9
TWO EXTRACTS from the minutes of Board meetings in the last weeks of the old company are of interest. On June the 15th,
The amendments of the prospectus were read and discussed, particularly the Directors statement as regards profits being payable in the first year. Certain alterations were agreed upon, which Mr. Norway undertook to see were made in the next proof.
And on June 22nd,
Mr. Norway reported that considerable delay had been caused in the progress of the issue by the auditors taking very drastic action and views in regard to orders in hand, value of stock, and profits made, and he expressed the opinion that their action had been in no way helpful to the Company.
At this time I was acquiring a reputation with my co-directors and with my City associates for a reckless and unscrupulous optimism that came close to dishonesty. I think this bad reputation was deserved, for having set my hand to Airspeed and brought it so far up the road towards success I was intolerant of obstacles that seemed to me to be based upon an ultra-conservative and pedantic view of business. For three years the wildest business risks had been my daily bread and under this régime the company had grown mightily. A cautious and conservative policy could still kill it stone dead, a fact which I think was better appreciated by my Board than by our new associates. Even so, some of the things I was prepared to do shocked my Board and caused them, very rightly, to impose a tactful brake on my activities from time to time.
Because this is a position that many men in charge of growing companies may find themselves in I am going to discuss it a little. Many men drafting a prospectus have taken a quick glance inside the prison door, and some of them have subsequently entered it, but very few, if any, have written about their dilemma.
In the three years since Airspeed had been founded the capital requirements of the aircraft industry had changed vastly. When we started, thirty or forty thousand pounds would have been an adequate capital on which to achieve a profitable business, and this figure had been substantially constant for ten years previously. We had now attained that amount of capital in the form of shares, debentures, and bank guarantees, but profits still eluded us through circumstances due to basic changes in the industry and largely beyond our control. Each year the units of construction, the aeroplanes, were getting bigger and bigger and so requiring more capital for their production; the private owner market had dwindled away to nothing and the all up weight of the Envoy was more than three times the weight of the original three seater on which our first capital estimates had been based. Each year our competitors with their superior organisation lowered the cost of civil aeroplanes, and over all there was now the change from wood construction to metal becoming imminent, with all the vast and incalculable capital expenditure that that change would involve.
A wiser man than I might have foreseen a vast increase in capital requirements looking forward from the year 1931, but I doubt it. I doubt if in 1934 when we went to the public for £100,000 anybody could have foreseen that by 1954 a capital of ten million pounds would be required for any company that hoped to manufacture civil aircraft. All we knew in 1934 was that the capital requirements of a company in the aircraft business were rising very quickly, and that the only safe course was to gather in as much capital as we could get hold of.
Without fresh capital the company would fail, the money that had been put into it would be lost, and everyone employed in it would be thrown out of work. To me it was unthinkable that this should be allowed to happen. I do not think that the loss of the shareholders’ money, regarded as money, worried me very much, and certainly the loss of my own money didn’t worry me at all, for I had long written it off in my mind. I felt personally responsible for having got the shareholders in to Airspeed and I should have felt it keenly as a personal disgrace if they had lost their money. The greater responsibility, however, was to the men working in the shop. We had nearly four hundred men and women employed in the company by that time, and in 1934 unemployment was still bad in England. I had confidence that I could get another job of some kind if Airspeed folded up, and it would have been no hardship to my wife if she had had to take up her profession again for a time, but the men were in a different case. The welfare of four hundred families was the real thing that mattered; at all costs the wheels must be kept turning for them. Airspeed must not fail.
Perhaps it is a good thing that company auditors work in offices remote from the working men and women who are vitally affected by their accountancy decisions. For my part, I had chosen a position for my office close up underneath the roof, so that every time I glanced up from my desk I could look out of a window into the shop and see practically every man at his work. This was good for preventing lost time over the morning tea but not so good for drafting a prospectus, for inevitably the sense of responsibility to the men working down below outweighed one’s sense of responsibility to a vague, amorphous body of prospective shareholders. It was my job to state the value of the half-completed aeroplanes now in the factory, most of which were unsold or ordered by impecunious companies. This is an estimate that no one else can make and take responsibility for except the managing director, and it is this estimate of the value of stocks and work in progress which has sent many a managing director to the threshold of the prison door, if not right inside. False statements in the prospectus of a limited company are a criminal offence.
If I certified that every Courier aeroplane half completed in the shop below me would be sold eventually at the full price for real money, then the value of the stocks was good and it was reasonable to assume that the company would very shortly with increasing turnover be working at a profit. A prospectus drafted on those lines would be attractive to investors, fresh capital would be subscribed, and four hundred families would be safe from unemployment, the families of the men working on the floor below me. If on the other hand I took a prudent and a cautious view and said that the Courier was an obsolescent type, that we must make provision for half the machines that we were building being unsaleable, then we could not make a case for the prosperity of the company which would attract investors, no more capital would be forthcoming, and all those men would very soon find themselves at the labour exchange drawing a pittance of unemployment money. It rested mainly on my word which way it went. If my optimism went too far it might well land me in the dock; if it did not go far enough it would land the men out on the street.
The case of the six Couriers sold to an operating company which had little or no money, on which a hire purchase deposit of only £5 on each machine had been paid, may serve as an example of the dilemma. This company was managed by an able and an energetic man, who was seeking capital hard for his venture. If internal airlines could be run in England profitably he was as likely to succeed as anybody else by reason of his energy and competence. If his venture failed the aeroplanes would come back to us and would lie on our hands until we succeeded in selling them again. Couriers, however, were an obsolescent type and might not be so easy to sell again. I had faith that we would sell them eventually, however, a faith which I think was based upon the growing talk of rearmament and war. I knew instinctively that if war should break out anywhere in the world every civil aeroplane of any size would sell immediately for military transportation or even as an improvised light bomber. I could not feel that these machines would find their way unsold on to the scrap heap and I was determined to resist any attempt on the part of the auditors or anybody else to write down their value in our accounts. To do so might well mean the end of the company and plunge four hundred families into deep distress.
To the auditors and to our shipbuilding associates this sale was no sale at all. The point was an important one, for the six aeroplanes were worth nearly twenty thousand pounds. To write them down to, say, one half their value in our books would be to add ten thousand pounds to our loss, making the financial picture of the company so unattractive as to make it unlikely that the public would invest in it. The auditors, however, too
k the gravest view of my representation that these aeroplanes were a good asset to be taken at face value. From that time on I think that I was suspect, as an unscrupulous man determined to swindle the investing public by any means within his power.
I do not resent that reputation, for it is part of the price a man must pay for being a managing director. At one time or another one must be prepared to throw one’s personal reputation into the scales, when money is at an end. The alternative would be to say, in effect, to four hundred working men, “I’m sorry, chaps, but you’d better start looking for another job. You may not find it easy, but that’s no concern of mine. I could keep this works going and your jobs would be safe if I were to take a chance for you, but I value my reputation and I’m not going to do that. I’m an honest man, and you’re out of work. Too bad.” To take that attitude would be the act of a poltroon.
I have dealt with this matter at some length because the ethical points raised seem to me to be so interesting. I have in mind the case of one fraudulent financier in particular who went to prison for a term of years in the early ’thirties. This man had several companies employing many hundreds of people. At the beginning of the depression things started to go badly with these companies. It seemed then that the depression would be over in six months. Rather than see his whole industrial edifice collapse with all the consequent distress to his employees, this man entered on a complicated transfer of property between his own companies at fictitiously inflated prices, which resulted in such glowing prosperity for one company that it could go to the public for more capital, with which it proceeded to assist all the other companies of the group. If, in fact, the depression had come to an end in six months everything would have come right again, the fraud would never have come to light, and many people would have been saved from great distress. In fact, however, the depression went on, the whole card castle fell down, and the man went to prison. I have often wondered what I should have done if I had been in his place. I think I know.
At the same time, it is right and proper that such men should go to prison. All business is based on truth and confidence, and unless certain standards of honest dealing are maintained no industry would be possible. It is the jobs of company auditors to maintain these standards of rectitude, and they do their job fairly and well in my experience. It is one of the defects of the capitalistic system that a managing director’s responsibility to his employees and his responsibility to the investing public may conflict and often do; the resolution of this conflict is a matter to be solved by each man for himself.
In fact, I won my battle over the six Couriers and they went forward at face value in our books, while I lost a good deal of credit. My hunch that this was the right course was justified. They all came back to us when the operating company suspended operations a year later, but shortly after that the Spanish civil war broke out and the machines all sold immediately to various intermediaries for better than the original prices, and all went by devious routes to Spain. I do not think that Airspeed ever failed to sell a speculative aeroplane that we had built for stock at the full price; wars came eventually to clean up the position for us.
The public issue of shares in Airspeed (1934) Ltd took place in July 1934, and was a great success. Applications for shares from the public were double those offered, a result due perhaps to the fact that the new Envoy happened to appear in public for the first time about the time of the issue, and created a very good impression. Tiltman had made his usual magnificent design job of this machine; even today, twenty years later, the machine looks a modern and a beautiful aeroplane. The first machine had Wolseley engines which were small and smooth running and very quiet with geared down propellers, and we had very few teething troubles to impede us.
The average shareholding in the new company was £72, a fact which gave me secretly a great deal of satisfaction. So small an average investment seemed to indicate that a great number of people were having a little flutter in Airspeed; we still had gambling money for the most part in the company and not serious investment. This was a great comfort, for in spite of the new capital the company was by no means secure. The buyers of our aeroplanes were no more solvent than they had been. Operators who had real money to spend still went to de Havillands for their aircraft; there was a tendency for us to get as customers the many operators who were too unfinancial for our more powerful competitors to bother about. Yet we were making progress to a better class of business every day.
With our new capital we at once put in hand yet another extension to the factory, and for the first time we were able to buy a few modern machine tools; hitherto most of our machining work had been done by contract with other firms. I started an aeronautical college, a three years’ course for a premium of 250 guineas which attracted a good many young men. At that time there was a marked shortage of suitable recruits for the sales and the design side of the aircraft industry; there were plenty of good lads coming forward from the normal trade apprenticeship schemes who would ultimately become good chargehands and ground engineers, but few trained for the office. We aimed to give them a good general training in the theory of aeronautics, in shop practice, and in general business methods, and we turned out a number of young men in the next five years who quickly attained the highest positions in the expanded aircraft industry of the war.
The autumn of 1934 was a very strenuous time. In September Sir Alan Cobham and Squadron Leader Helmore set off on their attempt to fly to India nonstop, refuelling three times in the air on the way. The attempt failed, for one of those trivial little defects that occur to plague so complicated a mechanism as an aeroplane. They took off in the Courier and refuelled in the air, and flew to Malta, where the second refuelling was to take place. This was accomplished satisfactorily over Malta and contact with the tanker was released. Cobham then turned on to course, I think for Amman in Jordan, and as he turned a split pin fell out of a link in the throttle control, the control ceased to function, and the spring loaded throttle flew fully open, as is usual in aero engines. It was, of course, hopeless to continue and Cobham brought the machine in upon the switch and landed her upon an aerodrome at Malta. We never traced the cause of that defect. It seemed incredible that the split pin should not have been properly opened, for the machine had been inspected by our own inspectors many times, and also by Cobham’s staff. It might have been caused by a defective or fatigued split pin; we modified the design of the parts in question as a precautionary measure. It was a great disappointment and one that I felt keenly, for Cobham had done so much to help the company. The flight to India was not attempted again; the rehearsals and the development work done for it had aroused interest at the Air Ministry and contracts were forthcoming for the continuation of the work on service aircraft, so that the demonstration flight to India which was to arouse interest and to secure development contracts was no longer necessary.
In October the MacRobertson race from England to Australia took place. We had taken an order for a special racing model of the Envoy from a very famous pilot, now dead, for this race; an order that had to be upon a hire purchase basis, for the pilot could only produce a deposit of a thousand pounds. The machine was fitted with two of the latest supercharged Armstrong Siddeley Mark VI engines and had a large fuel tank in the fuselage in place of payload; for its day it was a very powerful and advanced racing machine with a long range. It was so much modified from the Envoy that we gave it another type name, and christened it the Viceroy. The pilot, however, had the greatest difficulty in finding the finance for his flight and was an exhausted and a worried man when the race started; bad weather across Europe defeated him in a manner that would never have occurred if he had been himself, so that he landed several times and finally retired at Athens, to commence a legal action against us for the most trivial defects in the machine. He pursued this matter and we had to go to court against him to preserve our reputation, and received a judgment in our favour resulting in the return of the machine to us with a considerable s
um of money.
We had another entry in this race, an Airspeed Courier flown by Squadron Leader Stodart. Stodart also had no money and was financed largely by our own directors as a personal gesture because I was resolute in refusing any company money for this venture, since the advertisement value to the company seemed to me to be small. In fact, Stodart and his nephew, a sergeant pilot in the R.A.F. who flew as co-pilot with him, put up a very fine show. They could not hope to compete with the de Havilland Comets or with the Douglas D.C.2 in speed or range, but they got through to Australia and came in seventh in the race in a remarkably good time considering the character of the machine. Both airframe and engine were borrowed for the race, the airframe being the property of our English distributors the Aircraft Exchange and Mart Ltd and the engine being supplied by Armstrong Siddeley Motors Ltd.
The subsequent history of the Viceroy is interesting as an indication of the type of business which was to develop in the next few years. The machine came back to us after the lawsuit in the early summer of 1935 and stood in the back of a hangar for some months. In the autumn we were approached by a Croydon aircraft selling organisation managed by a man that I will call Jack Norman, who had a client who wanted to buy the Viceroy. This client, said Jack Norman, was the proprietor of a concern called Yellow Flame Distributors Ltd, whose business was the rapid transport of cinema films between the various capital cities of Europe. For this service our long range racing aeroplane, the Viceroy, was exactly what they wanted, and they were prepared to pay a good price for the machine.
I was, of course, delighted at the prospect of shifting this white elephant. Jack Norman paid a deposit and we set about reconditioning the Viceroy and preparing it for flight. A few days later Jack Norman turned up in my office and said that cinema films were very inflammable things to carry in an aeroplane and his clients were a bit worried. Could we fit bomb racks underneath the wings to carry the films on?