Fairchild Industries is being sued for more than $200 million by three former employees who allege that the firm's Voi-Shan unit in Chatsworth falsified test results on nuts, bolts and rivets used in military and commercial aircraft, The Times has learned.
The civil suit, which is under seal in U.S. District Court in Los Angeles, was the impetus for a separate criminal investigation of Voi-Shan that led two weeks ago to a 48-hour search of the company's Chatsworth facility by federal agents.
Both the civil suit and federal investigators allege that workers at Voi-Shan falsified the results of required safety tests, including those measuring the stress durability and fatigue of fasteners, such as nuts and bolts.
Fairchild said last week that it has sent its own team of investigators to Chatsworth to look into the charges. The company employs more than 400 people in Chatsworth.
Fairchild's annual report claims its fasteners "are installed on almost every military and commercial aircraft. Eighty percent of the products are used in the airframe and 20% in engines. Sixty percent of the volume is on commercial aircraft."
The civil case brought against Voi-Shan was filed May 19, 1988, under the False Claims Act, which allows individuals to sue on behalf of the federal government and to share in the recovery of any damages. The law also provides that the Justice Department can join a false claims suit as a plaintiff. So far, the government has not taken a position in the Voi-Shan case.
False claims actions are sealed temporarily to give the government time to decide whether to join a case. At that point, the suits usually are unsealed, and defendants usually then learn about it for the first time.
Fairchild spokeswoman Deborah Tucker said company officials have not seen the civil suit or been served any notice of it.
Analysts said even if the plaintiffs win their suit, it is unlikely that they will win the $200 million in damages being sought.
"Obviously, $200 million would be a very material amount," said Wolfgang Demisch, an analyst with UBS Securities in New York City. "That would exceed the current market value of all of Fairchild common stock."
Carlyle Group, an investment group based in Washington, D.C., that has a pending $230-million bid for Fairchild, said last week that it was reconsidering the merger attempt because of the criminal investigation into Voi-Shan.
Those seeking damages from Chantilly, Va.-based Fairchild are Tom Runion, a Voi-Shan laboratory technician from April, 1981, to June, 1988; and two unidentified former employees.
Federal investigators were told that large quantities of parts passing through Voi-Shan's facility were sold to aerospace manufacturers, including Boeing, Pratt & Whitney, General Dynamics, McDonnell Douglas, General Electric and Lockheed.
The Federal Aviation Administration has ordered Boeing and McDonnell Douglas to check whether they have used the allegedly untested fasteners. The parts may have been sold as early as 1980, according to an affidavit the FBI filed in early February.
The affidavit was filed so the FBI and other agencies could go through the Chatsworth plant. The investigation is being run out of the U.S. attorney's office in Seattle and is being conducted by agents of the FBI, Internal Revenue Service and the investigative arms of the Defense Department, Navy and Air Force.
"We cannot say there is no safety problem here," said Mitch Barker, an FAA spokesman. "That is what we are trying to find out right now."
At least one unidentified aerospace company has quietly launched a recall, according to the affidavit. "A major supplier of aircraft to the Department of Defense has had to recall delivered aircraft in a safety alert," the affidavit said.
Boeing said late last week that it believes some allegedly untested Voi-Shan parts are on its planes but that there is no evidence that the parts are faulty. It also said the company has not launched a recall in connection with Voi-Shan parts. "Boeing does not believe that either the safety or performance of its products has been compromised," said Paul Binder, a Boeing spokesman.
The Seattle Times reported Sunday that Boeing, in a cost-cutting move, may have curtailed its own testing of Voi-Shan nuts and bolts just as federal investigators began looking into fraud in the aerospace industry. The newspaper said the nuts and bolts were destined for the new Air Force B-2 stealth bomber.
At least one Voi-Shan employee told federal investigators that faulty parts were sent to aerospace manufacturers. For instance, parts failing saltwater tests were "sometimes shipped for use on the F-18 military aircraft," the employee told investigators.
Among the things seized by the FBI in its search of Voi-Shan's facility was a letter from McDonnell Douglas dated March 18, 1983, that complained about rusty bolts.
According to the affidavit, employees at Voi-Shan used an approval stamp by an allegedly nonexistent "Inspector 11" to falsify test results. "It is kind of like the tag you get in a pair of new pants that says it was inspected by No. 11. Well, in this case, there was no No. 11," an FBI agent said.
The affidavit also said employees would recycle test forms, white-out old numbers and then write in new, phony ones.
Sometimes, according to federal investigators and the civil suit, Voi-Shan employees were told to approve bad parts. For instance, if a sample of bolts failed to pass a test, workers would test other samples until they could pass the entire batch, the suit and investigators allege. Ordinarily, a company would destroy the entire batch of bolts if the first sample failed the tests.
The alleged falsifications were written because "necessary testing equipment was inoperative, the tests could not be accomplished in the available time due to backlogs or because parts from a particular lot failed a test, and it was decided by management to approve the parts anyway," according to the affidavit.
The $200-million damages figure was arrived at by assuming that 10% to 20% of the cost of the fasteners results from testing requirements, Ramsey said. Since Voi-Shan sells $40 million to $60 million of fasteners to the government annually and the law allows damage claims to go back seven years, actual damages amount to roughly $35 million to $70 million, Ramsey said. Under the law, those amounts can be tripled.
In addition, the False Claims Act provides that each false certification can result in a $5,000 to $10,000 penalty. Ramsey said there are "tens of thousands of false statements" at issue.
Voi-Shan said in a sales brochure given to customers that it is the world's largest manufacturer of fasteners. "We're making fasteners to hold the world together, and we make sure they're the best," the brochure said.
U.S. PROBES OF VALLEY PARTS COMPANIES Voi-Shan of Chatsworth is the latest San Fernando Valley area firm to be investigated by federal authorities for allegedly selling bogus aerospace parts or falsifying testing documents for parts installed in planes and space equipment. Here is a list of the others:
A.O. Sammons: The one-man Canoga Park firm headed by Arthur O. Sammons pleaded guilty in December to federal charges of falsifying documents showing that nuts and bolts installed in a space laboratory had passed required safety tests.
Sammons was given six months to get out of the aerospace fastener business and fined $62,150. NASA has spent more than $1 million to dismantle the space lab so it can remove Sammons fasteners.
Alliance Bearing Industries: The Van Nuys company was raided last October by the FBI as part of a criminal investigation by the U.S. Attorney's Office. The company sold more than 2,000 allegedly counterfeit ball bearings installed in Boeing-made commercial jets.
Lee Aerospace: The Simi Valley company is currently under investigation by the Inspector General's office of NASA for selling allegedly defective bolts installed in the space shuttle Discovery.
Lawrence Engineering & Supply: The Defense Department's Defense Criminal Investigative Service is investigating the Burbank company for allegedly falsifying documents that said its bolts met government safety standards. NASA had to replace 357 potentially substandard bolts in the space shuttle Discovery prior to its successful launch last September.
New Hampshire Ball Bearings: The U.S. Customs Service in Los Angeles seized more than 4 million ball bearings made by the Chatsworth firm to investigate whether the parts are counterfeit or defective. New Hampshire Ball Bearings says the agency's action was "a mistake."