Pentagon Starts Criminal Probe of Micronics : Allegedly Made Faulty Parts, Forcing Navy to Mothball Phoenix Missiles

The Defense Department has launched a criminal investigation of a small Orange County firm whose faulty manufacture of a critical part has forced the Navy to mothball 500 Phoenix air-to-air missiles worth $425 million, The Times has learned.

The company, Micronics International in Brea, is suspected of having used a substandard production process in making the safety and arming mechanism, or “fuze,” for the missile, government sources said. The failure of the $4,500 part--which prevents premature firing of the missile warhead and also fires it--renders the $850,000 missile useless, Navy officials said.

Micronics began producing correctly manufactured fuzes in February, according to the Navy, and working devices are expected to be installed in the warehoused missiles by the end of next year.

Rodney Hansen, special agent in charge of the Defense Department inspector general’s office in Santa Ana, confirmed that Micronics is the subject of a criminal investigation.

The company acknowledged Friday that it had received a subpoena early this month for documents concerning the Phoenix program, but said it had not been advised it was the subject of a criminal inquiry.

According to E. W. Ritter, Phoenix business manager for Micronics, the subpoena said: “The Inspector General’s principal purpose in soliciting the information is to promote economy, efficiency and effectiveness in the administration of the programs and operations of the (Defense Department) and to prevent and detect fraud and abuse in such programs and operations.”

Micronics officials previously have blamed Navy designs for the failures of these fuzes. The company, a subsidiary of La Jolla-based Precision Aerotech, declined to respond to questions about its work on the Phoenix program.

Also being investigated is Micronics’ hiring in 1984 of Walter Smith as a vice president and part owner following his employment as an engineer at the China Lake Naval Weapons Center, the government sources said. Smith headed the division at China Lake that a year earlier had awarded the fuze contract to Micronics on a non-competitive, sole-source basis, according to the Navy.

On Friday, Smith denied any wrongdoing, noting that his employment by Micronics was cleared at the time by the Navy legal counsel at China Lake. “When I went to the counsel, presented it and everything, they gave me a clean bill of health,” Smith said. “I did it by the rules and regulations, which are set down by the counsel.”

Navy Shares Blame

Lt. Bruce A. Cole, a Navy spokesman in Washington, confirmed that managers at China Lake had reviewed Smith’s plans to join Micronics’ and told him they saw no conflict of interest.

A previous investigation by the General Accounting Office, the watchdog arm of Congress, concluded that the Navy shared responsibility for the problems with Micronics’ production of the Phoenix arming device.

According to a report last year by the GAO, officials at China Lake “did not insist on strict adherence to contract requirements” and failed to “provide the necessary oversight of Micronics’ quality assurance program.” The GAO study attributed the lack of diligence to pressures within the Navy to speed development of the fuze.

Micronics’ contracts with the Navy Air Systems Command for the fuzes have totalled nearly $5.4 million in the last three years.

The Phoenix--the principal weapon for the Navy’s F-14 fighter--is a radar-guided missile designed to be capable of firing at enemy aircraft 100 miles away. But it has been problem-plagued from the start.

Los Angeles-based Hughes Aircraft, the prime contractor, has shut down its Tucson, Ariz., production plant twice since 1984 to correct severe quality control failures. In 1986, a full year before the problems with Micronics’ fuze production process were discovered, it cost the Navy more than $1 million to correct a separate design flaw in the arming mechanism, according to the GAO.

The problems now under criminal investigation were detected during Navy testing of the fuze in April, 1987.

Micronics’ contract, the sources said, required the company to form the devices using a process called “investment casting” in which molten metal is poured into a wax mold, resulting in a smoothly finished product that can meet precise specifications.

Flaws Were Grave

Instead, Micronics allegedly employed a cheaper process known as “sand casting,” which uses sand to mold the hot metal. The resulting product had a pitted, porous surface that did not meet contract specifications.

The flaws--which may not have been immediately evident because they were covered by a smooth nickel plating--were grave, Pentagon officials said.

“It’s a very critical part of the warhead in the missile,” one official explained. “You have to be very careful, with precise measurements, and there can be no porosity.”

Nonetheless, this source said, Micronics officials certified that the fuzes were manufactured by investment casting, and China Lake officials signed off on the devices. It was not until later tests were conducted, he said, that Navy officials “found there were bubbles in the nickel plating and they were peeling off.”

The criminal investigation focuses on whether Micronics falsely certified that the fuzes were manufactured in accordance with contract specifications, a source familiar with the inquiry said.

After a 10-month halt, Micronics resumed production of the fuzes in February, according to Cole, the Navy spokesman. The Navy estimates that the 500 missiles in storage all will be fitted with properly manufactured fuzes by late next year, he said.

Cole said the Navy was evaluating whether to insist that Micronics pay for the delayed installation of the arming devices.

According to the GAO report, improvements to Micronics’ production processes were expected to boost the cost of each fuze by about $2,000--more than 44%. Also, the three-year warranty on many of the missiles will have expired before they can be outfitted with working fuzes and deployed.

Spurred by Micronics’ troubled track record, the Navy has asked both Hughes and Lexington, Mass.-based Raytheon Co., the back-up manufacturer of the Phoenix, to bid on a contract to serve as a second source of the fuze. The Navy is expected to award that contract before the end of the year, company officials said.