George A. Haloulakos, CFA, is a university instructor, author and entrepreneur [DBA Spartan Research and Consulting]. His published works utilize aviation as a teaching tool for Finance, Game Theory, History and Strategy.
This year marks the 75th Anniversary of the Boeing B-29 Super-fortress as its maiden flight occurred September 21, 1942. In a continuing series, this article is yet another financial reappraisal of historic or iconic aircraft. As the single most expensive weapons system undertaken by the United States of America during World War II, it warrants our attention in both financial and strategic terms. The goal of this article is to share new insights from a Finance perspective. Among the insights to be presented: (1) Profitability Analysis, (2) Added-Value from Delivery/Distribution Systems and (3) Return on Investment (ROI).
This research article is organized as follows: First, we present observations based upon research and analysis of open source references. Second is an explanation on our analytical approach that is a fusion of Finance, Strategy and Aviation. Third is a financial analysis that includes lessons learned.
Finally our closing thoughts address the legacy of the B-29.
- Victory – the ultimate metric by which a military asset is measured – is synonymous with the Boeing B-29 Superfortress. In its commemorative May 2015 edition featuring spotter cards of World War II aircraft as inserts, Air & Space magazine described the B-29 as “The bomber that ended the war; the only one ever to drop atomic bombs in combat.”
- As a technology driver, the B-29 generated spin-off benefits outside of combat that we continue to benefit from this present day! Its game-changing role in the aviation/aerospace industry makes the Superfortress a truly historic capital asset that goes well beyond nostalgia.
- The B-29 was solidly profitable. Its financial gains demonstrate an efficient, well-run capital project that provided a most satisfactory use of public funds fulfilling both military and civilian purposes.
Finance, Strategy and Aviation: Evaluating Historic Capital Projects
Aviation affects everyone’s lives in personal, commercial and military venues. The aviation industry is an excellent prism through which we can learn practical applications of corporate financial theory and strategy while gaining an historic perspective on major capital projects. The B-29 Superfortress was an aircraft that forever changed world history. Its cost (in absolute and relative terms), time-to-deployment (urgency) and strategic importance are the reasons this article was written.
Finance explains how capital is employed to create added-value and is the language of business. Strategy explains how a firm mobilizes its resources and leverages to take advantage of market opportunities while remaining ahead of its competitors. The history of Aviation is a venue in which the fusion of Finance and Strategy has created capital assets that transcend multiple generations. The B-29 is such an asset because as a technology driver it helped end World War II and generated multiple spin-off benefits that we enjoy this present day.
Quantifying the Value of Victory
In war victory is the true measure of success for victory means survival. As UK Prime Minister Winston Churchill (May 13, 1940) said “Victory at all costs, victory in spite of all terror, victory however long and hard the road may be; for without victory there is no survival.” When factoring the immeasurable value of liberty and freedom, victory supersedes both accounting and finance data in assessing added-value from military assets. On this basis, the B-29 Superfortress was a significant contributor in achieving victory, and thereby produced a satisfactory, if not superior, Return on Investment.
In business, Accounting is based on historic cost data while Finance is based on market-value based information. Moreover, Finance takes into consideration the opportunity cost (i.e., the highest valued alternative forsaken to pursue a given project) as well as the time value of money. Both of these metrics, however, fall short of truly measuring the Return on Investment (ROI) for a military aircraft program. Such weapons are designed, developed and deployed with the express purpose of achieving victory in the field of battle. [Yet as will be shown later in this article, the B-29 also achieved solid financial profitability that was enhanced by the various spin-off benefits that arose from its development.]
While quantifying the value of victory, it is important to also take into account the impact upon human capital. Deployment of the B-29 as the delivery vehicle for atomic weapons in combat was based on this consideration. For this article, I have used the case study method to assess the aircraft’s role as a nuclear strike weapon. The case study method in business requires that evaluation must always be in context of the actual time period in which the case occurred. Time shifting into the future when there may be more information is an interesting academic exercise but is not realistic. Understanding what information decision makers actually had available at the time is more sensible.
Harry Truman, 33rd US President as well as Commander-in-Chief was the decision maker regarding whether or not to use atomic weapons. In a January 12, 1953 interview with US historian James L. Cate, (Source: Truman Library.org/whistlestop study collection) Truman stated he had been advised that a full scale land invasion of Japan would result in US casualties ranging from 250,000 to one million combatants. On the Japanese side the number of casualties would likely be equal or greater based on the ferocity of combat experienced on both sides throughout the Pacific Theater. Desiring to bring a swift, decisive end to the war while averting an attempted land invasion Truman approved sending nuclear armed B-29s to bomb the Japanese cities of Hiroshima (August 6, 1945) and Nagasaki (August 9, 1945). While the use of atomic weapons and the reasons that led to the end of World War II may be subject to debate, what is indisputable is that the surrender of imperial Japan was announced August 15, 1945 and formally signed September 2, 1945. The very close proximity of surrender by the adversary in relation to when the B-29s unleashed their nuclear ordnance is self evident.
Technology Driver and Spin-off Benefits
There were 3,970 B-29s built and it was one of the first military aircraft to have a pressurized cabin as the cylindrical design of the fuselage helped fulfill this requirement. During World War II (Source: Warthunder.com), the B-29 completed over 20,000 sorties with an estimated 180,000 tons of bombs dropped, as well as two atomic bombs. Its intercontinental range, payload and versatility made it a game changer that not only helped end the war but made further contributions during the post World War II era. The most famous B-29s were the 65 examples of the “Silverplate” series that were modified to deliver atomic weapons. This included the “Enola Gay” and “Bockscar” that were used respectively on August 6th and 9th in 1945 to strike Hiroshima and Nagasaki. The B-29 provided Boeing with the template for future projects culminating with its jet-powered B-52 Stratofortress that has anchored the US Air Force strategic bomber fleet since 1955.
However, the B-29 Superfortress contributions were not confined solely to combat but adaptation for in-flight refueling, antisubmarine patrol and weather reconnaissance (e.g., hurricane hunting and storm chasing) plus rescue duty! Other significant variants of the B-29 enabled it to conduct testing for fire control systems, cold weather operations and launching experimental aircraft and rockets that presaged manned space flight and also helped to make safe commercial air travel accessible to mass markets. Yours truly interviewed Brig Gen Bob Cardenas (November 12, 2015) who piloted the B-29 that launched Chuck Yeager and the Bell X-1 on the flight that broke the sound barrier! Gen Cardenas spoke highly of the B-29 Superfortress and its historic role in advancing science and technology via its participation as the drop aircraft for the X-series aircraft.
Before its retirement from service in 1960, the B-29 again saw heroic military action in the Korean War (1950-53) as it confronted new adversaries: jet fighter planes and electronic weapons! Its dual capabilities as technology driver and workhorse enabled this strategic bomber to serve in two wars. According to Walter J. Boyne (AIR FORCE Magazine, March 2007, page 96) in Korea the B-29s “flew 20,000 sorties, dropped 200,000 tons of bombs and shot down 27 enemy aircraft.” Now for you trivia fans, here is a fun fact about the B-29 not generally known: a number of B-29s were also used for flying relay television transmitters under the name of “Stratovision” thus making the Superfortress an important asset in the development of broadcast technology.
The value of any one of the aforementioned spin-off benefits is enormous. Examples are aviation, broadcasting and telecommunications industries – all of which the B-29 either participated in or served as an important capital asset in helping to develop and advance these industries. According to Aviation Benefits Beyond Borders (aviationbenefits.org) “the aviation industry supports $2.7 trillion (3.5%) of the world’s gross domestic product (GDP).” The US Department of Commerce – Bureau of Economic Analysis (bea.gov) reported on April 21, 2017 that economic value added from broadcasting and telecommunications is $425.5 billion. By any objective measure these are staggering economic values! As already noted, these economic outcomes owe a great deal to the development, deployment and participation of the B-29.
Solidly Profitable Brand Builder
The Boeing Company can trace its longstanding reputation for being able to tackle very large scale projects while being profitable to the B-29 Superfortress. According to the Pacific War Online Encyclopedia (pwencyl.kgbudge.com) the contract value (i.e., cost to US taxpayers) of the B-29 Superfortress project was $3 billion or 50% greater than the $2 billion Manhattan Project which had developed the atomic bomb! On a per aircraft basis, the B-29 was 5-times more expensive in terms of unit production cost than the renowned British Avro Lancaster bomber which was used for the Dam Buster raid in the European Theater during World War II. The B-29 was developed with the express purpose of being able to deliver its nuclear ordnance from high altitude with intercontinental range in the vast Pacific Theater. No other aircraft was deemed suitable for such a Herculean task.
The elevated cost of this pioneering aircraft could not only be attributed to having to develop new technology to fulfill its mission, but also the materials used in its construction and assembly. Each B-29 used 13 tons of aluminum, one-half ton of copper, 600,000 rivets, 9.5 miles (15 km) of wiring and 2 miles (3 km) of tubing. The B-29 was a very sophisticated aircraft versus other World War II bomber aircraft and was literally a generation ahead of its Boeing predecessor, the B-17 Flying Fortress. Despite technical challenges, wartime pressure and financial hurdles associated with a ground-breaking aircraft, Boeing’s B-29 Superfortress was profitable!
Here is a breakdown and explanation on how Boeing achieved profitability with the B-29.
The $3 billion contract value for a project that produced 3,970 aircraft yields an implied average selling price (ASP) of $755,668. Unit production cost of the B-29 was $639,188 (Source: Post-World War II Bombers, 1945-1973; page 486. By Marcelle Size Knaack. Washington, DC. Office of Air Force History. 1988). This implies profit of $116,480 per aircraft and a 15.4% profit margin. The math works out as follows:
ASP – Unit Cost = Profit
$755,668 – $639,188 = $116,480 Profit
Profit / ASP = Profit Margin
$116,480 / $755,668 = 0.154 or 15.4% Profit Margin
This profitability was achieved through execution, efficiency and economy of scale. Economy of scale arising from mass production lowered unit cost by 82% from $3.4 million for the very first B-29 Superfortress manufactured down to $600,000 for the final unit to fly off the assembly line. (Source: A Torch to the Enemy; pages 31-32. By Martin Caidin. Bantam 1992 edition / Copyright 1960.) According to Boeing public documents (Boeing.com) B-29 production ran from 1943-1946. Assuming four complete calendar years (with 1944 as a leap year) this implies a production time line of 1,461 days. With 3,970 aircraft produced in that timeframe this implies a daily production rate of 2.7 aircraft per day [3,970 / 1,461 = 2.7]. This daily run rate for a new generation capital asset is extraordinary in any era. High unit output for this type of capital project provides a higher absorption rate of overhead because there are more units in which to allocate or spread out production costs. This lowers unit cost thereby increasing profitability in both value and percentage terms. Boeing replicated this performance in successive generations for both military and commercial aircraft thereby affirming its brand as a company capable of betting it all while still achieving profitability! [For further explanation on Boeing’s corporate strategy, please see HIGH FLIGHT, Chapter 1, by George A. Haloulakos, CFA.]
Game Changer as a Critical Delivery Vehicle/Channel of Distribution
In the world of Business and Finance, the “chain of value” traces the added-value accrued at each stage of a product from its inception to arrival at its end-user market. The stage featuring the delivery system or channel of distribution by which a product reaches its target market is of enormous value. In some instances it may be greater than the cost of the product itself. The reason is because no matter how remarkable a product, it is of little if not zero value when it fails to reach its target end-user market. In the case of using atomic weapons in World War II, without the B-29 Superfortress to deliver the ordnance to its target, it is highly unlikely it would have had the swift, decisive impact it had in bringing the war to a close. While arguments have been made that a demonstration atomic blast in the desert might have encouraged the adversary to surrender, there can be little doubt that having an advanced bomber aircraft actually deliver such a terrifying onslaught of firepower without any means of stopping it was in itself real persuasion.
Earlier in this article it was noted that the B-29 cost 50% more than the Manhattan Project that developed the atomic bomb. Due to the intercontinental range and high altitude needed for reaching the target plus technical characteristics of the atomic bomb itself, an entirely new delivery platform had to be designed and developed in order for the mission to succeed. Without the B-29 Superfortress this would not have occurred. Therefore it is self evident that the B-29 was a game changing asset in the context of aviation as well as the Pacific Theater. The B-29 was the critical delivery vehicle and only channel of distribution by which atomic weapons could be safely deployed against an adversary that required intercontinental range plus high altitude to avoid the catastrophic cost in human lives associated with a full-scale land invasion.
To put an exclamation point on how the B-29 was a game-changing delivery vehicle: its maximum range was 4,100 miles, maximum speed of 358 mph (576 kph; 311 knots) and a service ceiling of 31,808 feet (9,695 meters; 6.02 miles). These metrics put the B-29 a generation ahead of all other bomber aircraft in its era ~ ahead of its time at the right time! (Source: militaryfactory.com)
Closing Thoughts: The Legacy of the B-29 Superfortress
Like any new generation aircraft the B-29 was not without problems or difficulties. Much has been written by others about those challenges and we would commend the reader to review the many articles and books to get a detailed account on such matters. The purpose of this article has been to appraise the legacy of the Superfortress from Finance and Strategy perspectives. In this regard the B-29 has been shown to have been solidly profitable with a versatile and most useful service life – this despite the inherent difficulties associated with a new generation aircraft in the midst of wartime. Its contributions in both war and peace have had long-lasting, positive effects that continue to the present day. We are the first to acknowledge that while the B-29 was not perfect it certainly accomplished its primary mission in helping bring World War II to a swift, decisive close. In the years that followed which saw the onset of the Cold War, the B-29 not only remained a viable national security asset but a technology driver that helped propel advances in science, technology and commerce. Such advances allowed the USA to eventually triumph over the USSR in the Cold War. In celebrating the 75th anniversary of this pioneering aircraft we salute everyone connected with the B-29 Superfortress. It can be viewed as the greatest, if not the most important, aircraft of the Greatest Generation for it is the product and symbol of a nation founded on the principles of liberty and freedom.
John M. Deegan – member of the Palm Springs Air Museum. John tracks historical milestones in aviation history plus takes photographs of vintage military & commercial aircraft.
Aviation Benefits Beyond Borders (aviationbenefits.org)
Boeing Company. Public company documents (boeing.com).
Boyne, Walter J. AIR FORCE Magazine. “Air Power Classics – B-29 Superfortress.” March 2007.
Caidin, Martin. A Torch to the Enemy. Bantam 1992 edition. Copyright 1960.
Cardenas, Robert Brig Gen – USAF (Ret) – Honoree of the National Aviation Hall of Fame. Personal interview November 12, 2015 (San Diego, CA).
Haloulakos, George A. (DBA Spartan Research and Consulting). Case Study Files and Field Notes on Military/Aerospace Industry, Military Aircraft, Finance and Strategy. 1976 – 2017.
Haloulakos, George A. (CFA Charterholder). Directed Studies in Advanced Financial Analysis (BUSA 40868): Case Studies – 1st edition. ISBN: 9780100726888. UC San Diego Bookstore Publishing. 2013.
Haloulakos, George A. (CFA Charterholder). CALL TO GLORY – How the Convair B-58 Hustler Helped Win the Cold War. ISBN: 9780692475454. UC San Diego Bookstore Publishing. 2015.
Haloulakos, George A. (CFA Charterholder). HIGH FLIGHT – Aviation as a Teaching Tool for Finance, Strategy and American Exceptionalism. ISBN: 9780100727380. UC San Diego Bookstore Publishing. 2014.
Haloulakos, Vassilios E. (Aerospace Engineer – Scientist – Professor and Author). Personal interviews and ongoing discussions.
Hathaway, James A. Famous Planes and Pilots. Golden Press – New York. 1963.
Holland, James. Dam Busters – The True Story of the Legendary Raid on the Ruhr. Bantam Press. 2012.
Holmes, Tony. Jane’s U.S. Military Aircraft Recognition Guide. Collins. 2007.
Knaack, Marcelle Size. Post-World War II Bombers, 1945-1973. Washington, DC. Office of Air Force History. 1988
Pacific War Online Encyclopedia (pwencyl.kgbudge.com)
Thomas, Gordon. Enola Gay. Stein & Day Publishers. 1977.
Truman Library.org/whistlestop study collection (Historian James L. Cate).
US Department of Commerce – Bureau of Economic Analysis (bea.org)