE CONVERSATION BETWEEN MR. EDGAR KAISER, NEW YORK, AND MAT. GEN. M. E. BRADLEY, JR. MAY 5, 1952; 11:40 KAISER. General Cook called me a few minutes ago and he said, "I am hearing- things about you." So I said, "What's the trouble, is it the Chase operation or the Willow Run operation?" So he said, "It's the Willow Run operation, No. 1. Your progress is not good, you have idle manpower around the place and we don't think you're going to make the schedule." And I said, "General, I think you're talking about a lot of conversation that was going on 6 or 8 weeks ago, I think it is just the opposite at the present time." "No," he says, "We've had people going through the plant just recently and they reported to me that those are the conditions." So I said, "Those aren't the conditions because there was that con- versation and the conversation wasn't even justified because of the fact that we- on one schedul and then were slowing down to another schedule." But I said, "Why don't you come and take a look at the place yourself, you haven't visited us and I would like to have you see it." So he said, "Okay I will take you up on that." He said, "I will be in Detroit Wednesday night for that dinner and I'll spend Thursday morning with you and we'll go into it." I said, "Good enough, I would like nothin better and we will be set for you because I'm proud of the operation now and I think it is rolling and I think you will find the same thing, And at the same time while you're there we could take a look at this space prob- lem for Chase. 'We have problems there." So he said he would see me Thursday morning :out at the plant. My purpose in calling you is to tell you first of all that is what we ask him to do and he said he would do it and hoping you would be up there at the same time, and if you're coming-are you going up for that dinner? BRADLEY. No. KAISER. Welll, I thought if you were that maybe you could come out and maybe you could come up anyway, can you go to the dinner? BRADLEY. W Ihen is the dinner- KAISER. Oh, it's in Detroit, some defense transportation affair. BRADLEY. I ri,an't make it, I have a big briefing on Thursday, Edgar, I don't think I can get up there. KAISER. All ) ight, well, have you got any advice for me, because I'm going to go to work on them because we are in pretty good shape, General. BRADLEY. Well, I'm glad to hear it. KAISER. That thing is starting to roll and I think it is going to start to produce something for you now. I told him that we had troubles with this Fairchild thing and you nade a deal with me when we made the Chase deal to keep our mouths shut about the thing and I said, we didn't get the tooling drawings, the right set until and I said we also have plenty of conversation going that doesn't want us to be good and I said we are beginning to roll and we're going to talk about it, and we want people to know that it is good and not all this, monkey business that w.;'ve been hearing about. BRADLEY. W hien are you going to deliver some airplanes? KAISER. This month, four of them. Its coming now its all right, all right then you have no objection to what I'm doing getting him out there to sed what is going on. BRADLEY. How are you fixed financially? KAISER. We are all right don't worry about it. BRADLEY. I was a little worried about that $4j2 million that they are holding up up there, did you get that straightened out alright. KAISER. Yeah, _I think we are getting that straightened out, that again was loose conversation and I think your own people at that meeting which we all had which was very constructive understood what was going on, they shouldn't be holding the money out, there was no reason for it and the audit sectiory had one time justifying it in front of your own people, but its better all around. BRADLEY. Okay Edgar. KAISER. Oka!, bye. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaA %AOA f PAOCURE- P64B00346R000p 050003-4 DOCUMENT NO. 14 JUNE 3, 1952. Subject: Manpower Problems, Kaiser-Frazer, Willow Run. To: Commanding General, Headquarters Air Materiel Command, attn: MCPBXM-2 Wright-Patterson Air Force Base, Ohio. 1. Reference is made to letter dated May 23, 1952, from Resources Branch, Production Directorate, Central Air Procurement District, requesting assistance and information regarding recruitment of highly skilled personnel at Kaiser- Frazer, Willow Run. 2. On May 27, 1952, a visit was made to Kaiser-Frazer Corp., Willow Run, and at the local State employment office in Ypsilanti, Mich., by a manpower representative of CEAPD, Mr. W. Derendorf, and a manpower representative of the Detroit Air Regional Office, Mr. D. E. Brightbill. Persons contacted at Kaizer-Frazer were: Mr. J. H. Backus, director, personnel administration, and Mr. R. H. Thomas who is assistant to Mr. Backus. Persons contacted at the local State employment office, Ypsilanti, Mich., were: Mr. E. W. Potter, branch manager, and Mr. Charles Roberts, employer service representative. 3. Following is information obtained with reference made to pertinent para- graph and subparagraphs: 2 (a). Personnel requisitions on file in the contractors employment office. (1) 'Job specifications and requirements are clearly and specifically stated. Personnel files and records are well organized and efficiently handled. (2) In order to determine accurately whether or not the number of workers per position is based on actual needs of production would require a full labor utilization survey. Recommendation for such a survey is hereby made. Indications of malutilization such as those following were noted while in the plant during working hours. (a) Large numbers of workers in aisles, some standing still, some walking, and some in groups talking. (b) Groups of from 2 to 3 in several material, blueprint, and tool cribs talking, smoking, and eating. (c) Workers sitting on and inside of planes, apparently doing little or nothing. These observations were made with the understanding that there is always a degree of surplus labor when an extensive training program is in effect. t3) Each worker on requisition is to be used in accordance with the title and specifications of the job being filled. Positive control is exercised to place new workers on the job assignment being filled. (4) A complete and accurate answer as to whether there is labor hoarding would be apparent from a manpower utilization survey as recommended in paragraph 2a (2). (5) Contractors' records agree substantially with the State employment service office records as to referrals and placements. These figures are given herein under reply to paragraph 2h (5). 2 (h). Personnel requisitions on file with the local office of the State Employ. ment Service. (1) Requisitions on file with the local State employment office are comparable with those filed in the contractor's employment office. (a) These requisitions are considered comparable inasmuch as the con- tractor's personnel requirements are checked each day by the MESC Em- ployer Service representative, Mr. C. R. Roberts. Good cooperation is evident between the contractor and Michigan State Emplgyinent Service. A list of current requirements is enclosed. (2) The local employment service considers that requisitions are clear and concise. (3) Positive type clearances were requested by the contractor. Good results were obtained. During December 1951, January 1952, and February 1952 re- quirements were filled when approximately 300 professional and skilled workers were placed. (4) Wage rates and schedules are in line with prevailing wage rates and schedules in the Detroit area. A copy of the labor contract with rates listed is enclosed. (5) State employment service office records indicate that 690 referrals were made in the past 3 months. Of this figure, approximately 277 placements resulted. 2 (c). Other types of efforts by the contractor to solve manpower requirements. (1) An extensive training program is in effect. Definite steps for new inex- perienced workers are used. New workers are assigned to routine work and progress through various steps (usually 5) until skilled in the function involved. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approvgig4or Release 2003 1jW1gF~}1 TRPE346R000400050003-4 (2) Hiring standards have been relaxed where practicable. The average production worker applicant has a relative minimum of education. (3) Job dilution and upgrading has been resorted to wherever possible. (4) Exit interviews are obtained whenever possible. Reasons most frequently given are: 1. too far from home. 2. (galled back to old job. S. the work is too difficult. 4. Changing to an outside job. 5. Can make more money elsewhere. 6. 1)o not like type of work. 7. Do not like supervisor. 8. To run own business. 9. Chronic illness. 10. Adverse publicity toward Kaiser-Frazer. (a) Absenteeism is frequent especially on Monday of each week. (b) A study is being made relative to quits and absenteeism. When the study is completed, remedial measures will be planned and executed; how- ever, at this time, nothing concrete has been accomplished. 2 (d). Our plant conditions are a definite factor hampering immigrationl^of needed workers to some extent. Rentals of one-room housing units are available. Larger units are in short supply. (a) Kaiser-Frazer is located 27 miles from northwest Detroit.: Kaiser- Frazer is attempting to recruit workers from the Detroit area inasmuch as Detroit workers can commute and, therefore, do not have to move their families as is the case when intrastate and interstate worker clearances are utilized. A labor source area breakdown is enclosed. (b) Interstate clearance requests are under consideration, but have not been resorted to as yet. (c) Intrastate clearances have resulted in a few placements, however, the most satisfactory placements from the standpoint of low turnover have been obtained from the Detroit area. (d) Newspaper, radio, and television advertising is being used daily. 4 Enclosures: 1. Letter from United States Department of Labor, May 28, 1952; 2. letter from Kaiser-Frazer distributor of Kaiser-Frazer employees; 3. letter from :Kaiser-Frazer open requisitions; 4. aircraft supplement to union agreement. RAY C. ULREY, Lieutenant Colonel, USAF, Air Force Plant Representative. DOCUMENT NO. 15 INTEROFFICE CORRESPONDENCE NOVEMBER 3!, 1952. To: Colonel Ulrey, Captain Chance, S. C. Solomon, Lieutenant Wirth, Edgar F. Kaiser, John Hallett, S. A. Girard, S. F. Patyrak, C. M. Hollis. From: C. M. Hollis, Vice President-Controller. Plant or office: Willow Run. Subject: Memorandum of meeting. -A meeting was held in Mr. Kaiser's office at 8 a. m., October 31, 1952,in which meeting the following persons were in attendance: AIR FORCE KAISER-FRAZER CORP. Colonel Ulrey - Edgar F. Kaiser Captain Chance John Hallett S. C. Solomon S. A. Girard Lieutenant Wirth S. F.Patyrak C. M. Hollis The purpose rd the meeting was to discuss-the-accounting procedures employed by Kaiser-Frazer Corp. in connection with the C-119 contract and Kaiser-Frazer compliance with, these procedures. The Air Force representatives questioned that Kaiser-Frazer Corp. was now complying with the established procedures. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleasLitWOS AWf- D A P64B00346R0004Q (50003-4 The following program was established to determine the steps that must be taken to assure immediate and future compliance with accounting procedures and practices: 1. The resident auditor and Kaiser-Frazer accounting department were to analyze the results of the 1951 joint audit in order to report the adjustments made, as a result of this audit, to aircraft and automotive costs. The analysis to cover direct charges to aircraft cost as well as payroll charges, direct overhead and allocable overhead. This analysis to be presented to Captain Chance and Edgar Kaiser as soon as completed. 2. The Air Force resident auditor and Kaiser-Frazer auditing department would analyze the adjustments resulting from the July 1952 joint audit, the August 1952 joint audit, and the September 1952 joint audit to determine the accuracy of the book recording being made by Kaiser-Frazer Corp. 3. We would employ Mr. John W. McEachren, a partner in Touche, Niven, Bailey & Smart, Detroit, to check the adequacy of the accounting procedures and practices established by Kaiser-Frazer Corp. and check our compliance with these procedures and practices. We would also present to Mr. McEachren the question that has been :raised by the Air Force with regard to the utilization of manpower and request his advice and opinion on the subject, namely, as to the practice being followed on contracts of a similar nature for the Air Force. DOCUMENT NO. 16 INTEROFFICE CORRESPONDENCE NOVEMBER 10, 1952. To: Memorandum for files. From: S. F. Patyrak, Defense Contracts Administrator. Subject: Rough draft, memorandum of meeting with the Air Force, November 4, 1952, 9:30 a. in. .A meeting was held in Mr. Kaiser's office at 9:30 a. m. on November 4, 1952, which was attended by the following persons: FOR THE AIR FORCE FOR KAISER-FRAZER Lt. Col. R.. C. Ulrey Messrs. E. F. Kaiser Capt. H. A. Chance J. Hallett Lt. J. Wirth C. M. Hollis Mr. S. C. Solomon S. A. Girard R. J. Jespersen E. R. Jones S. F. Patyrak The purpose of this meeting was to discuss matters pertaining to accounting procedures in connection with the C-119 contract and to ascertain the course of action covering subjects discussed in the meeting of October 31, which was at- tended by Air Force and Kaiser-Frazer personnel. Memorandum of November 3, covering the meeting, was reviewed and approved by Air Force personnel. Mr. Kaiser reviewed the first meeting with the Air Force of April 4, 1952, and the most recent meeting of October 31 on the above subject. With respect to the subject of adequacy of accounting procedure and compliance of procedures insofar as they affect Air Force audit and the matter of manpower utilization, subjects which were discussed at the October 31 meeting, Mr. Hollis informed the Air Force representatives that Mr. McEachren, a partner of the accounting firm of Touche, Niven, Bailey & Smart, will be available on November 17 for review of these items. The Air Force representatives offered no objection to Mr. McEachren making such an impartial review and setting forth his recom- mendations to Kaiser-Frazer for further discussions with the Air Force. Then Mr. Kaiser mentioned that the payment-provision clause in the C-119 supply contract sets forth 100 percent reimbursement prior to audit until 80 per- cent of the costs under the contract are incurred- however, it was his understanding that reimbursement is not being made by the Air Force audit in accordance with the contractural provision. He further added that he discussed the matter with K-F legal counsel and it appears to him that reimbursement by the Air Force should be made in accordance with the provisions. He inquired what can Kaiser- Frazer do in order that reimbursement can be made in accordance with the pro- visions of the contract. Mr. Solomon informed that since this is a policy matter, Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Apprd%Wd For Release 206MINT6 :PCAAW94800346R000400050003-4 he would like to discuss this subject first with the Air Force representatives and then he would inform Kaiser-Frazer within 1 week what the Air Force decision with regard to this matter will be. With reference k:o the analysis of the 1951 joint audit, in order to report adjust- ments made as a result of this audit to aircraft and automotive costs, Mr. Hollis stated that at present Mr. Jones, of Kaiser-Frazer audit, has prepared the infor- mation and it has been submitted to the resident auditor, USAF, for his con- currence. In regard to tho second item which was discussed at the October 31 me6ting- namely, an analyeus of the joint audit for July, August, and September of 1952 in order to determinr~ accuracy of book recording being made by Kaiser-Frazer-Mr. Jones stated that such information would be made available to the Air Force within 2 weeks. Mr. Solomon stated that he would require approximately another week to review the audit; thus, it was agreed that within 3 weeks, an analysis of July, August, and September audit will be made jointly and submitted to Mr. Edgar F. Kaiser and Captain Chance as requested in the meeting of October 31, 1952. Mr. Hollis then, stated that with respect to the 1951 audit, there are four items that still require ,o be resolved. These are as follows: (a) Whether vacation hours should be included in the, allocation base (b) Legal and professional fees. (c) Executive dining room costs. (d) Reinstallation of automotive equipment. Mr. -Solomon stated that he desired to discuss the matter of vacation: hours, executive dining room costs, and reinstallation of automotive assets with the local Air Force personnel and within a very short time he would set forth his decision to K-F. With regard to the matter of legal and professional fees, he informed Kaiser-Frazer that he would be in a position to discuss this item within 1 week. Mr. Kaiser then reviewed the results of the meeting as follows: (a) Mr. Solomon, Air Force auditor, will inform Kaiser-Frazer in approxi- mately 1 week what the Air Force policy is with regard to the payment and reimbursement cost provision as set forth in the C-119 supply contract. (b) Mr. McEachren will make an impartial determination whether there is adequacy and compliance of accounting policies and procedures implementing the policies. (c) Mr. McEachren likewise will review the general subject of manpower utili- zation and render an impartial opinion to Kaiser-Frazer with respect to this sub- ject of manpower utilization at Kaiser-Frazer. He will also advise all concerned with respect to the accounting practice of the aircraft industry on this subject. (d) The 1951 joint audit and the current audit for the months of July, August, and September of :1952 will be reviewed by the Air Force within the next 3 weeks. (e) Correspondence directed to the Air Force will be routed through the Kaiser-Frazer contracts administration for proper distribution to Air Force and Kaiser-Frazer personnel. Conversely, correspondence directed to Kaiser'-Frazer by Air Force should likewise be routed through Kaiser-Frazer contracts adminis- tration for distribution. (f) Every effort is to be exerted to resolve any differences, such as the matter of vacation hours, executive dining room, etc., on a current basis. DOCUMENT NO. 17 DEPARTMENT OF THE AIR FORCE COMPTROLLER, AUDITOR GENERAL Subject: Report on Conditions Causing Excessive Costs To: Auditor General, USAF, Headquarters, Mid-Central District, 343 S. Dear- born Street, Chicago 4, Ill. 1. Purpose of report In accordance with the request of the Chief, Mid-Central District, Auditor General, USAF, in letter dated September 16, 1952, the following information is presented reg urding the action taken by procurement officials and the con- tractor to remedy the deficiencies reported by this office in our report on Condi- tions Causing F:cessive Costs dated .February 25, 1952, addressed to the Auditor General, USAF, Headquarters, Central District. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Relea?#/'I90FC4FP64B00346R000050003-4 2. Labor (a) Idle time of hourly rated employees.-Subsequent to the notification to the contractor by the AF plant representative on January 21, 1952, of the. position taken by the auditor general, USAF resident office with respect to the unsatis- factory condition of excessive idle time among hourly employees in the aircraft area, Kaiser-Frazer Corp., in letter dated February 14, 1952, made formal reply to the AF plant representative, outlining the alleged factors responsible for the manpower situation at Willow Run and the three steps taken by the contractor to correct the unsatisfactory condition (exhibit A). On February 21, 1952, the AF plant representative forwarded the contractor's letter of February 14, 1952 to this office, indicating that the AF plant representative concurred in the statements of the contractor (exhibit B). A review by this office. of the corrective action initiated by the contractor disclosed that the condition of idle time in the aircraft area, while showing some improvement, still remains unsatisfactory. The steps taken by the contractor were as follows: (1) "All hiring of production personnel not in skilled and semiskilled classifications (was) terminated." (2) "All aircraft departments (were) surveyed to determine what un- skilled personnel (were) not productively employed and such personnel (were) separated from the payroll." The result of these corrective measures is graphically illustrated by exhibit C. The extent of idle time among hourly rated aircraft productive employees is partially represented by the sudden drop in the employment curve with no apparent effect upon aircraft production. While this action on the part of the contractor reduced the excess of idle time among aircraft employees, continued floor checks and plant tours by members of the Auditor General's resident office disclosed that idle and nonproductive time still averaged as high as 35 percent during the months of March through June 1952. Plant tours during the months of July through September 1952 revealed that no significant improvements have been made by the contractor in the reduction of idle time among hourly rated aircraft employees. This failure to reduce idleness in the face of increased aircraft production has been due to the increased tempo of the aircraft employment program carried on by the contractor since May 1, 1952. Direct hourly employees engaged in aircraft production have increased from 1,975 employees on February 15, 1952, to 4,421 on September 30, 1952. Details on the number of aircraft employees, by month, are presented in exhibit D. The third corrective measure initiated by the contractor, as outlined in the contractor's letter of February 14, 1952, was as follows: (3) "A new and comprehensive procedure for manpower control (was) formulated." The comprehensive procedure referred to by the contractor was an aircraft procedure entitled "Manpower Utilization and Performance (Short Range)." The contractor began work on the new procedure on February 15, 1952, however, the procedure was not published until May 15, 1952, or 3 months after the need for manpower control was called to the attention of the contractor by the Auditor General's representative. As soon as the manpower control procedure had been published, the contractor's procedure compliance group undertook to establish the degree of actual com- pliance with the new procedure. This stage of the program was still in process as of September 30, 1952. Four and one-half months after the procedure on manpower'utilization had, been published, the contractor had not. established the degree of actual compliance. In our opinion, the corrective measures taken by the contractor to remedy the condition of excess idle time among hourly rated aircraft employees have not completely relieved the unsatisfactory condition. (b) Manual adjustment of clock cards.-On January 18, 1952, the resident auditor notified the contractor that exception would be taken to payroll costs supported by manually adjusted clock cards. The contractor immediately undertook a program to reduce and in some cases eliminate the causes for manu- ally adjusted clock cards.. At the suggestion of the Auditor General's representative, Government owned time clocks were installed throughout the aircraft area in order to deter the con- tractor's employees from further damaging the time clocks to permit leaving in advance of the scheduled departure time. Each Government owned time clock was stenciled with the following notice: Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 ApprovFor Release 2003V1k"FE#lARn346R000400050003-4 "U. S. Government owned property. Warning. Do not destroy, deface, remove or convert to your own use. Violations will be prosecuted under U. S. Code, Title 18, 'Section 641, which provides penalties of 10 yrs. in prison; $10,000 fine, or both." Subsequent to this action, recurring payroll audits by this office have indicated that the condition of manually adjusted clock cards has been satisfactorily corrected. (c) Supervisory employees in allocable departments charging time directly to Air Force contracts.-,-The contractor has revised the Time and Payroll Manual to- eliminate the possibility of supervisory employees in allocable departments charging time directly to Air Force contracts. The Auditor General's resident office and representatives of the contractor have recently completed a joint audit of 1951 payrolls in which all direct charges of this nature were removed from Air Force contracts and included in the proper general allocable pool. Current audit activity by this office indicates that this condition has been satisfactorily corrected. S. Tooling (a) Rework of defective or unusable tools.-The contractor has developed and published the necessary procedures to establish an adequate system to permit identification and segregation of rework costs incurred as a result of faulty work- manship. In our opinion, the corrective measures taken by the contractor have been satisfactory, AFAUDMC-ID-KW OCTOBER 9, 1952. Subject: Report on conditions causing excessive costs. (b) Duplicate Pool design and fabrication.-An audit survey undertaken jointly by members of the contractor's audit staff and the Auditor General's resident office, signed by the director of the contractor's accounting systems and auditing department and issued April 18, 1952, disclosed that a total of 502 apparent tool duplications had been established. Confronted with this evidence, the contractor has now established the necessary procedures of tool control to prevent any recurrence of this condition. A disal- lowance for duplicate tooling will be taken by this office upon the completion of the tooling program. 4. Material Obsolescence of production parts.-The contractor has revised the procedures dealing with the purchase, inspection, and disposition of production material as well as establishing a new procedure covering production material changes at Willow Run. As a result of these corrective steps taken by the contractor at the request of the A...uditor General's resident office, conditions with respect to the obsolescence of production parts have shown considerable improvement. Upon the insistence of the Auditor General's resident office all discrepancies in part numbers must be cleared by inspection before reimbursement will be made. 5. General (a) Possible additional cost to the Air Force resulting from 90-percent guarantee of 5-percent V-loan of $25 million obtained by Kaiser Manufacturing Corp.-The possi- bility of loss is !,,till in existence; however, it is the understanding of this office that AMC personnel, in the person of Mr. F. Robertson, financial adviser to Major General Bradley at AMC, has this aspect under consideration and is now conferring with management of Kaiser-Frazer Corp. (b) Arbitrary end unsupported changes of account, distribution on basic accounting documents.-This condition has been corrected through the joint audit efforts of the contractor and the Auditor General's resident office. Beginning with July 1, 1952, all basic accounting documents have been subject to a current review by representatives of the contractor and this office. As a result of this joint program, errors in accounting distribution have been greatly reduced. Appropriate d?,sallowances will be taken by this office in cases of improper ac- counting distribution occurring during 1951 based upon a joint audit of all pay- roll and overheac l costs of this period. (c) Compensab.on to union representatives.-The union agreement authorizing nonworking union representatives is still in existence. Recent restrictions upon the approval of overtime work for aircraft employees has resulted in a correspond- ing reduction in the overtime premium payments made to the nonworking union representatives. 6. As a result of the deficiencies reported by this office in our initial report on conditions causirig excessive costs, a meeting between representatives of the Air Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release da3T16AdUEiN-iP64B00346R000 050003-4 Materiel Command, the Auditor General and the contractor's top management, including Edgar Kaiser, president of Kaiser-Frazer Corp., was called by Briga- dier General Keillor, commanding general, Central Air Procurement District, on April 4, 1952. -At this meeting, and at two additional conferences subsequent to this date, the problems of excessive idle manpower and various deficiencies in the tooling program were discussed. As an outgrowth of these meetings, a permanent joint policy committee was formed composed of representatives of the Air Materiel Command, the Auditor General, and the contractor's top management officials directly below the com- pany president. The purpose of this committee has been to discuss the various problems arising during the development of the aircraft program at Willow Run, and to formulate and implement solutions acceptable to both the Air Force and the contractor. SIDNEY C. SOLOMON, Resident Auditor, USAF. FEDRUA$Y 14, 1952. Subject: Conditions Causing Excessive Costs to Government Contracts. To: Air Force Plant Representative, Kaiser Manufacturing Corp., Willow Run, Mich. (Attention: Lt. Col. Ray C. Ulrey) This will acknowledge your letter of January 21, 1952. After the receipt of your letter of January 23 an inspection of the plant was made by our representatives, together with Colonel Ulrey, , Captain Smith, and Mr. Solomon. On this inspection trip it was observed that certain employees were not engaged in productive work. The percentage of such employees, how- ever, was considerably less than that indicated in Mr. Solomon's memorandum of January 21, 1952, a copy of which was attached to your letter. Whenever a new manufacturing program is commenced in a plant and it is desired to initiate production within the shortest time practicable, it is inevitable that a certain number of employees will not be engaged full time in productive work. This results from the necessity of recruiting manpower in' anticipation of the receipt of tooling and technical information and training such manpower. In connection with the latter, it might be noted that we have been following the prac- tice of training on the site, that is, having trainees observe the operation of equip- ment by qualified mechanics. Such trainees, although not engaged in productive work, are in no sense idle. In addition to the factors always incident to the initiation of a new program, certain other causes beyond our control have contributed to the manpower situa- tion at the Willow Run plant. Among these are the following: 1. The failure of Fairchild Engine & Airplane Corp., the design agent, to fur- nish technical information required for the completion of tooling and the initiation of production in accordance with schedules. 2. The numerous changes made by such design agent in the technical informa- tion furnished by them, which changes necessitated delays in our tooling program. 3. Delays in delivery on the part of suppliers of tooling. 4. Lack of information in respect of the changes in the schedule of the Air Force for the delivery of the C-119 airplane. There is attached hereto a chart showing the forecast of manpower requirements for the schedule of work contemplated and the actual number of employees on the payroll, which illustrates when the difficulties referred to above became apparent a reduction was made in the hiring program with a view to restricting such program so far as then appeared to be consistent with a policy designed to avoid any delay in the manufacturing work. We were verbally advised on February 1 of the so-called 10B schedule for aircraft production which, of course, will have the effect of decreasing our man- power requirements. No official notification, however, of this reduction in sched- ule has yet been received by us. In view of the unofficial information in respect to the schedule which we have received and the statements made in your letter of January 21, 1952, we have taken the following steps: 1. All hiring of production personnel not in skilled and semiskilled classifications has been terminated. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 ApproFor Release 200RW dIMM0346R000400050003-4 2. All aircraft departments have been surveyed to determine what unskilled personnel are not productively employed at the present time and such personnel have been separated from the payroll. 3. A new and comprehensive procedure for manpower control has been formu- lated. We do not feel that the manpower situation at the Willow Run plant is in any way attributabl; to failures on the part of management. If, and to the extent that there has been any excessive manpower in the plant, the situation is clearly one attributable to circumstances of a temporary nature, which is now in process of correction. If there is any further information that you desire in regard to this matter, please let me know. Yours very truly, KAISER-FRAZER CORP., JOHN HALLETT, Executive Vice President and General Manager. EXHIBIT B AF PLANT REPRESENTATIVE, CENTRAL AIR PROCUREMENT DISTRICT, KAISER MANUFACTURING CORP., Willow Run, Mich., February 21, 1952. Subject: Conditions causing excessive costs to Government contracts. To: Auditor G,meral, USAF, Resident Office, Kaiser Manufacturing -Corp., Willow Run, Mich. 1. Inclosed is a copy of letter dated February 14, 1952, on above. subject addressed to the writer and signed by Mr. John Hallett, executive vice president and general manager, Kaiser-Frazer Corp. This letter is a reply to the under- signed's letter d,sted January 21, 1952, on same subject which referenced your let- ter addressed to this office of same date. 2. The writer concurs with Mr. Hallett's statement in the next to :the last paragraph of hio letter "* * * the situation is clearly one attributable to circum- stances of a tempory nature * * *" and evidence exists that the contractor is now in the process of correcting the temporarily excess personnel situation. 3. It is requested that your office review the contractor's corrective sction as indicated in attached letter; the review to encompass adequacy of intended cor- rected action aiid surveillance of compliance with his proposed plan of control. RAY C. ULREY, Lieutenant Colonel, USAF, AF Plant Representative. 1 inclosure, F-F letter dated February 14, 1952 re above subject. cc: CEG, CERKC, CERKP. EXHIBIT C Number of employees, Kaiser-Frazer Corp., Willow Run, Mich. Aircraft E l Date Hourly l eth T mp oyees common to aircraft and ti auto Total plant Direct Indirect ary Sa er og ve mo operations Feb. 15,1952_______________ 1,975 701 900 3,576 7,800 15,191 Feb. 29,1952------------------- 1,849 833 915 3,597 7,937 15,458 Mar. 15,1952 ------------------ 1,847 834 954 3,635 8,069 15,782 Mar. 31,1952___--__,..________ 1,749 874 974 3597 8,171 15,774 Apr. 15,1952------- .---------- 1,728 922 1,016 3,666 8,191 15,808 Apr. 30, 1052__________________ 1,829 908 1,063 3,800 8,234 15,850 May 15,1952 ------------------ 2,048 -882 1,057 3,987 8,226 15,936 May 31, 1952__________________ 2,339 723 1,022 4,084 8,312 16,205 June 15, 1952_________________ 2.748 740 1,014 4, 502 8,348 16,606 June 30, 1952 ------------------ 3,181 543 1,048 4,772 8,511 16,981 July 15,1952 ------------------- 3,525 538 1,068 5,131 8,558 17,446 July 31,1052 ------------------- 3,747 662 1,117 5,526 8,405 17,655 Aug. 15,1952 ----------------- 3,733 622 1,182 5,537 8,367 17,645 Aug. 31, 1952 ----------------- 3,751 651 1,272 5,674 8,310 17,949 Sept. 16,1952----------- .._____ 4,060 621 1.367 6,048 8,368 18,390 Sept. 30,1952 ------------------ 4,421 654 1,422 6,497 8,498 19,088 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release/AMtk64B00346R0004q.(R50003-4 DOCUMENT NO. 18 This document appears in conjunction with document No. 2. DOCUMENT NO. 19 TRANSCRIPT or TELEPHONE CONVERSATION BETWEEN MR. EDGAR KAISER AND MAJ. GEN. MARK E. BRADLEY, JR. DECEMBER 24, 1952, 4:10 Preliminary greetings and remarks omitted. BRADLEY. Are you making any progress? KAISER. Yes, I think we are. You wouldn't know it from all the chatter that is going on, but I can tell you one thing. This fellow Harley Jones that you sent up here is-he's a strong guy and he's certainly righteous, but he knows what he's doing. I guess you know that better than I do. BRADLEY. Yes, I know it. KAISER. And he's a great help. BRADLEY. Well, that's fine,, Of course. you have somebody there running that place that's like that. KAISER. Well, I think we have.' BRADLEY. I don't think you have, Edgar. KAISER. You don't really think so? BRADLEY. No, I don't. If you had, we wouldn't have, even if some of the things are questionable and there's a lot of reason for it, we wouldn't have a manpower situation and a labor utilization and a lack of planning and stuff like that that we've had up there. And it just doesn't make sense to me. Well, anyway, what I want to tell you about was, first, that we don't think that plan that you talked about, I don't think that will'work. KAISER. Okay. Well, you know. I'm not sorry about that. I just wanted you to know if that was a right thing to do, we'd try to help. BRADLEY. Now, I do think we're going to have to bring this thing right out on the table and the next couple of_ months, for instance, we're going to have to look again and see what the trend is, what's going on, and what's being done. KAISER. That's right., What are you planning on doing in about, say, 30 or 45 days, sending some of these people back here-- BRADLEY. That's right. Sometime around 60 days from the time we sent you that first letter. KAISER. You will send them back again. I think that's a good thing to do. BRADLEY. New, also, I think that thesituation, in my opinion, .is so bad that there's pretty grave danger of drastic action maybe being taken. I think you ought to think very seriously about that other proposal you had of a possibility of some partnership or other. KAISER. Do you? BRADLEY. Yes, Sir. KAISER. All right. BRADLEY. I really think that if you think you could work that out, that all the drastic action that you can take is certainly in order. KAISER. O. K. BRADLEY. I just wanted to tell you that-I hate to be calling you on Christmas eve to be telling you something like that. I'm not saying that you should do it-don't got me wrong. I'm just saying that we would think that anything we could do to.get our position stronger and present a better front on this thing, would be better. KAISER. The thing I need to know is if I've got a little space of time here, if you're going to leave me alone and not do anything or not take anything away from us for that 30 or 60 days, I'm all right. BRADLEY. Well, I hope you are, and that's my recommendation to the higher levels. KAISER. In other words, not to do anything. BRADLEY. My recommendation is to carry out my letter-that I told you we would be back in 60 to 90 days. KAISER. Right. All xight. But what you're saying to me is there's so much discussion going on up here, that it might be advisable to adopt the other sug- gestion I was talking to you about. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approh d For Release 20"91 l1>0 ? :i bk4%M64B00346R000400050003-4 BRADLEY. Well at least I would explore it, because anything that would give you a better chance to perform and assurance of performing, would do a lot of good. KAISER. O. K. Well, I think this, I don't.know what you get. I think your people, even your teams that have been up here, feel a lot better about the 123 -program, don't they? BRADLEY. Yes, they do. "KAISER. At least we've got something good to look at. BRADLEY. Yes, they say that looks better. KAISER. Well, that's good. BRADLEY. But the terrific amount of overhead you've got on this business up there, we just can't tolerate. And one of the best places, I think, to out this cost is in that overhead. I think you ought to start to working on that thing. KAISER. That'. right. But at the same time, we have to look at what we've got to think about. We've got to think about what kind of overhead does it take when you get this thing in gear. Now, I tell the boys here, the important thing is you don't have any more people around here in overhead than it takes when this thing is up to program. Do you understand what I BRADLEY. Yes, I understand, but I don't think you can afford to carry that many. I think that's one of the things that's got you boxed. KAISER. If you're going to bring in-and I'm not trying to argue with you, I just want to tel you what our philosophy is, maybe you can help me. If you're going to bring in new people and new organization, this is no differezrt that what we went through before. It takes a little while to get new people, and you want to build new people. BRADLEY. Yes, but you've got a terrific overhead that's been running up there, and there're nothing for them to be managing down there. You'd better take a look at that one. I'm not qualified to sit here in Dayton and tell you. KAISER. I knew that. I understand what you're saying, and I appreciate your calling about it. BRADLEY. O. K., well, a real happy Christmas. KAISER. Thank you, and I appreciate your calling. Goodby. BRADLEY. See you later. DOCUMENT No. 20 MEETING AT KF FEBRUARY 3, 1953 Loomis, Col. Arthur H., USAF, Deputy Commander, CEAPD Jones, Col. Harley S., USAF, commanding officer, NEAPD Martin, Lt. Col. Wallace S. Jr., USAF, AF plant representative Reams, Maj. Charles E., USAF, Deputy AF plant representative Watts, Maj. Harry T. Jr., USAF, Chief, Flight Test and Acceptance Chance Capt. Harry A., Chief, Contract Branch Crow, Capt. Willard, USAF, Chief, Industrial Property Branch Furman, Lee, Chief, Quality Control Branch, Fairchild Aircraft Corp. Clark, Charles F., Chief, Quality Control Branch, AFPR Renshaw, Burson W., Chief, Production Branch Cook, Paul E., Production Branch Baker, Alfred, A isistant Chief, Quality Control Branch Hayes, Frank, Quality Control Branch Nyberg, Lloyd, Quality Control Branch Time: 1330 Date: February 3, 1953 Place: Dining room A; list of personnel in attendance is above. Colonel Jones. This briefing is to fiulfill two functions: (a) To go over with you again what l ias transpired in the 2 months that I have been here; and (b) To wind up my activities in the plant. I am planning now that tomorrow will be my last day and I will try to get on my way to Boston sometime Thursday. I have a call from General Bradley coming in for me and will ask to be excused at that time-there may be a change in my plans. Some of this may be repetitious, but it might be well if we start from the beginning. The clay after Thanksgiving, I received a call from General Bradley telling me that due to my varied experience in plants, General Rawlings had requested that I be placed on temporary duty at Willow Run for a period of 60 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaseA~I;9/14oPR164BOO346ROOO4OOOO3-4 days. My interpretation of my mission was that I was to assist the contractor in any way that I could.. I have not entered into any personnel recommendations or procedures outlined by the local Air Force or district. In briefing Lieutenant Colonel Ulrey, my instructions were to continue business as usual. I wanted to be free to spend time in the shop and with the contractor. My 2 months are up and quite a bit has transpired. I arrived here on December 1, 1952. The first week was spent getting ac- quainted with the plant layout, getting acquainted with the people that I would have to deal with, looking at operation sheets and general conditions existing in the plant. It was obvious that the plant was overstaffed and that there was considerable idleness; supervision was marginal in several areas; tooling was questionable throughout the plant and production control was faulty; production and assembly were badly out of balance. First steps that I took followed about these lines: (a) Program of layoffs by areas was recommended and gone into with the contractor, which he has since implemented. (b) List of supervisory skills that were needed were established and where I could, I gave assistance in arranging interviews, such as Consolidated at Fort Worth. (c) Program of tooling coordination, backing up from Station 8 through subassembly, fabrication, and machine shops was recommended and immediately put into effect. Results of this are not quite satisfactory, but anyway an attempt was made to get tooling coordination back from Station 8, and this program is still progressing. (1) Cycling of all templates was started and progressed fairly well. Reason for that being there were sometimes as many as 2 or 3 templates on the same part or tool in the shop. (2) A rigid tool-control system was asked for, which is now progressing. Back in December in the punch-press area as an example, as many as one- fourth of tools were lost. The gentleman that ran that, named Eddy, couldn't take the pressure and quit. Keselis seems to be getting things under control. I see things in the plant that indicate better control of tools. The punch-press area tool crib is a good example. I stopped all overtime in final assembly and the flight line pending balancing of production releases and subassemblies. No need of having overtime out there. At the end of 4 weeks here, I knew I was about due to be called into Wright Field to brief the Under Secretary, Mr. Gilpatric, and General Cook, together with AMC personnel. I was not satisfied with the progress being made. I called a conference with Mr. Edgar Kaiser and Mr. John Hallett and informed them that progress made was unsatisfactory. Within 2 hours, Mr. Hallett was relieved of all automotive duties in the front office and set up his office in the airframe shop with the sole responsibility of getting the show on the road. I think that probably this was the turning point in the program. To me, this was a very excellent move. I had one man to go to who wasn't giving me any double talk. Mr. Hallett is an honest man, capable of getting down into details and coming up with the correct answer. Don't ever sell this fellow short. Any- way, after John got down into the plant, things began to go a little better. All during this time we were also having quite a few conferences pertaining to a master schedule on the C-119. They had a master schedule of a sort. here, but I had trouble interpreting it and it obviously was worthless as a shop guide. It wasn't factual or realistic. I gave one ground rule and worked with them very closely on the buildup on the master schedule. The ground rule was that the C-119 must be completed in 1953. I have three reasons for that- (a) Felt it was a reasonable expectation to complete the program in 1953. (b) The cost would be prohibitive if extended beyond 1953. Costs on the C-119 will be terrific anyway. (c) Space and shop loading would be required for the C-123. On the 2d of January, a master schedule for the C-119 was published. It looks realistic to me. No reason why we should not be on it. Worked out so far O. K. January schedule called for 6 ship equivalents in subassembly. Lezie's board showed equivalent of 8 airplanes. This month's release in subassembly is 7. No reason why we can't turn out 9; contractor shooting at 10. Line move was on a 4-day cycle through January 20; reduced to 3 days on January 21. We have had 3 moves since then on schedule. Man-hours are very healthy. Next change will be 232-day cycle, effective March 16. Approved For Release 2003/10/10 : CIA-RDP64BOO346ROO0400050003-4 Appr ,fd For Release 29,WJJ 110 P rF44YNB00346R000400050003-4 After the first week in January, I suspended all overtime unless it could be personally defended by the general manager. Outside of engineering and a hand- ful of personnel required to change prop boots, there has been no overtime since the first week in January. It is my considered opinion that your C-119 program is now showing fair, signs of stabilization. :Present schedules should be met and successfully culminated. Don't knowwhether you have all seen the out-of-factory schedule. For infor- mational purposes, following is present schedule: Out of factory Accepted Accumulative February .------------..-.------------------------------ 6 8 7 8 29 37 March ------------------- ..------------------------------ April ------------------------------------------------ 9 9 46 May------------------- ..-..------------------------------ 11 13 10 12 - 56 68 June--------------------- ------------------------------ July ---------------------..----------------------------- 17 16 84 August ----------------.- ?------------------------------ September ---------- ------------------------------------- 15 16 16 15 100 115 October--------------------------------------------------- 16 15 17 14 132 146 November--------------------------------------------- December ------------- ..-..------------------------------ 5 13 159 Again, I consider that this is a reasonable schedule; nothing impossible in the acceleration unless you have a major engineering change or a group of major engineering changi~s. Noreason why this schedule shouldn't be-met. Major IIEAMES. You mentioned tool coordination at station 8 back.; Any recommendations? Colonel JONES. There is still too much time spent in sandbagging in station 8. I talked to Laney about this yesterday and they are starting another tool boordi- nation from this ,-tation. * * Colonel JONES. On the assumption that the C-119 was the most immediate problem, little time was spent on the C-123 program until January 15. Since that time, all efforts have been on the C-123. As you all know, outside of cargo floors, the first assemblies are to be furnished by Chase. I was at Chase Friday, January 30, 1953. They are in trouble. Their main areas of trouble are center wing, nose, and forward side panel. I do not believe they will meet their present schedule regardless of what they say. Kaiser is tooling up rapidly, but they will not be able to materially assist. Chase except for details They just are not going to have any time. On C-123 tooling, I would say tooling is good; tool design is good; and I would consider it class A tooling. There are a few things that bother me: (a) Terrific am::Hint of work slated for station 9 mating buck. Station 8 is bad also. I began immediately to look at the amount of tooling ordered. With Mr. Hallett and Mr. Ilailey, I took a look at the mating bucks as these were the longest lead time item. tt was nicely engineered from a processingstandpoint and from this study the 3 bucks that they had ordered would just cover requirements, but things that bother me is: (1) It is the first airplane of its type. (2) Computations were on a straight 16-hour day. Unless a miracle happened, you will- not get 16 effective hours in your mating buck. (3) Figuring on a total working force for 30-people, you can get 30; people in there, but not get 30 hours per hour work from them. I strongly recommended that the contractor order a fourth buck, which he did. Since then, I have discussed with them the possibilities of mating some .of his indexes before putting into the mating jigs. They are probably too far down the line to do that, but its worth looking into. In my opinion, with present sequences at station 9, as many as 7 mating bucks may be required for a production rate of 35 monthly. On the shop ord ors on the C-123, you will have to cover approximately 10,000 parts in this plant:,. You are going to have a pretty rapid build up on shop; orders. In order to meet this build up, it is my opinion that you will have to consolidate C-119 orders even through lot 7. - Lot 6, lot 5, and lot 7 with scrap replacement orders will have to be consolidated, otherwise C-123 orders will not be met. It is my recommendation that we look pretty closely at the necessity for cutting down C-119 orders in order to make room for C-123; I have recommended this before. Your C-123 orders will probably be well in excess of 400 per ;day by Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releas?tlgppNI0/ I ~p I ,P64B00346R000440850003-4 June. This, means a much greater acceleration in your fab and machine shop orders than you have shown in the past 60 days. In my opinion, the C-123 schedule can be met-but everything has to go right. In summarization, I have about eight things that have to be done in order to meet this schedule. (a) It will be necessary for Chase to establish 2 shifts in order to meet Kaiser mating dates. (b) Chase will have to use considerable spot overtime. (c) Kaiser will have to recognize their dependence on Chase output through July of this year. This in turn means closer coordination and harmonious coop- eration between Kaiser and Chase-present bickering and sniping between the two companies must be eliminated. Presently established Sunday production meetings should be continued. (d) Where ever feasible, present outstanding C-119 shop orders must be con- solidated to release shop loading for the C-123. (e) Tryout of C-123 tools at Willow Run must be expedited on a priority based on usage dates. (f) Tools at vendor shops must be expedited, especially those tools pertaining to index 11, 10, and 16. (g) A realistic and workable master schedule must be published by Fialho. (h) Production control must increase their shop order releases based on tool availability-this should be done immediately and not be held for the master schedule. I do not like to wind this up on a note of pessimism, but I don't think you will meet your C-123 schedule. I think you will have a 60-day slippage on your first article. I won't bet on your making this schedule. It can be met if everything goes right. As a rule of thumb, 30 percent of all tools must be reworked before using. Kaiser schedules are based on the using of these tools immediately. Are there any questions? Lieutenant Colonel MARTIN. Is there any way to incorporate this tool rework period of time and still meet schedule? Colonel JONES. Only way is through use of Chase. There are a lot of short- cuts. I have suggested spot overtime and additional shifts, and I think that is your only way. If Kaiser will get together with Chase, they can do a lot. Sun- day meetings is probably one way of getting people together to start pulling as a team. Mr. CLARK. Not only Chase and Kaiser should get together, but we had better, too. Colonel JONES. I have not worked with the AF personnel; but have worked entirely with the contractor. The Air Force has two functions: (a) To protect the Government's interest-this is paramount. (b) Assist the contractor in meeting the terms of the contract-getting together to assist hire in getting over some of these rough spots. Captain CHANCE. Are we in trouble on the nose assembly? Colonel JONES. A little. Might be able to work way out of that. As for side panels, I think you can lick that, too. I would strongly urge and advise if any higher authorities ask you about the C-123 program that you don't try to mislead them with too optimistic an answer. It is possible, but everything has to go right for you. We happen to be in a business where things don't work out that way. Major REAMES. We have a problem at West Trenton to follow out some of the recommendations that Colonel Jones has made, such as freeze on overtime and freeze on hiring which leaves Chase in bad shape. Colonel JONES. These are problems that go across district lines, and I think the Air Force will have to work closely. Major REAMES. Results of manpower survey are that they are in bad shape. Asked Mr. Ryker about going on 2 shifts and Ryker's answer was that they don't have personnel to man 2 shifts. Colonel JoNEs. Agreed.. It isn't that simple just to say that they will have to go on 2 shifts if you have to use an entirely green crew. Captain CHANCE. Did you touch on manpower situation at West Trenton? Colonel JoNEs. No; I talked to Colonel Heyer and outlined our problems to him much as I am doing here today. I tried to impress upon him how vital Chase was in the production of early airplanes. He seemed to appreciate that. Didn't you think so, Reames? Major REAMES. Yes. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro1xied 99 For Release 2O0A ~ /A,&: fy&-AP pO346ROOO4OOO5OOO3-4 Lieutenant Colonel MARTIN. Will you make a report similar to this to General Bradley? Colonel JONES. I talked to General Bradley today and told him substantially what I have said here. Lieutenant Co:ionel MARTIN. Should we, through our districts, put pressure on either district through AMC? Colonel JONES. I told him I was going to leave my recommendations with you. General Bradley expects you to use your own judgment and wants you. to run your own show with district and doesn't want you bothering AMC as long as you can iron out your difficulties within the district. Colonel Heyer is anxious to cooperate. Lieutenant Colonel MARTIN. One point I would like to make with respect to distribution of these minutes. They are to be confined strictly to AF personnel, and are not to le given to the contractor personnel under any circumstances. May be used as background material to follow through on, but with respect to loaning the minutes to contractor personnel-this is out. Colonel JONES. Hope to say goodbye tomorrow individually. I sincerely appreciate your very fine cooperation. Will be glad to get back to Boston. I have enjoyed bring here and enjoyed working with the fine group of. people stationed in this plant and at district. You have an interesting job ahead of you. There is nothing impossible about it. Again thanks for the pleasant relationship for the last 2 months, and if there is anything I can do, please don't hesitate to let me know. Lieutenant Colonel MARTIN. Do you want information to go any further than this room when Your departure is? Colonel JONES. No; I have done this for a reason. Tomorrow afternoon, I intend to say goodbye to the contractor. Meeting adjourned at 1440. Copy of minutes to be distributed to all present. DOCUMENT NO. 21 APRIL 28,:1953. Memorandum for: Col. W. R. Graalman. MCPP2. Subject: C-119 Production at Kaiser Mfg. Co., Willow Run, Mich. You have ask A for my comments on four questions. Question No. 1. What about fins manufactured by Gibson that were rejecfed by Fairchild but were sandbagged into airplanes at Willow Run? I am not familiar with this condition and did not hear anything about' it while I was at Willow Run. I talked to Mr. Les Martz this morning concerning this alleged condition.. As you know, he was chief of quality control at Kaiser until late in January )f' this year. He also knows nothing about this alleged condition. He said that the only fin condition that he recalls was early in the production phase at Willovr Run, certain engineering changes had not been incorporated and that in orde r to take care of these changes, Fairchild had issued a field fix. Question No. `N. What about my March meeting with Mr. Edgar Kaiser'? I was at Kaiser Manufacturing Co., Willow Run, on March 30 and 31, 1953. I had a conference with Mr. Edgar Kaiser at noon on March 31 to discuss my observations with him. Also present at the meeting were Mr. John Hallett, Mr. Steve Girard, and Lt. Col. W. S. Martin, Air Force plant representative. I told Mr. Kaiser that his shop-order completions and subassemblies were not going to meet the master schedule that had been mutually agreed upon January: 3, 1953. I also informed him that tool control was still unsatisfactory. I suggested that in order to buy time, he appeal to Fairchild for parts and assemblies that were presently jig stoppers in his plant. He intimated that he thought this might be a good idea and directed Mr. Hallett to immediately determine parts required and see if Fairchild could help them out. I later checked with Kaiser's man Covelle about these parts and talked to Mr. Lee Furman stationed at Fairchild about expedited shipn ent of parts available. Mr. Furman informed me that they had just finished checking their bin stocks against a list of 79 parts requested by Kaiser and about two-thirds of this list were available and were being immediately shipped. I war disappointed at the small number of parts requested by Kaiser as I felt from what I had seen at Willow Run, the list should be in excess of several hundred parts rather than a mere handful such as 79 represents. Incidentally, at no time did I hear anything from Mr. Kaiser or any of his people that was critical of Fairchild's cooperation in parts assistance. Approved For Release 2003/10/10 : CIA-RDP64BOO346ROO0400050003-4 Approved For Release 2G O/Wgace164B00346R00040 0003-4 Question No. 3. How far is Kaiser behind schedule? I told Mr. Kaiser and my reports to my superiors here at AMC have been to the effect that the last airplane on the C-119 contract at Willow Run will not be delivered to the Air Force until March 1954. Question No. 4. Is it still true that Kaiser does not have an effective tool- control system? Yes. They have recently made some changes in the tool-control setup and have charged Mr. Ed Argersinger with the task of establishing an effective tool- control system. Mr. Argersinger is a capable individual. Tool control is not an impossible task and is not a great deal different in airframe than in any other form of business. I feel that probably by the end of April they will have a satis- factory tool-control system established. There had been some improvements since my last visit-for example, in the punch-press areas, the tools were now stored in areas adjacent to the machine tools. This is a good move, but from an overall standpoint, there were still, in my opinion, too many shop orders held up for tooling. HARLEY S. JONES, Colonel, USAF, Deputy Director for Production, Directorate of Procurement and Production. DOCUMENT NO. 22 UNITED STATES AIR FORCE, MANPOWER UTILIZATION SURVEY, KAISER-FRAZER CORP., WILLOW RUN, MICH., NOVEMBER-DECEMBER 1952 THE SURVEY Requested by Director of Production and Procurement, Air Materiel Command, Wright-Patterson Air Force Base, Dayton, Ohio Authorized by Commanding General, Air Materiel Command, Wright-Patterson Air Force Base, Dayton, Ohio Reason for the survey: To determine if there is excessive idle time and/or over- manning of work stations Date conducted: November 24 to December 18, 1952 The survey team: Guy A. Whitcomb, Chief, Labor Utilization Section, Industrial Manpower Branch, Industrial Resources Division, Headquarters, AMC, United States Air Force W. S. Bagley, Industrial Specialist, Labor Utilization Section, Industrial Manpower Branch L. P. Desmond, Industrial Specialist, Labor Utilization Section, Industrial Manpower Branch R. R. McCracken, Industrial Specialist, Labor Utilization Section, Industrial Manpower Branch IN;TIAL MEETING WITH MANAGEMENT In the initial meeting with management, held at Kaiser-Frazer Corp., Willow Run, Mich., in the office of Mr. S. A. Girard, vice president and general manager, on November 24, 1952, the following people were present: Kaiser Manufacturing Corp.: John Hallett, executive vice president M. Miller, executive vice president S. A. Girard, vice president and general managerA/C S. H. Taylor, assistant general manager, A/C C. M. Hollis, controller vice president S. F. Patyrak, defense contracts administrator W. B. McLaren, vice president-industrial relations H. V. Lindberg, executive assistant to vice president and general manager, A/C W. S. Brown, legal counsel L. K. Covello, Wright Field representative McEachren, Touche, Niven, Bailey and Smart (CPA, Detroit) Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 ApproyJ For Release 20 ld ldt0 :rffi{* :R64B00346R000400050003-4 United States Air Force: Lt. Col. S. E. Cleveland, USAF field project officer, C 119 LT. Col. R. C. Ulrey, AFPR, Kaiser Manufacturing Corp. Maj. J. F. Hanley, Headquarters, USAF Maj. C. E. Reames, deputy, AFPR, Kaiser Manufacturing Corp. Maj. C. G. Glasgow, Headquarters, AMC Capt. H. W. Smith, chief, production branch, KMC Capt. H. A. chance, contracting officer, AFPR S. C. Solomon, resident auditor, Auditor General, USAF B. W. Renshaw, production branch, AFPR A. G. Ungerinan, central procurement district, USAF D. E. Brightbill, Detroit regional office, USAF United States Air Force labor utilization survey team: Guy A. Whit comb, Chief, Labor Utilization Section, AMC L. P. Desmond, Labor Utilization Section AMC W. S. Bagley, Labor Utilization Section, During the discussion the Chief of the Labor Utilization Section (AMC survey team leader) explained the purpose of the visit and the techniques used: in con- ducting the survey. He stated that-- (a) The team's findings would be discussed with management as the survey prog_.-essed. (b) Top management should appoint a liaison man with whom the survey team would maintain close contact and make appointments with the: various executives and department heads. (c) A meeting would be held with top management to discuss the rough draft of the summary and recommendations before the final report is pub- lished. (d) Immediately upon completion of the summary report of findings, an- other and concluding management meeting will be conducted, for thepurpose of acquainting company executives with the conclusions and recommenda- tions contained in the final report. Three copies of the report will be made available for the convenience of management. Mr. S. F. Patyrak was selected by management to act as the company liaison man with the A'.r Force survey team. SUMMARY AND RECOMMENDATIONS The following pages contain brief summary comments with recommendations on subjects which have been covered in detail in the body of this report. Summary of events relative to improper utilization of manpower July 6, 1961, to December 3, 1962 Comments: Review of the exhibit indicates that excessive idle time and/or overmanning of work stations has existed since July 1951, culminating in the Air Force administrative contracting officer withholding payment on 2 vouchers amounting to $696,840.75, on December 12, 1952. Recommendation: That the contractor and the Air Force plant repre$entative immediately review all previous data contained in this' exhibit, together with this labor utilization survey report, taking such necessary action as required to solve and correct the numerous inefficiencies advanced throughout this document. Total number of employees AIRCRAFT Dec. 1, 1952-------- ---------------------- Jan. 1, 1952------------------------------- 4,033 2, 774 635 122 Increase---------------------------- Grand total increase---------------- 1,315 503 `total 5, 34B 3, 277 1,136 343 2,0711 793 2, 864 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release gpffA11;g1(1W.OPA~~4B00346R0004001%!0003-4 Total number of employees-Continued AUTO-AIRCRAFT (ALLOCABLE) Dec. 1, 1952 Jan. 1, 1952 Increase------------ Grand total increase----------------- 3,680 3, 285 298 224 1, 1,817 1, 390 5, 497 4, 675 Women 1, 079 8221 344 1,166 I includes hourly employees in aircraft departments, does not include allocable. % Includes exempt, nonexempt, and foremen, does not include allocable. 8Includes hourly employees in auto-aircraft services, allocable departments but does not include flnance or executive departments. 4 Includes exempt, nonexempt, and foremen. Total number of employees Comments: The above chart presents an interesting study of the employment trends in the several categories indicated with the significant fact that the em- ployment of increasing numbers of women workers shows a trend which will probably continue when it is again necessary to resume an active hiring program to support future schedules of aircraft production. In January 1952, only 4 percent of plant workers were women. During 1952, 25 percent of all new plant hires were women, which raised the overall percentage in the plant to 7 percent. Recommendation: See comments and recommendations under women workers. Employees by shifts Comments: The company is unable to break down male and female employees by shifts; therefore, the contractor is unable to determine whether or not men and women are performing comparable tasks on the various shifts, as an indica- tion of the number of additional women that could be used conveniently. Recommendation: It is recommended that the company immediately take steps to ascertain the number of male and female employees by shifts to ac- complish the aim outlined above. See comments and recommendation under women workers. Direct and indirect workers Comments: Information furnished by the company on numbers of direct and indirect workers, are inconsistent and further are at variance with information furnished to AMC on AMPR's. It is evident therefore that no consistent under- standing or interpretation of what are direct and indirect workers exists. Basis for estimating labor requirements by use of learning curves, therefore cannot be consistent or comparable with other aircraft production.' (See discussion of direct and indirect workers in body of the report.) Recommendation: That the contractor immediately accept and use the AMPR definition of direct and indirect workers and establish records accordingly. A consistent method, approved by the AF plant representative's office of changing allocable employees, broken down by the AMPR definition of direct and indirect employees, should also be adopted. That a followup survey be made at a later date to determine the degree of excessive idle time existing among the indirect and allocable personnel since observations in this survey deal only with production workers. (Also see direct and indirect workers in body of the report.) Workweek Comments: Kaiser-Frazer is currently working.: a 6 day workweek, 40 hours per week. However, due to some authorized overtime the average hours worked raIne vifrom 4.3 to 41.4. (See ew of the observations made ~el ewherb n thiof the s report under labor relations, it would appear that premium pay for additional hours should be more closely scrutinized by those authorized to grant overtime to reduce the costs of premium pay of production workers and union stewards. Recommendation: That a continuing review of all premium time granted by supervisors be reviewed for purposes of eliminating habitual tendencies on the Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Apprpd For Release 22/AJ410P,qykfMRrx4B00346R000400050003-4 part of management in. automatically yielding to every request, which has resulted in excessive costs particularly in reference to union stewards. Personnel with previous aircraft experience Comments: Of the 747 employees of the company who have had previous air- craft experience, at least 50 percent of them attained this knowledge during recent years. Their combined experience represents a most satisfactory cross-section of the aircraft industry, thereby providing Kaiser-Frazer with a skeleton organiza- tion around which to build a satisfactory degree of aircraft production accomplish- ment. Recommendation: That the contractor utilize this tabulation of the skills of these people in order to quickly locate the cross section of skills represented; to fill vacancies with the best qualified personnel. Responsibility and authority Comments: It is believed that responsibility and authority could be more clearly outlined. Foremen units are small in comparison to like operations in other air- craft plants resulting in a greater number of supervisory personnel being employed than would otherwise be needed. Scope of responsibility and authority for super- vision is ample. El owever, the quality of supervision should be improved. Im- proved records being currently set up should better this overall picture providing the contractor makes proper utilization of the information so obtained. The con- tractor now recognizes the necessity of a complete training program. If the contractor will accept this apparent need and follow through, favorable results should be obtained. The recently established foremen screening committee should improve the caliber of supervisory personnel. Recommendati:)ns: That the contractor immediately- 1. Outline the authority and responsibility more specifically for all executives administrators, supervisory and production personnel. 2. Decrease tha; numbers of supervisory personnel. Improve the quality. 3. Initiate a complete training program for all job classifications. -4. Give the newly formed foremen screening committee such assistance, infor- mation, and support as required in the accomplishment of their objectives to improve the quality of personnel. Industrial engineering Job simplification.-Comments: There is no job simplification program. Recommendation: That a job simplification program be organized in order to utilize more women workers and also untrained, unskilled, older and handicapped personnel wherever possible. This should aid in reducing the problems of person- nel transportation from excessive distances and also housing problems for immi- grant workers. Job evaluation. --Comments: Rate ranges are applied to jobs by classifications. There has been ]io effort made to evaluate jobs on a formal plan as suggested by the phrase" jobevaluation." This condition has not been a detriment to manage- m ent. Recommendation: Because of production matters considered to be of a more urgent nature at present, it is recommended that job evaluation be held in abey- ance. Time study.- Comments: Actual time studies on aircraft operations are in a minority. Extensive effort is now directed toward estimating time values for individual operations. Standard times, actual or estimated, are not applied to the workload to stabilize the flow of work through production. Recommends ion: Perform more actual studies from which standards may be built. Apply standards to the operation sheet before starting production of an item. Use time study to set the work tempo at a reasonable pace and correct estimated standards accordingly. Manhours control.-Comments: Excessive idle time throughout the plant area shows a decided lack of hour control. Distribution of manpower as now prac- ticed has not been efficient nor economical. Recommendation: Establish work areas, allocate manhours based upon valid standard hours supplied by industrial engineering, as a result of adoption of the recommendation under time study above. Plant layout. --Comments: Equipment generally is well layed out providing ample working space thereby, the layout should aid and support satisfactory line production. There are, however, some recommendations that would eliminate excessive idle time. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release >,1 J /;R I 64B00346R00040 50003-4 Recommendations: 1. An area utilized solely by the tooling employees to rework tooling should be provided. This area should contain such types and kinds of facilities necessary to accomplish these tasks. By acceptance of this recommendation, the commandeering of standard machinery located in various places of the plant would be eliminated. Provisioning of this type of an area removes a condition causing excessive idle time by holding up machinery and disrupting the flow of the line production of parts. 2. Routers should be relocated adjacent to the flat raw stocks. This action would eliminate bringing the material to the machines and gathering up the scrap and returning it to salvage thereby saving employees' time. 3. An area should be provided for master gages. This is very important as improper care is contributing much to excessive idle time by incorrectly setting tooling from masters gages which have been, as an example, bumped, dropped, etc., thereby affecting the alinement or dimensions of tooling set therefrom. The result is nonfitting components, or assemblies, plus the abundance of scrap which must be materially reduced. Methods improvement.-Comments: There is no organized effort expended on methods improvement. Recommendation: That management organize and conduct an extensive pro- gram with qualified personnel, designed to encourage and use employee partici- pation in the solution of problems. Production Comments: The past and current production accomplishments of the con- tractor have not been satisfactory to the Air Force. The lack of a well-balanced, properly controlled, efficiently operated production program together with untrained and unqualified personnel, have been a few of the contributing factors which have caused the contractor's weak record of production accomplishment. Important departments such as industrial engineering as an illustration, is an after-the-fact operation instead of one which predicts and stabilizes future production. Careful analysis by the survey team of facilities at Willow Run and by the contractor's admission are sufficient to support scheduled Air Force requirements. Currently, top production management have in the planning and embryo stages several corrective measures, which, if adopted and then fully utilized, look encouraging for the future. To support these programs, a sprinkling of qualified personnel with aircraft experience throughout the Kaiser-Frazer Corp. organizational structure should contribute to improved contractor production results. Recommendation: That the contractor take all necessary steps as required to support, follow through, and improve the production plans recently initiated, being constantly on the alert to place better qualified and informed personnel in the key positions responsible for the efficient administration of programs as planned. Tooling.-Comments: There still remains a considerable amount of rework to be accomplished on C-11.9 tooling. It can also be stated that present tooling schedules do not indicate the completion of C-119 tooling before the scheduled date for completion of all C-119 production. A bottleneck on templates corrected to latest engineering appears to be the most significant factor in C-119 tooling delay. Complete records are not available. C- 123 tooling is of sound construction and design. The program seems to be progressing satisfactorily and suitable records are being maintained. Recommendations: More emphasis and more time be expended on the co- ordination of C-119 tooling than at present; at the same time, C-123 tooling status must steadily move forward. A more complete and satisfactory set of records and information on C-119 tooling must be established and maintained. By conforming to the above recommendations, tooling, jigs, and fixtures, by being properly coordinated, will not hold up the processing of all affected production phases of work as is presently occurring in numerous instances. Material contro'.-Comments: Adequate records and availability of materials present no major problem. An inspection of various areas revealed that material is well kept, areas clean, and records adequate. However, the volume of work indicated that the average of from 40 to 80 material requisitions a day were being processed but there were 6 to 15 employees used in so doing. Recommendation: It is recommended that the personnel of these departments be substantially decreased. The volume of work in a number of material areas does not require the personnel now employed. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 ApprSyd For Release 20A1 (AO p h4RDP84B00346R000400050003-4 Production control.-Comments: Currently adequate production controls are conspicuous by their absence. However, it is possible that the recent establish- ment of several production controls, which has been stepped up in tempo and increased in number during the process of this survey, if carried through, and given a green lig it by top management, should materially improve and cause a reduction in the overmanning of stations, and also reduce a considerable amount of excessive idle tfme. Recommendation: That top management immediately support a sound pro- duction-control program. Timekeeping.-Comments: Basically the mechanics of the present timekeeping system appear adequate. Recommendation: Checks should be continued by timekeepers to ascertain if supervision is correctly recording time on the crew worksheets. Departmental ??,erformance rating.-Comments: At present, there exist no ratings by departments; however, top management has indicated during discus- sions its intentions toward initiating this type of a report. Recommendation: That top management immediately adopt a departmental performance rating program. Individual performance rating.-Comments: Currently this type of program is not used by Kaiser-Frazer Corp. Recommendation: In order to better classify the production performance of plant production employees and their special qualifications, it is recommended that a rating plan as used by various aircraft companies be given seriousconsid- eration. Labor productivity.-Comments: As indicated in the body of the report' lack of adequate production controls are strong contributing factors in the poor produc- tion record of Kaiser-Frazer. Recommendation: It is again recommended that top management immediately support a sound production control program as a means of increasing laljor pro- ductivity. Unavoidable suspension of work.-Comments: There is recorded few instances in this report of work suspensions which were unavoidable. Recommendation: None. Plant equipment.-Comments: Plant equipment throughout the plant appears to have been well chosen and in. good condition. In discussions with production management regarding this subject, it was stated that plant equipment was adequate except for the need of spar mills and hydrotels. These facilities, if provided, would eliminate out-of-line production and contribute to a greater utilization of manpower. Recommendation: That the Air Force investigate the contractors need for spar mills and hydro?,els and if it is determined that these items are necesaary, take immediate steps to provide them at the earliest possible date. Subcontracting Comments: The subcontracting of sub and major assemblies on the C=119 has been satisfactor''ly administered. The only major setback in this phase of the operation, has been the corrosion of wings. This condition is being remedied. The recent clarification by Headquarters, AMC, of the division of work and subcontract structure between Chase Aircraft and Kaiser-Frazer should materially aid in contributing to a better understanding of work to be performed on the C-123. Recommendation: The contractor should be constantly on the alert to prevent recurrence of thn above or similar unsatisfactory conditions. Overmanning of plant in terms of current needs Comments: Mathematical computation of estimated standard hours required for scheduled production, interpolated into man-hours available indicates that the o rerall plant could effectively utilize only 50 percent of the present employees for current production operations. These computations are supported by realiza- tion reports of industrial engineering, records of the Resident Air Force Auditor- Auditor General's Office, Inspector General's report under date of November 4, 1952, and the twenty-odd floor observations made at various locations, times, and dates. Recommendation: Present methods of estimating manpower be supplanted by valid standard hour requirements and by work areas throughout the plant. Furthermore, tie survey team suggests that the working force, which cannot be effectively utilized, immediately be reduced to conform with the present and future scheduled output and that supervisory and clerical help be reduced in Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaseA20OU '?/'fto(i 1 4B00346R00040peg0003-4 ratio to the direct labor force. Reasonable allowances should be made for training time to meet anticipated schedules. At the same time, every attempt be made to increase the quality of the work force through effective training programs and positive recruitment and better utilization of qualified and experienced aircraft production personnel. Excessive idle time Comments: Floor observations confirmed that excessive idle time exists. Inves- tigation of available records, the nonexistence of other basic production records and the lack of fundamental controls are heavy contributing factors pointing to excessive idle time. On no previous occasion has this survey team observed such a high portion of workers who were inactive and the work tempo of those who were applying themselves was far below any comparable group of aircraft workers previously studied. Recommendation: Supervision be instructed and management insist, that all employees for whom there is not a specific task be removed from the payroll. That industrial relations division take immediate steps to rectify their contribu- tion to excessive idle time caused by the absence of a well-balanced personnel and training program. That the industrial relations division study the Buick, Olds, Pontiac Division, General Motors Corp., Kansas City plant union agreements which operation is comparable to that of Kaiser-Frazer Corp., Willow Run, for the purpose of extracting therefrom such information and guidance as might assist this company in improving the working conditions under the present unique and unusual union contract under which Kaiser-Frazer Corp. is now operating. Industrial Relations Division Comments: This extremely important activity is directed by a vice president, 2 assistants, 7 section chiefs, and 490 employees. The scope of the services pro- vided is broad and the lines of authority are clearly established in the following fields: Labor relationu, Personnel services, Training, Plant protection, Wage and Salary administration, Feeding operations. Related activities wherever medical services and plant safety are provided are also under this division. The only significant deviation from normal practice in the several department, arises from the decentralization of personnel records at operating departmental levels where the responsibility is delegated for the mainte- nance of seniority records, and absentee and overtime accountability. The ratio of those engaged strictly in labor and personnel relations is 1 for each 136 employees. This calculation, because of the allocability aspect, is determined on a plantwide basis and comes within the normal range for these functions within the aircraft indu, try. Recommendations: Reserved for subsections dealing with specialized phases of this broad subject. Unions involved Comments: The United Auto Workers, Local No. 142, CIO, with a member- ship of 9,461, represents 87 percent of the overall union membership. The Amalgamated Plant Guards of America, Local No. 114, with a membership of 154, represents 1.3 percent of the overall union membership. United Catering, Restaurant, Bar and Hotel Workers, CIO, with a membership of 81, represents 0.7 percent of the overall union membership. Foremen's Association of America, Chapter No. 20, with a membership of 1,192, represents 11 percent of the overall union membership. Detailed studies and observations will be found in the section captioned, "Labor Relations." Recommendations: None. Labor relations Comments: There are two significant clauses in the Kaiser-Frazer agreement which add considerably to management's problems, the first relating to "plant- wide" seniority and the second provides for a fixed quota of shop stewards whose duties are solely with union matters even though they are paid their respective classified rates of pay as if they were engaged in productive effort for the company. The adverse effects of plantwide seniority and the implicit disruption of repeated bumping is obvious. Management is placed in a particularly difficult position in staffing the aircraft operation in an orderly manner. This disadvant-foun oage ais mot rdconowhere elseln mpany with a tUAWf contract, uengaged Te closest in airframe related example pis Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appr ed For Release 20=ADt1.Orly(0I RDP6AABO0346R000400050003-4 that of Buick, Olds, Pontiac plant in Kansas City where the supplemental agree- ment regarding seniority has been realistically developed as follows: The contractor (BOP) agreed to recognize auto workers seniority rights in terms of transfers to the new aircraft program on the following basis: Transfers would be scheduled at the company's discretion confined to occupa- tional groupings (Job families), and BOP agreed to recognize seniority to the limited extent of providing employment in aircraft production, not to exceed 25 percent of the total number employed, by the end of 12 months from the commencement of operations. This basis of orderly staffing gives management the latitude that experience has dictated is necessary to organize and operate dual production lines on an efficient basis. in the Kaiser-Frazer's aircraft While there has been no major work stoppage operations during the 2-year period since its inception, the following facts are clear and significant. The bargaining agent (UAW) has progressively gained great influence in the management of the production operations usually considered management functions and in spite of the costly maintenance of a large force of nonworking union job stewards whose sole function is to represent membership in the resolution of their grievances the continuing volume of such localized disputes indicates that there is chronic restlessness which undermines both morale and produ.:tivity. It is a well-established fact that there is an inadequate number of competent skilled workers available to meet the company's responsibility for stepping up both production and quality control standards, and for training and supervision of the rank-and-file workers who are new to aircraft production. From a strictly labor-utilization standpoint, the survey team finds itself con- fronted with the unique and paradoxical -situation where on the one hand there is an acute shortie ge of skilled workers, particularly with related experience and on the other hand, observe that there are currently 101 of such critically needed skilled artisans who are on the payroll at their respective skilled rates, and yet have no direct production duties whatever. Their sole function is to represent their members in all matters where there is a conflict between the worker and his supervisor throui::h the means of -grievance procedures established under the terms of the contract. Significantly important detailed accounting on the subject of grievances and the "nonworking steward" system will be found starting on page 63 of the report which reveals the costly extremes which are imposed upon the contractor in the functioning of the: union contract. Recommendations- That management restudy the problem of overtime involvement, wherein stewards are paid premium rates, frequently resulting in fantastic earnings by nonworking stewards, who at times are not even present when overtime of one or more persons is involved and yet are paid time and one-half the hourly rate for all time worked. Further, that management again review the plant vide seniority clause of their current union contract with a view of renegotiating with the union a seniority clause which will permit a more orderly and effective staf.Iing of the aircraft activity. The hiring program Comments: The union-management contractual obligation which requires. that the bulk of the manpower required for aircraft be obtained through recognition of plantwide seniority and posting of jobs with automotive workers rho can qualify being given opportunity to accept even presents, though more qualified' workers are available, a decided handicap to successful recruitment in an extremely tight and highly competitive labor market. The appreciation of an "across the board" system of seniority poses a serious problem in many directions, and particularly is this true of attracting and holding new workers who must weather the 90-day period of continuing uncertainty pending the initial establishment of a seniority status. This established practice of widespread integration of manpower resources (allocability) pesos a very real problem, in efficient administration and at times, obscures the very facts upon which the survey team must depend to properly evaluate manpower utilization. Recommendations: - That a positive plan, in the nature of a "manpower budget" be formulated at the earliest possible time, and thereafter maintained as a guide to current and. potential labor requirements. This schedule will, of course, be integrated with, and based upon, aircraft scheduling requirements, obviously requiring in it? initial preparation and continuously in its operation, a close working relationship between industrial engineering, personnel, and training? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaseA?gM~4)/Iqo(q2G4BOO346ROOO44OOO3-4 with coordination responsibility for the latter two lodged with industrial relations, as the policy source. Additionally, it is suggested that the personnel department be charged with and granted the staff time, to do a much more careful job in the selective process, even and notwithstanding, a decreasing manpower pool from which to draw. Interviewers might most profitably take more time and care in screening those who apply, particularly is it desirable that references be promptly processed on a "preemployment basis," to avoid poor and unstable risks in advance of actual employment. Labor requirements Comments: The company has been able to obtain a sufficient quantity of pro- duction workers to meet aircraft production schedules. Since the inception of the Kaiser-Frazer aircraft program and the demand for production direct workers, there has been a shortage of experienced aircraft direct workers, there has been a shortage of experienced aircraft workers such as hand formers, stretch press, riveters, press brakes, mill operators, subassembly and final assembly workers. (Method for calculating; labor requirements see manhours control.) As of November 24, 1952, management stated that no additional employees were needed. On November 28, 1952, the survey team was furnished with a list of 226 male and 20 female for a group total of 246 unfilled aircraft labor requisitions in the company employment office. A close study of these unfilled labor requisitions reflected that the large portion consisted of skills which fall into national shortage categories. The survey team does question, however, the number of people required in some classifications, such as crib attendants, tool grinding and perhaps the need for 43 tool workers at this time. Management further informed the survey team that no additional employees would be required in 30 days, that 1,400 additional employees would be needed in 3 months but no additional employees thereafter for a 6-month period other than the critical classification shortages that exist such as tooling and engineers. Their forecast was based on the following: "The forecast that an additional 1,400 people would be required by February 1953 (3 months from date of forecast) is based on the current status of the C-119 program which is currently in production and the anticipated needs of the C-123 project which is being put into production. "In the above forecast, consideration is given to the slippage which has oc- curred in the contractor's performance to the C-119 schedule. This adjustment defers the peak requirement for direct manpower on this project for several months, and overlaps the manpower buildup on the C-123. "A total of 4,300 direct workers will be required on the C-119 program at peak. Of this total 3,600 are currently on the roll, assigned to this project. The difference of 700 employees must be hired by March to meet C-119 demands. "Direct labor requirements on the C-123 program are at present increasing. This expansion occurs concurrently with the C-119 project and amounts to an increase of 700 people between the present and the C-119 peak. After the C-119 peak occurs and starts downward, these people will be reassigned to the C-123 to meet the expansion of production on that airplane." While the survey team fully recognized the many-sided difficulties involved in forecasting future labor requirements, it is clear from the foregoing that a wide variation exists in the data which was submitted for study, and upon which a trend could be established as a basis for future recruiting and the accompanying training needs. Recommendations: That the personnel and training department be provided with a more reliable schedule of future requirements, so that the recruitment of necessary additional workers, in the various occupational groups may be pro- gramed by careful advance planning. Since manpower stringencies in the Greater Detroit area are likely to contract in the future, much more emphasis will therefore be necessary in training "green" workers, and special attention given to their orderly absorption, under "job simplification methods" usually employed in labor-shortage classifications. Unfilled labor requisitions Comments: As a result of vastly reduced hiring during the past 6 weeks (actually the period of recent layoffs) the number of new workers desired falls with few exceptions into skilled categories, of the "hard to recruit types:" Du- plicate demands are on file in the Ypsilanti office of the Michigan State Employ- ment Service. Approved For Release 2003/10/10 : CIA-RDP64BOO346ROO0400050003-4 Appr2M@d For Release 200MUM PO R 00346R000400050003-4 Much emphasis has been placed upon the urgency of the demand for 40' "cur- rently experienced aircraft supervisors" and positive recruitment has; been requested through the Ypsilanti office (copy to-Lansing State administrative office). Recommendations: That all requisitions be carefully scrutinized by the person- nel director, to provide continuing control over all orders received in the depart- ment whether or not the order is for replacement personnel or a new requirement. This delegation of responsibility and the authority obviously necessary to assure rigid compliance with this "conservation policy" is clearly needed, as is the need for better planning and coordination. Sources of new employees Comments: With but few exceptions the company has relied upon the, man- power supply of metropolitan Detroit for its labor requirements. However, the demand for industrial workers now exceeds the supply to the extent that; much reliance will necessarily have to be placed upon recruiting and training women workers, who can be readily absorbed in light manufacturing. Since there is a continuing and critical need for some 40 experienced aircraft supervisory workers it appears that intensive and positive recruitment will have to be undertaken which then may present opportunities to recruit those not presently engaged in the maximum use of this experience. Past relationships with the Michigan State Employment Service offices in the adjoining communities have admittedly been helpful, and their facilities for clearing orders to other selected and noncritical areas can be made available. Recommendations: None. Michigan State Employment Service Comments: The Kaiser-Frazer personnel department and the Michigan State Employment Service have worked closely in a cooperative effort to meet the com- pany's requirements in this area. However, recent efforts to recruit experienced aircraft supervisory workers in a critical area, such as Wichita,- might have been avoided by requesting interregional clearance assistance for the company's recruiters, so that any disruptiveness implicit in this approach would have been avoided, and another area might have yielded better results. Recommendations: Explore with the responsible senior officials in charge of clearance recruiting, the possibilities for meeting the company's immediate specialized demand for experienced aircraft supervisors from areas of logical recruitment without undue disruption of other vital aircraft programs. Keep the Michigan State Employment Service informed of the results; of the recruiting success to plan.-future manpower requirements. Interviews and tests Comments: Even though there is a dwindling supply of manpower in the Detroit area, it would appear in view of the excessivley high rate of turnover that particular al-tention be paid in the selection process, to the elimination of applicants whose records show instability and apparent unwillingness or inability to remain steadily employed for any length of time. The additional time allocated for this purpose, will be amply justified by results. Submarginal hi ring of either male or female workers is of doubtful value since they are the main contributors to a high rate of attrition during the first 30 or 60 days of their employment. Recommendations: That interviewers be given refresher training courses and the opportunity to do a better screening job and -thereby eliminate a; higher percentage of the doubtful risks through the use of long established selection procedure, which are not now employed for the run-of-the-mill types. Investigations of c'-pplicants Comment: The company personnel department employs the resources of the various retail credit associations for verifications of previous employments. Security checks are in line with the customary requirement of establishing citizenship. Recommendations: That the maximum effort be expended and where possible on a preemployment basis to eliminate doubtful or poor risks from either employ- ment or security standpoint. Time required to process new workers Comments: The fact that only 1 hour is required to physically -examine and otherwise induct a new worker suggests that the probability that the simple and direct method stemmed from the heavy volume of new hiring which required Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleR494/1MahP64B00346R00Q0050003-4 ^oduction-line methods to handle such a burden, which frequently amounted to 000 men workers a month. Recommendations: As a companion recommendation to that made relative to iring policies, it appears highly desirable that more care be exercised in introduc- ng new workers to their jobs at Willow Run. More specifically, management night explore .the value to be derived from a soundly conceived orientation pro- ;ram for all new workers which would familiarize the worker with such matters As plant security regulations, safety, company rules relating to absence, shop rules, union regulations, hospitalization, etc. This would supplement or reduce the implied responsibility of the foremen whose other duties are more demanding to the detriment of proper handling of all new employees in a uniform and more effective manner. This should all aid materially in reducing the excessive losses of new workers. The training program 11 during the past year have had no related experience in aircraft, it is considered unfortunate that those responsible for policy have not been more conscious of the dire need for and the value of a comprehensive and formalized training program to equip these unskilled and inexperienced workers to do a more effective job. In recent months, an adequate staff has been assembled, yet is handicapped by the lack of proper space for demonstration and practice, including provision for some machines, hand tools, and components of certain subassemblies. Recommendations: More comprehensive orientation training through the ex- tension of the presently established 4-hour course for direct employees to all em- ployees, since direct or production workers constitute only about one-third of the total employed. The basic management course of 40 hours instruction, which is much the same as the popularly accepted and widely utilized supervisory training program, has been provided by the training department to approximately one-half of the Kaiser-Frazer foremen at this time. A close examination by management of the Supervisor's Manual and program outline recently compiled by the Kaiser-Frazer training department, as guide to the conduct of the course, can result in profitable time for all supervision (to men through general superintendent). With improved facilities.which could be made available at a later date, much more emphasis might be given to the vestibule type program fora larger number of trainees who could gain the benefit of technical courses now conducted on a lecture basis. Comments: As a direct result of the necessity for using production line methods due to a large volume of new workers, frequently averaging some 2,000 a month, the elements of careful investigation of the workers record with previous em- ployers, etc., were subordinated to the expediency of meeting the demands placed upon the personnel department, and as a result many unstable workers have been hired. Recommendations: Orientation should be established to cover a broader base, and include all new workers. Interviewers should be given an opportunity to check closely on an applicant's record on a preemployment basis.- Screening should be intensified to improve quality, with less emphasis on hiring proper and more on qualifying workers for employment. Labor turnover Rate of turnover.-Comments: Kaiser-Frazer has the highest rate of attrition in the entire airframe program. The Kaiser-Frazer average turnover rate per month for the 3 months' period ending October 30, was 12.2 percent (production employees) or in effect, on a 12 months' basis, if this average is maintained, a complete turnover of approximately 150 percent is possible for direct workers, whereas the allocable group rate is, by comparison, much lower and more favorable. Recommendations: That the subject be explored fully by the industrial rela- tions department to the end, that the rate be drastically reduced through the improvement of correctable and contributing reasons reflected by complete record keeping, compulsory exit interviewing, and more emphasis on supervisory accountability. . Accession and net gain or loss.-Comments: During the months of August, September, and October 1952, Kaiser-Frazer hired 3,297 new workers and during the same period lost 2,469 workers reflecting a net gain of 828 employees. While Approved For Release 2003/10/10 CIA-RDP64B00346R000400050003-4 Approv2ffor Release 2003A CJ . Pp346R000400050003-4 recognizing, even though a minor point, the selective service losses of 103; worker the fact remains that the impact of such turnover is about as disruptive a influence on production as could possibly occur. Recommendations: See the recommendations made on this general subjec under rate of turnover in this report. Rate of turnover production employees.-Comments: As indicated in genera subject and the title of "Turnover," the rate for direct workers is extremely high. Recommendations: See recommendations as detailed in the several other: sections dealing with turnover. Rate of turnover by shifts.-Comments: The company does not keep records of turnover by shiifts. Recommendations: That such statistical studies be incorporated in all overall plan, to record and be guided by such data. Rate of turnover by occupations.-Comments: Turnover studies by occupa- tional groups and classifications are always helpful in discovering and attempting to remedy the worst spots. Recommendation: Since the problem is acute, definite studies should be made and regular records maintained for guidance. Rate of turnover by departments.-Comments: Departmental experience for comparative studies are not available as a guide to varying conditions and meas- ures required. Recommendations: A definite system of accounting is. recommended reflecting departmentar co mparability. Quit rate by length of service.-Comments: Data of this type is needed to define an area, in point of time, where quits are at their highest, and where remedies are relatively most urgently needed. Recommendations: A statistical recording of the above is recommer>;ded and such matters as closer screening in the personnel department should be given consideration as such. Major causes of quits.-Comments: The company does not keep records of major causes of quits. Recommendations: That the industrial relations department formulate a plan to ascertain as accurately as can be determined the major causes of quits for future guidance. Absenteeism (aircraft division)' Comments: Since no concrete program exists for combating the disruptiveness arising from vacant stations of unexcused workers, it follows the same logical pattern of reasoning as applied to turnover. A high rate of absenteeism is said to be a symptom of deeper difficulties, such as idle time and. its byproduct boredom. Positive steps should be undertaken. through the exisi;ing facilities for reducing the problem to a more reasonable level. Recommendations: Confer with supervisory groups and formulate a system for recording such data for the guidance of management in eliminating some of the avoidable causes particularly on an inplant basis. Comments: The survey team is at a loss to understand why the industial rela- tions division does not maintain more complete records. In this connection, management stated, "The University of Michigan will conduct a survey, a part of which will h&p determine causes of absenteeism and turnover; however, this survey has not been started due to lack of union cooperation to date." The apathy of the union in failing to lend its cooperation is regrettable as well as inconsistent in its contractual obligations for assisting management to improve production. However, it is management's responsibility to take the initiative and proceed with its factfinding and recordkeeping. Recommendations: The logical course should be abundantly clear that manage- ment immediate:'.y install a system of personnel records recommended throughout this report. Women workers Comments: The labor-relations department states that 7 percent of tl'e direct workers are femele. Based upon the confused direct, indirect, and allocable employee numbers fur- nished the survey team, the question is interposed as to whether or not this per- centage figure of direct women workers is actually correct. It may be pointed out, however, that it has been determined that Kaiser-Frazer Corp. favors employing women for light aircraft production in lieu of employing substandard male em- Approved For Release 2003/10/10: CIA-RDP64B00346R000400050003-4 Approved For ReleaR&FR2N1$~tI -,R -r P64B00346R000i89050003-4 ployees. However, inasmuch as the contractor does not have the available records showing the number and percentage of women workers on the various shifts, the question arises as to how can he ascertain whether or not he is making full use of this source of labor which, by his admission, is readily obtainable. Recommendations: That the percentage of female workers be determined by shifts, whether or not they are performing comparable tasks and if they are, whether or not this source of labor can be-obtained in the immediate area alleviat- ing employees,coming from long distances. Wage and salary system Comments: Kaiser-Frazer Corp.'s union contract places wages and salaries in line with those paid by the major automobile manufacturers in the area. Recruitment of special types of new workers and the retention of desired employees presents a real problem. However, inadequate pay scales does not contribute to this condition. Fringe benefits such as cost-of-living adjustment, paid vacations, free hospitalization, and paid holidays are ample under the union-contract agreement. Recommendation: See labor relations. Safety Comments: The records indicate satisfactory safety experience as compared with like production safety standards in industry. Should the tempo of work increase, it is likely that the frequency of accident and severity rates would increase. Better housekeeping in general such as clear passageways will improve the existent rates. Guards on certain items of equipment may be required. Visual illustrations on bulletin boards showing causes of accidents' would be help- ful and also a portion of employees training time should be utilized to acquaint personnel with accepted safety practices. Recommendations: That the safety department make plans to incorporate into the training program, proposed by the company, a portion devoted to acquainting employees with basic safety rules and principles. Communications Comments: The Kaiser-Frazer Automotive and Aircraft News fulfills a very definite need for familiarizing the workers with the various activities of the several phases of the company's operations. Recommendations: A review of the issue of November 17, while attractive in its layout, particularly the photography, lacked the essential touch of personalizing the bulletin as a medium for promoting good will and the improvement of morale. Suggestions (incentive program) Comments: In keeping with the comments on this subject, to be found in the body of the report, the merit of such a program for the stimulation of initiative and the resultant improvement in morale is worthy of management's early attention. The development of a program for encouraging employees to make contribu- tions to management, which they believe will improve quality and increase pro- duction, with cash and certificate awards, will pay its way countless times during a year. Recommendations: That management request the industrial relations depart- ment to promptly report the relative merits of the several such systems popularly employed in aircraft and related manufacturing industries. Outplant conditions Comments: The question of adequate housing and transportation, in the in- stance of Kaiser-Frazer's Willow Run operation, is inseparable, since the nearest community, Ypsilanti, is 6 miles distant, and in turn as the nearest point, supplies only 17.6 percent of the present employees. Actually in practice since public transportation is both irregular and costly, the problem is met by use of personal auto and car pools. Many residents com- mute as far as 35 miles daily. Recommendations: In future, recruitment consideration should be given to utilize more women, older and handicapped workers, who are available in the immediate area as a means of reducing the import of these outplant conditions. Distribution of engineering personnel Comments: In a broad sense, the attached report indicates that the contractor needs improvement in the quality of the engineering staff rather than the additions of personnel based on a comparison with other aircraft companies-"too many Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 ApprovvFor Release 200(I'/j,~q&-?JW346R000400050003-4 chiefs and too few Indians"--figuratively speaking has increased the requisitions for these types of personnel. .r Recommendations: That the contractor screen the present staff of engineers with a view of utilizing the better qualified engineers only on work requiring their talents and breaking down tasks so that less skilled people can be used in jobs requiring less sk ill and then eliminating those few whodo not have sufficient back- ground or qualified knowledge. Every endeavor should be made to raise the standard requir. meets of all future engineering talent employed. Upgrading and Transfers Comments: Contrary to the expressed opinions of the Industrial Relations Department which maintains that upgrading and transfers from automotive to aircraft operate satisfactorily, facts indicate such actions are effected In many instances on a basis of other than a satisfactory qualification standpoint.: Closer coordination between the Labor Relations Department and the newly formed Foreman's Screening Committee should improve materially that department's altogether too lax policy of upgrading of employees in recent months. Recommendations: That the labor relations division endeavor to improve the quality of their upgrading and transfer procedures by acceptance of those req- uisites established by individuals charged with future actions of the personnel upgraded or traiisfered. The survey team: Chief, Labor Utilization Section, Industrial Manpower Branch, Industrial Resources Division, Hq, AMC, United States Air Force. W. S. BAGLEY Industrial' Specialist, Labor Utilization Section, Industrial Manpower Branch, Hq, AMC. LARRY DESMOND, Industriaf Specialist, Labor Utilization Section, Industrial Manpower Branch,, Hq, AMC. Management representatives: We have discussed this report with the survey team and received three copies of same. JOHN HALLETT, Executive Vice President, Kaiser Manufacturing; Corp. S. A. GIRARD,; Vice P, esident and General Manager A/C, Kaiser Manufacturing: Corp. S. F. PATYRAR, Defense Contracts Administrator, Kaiser Manufacturing' Corp. Follow-up survey call will be made by one or more members of the survey team in about 9t) days. PERSONS INTERVIEWED DURING SURVEY J. Hallett, executive vice president S. H. Girard, vi ve president and general manager S. W. Taylor, assistant general manager H. V. Lindbergh, vice president W. B. McLaren, vice president, industrial relations T. F. Riddle, phurat manager S. F. Patyrak, defense contracts administrator B. M. Laney, works manager R. B. Fialho, manager, schedule and estimating W. S. Hoskinsor, general superintendent 0. E. Johnson, production-planning and material handling S. H. Hailey, tooling and maintenance J. F. Eley, general superintendent W. Malinowski, chief industrial engineer R. Davenport, general superintendent L. J. Keating, chief plant engineer A. V. Fant, chie:l' tooling engineer T. Girouard, gerieral superintendent H. Brown, general superintendent A. J. Bedworth, general planning superintendent W. V. Gillette, general superintendent Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 AIRCRAFT DIVISION ORGANIZATION EXECUTIVE ASSISTAMT IN. V. LINOSERCN VICE-PRESIDENT 9SI WEST COAST OPERATIONS CONTRACT APNINISTRAT(ON E. R. ORDWAY - ?II S. F. PATYRAK GENERAL MANAGER ADMINISTRATOR SCNEOUI.ING. ESTIMATING. MASTER CNANGE CONTROL SOAR* P. Q. FIALNO MANAGER T\ R. M ISRRANDY CNIEF ENGINEER 49 2 ORGANIZATION 8. M. LANEY WORKS MANAGER 291 S. A. GIRARD VICE-PRESIDENT & GENERAL MANAGER 96t 371 C. W. SNOWOEN 01 RECTOR OF WALI TY L. K. COVELLE REPRESENTATIVE 351 PRODUCTION PLANNING 8 440 444AL NANOLIMG 0. E JOHNSON MANAGER 2P1 ASSI STAMT GENERAL MANAGER S. W. TAYLOR T. F. RIDDLE PLANT $MASER W- S. NOSNINSON GENERAL SUPERINTENDEMT 291 23t S H. NAILLY CHIER ENGINEER 111 L E G E N D E+oMt OFF266 AIRCRAFT Q ALLDCASLA C. NAONSAI SUPERVISOR 301 TO T , A. BEDFORD VICE PRESIDENT AUTOMOTIVE KAISER-FRAZER CORPORATION AIRCRAFT DIVISION Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 14931 0 -53 (Face p. 210) J. F. ALLY GENERAL SOPERINTENO#NT 283 Approved For Releass AV40,l~c - 64B00346R00049ff50003-4 C. B. Woodell, staff assistant H. Pry, assistant works manager M. R. Sturdivant, general superintendent S. King, staff assistant F. R. Schroeder, staff assistant M. T. McNulty, administrative manager R. P. Hicks, scheduling and estimating W. Fenchuk, production engineering Wm. Eastman, director, labor relations D. Martin, assistant director, labor relations F. Shoup, director of training L. Kirby, coordinator, management training J. H. Backus, personnel director R. Thomas, assistant personnel director SUMMARY OF EVENTS RELATIVE TO IMPROPER UTILIZATION OF MANPOWER (July 5, 1951, to December 3, 1952) Chronologically listed in the attached exhibit appear 26 separate actions taken by Air Force representatives, each presenting corrective measures, for the purpose of eliminating excessive idle time at Kaiser Manufacturing Corp. July 5, 1951 Letter to contractor signed by Major Ulrey requesting tighter control of personnel by contractor. Colonel MeDuffee, deputy commanding officer, Central Air Procurement District, held a meeting with the contractor and personnel from this office relative to above letter. K-F executives appeared to be aware of the situation and under pressure promised to take immediate steps to correct the various labor irregulari- ties. Local contracting officer, Lieutenant Westlund, refused to authorize overtime work until such time as the contractor presented an acceptable plan for eliminating the malpractices. July 6, 1951 Letter from contractor to AFPR outlines intended course of action on above. July 9, 1951 Interoffice correspondence to all manufacturing supervision, signed by opera- tions manager, instructs them to take immediate action to correct referenced irregularities. September 10, 1951 Meeting with management, resident USAF Auditor General and AFPR for purpose of discussing certain conditions causing excessive costs to the Air Force; one item was loafing. Plant protection was instructed to institute a more vigorous surveillance of this condition and report badge numbers and names of offenders to the works manager. January 21, 1952 Letter to executive vice president and general manager, with copy of resident auditor's letter to AFPR of same date attached, which requested the contractor to show just reasons why lie should hire labor at the rate then being exhibited or to decrease the rate of hiring to such an extent so as to fully utilize all personnel. January 31, 1952 Meeting was held in Col. Russell Keillor's office. In attendance for procure- ment were Colonel Keillor, Lt. Col. George A. Miller, and Lieutenant Colonel Ulrey; for the Auditor General, USAF, Mr. P. H. Ramp and Mr. Sidney C. Solomon. The Resident Auditor General's letter to the AFPR of January 21, 1952 and the AFPR's letter of same date, referenced above, were discussed. The group agreed that upon receipt of the contractor's answer, the resident auditor would institute a plan of floor checks in order to determine the proper dollar value of disallowances to adequately protect the Government's interest. February 1, 1952 Conference held by the AFPR with executive vice president and general manager, in which the AFPR stated that it was the opinion of the local Air Force office that the top management did not have control of their operations. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro2cg For Release 2000 11 11Jr: 1,A,e 00346R000400050003-4 February 2, 1952 The executive vice president and general manager held a meeting with Mr. Solomon and Lieutenant Colonel Ulrey, with top corporation personnel in at- tendance, at which the lack of management control was thoroughly discussed. February 7, 1952 Mr. Hallett called a meeting in his office for the purpose of organizing. a joint AF and KMC procedures policy committee. This committee is composed of executives of the corporation; the USAF Resident Auditor General; the AFPR and members of his staff. This committee has been of considerable benefit in eliminating manning discrepancies; however, it has not been a cure-all, and con- tinued followup on manpower problems has been necessary. February 14, 195.2' Letter from Mr. Hallett to the AFPR in answer to his letter of January 21, 1952, -referenced above. This letter explained reasons for the observed idle time and outlined steps being taken by the corporation to reduce the excessive amount of idle time. February 21, 1952 Letter from the AFPR to the Resident Auditor General, which forwarded Mr. Hallett's letter, referenced immediately above, with a request that Mr. Solomon -review to encompass adequacy of intended corrective- action and surveillance of compliance with the contractor's proposed plan of control. During February 1952 Over 1,000 direct hourly aircraft workers were laid off during this month as a result of Mr. Solomon's and the AFPR's letters of January 21, 1952. - March 14, 1952 - A meeting was held in Lieutenant Colonel Miller's office at district head4uarters (Directorate of Procurement Administration). In attendance for procurement were Lt. Col. George A. Miller, Lt. Col. Russell Burkholder, Capt. F. P. Bretney, Mr. James Robbins, and Lieutenant Colonel Ulrey. For the Auditor General, USAF, Mr. L. N. Teitelbaum, Chief, Industrial Audit Division, Auditor General, USAF, Mr. P. II. Ramp, and Mr. Sidney C. Solomon. Manpower was just one phase of this conference and it was the procurement officer's imnressionthat the three representatives of Audit present concurred- that our approach to this man- power problem was feasible and adequate. They further stated that due to insufficient personnel to adequately determine the amount of excessive idle man- power, the conditions would have to be a matter for negotiation. April 4, 1952 A meeting was held in Mr. Hallett's office at which all of the top executives of the corporation, including Mr. Edgar Kaiser, were in attendance; as well as Col. N. R. Graalman. from Headquarters, AMC; Col. Russell Keillor and members of his staff from CEAPD; Lt. Col. Wm. H. Walker, Chief of the District. Auditor General's Office and Mr. P. H. Ramp from that office; the AFPR; the ACO; and the Resident Auditor General. The following agendawas pursued: (a) Strong negotiation effort to be exerted by the contractor in the new aircraft supplement to the union contract. (b) Planiswide seniority should be limited. (c) Higher standards for aircraft inspectors. (d) Progress on reaudit and reaccounting in 1951 labor and overhead costs. (e) Definitive schedules for boththe C-119 and C-123 programs must be realistic and should be expedited. (f) A-training program should be put into operation at the earliest; possible time. (g) A continuous vigilance to match manpower with requirements. May 15, 1952 An aircraft procedure Manpower Utilization and Performance-Short Range was published this date as promised in contractor's letter of February 14, 1952. June 3, 1952 - A letter was sent to Headquarters, AMC, signed by the AFPR, which; outlined some unfavorable labor conditions and requested that a labor utilization survey be conducted by the AMC team. - - Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 AIRCRAFT PROCUREMENT 213 September 23, 1952 Mr. Guy Whitcomb, Civilian Chief of the Labor Utilization Office at AMC held a meeting at Willow Run with the executives of the corporation and the AFPR, at which time, Mr. Whitcomb offered the services of his survey team to Kaiser-Frazer Corp. Kaiser-Frazer management agreed to consider the feasi- bility of requesting their services and after several followups by the office of the AFPR, they advised this office on October 30, 1952, that they would not request the services of the survey team. During first week of October 1952 A meeting was held in Mr. Hallett's office with top management from the finance division in attendance, as well as the AFPR, the Resident Auditor General, and the local contracting officer. The local AF office presented their estimate of idle time from a quantitative standpoint. October 31 and November /f, 1952 Meetings were held in Mr. Edgar Kaiser's office on these two dates at which time improper utilization of manpower from a penalty standpoint was discussed. November 24, 1952 Mr. Whitcomb, chairman of the AMC labor utilization survey team explained to a large group of KMC and AF personnel the method of operation that they intended to pursue in conducting their labor utilization survey which had been requested to be made by General Bradley. November 26, 1952 A meeting was held in Mr. Hallett's office, at which time Captain Chance, the local contracting officer, requested the following action be taken by the contractor- (a) Kaiser Manufacturing is to submit a report covering the subject: What has been done to reduce apparent idle time? (b) Establish, in the chart of accounts, an idle-time account. (c) The report and the establishment of an idle-time account should be accomplished by the end of next week; otherwise, Captain Chance stated that he would withhold processing of vouchers. December 2, 1952 At a meeting attended by Lieutenant Colonel Ulrey and Captain Chance, the contractor was requested to present a letter indicating progress niade to date to relieve the idle-time situation, their plan to correct the situation and establishment of an idle-time account. Contractor was given until the 12th of December to reply or vouchers would be held up for payment. As of December 12, 1952, Captain Chance withheld $696,840.75 from payment by holding 2 vouchers. TOTAL NUMBER OF EMPLOYEES Employment information AIRCRAFT Month Plant I Office 2 Total Male Female Male Female Male Female Jan. 1, 1952___________________ July 1, 1952_____________ 2,77-4 3 679 122 151 503 221 2,896 343 ______ Aug. 1, 1952___________________ , 4,397 161 863 1,002 392 413 4,542 5 399 543 574 Sept. 1, 1952__________________ Oct. 1, 1952__________ 4,469 4 547 177 632 1,134 463 , 5,603 640 _________ Nov. 1, 1952 _ Current Dec 1 1952 , 4,346 4 662 1,259 1,358 497 541 5,806 5,704 1,120 1,203 . , __________ ,033 635 1,315 501 5,348 1,136 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appr~Ygd For Release 201(jp ;pq&R00346R000400050003-4 TOTAL NUMBER OF EMPLOYEES-continued Employment information-Continued AUTO-AIRCRAFT SERVICES (ALLOCABLE) Total Male -I -Female ---------- 1952 1 Jan 3, 285 224 1,390 4, 4,675 735 --------- , . ------------- 1952 July 1 3, 770 245 1,743 5, 513 965 , ------ ------------- - 1952 Augn 1 3, 703 240 1,764 5,467 921 -- - . , -------------- 1 1952 Sept 3, 647 241 1,753 5,400 926 , ---- . 1 1952 - --------- Oct 3, 747 273 1,769 5, 516 1,000 , ------- - . -___- 1952 - - 1 - Nov 3, 806 300 1,809 5,615 1,051 _ , ------- - . Dec. 1, 1952-----_-_-----_--_-- 3,680 298 1, 817 5,497 1, 079 1 Includes hourly employees in aircraft departments. Does not include allocable. 2 Includes exempt, nonexempt, and foremen. Does not include allocable. 3 Includes hourly employees in Auto-Aircraft Services-allocable departments but does no finance or executive departments. 4 Includes exempt, nonexempt, and foremen. EMPLOYEE BREAKDOWN BY SHIFTS Manufacturing as of Nov. 24, 1952 1 Shift Time Male Female Direct Indirect Total 1st shift --------- From 11 p. m. to 7:30 a. m--------- 3 30 (2) (,) (2) (2) 48 1 800 75 1,255 123 2,056 2d shift --------- p. m---------- : From 7 a. m. to 7 (2) , 1 517 755 292 2 3d shift --------- From 4:15 p. m. to 12:46 a. m------ ( ) , , Total----- ----- ------------------------------ ---------- ---------- 3,365 2,105 5,470 1 Aircraft manufacturing departments only. 8 Information not available. 582 females hired between Sept. 17, 1952 and Oct. 22, 1952. Majority are working on'second and third shift. DIRECT AND INDIRECT AIRCRAFT WORKERS Information furnished regarding direct and indirect employees has bean most confusing to the survey team. EXHIBIT (A.).-Direct and indirect workers as of November 24, 195f Percent -------------------------------------------------- Direct 3, 365 29.0 ------------------------ Plantindirect --------------------------------------------------- 854 7.4 --------- ------ Other indirect------------------------------------ --------------------------- 7, 368 63.0 EXHIBIT (.13).-Direct and indirect aircraft workers as of Nov. 25, 1952 Percent --------------------------------------------------- Dir ct 3, 800 30.4 e --------------- -------- nt indirect --------------------------------------------------- Pl 862 6.9 a ------- -------- Other indirect ------- _ ----------------- 7,826 62.7 Total---------- ------------------'---------------------------------------- Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleasRI?PRAI0%'ACgp~64B00346R00049(?R50003-4 The visual comparison of the above exhibits (A) and (B) clearly indicates a sample of the thorough confusion existing at Kaiser-Frazer Corp. as to the number and percentage of direct, indirect, and allocable employees, therefore, it can be frankly stated that currently the contractor does not know the correct number of people falling in these categories which should be charged to the aircraft contract. EXHIBIT (C). Aircraft direct manpower breakdown on roll by shift-Week ending November 25, 1952 Division 200 (machine and fab)______________________________ Division 210 (sub and major assombly)- Division 220 ((final assembly)_________________________________ Division 231 flight test)_____________ - Total direct workers all shifts___________________________ 11p.m. to 7 a. m. shift I 7 a. m. to 3-30 p. m. shift 2 4:15 p. m. to 12:45 a. m. shift 3 432 635 539 54 Division 200------- Division 026 220----- 1,604 Division 220 1,157 Division 231--------------------- ----------------?------?--------?-----?-----------------?----- 113 Grand total, direct---------------------------------------------------------------------------- 3,800 Examination of exhibits (A), (B), and (C) and chart on page 13 further confirms the contractor's current confusion. He is totally unable to breakdown his male and female employees and the figures again do not agree. Much of the survey team's time was consumed endeavoring to correlate factual data on the above figures with AMPR reports, however the efforts were unsuccessful. Time did not permit the survey team to evaluate the excessive idle time, which obviously exists, among clerical and white-collar workers at Kaiser Manu- facturing Corp. It is apparent that excessive idle time among these types of worker may prove to be of an even greater magnitude than that of production employees. It is therefore suggested that a further study on indirect and allocable workers be made at a later date. WORKWEEK Five days per week, 40-hour week. First shift, 11 p. m. to 7:30 a. m.; second shift, 7 a. m. to 3:30 p. m.; third shift, 4:15 p. m. to 12:45 a. m. Manufacturing division only 1st shift 2d shift 3d shift 1952 Hours Days Aver- age Hours Days Aver- age Hours Days Aver- age per day per week hours per per day per week hours per per day per week hours er week week p week July ------------------------ August_____________________ 8 8 5 5 40 40 8 8 5 5 40 8 5 40 September I_________________ 8 5.17 , 41.4 8 5.12 40 41 8 8 5 5 16 40 41 3 October I___________________ 8 5.05 40.4 8 5.04 40.3 8 . 5.05 . 40.4 I Reasons for overtime (September and October): (1) Outer wing repair and rework; (2) priority shortages affecting subassembly and final; (3) tooling rework and coordination. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approylo For Release 20031kt: 0346R000400050003-4 PERSONNEL WITH PREVIOUS AIRCRAFT EXPERIENCE The following 1 gages contain listings of some of the personnel of Kaiser Manu- facturing Corp., Willow Run, Mich., with previous aircraft experience. Total people with previous aircraft experience Key supervision------------------------------------------------- 12 Engineering 24 --------------------------------- Production planrrin.g 103 Tooling and maintenance------------------------------------------ 145 Quality control--------------------------------------------------- 125 Production -------- ------------------------------------------------ 324 Administrative --------------------------------------------------- i 13 Grand total ------------------------------------------------- 747 Key supervision S. F. Patyrak----------- T.-F. Riddle ______-_. _.._ R. Waotjen_________ C. Wronski_____________ Consolidated Vultee, estimating and Manager, estimating and scheduling. scheduling. San Diego plant--------------------- 1 year----- Fort Worth plant --------------------- _____do_____ Texas Engineering and Manufactur- 3 years---- ing Co. North American Aviation, Inc.,sched- _____do----- riling and change control. Wright Aeronautical Corp.: produc- 33.5 years-- tion engineering and industrial methods. United States marine aviation, train- 4 years ing, mechanics course, crew chief, flight instructions. Ryan Mahoney Aircraft, final assem- 1 year____- bly and flight mechanic. Alliance Aircraft Corp., superinten- ----- do_____ dent, final assembly and flight. TWA Airlines, chief inspector, co- 9 years---- pilot and crew chief. Lockheed Aircraft Corp., foreign rep - _____do_____ resentative, director of quality control. Firestone Aircraft, vice president and 8 years---- general manager. USAF: Aircraft maintenance______________ 1 year----- Crew chief------------------------ 8 years---- Booing, assistant chief inspector-______ 12 years--- Martin (Omaha), chief inspector------ 2years ____ Southern district, chief, quality con- 53z years .- trol. National inspector____________________ 3 years---- Ford Motor Co. (B-24), general super- 41/5 years-- intendent, all assembly and pre- flight. Consolidated-Vulteo, industrial en- 1 year -____ gincer. Ti. S. Navy, Bureau of Aeronautics--. 4 years ---- ChaseAircraft Co.,Inc--------------- 2months__ Fairchild Aircraft, assistant plant 10 months- manager. Luscombe Airplane Corp., factory 9 months-- manager. Texas Engineering and Manufactur- 2355 years ing Co. (aircraft sheetmetal plant), superintendent. North American Aviation Co., super- 8 years---- intendent. Northrup Aviation Co______________ _ 1 year----- Commercial pilot (instrument, and 20years ___ multiengine ratings). Lieutenant colonel, Air National 4 years---- Guard. Lieutenant Colonel, USAF ----------- 4 years ---_ A. and E. mechanic_______18 years--- Aircraft design, tooling, and con- 4 years---- struction. Chrysler Corp________________________ 335 years.. Lockheed Aircraft Corp --------------- 3 years---- General superintendent of flight operations. Chief engineer, aircraft. Chief inspector, aircraft. Aircraft. Supervisor, industrial en- gineering. Contracts administrator. Plant manager, aircraft. General superintendent fabrication and machin- ing. Project engineer, industrial engineering. Supervisor, administrative methods. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releaser , 1 q/A,D J r P64B00346R00044(050003-4 The following is a list of jobs by department with the experience in years of the incumbent on those jobs. The names of the incumbents while not contained in the report are on file in the offices of the Industrial Manpower Branch, Head- quarters, AMC. Present title Engineering (department 411) : Time (years) Chief engineer, aircraft_______________________________________ 8 Staff assistant to chief engineer________________________________ 7 Project supervisor, technical group_____________________________ 23 Supervisor, engineering, M. R. B______________________________ 9 Project supervisor, engineering -------------------------------- 15 Supervisor, engineering, electrical______________________________ 4 Project supervisor------------------------------------------- 5 Project supervisor------------------------------------------- 12 Project supervisor------------------------------------------- 4 Project supervisor------------------------------------------- 3 Project supervisor------------------------------------ ------ 5 Assistant supervisor ------------------------------------- ,----- 5 Project supervisor------------------------------------------- 12 M. C. C. B------------------------------------------------- 4 Assistant supervisor ------------------------------------------- 5 Assistant supervisor. .____________________________________----- 2 Supervisor-------------------------------------------------- 3 Assistant supervisor ------------------------------------------- 4 Assistant supervisor ------------------------------------------- 5 Assistant supervisor ------------------------------------------- 5 Assistant supervisor ------------------------------------------- 3 Subcontract coordinator______________________________________ 1 Assistant supervisor, M. H. B_________________________________ 2 Assistant supervisor ------------------------------------------- 1 Engineering total, 24 people. Production planning: Department 341: Assistant general planning superintendent ------------------ 5 General supervisor, planning______________________________ 4 Supervisor, subcontracts________________ 5 ------------------- Assistant supervisor, subcontracts------------------------- 1% Supervisor, followup------------------------------------- 4 Assistant supervisor, followup_____________________________ 2 Assistant supervisor, expediting___________________________ 4 Assistant supervisor, foli.owup----------------------------- 5 Assistant supervisor, C MP________________________________ 2Y2 Assistant supervisor, GFAE---------------------------- 5 Supervisor,offiice ---------------------------------------- 2 Supervisor, scheduling ------------------------------------ 1Y2 Supervisor, specification and scheduling -------------------- 2~z Assistant supervisor, specifications------------------------- 4 Assistant supervisor, scheduling___________________________ 2Y2 Assistant supervisor, scheduling _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 4jz Staff assistant, aircraft_________ ________________________ 4% Assistant general superintendent (department 281) ----------- 4 Superintendent------------------------------------------ 3 Department 281: Superintendent------------------------------------------ 7 Superintendent------------------------------------------ 4 Assistant superintendent --------------------------------- 4 Assistant superintendent_________________________________ 5 Assistant superintendent_________________________________ 2 Assistant superintendent_________________________________ 3 Assistant superintendent --------------------------------- 2 Assistant superintendent_________________________________ 1 Assistant superintendent --------------------------------- 2 Assistant superintendent_________________________________ 6 Assistant superintendent _________________________ 4 General foreman 4 General foreman 4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro For Release 200-311IT: MOPU$0346R000400050003-4 Present title Production planning-Continued Department 281-Continued Time (ueara) Geiieral[foreman ----------------------------------------- 3 General.foreman_________________________________________ 3i/a General, foreman ------------------------------------ 3 General, foreman ----------------------------------------- 6 General[foreman ----------------------------------------- - 7 General[ foreman ----------------------------------------- 3 Generaliforeman ----------------------------------------- - 3 General. foreman ----------------------------------------- 3 Generall foreman----------------------------------------- 3 General foreman ----------------------------------------- - 3 General foreman ------------------------------------------ Foreml.n ------------------------------------------------ Foremaan --------------------------------------------- 4 3 4y, Foremaa^n ----------------------------------------------1 Forema,n----------------------------------------------- Forema"n------------------------------------------------ Foreman----------------------------------------------- ' 2 3 3 Forema,n ----------------------------------------------4 Foremei,n------------------------------------------------ Foremim----------------------------------------------- 3 4 Foreman ----------------------------------------------3 Foremla,nL------------------------------------------------ 1 FOremlaSL_______________________________________________, 6 12 Foreman------------------------------------------------ 12 Foreman---------------------------------------------- 2 Foreman -----------------------------------------------; Foremlan-----------------------------------------------' Foreman----------------------------------------------- 3 Foreman -----------------------------------------------5 Foreman----------------------------------------------- 4 Foremaan ----------------------------------------------4 Foreman---------------------------------------------- 3 Foremaan -----------------------------------------------1 Foremaaan -----------------------------------------------1 Foreman--------------------------------------------- 3 Foremwn ------------------------------------------------ ' Foreman----------------------------------------------- 3 Foremun----------------------------------------------- 1 Foreman---------------------------------------------- 2 Foreman ------------------------------------------------ 1 Forematn ------------------------------------------------4 Forematn---------------------------------- --------- - 3 Forematn----------------------------------------------- 1 Foreman ----------------------------------------------- ~ 2 Foreman------------------------------------------------ 4 Foreman----------------------------------------------- 3 Foreman---------------------------------------------- 3 Foreman----------------------------------------------- 4 Foreman--------------------------------------------- 2 Foreman ------------------------------- 2 - - --------------- Forem,!n ----------------------------------------------2 Foreman---------------------------------------------- 4 Foreman----------------------------------------------- 4 Foreman ------------------------------------------------ 1 4 Foremtn ------------------------------------------------ 3 Foreman---------------------------------------------- Foreman ----------------------------------------------- si3 Foreman----------------------------------------------- 4 Foreman--------------------------------------------- 4 Foreman ----------------------------------------------- Foreman ------------------ 4 - -- ------------------------- Foreman ----------------------------------------------4 Office supervisor------------------------------------------ 5 Office supervisor----------------------------------------- 2 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release~flII tD/#.GacCIA4ROR64B00346R0004( 0003-4 Present title Production planning-Continued Department 281--Continued Time (years) Supervisor ----------------------------------------------- 4 Supervisor ----------------------------------------------- 4 Supervisor ----------------------------------------------- 43 Supervisor----?------------------------------------------- 4 Supervisor---------------------------------------------- 1 Supervisor----------------------------------------------- 4 Supervisor ----------------------------------------------- 4 Production planning, total 103 people. Tooling and maintenance: Department 311: Project engineer supervisor (C-119 final assembly) ----------- 3% Supervisor. (C--119 operation sheet control) ----------------- Administrative coordinator_______________________________ 4 Supervisor, tool engineering_______________________________ 6 Supervisor, plant engineering______________________________ 37 Supervisor---------------------------------------------- 7 Supervisor-tool stores ------------------------------------- 3% Assistant supervisor, tool control_________________________ 3 Coordinator,tools --------------------------------------- 5 General foreman----------------------------------------- 4 Foreman, tool control____________________________________ 8 Foreman, tool control____________________________________ 3 Foreman, tool control____________________________________ 1342 Foreman, tool control ------------------------------------ 4 Supervisor, tool control___________________________________ 7 Supervisor, tool control___________ % Foreman, tool control ------------------------ ___1__-______ 2 Foreman, tool control____________________________________ 3~%~~2 Foreman, tool control_________________________/12 Supervisor, tool control___________________________________ 4 Foreman, tool control -_______-____________________________ 3 Supervisor, tool engineer______________________________ _ 10 Supervisor, tool engineer_________________________________ 6 Supervisor, tool engineer_________________________________ 5 Assistant chief tool and die engineer_______________________ 9 Supervisor-------------------------------------- --------- ------------- -- ------- - 5 Assistant coordinator of Government-owned 4 Supervisor---------------------------------------------- 5 Assistant tool and die engineer____________________________ 3 Supervisor, plant engineer________________________________ 5 Supervisor, plant engineer________________________________ 4 Chief, electrical engineer__________________________________ 5 Chief, tool and die designer_______________________________ 634 Assistant, chief', tool and die engineer______________________ 21/2 Assistant chief, tool and die engineer----------------------- 71912 Supervisor, project engineers______________________________ 19 Department 312: Foreman ----- - -- ---- - - --- ----?---- -- ---- 4 Foreman -- -- --- --- ----------- -- ---- - - 4 General foreman -- - - --- --- ---- - - - --- 4 Foreman _ - 334 Foreman 5 General foreman --- --------------- -- --- - - - -- 1 Foreman ---- -- -------- - - --- -- --- - - 3 Foreman ----------------------------------------------- 41/2 General foreman----------------------------------------- 1212 Foreman - -?- --- ---- --- - -- -- - -- 4 General foreman - - ----- ------ --- - 3 Foreman - -- --- ------ --- -------------- - -- 4 Superintendent------------------------------------------ 434 Assistant superintendent_________________________________ 4 Foreman - - -- - - - - -- -- ----- - -- 2 Foreman--------------=--------------------- ----- --- 3% Foreman -- -------- -- - ----- ----- ----- ---- 4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appr d For Release 20 1&1b ~8?ik- biF300346R000400050003-4 Present title Tooling and maintenance-Continued Department 312-Continued Time (years) Foreman.----------------------------------------------- -2 Foreman ----------------------------------------------- 3 Foreman,------------------------------------------------ :3 Foreman ---------------------------------------------I1 Foreman----------------------------------------------- -3 Foreman----------------------------------------------- :1j General foreman ----------------------------------------- .4 General foreman ----------------------------------------- 1 General foreman------------------------------------------ 1 General foreman ----------------------------------------- 5 Foreman ---------------------------------------------- 3 Foreman ----------------------------------------------- 2 Foreman ----------------------------------------------- :3 Generalforeman ---------------------------------------- -4 Foreman ----------------------------------------------- 4 Foreman----------------------------------------------- 31~ Foreman ----------------------------------------------3/1~2 Foreman ---------------------------------------------- = /2 Foreman --------------------------------------------- 6 Foreman --------------------------------------------5 Foreman------------------------------------------------ 4 General f'oreman----------------------------------------- 4 ~ Foreman ------------------------------------------------ 2i Foreman ----------------------------------------------- 2 Foreman ----------------------------------------------- 3Y2 General I'oreman ----------------------------------------- .2 Foreman ----------------------------------------------- -1 Foreman ----------------------------------------------- 2 General Foreman----------------------------------------- 10 Foreman ----------------------------------------------- 3 Foreman ---------------------------------------------- --2 Foreman----------------------------------------------- 3 Foreman ----------------------------------------------- 13 Foreman----------------------------------------------- 3 4 Foreman ----------------------------------------------- 4jz 23 Foreman------------------------------------------- --- 3 Foreman----------------------------------------------- 3 General foreman----------- ----------------------------- 3 Foreman ------------------------------------------------- ~5 Foreman ----------------------------------------------- ;4Y2 Foreman ----------------------------------------------- 2 Foreman------------------------------------------------- 4 Foreman----------------------------------------------- 3 Foreman----------------------------------------------- - 2 General foreman----------------------------------------- 2 Foreman ----------------------------------------------- 4 Foreman----------------------------------------------- 1 Foreman----------------------------------------------- ; 3 Foreman ----------------------------------------------- 3 Foreman------------------------------------------------ 1 Foreman------------------------------------------------- 5 Foreman.----------------------------------------------- 3 Foreman------------------------------------------- ---- - 4 General foreman----------------------------------------- 3 Staff assistant------------------------------------------- 2 s Foreman.------------------------------------------------ Department 314: General foreman------------------------------------ ---- 6 Foreman------------------------------------------------ 1 Foreman------------------------------------------------ 4 Foreman ---------------------------------------------- 5 Foreman..---------------------------------------------- 3Y, Foreman -.---------------------------------------------4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400650003-4 Approved For Release 001+Q/1Aogj*c l 4B00346R00040 0003-4 Present title Tooling and maintenance-Continued Department 314-Continued Time (years) Foreman - - - - -- - --- --- -- ----- 3 Foreman------------------- -- --- ----- -- 2Y2 Foreman----------------------------------- Foreman- --------------------------- 3 -?--------------------------------------------- 4 General foreman- -- -- ---- - ---- ---- --- -- 4 Foreman-- - - - - ------------------------------------ Department 282: Project 9 engineering supervisor_____________________________ Foreman -- -- ------- -- ------ ----------------- 3 Supervisor----------------------------------------------- 2?12 Supervisor----------------------------------------------- 4 Supervisor ----------------------------------------------- 3A General foreman-- - -- ------- - - ---------- 3'z Foreman -- -- --- -- - --- ------ -- --- --- 3 Foreman ------------------------------------------------ 33/ Supervisor ----------------------------------------------- 3 Supervisor ----------------------------------------------- 1Y, Foreman -- -- -- --- -- -- -- - 1 Supervisor------------------------------- '/ - - -- 1 a Supervisor ----------------------------------------------- 3 Department 288: Industrial engineer_______________________________________ 4 Project engineer----------------------------------------- 6 Supervisor, industrial engineering, aircraft ------------------ 1 Time study--:------------------------------------------ 5 Industrial engineer--------------------------------------- 23/2 Project engineer--------------------------------------- 1Y12 Project engineer----------------------------------------- 4 Tooling and maintenance total, 145 people. Quality control: Department 331: Chief inspector, aircraft__________________________________ 313 General foreman, layout ---------------------------------- 6 Foreman,layout ----------------------------4 Foreman,layout ----------------------------------------- 5 Foreman,layout ----------------------------------------- 4 Foreman,layout ----------------------------------------- 5 General foreman - 7 General foreman - 7 Foreman iz ---------------- Foreman 2 Foreman - - 4 General foreman 2 Foreman 1 Foreman - - 2 Foreman 3 General foreman = - 5 Foreman - - 4 General foreman----------------------------------------- 43' Superintendent------------------------------------------ 16 Foreman----------------------------------------------- 2 Superintendent - - - - 4 Foreman 1 Foreman 11 Foreman 5 Radiographic laboratory supervisor --------- _-------------- 3 Foreman ----- - --- 3 Foreman - - - - - 6 Foreman - -- -- 4 Generalforeman ----------------------------------------- 27 Foreman ------------------------------------------------ 10 Flight test mec:hanic5 Foreman - 6 Assistant superintendent ---------------------------------- 10 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appr2gd For Release 20 ~61AW p *R 300346R000400050003-4 Present title Quality control-Continued Ttmq (years) Department 331-Continued Superintendent------------------------------------------ '8 Foreman ...---------------------------------------------- Foreman...---------------------------------------------- Foreman....------------------------------------------- Foreman....--------------------------------------------- 10 Foreman..-.--------------------------------------------- .1 General foreman---------------------------------------- 10 Foreman....--------------------------------------------- 7 Foreman....--------------------------------------------- 26 Foreman...---------------------------------------------- Supervisor of metallurgical-------------------------------- 3 Superinten.dent------------------------------------------ ?~2 Assistant superintendent ------------------------------- I3 Foreman...---------------------------------------------- 34 Foreman.----------------------------------------------- 15 Foreman..--------------------------------------------- Foreman ----------------------------------------------- Foreman. ----------------------------------------------- 13 Foreman.----------------------------------------------- ,5 Foreman .------------------------------------------------ Generalforeman----------------------------------------- -2 Foreman------------------------------------------------ Foreman------------------------------------------------ 12 Foreman------------------------------------------------ 5 Foreman ----------------------------------------------- 2 Foreman ----------------------------------------------- 35 General foreman---------'-------------------------------- 5 Foreman----------------------------------------------- Foreman ----------------------------------------------- 11 Foreman ----------------------------------------------- 4 Foreman----------------------------------------------- 15 Foreman ----------------------------------------------- General l'oreman----------------------------------------- 3 Assistan'!superintendent--------------------------------- 3 Foreman----------------------------------------------- 3'/2 Foreman----------------------------------------------- 5'/ Foreman----------------------------------------------- 3 Foreman----------------------------------------------- Superintendent------------------------------------------ 28 Foreman----------------------------------------------- 10 Foreman----------------------------------------------- 1 Supervisor---------------------------------------------- 6 ~ Foreman ----------------------------------------------- .11 Foreman----------------------------------------------- '6 Inspecti~onforeman -------------------------------------- 5 Inspectiec why you would imply that it was better known than any plant in the entire program. Some of the Air Force plants have been going for :many years, and some at capacity for many months, if not years. I just mention that in passing. Mr. HENRY J. KAISER. At this point may I have Edgar sworn in? He will give ) ou the facts. The CHAIRMAN. Do you solemnly swear that the testimony you are about to give is the truth, the whole truth, and nothing 'but the truth, so help you God? Mr. EDGAR F. KAISER. I do. The CHAIRMAN. Your name is Edgar F. Kaiser. You wish to supplement Mr. Henry Kaiser's testimony in answer to Senator Symington? Mr. EDGAr!, F. KAISER. I am familiar with the facts because I am the president of the corporation. When detailed questions are asked I would like to answer those if my father refers the questions to me. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releasfi 3/il Qf4OcxjCMkiW64B00346R0004M050003-4 The CHAIRMAN. Senator Symington? Senator SYMINGTON. You say the Air Force knew about the Willow Run plant better than any plant in the war program. I do not under- stand that. It is a plant that never operated at capacity. The war was over before it really operated well. Mr. EDGAR F. KAISER. It did get over 400 airplanes a month. Willow Run was the subject of great criticism during World War II because it had very high costs in the beginning and it was slow to start. But once it got rolling, if my recollection serves me correctly, it was considerably a lower cost producer than the prime producer. I think it got down to three-tenths of a man-hour per pound. Senator SYMINGTON. I think a very good job was done there but I just do not see why you feel that inasmuch as the plant never got to capacity that it was better known than any other plant in the Air Force program. Mr. EDGAR F. KAISER. I think for this reason: we feel, and our people feel, that an impression has been created that the Air Force just overnight walked into Willow Run and handed this contract to Kaiser-Frazer without any consideration of it. There had been long months of study on the plant. They knew what kind of a plant it was, what type of aircraft it was suited to. This was not something that just came up to go into. We say that the real point here is that this was not-there are a lot of dates brought into this as though we just suddenly walked into this on December 5, said "Boys, we have some money from the RFC, we were told to get defense work and we walk over and get some." That is not what happened. Senator SYMINGTON. As you know, I know a little bit of what did happen. You were anxious to get going on aircraft production in that plant. Mr. EDGAR F. KAISER. That is right. Senator SYMINGTON. I felt that was inadvisable, as you know. We discussed that. Mr. EDGAR F. KAISER. I think you were more concerned about the business itself. Senator SYMINGTON. I was only going to this particular point. It would be my impression that the Air Force knew some plants a great deal better than they did this particular plant. Mr. EDGAR F. KAISER. To answer your question, the cost of Willow Run at the end will answer why it was well known. It had such a remarkably low cost. Senator SYMINGTON. I do not doubt it was well known. You say better known, in effect. You imply it is better known. I do not see how that is possible. Mr. EDGAR F. KAISER. Any program that gets under fire--as Willow Run was under World War II-gets pretty well known. Mr. HENRY J. KAISER. Third, with the Chinese Communist armies pouring into Korea, at the very time the award was made to Kaiser- Frazer, the urgency of the requirement for additional cargo aircraft was not only evident, but a matter of public knowledge. Fourth, Kaiser management has an excellent World War II per- formance record-outstanding as to both cost and production speed. Mr. ANTON. Do you refer here to aircraft of an outstanding record as to both cost and production speed? Mr. HENRY J. KAISER. Any item you want to take up. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro2dd For Release 200 1ADr: G AQR 00346R000400p50003-4 Mr. ANTON. I am interested in-- Mr. HENRY J. KAISER. Which one? Mr. ANTON. Does this include aircraft? Mr. HENRY J. KAISER. Yes, it does. Mr. ANTON. Here is a document from the Navy. It is entitled "Synopsis of 'Ei'Review Board Hearings on the BTK Navy Torpedo Bomber." This bomber was built by Kaiser Fleetwings. The con- tract was given in March 1944 for 22 of these torpedo bombers. In August of 1946 the Navy terminated this contract after only five. bombers had been completed. Among the reasons given in this document are these two: The contract had entered "the runaway cost status and secondly, the contractor failed to produce airplanes fast enough or in sufficient quantity to be of use." Would you not say that Kaiser-Frazer performance of the'C-119 contract bears a striking resemblance to the torpedo bomber contract?. Mr. HENRY J. KAISER. I think you ought to give me time ! to get that information correct. There have been so many false statements presented hero that I think now we ought to have real, truthful statements. `iVhy do you not mention Brewster? Mr. EDGAR F. KAISER. Dad, I think I can answer. I know. about that contract. Mr. HENRY J. KAISER. All right. Mr. EDGAR F. KAISER. I think you are right. I think there is some similarity between the two. But it is not the one that you are'trying to draw. The similarity is this: In 1946, when that contract was canceled, the war was over, World War II was over, and we were on a downgrade at Kaiser Fleetwings. We had .a large work force that had been doing B-17's more than competitively with the industry- B-17 parts. On a downgrade, at the end of the war, you got a real problem; bring down your overhead. It is another instance of repro- graming. The airplane also, it is probably contained in that report-I have not seen Tit, also is not as operational as some other aircraft that the Navy bad in production. At Willow Run you. had the same thing. Rush into it at Korea, tool for 93 with your machine tooling capacity, have a PAB behind it of 200, and be ready to turn; it on. A reprograming that brings you back down. I think they are similar. I do not thick you draw the conclusion that management is "Do do." You draw the conclusion that the conditions were the same at the same time. Mr. HENRY J. KAISER. You must have in your possession five telegrams froin. the Navy commending Kaiser-Frazer. Have you those in your possession? Mr. ANTON. Are you talking about the Brewster contract? Mr. HENRY J. KAISER. Yes. Have you those telegrams? Mr. ANTON. I believe you have put them in the record. Mr. HENRY J. KAISER. Why do you mention those? Mr. EDGAR F. KAISER. Why do you only bring out the bad ones? The CHAIRMAN. Just a minute. Mr. EDGAR F. KAISER. I beg your pardon. The CHAIRMAN. We are asking you questions. You are testifying, rather than putting members of the staff on the griddle here. Go ahead, Mr. Kaiser. Mr. HENRY J. KAISER. Fifth, the only plant producing the C-119- the Government-owned Hagerstown plant-was scheduled to full capacity. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Rele rZM/A&tOitA DP64B00346R00 0050003-4 Mr. ANTON. Could I interrupt you? Mr. HENRY J. KAISER, Yes. Mr. ANTON. According to the testimony of General Cook, given to this committee, and Mr. McCone, the production of the Hagers- town plant was 8 planes a month. That was not the full scheduled capacity. Are you right or is General Cook right? Mr. EDGAR F. KAISER. We are both right, and again you are drawing the wrong inference. General Cook said that they are on an accelerating schedule if I recall it correctly, that they had been au thorized to increase that schedule-and I am quoting from memory now, not what Cook said but my recollection of the program-that they were scheduled at that time to go up to 22 and they subsequently increased it to 30 some-odd. Mr. ANTON. Do you know when that schedule went into effect? Mr. EDGAR F. KAISER. No, sir; I do not. Mr. ANTON. To 22 and then 30? Mr. EDGAR F. KAISER. No, Sir. Mr. ANTON. The documents that we have on file indicate it was not until a year later. You may proceed. Mr. EDGAR F. KAISER. That it was not a year later that they were authorized to increase from eight a month? I think there is something wrong with that because if they were a year later building 22 a month then they did something without being authorized to do it. Mr. ANTON. You may proceed, Mr. Kaiser. Mr. HENRY J. KAISER. Therefore, another source was needed to meet the C-119 requirement. Right there I would like to say that they did develop a source. They spent several millions with Fairchild on the Douglas plant later. The other available and suitable facilities were all earmarked for even more urgent projects, such as the produc- tion of B-47 bombers. In spite of all the above facts, the impression was created that the Air Force was not justified in selecting the Willow Run plant. 2. The second impression created was that Kaiser-Frazer's costs on the C-119 contract are excessive and exorbitant, that management is inexperienced in aircraft production, that operation is inefficient, and that the Air Force has failed to exercise proper control. However, the committee's staff has been supplied with complete information with respect to Kaiser-Frazer's performance and costs, as well as the Air Force reports on - the quality of our performance. But the favorable portions of this information were not brought out at the hearings. Senator SYMINGTON. Could you develop that? What do you mean by favorable portion? Would you mind touching on that lightly at this point? Mr. EDGAR F. KAISER. I think perhaps the most outstanding is the Air Force sent in a survey team. It made several reports on the conditions overall, at Willow Run, while the C-119 was being built. I think there are three reports. The last report, if I recall correctly, was some time in April, which is available to this committee, goes down the line with a great list. It is rather complimentary of what is done at Willow Run and what we have done. No mention was made of that at this hearing. We have detailed parts of it. Senator SYMINGTON. Thank you. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approve t3 or Release 2003/I FCIAiRMfi M46R000400050003-4 Mr. HENRY J. KAISER. The committee staff had numerous reports in its possession, showing the findings of Air Force teams that visited the Willow Itun plant during various stages of the production opera- tions. As we will show in our testimony, these reports reflect material improvement in all phases of operation and conclude that our organi- zation compares favorably with those of other airframe manufacturers. There are some 750 management and supervisory personnel in the Aircraft Division. at Willow Run who have had previous aircraft experience. These facts have not yet been brought out in these hearings. General Cook stated a number of times in the hearings that Kaiser- Frazer's costs should not be compared with Fairchild's. General Cook offered to provide an expert witness to furnish an analysis of why the cost figures are not comparable, but this witness was not called before the hearings were recessed. The impression has certainly been left in the public mind that Fairchild's costs per plane can fairly be compared with our costs. The $260,00c' cost of Fairchild is after Fairchild- has had the benefit of a Government-furnished plant, free of cost to Fairchild; !a large portion of its tooling costs and plant rearrangement costs written off on previous contracts; and learning experience gained on over 800 aircraft of the same basic type. Kaiser-Frazer's cost of $1,200,000 per plane is basecl, on a privately owned plant, with all of the tooling and all the plant rearrangement costs written off on a total of only 159 planes. No one brought out the fact that, if Kaiser-Frazer built 800 or more of this basic type of aircraft, its costs would be $260,000 or less. Mr. ANTON. Might I interrupt you at this point, Mr. Kaiser? I think the conre.xnittee would be interested in knowing how you calcu- lated this figure. Mr. EDGAR F. KAISER. I think I can show you that. This gives you a pretty good picture of what the comparison is. This material is taken from the Air Force source books and this shows the World War II records of man-hours: per pound of airframe weight in various planes. It shows the B-24 at Ford Willow Run, which is! the A curve. Starting out, if you will notice, with the highest cost, going clear down here below anyone else. These are man-hours per! pound of airframe, and it is a logarithmic chart. So you see this i~ 4, 10, 20, 40. These are planes, starting with 1 plane, 10 planes, 100, then it goes in increments of 150, 200, 400, and so on. Senator SYN[INGTON. Mr. Kaiser, could I interrupt you there? Mr. EDGAR F. KAISER. Surely. Senator SYMINGTON. You have been in the production business for a long time; have you not? Mr. EDGAR :F. KAISER. Yes, I have. Senator SYMINGTON. That is my impression. We have discussed it a lot. When this contract was made you made an estimate of what the plane would cost and gave it to the Air Force? Mr. EDGAR F. KAISER. Not at the outset. Senator SYMINGTON. Have you ever made an estimate of the cost of the plane? Mr. EDGAR F. KAISER. Yes. Senator SYM.I[NGTON. When? Mr. EDGAR F. KAISER. I made two. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleafN 1Ajq -Rq&--PP64B00346R000"050003-4 Senator SYMINGTON. Two in what year? Mr. EDGAR F. KAISER. We made the last one in May of 19-I think it is May-of 1952, which reflected the stretchout program. Senator SYMINGTON. Is that the first estimate you made of the cost of the plane? Mr. EDGAR F. KAISER. No. Senator SYMINGTON. What was the first estimate of the cost? Mr. EDGAR F. KAISER. The first estimate, I think, was about 6 or 8 months after the letter contract, after we had had a chance to get the drawings and study them over. Senator SYMINGTON. Would you mind putting a rough date on that? Mr. EDGAR F. KAISER. I think by November of 1951. Senator SYMINGTON. What was that figure? Mr. EDGAR F. KAISER. About $840,000. Senator SYMINGTON. What is the cost of the airplane to the Air Force today? Mr. EDGAR F. KAISER. I cannot answer that because I am getting into trouble Senator SYMINGTON. Would you care to guess at it? Mr. EDGAR F. KAISER. A different airplane. You see, this reflected a model-the 840 reflected a model C. This committee does not have the understanding that we have built an F, not a C. Senator SYMINGTON. You are the president of the company? Mr. EDGAR F. KAISER. Right. Senator SYMINGTON. Do you not know what the estimated cost of your airplane is today? Mr. EDGAR F. KAISER. What the estimated cost is? Senator SYMINGTON. Yes. Mr. EDGAR F. KAISER. Yes. Senator SYMINGTON. What do you figure the cost today? Mr. EDGAR F. KAISER. On what basis? Senator SYMINGTON. On the basis of what you will be paid for when you deliver the plane. Mr. EDGAR F. KAISER. No. We do not get paid per plane. You mean on 159? Senator SYMINGTON. All I am saying is you gave a cost of eight- hundred-some-thousand dollars. Mr. EDGAR F. KAISER. That is on 200. Mr. HENRY J. KAISER. On a different plane. Senator SYMINGTON. What is the estimate on the cost of the plane today? Mr. EDGAR F. KAISER. On the basis of 159, C-119F's, with com- plete amortization, a preproduction, plant rearrangement, machine- tool capacity for 93, prepared necessary capacity to 220, about $1,247,000. In that neighborhood. Senator SYMINGTON. Do you think that figure is going up or do you think it is going down as an average in this contract? I am look, Ing at the B-24 charts but I do not think they are quite comparable to C-119 charts. Mr. EDGAR F. KAISER. The Air Force estimators think it is going up. I think it is going down. Senator SYMINGTON. That is what I wanted to know. Thank you. Mr. EDGAR F. KAISER. But I still want to cover the picture here as to where Kaiser-Frazer's C-119 man-hours fit in relation to these Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approv29(for Release 2003A/ J9t JR TCR Ppph 00346R000400050003-4 major -programs. That does not show excessive, exorbitant. That shows we are about average and I wish we were better. Mr. ANTOR,. How many man-hours is it taking per plane right now? Mr. EDGAn F. KAISER. I cannot answer the question, and no one else can. We can give you estimates. Just a minute. Let me tell you why I cannot because it is fair to tell why you cannot do that. These airpla.o e costs are kept in lot numbers. Lots of so many air- planes. There is a group of parts being made here, and a certain number of lot numbers. It is impossible to plug the figure that you are asking for. Mr. ANTOBr. What figures do you use to arrive at this chart? Mr. EDGAr; F. KAISER. What you do is take the completion of the lot numbers of airplanes. Mr. ANTON. In man-hours? Mr. EDGARR F. KAISER. In man-hours. Then you take the out- side-because:; this includes outside subcontractors because we de- veloped new contractors also. Mr. ANTON. How many points did you use in man-hours to arrive at that chart? In other words, you took one block of man-hours, subsequently another block of man-hours, and possibly another. Mr. EDGAR F. KAISER. To this point, we are based on 71 equiva- lent airplanes. Mr. ANTON. What are the man-hours per plane at that point in order to draw the formula? That has to be done, you know? Mr. EDGAR F. KAISER. I want to refer to the figures because this is a per pound of airframe basis. I can give you those figures on an equivalent loi:, basis. Let me refer to them so I am not quoting some- thing and then. get into trouble about that later. Senator SYMINGTON. Could I ask one more question? Mr. EDGAR F. KAISER. Yes. Senator SYMTINGTON. If you believe the costs are going down and the Air Force believes they are going up, at this point, in order to save a lot of the interest in the committee's problems, would you be willing to take the job from here out at a fixed price? Mr. EDGAR F. KAISER. Our testimony offer is we will do it without redetermination. Senator SYMINGTON. At a fixed price? Mr. EDGAR F. KAISER. Yes; without redetermination. Senator SYMINGTON. What is the fixed price? Mr. EDGAR F. KAISER. We do not know because we would ;have to determine what the conditions are. After all, this has just come up. We have to make an estimate on it. If I say what it is, it is going to be considerably less than this $1,200,000, I can tell you that. That is going to mislead you, too. You see, as Senator Bridges said, $168 million for 59 airplanes, that is not right. Senator SYMINGTON. You would not want to take a fixed price to include tool amortization? Mr. EDGAR F. KAISER. We have been paid-- Senator SY:MINGTON. Naturally, it should be less. Mr. EDGAR F. KAISER. We have been paid so much already. So the finished item contract is going to be considerably less per airplane. Senator SY:I INGTON. Would it be less than. your original price on the first 200? Mr. EDGAR F. KAISER. Yes, Sir. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releamc29fB/tCbM1 DP64B00346RO09*910050003-4 Senator SYMINGTON. Under $800,000? Mr. EDGAR F. KAISER. Yes, sir. Senator SYMINGTON. For bow many airplanes? Mr. EDGAR F. KAISER. For the balance of the contract which probably, if it is 159, by the time we negotiate it, I would guess 60 to 70. Senator SYMINGTON. Thousand dollars? Mr. EDGAR F. KAISER. No, number of airplanes. You said "for how many airplanes." Senator SYMINGTON. Would it be under $260,000? Mr. EDGAR F. KAISER. No. Senator SYMINGTON. Would it be over that? Mr. EDGAR F. KAISER. Yes. Senator SYMINGTON. How much over, do you think? Mr. EDGAR F. KAISER. Do not ask. Let me make the figures. The CHAIRMAN. Mr.. Kaiser, you referred to $1,200,000 here. The last testimony of the Air Force was that it was $1,337,000, some figure like that. Mr. EDGAR F. KAISER. No, it was not. The CHAIRMAN. I beg your pardon but it was. That was the testimony of the Air Force. Mr. Henry Kaiser in testifying here said that a great many false statements had been made. The only witnesses were former Secretary McCone and the Air Force officials. What Mr. Henry Kaiser has done is virtually accuse them. of committing perjury before this committee. Mr. HENRY J. KAISER. I have not. The CHAIRMAN. You said they have made false statements. Mr. HENRY J. KAISER. I did not say they did. Mr. EDGAR F. KAISER.. False impressions is what we said were created. Mr. HENRY J. KAISER. Because you did not give all the testimony. The CHAIRMAN. We did not give all the testimony? Mr. HENRY. J. KAISER. That is right. Senator SYMINGTON. Mr. Kaiser, you do not mean that. You are talking to the chairman of the committee. Mr. HENRY J. KAISER. No. Senator SYMINGTON. What do you mean? The CHAIRMAN. I have given no testimony here. We are out to get the truth. What I would like to have you tell is the truth. What I would like to have you tell is the truth. Now, sir, just proceed. I am trying to be courteous and nice to you. Mr. HENRY J. KAISER. Senator, are you accusing me of being a liar? The CHAIRMAN. No, sir; you said somebody is making false state- ments. Mr. HENRY J. KAISER. I did not say false statements. You read the testimony. If you want to go into truthful statements I will be glad to cover them all with you-- The CHAIRMAN. I want all the facts. Mr. HENRY J. KAISER (continuing). All your statements in the past, and all mine. And they will stand up. The CHAIRMAN. I think mine will, too. So let us go on with the hearing. I want to be courteous and give you every fair chance. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approve or Release 2003/41$4!tl PPSJP6'41 346R000400050003-4 Mr. HENRY J. KAISER. I do not want you to accuse me of making false statements. The CHAIRMAN. I know what you said here, certainly, if you had false impressions -- Mr. HENRY J. KAISER. What I said here is as clear as crystal and it is in writing. Mr. EDGAR F. KAISER. Mr. Chairman, may I clear up this $1,300,000? The CHAI]KMAN. Yes, sir. Mr. EDGAR F. KAISER. If I read the transcript correctly, the $1,300,000 is the Air Force auditor's estimate of what he thinks it will cost to complete. With all due respect to Mr. Solomon and his judgment, I do not think an Air Force auditor is an estimator of costs of completion. We have submitted detailed facts that seem obvious on the surface that he cannot be right. A conclusion was drawn and you drew it. You made the statement that the cost is $1,300,000. That is not a right statement, Senator. That is an estimate, made by an Air Force auditor. Senator SYMINGTON. Mr..Chairman, I would like to be clear on this. If any injustice is being done-can you not take theamount of money that is spent and divide it into the number of planes that you shipped v id find a price? Mr. EDS. ~n F. KAISER. No. Senator SY MINGTON. You cannot do that? Mr. EDGAR; F. KAISER. No. It does not give you a fair answer. You see all time stuff is down the line. Senator SYMINGTON. Later on your costs will come down, presumably? Mr. EDGAR F. KAISER. Right. Senator SYMINGTON. If your costs increased, and apparently there is a differendc; of opinion as to whether they will or will not increase, then it would'. be a very fair answer. Mr. EDGAR F. KAISER. Our costs are coming down per plane. Senator FLANDERS. Mr. Chairman? The CHAIR y:AN. Senator Flanders? Senator FLANDERS. One of the elements in this situation, as I see it, I mentioned briefly in the previous hearings, and that was where you have costs of tooling, costs of developing manufacturing, costs of training workmen, there should be a heavy initial cost per plane, and there should be a continuing decreasing cost per plane as the number of planes delivered approaches the total. I think we have. got to -recognize that in this discussion, and if there is not, however, a de- creasing cost per plane, as the total order approaches completion, there is something the matter. But we must not be suprrised if the costs of the first planes are high. We must expect that the costs of the final planes will be very much lower. Senator BYRD. I would like to ask a question. The CHAIRMAN. Senator Byrd? Senator BYRD. Would you be willing to accept future contracts on the basis of the cost of the Fairchild's? Mr. EDGAE F. KAISER. No, sir. Mr. HENRY J. KAISER. The 800? Mr. EDGAR F. KAISER. What he is saying is at the same point of production. Yes. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releasei2 /i10MOco&1ROOP64B00346R000 50003-4 Senator BYRD. In other words, you have had your preliminary experience of 2% years. have you not? Mr. EDGAR F. KAISER. The learning curve. We have to make it clear. If we build 800 airplanes, or more of this same basic type, I would say we would bake them for less than their 260. Mr. HENRY J. KAISER. Less than Fairchild, for 800. Senator BYRD. Suppose there are 100 or 200? Mr. HENRY J. KAISER. Then if you take them at the same price as Fairchild, Senator, you have to go back to their C-82 at the same time at the same stage, and it cost them about $1,300,000 something, just by, Air Force records. We have those records. Senator BYRD. You have that. Both of these companies have had experience. Let us get beyond that. Some day you have to get these costs down to some reasonable figure. Let me ask you this: You say you will accept these contracts on a fixed amount? Mr. HENRY J. KAISER. That is right. .Senator BYRD. Would you accept them, that fixed amount being the cost that it cost Fairchild? Mr. HENRY J. KAISER. Based upon the learning curve of Fairchild. Based upon what their costs were as they came down that curve. Senator BYRD. Do you not think 2% years is long enough to waste public money to get the planes started? Rather, to have a reason- able cost? Mr. EDGAR F. KAISER. We did not waste the public money. Senator BYRD. Somebody had some heavy costs here. I do not know whether it was wasted. When is the time coming when you are going to get down to an efficiency basis? Mr. HENRY J. KAISER. It is a learning curve that you go by. Every aircraft company goes by a learning -curve. Senator BYRD. These curves are very difficult to understand. How long will it take, with your experience, to get on an efficient, competitive basis? Mr. EDGAR F. KAISER. Senator, he is giving you a good answer. You do not measure it in time. You measure it in numbers of air- planes. What we are saying to you is that we feel our operation is competitive with Fairchild on the same number of planes. You do not measure it in time. Senator BYRD. How many planes have you built up to date? Mr. EDGAR F. KAISER. We have delivered over 50. Fifty-nine, I think. Senator BYRD. Are you asking for other contracts, other business? Mr. EDGAR F. KAISER. No, we have not been, other than what we have now. Senator BYRD. Have you been offered any other business? Mr. EDGAR F. KAISER. Not for completed airplanes. Senator BYRD. Do you expect to get any other business from the Government? Mr. EDGAR F. KAISER. Yes, Sir. Senator BYRD. Why do you expect it? Mr. EDGAR F. KAISER. That is a broad question. If we are talking about at Willow Run, because I think we are competitive at Willow Run, and because I think it is good for the Government to have that capacity and to have a trained force there both in manage- Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approv`f For Release 2003X1O 'T ( [EBB @0346R000400050003-4 mont and labor available to turn on% and not to have to wait 2 years to develop it. Senator BY.ID. How long will it be before you would be on is com- petitive basis with Fairchild? Mr. EDGAR F. KAISER. I really think before we build the same number they have. Senator BY:Ew. When? There must be some months or years. Mr. EDGAR F. KAISER. I am not dodging your question. I am merely answering. Senator Byiw. Give an approximate date of when you will be on it. Mr. EDGAR F. KAISER. We say we are at the present time. Let's answer it that way. Senator BYRD. I understood you to say that you were not, at the present time, because you did not have this learning curve. Mr. EDGAR F. KAISER. Senator, I am not doing a very good job of explaining to you. When you build 100 airplanes, they cost more per plane than when you build 800. What we are saying to you is that when we have built the same number of airplanes, we will build them at the same or lower costs than Fairchild, or, to put it the other way, we say that we are competitive with them at the point where we are today, in comparison to where they were. Senator BY:RD. How many planes has Fairchild built? Mr. EDGAR F. KAISER. Over 800 of this basic type. Senator BYi tD. In other words, you will not be on a competitive basis until you have built 800? Is that it? Mr. EDGAR':F. KAISER. I just said I think we will be there ahead of them. Senator BYIi.D. Could you give any month or any date any year, in the future, when you would be on a competitive basis? Mr. EDGAR F. KAISER. We have a contract for only 159 C-119's. We will be phased out of the program completely. Mr. HENRY J. KAISER. In how many months? Mr. EDGAR F. KAISER. By January. Senator BYIID. You expect to get other business, I assume. Mr. EDGAR IF. KAISER. There is a contract, a follow-on contract, but it is a subcontract to build the C-123, that Chase Aircraft holds the prime contract on. Senator FLANDERS. Mr. Chairman? The CIIAIRNIAN. Senator Flanders. Senator FLANDERS. I would like to make some inquiries about the nature of these contracts. Is it in the contract that you entirely absorb the tooling and other costs in your 159? Mr. EDWARD F. KAISER. Yes, sir. Senator FLANDERS. So that all those costs are spread over 159 planes? Mr. EDGAR F. KAISER. Yes, but I would like to go just one step further. On the comparison figures that you were given, at 71.4 airplanes, as submitted, the Air Force auditor at Willow Run: wrote off all the tooling on the 71.4. He did not even give us the 159. That is the comparison. Senator FLANDERS. That is the point that I am coming to. So that we have to take into account the writing off of the total amount of the total co, its on the total planes, rather than on the state of the Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaseA2aO AtO/1? pJikR 4B00346R00040ffp0003-4 affairs of producing the tenth plane, the 20th, the 50th, or whatever it may be.. Mr. EDGAR F. KAISER. That is right. Mr. HENRY J. KAISER. Kaiser-Frazer's cost of $1,200,000 per plane is based on a privately owned plant, with all of the tooling and all the plant rearrangement costs written off on a total of only 159 planes. No one brought out the fact that, if Kaiser-Frazer built 800 or more of this basic type of aircraft, its costs would be $260,000 or less. The Willow Run plant, in World War II, a second-source B-24 pro- ducer, was severely criticized for high costs and low production in the early part of the program-but once it started rolling, it was a high- volume producer, and the Air Force source books show its costs were under the prime producer. The impression is also left that the costs of Fairchild-built planes, on which testimony was submitted at the hearings, are for the same plane that Kaiser-Fraser is building. Actually, the Fairchild costs, as reported by Mr. Mautner for 71.4, 159, and 412 planes, respectively, are all for C-119C's. Kaiser-Fraser, however, built only C-119F's. The C-119F is a different airplane than the C-119C. Mr. ANTON. Could I interrupt? Mr. HENRY J. KAISER. Yes. Mr. ANTON. Could you tell me what model plane Fairchild is building now? Mr. HENRY J. KAISER. F, after we went through the experiment with their tools. And their tools were 75 percent wrong, 50 percent of which had to be rebuilt. I will get into that latter. Mr. ANTON. Would you please tell the committee what model at the present time Fairchild is building? Mr. HENRY J. KAISER. F. Mr. ANTON. The committee has in its files documents to show that the Fairchild Co. is at present building the G model. Mr. HENRY J. KAISER. That is new to me. Is it now to you? Mr. EDGAR F. KAISER. I do not think it has any bearing on the question. Senator SYMINGTON. I think it has this bearing: If you are talking .about changes in production cost, and you have done the changes in the costs for the F model and Fairchild has had the benefit of that and is now building the G model, that is pertinent. Secondly, it also means that if they are making a new model with all the changes involved in it, the G-model for a price of around $264,000, or whatever it is, around that figure, I would say that is pretty good manufacturing based on these reports. Mr. HENRY J. KAISER. But you have to know how many they built, and what the changes were. Was there one change? Were there 10 changes? Or was it in the case of the C to the F? This airplane was changed 30 percent. Senator SYMINGTON. I would say the implication of your testimony is that you are building the C and they are building the F, that you made the changes in the F and they got the benefit of it. If they are making the G they are making the changes in the G and you will get the advantages of it. Mr. EDGAR F. KAISER. I think if you read it you will get that. He is not saying that. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appr2y2d For Release 2QQ tD p tAx 600346R000400050003-4 Mr. HENRY J. KAISER. There were some 80 changes required to develop the F model, the major changes being different engineq and a change from electrically actuated landing gear and control surfaces to a hydraulic system. Therefore, Mr. Mautner's cost comparisons are not on comparable planes. The original award to Kaiser-Frazer contemplated building the C model. The change to the F model was ordered in January of 1951. Fairchild was responsible for furnishing Kaiser-Frazer the en- gineering information on the change from the C to the F. The F changes were received all during the time we were tooling and build- ing the planes. Complete engineering information for the _F model was not re- ceived until a year after the time of the contract change. A number of the primin?; parts furnished Kaiser-Frazer by Fairchild were C-1 19C parts, and Kaiser-Frazer had to modify them when possible, to F parts. You know enough about planes to know that when you have to go in to modify tooling that is incorrect and not furnished, you have more of a probiem. That cost hasn't yet been represented. In spite of all this, Kaiser-Frazer delivered to the Air Force the first C-119F only 1 month after the last engineering information was received and simultaneously with the completion of Fairchild's first production tryout F model. Mr. ANTON. When was the first F model assembled at Kaiser- Frazer off the line? Mr. EDGAR F. KAISER. What day was it off the line? Mr. ANTON. What date did it come off the line, the first F model? Mr. EDGAR F. KAISER. Before it was accepted? Mr. ANTON. Yes, before it was accepted. The time you had the dedication ceremonies. Mr. EDGAR F. KAISER. That was May 8. Mr. ANTON. Are you sure it was May 8? Mr. EDGAR Ili KAISER. March 8. Mr. ANTON. March 8 is when the first F model came off? Iii view of the fact that the first Fairchild F model came off their line in Novem- ber of 1951, what is your comment as to the changes that Fairchild also had to make in going to the F model when your model came out in March 1952 and their F model came out in November 1951? Mr. EDGAR F. KAISER. I don't understand your question at all_ We are not claiming that Fairchild did not have to do the engineering and develop it and do that. We did not do that. He did that.: There is no claim here that we did all that. The claim is that we were building a different airplane, and-the engineering was Doti avail- able at the ti nme, and we knew in general where the changes were going to be. But that is difficult. In order to accelerate the program you start building the tools, the C tools. I don't quite understand your ques- tion. Mr. RHODES. You were talking about absorption of costs for a new model. At least I understood you to say that you were talking about. absorption of costs for a new model. Mr. HENRY J. KAISER. Changes in tooling, incorrect tooling. Mr. RHODES. Yet, I believe the burden of Mr. Anton's statement is that the Fairchild people had some months earlier, in November, as a. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Release-IBOU D/1*o(M&R 4B00346R00040 0003-4 matter of fact, gone through all these things) completed the engineering changes and run their first model off. Can you explain why it was so burdensome to you to come up with the F model? From. your statement you indicate that you have taken the brunt of the thing. Mr. EDGAR F. KAISER. I just got through saying that. We did not claim we took the brunt of it. This is the point of the whole thing. We are not saying we developed the F. We say Fairchild did. What we do say is that a lot of costs were submitted, Fairchild costs which were C costs and are compared to F costs. That is the point of this statement. Is it fair to compare a cost on a developed airplane without taking into consideration the initial airplane which was the C-82, and compare those, when we are trying to build an airplane, with 30 percent of the information not available? That is my point. This is not a fair comparison. Mr. RHODES. It occurs to me that you are just arguing for an arithmetical comparison of costs. Mr. EDGAR F. KAISER. When I have been crucified by one and claim to have excessive costs, and wasteful? I have to argue for something. Mr. RHODES. You are picking up the argument that the F model was exceedingly costly to you because you had some 30 percent of changes, at least I understood Mr. Henry Kaiser to say that. Mr. HENRY J. KAISER. It says that here. Mr. RHODES. In your statement you said that. But months earlier, in November, Fairchild had already gone through and produced its first F model. I cannot see the burden of your argument that you are in trouble because you have to produce a new model-the F model-and go. through with all these engineering changes. Mr. EDGAR. F. KAISER. I think this will bring it out. Senator SYMINGTON. Mr. Chairman? The CHAIRMAN. Senator Symington. Senator SYMINGTON. If the committee could find out from the Fairchild Co. what they were paid per airplane on the first group of airplanes-I say group so there would be an average cost-it might be difficult to do with the cost per plane which it would not be if it were a fixed price-then compare that with the average cost of Fair- child, embracing the learner's curve which has been emphasized here, I think you would get a clearer picture with respect to this program. And on that basis the Kaiser-Frazer interests might consider whether or not they would be willing to go on with the contract on a fixed price basis based on the number of airplanes. Mr. EDGAR F. KAISER. Can we finish the statement? I think that will clear it up and we will not have to argue about these things. Mr. ANTON. Under the technical assistance agreement that Kaiser- Frazer had with Fairchild, Fairchild was to supply the major assem- blies for the first 14 planes. Is that not correct? Mr. EDGAR F. KAISER. Yes. Mr. ANTON. What percentage of parts of this first plane, the "F" model which came off the line in March 1952, were supplied by Fairchild? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Apprguid For Release 2010 P400346R000400050003-4 Mr. EDGAR F. KAISER. In the first place, the parts we got :were "C" parts, so we had to modify them if they did not make corrections. Are you clear that we got parts from Fairchild that were not; "F parts? We got both kinds. In some cases they made it and pome, cases they did not. That is not it criticism of Fairchild. They were doing the: best they could under the circumstances. Mr. ANTON. You are not criticizing Fairchild at this point, are; you? Mr. EDGAR F. KAISER. Don't try to get an all-inclusive statement in. Are you trying to get the facts or crucify me? I am not going on the record that they did not Mr. ANTON. Please understand me. Mr. EDGAR F. KAISER. That is it exactly. When you try a ques- tion like that you are trying to get me to say that I don't criticize them and I do, and I very definitely have done it. That is a trap question. Mr. ANTON. I believe that the question that you-- Mr. EDGAR 1'. KAISER. Are you trying to get the facts? Mr. ANTON. The facts, yes. Mr. EDGAR 11'. KAISER. Let's get at them. Mr. ANTON. In this particular instance, I believe the committee would be interested in hearing the testimony of Fairchild on this point. Mr. EDGAR F. KAISER. I think that we should finish our statement which explains what we are talking about. Mr. ANTON. Not at this point, but later on. Mr. HENRY J. KAISER. The committee, in the absence of informa-' tion to the contrary, when hearing the testimony given by Mr.. Mautner, must, have assumed that the Fairchild cost information he submitted was for the same plane that Kaiser-Frazer was building.. This was not the fact. The majority of the cost information he sub- mitted was based on recorded costs on the model C-119C, whereas Kaiser-Frazer builds the C-119F. When Mr. Mautner was giving his testimony, it was not stated than Fairchild had built approximately 200 C-82s prior to starting C-119s.. The C-82 is a predecessor of the C-119. We do not know how much of the original cost of plant rearrangement, tooling and fixtures, etc.,. paid for by the Government and used by Fairchild on the C-82 was applicable and, used, free of charge, on Fairchild's C-119 progkam. We do kno\'z that the C-82, though a smaller plane, cost Fairchild substantially more to build than the C-119, undoubtedly because Fairchild was then at an earlier point in its learning curve, axd still amortizing preproduction expense and tooling. The Air Fojcce reported on September 29, 1952-this is an Air Force report-- Mr. ANTON. Is this an official report? Mr. HENRY J. KAISER. It is an Air Force report. Mr. ANTON. Is it an official report? Mr. HENRY J. KAISER. I don't know what official is. It was fur- nished by the Air Force to anyone and everyone. Mr. ANTON. To anyone and everyone? In a press release? Mr. EDGAR F. KAISER. I think it was. We took it from the press release. They furnished it. Senator _FLANDERS. I think we should have the source of this report in our record, Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Released Qdi,?W1P64B00346R00050003-4 Mr. HENRY J. KAISER. We will furnish that. The CHAIRMAN. Will you furnish that for the record? Mr. HENRY J. KAISER. Yes, sir. (The statement is as follows:) Mr. II. W. CLOKE, Washington, D. C. DEPARTMENT or DEFENSE, OFFICE OF PUBLIC INFORMATION, Washington 25, D. C., October 6, 1952. DEAR WALT: Enclosed are two answers to inquiries on the subject of Kaiser- Frazer and Fairchild C-119 costs. Neither answer was used, as far as I know, until September 29. The answer dated September 23 was prepared. from information given earlier to the Ilebert Subcommittee, Committee on Armed Services, House of Representa- tives. Sincerely, In Answer to Inquiries: DEWITT R. SEARLES, Lieutenant Colonel, USAF, Chief, Air Force Desk, Press Branch. An Air Force contract with Kaiser-Frazer Corp. for production of Fairchild 0-119 aircraft at Willow Run is still in effect, and there is no plan that it be canceled. This contract, for 200 aircraft, dates from December 1950 when a letter contract was awarded. A definitive contract was entered into in May 1952. The, contract covered $137,673,000 as estimated airframe cost, $42,764,000, for special tooling, plant rearrangement, portable tools, spare parts, engineering changes, no-fee items, etc. Total was $180,437,000. Unit airframe cost was $683,365. In the spring, 1952, as a result of the stretchout in aircraft programing, a change in requirements for the C-119s, and plans to phase the Chase C-123 into production at the Willow Run plant, 41 C-119s were transferred from Kaiser to Fairchild. A supplemental agreement covering this change is being negotiated. Substantial savings on C-123 production at Willow Run are expected to result from experience gained in the C-119 work. Many starting costs will not be reincurred, and much of the usual expense of engineeing, training a labor force, and adopting production methods to the making of new planes will be saved. SEPTEMBER 29, 1952. In answer to inquiry as to comparison of Fairchild and Kaiser C-119 costs: The Fairchild and Kaiser C-119 prices are at present not comparable. Fair- child has produced this airplane and a predecessor airplane, the C-82, over a number of years in substantial quantity. A large portion of Fairchild's starting costs on the C-119 were incurred in the production of the C-82 during and follow- ing World War II. The balance has been absorbed in quantity production of the aircraft. In addition, Fairchild's production bears a relatively high ratio to its capacity. Fairchild's average current unit price for airframe has been recently reduced to $260,000. The two companies are at a completely unrelated stage of production and costs. Kaiser prices could be compared with the Fairchild price only if Fairchild were also starting production, producing at a relatively small percentage of its plant capacity, and were affording facilities for greater expansion in the event of a further emergency as is the case with Willow Run. ' The Kaiser price cannot be, in any way, comparable to the Fairchild price until Kaiser has acquired a production history matching Fairchild's. Kaiser is at about the same stage in its overall program as was Fairchild when 5 years ago it had a unit price in excess of $650,000 on the C-82. The last C-119's produced by Kaiser under its present contract will be considerably closer to Fairchild's current price than will be the first ones. Willow Run will then follow with C-123 production. It will not be until at least the end of C-123 production, under the existing contract, that anything like a comparable price will be available. Only then will Kaiser have Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro2fd For Release 20Q014/Aflr: OkAeRi 40346R000400050003-4 absorbed the initial cost incident to establishing a new source of production in terms of tooling, establishing subcontracting sources, production engineering, building a labor force and all the other customary expenses which Fairchild has long since absorbed under its contracts. The difference between the Fairchild and Kaiser price represents the , normal experience when it becomes necessary to expand aircraft production capacity to meet both current requirements for growth and to be prepared for; sudden abnormal demands on industry. Mr. HENRY J. KAISER. This is what it says: Kaiser is at about the'same stage in its overall program as was Fairchild when 5 years ago it had a unit price in excess of $650,000 on the 0-82. The C-82 ti`'as the same basis type transport plane as the 0-119, but the C-119 airframe weight is approximately 40 percent heavier than the C-82. Adjusted for the difference in weight and the drop in the purchas- ing power of the manufacturers' dollar, Fairchild's unit price in present- day dollars would be approximately $1,372,000. Obviously, no fair comparison could be attempted without also having this information. MVIr. ANTON. Mr. Kaiser, the information has been supplied by the Air Force. According to this schedule, in September 1947, the date about which you are speaking, the cost of the C-82 was $256,934. Taking that figure and applying a 40-percent weight differential as you have indicated here, the figure.. then reaches $359,708. Then, taking the inflationary cost also into consideration, and applying 50 percent, you come up with a figure of $539,562. Mr. EDGAR F. KAISER. I would like to ask you a question, Mr. Anton. I am not clear on just what you are saying. Senator SYMINGTON. Would you let the counsel finish the question? Mr. EDGAR F. KAISER. I beg your pardon. I thought he was. Senator SYMINGTON. No. Mr. ANTON, I would like your comment on these comparisons. Mr. EDGAR F. KAISER. I would like to know if those costs' are on 220, or how many. Is that the average cost on 220 C-82 planes? You said costs at that time. Mr. ANTON. That is right. Mr. EDGAR IT. KAISER. If we are taking another plug point in the program that is not a comparison. Mr. ANTON. That was the cost at that time. Mr. EDGAR F. KAISER. Then that is not a fair comparison. Mr. HENRY J. KAISER. It is obviously not, to bring that kifid of a cost here. Either the Air Force is not right in its statement. to the public, or you are. not right. Mr. ANTON, I said the cost at that time. Mr. EDGAR F. KAISER. He qualified it. Mr. HENRY J. KAISER. Why bring it in? Mr. EDGAR F. KAISER. When he is doing that, he is not comparing apples and apples. Mr. ANTOr . That. is right. The reason I do that is th s : The committee hay; had the Department of Labor prepare what this plane would have cost, taking into consideration the indices as prepared over the years, and taking into consideration all, not just a point at some place like September 1947, but taking all of the figures into consideration, Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releq@ftoq/1? dAraC P64B00346R00060050003-4 At this point we would like to insert this information into the record to indicate what has been done, in order not to delay this hearing. It is quite a lengthy explanation. Mr. EDGAR F. KAISER. I would like to see that after it goes into the transcript, make an analysis and comment on it. The CHAIRMAN. Certainly. (The information above referred to is as follows:) FAIRCHILD AIRCRAFT DIVISION, FAIRCHILD ENGINE AND AIRPLANE CORP.- CONTRACT W33-038 AC-124 Exhibit A. Cost to the Government of (219) C-82 airplanes-Final prices at com- pletion of contract ''do 4z Labor hours --------------------------------------------------- Labor dollars--------------?--------------------------------- overhead------------- ---??---------------------------------- Material------- ----------------------------------------------- Subcontract--------------------------------------------------- 1 Flight test--------- -------------------------------- --- ---- - Subtotal------------------------------------------------- 1 Engineering and experimental-------------------------------- 1 Tooling-------------------------------------------------------- Preproduction------------------------------------------------- Subtotal------------------------------------------------- General and administrative---------------------------------- Total costs---------------------------------------------- Profit---------------------------------------------------------- Selling price--------------------------------------------- Average unit selling price-------------------------------------- Average unit production hours--------------------------------- Unit airframe weight (pounds) -------------------------------- Dollars per airframe pound------------------------------------ Hours per airframe pound------------------------------------- Labor hours--------------------------------------------------- Labor dollars------------------------------------------------- Overhead------------------------------------------------------ Material------------------------------------------------------- Subcontract--------------------------------------------------- Flight test--------------------------------------------------- Subtotal-------------------------------------------------- Engineering and experimental--------------------------------- Tooling-------------------------------------------------------- Preproduction------------------------------------------------- Subtotal-------------------------------------------------- General and administrative------------------------------------ Total costs------------------------------------------------ Profit---------------------------------------------------------- Selling price-------- ------------------------------------- Average unit selling price-------------------------------------- Average unit production hours--------------------------------- Unit airframe weight (pounds) --------------------------------- Dollars per airframe pound-------------_--------------------- Hours per airframe pound .------------------------------------- $1792, 811.05 3:583,341.64 851, 017.29 181, 679.01 87, 877.78 6,496, 726. 77 1, 667, 499.31 8, 200, 519.05 345, 797.08 16,710,542.21 856, 411.40 17, 566, 953.61 1,108, 965.36 18, 675, 918.97 1, 867, 592.00 178, 326. 7 21,021 $88. 84 8.48 $1,673,700. 79 3,073,228.02 1,435,293.47 1,004,084.15 114, 833.98 7, 301, 238.41 214, 483.50 774,140.97 1, 746.11 8, 291, 588.99 373,867.75 8,665,456.74 779, 891.10 9, 445, 347. 84 472, 267.00 83, 895.6 21,185 $22.29 3.96 $1,062.711.11 1,721,601.59 927,109.24 623,377.42 88,221.36 4, 423, 020.72 161, 348.51 406, 802.95 1, 502.84 4, 992, 675.02 225,119.72 5, 217, 794.74 469, 601.52 5, 687, 396.26 379,160.00 67, 981.3 23,597 $16.07 2.88 $1,144,933.21 1, 807, 314.20 1, 073, 556.86 718,402.91 58, 562.47 4, 800, 769.65 205,966.15 457,905.57 ------------------ 5, 464, 641.37 246,762.53 6,71L 403.90 514,748.82 6,226,152.52 415,077.00 70, 563.6 23, 939 $17.34 2.95 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approv oor Release 200311 i D~FCIA-64 8G346R000400050003-4 FAIRCHILD AIs. stArT DIVISION, FAIRCHILD ENGINE AND AIRPLANE CORP.- CONTRACT W33-038 AC-124-Continued Exhibit A. Coat to the Government of (219) C-82 airplanes-Final prices at com- pletion of contract-Continued ti Z o Ai l Item 2, 40 airplanes q rp ane manufacture rn Block 6 (15) Block 6 (15) Block 7 (10) of (15) Labor hours______________________________________ _ 883,620.7 716,641.8 418,935.0 Labor dollars ---------- - -- - -- - - - Overhead $958,208.90 - $821,909.98 $493,089.73 ____. __ _ __ _ __ _ M aterial _ 1,433,875.03 1,230,539.15 754,469.48 I ------ .__--------------------------------- Subcontract__.----------------------------------- Flight test - 912,133.40 664,908.83 - 881,191.43 789,996.20 596,880.32 503,627.11 ___._.---------------------------------- 41,668.82 44,988.90 28,955.06 1 SubtotaL___________________________________ Engineering and experimental______________ 4,010,794.98 179 133 71 3, 768, 625. 66 1 2,377,021.70 1 _______ Tooling_________________ ---- --- -- -------- Preproduction.______ , . 419,877.41 86, 902.25 408,595.39 147, 432.90 201,027.77 Subtotal __________________________ General and administrative__________ 4, 609, 806. 10 207 856 16 4,364,123.30 2,725,482.37 _____________ , . 199, 692.20 136, 207.47 Totalcosts__________________________-_---- - Profit 4,817,662.26 4,563,815.50 2,861,689.84 _________.____________________?__------------ 433,589.60 410,743.39 257,432.12 Selling pr ice___________--------------------- Average unitsollingprice__________ 5,251,251..86 350 083 00 4,974,558.89 1 _______________ , . 331,637.00 31 ,912.00 Average unit production hours____________________ Unit airframe weight (pounds) 58, 908.4 47, 776.1 41, 893.5 -------------------- Dollars per airframe pound__________________ H 23, 932 $14.63 24, 252 $13 67 24, 282 $12 85 ours per airfca,nte pound____________ 2.46 . 1.97 . 1.73 'U c Item 3, 49 air- Item 4 Ar.rplanemanufacture planes-blocks 7, 8, 9, and ]0 (5, 15, 15, 14) 30 airplanes- blocks 11 and 20 airplanes- 12 (15), (15) block 13 (20) Labor hours ------------------------------------- __ __ 2,017,579.1 _--- 923, 146.2 563,569.3 Labor dollars ------------------------ -- - -- Overhead - $2, 491, 533. 76 - --------- $1, 172, 602 65 X715, 745. W __________ Material ____--------------------- __ ____--_ Subcontract 3,911,455.07 3,022,848.77 1, 735,4612 .37 2,168.955.15 1073,526.74 1,:182,167.69 1 _______________________________________ Flight test 2,316,725.12 937,620.62 1584,146.32 _ ___________ 131,543.93 89,098.85 66,247.96 1 Subtotal ------------------------------------ Engineering and experimental .............. ,8 11874,106.65 564,947.10 6,103,746.64 274 8 3,;021 833.71 , 1 ....... Preproduction Tooling____---- _. ---------------------------------- ------------------------------- 845,059.01 , 63.56 263,411.43 139 118.37 83,223.86 -- - ---------- Subtotal___________ General and administrative__________ 13,284,112.85 662 636 62 6,642,021.63 3,'844, 175. 94 _____________ , . 365,450.42 212,339.48 Total costa___................................ Profit ~3' 946. 749. 47 7,007,472.05 4,056,615.42 ------------ ..-------- ------------- --------- 1,246,385.17 700,539.38 407,235.72 Selling pri,c--------------------------------- Average unit selaingprice ........... 15,193,134.64 310 064 00 7,708,011.43 4,963,751.14 .............. . , 256,934.00 223,188.00 Average unit production hoar)____________________ Unit airframe weight (pounds) --- 41,175.1 30-- , 771.5 --! : 28,178. 5 ____________________ Dollars per airframe(pound)---------------------- 22, 987 $13.49 23, 076 $11 13 23, 076 $9 67 Hours per airframe (pound) _______________________ 1.79 . 1.33 . 1.22 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releasir~2O 1 @AMtr]MA P64B00346R000 OO50003-4 FAIRCHILD AIRCRAFT DIVISION, FAIRCHILD ENGINE AND AIRPLANE CORP.- CONTRACT W33-038 AC-124-Continued Exhibit A. Cost to the Government of (219) C-82 airplanes-Final prices at com- pletion of contract-Continued 20 airplanes- Block 14 (20) 219 airplanes- Total (219) Labor dollars ----------------------------------- - $870,414.62 $13,197,760.80 - ------------- Overhead --------------------------------------------- - 1, 305, 632.83 21, 630, 446.12 --- ----- Material ----------------------------------------- ----- 1,054,868.74 14,106,021.36 ------- - Subcontract ------------------------------------- - - 479, 200.00 8, 801, 767.69 ------- - ---- Flight test----------------------------------------------------- b6, 000.00 807,999.11 Subtotal ---------------------------------------- - 3,766116.19 58, 544, 001.08 ------ -- Engineering and experimental_________________________________ 100:408. 33 3, 842, 083.83 Tooling ------------------------------------- - 78,028.18 12,136, 591.59 ------------- --- Preproduction------------------------------------------------- ------------------ 349, 046.03 Subtotal ------------------------------ - - - 3,942,552.75 74,871. 722. 53 - ------------ - -- General and administrative____________________________________ 216, 841.91 3,703,185.66 Total costs ------------------------------------------------ 4,159,394.6C, 78, 574, 008.100 Proflt ---------------------------------------------------------- 415,933.46 6, 745, 065.44 Selling price -- - ---_--------------------------------- 4, 575, 328.12 85, 319, 973.63 - -- - Average unit selling price__..___________________________________ 228, 766.00 389, 589.00 Average unit production hours_________________________________ 34, 133.8 53, 632. 5 Unit airframe weight (pounds)_________________________________ 23, 018 23,073 Dollars per airframe pound____________________________________ $9.94 $16.89 Hours per airframe pound_____________________________________ 1.48 2.32 SCHEDULE 1. Cost to the Government of (219) C-82 airplanes-Detail of flight test, engineering and experimental and tooling Flight test: Labor hours----------------------------------------------------- 26, 932.9 Labor dollars ------------------------------------------------ $20,087.55 $37,780.38 --- Manufacturing overhead________________________________________ 53, 956.06 69, 828.50 Material--------------------------------------------------------- 4, 833.27 17, 226.10 Engineering and experimental: hours ___________________-_---__----___----_ Experimental labor 37, 362.2 6,281.6 , Engineering labor, hours________________________________________ 456, 845.0 45,630.6 dollars______________________________________ Experimental labor $43,899.04 $7,077.30 , dollars--------------------------------------- Engineering labor 670, 988. 90 64, 339.05 , Manufacturing overhead________________________________________ 71, 522. 49 11, 366.67 ________________________________________ Engineering overhead 920, 316. 50 81, 925.06 ___ Material- ------------------------------------------------------- 59, 306.72 49, 112. 14 - Subcontract----------------------------------------------------- 1,466.66 643.38 Total---------------------------------------------------------- `Tooling: Labor hours----------------------------------------------------- 1, 003, 099.2 168,317.0 Labor dollars- -------------------------------------------------- $1,123,471.11 $222,178.46 - Manufacturing overhead________________________________________ 2,140, 335.47 388,618.77 Material--------------------------------------------------------- 410,025.95 23,998.37 Subcontract----------------------------------------------------- 4, 526, 686. 62. 139,345.37 NOTE.-Totals by blocks for flight test engineering and experimental and tooling are actual. The breakdown of these totals into labor hours, labor dollars, overhead, material and subcontract are estimates. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approvg&or Release 2003XW!fCPA 346R000400050003-4 FAIRCHILD AIRCRAFT DIVISION, FAIRCHILD ENGINE AND AIRPLANE CORP.- CONTRACT W33-038 AC-124-Continued SCHEDULE 1. Cost of the Government of (219) C-82 airplanes-Detail of flight test, engineering and experimental and tooling-Continued Item 1, 60 airplanes Flight test: Labor hours---- ------------- Labor dollars M $29, 024.83 , 267. 05 anufacturing overhead------------------------------?-------- 45 963.33 511 05 T Material ---- , 13, 233.20 . , 8, 784.37 Total ----------- 88 221. v) 58 562 47 Engineering and experimental: Experimental labor hours___________ , 3 973.5 , . 5 072 3 Engineering labor hours--------------- ............ ?_-----_----- , 34,329.5 , . 43, 822.8 Experimental lalbor dollars_________ $5, 324.50 $6 796.88 Engineering labor dollars________________________________________ 4S,404.55 , 61 789 84 Manufacturing overhead_______________________________ 8,551.47 , . 10 916. 21 Engineering overhead- ---------------------------------------------- 61, 635.13 , 78,679.07 Sub o al-nt t ---------. ------------------------------- ub o 36, 948.81 47,166.25 c e rac ---------------- ----- ---------- 484.05 617.90 Total 161 348 61 205 966 16 Tooling: Labor hours , . 88, 446.8 , . 99, 559.8 Labor dollars--- -- $116,752.45 $131 418.90 Manufacturing c vorhead________________________________________ 204, 215.08 . , 229 868.60 Material-------- ------- 12, 610.89 , 14 195.07 Subcontract----._..----------------- ---------------------------- 73, 224. 53 , 82, 423.00 Total-------- - 457, 905. 57 Item 2, 40 air planes ! Block 5 Block 6 Block 7 (15) (15) (10) of (15) Flight test: Labor hours-------------------------- Labor dollars $13 709 04 $14 801 35 $9 526 21 Manufacturing overhead__________________________________ , . 21, 709.46 , . 23 439. 22 , . 15 085 59 Material 6,260.32 , 6, 748. 33 , . 4,343.26 . Total ---------.._.. Engineering and experimental: Experimental labor hours_________________________________ 4,411.5 4,602. 8 3 630.8 Engineering labor hours ---------- _______________________ 38,113.6 39, 766. 4 , 31, 368.7 Experimental labor dollars________________________________ $5,911.41 $6,167. 77 $4 865.29 Engineering labor dollars_________________________________ 53, 740. 11 56 070. 68 , 44 229 87 Manufacturing overhead__________________________________ 9, 494.09 , 9, 905. 82 , . 7 813.94 Engineering overhead_____________________________________ 68, 429.08 71, 396. 66 , 56 319.37 Material-------------------------------------------------- 41, 021.62 42, 800. 62 , 33 762.13 Subcontract---------------------------------------------- 537.40 560. 70 , 442.30 Total --------------------------------------------------- Tooling: Labor hours------------------ --------------------------- Labor dollars --------------------------------------------- $120, 504.82 $117,266. 88 '$57 694.97 Manufacturing overbead__________________________________ 210, 778.46 205,114. 89 , 100,915.94 Material-------------------------------------------------- 13, 016.20 12, 666. 46 6,231.86 Subcontract--------------------------------------- 75,577.93 73, 547. 16 36,185.00 Total ----------?----------------------------------------- 201,027.77 NOTE.--Totals, by blocks, for flight test, engineering, and experimental and tooling are actual. The breakdown of these totals into labor hours, labor dollars, overhead, material, and subcontract are, estimates. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleaseF2QM01bi?dP64B00346R0004050003-4 FAIRCHILD AIRCRAFT DIVISION, FAIRCHILD ENGINE AND AIRPLANE CORP.- CONTRACT W33-038 AC-124-Continued SCHEDULE 1. Cost to the Government of (219) C-82 airplanes-Detail of flight test, engineering and experimental and tooling-Continued Flight test: Labor hours----------------------- Labor dollars------------------------- Manufacturing overhead ---- ._________________ Material Total--------- -------- Engineering and experimental: Experimental labor hours Engineering labor hours _-________________________________ Experimental labor dollar Engineering labor dollars_________________________________ Manufacturing overhead Engineering overhead___ Materia.I Subcontract Total --------------- Tooling: Labor hours------------ Labor dollars----------- Manufacturing overhead Material--- Subcontract Total Item 3, 49 airplanes, blocks 7, 8, 9, and 10 (5, 15, 15,14) $43,277.95 68, 534.39 19, 731.59 131, 543.93 13, 912.9 120,201.5 $18, 643.26 169, 484.16 29, 942.20 215, 809.83 129, 372.91 1,694.83 $242,531.94 424, 219.62 26,196.83 152,110.62 30 airplanes, blocks 11 and 12 (15), (15) $29,313.52 46, 420. 50 13,364.83 6, 769.0 58, 481.6 $9,070.50 82, 459.07 14, 567. 77 104, 907.88 62, 943. 76 824.58 57, 272.0 $75, 599.08 132, 232.54 8,165.75 47, 414. 06 20 airplanes, block 13 (20) Flight test: Labor hours________________ ---------=----------------------------- Labor dollars___ ____________..__________________ --------------------- auufacturing overhead_________________ Material ----- Total------------------ Engineering and experimental: Experimental labor hours ____..________________________ ngineering labor hours-----------------------------------?-----_-- Experimental labor dollars _.,______________________ Manufacturing Engineering labor overhead dollars____ _______________________________ ____..____________________________ Engineering overhead _______._____________________ Material ---------------------------------- Subcontract ---------------------------------------- Total----?--- Tooling: Labor hours-----------------?------------ --------------------------- Labor dollars ----------------------------------? anniac------ overhead____________________________________________ Material ----------------------------------- --------- airplanes- Block 14 (20) $18,424.00 29,176.00 8, 400.00 2,472.7 21,363.6 $3,313.48 30,122.51 6,321.64 38,356.00 22,993 ' 52 301. 23 $21,820.09 38,166.15 2,350.87 13, 685.07 76,028.18 $21, 795.58 34, 515.19 9,937.10 3, 426.1 29, 699.7 $4,600.01 41, 735.51 7,373.27 63,143.22 31,858.11 417.35 $23,886.25 41, 778.38 2,579.94 14,980.29 $266,007.46 429,120.19 112, 871.46 807, 999.11 90, 915.4 910, 522. 6 $115, 660.34 1, 223, 364.25 186, 775.47 11751 , 007.80 557, 286.59 7,989.38 $2, 253,123.95 4,116, 243.90 532, 044. 19 5, 235, 179.55 12,136,691. 50 210 airplanes- total(219) NOTE.-Totals, by blocks, for flight test, engineering, and experimental and tooling are actual. The breakdown of these totals into labor hours, labor dollars, overhead, material, and subcontract are estimates. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro' l For Release 20Q fit ( : F{@-RDR64B00346R000400050003-4 o R cn ow I.n O O ~] W N '-i M Cl Si m Srnm cn n. n 0 ~~ .n co C cf n oo'o ~ o o N c "' ~ ? I n N ~" m I m ? ? CI ~Nu N w n n ti ~n N m ci O mM.. o~+ &3- ~ Oti ti C~ eery~ ~~d~ M O m ?~ vJ ~.. Ni O W C n n 'M Q , U Cl ~vj V~ [~ ~py+ I-m eD d~ eeryry O W N ,? o N - ~M co R 2 N N ' N .-+ I y 7 ~ ~i n .y I ppp o u~ rl ti ti I m E9 MY~ m ey - ? p Pw-q ~enw m" lend~~`a? R 16 ' ;.~ ~a~ 8 a e ;?E ? a I ~ go m ?~? d~ mc I? C CC Ff iy QQb N0O 0vN~inV Oro 0O .. o ;m ' '?d ui ~' ~ m P 'ri'~" ~ S_o ~. . o~ ,0.N c a g:?. ~ ~1?C ? N a a U~ b0 n W~- pc dp N a.~'" mN.~ Wc U 'OC^~i ?4N `d I~ ca c2''a .'~i~~R~y ?~ S v?i tG.d f?N i mow G ^M CL R ? ~ a . 9 rd i c a i -1 ~''(~" pp mce Q-~ FI m ce (~ 60.E (~ G'., G e 4 g c . ? ~ i . .. a p -t5 "ooF ?? o4~W~ o'~Ed b0 pab Ly 7 mWo o ^ yq t o f -o 4 gmk Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Relea#&/1]?~QfjRqWP64B00346R000050003-4 DEPARTMENT OF THE AIR FORCE, OFFICE OF THE GENERAL COUNSEL, Washington, March 81, 1953. Following is a list of amounts of metals used in the C-82 and C-119 airframes: C-82: Carbon steel------------------------------------------------------------- 271 0.865 Alloy steel and stainless steel combined---------------------------------- 5, 898 18.170 Brass and copper -------------- 228 .727 Foundry products, grey iron castings------------------------------------ 13 .041 Aluminum-------------------------------------------------------------- 25,135 80.188 C-119 , Carbon steel------------------------------------------------------------ 160 .459 Alloy steel --------------------------------------------------------------- 2,236 6.418 Stainless steel ------------------------------------------------- ---------- 943 2.707 Brass------------------------------------------------------------------- 68 .195 Copper----------------------------------------------------------------- 401 1.151 Foun.dry products------------------------------------------------------ 8 .023 Aluminum-------------------------------------------------------------- 31,026 89.047 Total------------------------------------------------------------------ 100.000, Memorandum To: Mr. Harold M. Devlin. From: Edward D. Hollander. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS, Washington 25, D. C., April 16, 1953. Subject: Prices of aircraft materials and labor. Following our discussion, I asked Mr. Eaton to prepare rough indexes of the changes in the prices of materials and labor entering into the manufacture of airframes. Results of his work are described in the attached memorandum from. him which I am transmitting in its entirety. Y'ou will notice that this work has been done with great care and in as much detail as the information available to you, and the price information in our files, would permit. Under the circumstances I have no apology; on the contrary, I think it is a very good job. Nevertheless I must caution you that these are approximations only and must be used with care. For example, it would be possible to conclude that the prices of aircraft had risen faster or slower than the materials and labor cost only if there was a wide discrepancy. In other words,, even moderate differences might not be conclusive. If there is any further explanation you need, I suggest you get in touch with Mr. Eaton directly on extension 1144 at the Department of Labor. To: Edward D. Hollander. From: E. I. Eaton. Subject: Aircraft material prices. The attached price and wage indexes have been prepared in response to the request of Mr. Devlin of the Senate Preparedness Committee. Although there are limitations on the accuracy of these indexes, as outlined below, it is my personal opinion that the price data are as good as could possibly be obtained without undertaking a major research project. The data on average hourly earnings are the official series of the Bureau; they are obtained by dividing the total production or nonsupervisory worker payroll by the total comparable man-hours on an annual basis. The most important limitations on the price data are: (1) The quality of the data is considerably higher after 1947 than in the period 1943-46; this is due to the revision of the wholesale price index with data starting in January 1947. We also have considerably more data, particularly for fab- ricated products, in 1947 and later years. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approv or Release 2003 &TOtAe 0346R000400050003-4 (2) All price data used in this work are f. o. b. mill or producing point quotations. To the extent that delivered prices have moved differently than mill prices, the indexes will be incorrect. This difference in movement, it should be rioted can arise from three different causes: (a) A freight rate change of different mangitude or timing from a commodity price change; (b) purchase of requirements from different mills located far apart; (c) purchases from local sources rather than directly from rr. ills (i. e., warehouses rather than direct from mills in the case of steel). (3) The price quotations used in this index are for simple forms of the basic metal (i. e., ingot copper or aluminum). Since it is likely that aircraft manufac- turers purchase relatively highly fabricated forms of metal-which can move differently from the basic metals because of labor and overhead costs-the indexes may not give in accurate pricture of the general movement. Appendix B is presented to throw some light on this point. This appendix shows the coniparative price movemenIs for individual commodities in the period under consideration; since these vary in degree of fabrication it is possible to obtain some evaluation of the effects of fabrication on the price movement. I have not attempted to combine the price and wage data into a single index. This can be done, fairly simply, by assigning relative importances to the price index and to th,~ wage index, but we have no basis for such an assignment. The price indexes were derived by the following method: (a) All available price series by type of product (carbon steel, aluminum, etc.) were combined into a single product index. This combination was done on the basis of the weights used in the revised index (1947 sales of each commodity). The combining was done separately for the two time periods-1947 forward and 1943-46-and then tied together on the basis of the January 1947 ratios. As indicated earliea?, the data from 1947 forward are much more complete than the earlier information. The result of this work was a series of five product indexes--- carbon steel, alloy and stainless steel, gray iron castings, copper and brass, and aluminum. With the data available, it was not possible to develop separate indexes for allot,, versus stainless steel or for copper versus brass. (b) The quantity data by products, as supplied by Mr. Devlin, were converted to values on the basis of December 1952-prices. The actual prices used were: Carbon steel, 4.8 cents per pound; alloy and stainless steel, 33 cents per pound; copper and brae's, 31 cents per pound; castings, 16 cents per pound; aluminum 20 cents per pound. (c) The product indexes derived under (a) were combined on the basis of the values in (b) into 2 material indexes-1 for 0-82 and 1 for C-119 planes. These indexes are dominated by the movement of alloy steel and aluminum. Price changes for copper and brass, gray iron castings, and carbon steel have almost no effect on the end products. (d) The indexes derived in (c) were on the base 1947-49=100; as presented in appendix A, they have been converted to the base 1943=100. Appendix A gives the annual average indexes for material by type of plane; it also shows the data on average hourly earnings in the aircraft and parts industry (excluding engines) converted to indexes on the base 1943=100. A break in the series in 1947 ha+a been taken account of in computing the index for hourly earnings. Appendix B gives the list of the commodities included in developing the product indexes and their annual average price relatives. You will note that the average indexes in the period 1943-46 may look peculiar in comparison with the individual items-for example, the item index for aluminum ingot is 94 whereas the product index is 93. This difference results from the method of calculation. The prod- uct indexes we,?e computed separately for the two time periods and then tied together, while the item indexes independently were made into a continuous series for purposes of analysis. In other words, the items available in 1946 and earlier years were considered to be a sample of the items available after 1947. Appendix C contains the absolute dollar data on hourly earnings. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releasg,39PB40~&~, , - , 64800346R00049RO50003-4 APPENDIX A Special aircraft indexes for material and wages [1943=100] Average Average Annual average 0-82 aircraft C-119 aircraft gross hourly Annual average 0-82 aircraft 0-119 aircraft gross hourly earnings earnings 1943_______________ 100 100 100 1948_______________ 116 112 137 1944________________ 100 100 108 1949________________ 124 119 144 1946________________ 101 100 111 -------- 1"0------- 120 129 124 111 1946________________ 102 101 120 1951 - 140 134 164 1947________________ 107 104 127 1952_______ 144 137 173 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appro For Release 2003 iO': 1OGRDRt84B00346R000400050003-4 '[ ) .-I M NOD c000 to -icoto. - "I-- ) CCC 'NJ T > ~O ~D m > CiMNCOV NGNVMMC] -iHNrlN r-iH,-1rl O N OD9W NM ,_4.4 C )~)fl O ,i,-1 Sc, 9 iG NNN~-i'-IN y ~~ NiRzVq Hr-ItiH Obi N -MOM OWoO0.CC+ntO pC0pOpp ~~jj CiNCIN NNC~V LVN H'i i-l. e-I N -*-IN.-1 NVp~n'0W O~ON dO'~COV -- r-1 '-I H i--i O ti~ ni'-1 'OW~IWO ti~NCI .N+N H'r .-i ~N .+W Ow-0 _, tian.N w'OO -H i MneM .+n i n > ~ n i n,-+O+WO V N O 6 6M N i J I '{ ~ r C M'~JWMOf~ 1 00 ~ I O d' ~ O C D ~ r~O -0000 M rI O K --- Mn M.-IO+0tOti 0 0000000 +-IWOCON WO~rt00 O 00 n0pp~'00O~~0>n . . . .OM. c00OCW 00 . r?OaOnWn W.y S OOOOOOSO H rl r-1Nrrr rl'iH V"']'-I cpp>N OO S g cSS N c0 O~ n-I d'GV N OM d~ M V~ .4 Vb ~ D't`~~i YV YD-Op't' M cM~O'J ana~~N ~J CV ~ I d' hN n ~ n I ~ TeH ~ Q+ 'ti M'~Ti ~+D Oi ~O CD ODN '64 ~ MM uJ pppp ~ti mGVnOm 00 NOptiM ~pp NOD ~'nn N uJ fpp~ OHO ~ p OOn ' + O p~ ,Q O ~OiKJu'i .-i u7 b4 ~J~i ~ OD N O ~ CV N c pppp N 1 c . t0 A I I q yy~~ ti O+ M m .-i ~o .nn~coi G 2 QMi ~c .mni ~iJ N O .~i ++ ` c c3d',-i .r" od o ci ~ ~? ~ ~ n ~ N? eNrr ti hOrp ~O~ ~Nd~ cp0p u'J O0 O ~ M O+e~Op .u~aDD 00 O ui 0~.-i M O OC Q+ ~J GV g O O I Q , I I ?~ mm~~o Q'i a n p~ o~n~"ch~ri e9 m.n-i c~?S m" rn." `$ sNs P ~ 0 z I pp Wp- pp AOmi giN') i N ti.m nM n C' O~ e eO COM u u'Ji ~D 00 CC~rOiy Mp pCi ~tJ ' O r-+ N .-i ~i O ~'a CD CV M 00 F N ~ n Cc] .-1 ri CD CI i ' r: o r: .; .n cdn m c3wco c?'?ami ~'uy rnu' n ~~ m".r; r= co"n o ti c I '6pd~ ~ ~ a G .R ai ai ~~a F ~ lai ? ~ d , d cn ~ q ^ ~m ~~ yy yy W ~~ d v AFM? aOS Fg C; ti N 2 ',,, ;a A QUA a !y ?'.? q esn" d a ~ ~a ~ g~ ~ gC Cyy U 7 G] c5 a7 .i ~ ~ 65 0.o o p, ? qq sa eqe;' .5 , ,,aa o. 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F 8 ~moq F 0 p 9 gwaw db d 8 ~a a ~ ~~ F q~ F w EE 7t w Z Aa C d c " Approved For Release 2003/10/10: CIA-RDP64B00346R000400050003-4 Approved For Releasg,A3 lO ffl - C~EA-RDP64B00346R0004~021 50003-4 so o .mow oga~ roro ~A,a~ oA ow,~d , o "row ~? o qp,,o ~A.qc o~ A ~P podia' ?.?', N m a> x1 biGo a O F4,~ a ~ro pp~d~ ;moo r:a~,~3 -4 cop m~ ~ b'm roM "an" G U O U N Lei 63ro w F ~0 8 wo~~o`~~a 0f ro R coa a%d~o8m~8od~ m7 ooAd co.~ypw F+w U a~eY ~~c4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approv For Release 2003~/11~0/110 : CI -RDP64 0346R000400050003-4 II I o m .~ N nip"p m0700 ~.rnim OW W ~, N N ~~ d~O+ d7 8'cgiwm` ~c~' O 6 6i 4. {{rr w ~i N rANd~ 00 poOy~ rO N~~ .ti (t~~"l` Po00 pp~~ 0~0 OS N" 00 [~ Ir ~e~epppp GppVpp pp ~O~t`0~0 .OM eOepp+ ydyf~f CV,M O ep .-~ Ir ~ w ?~ cnn m Imn o o ~r~m ~ n o m n 0 co 0 .c ti o m n O 00 00 od n .n ' .ri .ri od cd ~ ~ ti m m gc8 w a1 L ~ LV N N' N N II Ono GV p ee~~p GV O0 tD pp Mm w C~ '1n me~O pp y M .O,. Q+~ri CM"J V ~C+n J i O ON O0 + O y GV M N ~ I "' OO~D i mg ? p~ CV O]M ~n g H y O ~ CIW6 e mco 000 co p p p Q s O JN n rn m o M p G CV Sri 0 op ~ l~ W m ~~D o p N~ W O..~ r NN OUR CC u O+8 mm O 00O p~~ n ~eyN eCp Q+~yn~~WONp~ OeOn e0M e0p ~i GV M M iD ~ni M ~D M d0~ n F d S iH D ~M 6C N? NM . y M N n ti odg a'io n ? 416,4 `Bice ao gm 00o a r I N O m M ~rJ C Nq O t~ 160 p p ~ W O .[5 p .cn.~ M NJ o~ N r' x M N O M ~ ~ _ r NM~ p p e ~ry .ri aMpO Q ~~ hON o MM~ OO 0'O ti ?n C~'.i ~G tG C4t6 u'i CM~ C '~ M -re e $cnv?n? .3-.6e Ocn00 o 0rpi 00tW ~~ O0O 00 F cf Ndr- c:i qtr rn~"?' ?a .44 ono u`~~ .tic 2 ~gg~ U.rS Cj CV N~ 00 vio '-~ ~tiw tiCnpp ~Wy "~O O~iW~ oOoo ON [[O~ OV ~ pppp 0:1 V .N-i~N WhN pp yy~~ 1600016 .~rJ C~+J O00 Oi C4-46 ci w gci~ nle tiff 0 tco Gil i of o pGp cy+ii t=ti" 0 ^' .r'njH 00 p p W~M OOCI ~~ ~M N3 cp6,4, o0 d~ ~`~' , b n p a MOO 8 see .~ yy q ~.~. cg' q:p F. U ~ U b ' '0. 'a ~d iA m a'co od q. m ? .~ sq '' GM1 d O -q b bG ~b ~ ~ Fa .Fa U+ ~N ~t7 q O cd pq 4 NC ~V N ROO iO+ +~-' O 3 y t~ 1 . ..7 o`a3 o'dm on .fib gwddm H+, w ~a`4 e coq o u L m o ot. Pi W w 5 R 6gyn b ? U PL, W P" a o c w ~ o z ' ~c o ol Ea c q m gwww db x o a 0 E- 15w ~kq 00 z F4 ? Approved ForlRelease 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For Releas(XgggIii'k0%1 c [ P64B00346R0004g9g50003-4 O .y U0' O `q G cC O E0'd ?J ~7 ce ?p W '~ a m o a7 paro a> 0 Ad -0 84M,gJ7 o~d ~tl 11 ~y'A :dyG?V~~'Q ?. -o dd ~rqn ~~" mgb'a~q`?moao8 '" ~o.~ooddop bq~ Er ~pmm~0ag18 ~ro o~a~~?a~;~?8 d gaa5 a'~o row qca^a~ w ~~:~a??~~^p.~ arc 'd~ ti~mc~~a~p,p o?o "v,ooq e9_~.~ ao ~.~ Gzd ~'."~.?~.~3 is ~.~ ~~.~a ooaa~8.~ adgO~?aa8o.~? $a g m g >~ .5!5 S 0-0 9 gym P.?7 co q, E '01 d h d.~ yA. N ow-.. m om. a ?mo. - ??q q d N l- c0 O~ O 'R7 qw 00 c ? c W A '~ q'N Bg o W~?~ ~ q ?3j 1G w.oo b~ ',, . ~ spay 0 B N w0 O Dw H CLDN, tioa .Gw co? -GR ~:~OV ~yj y?w Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Appr* 1 For;Release 20 tOA1i :1@J*o*UMMA800346R000400050003-4 Report of o en commitments as of Jan. 31, 1952, July 81, 1952, Oct. 31, 1952, and Apr. 30, 1953, under contract-AF 33 (038)-18481 Open commitments as of- Jan. 31, 1952 July 31, 1952 Oct. 31, 1952 Apr. 30, 1953 (1) (2) (3) (4) - $1,242,901 901 $1,233,641 $1,029,348 $250,000 Processing en meerin - --- 163, - --------- --------- Pm terial--------------------- ------_ 15, 284, 702 10,113, 726 6, 639, 208 5, 399, 854 Major subcon ractors-------------------------- 10,783,151 10,750,132 17,984,380 13,946,325 Total op en commitments----------------- 27, 474, 479 22, 097, 499 25, 652, 936 19, 696,179 Actual nu ber of planes outfactory and planes accepted by Air Force-Contract AF 33 (038) 18481 Planes, Planes ac- coptod by Planes, outfactory Air Force flyaway As at Jan. 31, 1952-------------------------------------------- None None None As at July 31,1 1952-------------------------------------------- 9 7 4 As at Oct. 31, 1952-------------------------------------------- 14 10 7 As at Apr. 30, 1953-------------------------------------------- 44 44 37 Estimated ontract costs per Air Force accountant-Contract No. AF 33(038) 18481 Production materials----------------------------------------- $14,368,938 Direct lab4r------------------------------------------------ 28,474,992 Factory burden--------------------------------------------- 87,520,468 Engineering ------------------------------------------------- 4, 695, 942 Administrative ---------------------------------------------- 9,012,046 Subcontracts ------------------------------------------------ 36, 187,711 Airplanes--------------------------------------------- 180, 260, 097 Special toc}ling---------------------------------------------- 19, 353, 892 Plant rearrangement----------------------------------------- 2,400,333 Portable tools----------------------------------------------- 1,793,931 Sul total---------------------------------------------- 23,548,156 Clause 4 (no fee items) --------------------------------------- 2,038,567 Total contract costs------------------------------------ 205,846,820 Fee-------------------------------------------------------- 7,076,521 Gr nd total contract --------------------- ,-------------- 212,923,341 Spares ancfee---------------------------------------------- 10,070,784 Gr7nd total------------------------------------------- 222,994,125 Adjustment to first quarter, 1951 per audit report Adjustment for 1st quarter, transfer of costs from direct charge to allocable= and revisions of allocation bases_____________________ $176, 084. 77 Effect of excluding vacation hoursfrom bases------------------- 57, 537. 38 Total adjustment to 1st quarter (including vacation hours)__ _233, 622. 15 Approved ForlRelease 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approved For ReleasleR200F3//10/100 : CIIA-RDP64B00346R000400050003-4 Summary of suspended, disapproved and nonallowable costs, including cost of Edgar Kaiser's open letter published in reply to Senator Styles Bridges as of Feb. 28, 1953-Contract No. AF 33 (088)-18481 Suspended costs: Pending proper documentation-------------- $24,544.92 Pending proper approvals------------------- 45, 775. 61 Total suspended costs--------------------------------- $70,320.53 Disapproved costs: Concurred in by Kaiser: Labor: Vacation payments---------------- $715,631.44 Other labor costs adjustments--_---_ 213, 885. 95 929, 517. 39 Miscellaneous: Payroll taxes---------------------- 100, 829. 63 Duplicate charges (burden and direct) - 612, 347. 90 Other burden adjustments ---------- 505, 652. 99 Direct charges reaccounted - - - - - - - - - 87, 151. 60 E. Kaiser's Senator Bridges letter- - - - 4, 864. 65 Not concurred in by Kaiser: Burden adjustments due to shifting of Total disapproved costs---------------------------- 2, 590, 645. 45 Nonallowable costs (note 1): Interest expense --------------------------- $1,362,267.76 Dedication of first C--119 airplane ----------- 61, 620. 65 Traveling and entertainment expenses-------- 72, 533. 12 Miscellaneous expenses--------------------- 132, 038. 85 Total suspended, disapproved and nonallow- able costs------------------------------------------ 4, 289, 426; 36 NOTE 1.-The contractor has recognized that the above-listed nonallowable costs are not eligible for reim? bursement by the Government. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400050003-4 Approv(~or Release 2003/ASRC'&g2CI-APR# 9346R000400050003-4 SS SS S ~ S i S~ ~ i NS g g. w S g 5.0+-i ,`L-rc ~ni SN cmi cmi ci w 0~0 CC 0m nn `~ hi N~ m GDS W r ~~ W~ iv h PH ti tiv r _ ti SS o?S S,i w0 0000 0- ~S w0) rO ~,. `030 yv? 4S ~O .ri cc ~ .M i 0O'0-i c D 00 $~M oO ~J ao .: N O p4 mS cio M S ni ai c ~+ J~ ni c~0 ~ W Op pp -