Federal Agents Search Defense Company : Weapons: Natel Engineering of Simi Valley is suspected of failing to properly test computer chips used in arms for the Gulf War.

Federal officials are investigating a Simi Valley defense firm suspected of failing to properly test sophisticated computer chips installed in many of the most advanced aircraft and missile systems now being used in the Persian Gulf, The Times has learned.

FBI agents working on the case with Pentagon investigators served search warrants at Natel Engineering Co. Inc. on Friday and seized corporate records in connection with the probe into the alleged practices at the high-tech firm.

Sources told The Times that the microcircuits, which were sold to defense contracting firms such as Hughes Aircraft Co., Martin Marietta Corp. and Northrop Corp., are found in the Army’s Patriot, Hawk and Stinger missile systems and the Air Force’s B-1B bomber and F-15, F-16 and F-111 fighter planes.

The company, which has grown rapidly in the last decade, failed to test some computer chips and took shortcuts in the testing process in other cases from 1986 to 1988 to meet production demands of major defense contractors, a source said.

One target of the investigation, The Times was told, is company owner and president Sudesh Arora, an engineer and native of India. Other targets include some of the top officials who managed the company during the years in question, the source said.

As FBI agents searched, Cheryl Pendleton, administrative assistant to Arora, minimized the importance of their presence and said it “was absolutely untrue” that Natel had failed to properly test its computer chips.

“Our reputation speaks for itself,” she said. “There is nothing abnormal about this. We’re subject to government scrutiny on a daily basis.”

Assistant U.S. Atty. Stephen Mansfield, coordinating the probe for the U.S. attorney’s office in Los Angeles, confirmed the federal investigation into Natel but said he could not comment further except to say that the Gulf War “highlights just how important these cases are.”

Although other officials said they have no indication that any computer chips have failed in combat, they said the alleged negligence in testing leaves a question mark about the reliability of some major weapons systems now in use in the Gulf.

“Lives are absolutely on the line in the Middle East because of this,” said one source, who spoke only on condition of anonymity. “The problem is we can never know if something goes wrong with a plane or a missile that it was because some test wasn’t taken.”

When properly tested, one expert told The Times, computer chips can be counted on for up to a million hours. But failure of an untested circuit could happen quickly, with the chip working one moment and failing the next, said Howard Ross, a spokesman for ILC Data Device Corp., a New York firm that produces computer chips similar to those made by Natel.

Improperly tested circuits could burn up internally, immediately rendering them ineffective, Ross said. A malfunction of the circuits used to position the tail fins of a Patriot missile could cause the missile to veer off course, he said.

And the failure of a microcircuit translating information about a plane’s flaps to the control panel, would make it difficult for a pilot to tell the position of the flaps, which help control the plane’s speed, he said.

The investigation, now approaching its final stages, began about three years ago when a former Natel testing supervisor, Glenn Woodbury, reported the alleged practices in a letter to the Defense Department, according to one of Woodbury’s lawyers, Edward Lacey.

Following the letter from Woodbury, who worked for the company only 4 1/2 months before he was fired, the Defense Department’s Criminal Investigation Service launched the investigation in cooperation with the FBI, Lacey told the Times in a recent interview. The Air Force also joined the investigation.

Woodbury, who also filed a wrongful termination suit against Natel in Ventura County Superior Court in 1988, outlined many of the allegedly fraudulent business practices in court documents. He also discussed the allegations with The Times.

The computer chips are miniature electronic circuits designed to convert electronic signals to adjust the position of such mechanical devices as antennas, gun turrets and plane rudders, Woodbury said.

The microcircuits--about two inches long, one inch wide, a quarter of an inch high and costing between $500 and $1,000 each--can be found in a variety of aircraft and weapons systems employed in Gulf combat or available for use, according to Natel officials.

Raytheon Co., the principal manufacturer of the Patriot, contracted with Natel to buy several hundred thousand dollars worth of microcircuits for the missile system designed to defend U.S. ground forces from attack, one source said. Raytheon officials declined comment Friday.

The Patriot system, which cost almost $5 billion and took 25 years to develop, was first used in combat in the Gulf crisis with spectacular success against Iraq’s Scud missiles.

In interviews prior to the FBI’s search Friday, Natel officials also told The Times that Natel microchips also are used in the guidance system of the Stinger, which can be used to shoot down planes as large as airliners.

The company officials said their computer chips also are installed in the Hawk missile, designed to shoot down medium- and low-altitude aircraft, and in a high-tech system called LANTIRN, or low-altitude night targeting infrared navigator. The system is used aboard the F-15 for nighttime raids.

Company officials said the computer chips also are in the Navy’s F-14, E-6, A-6 and E-2 aircraft.

Natel, which grossed $16 million in 1990, is only one of three firms worldwide that produces this type of microcircuit and it controls 40% of the international market, said Tom Guerriere, company executive vice president and general manager. Guerriere, who joined the firm two years ago, is not a target of the investigation, The Times was told.

Natel has grown by about 30% a year for the last eight years and foresees comparable growth in the future, according to company brochures. But that growth, according to Woodbury’s allegations, was a major reason for the poor testing standards.

Woodbury’s lawsuit says that he discovered that documents were falsified to show that certain tests on electronic parts had been performed when they had not. The company also told customers that testing had been done according to Defense Department specifications when it had not, the lawsuit said.

Sometimes test results were altered, Woodbury said in a deposition two months ago. He also said the company deliberately made it difficult for anyone to trace whether specific batches of microchips were tested.

“They would actually remove the serial number off of one package and put another serial number on just so they could meet the shipping requirements,” Woodbury said.

Woodbury, who says he was in charge of customer returns at Natel during his brief period of employment, discovered that many of Natel’s clients also were outraged by the quality of the microchips they purchased, according to the Nov. 20, 1987 letter he wrote to the Defense Department which triggered the investigation.

In one instance, 567 units were returned from a major distributor in England, Woodbury said in the letter. He said he was told by a spokesman for the distributor that such circuits were being sold to the British air force to be installed in most of its aircraft.

Woodbury began investigating the circuits and discovered they had not been completely tested, he wrote the Pentagon. Upon retesting 105 of the units, Woodbury discovered that 45 of them failed one type of testing, he wrote. In a memo on Nov. 3, 1987, he says in his lawsuit, he then documented the “extraordinarily high failure rate” of such units to his superiors.

A week later, according to Lacey, Woodbury was told his position was being abolished.