On this day in economic and business history…
The battle between massive, monopolistic companies and legislative crusaders dates back well more than a century in the United States. Antitrust efforts produced well-known results in the oil and telecom industries, but one lesser-known (and far less hotly contested) battle produced equally important results for the aviation industry, which on Sept. 5, 1934, saw its leading corporation forcibly split into three parts, each of which was then listed separately on the stock exchange. Those parts still exist today as The Boeing Company (NYSE:BA), United Technologies Corporation (NYSE:UTX), and United Continental Holdings Inc (NYSE:UAL).
William Boeing was one of the early aviation industry’s fiercest competitors, and he was a rather keen engineer in his own right as well. His persistence paid off in the latter 1920s when The Boeing Company (NYSE:BA) became a key supplier of airmail planes and could boast of operating “the largest [aircraft] plant in America.”
At the end of the decade, The Boeing Company (NYSE:BA) formed the United Aircraft and Transport Corporation, which cobbled together what was indisputably the nation’s largest aircraft-manufacturer out of several former competitors. The company’s industry-leading size earned it a spot on the Dow Jones Industrial Average (INDEXDJX:^DJI) within a year of its formation. Two years after UATC’s creation, The Boeing Company (NYSE:BA) assembled United Air Lines — now United Continental Holdings Inc (NYSE:UAL) — out of three smaller airlines. This amalgamation was pushed forward by the Air Mail Act of 1930, which effectively created regional aviation monopolies, with United controlling the northern routes. Then William Boeing not only dominated aircraft manufacturing, but also led the nascent air-transport industry.
The transition from a Republican to a Democratic administration quickly raised questions about the Air Mail Act of 1930, which appeared to promote shady dealing and anticompetitive practices in delivering mail for the U.S. Postal Service. An effort to transition airmail delivery to the U.S. Army Air Corps proved a disaster when a number of inexperienced pilots crashed during an unusually bad winter. Ten Air Corps pilots died before the new airmail service had flown a million miles, and there were a total of 66 accidents between February and June of 1934 — a truly abysmal record of safety as compared to the previous for-profit delivery services.
To save face, President Franklin D. Roosevelt reinstated commercial airmail delivery with the Air Mail Act of 1934, signed into law in mid-June. However, this new act came with one harsh condition aimed squarely at The Boeing Company (NYSE:BA)’s UATC: Holding companies that combined aviation manufacturing with air transport services were simply outlawed altogether. William Boeing was unable to fight back against this enforced breakup and decided simply to sell his interests in the company and essentially retire at the age of 52. The Boeing Company (NYSE:BA) took over UATC’s western U.S. manufacturing operations. United Aircraft Corporation — now United Technologies Corporation (NYSE:UTX) — took over UATC’s manufacturing east of the Mississippi. United Air Lines became an independent airline. The three companies are worth a combined $180 billion today, 79 years after they were split apart.
The Dow Jones Industrial Average (INDEXDJX:^DJI) experienced one of the best days in its history on Sept. 5, 1939, its first full day of trading following the German invasion of Poland. The index closed the day up 9.5% on the largest volume in two years — 5.9 million shares exchanged hands, and some estimates pegged the market’s total gain at $3.5 billion, which would be equal to about $60 billion today. The frenzied buying resulted in reported gains greater than any day in history to that time, excepting the one immediately following President Franklin D. Roosevelt’s post-inauguration banking holiday.