The Virtue of V-Loans

Word leaked out last week that huge Consolidated Vultee Aircraft Corp. had arranged with 125 banks for a $200,000,000 V-loan, 90% secured by the U.S. Government, 10% by Consolidated's receivables and inventories. This was the largest wholly secured V-loan yet made to any U.S. war producer. But its real interest lay in: 1) its terms, which showed the unhealthy cash position of the U.S. aircraft industry; 2) the peculiar virtues of the Government V-loan for companies whose war business is too big for their own eventual good.

Consolidated's production has zoomed from a mere $3,600,000 in 1939 to an estimated $650,000,000 for this year. This geometric expansion during a period of high income and excess-profits taxes has of necessity occurred without a corresponding increase in working capital. Like other U.S. aircraft companies, Consolidated can only scrape together enough cash to meet its payroll for two to three weeks at a time.

Consolidated's new V-loan amounts to about 20 times current working capital. This contrasts with General Motors' recent $1 billion V-loan and Westinghouse Electric's $200 million, each of which amounts to less than twice current working capital. Result: G.M. and Westinghouse got their money for 2 1/2% and no security except their good names--and the Government's guarantee (50-90%). But Consolidated's rate is 3%, and its current assets are in hock to the banks.

Nonetheless Consolidated bought itself a notable bargain. Despite its name, the V-loan is especially designed to persuade a war manufacturer to go all-out now without worrying about the pains of sudden victory. In V-loan contracts, interest automatically stops if & when an order is canceled. Further, the maturity date can be postponed. Thus, when war ends, a V-borrower can unload most financial obligations for canceled war orders on the U.S. Government, where they belong. Meanwhile it can conserve its own cash for conversion to peace. Within the past few weeks, four other aircraft companies have taken a total of $375,000,000 in V-loans.

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