NATION'S MANPOWER REVOLUTION

FRIDAY, NOVEMBER 22, 1963

U.S. SENATE,

SUBCOMMITTEE ON EMPLOYMENT AND MANPOWER

OF THE COMMITTEE ON LABOR AND PUBLIC WELFARE, Washington, D.C. The subcommittee met at 10 a.m., pursuant to recess, in room 4232, New Senate Office Building, Senator Lee Metcalf, presiding. Present: Senators Metcalf and Pell.

Committe staff members present: Stewart E. McClure, chief clerk of the subcommittee; and John Stringer, minority associate counsel. Senator METCALF. The meeting will be in order.

We are privileged this morning to have as our first witness, Mr. William E. Zisch, the president of Aeroject-General.

I see, Mr. Zisch, you have a rather long prepared statement, I hope that you will be able to summarize it and then we will discuss it. Go right ahead.

STATEMENT OF WILLIAM E. ZISCH, PRESIDENT, AEROJETGENERAL

Mr. ZISCH. Thank you, Senator Metcalf.

My name is William E. Zisch, I am president of Aeroject-General Corp., with corporate headquarters in Del Monte, Calif.

Mr. Chairman, I thank you for the opportunity of appearing before your subcommittee. I accordance with your suggestion I have prepared a statement which I submit for the record and I hope you will find it fully responsive.

Senator METCALF. It will be incorporated at this point as if read. (The prepared statement of Mr. Zisch follows:)

PREPARED STATEMENT OF W. E. ZISCH, PRESIDENT, AEROJET-GENERAL CORP.

I. INTRODUCTION

It is with pleasure that we have responded to your invitation to participate in the hearings of the Subcommittee on Employment and Manpower of the Senate Labor and Welfare Committee. The subject "Utilization of Defense Industry Manpower and Resources" is of vital interest to Aerojet-General Corp. and we are happy to be permitted to express our views before this subcommittee.

It is our belief that a strong, continuing national defense effort will prove to be as important to our national strength and survival in the next 10 years as in the past 10 and that military requirements will continue to utilize significant portions of industrial manpower and resources. Whatever conditions do prevail, we are highly interested and sympathetic with the objectives of this subcommittee. Thus, we have today directed ourselves to the subjects of the impact upon the defense industry and on our own company in particular of a possible substantial shift in total defense-space funding; future variations in procurement

requirements; and to the alternate utilization of our resources. In this discussion we will describe our contingency planning which relates, in part, to the conversion of present plant, equipment, personnel, and management to products not associated with military and space programs. We will also discuss briefly the bill (S. 2298) to establish a commission on the application of technology to community and manpower needs.

II. REASONS FOR PREFERENCE FOR DEFENSE-SPACE BUSINESS

Since the establishment of Aerojet-General Corp. in 1942, our principal customers have been the military and space agencies of the Federal Government. It was the vision of our founder, Dr. Théodor von Kármán, that certain advanced propulsion capabilities would have to be developed and directed to the enhancement of our military posture in the decades ahead-now called the missile and space age. Aerojet's efforts in these fields commenced long before there was a general recognition of the need. There was, in fact, a general skepticism throughout the military of the value of missiles in warfare.

We were glad to accept the challenges of those early years, since they allowed our personnel, as pioneers in the new fields of rocket propulsion, power conversion, and nuclear energy, to significantly advance scientific frontiers and to ultimately make a notable, contribution to our national defense. As the missile-space age matured, the military services placed great demands on the company to develop and produce operational hardware. A measure of our service to national defense is indicated by our participation in many vital weapon systems: Titan, Minuteman, Polaris, and Hawk to name a few.

We believe as a corporation we have been reasonably effective in the application of advanced technology to the requirements of national defense. We also recognize the uncertain conditions sometimes affecting defense firms tied to particular programs or weapons systems. We have coped with these conditions in the past. Adjustments to severe shifts in defense product-mix have not retarded the continued growth of Aerojet.

The security needs of this country are paramount and in an uncertain world bound to be of continuing concern. We feel in Aerojet that our primary mission is to contribute to the security of the Nation through the further development of military-space propulsion and in our other areas of competence, such as, special ammunitions, torpedoes, electronics, and life support systems. We realize that military requirements are changing and we believe the company is sufficiently flexible to cope with the changes now occurring.

III. PAST INTEREST IN COMMERCIAL PRODUCTS

Our paramount interest has been and continues to be, to perform in an outstanding manner on the high-priority defense-space programs which have constituted the bulk of our business. With the burgeoning military-space requirements and the management problems inherent in expanding our company to meet these needs, little energy or funds have been available for ventures outside of our primary business. In a number of cases, nonetheless, Aerojet has undertaken to develop commercial applications, products or technologies evolved in our military-space activities.

Our initial product diversification into commercial markets was with Aerojet's first military product, the very widely used JATO (jet-assisted takeoff rocket) of World War II. The JATO has found a few applications in commercial aviation permitting safer operation and increased load capacity for civil aircraft. Another example of the application of military-space technology to commercial uses is found in Aerojet's Microwelder, a device for performing weld assembly of miniature electronic components. Other products include Aerex (a commercial explosive), plastic containers, and case perforating charges for oil wells.

Aerojet's most successful diversification efforts have not centered in products but rather in two service divisions, Aetron and the Atlantic Division.

Aetron is the architect-engineering-management division of Aerojet. The requirement for building large test stands and other special facilities for the development of large military-space engines could only be met by the creation of a highly specialized, inhouse architect-engineering-management capability. Since its formation Aetron has been interested in applying its special talents to commercial projects and a number of important installations have been designed and managed by Aetron. Examples include an automated synthetic rubber plant built in Odessa, Tex., and a food distribution center in Fresno, Calif.

The Atlantic Division, located in Frederick, Md., was formed to apply system engineering skills to mechanized material and package handling problems in commerce, industry, and for nonmilitary governmental agencies. The Atlantic Division has designed a number of automated warehouses and material handling systems. They designed and installed a parcel sorting system for the U.S. Post Office in Miami, Fla. In Texarkana, Ark., the Atlantic Division installed a mail sack sorter system for the railway terminal while at St. Louis both a mail sack sorter and a package sorting system was provided.

IV. APPROXIMATE RELATIVE RELIANCE OF THE COMPANY ON DEFENSE-SPACE-
COMMERCIAL BUSINESS

The table below shows our present personnel distribution in defense, space, and commercial activities. It is clear that defense constitutes our major activity and that space is a strong second. Commercial product activities involve a small number of our personnel at this time.

V. MANAGEMENT'S CONCLUSIONS AS TO THE FUTURE OF THE DEFENSE MARKET

Defense expenditures in the last 10 years have been forced to unprecedented levels. We see in the present state of international relations no conditions which would make safe a drastic reduction in our defense forces. Today we are still facing a hostile power fully capable of launching annihilating attack which could devastate this country in 20 minutes if not deterred by overwhelming retaliatory capability. Missiles with larger warheads and more accurate guidance can eventually reduce the protection now furnished this country by the modestly hardened, fixed-based, ICBM's presently composing a large part of our strategic retaliatory force. Thus development and deployment of even more advanced weapons will be imperative to counter increasingly serious threats. While the outlays on national security will continue to be large, we believe there will be significant shifts in the products and services purchased by the military-space agencies in the next decade. In particular, we do not foresee the simultaneous development and deployment of three or four major strategic military systems, as we have seen in the past 5 years. We also anticipate a continued reequipping of our general purpose forces. This is in line with the national policy of increased flexibility of response to varying threats to our national security.

A reduction in the number of strategic systems to be deployed in the next few years will certainly intensify the competition in the defense industry. We believe there will be a continuation of the recent trends to introduce even more competition into defense procurement awards.

VI. CONTINGENCY PLANNING IN AEROJET

Sensing a shift in defense requirements, increasing competition and new technological challenges, Aerojet in 1958 established a corporate long-range planning activity. This group attempts to anticipate national defense requirements and assess the military impact of new technology. Within this framework, the long-range planning group has sought to assist operating management in developing an effective strategy of action.

To make planning for the future even more effective, a new corporate office, the vice president, future operations, was created during the past year. The function of this vice president is to insure that the company response is timely and effective as conditions within the defense industry change. He has the responsibility for coordinating corporate, plant, and division planning; for determining the direction of our exploratory studies; and for integrating the corporatewide research and development program. Contingency planning, including planning for the reduction of defense expenditures, is part of the responsibility of the vice president, future operations.

Our overwhelming dedication to the needs of military defense has committed virtually all of our management talent to the execution of programs in the military and space area. Our investment in plant and facilities has been almost totally committed to the defense and space effort and, for this purpose, we have reinvested substantially all of our profits and accumulated depreciation. Given our views on the continuing requirements of the Nation's defense as expressed above, it is our opinion that the corporation must continue to emphasize the defense and space portion of our business.

In the past 3 years we have payed increasing attention in our contingency planning to the impact of arms control and disarmament alternatives and to the possibility of commercial diversification activities. As a part of our longrange plan for 1962, our various plants and divisions were required to analyze their fiscal and manpower positions under various arbitrary arms control/disarmament assumptions. This study showed that the potential impact of certain extreme hypothetical situations would be severe. However, it is our conclusion that with a balanced military posture, modest reductions in overall security expenditures would have only a modest effect upon our company.

To increase our ability to adjust to changing future conditions, the corporation has put its financial affairs on a sound long-term basis. We have increased our long-term debt to reduce our dependency upon short-term money conditions and to increase our cash balances.

VII. NATURE OF INDUSTRY, MANAGEMENT-LABOR, AND INDUSTRY-COMMUNITY COOPERATION ON CONVERSION OR IMPACT PLANNING

As part of our contingency planning, extensive contacts have been developed with other firms in the industry and with interested community agencies. Aerojet personnel, in cooperation with other industry representatives, have consulted with Department of Defense officials on information needed by industry to make long-range defense planning effective. We have also participated in a series of conferences in which industry, labor organizations, the State of California, major cities, and other groups have explored the economic effects upon the California economy of shifting Department of Defense expenditures.

In the Sacramento area, where our largest plants are located, significant cutbacks would have a major impact upon the community. Here our plant managers have made a distinct effort to keep county and city planning officials aware of present and prospective employment trends. The level of change in total Sacramento plant personnel to date has not been sufficient to require specific programs aimed at alleviating economic dislocations.

VIII. COMPANY'S VIEWS AS TO THE BEST MEANS OF UTILIZING THE DEFENSE INDUSTRY

Firms in the defense industry for the most part have been oriented to products requiring a high technological capability, large amounts of research and development applied to a specific problem and production runs which are relatively short when compared to many civilian products. It would appear that the best use of the technical and management capability of the defense industry would be to apply it to civil problems and products also requiring advanced technology, or involving a multidiscipline systems approach to their solution. In this respect we believe that there are a number of national needs to which the defense industry might well direct its attention. Among these are mass urban transportation, desalinization and transportation of water, improved communications, housing, medical instruments and equipment, and the elimination of pollution in streams, lakes, and the atmosphere. Employment of nuclear engines and nuclear isotopes for power, medical, and other purposes would put additional military technology to work for the civilian economy. It would also seem apparent that the advanced technologies might be utilized overseas as part of the program to help underdeveloped nations. Some of these programs are already in study or research and development phases at Aerojet.

IX. PRESENT INTEREST IN COMMERCIAL BUSINESS

In describing Aerojet's present interest in commercial products it should be understood that proprietary information and competitive positions are involved. However, it is possible to describe in a general way a number of activities which have nonmilitary product applications. We have worked for several years upon water desalinization techniques as an element of the overall water problem. Pilot plant demonstrations have already been completed and advance work is being undertaken. A mobile nuclear power unit, developed for the U.S. Army, appears to have a distinct potential in those remote parts of the world lacking adequate fuels. Aerojet has developed a unique process for explosive forming of metal parts. A license for its use in Mexico was recently negotiated with a firm in that country. Aerojet has developed a brushless alternator which has many characteristics superior to the alternators and generators now used in automobiles and trucks. The Hydrocket, a water jet system for propulsion of surface craft, in an Aerojet development. We have done equally interesting work in underwater propulsion units. Our nuclear subsidiary, Aerojet-General Nucleonics, has accomplished basic theoretical studies and some very encouraging research on fissio-chemical processes involving the use of nuclear energy in the synthesis of chemical compounds. Aerojet has an unique capability in fiberglass reinforced plastic technology. This, we believe, has direct application to many commercial structures. Similarly our capabilities in advanced plastic compounds and plastic-metal combinations have interesting applications to commercial products. This list is indicative but does not exhaust the product potentialities found in the various capabilities and scientific disciplines n Aerojet.

Two new ventures have recently been established which promise to project the company further into commercial markets. They are Aerojet-Delft and ITADCO.

Aerojet and N. V. Optische Industrie de Oude Delft, the foremost optical company of the Netherlands, joined forces to form a U.S. corporation, Aerojet-Delft Corp., to develop and market optical and X-ray equipment. De Oude Delft is making available all its patents and products for manufacture and distribution in the United States and Canada. The Dutch firm currently manufactures photo-fluorographic cameras for medical and industrial use, electro-optical X-ray image intensifiers, aerial cameras, and various other electro-optical equipment. The plan is to concentrate on developing new applications of De Oude Delft's products, ideas, and technical know-how for North American commercial and military markets.

ITADCO (International Technical Assistance and Development Co.) was recently reorganized as a division of Aerojet. ITADCO provides a start-tofinish service for foreign countries, by surveying their needs for plants and other facilities, arranging financing through private and government sources, designing and constructing the plant and then training local personnel so they can manage and operate the facility. ITADCO's completely private assistance program is designed to assist the economic plans of developing countries and to implement the aims of the U.S. foreign aid program.

X. CONDITIONS THE COMPANY CONSIDERS FAVORABLE FOR THE DEVELOPMENT OF COMMERCIAL PRODUCTS AND SERVICES

A primary condition that would favor the development of new products and services is of course the continued improvement in the general economic health of the Nation. It appears, on the other hand, that a business recession or a significant decline in the overall economic activity would have a retarding effect upon the introduction of new products and creation of new industries.

Defense firms could most readily make the conversion from military to nonmilitary products if markets should develop which require high technological