CHAPTER TWENTY-FIVE

An Unfavorable Climate

As I backed my convertible out of the garage, and eased it from the driveway onto Albany Avenue, I speculated as to what might have brought Secretary Morgenthau to Hartford in the middle of the night. It might, I thought, have something to do with the new British inquiry which had been discussed earlier in Harry Collins’s office in the Treasury. There, a number of aircraft manufacturers had met to be introduced to Sir Henry Self and a newcomer to the French negotiations, M. René Plevin. Sir Henry, very British, had tried not to appear condescending to us provincials, but it was apparent early that he had brought his trading vest along, determined to give us a sample of British tradesmanship.

I had noticed at the time that Col. Paul Jacquin, with whom we had had such intelligent dealings, was not present. M. René Plevin, the new Frenchman, looked to me like the story-book Frenchman, suave, polished, and clever. It occurred to me that Colonel Jacquin might need a little help from us, and this was confirmed by the drift of the conversation. Sir Henry Self made it clear that he and M. Plevin would act in unison in all matters of future procurement. They had looked over the earlier contracts and concluded that the terms had not been as advantageous to the customer as must any future terms. At any rate they appeared out of line with what had been customary in Old England. The British were in the market for large quantities of war material, but England was a poor country and we must learn to sharpen our pencils and cut prices. England had shielded us during the first war, but she was not now so strong, etc., etc.

Sir Henry had expressed interest in negotiating for the construction of new facilities from which aircraft engine production could flow; he had wondered if we might not now undertake immediate expansion of our facilities—but of course under more favorable terms to England than we had apparently exacted from France.

To this I pointed out that the French terms had been arrived at after painstaking negotiation under the commission headed by Col. Paul Jacquin. They had not been predicated on chiseling tactics, but designed to give us every incentive to take the heavy risks paramount to quick deliveries. We had found no reason to question that procedure but had, on the other hand, experienced many incidents in which the wisdom of this procedure had been proved. Time had been of the essence and time had proved to be something that could not be bought. With less time now, we could see no basis for further discussion of the terms.

As a matter of fact, I explained, we would not undertake to even negotiate another contract for plant expansion until we saw our way out of our present difficulties. We suffered from chronic indigestion and had no intention of making it acute. And even if the time came when we believed our already overloaded organization might take on greater responsibilities, there was one serious road block that must be resolved. We had accepted the French order without resolving this difficulty because we had been in a serious predicament for business; today we could not accept that handicap.

I referred to the matter of plant depreciation and the rules and regulations of the Treasury Department. Unless these were changed, a sudden cessation of hostilities might leave us with an enormous excess of plant on our hands. The burden of depreciation, however light under maximum output, would prove overwhelming after shutdown. The day-to-day burden of writeoff would force on us serious losses that would, in time, bankrupt the company. I pointed out, of course, that this was a matter for the United States Treasury rather than the British Purchasing Commission, but that we could not undertake to construct new facilities even under terms similar to those in the French contract, until after our Treasury Department had resolved this problem of plant amortization and depreciation.

Now, as I sped down Albany Avenue to North Main Street and turned left there down the Morgan Street hill to the Bulkely Memorial Bridge, I reviewed the atmosphere of that meeting and began to rehearse what I would say to Secretary Morgenthau, should he bring the matter up. I recalled that Sir Henry Self had listened to my statement with an expression of amused tolerance. No doubt he had in mind the power of the Treasury and the influence of the banking fraternity as means of bringing us upstarts into line. But we were under no great obligations to others; we were free—free to do what in our own judgment was in the long-term interest of getting on with our job.

And as I turned into the main gate of the aircraft factory at East Hartford, the lights were ablaze all over the place. I parked my car in the garage under the office building and ran upstairs to my office where the Secretary of the Treasury awaited me. After a greeting, Mr. Morgenthau expressed a wish to see the new French addition, and we walked together down through the main shop and across to the new one. We had scheduled the new building for completion in three months, and three months had seen it finished. The new machinery, earmarked long in advance by War Plans and ordered even before the final contract had been signed, was already coming in. Bare spots revealed the wood-block floor of the vast girdered structure, but millwrights were busy sliding machinery onto prearranged spots and uncrating late arrivals. One complete production line was already set up and working to relieve a bottleneck in the main shop.

After a look-see, the secretary and I made our way back to my corner office upstairs. He sat down in one of the big chairs and I slid into the swivel seat behind my desk. On my walls hung the mementos of bygone days. There in a silver frame was my commission as a commander, and beneath it, all the others from passed midshipman on up; beside it hung my certificate of graduation from the Naval Academy. On other walls were collected the photographs of my friends: Admiral Moffett, pipe in hand, with that alert look; Admiral Reeves, from an oil painting by his own son, bearded like the seamen of the old school and with that gleam in his eye; Chance Vought, dapper with his waxed moustache; George Wheat, wise in the ways of a newspaper man; Comdr. Charles E. Kennedy-Purvis, Royal Navy, a friend of my Grand Fleet days; Hap Arnold, of the Army Air Corps; Jack Towers, of Naval Aviation; and Captain Marco Zar, Argentine Navy. They were a goodly company. The secretary glanced at them and then came to his point.

It was the British matter all right. Time was fleeting and he thought we ought to get down to business and sign the contract. In reply, I pointed out our position. We had accepted the French order without first getting a commitment from the Treasury Department to treat plant depreciation on a more realistic basis. We had, however, set up our own books on the basis of synchronizing the plant writeoff with the shipment of the product called for on the engine contract; on this basis the plant would be completely written down when the product shipments had been completed. That would tend to reduce our taxable income for the period, but it would have the advantage to our own government that all subsequent products of that facility could be invoiced to it at no charge for depreciation of plant. In case we became involved in a war, and that now seemed probable, the government would recover in reduced costs everything it might now lose in taxes.

I had the impression, as I talked, that the secretary did not entirely follow me. I therefore went on to explain the situation more fully. The rules promulgated by the Internal Revenue Bureau might or might not be satisfactory to some ordinary peacetime businesses. I suspected they were not, as the desire to assess taxes currently might easily lead to poor judgment for the long term. This was a serious matter, since it tended to increase product costs by retarding the purchase of improved machinery and thus impaired the whole capital replacement problem. With us it was even more critical because our situation was most unusual and called for broad vision and judgment. I then took a long breath and said the little piece I had rehearsed in the roadster on the way over.

“Mr. Secretary,” I said, “for the Treasury to treat this problem in a way other than the one which we have set up would put the Treasury in the position of profiteering—through excess taxation—on munitions contracts let here by foreign governments. We aircraft manufacturers, having been maligned as profiteers, would not like to see our government in the same boat.”

The secretary blinked at this, but did not reply.

“Mr. Secretary,” I continued, “we feel so strongly about the principles involved here that we have taken a firm decision: we will not go ahead on your British plant, until we have assurance of the treatment we require.” The secretary still appeared unimpressed. However, he did reply in his flat voice.

“I will see that it is done.”

The problem of plant expansion was but one of our many headaches. In due course we signed the British contract calling for an addition over half again as large as the French addition, and on generally similar terms. For the next several years we waged fierce battle with the Treasury Department over that problem of accelerated depreciation and amortization of emergency facilities, only to learn that the basic law precluded such treatment and could not be amended save by act of Congress. But as luck would have it, when the Treasury finally turned us down, the tax rates had been boosted so high that their adverse decision actually gave us a better break than we would have had with an earlier approval. And though this proved gratifying from the balance-sheet point of view, the principle remained an issue until finally resolved after the outbreak of the European war.

To a harassed manufacturer, intent on production, it seemed incredible that we Americans could be so stupid. At the time, we ascribed it to ignorance. In our shop experience, no deliberate saboteur could throw such backlash into a production line as just comes naturally when a dumb-bunny do-gooder gets to messing around. In the light of subsequent revelations, I am not so sure.