FEW YEARS AGO, I wrote a column about the sudden collapse of Curtiss-Wright, the airframe and engine firm that was once the second-largest manufacturing company in the world in the years after World War II, I suggested GM was not immune to a similar fate. These days, it looks as if Chrysler might be replaying parts of the old Curtiss-Wright scenario. Kirk Kerkorian, Chrysler's largest investor, has been making a grab for Chrysler, it would appear, because Chrysler has accumulated a nice pile of cash and he wants to get his hands on it, Chrysler execs say they need the cash to develop new models, and withstand the inevitable sales downturn.
The comparison with Curtiss-Wright, which took itself out of the airplane business just as aviation entered a golden age of airline and defense industry contracts, is striking. Established through mergers in 1929, by 1940, on the eve of World War II, Curtiss-Wright was a giant producing six types of aircraft, four types of engines and five types of propellers. It's director of engineering was Donavan Berlin, who had developed the Hawk 75 export fighter (the first German fighter shot down in World War II was destroyed by a Polish Hawk 75), the P-36 fighter and the legendary P-40 Warhawk of Flying Tiger fame.
At the end of the war, Curtiss-Wright owned some of the world's most modern factories. It employed 14,000 persons and had cash reserves $125,000,000.
Curtiss-Wright profitably liquidated excess plant capacity after the war established a $36,000,000 R&D fund, and moved to make the C-46 army cargo plane into a modern airliner. Even before the redesigned plane was off the drawing board, Eastern Airlines placed a substantial order for it, and other airlines were queuing up. A $400,000 advertising budget (gigantic in those days) was set up to promote the new airliner. Britain was the leader in jet technology in that era, and Curtiss purchased manufacturing rights to several British-jet engines.
The company seemed on the right track to enjoy the coming aviation boom. But trouble was brewing. The August 22, 1947, edition of the Baron Bull which offered market pointers, for short-term stock market traders, contained the following: "Want to make $12 million? Buy control of Curtiss-Wright and pay yourself an $8 dividend on each common share. How would you finance such a dividend? Guy W. Vaughan, president of Curtiss-Wright, told stockholders at their annual meeting that the company had some $60 million of excess working capital. Working capital is not always cash or equivalent, but in this case it seems to be." The newsletter went on to suggest a plan for getting that money --- of course looting Curtiss-Wright of funds for future product development in the process.
Stockholders, led by Kerkorian-type corporate raiders, became voracious in their demands to get hold of C-W's cash hoard, at one point demanding payment of dividends that Vaughan said would liquidate the company if paid. In a battle that went to the courts, Vaughan prevented that and moved up to be chairman of the board. He organized a "road show" which visited 15 cities, explaining to stockholders how the company planned to use its capital to grow. It didn't help.
Those who wanted the company's money in their own pockets gained control of the Curtiss-Wright board at the annual stockholders meeting in 1949. At that meeting, President William Jordan, who had an engineering background, outlined a broad development plan, including the production of two jet engines, new propellers and several new airplanes. So certain was he that the future of C&W hinged on the board's approval of these projects that he asserted he would resign if they were not approved.
They were not approved, and he resigned.
Vaughan, who was nearing retirement age, seems to have lost the will to fight the board's desire to bleed cash from the company, and it began to sink fast. The board of directors scrapped the entire R&D division. The funds were, in the board's opinion, too attractive to risk on aircraft development. Donavan Berlin quit and moved to McDonnell, where he helped create that firm's famous line of Navy and Air Force jet fighters.
At the direction of the new board, 850 engineers were laid off, the ad budget for the new airliner was canceled --- and then the airliner project itself was canceled. All engine development was canceled. A proposed new jet fighter program was shelved. That left the company with nothing but a couple of under-funded, under-researched military projects which inevitably failed.
As one retired Curtiss-Wright executive put it, the board, which was composed largely of bankers and investors, "was primarily interested in stock market manipulation rather than continuity in airframe manufacturing."
In short order, Curtiss-Wright was finished as an aerospace firm. Thousands of people lost their jobs. But the corporate raiders made out like bandits. Yet had they supported the company over the long haul, they doubtless would have made vastly more money from dividends paid by a healthy company with a strong product line.
Let's hope Chrysler investors don't force it to follow in the footsteps of Curtiss-Wright.