Within the individual firm it is, of course, necessary to maintain the creative environment in which engineering and scientific personnel can effectively develop new products and processes.

Given such conditions it is our belief that Aerojet can develop the products necessary to assure its continuation even after severe cuts in military-space sales.

XI. LIMITATIONS ON CONVERSION TO COMMERCIAL PRODUCTS

It is our belief that there are no basic limitations upon the development of nonmilitary products by Aerojet. We are only limited by our technical ability to create products useful in commercial markets and our financial ability to undertake such ventures. We recognize that some new skills, facilities, and equipment will be required as we undertake the production and marketing of additional commercial products. In a conversion situation an objective would be to employ as many of our people and as much of our present equipment and facilities as possible. However, Aerojet has customarily worked with more advanced technologies and a more difficult level of manufacturing tolerances and quality control than is customary in commercially oriented industries. Much of our equipment and certain facilities are single purpose and cannot be converted to other uses. The high proportion of engineering and scientific personnel now employed in our company may not be appropriate to commercial products. A complete conversion of present skills and resources would therefore be precluded by these conditions.

XII. COMPANY SUGGESTIONS AS TO ACTIONS BY DEPARTMENT OF DEFENSE AND OTHER GOVERNMENT AGENCIES

The foregoing discussion suggests a number of actions worthy of consideration in an effort to assure productive alternative utilization of defense industries. (1) A vigorous space program to increase our knowledge of and our ability to function in both geocentric and distant space should be continued. The importance of space to our national defense should not be overlooked.

(2) Programs to support and strengthen the underdeveloped nations of the world for moral and security reasons should be efficiently and fully developed.

(3) Financial support beyond that which is within the capability of industry and State or local government agencies should be given to major national needs including housing, urban transportation, water and air pollution, water development and transportation, medical instruments and equipment, educational equipment and facilities, improved use of natural resources and discovery of new ones, and the application of U.S. technology overseas.

(4) Higher profit levels in the defense industry would permit a more complete development of the commercial byproducts of our military-space programs. In its 20 years of existence Aerojet has invested almost all of its total earnings and accumulated depreciation back into plant and equipment to perform effectively on our military contracts. This seriously limits the resources available for conversion to nonmilitary products.

(5) Continued attention should be given to the coordination of Federal conversion plans with State, county, and municipal agencies where impact problems would be significant.

XIII. COMMENTS ON THE HART BILL

We have been requested by the subcommittee staff and by Senator Hart to comment during these hearings on the Senate bill (S. 2298) to establish a Commission on the Application of Technology to Community and Manpower Needs. This bill appears to offer one possible approach to the very difficult problem of bringing about practical and economic use of the high level technology now being generated in defense and space industries. We are not in a position, however, to comment on the need within the Federal Government of a commission to coordinate the use of new technology.

We have seen in our recent history, a number of examples where new technologies have quickly created new markets and new industries. Tangible benefits to this end should be derived from the systematic study of the broad implications of military-space technology when considered in the light of the Nation's needs and the constraints of practical economics.

We feel it is important that the investigative aspects of the bill should make explicit provision for the protection and safeguarding of the proprietary rights and, therefore, the competitive position of individual companies.

XIV. SUMMARY

In summary Aerojet is sympathetic with the objectives of this subcommittee in its study of the human and economic impact of shifting military-space expenditures and the desire to apply the advanced technologies developed in the defense industry to the advantage of the civil economy.

While we foresee significant shifts in the product-mix purchased by the militaryspace agencies of the Federal Government which will have profound effects upon individual firms and communities unable to satisfy the new needs, it is our belief that national security will require continuing large expenditures of funds. Aerojet expects to adjust successfully in the futre as it has in the past to changes in military-space reqirements. To the extent that our capability may not be needed by national defense, we hope to apply it to commercial enterprises.

As a corporation we are particularly enthusiastic about the opportunities of participating in the progress of underdeveloped nations, either with our own resources or as a part of a national program.

XV. I would like to thank the subcommittee for the courtesy extended to me and to the Aerojet-General Corp. and for the opportunity of presenting our views on a subject of such national importance.

EXPLANATIONS OF FIGURE I

ASSUMPTIONS

1. The cold war curve is estimated by AGC. It assumes the hardening of existing systems and the deployment of new, dispersed, and mobile strategic weapon systems. It also assumes a continued and increased reequipment program for the general purpose forces. The resulting funding shows a rate of increase similar to that experienced in the last 10 years. The plateau in the 1963-66 period reflects the fact that major systems are not far enough through research and development to warrant large production and deployment outlays. NASA is assumed to increase gradually to $6.5 billion annually.

2. The Gilpatric curve represents the views of Deputy Defense Secretary Roswell Gilpatric, on defense spending. During October of this year, he estimated that annual expenditures would fall from $55 to $50 billion in the next 5 years. He assumed that strategic missiles and bombers are leveling off or sharply declining; that the Navy will get fewer than the hoped for carriers; and, that the Army buildup is over. The AEC has adequate warhead stockpiles now, and our prosperous allies can begin to cover the expenses carried by the U.S. military assistance program. It is assumed that NASA funding is reduced in proportion to the DOD reduction.

3. The Barber curve represents the informal views of Deputy Assistant Secretary of Defense (Arms Control) Dr. Arthur Barber. Dr. Barber foresaw the same conditions described by Gilpatric plus the easing of international tension to a degree that would allow an additional reduction in defense outlays. Thus, he has indicated a maximum reduction of DOD expenditures of 10 percent per year to a $35 billion level. Again NASA's program was assumed to be cut back proportionally.

CONCLUSIONS

Even under cold war conditions, a plateau in DOD outlays could occur because of a gape in the research and development pipeline with respect to new strategic systems. Gilpatric assumes a leveling of DOD expenditures because all that is necessary has been done and new systems are not required. Barber assumes future international developments will allow a reduction in U.S. military forces and a further reduction in procurement.

98-961-64-pt. 8-11

EXPLANATIONS OF FIGURE II

ASSUMPTIONS

1. AGC will continue to sell in its current markets and no new markets are added.

2. AGC will shift its product-mix as required by the shift in DOD product requirements.

3. AGC will continue its historical penetration trends in its various markets.

CONCLUSIONS

1. AGC potential sales would be expected to grow if military-space funding increases under cold war tensions and AGC continues to increase its penetration of its present markets.

2. Some increase in AGC sales would occur even with a reduction in total military-space funding under the Gilpatric assumptions, providing the strategic system requirements hold firm.

3. AGC sales might remain substantially constant even under the Barber assumption if our penetration trends do not change appreciably and if a balanced military-space posture does require the development of new strategic and space systems.