Rifts & Tangles

The biggest merger in aviation history was abruptly called off last week. When they first planned it last year (TIME, Oct. 7), Consolidated Vultee Aircraft Corp. and Lockheed Aircraft Corp. fully expected that each could provide just what the other needed, and together blanket the field with one mammoth company. But in last week's brief announcement, Convair's Harry Woodhead and Lockheed's Robert Gross regretfully admitted that the whole thing was "no longer feasible."

What had caused the rift? Woodhead and Gross blamed it on "the substantial decline in the stockmarket" which took place while the merger details were being arranged. They might have been more specific without raising any eyebrows. In less than a year, Convair's stock had slipped from a high of 33 5/8 to 16 1/4 points a snare, Lockheed's from 45 1/4 to 18. The declines simply wiped out the differential on which all the negotiations were based.

The deal was further dampened by a fact which neither Woodhead nor Gross would dare to admit publicly: that they and all other big aircraft manufacturers are facing one of the industry's worst financial storms. One big cause is the shuffle of military budgets, which will cut deeply into the planemakers' surest and richest market. A bigger one is that the planemakers are unalterably entangled with plane operators, whose troubles are headline topics.

Ripping Ruckus. How the tangle developed is best illustrated by Lockheed. When Gross first decided to invade the commercial plane market, he found most of the big customers already sewed up by Douglas, leaving him no choice but to concentrate on Transcontinental and Western Air, Inc. Lockheed could see a bright future as long as T.W.A. prospered. But when T.W.A. was crippled by a pilots' strike, Lockheed suffered immediately--through T.W.A.'s cancellation of orders for eight new Constellations. And when T.W.A. was ripped by a refinancing ruckus between No. 1 Stockholder Howard Hughes and President Jack Frye, Lockheed was hit again.

Last week T.W.A. Board Chairman T. B. Wilson resigned. In the airline's offices, higher-ups were quoting odds that Frye would soon follow suit. No one had more cause to worry than Lockheed. T.W.A. has put in a big order for Lockheed's new Constellation 649, under a contract which binds Lockheed to offer the first 18 of them to T.W.A. But T.W.A. can refuse the planes, one by one. Thus Lockheed is bound to sweat commercial blood as long as T.W.A.'s troubles continue.

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