The Refund Investment

When I was a little boy we would sometimes go to the local airport and watch the big planes take off and land.  We didn’t do it all the time but on occasion after Church when we were out and about we would get an ice cream and go out and park along the runway and watch.  It obviously was a much simpler time.  Before jets became a regular means of air transport they first started with small jet boosters that would be attached to the regular aircraft to be used only for take off to give extra lift and power and then their work was done and the props would take over from there.   Then the jets finally became the new standard in the mid fifties.  These were the orginal 707’s.  They were big planes and pretty noisy on take off.  They were heavy and needed all the power they could get for that initial lift off.  My dad had been in the water business for most of his life and was the manager of a water company for drinking and industrial water.  It was mostly consumer driven but they did provide water for industry also.  The industrial use was for hospitals and “high tech” industry mostly.  But the new aircraft  used a water injection engine for those jet engines to boost power during the take off phase of flight.  All combustion style engines get more power with the injection of some moisture into the combustion chamber of the engine.  That is a little known fact but quite true.  The water injection did make the engines very loud on take off and the engines emitted dark clouds of vapor during take off due to the water in the system.  It changed the chemistry.  They were “dirty” looking. 

So all the major airlines in the mid fifties started looking for  a source of top quality water they could use for their engines on take off.  They couldn’t use tap water because it was not pure enough and would clog the systems after a short while.  Dad was familar with the reverse osmosis systems and distillation process for making water with little or even no impurities.   He wanted to have his company bid on the job.  But his brother in law who owned the water plant did not want to pursue the business; he was afraid of the investment and that it was so new that they would end up losing money on the deal.  But dad did his homework and decided it could be profitable.  He repeatedly tried to get my uncle to go for the business but to no avail.  Finally dad decided this was his opportunity and struck out on his own to get the business.  He submitted his business plan and proposal to several airlines including Delta.  

Lo and behold he did get the contract from Delta.  It was a big deal.  He had to set up the processing system at ever airport around the country where Delta flew.   That was lots of places from Atlanta to San Franciso, to Dallas to New York and every major city in between.  He got it going. He had to borrow lots of money. What was considered lots of money in those days–$100.000.00– for all the equipment, trucks and start up costs.  No bank would loan him the money.  He had to go to private lenders that were very tough lenders indeed.  They charged outrageous rates of interest, they probably were usurious.  Over a period of time he got it going.  He worked incredibly hard and put in long hours for days on end and months on end.  He had no assistants.  It was dad and the employees he had at each airport to operate the equipment and then actually fill the planes before each take off.   He started the operation in 1957.   His business was a success.  It did work.  It was very stressful for him because there were tremendous penalties in his contract with Delta if his operation or equipment caused a flight delay or cancellation.   It was $15,000.00 per flight.  That was an enormous sum in those days.  But he never had to pay a single penalty payment.  He ran his operation well. He had to travel a great deal do assure everything ran smoothly and anytime there was a problem he had to go deal with it himself. He had many problems with the local unions in Detroit, Chicago and New York and even had the local cops try to shake him down for protection money for his equipment in Chicago.  He told them all  to go to hell.  They did cause trouble but were never able top shut him down. 

After the business had been operating for a year dad took a look at his results.  He had done phenomenally better than he had ever suspected.  It was a new venture for everyone including the airlines and no one was sure what the costs would be because there wasn’t any historical baseline to work from.  Dad made really good money on the business.  After that first year he looked at his numbers and made a most unusual decision for anyone in business.  He decided to give back to Delta a substantial portion of his profits.  I remember the amount quite distinctly, it was $87,000.00. 
Do you have any idea how much money that was in 1958?   People making $15,000.00 a year were considered upper middle class and rightly so.  The minimum wage was 50 cents and lots and lots of folks made around $100.00 a week and were considered middle class.   Mom wasn’t real happy.  But dad was firm about his decision.  He called his contacts at Deltal and told them he wanted to come visit.  Later they told him they thought he was coming with some complaint or request for more money.

Dad went to visit them with a cashier’s check in his briefcase.  He told them that he was giving back some of the money they had paid him.  He had a right to it under their contract but he told them that he recognized that it was a new deal for everyone and that he had been paid fairly.  He believed he had been paid excessively only because of that unknown factor of a new enterprise and it didn’t seem fair to him.  Needless to say the Delta folks were stunned.  None of them had ever seen or heard of any like that happening before anywhere anytime.   My dad was introduced to entire board later and you can rest assured he never had a problem with anyone at Delta taking a call from him from the President on down.   He continued the business for about ten more years with Delta but technology caught up and the water injection engines were replaced with newer ones that were quieter and burned cleaner.  He did a few other deals with Delta over the years like their laundry for all those pillow cases, napkins and blankets they used on flight.  But none of the business equalled the water venture in revenue.  Dad did just fine.  He was an overnight sensation with Delta and had cemented a relationship that endured for years.  He did the right thing without any compunction or prodding.  He did it only because it was the right thing to do and ended up getting the rewards.  Sometimes good deeds do get rewarded and not punished.

You are urged to think on this little episode.  Morals do matter.  They even have rewards.   There are very good lessons here for the young entrepreneur.  There are lessons here for the Sunday School teacher.  They haven’t made many like my dad.  I was so blessed.

True fact–China, of all places, does not impose a capital gains tax.  You can start your new business and if it is successful you can sell it and keep all the gains.   A communist country has better tax treatment for its venture capitalist than we do.  Mayhap we should ponder that one.

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2 Comments

Filed under Economics, family, history

2 responses to “The Refund Investment

  1. Adam

    I always remember this story. I’ve told the story many times to friends. The reaction is the same almost everytime, they say “who does that?” From the memories I have, they will always be cherished.

  2. Lydia

    If only there were more souls like him today!!

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