A Time to Wait and Worry : Fraud Probe Makes Southland's Bigger Defense Firms Edgy

By CARLA LAZZARESCHI

June 29, 1988 12 AM PT

<i> Times Staff Writers </i>

The voice was hushed, the tone almost conspiratorial.

“Everyone is walking around on egg shells. No one knows what’s going on,” said the Los Angeles aerospace headhunter. “Everyone is goosey about this.”

Although the expanding investigation of defense purchasing bribery and fraud has touched virtually all parts of the country, it has hit particularly hard in Southern California, where four aerospace operations--more than in any other region--have been searched by federal agents.

And that’s not surprising, since Southern California is home to one of the largest concentrations of defense-related work in the nation, accounting for at least 8.3% of all U.S. defense contract spending. A recent Pentagon report shows that the Defense Department spent a total of $11.1 billion on weapons systems in Southern California in the fiscal year ending Sept. 30, 1987.

The region’s aerospace companies design and produce some of the world’s most sophisticated and secret weapons systems. Its military installations test some of the most advanced warfare projects. And the military and civilian personnel involved in creating and developing these products form a huge fraternity within the nation’s defense establishment.

For these people and their projects, the allegations of widespread and systematic fraud and bribery within the military purchasing system is nothing if not bad news.

“It can’t help but shadow the industry,” said Roy Anderson, former chairman of Lockheed and now a consultant for the Calabasas-based aerospace company. “(This is) an industry that has worked very hard to build a good working relationship with the Department of Defense--an arms-length relationship.”

Even within defense firms that have not been implicated so far in the scandal, there is concern over what the next turn of events may bring to their own doorsteps.

“I am worried that some knucklehead did something wrong,” one top executive at a Los Angeles prime contractor remarked in an interview Tuesday. “Our legal people have been ferociously scouring our whole operation, and they say we are clean.”

The investigation comes at an unsettling time for aerospace companies. After weathering an outcry in the early 1980s over such excesses as $600 toilet seats and $400 hammers, the industry is facing tighter defense budgets, more aggressive congressional attacks on weapons programs and the gradual whittling of new defense projects down to a relative handful of key systems produced by just a few contractors.

And now this.

Earlier this month, investigators looking for additional evidence of possible procurement fraud searched 16 aerospace plants, including these four in Southern California: Cubic Corp. in San Diego, Litton Industries’ Data Systems unit in Van Nuys, Northrop Corp.’s Ventura division in Newbury Park and Teledyne Inc.’s Electronics unit in Newbury Park.

“I have been at this for many years and I have never seen it like this. It is very heated,” said one veteran defense contractor employee, speaking of the intense scrutiny the industry is undergoing. “We are all kind of waiting and seeing. There is so much uncertainty.”

However, some executives, particularly those from smaller outfits, are less nervous. In fact, according to one Orange County defense contractor, some aerospace executives “are not unhappy that this (investigation) has happened.”

“It’s generally known that these things are going on, but it’s not the right way to do business,” said Don Bailey, vice president of corporate development at Anaheim-based Comarco Inc., which builds electronic navigational gear.

Although retribution was clearly on the mind of some contractors, many are expressing concern and attempting to contain the investigation’s impact on employee morale.

Writing to the 112,000 employees of McDonnell Douglas Corp., Chairman John McDonnell urged the aerospace contractor’s workers to “keep faith.”

In a letter delivered to every employee, McDonnell said he wished he could report that “the allegations of contractor and consultant misconduct will be cleared up soon.” But, “I can’t,” he wrote, “because investigations of this type can be lengthy.”

McDonnell Douglas, whose St. Louis headquarters was searched earlier this month, said the search prompted the company to launch its own internal investigation.

Although federal investigators have so far declined to specifically identify the military projects they are looking into, some sketchy reports have emerged.

Investigators are said to be interested in contracts surrounding Tacit Rainbow, the Air Force’s new anti-radar missile. The missile is undergoing full-scale testing at Northrop’s Ventura facility in Newbury Park.

Although it is being developed under tight security, last year the Air Force released limited information about the missile and its capability to seek out enemy radar installations--hovering until it identifies the site’s radar signal, then diving into the facility to destroy the source of the radar emissions.

In March, it was disclosed that the Tacit Rainbow was nearly a year behind schedule due to quality-control problems in the program. One of the missiles launched in the spring failed, putting the program three tests behind. The Air Force has declined to release many details about the program, for which about $39 million was requested for research and development in the fiscal 1989 budget.

Cubic Vice President and General Counsel William C. Stewart Jr. said that seven government investigators, led by the FBI, spent six hours searching two offices at Cubic’s Defense Systems subsidiary in San Diego, eventually gathering a stack of documents about six inches high.

Cubic since has declined to describe those documents, but officials have said investigators were interested in information about an air combat training system. Last year, the company won a $100-million contract to provide five of the complex, computer-controlled systems to the U.S. Air Force and the U.S. Navy.

Investigators are also said to be interested in an identification system purchased by the Navy generally known as “friend or foe.” The Navy is buying the units through the Air Force, which has purchased them from Teledyne Electronics in Newbury Park. The systems help identify whether a distant object is friendly; if not, the object is fired upon.

Although few details have emerged on the source of the investigators’ interest in Litton Data Systems, an industry insider said the Van Nuys plant makes battlefield computers that can, among other things, direct artillery fire and attacks of friendly fighters and bombers. The plant also produces communications systems for the military.

Litton is recognized as a market leader in inertial navigation, electronic warfare and control and communications systems.

Times staff writers Greg Johnson in San Diego, David Olmos in Orange County and Ralph Vartabedian in Los Angeles contributed to this article.

WHERE THE PENTAGON SPENDS MONEY Top 10 cities in 1987; dollar figures in millions.

St. Louis, Mo. $5,792 $439 $5,353 San Diego 4,667 2,521 2,145 Ft. Worth, Tex. 3,708 240 3,468 Bethpage, N.Y. 3,261 10 3,250 Sunnyvale, Calif. 3,055 62 2,992 Los Angeles 2,695 196 2,499 Norfolk, Va. 2,523 2,012 510 Marietta, Ga. 2,475 86 2,388 Arlington, Va. 2,413 1,817 595 Newport 2,354 288 2,066 News, Va.

Payroll Prime City Total Outlays Contracts San Diego $4,667 $2,521 $2,145 Sunnyvale, 3,055 62 2,992 Los Angeles 2,695 196 2,499 Long Beach 1,704 515 1,189 El Segundo 1,521 74 1,447 Pomona 1,235 18 1,217 Fullerton 963 13 949 San Jose 946 61 885 Anaheim 911 20 890 Camp 856 714 141 Pendleton

TOP CONTRACTORS IN CALIFORNIA Companies receiving the greatest dollar volume of prime contract awards in the state in 1987; dollar figures in millions.

Firm Major Area of Work Total Lockheed Corp. $2,510 Missiles, spacecraft, aircraft General Motors 2,106 Missiles, radar, satellites General Dynamics 1,707 Missiles, guns Rockwell International 1,614 Aircraft, satellites, rocket engines, electronics McDonnell Douglas 1,565 Aircraft, space systems

Source: Department of Defense

SOUTHLAND DEFENSE PLANTS THAT WERE SEARCHED

Cubic Corp.

San Diego

Employees: 4,500

Products and projects: Defense Systems unit makes a variety of military systems, including a computerized air combat training system for the Air Force and Navy.

Litton Industries

Data Systems division

Van Nuys

Employees: 1,600

Products and projects: Variety of tactical command, control and communications systems.

Northrop Corp.,

Ventura division

Newbury Park

Employees: 1,900

Products and projects: Aerial targets and early-stage development of the “Tacit Rainbow” anti-radar missile

Teledyne Inc.

Electronics division