Fear, Disbelief Felt at State’s Defense Firms

The first notice of the suspended defense payments crackled across news wires with no advance warning on a Friday usually known for early getaways and laid-back chit-chat.

By the end of the long afternoon, word of the suspensions had spread through Southern California’s sprawling aerospace defense community, unleashing waves of disbelief, anger and, perhaps most of all, fear about the future.

“I’m sure there is a lot of concern out there,” said Los Angeles defense analyst Michael Beltramo. “The executives don’t know what some guy on some lower level has done that can screw the whole company.”

Added an executive from a major Southern California defense contractor: “A lot of innocent people and companies are going to get hurt before everything gets sorted out.”

Offers Guarded Reaction

At Litton Industries, the only Southern California company hit by the payment suspensions, officials offered a guarded reaction, saying the suspension of contracts ordered Friday by Defense Secretary Frank C. Carlucci would have a small, immediate impact on their more than $4-billion-a-year business.

But within the ranks of Litton’s employees, news of the Pentagon action and suspicions that the company had committed gross violations of ethics caused some outbursts of rage among managers.

“If these guys are guilty, they ought to hang the bastards,” said one manager of a large Litton department who asked not to be identified. “This is stealing. It is absolutely flat-out greed.”

The manager added: “Companies and divisions that can’t compete because of a lack of technology or high cost will do these sorts of things.”

Overall, aerospace operations in Southern California do not appear to be hard hit by Friday’s payment suspensions. Although the full economic impact of the action could not be determined as yet, initial indications are that few, if any, operations in Southern California will be immediately touched.

Litton officials said the suspension covers only one company program, the Digital Communications Terminal. The hand-held programmable communication devices that are used with military radios were initially ordered by the U.S. Navy in 1982 at a total price of $150 million. The bulk of the contract now has been completed, and Litton was to deliver another $23.5-million worth of the devices over the next two years.

Analysts predicted that interruption of work on the devices, which is done by about 100 workers at a company facility in Colorado Springs, Colo., would have little impact on the company’s overall operations. The company declined to comment on the immediate impact of the suspension on the communication project.

Litton officials also declined to react to Carlucci’s decision to review all ongoing defense contracts with Litton and three other aerospace companies currently under investigation in the Defense Department bribery and information-peddling probe. Defense contracts accounted for about 58% of Litton’s $4.4 billion of sales in the fiscal year ended last July 31.

However, other defense contractors were less tight-lipped.

Just the Beginning?

According to these executives, Carlucci’s actions could be just the beginning of a far-reaching effort to review all contracts that might have been tainted by the allegations of data-for-dollars trading among defense consultants, Pentagon officials and aerospace company employees.

Perhaps most unsettling is the realization that Carlucci’s decision to suspend payments on certain weapons programs will likely have a broad effect within the defense community because of the web of subcontracting arrangements and programs that the industry relies on.

The programs Carlucci singled out Friday were all discussed in conversations between defense consultants whose phones were wiretapped. Information about those conversations surfaced late Thursday when an affidavit was made public in Dallas. In it, federal investigators sought permission to search certain homes and offices of people involved in the Pentagon weapons procurement programs.

Although it is not known whether the contracts for those weapons programs were tainted with bribes or other illegal activities, the suspended payments will affect all companies involved in the contract work, both the prime contractor or subcontractors.

Wider Suspensions Seen

And as additional affidavits from the more than 40 searches conducted in mid-June are opened, the possibilities that even more companies could be hit by payment suspensions is greatly increased.

“We all do business back and forth in one form or another,” said James Furlong, a spokesman for Computer Sciences Corp., a large El Segundo technology and aerospace company so far untouched by the scandal. “To our knowledge we’ve done nothing wrong, and we trust we won’t be dragged into these activities as a subcontractor.”

Gene Ray, chairman and chief executive of Titan Corp., a San Diego company that has not been involved in the fraud probe, called Carlucci’s radical action Friday “a good thing. . . . Whatever size this ends up, the (people involved) must be gotten rid of and punished to the full extent of the law.”

Expresses Regrets

Still, Ray has regrets, too. “The bad part is that a lot of innocent contractors could be hurt . . . (and) it hurts the nation’s defense,” Ray said. “Some of the contracts are probably damned important for national security.”

If Carlucci’s stunning freeze were to be repeated as other affidavits are unsealed, “with this many contracts involved, there’s no one that wouldn’t be impacted somehow.”

Of the four companies singled out by Carlucci, Norden Systems has two small operations in California. A handful of engineers work on radar programs in Tustin, while a subsidiary of the company does ship repairs for the Navy at National City.

Norden is owned by United Technologies Corp. of Harford, and Peg Hashem, a UTC representative there, said Norden employs fewer than 200 people in California.

A spokesman at Norden Service in National City said the ship repair operation is a wholly owned subsidiary that is operated as an independent unit.

“I just don’t think we are affected by any of this,” he said, requesting that his name not be used.

Others Have No State Ties

Spokesmen for the other two companies named by Carlucci, Hazeltine Corp. of Greenlawn, N.Y. and Emhart Corp. of Farmington, Conn., said the companies have no offices or manufacturing facilities in California.

At TRW’s Space and Defense Sector in Redondo Beach, Julie Wright, director of public relations, said the firm had a $37-million contract, which was part of a much larger program to produce shore-based centers to detect enemy submarines that get too close to American shores.

The overall contract, according to some reports, totals $712 million and has been divided up among 100 contractors.

“The only thing I can tell you is to the best of our knowledge we are not under investigation in this probe,” Wright said.

The $37-million contract is with TRW’s group in Fairfax, Va.

Staff writers George Frank and Ralph Vartabedian in Los Angeles and Greg Johnson in San Diego contributed to this story.