Fairchild Tries to Shed Scandal : Airplane parts: The company’s business is rebounding now that it’s free of a government suspension, but executives still must rebuild morale at the Voi-Shan plant in Chatsworth.
Ben W. Prescott is a soft-spoken Alabama native who heads Fairchild Corp.’s fastener group, whose 3,000 employees make the key nuts and bolts that hold airplanes together. But his biggest challenge today may be holding together his employees’ morale at Fairchild’s Voi-Shan plant in Chatsworth.
His workers have been skittish for the past two years while a scandal has rocked the company, one of the nation’s largest suppliers of specialty fasteners. In May, Voi-Shan’s former parent, VSI Corp., and two ex-employees in Chatsworth pleaded guilty to charges of falsifying and omitting test results for fasteners used on countless commercial and military aircraft.
It’s a problem that Prescott and his company, the former Banner Industries, inherited in the summer of 1989 when Banner bought Voi-Shan’s old holding company, Fairchild Industries. Banner, which had its own fastener business, merged those operations, and has since changed its name to Fairchild Corp. and moved its headquarters from Cleveland to Chantilly, Va.
After the merger, Prescott was named head of Fairchild’s newly enlarged fastener group. Suddenly, Voi-Shan “became my problem, but also my opportunity,” he said.
Fairchild and its customers are quick to note that no Voi-Shan bolt was ever found to be defective. But that claim is rejected by William Ramsey, a lawyer who represented three other Voi-Shan workers whose whistle-blower suit against Voi-Shan in 1988 triggered the federal investigations against the company.
“I know for a fact that some of their bolts did fail, that the government tested their bolts and some of them did fail,” Ramsey said.
In any case, Fairchild’s failure to properly test the bolts prompted the Pentagon to bar the Voi-Shan plant from getting new defense contracts for one year.
The suspension was lifted in May, and some of Fairchild’s customers say business is back to normal. “The problems have appeared to be a one-time instance,” Boeing Co. spokesman Paul Binder said. Lockheed Corp. spokesman James Ragsdale added: “Now that their suspension is lifted, we’re still doing business with them.”
Financially, Fairchild also seems to be rebounding from a slowdown in production caused by the government’s suspension and the general slowdown in defense spending. Jane Gilday, who follows Fairchild for the investment firm Gruntal & Co. in New York, said that because of continued growth in the commercial side of its business, the fastener group’s sales and earnings are running ahead of the company’s forecasts.
In the fiscal year that ended June 30, Fairchild’s fastener group had pretax earnings of $38.3 million on sales of $310 million, or 44% of Fairchild’s $703 million in total sales, Gilday said. However, Fairchild has since sold other assets and, in the present fiscal year, the fastener group should account for more than 60% of Fairchild’s sales, she said.
Nonetheless, employee morale at Voi-Shan has been terrible because of the testing scandal, Prescott said. Workers bristled because, despite building what they considered were sound fasteners, Voi-Shan became linked with other tarnished military contractors that were charged with actually making substandard parts or for overbilling, he said.
Prescott said workers came to him complaining that their “neighbors were thinking they were terrible. The community was starting to ostracize them.”
So Prescott has taken it upon himself to try to put the best posture on Voi-Shan’s problems. For instance, a few days before the company and its two ex-workers were due to be sentenced last week, Prescott ran a local newspaper ad that featured an open letter from him touting Voi-Shan’s quality.
“The headlines and newscasts don’t tell the whole story,” the ad stated. “In reality, Voi-Shan and the overwhelming majority of companies in the aircraft fastener industry have never manufactured--and never would manufacture--counterfeit or bogus parts.”
The ads were meant largely to boost morale before the media reported on the sentences, he said. “I wanted to get out in front with some good news in the papers,” said Prescott, 55.
As it turned out, the sentencing was postponed until early next year. However, Voi-Shan, in pleading guilty to charges of defrauding the government, said in May that it would pay $18 million in damages, fines, civil penalties and other costs. The workers who pleaded guilty were James E. Ryan, a former quality assurance manager, and Aram Marderian, a former metallurgical lab supervisor.
Among other things, investigators found that the falsified tests were recorded as having been approved by a fictitious “Inspector No. 11” and that some test results were simply made up.
Prescott’s antidote for the past fraud was to overhaul Fairchild’s auditing system to require more frequent checks of whether tests have been done on the company’s fasteners. There is also “a clean line of reporting that elevates any kind of problem to the very highest levels” of Fairchild, he said. Fairchild also introduced a code of conduct that spells out how workers are supposed to be honest and ethical, and how they can report future problems to management.
As the Voi-Shan scandal was growing in the summer of 1989, Banner bought Voi-Shan’s old parent, Fairchild Industries, for $272 million. Banner also assumed about $130 million of Fairchild’s debt.
Gilday, the Gruntal analyst, applauded the merger. She said that only three weeks after Banner bought Fairchild, it sold Fairchild’s space and defense electronics unit for $261 million. Thus, Banner nearly recouped its entire cash outlay for Fairchild, yet still owned its large fastener business and other assets.
The government’s suspension of Voi-Shan was not a death blow because it prohibited the company only from selling fasteners to aerospace companies on certain government contracts. Fairchild was free to keep selling to Boeing, Lockheed, Northrop and other contractors on their commercial projects and even on a few government contracts.
Still, Prescott conceded that Fairchild’s “order rate slowed quite a bit” and dragged down production. Simultaneously, Fairchild was enacting its tougher, more complete testing procedures at its plants, which also slowed the assembly line, he said.
“It was an internally driven slowdown because we didn’t want to do anything wrong,” he said.
