Evening star., 1939-05-18
Monopoly
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''SssOPOIy
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Aircraft, told comparable story of
self -Sufficlency and purpoSed avoid
ance of the capital markets for a
new and fast growing industry.
Mr.. Young said he did not believe
Government lending to small buSi-
ness and new enterprise would solve
the problem of unused capital.
Such business, he said, needs
long-term capital or equity capital"
provided by stock owners rather
than loans which it could use for a
ready profit and then repay.
Recounting the history of United
Aircraft, Mr.. Rentschler told how
the impetus for formation of the
concern was provided in 1925 by the
Navy's search for an air-cooled.
4OO-horsepower aviation motor.
To undertake this search, Mr..
Rentschler left the Wright Aero
nautical Corp. and, in association
with Donald l.. Brown and Georse
Mead, borrowed $250,000 to form the
Pratt-Whitney Aircraft Co. in
Hartford, Conn. BY March, 1925,
their experimental engine had
passed Navy tests and orders fol-
! lowed.
With an additional s50O,O00, the
whole covered by a preferred stock
issue OF s750,000 and a loan of $3.50, =
O00, the company was really on its
way. In 1923 the enterprise became
United Aircraft & Transport Corp
with a preferred stock liability of
sl2 10000, all of which was retired
by 1884.
Parent Company Divided.
In that year, the parent company
was divided into United Airlines
Transport Corp, Boeing Airplane
Co. and United Aircraft. The
Rentchler group is now connected
only with the latter company.
When added funds were needed
for United in 1886, Mr.. Rentschler
explained, the companys stock
holders themselves contributed So
100000 Of new capital
Our company had demonstrated
us ability to expand its operations
to meet all requirements and to do
SO entlrely from its earnings" Mr.
Rentschler said. I'VE intend to con-
tlnue this procedure as a matter of
policy. Our company today is
owned entirely by its approximately
29'oO0 common stockholders, free of
any Indebtedness whatever, and. we
belleVe, with adequate working capt.
tai for the future"
DO you mean you would prefer
10 Keep out of the capital markets?"
the witness was asked.
Yes. l would was his reply.
Where it is possible, 1 like to see a
company free of debt and financed
through common stock ownership. -
Stettinius Testifies.
some questions whether such self
Sutt1ciency has been a thoroughly
healthy practice, at least for the rail-
roads, were raised yesterday by John
W. Barriger, rail expert from the
reconstruction Finance Corp.
| The history of United States
steers capital transactions, in which
undlstributed profits and deprecia-
tlon allowances provided the bulk of
FUNDS required for some ST 200 900, =
oOO OF expansion and modernization
during the 19-year history of the
corporation, was furnished by Ed
ward r. Stettinius, jr., chairman of
the board.
OF this total. Mr.. Stettinius said
about s300000,000 had been spent
during 1935-l936, inclusive. and that
even then the principal outside
financing operation was one of con-
vertlng existing obligations into new
ones.
After recounting a comparable
history OF corporate self-sufhciency
for General Electric, Board Chair
man Young presented the following
recommendations:
Modification of the undistributed
profits tax to enable business firms
to acquire sufficient capital, but re-
tention Of the principle as a weapon
against tax evasion.
Repeal OF the capital gains tax.
Broad changes in the bankrl,ntcv
laws to permit prompt reorganiza-
tlon OF unWleldy capital structures.
Great Hardships Seen.
With regard to his recommended
ton on the undistributed profits
tax, Mr.. Young explained that it's
modification would be of primary
value to young and venturesome
corporations.
While sympathize entirely" he
said. with the view that the reten-
ton OF profits in the corporate treas
ury ought not to be permitted in
those cases where it is merely a
ruse to relieve large stockholders
from personal taxes, still on the
other hand the universal application
OF the undistributed profits tax
works great hardships on smaller
concerns which find it difficult to
get capital and especially on new
enterprises in which investors are
hesltant to embark their savings.
Some way should be found bv
which the undistributed profits tax
might be conserved as weapon
against tax evasion on the one side.
but relinquished for the purpose of
Legitimate capital needs of the COM
panies having earnings to conserve
on the other"