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Aviation History
1918
1918 - 0866.PDF
JGHT AUGUST I, 1918. AIRSHIP SHEDS AND CELLULOSE CONTRACTS. The following are extracts relating to aviation from the fifth report of theSelect Committee on National Expenditure which has just been published. We comment on the question of cellulose contracts on p. 847. Airship Constructional Shed In Lancashire.In the latter part of 1916 it was decided to build a shed (or the construction of large rigid airships, together with a village for the employees, in Lancashire.The scheme involved a total expenditure of nearly £800,000. In October, it)1?, after about a hundred houses had been built, railways and sidings constructed,and the shed itself begun, the work was stopped. It was supposed by many people in the locality and elsewhere that this was because the site had beenfound to be unsuitable or the enterprise itself unnecessary, and that this was a case of waste of public money due to lack of sufficient foresight, comparable tothe abandoned aerodrome at Loch Doon. One of our Sub-Committees has made close inquiry into the matter, and is glad to find that this is not so. The sus-pension of the work has been due to the shortage of steel which has arisen since the scheme was appoved, and to what is regarded as the more urgent need forother purposes for the steel available. The Admiralty authorities remain of opinion that the shed is needed, and desire that, when the materials are availablethe construction should be resumed. The question whether priority was rightly given to other demands for steel at the expense of this undertaking is not onethat falls within our province. When the conditions would render possible the resumption of the work it will no doubt be considered whether, after the longinterval that has elapsed since the scheme was approved, and in view 01 the pro- babilities in relation to the duration of the war and to the developments in aerialwarfare, the need still remains. Contracts for Cellulose Acetate.Our Sub-Committee on the Ministry of Munitions made enquiries early in October, 1917, regarding the arrangements made by the Ministry for obtaining•cellulose acetate, and shortly afterwards obtained certain papers on the subject. It was, however, only after the issue of the first Report of the present session thatthey were free to devote the prolonged attention to the matter that its extreme complexity demanded. They have held 17 meetings, examined 34 witnesses,and considered carefully such papers as are available. The personnel engaged in the matter have constantly changed, and certain of the more importantpersons concerned are absent in America or elsewhere. The Sub-Committee are, however, confident that they have ascertained the principal features of thecase. Cellulose acetate Is the principal ingredient in dope for aeroplane wings,requiring for that purpose to be mixed with certain solvents which are also in question in this enquiry. It is also used in film form for wind screens for aero-planes, &c., its main value for both these purposes lying in its non-inflammable character. It is employed for a vast number of peace-time products ; and byeproducts in its manufacture are of importance, both in war time and peace. In the manufacture of cellulose acetate the principal ingredients are paper orpulp and acetic anhydride. The Sub-Committee were led to make enquiry in the matter on account ofreports which reached them that the Ministry wore dependent for their supplies of this material on one firm who had been guaranteed the refund out of excessprofits of the whole capital expenditure incurred by them during the war, that the capital expenditure of the firm was on an enormous scale and their deliveriesunsatisfactory, and that all other offers to manufacture had been refused. Since the early part of the current year the Ministry have themselves been in negoti-ation with the Company. The Sub-Committee did not, however, think fit to discontinue their enquiries on this account. War Office Negotiations with Cellonite Company, 1915.In the early days of the war cellulose acetate was not manufactured in Eng- land. The principal sources of supply, apart from Germany, appear to havebeen the Usines du Rhone, at Lyons, and the Cellonite Company, Basle. Private manufacturers in this country obtained it from either of these two sources, butthe War Office do not appear to have obtained it direct from the Usines du Rhone until late in 19:5, after which date, however, the reports uniformly show thatthe product from those works was regarded as superior in quality to that of the Cellonite Company, Basle. Enquiries were made by the War Office early in 1915 regarding the possibilityof manufacturing cellulose acetate in England. After preliminary negotiations with several companies tender forms were issued to three firms in July, 1915,for 100 tons of cellulose acetate to be manufactured in this country, the manu- facturers to state on their tender form to what extent the ingredients wouldthemselves be manuactured here. Of the three companies invited, the Cellonite Company of Basle alone submitted a tender. No tender was issued to the CellonCompany of London, which was in touch with the Usines du Rhone and other French experts, although they had been in communication with the War Officeand had put before them their view regarding the superiority of the du Rhone product, which they were themselves using for dope. The Cellonite Company of Basle submitted a tender in which they undertookto manufacture in England within six months, but reserved the right to supply- up to 50 per cent, of the total quantity required from their works in Switzerland.They did not state, so far as the Sub-Committee are able to discover, to what extent the ingredients for the cellulose acetate would be manufactured in thiscountry, though there would seem to have been some understanding that the most important and expensive, namely acetic anhydride, would be made here.Careful examination fails to afford any corroboration of the statement made to the Sub-Committee by the Officer in charge of the Supply Department at thepresent moment, that the original conditions on which the contract was placed with the Company were " that it should be self-supporting and not dependenton overseas shipment for any product required in the production of cellulose acetate or solvents producing dope from that cellulose acetate." The importanceof this misunderstanding on the subsequent history of the contracts with this Company, and on the successive steps by which it enlarged its works until theyreached their present enormous magnitude, cannot be over-estimated, and it is essential to record, at the very outset, that there is no ground whatever, sofar as the Sub-Committee can ascertain, for the belief that any such requirement was contained in the original contract. The Cellonite Company's tender of July, 1915, was accepted by wire on the19th July, and negotiations immediately followed for the institution of the required manufacture in England. The representative of the Swiss Company,Dr. Camille Dreyfus, at once raised the question of the effect upon the under- taking of possible excess profits taxation, and asked for some assurance thatit would not be applied to his new venture. This question was referred by the Contracts Branch, through the Director of Military Aeronautics, to the FinanceBranch and met with an absolute refusal, which was communicated to Dr. Dreyfus. Negotiations were, therefore, taken in hand for devising some alter-native method of financial assistance to the new Company, which was to be formed on a small scale for the purpose of taking over the Safety Celluloid Com-pany's works near London, and manufacturing there the required product. These negotiations were apparently concluded in September, 1915, so'far as theWar Office was concerned, by a letter confirming an interview with* the chief financial authorities of the War Office, at which agreement appears to have beenreached with Concessions on either side. On the 15th November, X915, a minute by the Director of Contracts records that Dr. Dreyfus had informed him on thatday that he hoped to begin manufacture in this country in about a fortnight. This statement appeared inexplicable toihe representatives of the British Cellu- lose Company who gave evidence, but, whether based on a misunderstanding ornot, some such assurance may well account for the inaction of the War Office, so far as the available records show, in the wholematter between the settlementof the financial terms in September and the following March. British Cellulose Company—War Office Agreement, 1916.In March, 1916, Sir Trevor Dawson, Managing Director of Vickers,1 Limited, and Colonel Grant Morden, on the staff of the Canadian Minister of Militia,approached the Assistant Financial Secretary of the War Office with a proposal to manufacture cellulose acetate by Dr. Dreyfus if exemption from excesstaxation could be obtained for five years. The proposal contemplated raising capital to the extent of £120,000 and the erectiom of a factory near Manchesterwith a considerably extended programme of output, which was to begin within four months of the commencement of the building. Reference to the ContractsBranch satisfied the Assistant Financial Secretary that it was still important to manufacture the material in this country, and enquiries were accordinglymade unofficially from the Treasury regarding the feasibility of granting the concession asked for. At the same time Sir Trevor Pawson wrote to the thenChancellor of the Exchequer, Mr. McKenna, asking for his sympathetic con- sideration of the enquiry which was being addressed to the Treasury by theWar Office. Mr. McKenna replied on March 18th, quoting in his letter the terms of the reply sent on the 10th March by the Treasury to the Assistant FinancialSecretary of the War Office :—" I fear that it would not be possible to promise the firm any exemption from taxation, but we have told the War Office that ifit is absolutely essential to give Dr. Dreyfus the substance of what he asks, we consider that the best arrangement would be to promise to pay the firm byway of subsidy year by year, for a period of five years, a sum equal to the difference between the income tax they will have paid and the income tax which would havebeen payable by them if they had been charged with tax on the debenture interest paid and dividends distributed." 9 It would appear that this correspondence between the Chancellor of theExchequer and Sir Trevor Dawson, which was shown by the firm to the Contracts Branch, had considerable effect upoa the subsequent negotiations. According• to the evidence given to the Sub-Committee, which is largely borne out by the documents, the Contracts Branch at this date could not support the applicationfor exceptional concessions on the ground of the necessity for instituting this factory in this country at the moment. If it was required at all, the concessioncould be desirable only on considerations of general after-war trade. It is by no means clear that this attitude was due to the fact that supplies were nowobtained by the War Office from the du Rhone Company, or to the possibility of obtaining manufacture in this country from other companies, working in asso-ciation with them, if similar concessions were granted, but in any case the Contracts Branch appear to have regarded the concession as having been alreadygranted by the Chancellor of the Exchequer to the firm, and, therefore, treated it as chose jugSe. The Finance Branch, however, continued to act as thoughthe War Office were still dependent on the sole source of supply at Basle, and after obtaining an assurance from the Company on March 24th, 1916, that theywould manufacture for war purposes exclusively during the war, they formally put forward to the Treasury an application for consent to the refund of theamount expended on plant by the Company up to a maximum equivalent to the excess profits duty actually charged in respect of each year's working during thewar. The Treasury agreed on the 3rd June, 1916, to the grant of the special termsproposed by the War Office on the conditions proposed by them and on the strength of the War Office assurance that the importance of the matter justifiedsuch an exceptional proceeding. The conditions were that during the war the Company would manufacture exclusively for the purposes of the War Departmentand the Admiralty, and quote reasonable prices for all orders that might be placed with it by any Government Department or by any agents or contractors to anyGovernment Department. This decision was communicated immediately to the Company, who, however, asEed that the period of refund should not dependupon the duration of the war, but should be fixed as five years, that " reason- able prices " should be understood to mean prices discussed and mutuallyagreed upon between both contracting parties, and that, after the demands of the War Department and Admiralty were satisfied, no objection would be takento their supplying private manufacturers who might be engaged in the manu- facture of products also required for war purposes or otherwise. These furtherrequests were put forward to the Treasury, who attempted to safeguard the public interest by securing, in the first place, a limitation of the proposed refund to theamount of expenditure on plant erected, with the approval of the War Office, for the purposes of Government Contracts, and later, when the firm failed to agreeto this, the limitation of private orders, during the war, to orders from Govern- ment contractors for supplies required by the Government, both orders andprices to be subject to the approval of the Army Council. Finally, on the 17th November, 1916, the decision of the War Office was communicated to the firmIn this letter the War Office guaranteed to refund to the Company the capital expenditure incurred by them during the war upon the establishment of theplant for the manufacture of cellulose acetate and allied chemical products, up to a maximum equivalent to the excess profits duty actually charged in respectof each year's working during a period of five years from the formation of the Company, on condition that reasonable prices were quoted for all orders, thatorders were taken during the war only from Government Departments, directly or indirectly, and that after the war Government orders at approved prices shouldhave priority. The Sub-Committee examined the Assistant Financial Secretary of the WarOffice with regard to this'correspondence. Questioned regarding the absence of any limit to the amount of capital expenditure covered by the promised refund,he strongly maintained that throughout the correspondence the War Office had in view solely the plant which was then being erected and the one contractfor 100 tons of cellulose acetate which was then in question. It was his view that the effect of this correspondence would be merely the refund to the Com-pany of any excess profits which might be earned out of that contract for the purpose of meeting the capital expenditure incurred with relation to it. In anyfurther contract not involving capital expenditure regard would have to be paid in fixing the price to the fact that the capital expenditure had already been wipedoff out of the original contract, while in any further contract which might involve capital expenditure the whole question of refund from excess profits would haveto be considered afresh. He further stated that one of the main reasons for preferring a procedure by means of refund to remission from taxation was thatthe former method secured that the Spending Department should not lose sight of the concession. Whether the correspondence bears out either of these con-tentions or not—and with regard to the former, at any rate, this would appear to be a question of legal interpretation which the. Select Committee cannot pro-fess themselves competent to decide—it is noticeable that in all subsequent negotiations with the Company both of these considerations were allowed tofall into neglect. Before the Treasury were formally approached by the War Office in March,1916, the British Cellulose Company was formed in this country for the purpose of erecting the necessary works and carrying out the contract with the War Office.and the capital stated to be required for the undertaking, namely £130,000, was said to have been found. The programme of manufacture, which, waspromised to begin within four months from the date of the commencement of building, was two tons daily of cellulose acetate, five tons of acetic anhydrid* 864
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