Chicago Tribune from Chicago, Illinois • 59

Monday, January 12. 1978 Section 4 7 From blue sea to red ink 1 4 p- Fisherman seeks to bail out TWA "We have to do two things first scheduled retirement Jan. 31. The. three astrous" or "exciting." There's increas By Joseph Egelhof I i If J.

'7 "A CUu Tritaw tevkt NEW YORK-Husiiit behind L. Edwin Smut, the nev ice chairman, at the headquarters of Tram World Air-lines is bis enormous sallfish. AH Eve members of tbt Smart fishing party scored on that glorious day off Acapulco in 1966 with JeanJe Smart, his wife, catching two. Most of the fish were released but Smart bad his mounted and snipped to Bendix Corp. where be was the expansion-minded chief of international operations.

Somewhat battered by travel, it came with Smart when be was lured to TWA in 1967 by Claries C. Tillinghast the airline's head. Now it's a reminder of more carefree times. Smart no longer has time for the sport. He has bigger fish to fry getting TWA out of the deep red.

1 "WE HAVE, ia my opinion bawd on results coming in, passed the bottom of the trough and we have in a number of respects an upward momentum and this, I think, distinguishes us from most other air carriers," be said during an interview. Last Tuesday, the TWA board shuffled top management to get ready for the retirement of Chairman-Chief Executive Tillinghast Smart, a senior vice president, was named vice chairman, a post that seemed to put him in line to succeed Tillinghast and that included supervision of TWA's profitable Hilton Inter-national and Canteen subsidiaries. C. E. "Ed" Meyer also a senior vice president, was named president and chief executive cf the 8irline part of TWA.

The board persuaded a reluctant Tillinghast to stay on a year after his ing emphasis on mass low-cost air travelsuch as charter service but scheduled service shouldn't be permitted to die, Smart said. Then there's the upcoming election. Smart won't try to forecast the outcome but said that, whatever, some changes in regulatory bodies and executive bodies are likely. Government approval is required for airline mergers, lie doesn't foresee any airline mergers in 1978 and if any should come in 1977 be thinks they would be late in that year. Asked specifically about the possibility of a Pan Am-TWA marriage, be said "no discussions whatever" are going on between these (wo lines.

EVEN WHILE working as a downtown lawyer after Harvard Law School, where he. was magna cum laude, Smart saw the airlines as excitement. He thought the challenge proffered by Tillinghast in 1967 was exciting. But hadn't the challenge turned out to be greater than Tillinghast indicated? "It certainly did," said Smart. "I knew the business was cyclical but I bad no idea it was going to be as cyclical as events proved." He admitted getting special enjoyment out of diversification acquiring other He concluded TWA's acquisition of Hilton International in 1967 and boated Canteen in 1973.

HE HAULED out his trusty pocket computer a weekend or so ago and figured that in the 11 years, 1965 thru 1975, TWA's airline operation had cumulatively netted an $8 million loss, while the two non-airline subsidiaries have contributed more than $200 million profit. He still likes diversification, but Trend Line aP wmpneio TWA's new vice chairman Edwin Smart checking model of a 727 jetliner at TWA offices in New York. will form a new "office of the That's bow important 1976 is to TWA. ASKED ABOUT TWA's 1)73 showing. Smart said it will be reported around Jan.

21 and that "it would appear that our loss will be under but very dose to $100 milKon." He added that be hopes "almost for statistical reasons" that the loss will be less than the $98 million of 1970, TWA's worst year. "Now we will sharply reduce that loss in 1876," be continued. "I can't at this point foresee the possibility of our breaking even in 1976 but we will substantially Improve our results." Some other airlines, in Smart's view, will have worse years in 1976 than in 1975. ONE REASON for the difference is that TWA was struck by rocketing fuel prices well before other lines, he explained. He cited the "happenstance" that TWA's contracts expired earlier and said "we console ourselves by saying nobody in the world foresaw what was going to happen" in late 1973 not even the Arabs.

Several other airlines saw their last favorable contracts expire Dec. 31, he continued. "I think they are going to find themselves facing the same kind of trauma that we have faced and to some degree have overcome," he said. The last half of the decade is brandishing other factors that are going to keep life sort of wild for the airlines. Some things are just beginning to "take a little shape." THERE'S THE matter of deregulation, which could turn out "terribly dis- Current financing of Social Security properly raises other major concerns.

The 8.5 per cent increase in Social Security taxes this year must have essentially the same depressing effect upon' 'spending and hence upon employment as any other tax increase. It is odd that with all the recent public argument over extending the temporary income tax cut of 1975, that cut has been largely offset, very quietly, by the increase in Social Security taxes. Further, financing Social Security by taxes on employment has the effect of discouraging employers from hiring on the one hand and making remunerative employment less attractive to prospective employes on the other. Sucn financing might well be reconsidered, at ieast for the very young where unem-iloyment is particularly high and Social Security benefits of retirement are far off. But whatever these and other very real problems in our Social Security system, we have no reason to lose sleep worrying about it going bankrupt.

Economics 76 New Apparel Center expected to boost city Social Security fund will not go bankrupt Robert Eisner is chairman of the department of economics at Northwestern University. Eisner, who served as an economic adviser to Sen. George McGovern S.D.J, also is a research associate of the National Bureau of Economic Research. He has devcted a major part of his career to the study of the determinants of business have to get the airline operatioa back into a profitable position and we have to get our financial structure permanently sound and satisfactory. Both of those things we're hard at work on." He said be looks forward to the time when TWA will be able to make other acquisitions "but that's not going to be ia the next year or two, I believe." ANOTHER BELOVED activity Smart has had to relegate to the role of a passive bobby is the stock market "I enjoy a certain amount of speculation in the market," be said.

"I used to enjoy gambling in the casinos, but four or five yean ago, I discovered I was really getting bored spending an evening in a casino playing blackjack but there's some kind of gambler instinct in me somewhere and I take it out on the stock market occasionally." Exxon retains 'largest' title EXXON CORP. maintained Its ranking as the nation's largest company in terms of sales during the 12-month period ended Sept 30, according to a survey by Standard Poor's Corp. An study published in the firm's January, 1976, stock guide, shows Exxon had sales of $47.8 billion on a September-to-Septem-ber basis. That compared with $45 billion reported by the oil firm for the calendar year of 1974. into the city, and a recent study by the International Association of Business Bureaus disclosed that each visitor to Chicago spends an average of $189 during a 2.8-day stay for meals, drinks, transportation and hotels," Sain said.

MICHAEL KWAIT, president of Style Exhibitors, a group of 1,000 Midwest salesmen who put on the buyers' show of the year here, is also eager for the building to open. "In the past we've had to go to Mccormick Place or the Amphitheater, or Navy Pier or the O'Hare Center. Now we'll all go to one place. It will be fantastic. "And this could possibly attract manufacturers back to this area.

Van Buren and West Jackson Streets were formerly manufacturing centers but the companies moved closer to the action in New York and the market dried up here." EARL DANN, president of Dann-Dee Display, which markets display materials and store fixtures, is so confident of the Apparel Center's business impact he's moving out of his headquarters a block away into 10,400 square feet of space in the center. Finkel says the top attraction of the center to salesmen and buyers is the everything-under-one-roof concept unique to the industry. "In New York fashion buyers have to go to 20 or more buildings to see what they want to buy," he said. "In Chicago we have five sites they must visit. When the center opens and everything is in one building it will be more convenient, less time consuming and less expensive.

"EVERY MAJOR apparel manufacturer of any consequence will be represented in the center. We have leased 85 per cent of the space and it's conceivable by opening day we could reach 100 per cent. "We aren't going to replace New York as the fashion center, that's still the place to go, but our five existing apparel facilities now represent only a fourth of what will be in the center. We'll have 3,000 lines of appareT in the center versus 600 to 700 lines now. "We'll have the same lines they have in New York.

This wasn't the case in the past. Buyers would bypass Chicago. New York or Dallas would have 12,000 to 15,000 buyers at a show and we would have 5,000 to 6,000. Now we'll get 12,000 to 20,000. "IN ADDITION to all the domestic manufacturers, the major Europeans are already contacting us about coming here to try to sell their lines in the Midwest.

Most of these people never looked beyond New York he concluded. growth seen THE BALANCE of trade, however, which showed a strong surplus in 1975, is expected to decline as economic recovery moves faster in the U.S. than in other industrialized nations, thereby boosting imports. Other projections for the economy are that the jobless rate should drop to between 7.4 and 7.6 per cent from the December, 1975, level of 8.3 per cent, and that the consumer price index, one of the two major Inflation indicators, should rise about 6.4 per cent In 1976. By Robert Eisner FOR AMERICAN wkers earning $15,300 a year nr rnore.

Social Security taxes 'nTea'e't by 8.5 percent in 1976. IntV'd. nost Amenran1; now pay more in total Social Security taxes, employer and employe, than in personal income taxes. What will we get for all this and what will it do to the economy? First, what about all the talk that the Social fund will go bankrupt? A recent Wall Street Journal editorial reports "a $2.8 trillion actuarial deficit in the Social Security and declares that "everyone in Washington- is afraid to bring up the subject." Despite all our hard earned some fear there will not be enough funds for benefits in the future. In purely financial terms, this is nonsense.

The fact is that, whatever the projected amount in any "fund," the U. S. Treasury can and certainly will stand behind payments to which the government now or in the future may be committed. Unlike your company pennon fund, New York City, 'or the State of Illinois, the federal government can always secure all the financing it wants, by borrowing or seeing directly to the creation of new money. If the Social Security fund appears "bankrupt," the Treasury, with appropriate Congressional authorization, can give It cash or simply contribute directly to Social Security payments.

Fund or not, social couragement of work by the Social Security system itself. Every individual should feel free to retire as early as he wishes, recognizing of course that less work must mean less income. But our current law is tragically wasteful in forcing millions of Americans between the ages of 65 and 72, at the peril of loss of Social Security benefits, to give up their regular jobs or any other major SDurces of earned income. GREATER REAL Social Security benefits can also be had if the people work- ing are more productive. For that we should be building now our stocks of capital.

These include plant, equipment and knowhow of private business. They alsa Include public capital, housing, and the basic human capital of education, learning, skills, and work experience on which a productive labor force depends. Recessions, with their sharp declines in investment of all kinds, leave a long run burden. They deprive the future economy, including its retirees, of the higher product of larger stocks of capital. 'J 'V security ultimately comes from and goes into the same pockets.

THE REAL PROBLEM as opposed to the monetary or financial problem may be mire serious. For what really finances our Socal Securiyt benefits are the earnings and output of the economy at the time we receive benefits. These depend upon the number of people working at that time, how hard and efficiently they work, and the Inherited stock of capital, physical and huma'nwhich ena-. bles them to be more or less productive. In the past, we had relatively small numbers of retirees and others receiving benefits and relatively large numbers of younger people working and producing the goods and services which beneficiaries purchase with their benefits.

As our population ages, as people live longer and retire earlier, and as declining birth rates are reflected in fewer young workers, we will have an increasing real problem. Suppose there were only two m'tead cf four producers for every one retiree receiving benefits. Then each producer would have to contribute twice as much in goods and services, through taxes or inflation, or each retiree would have to receive half as much, or there would have to be some division of these two sacrifices. One way to have greater real Social Security benefits is to have more people working. This involves reducing unemployment and also the reduction of dis- creasing membership and capital he said, noting there are about 800 members, a 30 per cent gain from 1974.

"We are continuing to seek out qualified new members," he said. "Seats are still trading at around $7,000, a price which many young or beginning traders are able to afford." Seats on the CME and CBT were selling at well above $100,000 for most of 1975, reflecting trading volume as well as prospective new trading vehicles. VOLUME WAS UP 9 per cent on the Board of Trade, boosted by a 43 per cent surge in soybean trading and a 33 per cent gain in silver contracts. Lebeck noted that in 11 weeks of trading following introduction in October, the Government National Mortgage-Association interest' rate futures contract posted a volume of 20,125. "Response to Ginnie Mae futures has met our expectations," he said.

"Even in its early stages, the interest evi-denced by both the mortgage industry and the public has been encouraging." On the Merc, volume expanded 15 per cent as pork belly trading almost doubled while live hogs advanced 31 per cent under impetus of the lowest supplies in 40 years. The CME International Monetary Market, soon to become an exchange division under a reorganization plan, reported trading jumped 103 per cent on the strength of gold futures, which led all exchanges with a volume of 406,968 contracts. As part of the reorganization, the Merc has formed a Non-Livestock Market division which will Include some contracts not presently traded actively and will sell memberships specifically Commodity exchanges: What next? By James Mateja WHEN THE APPAREL Center adjacent to the Merchandise Mart opens this fall it will "restore Chicago as the No. 2 fashion market," boasts Harry Finkel, the center's leasing director. Economically, he said, the center will attract more than 135,000 apparel buyers and industry visitors and their families 7 to Chicago each year.

And they will spend an estimated $3 billion on business and $31 million on pleasure. From a fashion standpoint the center will house all the lines now found almost exclusively in New York, helping Chicago regain the fashion dominance it has slowly relinquished over the years to other cities such as Dallas, Atlanta, and Los Angeles. The 1.7 million square-foot, 25-story complex stands on 7.5 acres west of the Mart in an area historically known as Wolf Point, the city's first trading post where pelts and skins were the forerunner to Ship'n Shore blouses. THE CENTER will be the world's largest wholesale buying center. There salesmen will display manufacturers' goods to buyer representatives of the more than 31,000 retail outlets of women's and children's wear in the Midwest.

Inside, will be more than 1,000 display showrooms featuring 3,000 lines of apparel. The 1 million square feet of display space will be between a floor of retail shops and a 140,000 square-foot errhibition hall below, and a 550-room Holiday Inn above. The center will be open 52 weeks a year and will be the site of five annual markets, or buyer shows. Finkel is so enthusiastic about the center's meaning to the city's economy and fashion prestige you would think he owned the facility. Actually it is owned by the Kennedy family who also owns the Mart.

SOME OF THE figures compiled. by the Commerce Department and Census Bureau justify Finkel's enthusiasm. A third of all the personal income in the United States is spent within 500 miles of Chicago, some $400 billion a year. About 42 per cent of the country's gross national product is produced within 500 miles of 16 of the wealthiest communities in the nation are within 500 miles of Chicago. Illinois alone has 9 of the 30 wealthiest communities in the nation.

Finkel uses these figures to emphasize the potential revenue the center will generate for both the city and the apparel Industry. Frank Sain, president of the Chicago Convention and Tourism Bureau, echoes Finkel's views. "The center will bring more people U. S. economic WASHINGTON The Un-ited States gross national product, the total national output of goods and services, should grow between 6 and 7 per cent in real terms this year, according to an off cial survey released Sunday.

In a lengthy report on the economic outlook for the current year, the Commerce Department singled out several factors that should contribute to economic expansion, Including continued strong growth in consumer spending and more housing Chicago's four major stoc''. and commodity exchanges all enjoyed huge trading volumes in 1975 and may have to find additional space in the not-too-distant future. This is the second of two articles dealing with the challenges confronting the exchanges in 1976. I vi I Jr I A By George Gunset EXPANSION PLANS of Chicago commodity exchanges probably will take a back seat to regulatory concerns in 1976, according to top officials. "It should be an active year, and we're undoubtedly going to bump heads with the commission," John T.

Gelder-mann, chairman of the Chicago Mercan-ti'a Exchange, said. He explained the Commodity Futures Trading Commission, which began operations last April, has completed its shakedown cruise and is beginning to tackle substantive issues in the regulation of futures trading. Down the street at the Chicago Board of Trade, its president, Warren W. Lebeck, said policy decisions taken by the CFTC will affect the course of futures trading for years to come. "So far, we have had a good dialog with the commission," Lebeck said.

"We can hope that their decisions will continue to be in the spirit of allowing futures trading to flourish." GELDERMANN IS happy the commission has shown no outright antagonism toward the exchanges, but he fears the possibility of "a huge bureaucracy where we could have one regulator for eery trader." While the nation's two biggest commodity exchanges were establishing new trading volume records in 1975, the emnllpr MidAmerica Commodity Ex- change reported its pace slackened 6 per cent. "The last year has been one of consolidation of previous growth arid preparation for future expansion at MidAmerica," J. Robert Collins, president said. Particular emphasis was placed on In- T. ibunt PMto Otorq Oulnn Warren Lebeck, president of the Chicago Board of Trade, in his office at 141 W.

Jackson Blvd. for that division. Geldermann said about 30 applications have been received to buy NLM seats at $20,000. "WE THINK WE HAVE a solution to the lack of liquidity in some of the contracts as well as the deterrent of the high price for full membcrshlo on the exchange," he said. Lebeck noted the Board of Trade took a different tack on the liquidity situation for tlie new Glnnle Mae contract by issuing floor activity permits to holders who trade no other contract and pay a Continued on page 8.