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26 _ MARINE REVIEW AND MARINE RECORD. [Dec: 31,, : mf : Position of the Cunard Steamship Co. By An Occasional Correspondent. - So much has been written concerning the desirability of some form of subsidy for ocean steamers flying the American flag that it seems in order to consider in detail the position of the Cunard 'company, which has recently been given an unprecedentedly large subsidy -by the British government. To understand the exact status of this corporation properly, it is necessary to look at its financial. condition. The gross annual profits for the six years - ended Dec.- 31, 1902, averaged £203,235, from which average de- ductions were made as follows: Depreciation of ships, £165,175 ; depreciation of wharves, etc., and appropriation to insurance fund, £34,131 == £199,306; leaving an average net annual profit of £93,929. Out of these net profits an average sum of £21,492 was car- ried to reserve and insurance fund accounts, and an average divi- © dend of 4% per cent. was paid on the share capital. It seems apparent from the above figures that the finances of the company have been administered upon very sound lines, and the result of this is shown by the fact that the amounts standing to the credit of the insurance and reserve funds have grown from £323,341 in 1897. to £532,000 in 1902. It may also be pointed out that during the period named nearly £1,000,000 have been expended upon the purchase of new steamers having a total tonnage of about 65,000 tons, and this without increasing the capital account. .. At the date of the last report the assets of the company, other than ships, represented the sum of £701,334; deducting from this.amount the sum due to sundry creditors and the balance standing to the credit of profit and loss--together £232,401--the net. amount represented by these assets was £468,933. The cur- rent market value of the share capital is £1,030,000; so deducting from this amount the sum of £468,933, above referred to, the amount left, as representing the valuation of the fleet at the pres- ent market price of the shares, is £561,067, or, in other words, less than two years' purchase of the average gross profits. The tonnage of the fleet on Dec. 31, 1902, amounted to 127,000 (includ- ing the new steamer Carpathia), so that the sum works out at an average value of less than £5 per ton. This is a very low valua- tion considering the quality of the vessels included in the Cunard - fleet, particularly when it is borne in mind that the recent agree- _ ment with the British government has greatly strengthened. the position of the company in comparison with its great Atlantic competitors. In the trust deed securing the loan from the gov- ernment the fleet is valued at £1,990,000. The current market price of the shares--#£13 for a £20 share--does not appear to fairly represent the true value of the undertaking. In the circumstances, it seems desirable to give the chief pro- visions of the agreemerft with the British government: 1. The company is to remain a purely British undertaking. 2. The com- pany shall have built with all due speed in the United Kingdom two vessels of large size, capable of maintaining a minimum aver- age ocean speed of from 24 to 25 knots, and the plans and speci- fications for them are to be submitted to the admiralty for ap- proval. 3. The whole fleet, future and present, must be placed at the disposal of the British government for purchase or hire at reasonable rates. On the other hand, it is provided that the government shall: 1. Pay for the services undertaken by the company other than the mail contract, the sum of £150,000 per annum for a period of twen- ty years. 2. Advance to the company, by way of loan, an amount equal to the cost of the two new vessels, but not exceeding £2,600,000; such loan to be secured by a first mortgage upon the whole of the compatiy's fleet, and to bear interest at the rate of 234 per cent. per annum. It is further provided that the loan is to be repaid by twenty annual installments, each of which is to be equal to a twentieth of the total sum advanced. 3. Pay to the company in consideration of the carrying of the mails the sum of £68,000 per annum. -, With regard to the provision that the whole fleet, present and future, must be placed at the disposal of the government to purchase or hire at reasonable rates, it may be said that this is simply the expression of a right which the government already possessed, but it is qualified by the important stipulation that the purchase price is to be calculated upon the present market value of the vessels, less an allowance of 6 per cent. to cover all depre- ciation. The company will continue the conveyance of the mails upon the payment of a fixed sum of £68,000 per annum, which is based upon the amount it has been receiving, so that if, during the next twenty years, the mails increase, as they have done in the past, this arrangement will not prove an advantageous one for the company. The most important part of the agreement, as far as the stockholders are concerned, is that relating to the two new ves- sels. The cruiser committee, appointed by the government, re- ported, after careful consideration, that £110,000 per annum would be required by a commercial company towards making good the loss which would be sustained by running a 24-knot vessel in times of peace, and £149,000 per annum if the vessel were 25 knots. The mean between these two is £120,500 and the amount to be paid on this basis in respect of the two 24%-knot vessels would be £250,000 per annum. But the cruiser committee based its report upon the subsidy being sranted for ten years only, 7 whereas in the present agreement the term is twenty years, so that the company will in effect receive practically £410,000 more than the total sum estimated by the cruiser committee, namely, £3,000,000 instead of £2,590,000. But, of course, the payment of the amount will be spread over a period of twenty years instead of ten. The company will also derive a substantial benefit from being able to borrow the money required to pay for the two new steamships at 234 per cent., and in this connection it is worth while pointing out that the estimates of the cruiser committee were based upon the assumption that the money would have to be borrowed at 5 per cent. The amount of the annual subsidy is made entirely depend- ent upon the fulfillment of the condition that both of the two new vessels shall be capable of maintaining a minimum average ocean speed of 24% knots. In the event of a failure to maintain this speed it is left to an arbitrator to fix the amount of annua! payment to be actually made to the company. This stipulation is sure to cause the directors great anxiety, but it should not be overlooked that the plans and specifications for the two new vessels must be submitted to the admiralty, as well as the com- pany, so that the government will take a fair share of the re- sponsibility. The application of turbine engines to ocean steamships is still in the experimental stage, but it is a somewhat significant fact that a commission has been appointed to consider the question of adopting this form for the two new Cunard ships. It is prob- able that the new Allan line turbine vessel will be completed in time to furnish valuable data in case this form of engine should be adopted. But apart even from the turbine question, there seems to be a feeling in shipping circles in England that the 'Cunard company is about to take a very important step some- what in the dark. The failure of these vessels, involving an expenditure of, perhaps, £2,600,000, would be a great disaster to the company. On the other hand, if the ships should be a com- plete success, it would unquestionably be of great benefit to the company that it should be in possession of the two fastest ves- sels on the Atlantic, The Cunard company has pledged itself until the expiry of the agreement with the British government to remain a purely British undertaking, and has guaranteed that, under no circum- stances, shall the management of the company be in the hands of foreigners, or the 'stock or the ships controlled by persons who are not British subjects. This contract has obviously been suggested by the outcry against the transfer of many tons of British shipping to the Morgan combine and by a clause in the report of the admiralty committee, already referred to, appointed to consider the principles upon which subsidies are, or should be, given to British steamship companies for the retention of Revenant cruisers. The clause in question runs somewhat as fol- Ows: "With regard to providing security against the transfer of a subsidized vessel to a foreign flag without the consent of the admiralty, all the estimates given to us by the witnesses were made on the understanding that arrangements would be made for this condition to be enforced. Leaving out of consideration pos- sible alterations of the law, and disregarding as inadequate the suggestion of a mortgage or other charge on the ships, we think that the desired security might be obtained by a scheme by which, during the period of the subsidy, the government would be the registered owner of not less than 33-64ths of each subsidized ship, the management and profits being left wholly to the company, and legal security being taken that all owners' obligations should appertain exclusively to the company." (This is the purport of the clause without its exact wording.) It must be pointed out, however, as it has been more than once before, that the condition as to remaining a "British under- taking" has little meaning in actual practice under the existing English law, or, to be quite accurate, under the present manner of interpreting it. There was nothing until very recently to pre- vent any foreigner from buying and holding the shares of the Cunard company, assuming that there were nominees in England for purposes of registration. The White Star Line, for example, is owned by a British registered company, the Oceanic Steam Navigation Co. of Liverpool, whose capital consists of 750 shares of £1,000 each, 742 of which are held by the International Navi- gation Co. of Liverpool, all of whose shares, except seven, are owned by United States citizens. The difficulty referred to has been overcome by the creation of new "articles of association" (charter) which lay down as a cardinal principle of the Cunard company that "no foreigner shall be qualified to hold office as a director of the company, or to be employed as one of the princi- pal officers of the company," and "that no share in the company shall be held by or in trust for, or be in any way under the con- trol of any foreigner or foreign corporation, or any corporation under foreign control." This, it will be seen, offers a direct ob- stacle to any such arrangement as that under which the Morgan combine does business under the British flag although an Ameri- can enterprise. To ensure the operation of this "cardinal prin- ciple" the directors have obtained power under the new articles to call upon each stockholder to prove his nationality and title,