The financial performance of aircraft manufacturers during world war II: the vicissitudes of war

Controversy has long surrounded the role and profitability of US defense contractors. From a financial perspective the question becomes whether defense contractors earn greater profits and investor returns than other companies during military conflicts. We explore this question by examining the accounting profitability and investor returns of US aircraft manufacturers before, during, and after World War II and compare them to a sample of non-defense firms. We also examine the reactions of aircraft stock prices to important political and military events of the time. We find that (1) aircraft stocks exhibited positive abnormal returns around events associated with defense buildups and outbreaks of hostile action and negative returns around events signaling an end to hostilities, (2) the company’s accounting returns improved during the war but these higher accounting returns did not translate into higher stock returns for the shareholders, and (3) investors could have earned higher stock returns had they switched out of aircraft stocks after Pearl Harbor and reinvested the proceeds in the overall market.     

The cost of production breaks

Disruptions in the production process can have a serious impact on production costs. Most of the previous literature which addresses the cost impact of production breaks attributes the observed increase in costs solely to “loss of learning.” We develop a mathematical model which implies that breaks in the unit learning curve can occur because of a production break, even under the assumption of no forgetting. In such cases, increases in unit cost can be caused by decreasing returns as the amount of time available to meet the delivery schedule decreases due to the production break.     

A method for estimating the parameters of reliability models

The maximum likelihood estimates (MLE) of transition rates in a finite-state continuous-time Markov process with an absorbing state are obtained, when there are a number of independent realizations of the process. This process is explained as a model for deteriorating systems of reliability theory through example. The asymptotic properties of MLES as the observed number of realizations tend to infinity are studied. Extension of these results to semi-Markov processes is discussed.     

Finite Markov chain models skip-free in one direction

Finite Markov processes are considered, with bidimensional state space, such that transitions from state (n, i) to state (m, j) are possible only if m ≤ n + 1. The analysis leads to efficient computational algorithms, to determine the stationary probability distribution, and moments of first passage times.     

Book reviews

British Naval Policy and Norwegian Security: Maritime Power in Transition, 1951-60.. By Mats Berdal. Forsvarsstudier No. 2/92, Institutt For Forsvarsstudier (IFS) Oslo, Norway, 1992, ISSN 0333-3981.

The European Security Order Recast: Scenarios for the Post-Cold War Era.. By Barry Buzan, Morten Kelstrup, Pierre Lemaitre, Elzbieta Tromer and OLE Waever. Pinter, London (1990), ISBN 086187143X, £30.00.

Mates and Muchachos: Unit Cohesion in the Falklands War.. By Nora Kinzer Stewart. Brassey's (US), Washington DC (1991), ISBN 008-037-4395, $20.

The Declining Hegemon: The United States and European Defense, 1960-1990.. By Joseph Lepgold. Praeger, New York (1990), ISBN 0-275-93657-0, $15.95 pb.

Inventing Accuracy: A Historical Sociology of Nuclear Missile Guidance.. By Donald Mackenzie. MIT Press, Cambridge MA, and London, England (1990), ISBN 262-132-583, £19.95.     

A time series analysis of some interrelated logistics performance variables

This paper is a case study. We show how the powerful methods of time series analysis can be used to investigate the interrelationships between Alert Availability, a logistics performance variable, and Flying Hours, an operational requirement, in the presence of a major change in operating procedures and using contaminated data. The system considered is the fleet of C-141 aircraft of the U.S. Air Force. The major change in operating procedures was brought about by what is known as Reliability Centered Maintenance, and the contaminated data were due to anomalies in reporting procedures. The technique used is a combination of transfer function modeling and intervention analysis.