The Economics of Air Power


By EUGENE E. WILSON, Vice Chairman, United Aircraft Corporation, East Hartford, Conn.

Delivered at Dinner Meeting of The Economic Club of New York, New York City, N. Y., March 8, 1944

Vital Speeches of the Day, Vol. X, pp. 382-384.

AS WE Americans face today the dawn of a new era—The Age of Flight—we stand upon the threshold of limitless opportunities! It is within our power to assure lasting peace and to promote increased prosperity. Whether we shall rise to the opportunity depends, I believe, upon whether the people adhere to those traditional American principles which have given us unquestioned technical and numerical superiority in the air, or whether they choose to follow some other course. Time is running out. The need for decision is at hand. Let us, then, review some fundamental aspects of our Air Power.

The Influence of Sea Power Upon History

Since time immemorial, men have taken for granted, the importance to the prosperity of peoples and nations, of freedom of communication by land. The freedom of the farmer to trudge to and from a market place, or of a caravan to wind across the desert from oasis to oasis, has always been recognized as a controlling factor in the prosperity of the individual, the tribe or the nation.

Singularly enough, the importance of communication by sea was not equally well understood until 1889, when Captain A. T. Mahan, in his classic work, "The Influence of Sea Power Upon History", demonstrated its decisive character. The argosies of history, deep-laden with the goods of the world, brought prosperity in their wakes. Armed naval craft patrolled the sea lanes, sweeping pirates from the high seas and assuring freedom of innocent passage to all and sundry proceeding upon their lawful occasions. The cost of the navy was considered a fair charge against the cost of ocean transport. Behind the navy and the merchant marine flourished the shipbuilding industry. Thus, Neptune's trident was indeed three-pronged—the merchant marine, the navy, the shipbuilders!

In our time, the great British Sea Power kept the peace and provided the favorable climate under which occurred unexampled progress until twice-challenged in one generation. But the record is clear that from the dawn of history, victory in war and prosperity in peace have gone to him who controlled the sea.

The Rise of Air Power

We are now witnessing the rise of Air Power. The American aircraft manufacturing industry is "the world No. 1 industrial giant". As to the influence of military and naval Air Force, history is still in the making. Strategic bombing of Continental objectives has not yet climaxed and has, so far, not proved decisive. The resilience of human beings is enormous. Yet the vital character of military Air Force is now established beyond any shadow of doubt. In the Pacific the U. S. Naval Air Force has already come into its own. The moment our Navy recognized the airplane as not just a new weapon, but as a vehicle for bringing old and new weapons to bear more effectively, the decisive character of Naval Air Force stood clearly revealed.

Meanwhile, under the lash of war, American Air Transport has advanced by leaps and bounds. Private domestic airlines operate vast overseas services, and the Army and Navy Air Transport Commands serve distant fronts in a global war. The rapid transportation of key men to critical areas for on-the-spot, face-to-face decisions has made possible, complex operations that might otherwise have failed. Vital materials, essential to the split-second timing of combined operations, have been delivered in time to insure success that would otherwise have been denied. Some of the great difficulties inherent to operating on far-flung lines have been eliminated by the speed and dependability of air transport where sea transport was too slow and too insecure.

Pending the verdict of history as to whether the new Air Power is more important than the old Sea Power, this much is clear: The air, like the sea, has become a highway. And the airplane has certain advantages over surface vehicles. Highways end at the shore. Sea lanes end at the shore. But the air lanes know no such frontiers, and scale the heights as well. Air Transport cannot be denied freedom of the air by any surface force—land or sea—while Air Force can exercise command over both land and sea transport.

Clearly, then, the isolation we once enjoyed behind the combined British and American Sea Power is no more. We ourselves have built great airways around and across the seas, and have provided land bases for them. Newfoundland, Labrador, Greenland, Iceland, to Europe; Whitehorse, Fairbanks, the Aleutians, to Asia; Trinidad, Natal, Ascension, to Africa; Hawaii, Samoa, Fiji, to Australia. These, and many others, have linked North and South America to the other continents.

We have been viewing these as outward flowing streams. We must see them, too, as channels leading to the heart of America. Mahan, discussing the decisive influence of Sea Power upon our Civil War, and referring to the tightening of the Northern Blockade, said, "The streams that carried the wealth and supported the trade of the Southern Statesturned against them and admitted their enemies to their hearts."

Thus, we see that Air Power will be of paramount importance to the prosperity of this nation in the future. Air Transport is the heart of Air Power. Its backbone is the Aircraft Industry, its sinews, the Army and Navy Air Forces. It behooves us to maintain that Air Power at the peak of efficiency.

The Economics of the Airplane as a Vehicle

In light of some fantastic predictions as to the future of aviation, let us review some of the economic aspects of the airplane as a vehicle. It is an interesting fact that the airplane and the automobile date from the year 1903. The history of each covers the life span of a single generation. This is fortunate, since it enables us today to appraise the past and plot the future on the basis of our own knowledge.

Of course, the two vehicles followed quite different avenues. The automobile found widespread use in private commerce. It was designed for and sold to individuals. It became the foundation for enterprises reaching into every walk of life. It became the basis of a new domestic economy. Like all improved means of land transport, it brought new prosperity.

The airplane, on the other hand, found its initial outlet as a lethal weapon. It came in a time of peace when men were disinclined to devote their energies to the development of weapons. Even commercial air transport was developed as an element of national defense under the sponsorship of the Post Office Department.

When, at the outbreak of the war, the need for large numbers of aircraft became apparent, the aircraft industry expanded to its limit and then brought a large part of the automotive industry into aircraft production. Thus, in 1943, two industries which had then? origins in the same year, found themselves allied, forty years later, in one of the greatest cooperative efforts of American history.

There is one fundamental difference between the airplane and the automobile which has had an important influence on development. The automobile, while propelled by power, is supported against the force of gravity by the surface on which it rolls. The airplane must overcome the pull of gravity by the expenditure of more power. Power costs money. Thus, the cost of Air Transport, measured in dollars per ton mile, is greater than for surface transport. This characteristic directs its use to situations where the need for speed outweighs costs.

However, if we include the cost of construction of the rights of way and the maintenance thereof, we have a different basis of comparison. The airplane's right of way is the free air. Subject to limitations of terminal facilities and operating range, the airplane may select its route at will. Thus, it has unique mobility and flexibility.

In the United States, our young commercial air transport had to compete with surface transportation already highly developed. In a vast country, like Russia, where great resources lie undeveloped and surface rights of way are not as yet constructed, the competition will be different. Here, the overall cost of Air Transport may compare more favorably with surface forms. Again, as the industrialization of South America, or, in fact, the rest of the world proceeds, the airplane will find an enlarged scope. The important thing, however, is that the economies of the new form of transport indicate its employment in service outside the field covered by other forms. Thus, in the broad sense, the steamship, the automobile, the railroad train and the airplane are complementary to one another. They compete only at points where they overlap.

The airplane is in the earlier phase of its development and much remains to be done along technical lines to improve its performance. Improvements will bring extension of operations and this, in turn, will bring further improvement. We can no more judge its future from our present viewpoint than one could have predicted the growth of automotive transport from behind a buggy whip.

The Problem of the Aircraft Manufacturers

The important fact remains, however, that to date the airplane has been used most importantly in public service, rather than private, and its future is strongly dependent upon public policy.

Today, the very magnitude of the manufacturing industry's expansion complicates its future. When the time comes to cut back production, serious difficulties will be met. Three great hurdles lie ahead, any one of which might bring a fatal fall. If war contracts are terminated in the ruthless manner of World War I, the industry can hardly survive. This is especially true in this war, since profit limitation has precluded accumulation of reserves adequate to carry through termination under any other than orderly processes. If surplus war stocks are dumped, as in World War I, its market will be impaired. If surplus war plants are Governmentoperated in competition with private industry the results would be fatal, for no seller can compete successfully with his customer.

Now, since the backbone of Air Power is a strong private aircraft industry, the public interest demands orderly termination, orderly disposal of surplus goods, and courageous handling of surplus plants. The processes, while orderly, must be swift, lest the whole domestic economy be impaired. Of course, this is not just an aviation problem since some 50% of American industry is now working for the Government.

And the underlying principle here seems clear. Surplus plant and surplus war goods may even be considered in the nature of similar goods already expended in war. They are public property, and should be administered in the public interest. The public interest demands a high level of employment. Forced liquidation of these items, as if they were commercial assets, with the idea of applying the recovery to reduce the public debt, would produce but a small percentage of the original cost. This return could hardly begin to approach the outlay for relief which would inevitably result from unemployment produced by disarranging the economy.

If, however, we have clear recognition of these principles and courageous administration, we can emerge with a strong nucleus of an aircraft industry derived from those companies which have performed best in the war effort, particularly along technological lines. It is not just a postwar problem, for cutbacks and change are already with us. When Congress has passed the necessary statutes, the men responsible for administering them will enter upon one of the most difficult and important tasks of our times. They will need public sympathy and support to succeed. The country owes a debt to Mr. Baruch for his contribution to this problem of transition.

The Economics of Air Power

Once this is under way we will be but upon the threshold of the development of Air Power. Government supervision of this great public service will require skill and courage. We have long been persuaded that the cost of military preparation is an out-of-pocket expense and a burden tending to depress the standard of living. It can be argued in rebuttal that, had we spent less on raking leaves and more on aircraft, we might have avoided this war. When our Government bought aircraft from its industry, it got the cheapest and the best. This was proved by prewar expert competition

in world markets. Furthermore, the industry plowed earnings back into engineering which employed in Air Transport helped give us superior domestic and international air transport. American airliners equipped practically all. prewar foreign lines. Thus, the Post Office sponsorship of contract air mail provided a useful public service that paid the Government dividends; for, currently the Department is reported to recover through stamp sales three times its payments to the airlines. The profit air mail pays the public might be credited back to the cost of military aircraft. If we take into consideration the wealth and employment created we may argue that funds spent wisely for military aircraft may be an investment in prosperity if they guarantee that the airways remain open to peaceful commerce.

The Problems of Air Transport

Air Transport, though in its infancy, has some good-sized problems. It needs to be managed so as to reap the fruits of healthy competition of performance without suffering the blight of destructive competition in rates. This will require the judgment of Solomon—and even Solomon would be wise enough to consult his advisers and first determine a sound policy.

The problem in International Air Transport will be even greater. On one hand, we have the proposal to set up a private monopoly through the operation of the so-called "chosen instrument". There are many persuasive arguments for this because international air transport touches the delicate nerve of national sovereignty. But we Americans instinctively dislike monopoly, particularly government monopoly, first, because we distrust its power, and second, because experience has shown it to be inimical to technical progress.

Hence, we have on the other side the proposal for unlimited competition. This also has persuasive aspects, and, yet, we realize that, as in domestic air transport, cutthroat-rate competition would, in the long run, be destructive to sound development of a public service. Perhaps we need variations of each method, or even combinations of both.

And so we see major problems and major decisions to be taken. It seems unlikely that these can be had through interdepartmental conferences, because each department has its special interests. Certainly, no one man or organization has all the answers. No board with representation of partisan interests can attempt to solve this weighty problem.

The National Aviation Policy of 1925

Some will recall that in the year 1925, in response to charges by General William E. Mitchell that the Army and Navy were stifling aviation, Calvin Coolidge selected nine able citizens each carefully chosen as to background, under the chairmanship of his friend, Dwight Morrow, to sit on a board and judge this matter which so vitally affected the public interest Each member had such a fine individual reputation for integrity and sound judgment that the public could have confidence in the judicial treatment of the question.

This group listened to some 99 witnesses who presented many conflicting opinions, yet after a brief period the Board emerged with a simple statement of sound principles. Alongside the sensational Mitchell charges, they seemed unexciting, yet they became the Magna Charta of American Aviation.

The Board held that a strong air force is essential to the national defense; that the backbone of the air force is a strong private industry; and that to keep industry strong the Government must have a continuing, long-range procurement program calculated to promote rapid technological progress. The performance of the American aircraft industry today derives wholly from this policy, even though at times it was neglected by the Government.

Let us analyze these principles. First, they fix the responsibility for national defense upon Government and Industry jointly. Second, they recognize advanced technology as a vital strategic asset. Under these principles private manufacturing industry planned for defense, and arrived at the outbreak of the European War with two vital assets: first superior technology, and second, the ability to expand around a new production principle, that of flexibility.

The Need for an Air Power Policy

We find ourselves, then, in a new situation similar to that which caused President Coolidge to appoint his Morrow Board. Since that date, great changes have occurred. The Airplane has now proven itself a vital instrument in Air Force and Air Transport. In the period ahead it can be all-powerful in the preservation of peace and beneficent to the prosperity of the nation. This fact is now clear to everyone, and other nations are moving to create their Air Power.

The British Commonwealth, to which Sea Power has been] the lifeblood, sees Air Power in a similar role. Already steps are being taken to shape policy. The Union of Soviet Socialist Republics, functioning under state capitalism with national economic planning, will have clear ideas as to the employment of Air Power. The American system of free competitive capitalism with government acting as a referee has shown its superiority. Evidence of this is the statement ascribed to Premier Stalin that, save for American production, the war would have been lost. No man or group of men is wise enough to warp the future to his plans. But when all responsible authorities cooperate in the delineation of a sound economic policy under which natural laws can function freely, then the only further planning required is loyalty to the policy.

Thus it is clear that our present need is for a new policy providing the optimum conditions under which American Air Power could develop naturally. After we have crystallized such a policy, then we will be ready to sit down in an international meeting and with a full regard for our national interests try to evolve a world policy designed to preserve peace and promote prosperity. And this should be done while we still hold the superior Air Power.

This suggests the appointment of a new commission of responsible citizens—men with individual reputations for integrity and sound judgment—who can recommend to Congress, an American Air Power Policy which will reflect the point of view of all responsible authorities and thus command the confidence and support of the American people. We know how to use Air Power to win the war. How can we use it to keep peace?

The answer to this question will derive from our fundamental faith. Each of us will state this in his own way. Mine is as follows:

I BELIEVE: I believe in the United States of America founded in the concept of human dignity and governed by the principle of individual freedom under law. I believe that all just authority derives from the free consent of the governed. I believe in the principle of cooperation in the common cause. I believe in the determination of public policy through representatives responsible to the people. I believe in the free play of natural forces under public policy so determined. I believe in government under guiding principles that make it unqualifiedly attractive for each individual to work, and create, and to promote his individual security and welfare. I believe in individual initiative and enterprise and free creative competition. I I believe the support of these principles is essential to the end that government of the people, by the people and for the people shall flourish on this earth.