the country needs the ships. We cannot build them without the insurance.

The CHAIRMAN. Thank you, Mr. Lewis, and I appreciate your submitting this very pertinent detailed information which is in the record.

Is Mr. Gordon Duke here?

Mr. DUKE. Yes, Mr. Chairman.

The CHAIRMAN. You represent the Big Tankers Co.?

Mr. DUKE. Yes.

The CHAIRMAN. I thought we were dealing with special purpose little tankers here.

We would be glad to hear from you, Mr. Duke.

STATEMENT OF GORDON DUKE, BIG TANKERS CO.

Mr. DUKE. My name is Gordon Duke, and I am one of the group that organized a company, Big Tankers, for the purposes of making this offer.

We are tanker operators and in the oil business and have had some limited experience in the ownership of vessels. Senator, I have felt for these several months that 100 percent insurance was essential to the success of the program, and a wise thing for the Government to do.

A few weeks ago when we bidders received a letter from the Maritime Administration inviting applications on a 90-percent basis, we got busy with the effort to try to work without a 90-percent application if possible.

Frankly, I am not able to say at this point as to whether we could or could not live with a 90-percent situation. The testimony of the shipyards and of Mr. Sanford this morning leads me to believe that any idea I might have that I might be able to manage with 90 percent is wishful thinking.

I do wish to say, and it is not in deference to anybody in the room, that if it is decided by the Government in general that we want to continue the 90 percent, I am very happy to try to work that out. The little I know up until now convinces me that it is well nigh an insurmountable problem, though I cannot say for certain that it cannot be done.

Secondly, I confirmed at luncheon with the president of the Ingalls Yard with which my group are not dealing, but I was curious about the matter of whether they were committed to one dealer on a basis of 90 percent, and I wanted to find it out. I learned promptly from the president of the yard himself that it was not a fact, that they had done nothing more than agreed to consider a proposal on a 90percent basis, and, in fact, would be very happy to receive such a proposal from any companies on this program, not necessarily the one company whose name was mentioned in the press.

Likewise, I have talked with Newport News and Bethlehem, and they have gone to these committees and they have told their stories. In one case Newport News was apparently not of a mind to do so, but frankly, I was told by that company that if I wished to submit a formal proposal along the lines of 90 percent, they would certainly give it the utmost and serious consideration.

I have not raised the point in discussions with bankers for the reason that we cannot see any grounds and basis on which I can offer 90

percent and please the bankers. I might could please the shipyards, but apparently I would have a horrible time with the bankers if Í did so.

The problem here is if you gave part of this money to protect the shipyard, you take it away from the owner and the investment banker to the same extent.

Senator, the basic problem is, in our judgment, one of where is the yard in the deal; that is, if they are in the mortgage side with the Government.

If we pay the shipyard his 10 percent insurance of that 87%1⁄2 percent, we are paying doubly for that money, and the Navy is going to pay us for it, because we have to borrow the full 100 percent of the loan, we pay interest on the full loan, all of which, if the shipyard guarantees it, you pay him again.

The CHAIRMAN. Do you agree with the testimony yesterday that that would add to the cost of the tankers?

Mr. DUKE. Senator, there is not any question of that; the question is how much does the shipyard charge you for underwriting the 10 percent.

The CHAIRMAN. I suppose it would be what type of financing that you would get for their 10 percent.

Mr. DUKE. Or how much they could get out of you.
The CHAIRMAN. Would it add to the cost to the Navy?

Mr. DUKE. There is not any question it will put it up against the ceiling of $5, and definitely up to that, whereas we hope to save the Navy something of that $5 should we be able to proceed.

I do not want to leave the impression since the Navy is in the room that there is much room for chiseling.

I would say that if Admiral Denebrink pays $5 to anybody, I will be very surprised and I admit it; but there has been a lot of progress made in this matter.

To be very fair about it, you remember we started out with the understanding that no insurance would be available, whereas we have at least come up to 90 percent, and I hope the result would be that the Government would decide to come on up to 100 percent; and another thing, the fact that that has not been agreed upon is that there is vast difference between the Government holding an 872-percent mortgage and insuring an 87%1⁄2-percent mortgage.

I would feel that if the Government could get by on a 90-percent loan, and if the Government puts in the money, they have an active interest in it; but on the other hand, if it insures 100 percent of a bank loan, it has got a very remote, nonparticipating interest. And what is more, it does not get the interest and the banker gets it.

If I were sitting in the shoes of the Administrator I would make them prove beyond any doubt that you could not do this job on 90 percent before I would move up.

The CHAIRMAN. The only justification for the legislation was that we might get this thing accomplished, and we have to move up to the point-if we are not accomplishing it in one way-where we can get it accomplished, because of the great need for these tankers.

Of course, if we could have done that in the other way under the 1936 act, that would have been probably the best way for it to have been done in my opinion. That is why I was frankly opposed to that, because I thought we had not exhausted the possibilities of the 1936

act, but if we are not getting it done, we have got to find ways and means to do it.

Otherwise, we should not be dealing with this problem at all. We should not waste our time with it, if they are not needed.

Mr. DUKE. It looks like a perfect example of democracy in action, which does not disturb any of us, I am sure, that we have got different ideas of what is the way to do it, and we are slowly distilling them.

The CHAIRMAN. It just makes some people a little impatient.

Mr. DUKE. That is correct, and I am one of those that is a little impatient. I confess it, but I am also very interested.

There is one thing, and I would not want to leave it without saying this: it has been said here that the deal is thin, and that is true.

But I also feel, in a very honest admission of owners, that there is a profit in this deal, and if there is not you will not have any bidders around here trying to worry you and get these deals, and I will be one of those missing.

In spite of the fact that it is thin, and each fellow has got to shoulder his share of this burden, and that must include the shipyard, the yard is one of the beneficiaries of this deal.

On the so-called equity side, with the owner, the banker shares in the success of the venture and we pay him a part of the profit instead of the banker; but I do not want to be paying the banker and the yard on the same cash.

But, sir, I would not agree that the yard does not belong in here and that we should not pay him for his participation. I think most American manufacturers have a habit of selling their merchandise on a basis of participation in the success of the operation.

If that is not true and legal, General Motors and General Electric and a lot of other people who have taken an interest in what their commodity will produce after it is manufactured certainly have been doing some illegal things.

I think it is a question of where the yard is with relation to the bankers and the owners. May I say in closing that we hope to resolve the problem in the following fashion: that in order to please Budget, and I know this from talking to the Bureau of the Budget directly, that the bankers have some participation in this project, so as to make it a success.

However, if he is 100-percent insured on anything, the first time there is any technical default-and there are always faults in this kind of a program-he wants to get out of that investment and unload the portfolio, he will rush down here and hand it to the Maritime Administration, and say, bail me out.

But, if he has got a part of that deal, he is not going to be so quick to run off if there is a bauble in the situation, which is bound to develop in a situation like this, he is going to put up this 871⁄2 percent, and he has this 100 percent insurance of the Government, so that I have not got double interest on that 10 percent, and the same group of bankers who got this cream loan that is fully insured at a pretty good rate of interest certainly better than a Government bond and I admit this is not as liquid-but he is going to get this 12%1⁄2 percent and some of this equity financing, and take his place down the line in the second 10 years.

There must be some equity in this thing for the owner and the yard owners if they are going to be interested, because believe me no ship

yard is going to get into this unless there is, because there is a very small margin of profit and most owners are going to be out because that million dollars plus is not there. No banker is going to do it, because it is not there. It is going to take the banker who is going to make a profit with interest, the owner who is obviously working for a profit, and the shipyard who is also obviously working for a profit.

We are all going to have to put our shoulder to the burden of getting these tankers built.

The CHAIRMAN. Some of the shipyards in this particular case are going to be cut in their profit because it is almost a necessity that they get something to do.

Mr. DUKE. I would only say this-and I say this in all deference to my friends in the shipyard business, and I love them all-I do not have any crying towel to hand them, worrying over whether they are going to eat regularly any more than they are worrying over whether I am going to eat regularly.

I am going to eat regularly and so are they, even if I do not build a single one of these ships. And I have not seen any breadlines around the shipyard gates, although I admit there is a real problem, but we are all going to have to get in there and work.

We have all got to make this deal a success for the full 20 years, not just the first 10, or we will never see the money. You will have to satisfy yourself that you are going to get the use during the first 10 years, and the profits during the second 10 years.

The Maritime staff is going to see to that even if the Administrator does not. Make no mistake about that.

The CHAIRMAN. I do not think that the chairman has any crying towels for the shipyards either, but I think we ought to have a little damp towel for a lot of people who are out of work.

Mr. DUKE. That is right.

The CHAIRMAN. The Committee is going to recess for about 15 minutes, and then we will hear the Government witnesses and see if we cannot dispose of this today.

(Thereupon, there was a short recess.)

The CHAIRMAN. The Committee will come to order. I see our first witness is in the chair, the Under Secretary of Commerce for Transportation, Mr. Rothschild.

STATEMENT OF THE HONORABLE LOUIS S. ROTHSCHILD, UNDER

SECRETARY OF COMMERCE FOR TRANSPORTATION

Mr. ROTHSCHILD. Mr. Chairman, we very much appreciate the opportunity to come before this committee and to give you what we think is at least another side of the matter under discussion at the moment.

Yesterday's witnesses attempted, if I heard their testimony correctly, to indicate to this committee that all of the ills of the shipbuilding industry are directly traceable to the Maritime Administration. This I do not believe.

On the contrary, I believe that Clarence Morse, the Maritime Administrator, and members of his staff will show you that Maritime has done and is continuing to do one of the outstanding administrative jobs in Government.

Let me read to you, if I may, a paragraph from a letter from Daniel D. Strohmeier to me while I was Maritime Administrator. This is the same Mr. Strohmeier who testified before you yesterday. I am reading this to indicate that my opinion of Maritime is shared by at least one other.

In the first place, I think a great deal has been accomplished this year in legislation and great credit goes to you, Mr. Weeks, Mr. Murray, Senator Butler, and Senator Saltonstall, and Mr. Tollefson.

The CHAIRMAN. Did I not get into the act at all?

Mr. ROTHSCHILD. I would consider that a serious breach of judgment, sir; but I am not interpolating.

This year has produced the most useful legislation since the passage of the Merchant Marine Act, the principal items being: (1) the 50-50 cargo law; (2) ship mortgage insurance; (3) trade-in and building program for tankers; (4) Grace Line and Moore-McCormack authorizations; (5) Navy tanker bill; (6) Liberty repowering; (7) emergency ship repairs.

These are tools to start a substantial peacetime shipbuilding program. Some of these tools are better than others, but none of them will produce results unless they are used.

There was testimony yesterday about the four large passenger vessels. You will be happy to know from Mr. Morse, I am sure, that bidding plans and specifications on two of these ships are going out to the shipyards today.

The CHAIRMAN. Those are the two Moore-McCormack ships?
Mr. ROTHSCHILD. They are.

No one has yet told you, but I think I should, that a shipyard designed these two ships, so that if in this case there have been delays, some large part of the blame for lost time may lie with the designer. In the case of the other two ships, the 11th set of plans has just been withdrawn by the shipping company, but Maritime hopefully expects plans No. 12 to be filed quite soon.

The CHAIRMAN. Let us identify these. lines?

Mr. ROTHSCHILD. That is correct, sir.

These are the two Grace

I heard no testimony about an all-time record of 149 days from contract letting for plans to receipt of bids on the Mariner conversions. This I believe deserves a pat on the back for all concerned. Those are the ships designed for Oceanic.

These operations are going to be privately financed, and it will be financed under the terms of the act as presently written. This indicates, to me at least, that in the case of these three companies, the insurance and the private financing have been available to these worthwhile and qualified and experienced companies.

Nor did anyone tell you, Mr. Chairman, that in the case of the four Navy tankers, where Maritime acted for the Navy, and again in the case of the emergency ship repair program, that invitations to bid were issued on the very next day after funds became available. Similar speed was developed in the matter of the Liberty conversions where negotiations for machinery components started within 24 hours of fund availability, and plans and specifications were issued about a week later.

Things like this do not happen by accident-they are, on the contrary, the result of careful and competent administration and smooth teamwork.