"Fortune" Magazine

Article; "Experiment at Republic"

February 1947

Since V-J day the Republic Aviation Corp. of Farmingdale, Long Island, maker of the famed P-47 Thunderbolt, has been demonstrating the fact that a military-aircraft manufacturer has plenty of difficulties becoming something else. Specifically, Republic has attempted to transform itself from a specialist in one aviation field to a specialist in four aviation fields: small private planes, small aircraft engines, high-speed commercial transports, and high-speed military aircraft. By the end of last year it was apparent that this attempted transformation had been rough on both Republic and its executives. At the same time a large part of the demonstration has been extremely instructive for both Republic and the aircraft industry.

It has been particularly instructive for Republic's two top men-President Alfred Marchev, a sales and production-minded newcomer to aviation, and chief engineer Alexander Kartveli, an outstanding U.S. designer of high-speed aircraft. Engineer Kartveli has learned, for example, that it is possible to build a P-47 fin so cheaply and simply that, had it been ready for use on Republic's Thunderbolts during the war, it might have saved the Army more than $2 million. And President Marchev has learned, among other things, that some of his assumptions about the aircraft industry may not be' entirely correct.

Under President Marchev, Republic has made the popular assumption that the day of mass-produced aircraft is already here, and astonishingly enough it is attempting to prove that the private-aircraft market is now ready to be exploited in the same way the automobile market was exploited forty years ago. On this thesis Republic has staked three years and several mil-lion dollars in an attempt to become the first mass producer of private aircraft. It started out with the belief that a four-passenger, all-metal, 100-mph amphibian could be so efficiently mass-produced as to sell for the improbable price of $3,995. Since at that price Republic's little Seabee would cost but one-third of what any orthodox manufacturer would be likely to charge for such a plane, Republic received more than 5,000 orders for it. Since last July, however, the company has hedged its bet by raising its Seabee price to $6,000 with the explanation that this increase was caused by rising prices, design changes, and tooling delays. Whatever the reasons for it, a price rise of $2,000 is an unfortunate setback in any attempt to develop a mass market.

Concurrently with its Seabee experiment, Republic in 1945 moved into the aircraft-engine business by buying Aircooled Motors, Inc., of Syracuse outright for $1,500,000, and advancing $740,000 for research against future orders for Seabee engines. Republic expected this investment to be paid for by the savings of more than $300 that Aircooled has effected in the cost of the Seabee engine. Meanwhile, engine-development costs for Republic were expected to leave a $500,000 deficit for Aircooled on its 1946 sales of some $3 million.

On top of this Republic has undertaken to produce a $1,225,000 transport, whose top speed of 450 mph will make it the world's fastest airliner. During 1946, Republic accepted $28 million worth of orders for its Rainbow transport, and is pro-posing to begin delivery late this year. By last December, how-ever, Republic still needed at least nine more orders to break even on its Rainbow venture.

In the light of all these uncertainties Republic could be very thankful for the fact that it was a specialist, and a successful one, in the design and manufacture of military aircraft. In five war years Republic had grown up to be a major producer by selling the government 15,329 Thunderbolts for a total of $905 million, on which it cleared $11 million. Even for the last war year of 1945, Republic's sales of $222 million were somewhat more than half those of Lockheed, nearly a third those of Douglas, and more than one-third those of Boeing. The corporation ended 1946 with a solid backlog of $70 million in military orders. Some $60 million of this was an order for "more than 500" P-84 Thunderjets, the 611-mph successors to Republic's 500-mph Thunderbolts. Republic was also working on a $12,500,000 contract for two four-engine, high-speed (462 mph), high-altitude (40,000 feet), experimental photoreconnaissance planes. In addition there were orders for experimental aircraft and missiles, which could one day become important. And if Congress gives the Air Forces the billion or so dollars it is asking for, Republic on its past record will probably get its share. The military business is definitely good.

However, the first impact of peace struck Republic hard. For 1946, sales were not expected to be more than $27 million -12 per cent of the 1945 figure. An $11-million contract for converting fifty Army C-54's into transports for American Air-lines last year helped a lot, but the company was anticipating a deficit of $650,000 for 1946-the first it had suffered since 1939. So little money was coming in by last December, and so much was going out on tools, inventory, promotion, and other expansion-$400,000 a week in payrolls alone -that company had to get a $5,700,000 bank loan. Republic was in no danger of ending up where it started in 1939 but things looked far different from what they had at the year's beginning.

Prophet and angels

Republic struggled to succeed as an aircraft producer for more than ten chaotic years. Born in 1931, the depression child of that imaginative air prophet, Alexander P. de Seversky, Re-public limped along for nine years as the Seversky Aircraft Corp., while Seversky wooed the Army with publicity stunts. Seversky set speed records in his experimental fighters and then taught aviatrix Jacqueline Cochran to fly them so she could set women's records. In all the prewar years, however. Seversky's promotion schemes sold only about 140 planes, of which only seventy-eight went to the poverty-ridden air corps, and inept management piled up heavy deficits each succeeding year, running to over $1 million in 1937. As it later appeared, the company's chief asset was a brilliant young aircraft designer named Alexander Kartveli, who had joined up with his compatriot Seversky in 1934.

Throughout the thirties Seversky Aircraft was kept alive by the generosity of a wealthy New York investor and aviation enthusiast, Paul Moore, who poured over $4 million into the company. By 1939, Moore had had enough and that year, with the help of Wall Street's White, Weld & Co., Seversky Aircraft became the Republic Aviation Corp., supported by a $982,000 common-stock issue. For his $880,000 in notes angel Moore was persuaded to accept $110,000 in cash. (Today, with a 17 per cent interest, he is Republic's biggest stockholder.) When Wallace Kellett, head of a Philadelphia autogiro firm, was imported to replace Seversky as President, Seversky promptly sued Republic for $22 million, subsequently settling for "travel expenses" amounting to less than $80,000. Thereafter, as the author of the best-selling Victory Through Air Power, which was later made into a Disney movie, Seversky probably had more influence on U.S. aviation thinking than he had ever had as a plane maker.

The substitution of Kellett for Seversky resulted in peace in the higher echelons at Farmingdale, and another much-needed angel appeared: Lloyd Brace, Vice President of Boston's First National Bank, who got his bank to put up a $1,600,000 loan. And shortly thereafter-in June, 1940-the Air Forces adopted Republic's new Thunderbolt. That should have been Republic's brightest moment. It wasn't, simply because Republic was still almost devoid of aircraft production specialists, as the Air Forces was not long in finding out.

Imported brains

It required the personal pressure of Undersecretary of War Patterson to secure the man the Air Forces wanted for Republic. Ralph Damon was not only a former Army flyer: he had spent some fourteen years as a production man for Curtiss-Wright be-fore becoming an operational Vice President of American Air-lines. He took over Republic's presidency from Mr. Kellett (who became Board Chairman) in May, 1941, one day before the first Thunderbolt was completed for the Air Forces. By the time he left Republic twenty-eight months later, the plant at Farming-dale and another at Evansville, Indiana, were turning out a total of 450 Thunderbolts a month.

Remarkable as it was, the performance of Republic under Damon was no guarantee that production levels would stay up after he returned to American Airlines. In February, 1942, however, Damon had found production-minded Alfred Marchev. Damon in a hurry to find someone to relieve him, met Marchev twice socially, interviewed him once, and hired him. Marchev's career, since his arrival from Switzerland in 1919, had included a brief, early turn with the old Thomas Morse Aircraft Carp. (where Damon once couldn't get a job), the bankruptcy of his own radio company in the twenties, and various production engineering jobs with Western Electric, Ithaca Gun Works, Ditto, Inc., and Signode Steel Strapping Co. Starting as Damon's assistant, Marchev was eventually managing the production of both Republic plants. When Damon stepped out in September, 1943, Marchev moved smoothly in as Republic's fourth President. It was the first nonviolent administrative shift in the company's history. At long last, Republic's stockholders could assume that their company had achieved the maturity of management stability. It was also healthy enough that year to pay a 25-cent common-stock dividend-the first in its history. And, as Republic's new President was well aware, the principal asset Re-public possessed was still the man who had become Republic's chief engineer: Designer Kartveli.

The perfectionist

Since military orders are Republic's bread and butter, it is not difficult to understand why chief engineer Alexander Kartveli is Republic's indispensable man. Kartveli's designing genius has made him the outstanding engineer in high-speed air-craft today. His worship of speed is intense, perfectionist, and uncompromising. In his office, for example, there hangs a picture of Republic's P-47J-but he will not suffer the pain of looking at the final Thunderbolt model Republic eventually produced for the Army-the P-47N. For Kartveli the P-47N fell from grace when the Army insisted on installing a bubble cockpit canopy that violated the perfectly streamlined contours of his earlier models. This temperamental Russian has remained the darling of the Army-he has successively designed the first 400-mph and the first 500-mph U.S.planes (both Thunder-bolt models), the 462-mph phcto-reconnaissance XF-12, and the P-84 Thunderjet, which last year in Army tests set the official U.S. speed record at 611 mph. And before these planes Kartveli in 1939 designed the P-43, which was the first plane his former boss Seversky succeeded in selling in any quantity to the Army. Kartveli, however, is a very expensive sine qua non. Not because of his $30,000 salary but because his philosophy of high-speed aircraft design is something only the U.S. Air Forces can afford. That philosophy has committed Republic to making the fastest and most painstakingly clean aircraft Kartveli can devise-and to hell with the costs when national security is at stake. It means that Republic today has to have a swarm of 1.100 aeronautical engineers to worry over the countless complexities involved in building its racing fighters and transports. Designed for speed and range, equipped and built to customer specifications, the XF-12 and the Rainbow are as handmade as a house by Frank Lloyd Wright. The costs of this craftsmanship are enormous. Thus, while the Rainbow superficially appears to be the image of the XF-12 lengthened by a mere five feet, their differences are so complex and numerous that development and production costs for the first Rainbow will be $7,500,000-only 10 per cent less than what has already been spent to build one XF-12. For the XF-12 the Air Forces pays the full cost price - plus a fixed fee, in this case $240,000 net. Republic's airline clients, however, will be doing exceptionally well if they can afford to pay $1,225,000 apiece for their Rainbows, with a possible profit of 10 per cent for Republic after the thirty-five break-even point has been reached. In the competitive private-aircraft market Kartveli's talents are obviously uneconomic. But those talents, having produced $11 million in Thunderbolt profits in five war years, are largely responsible for Republic's current $70-million backlog of military aircraft, which can easily turn into a $7 to $8-million profit upon the completion of the contracts.

The heretic

The other man in Republic's life is a tough-minded Swiss production enthusiast and salesman extraordinary, who is the antithesis of Kartveli, the engineering perfectionist. President Marchev's efficient, cost-conscious approach to aircraft manufacture is that of a crusading apostle of Detroit's production methods. Factually, of course, he is neither an automotive nor a peacetime aviation man. Nevertheless, during the war he did an excellent job of keeping Kartveli's Thunderbolt coming off the line. All day long he moves about Republic's shops and offices with the tireless bounce of a wrestler, checking this, re-checking that. In his zeal for following up the work of his subordinates he carries around a stack of three-by-five-inch slips on which he is constantly jotting down memoranda to be filed for later reference, or to be impaled on his desk pen as a current reminder. It is his energy that charges Republic today. And his enthusiasm for production, matching Kartveli's love for design, was largely responsible for the fact that Republic during the war maintained one of the most consistently reliable performance records in the industry. The glory at Republic may go all to Kartveli, but Marchev's unorthodox ideas about mass-produced aircraft, as demonstrated in the Seabee, have resulted in the most spectacular economies to be found anywhere in the U.S. aircraft industry today.

Indeed, Mr. Marchev's ideas about aircraft production are by way of being aeronautical heresies. To a large aviation gathering last May, for example, he proclaimed the following doctrines: "Aviation will never advance unless private flying is promoted . . . We must get the price [of aircraft] down. The difference is 30 cents a pound for automobiles against $6 to $8 a pound for airplanes. The reason is human inertia.. . Planes should be sold for the price of butter, that is 50 to 60 cents a pound .. . The aircraft industry has suffered from closed cliques . . . The airplane today is basically the same as it was fifteen years ago . . . The emphasis on weight in the aircraft business has been exaggerated...

Such pronouncements have annoyed many in the industry who doubt that Republic's President knows what he is talking about. And there is some room for such doubt. Republic's performance under Mr. Marchev's energetic postwar management has not been what he himself expected. And galling to Republic's President must be the fact that the healthiest part of the corporate body is still the strictly conventional business of building aircraft conventionally for the military-and there are few indications that a change is in sight.

Today Republic is no longer a well-fed wartime contractor but a taker of risks. However, its entry into the high-speed trans-port market, speculative though it is, at least promises to be rewarding because the trend in commercial aviation is toward high-speed transports. On the other hand, Republic's Seabee program can be called sheer experimentation. However much it has proved theoretically about plane construction, the Seabee program has turned out to be something that Republic was in a dubious position to afford.

What has happened to the Seabee program since the middle of last year indicates the difficulties Republic has had to face. Production schedules in June called for an output of forty Seabees a day by December. To that end some $600,000 worth of tools and dies had been ordered from Detroit firms for delivery in August. When they did not arrive, a check revealed that Republic's orders had been shelved by the suppliers, who were using their facilities to fill the far larger orders of some auto manufacturers. The fact that the interests of Detroit's toolmakers do not lie in the aircraft industry should have warned Republic against putting so much trust in the toolmakers' progress reports. The price of that oversight was a nine-month delay in Seabee production schedules. By last December (1946 ed) only 175 units had been assembled, largely by hand and at a cost of about $13,000 per Seabee. Production was rescheduled to reach 630 Seabees a month by June, but this hope also waned because of further delays in tool deliveries. Republic was learning the hard way.

As far as the future of Republic is concerned, the conflict between Marchev's ideas about low-cost production and Kartveli's ideas about high-speed design is largely academic. From a long-term point of view Republic will probably fare no worse than the average aviation engineering company and probably a little better than the average if Mr. Kartveli stays out in front with high-speed design. The short-term is entirely a question of what is going to happen to the Rainbow and the Seabee. If both these ventures succeed, Republic will have achieved the most remarkable postwar transformation of any US aircraft company.