Testing Practices at Defense Firm Subject of Probe : Investigation: Federal agents search Simi Valley company where computer chips for many missiles and aircraft are made. A former employee alleges that some were not properly checked.

A defense firm here was searched Friday by federal officials investigating allegations that sophisticated computer chips installed in many aircraft and missile systems involved in the Persian Gulf conflict were not properly tested, The Times has learned.

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

Sources told The Times that Natel’s microcircuits are found in the Patriot missile system, Hawk and Stinger missiles, the B-1B bomber and in the Air Force’s F-15, F-16 and F-111 fighter planes.

The company, a small firm which grew rapidly in the last decade, failed to test some computer chips and shortened the testing process in other cases from 1986 to 1988 in order to meet production demands of major defense contractors, a source said.

Natel sold to Hughes Aircraft Co., Martin Marietta Corp., Northrop Corp. and other large defense contractors. Natel officials have stated that the company, which grossed $16 million in 1990, is one of only three firms worldwide that produce a certain type of microcircuit, and controls 40% of the international market.

Assistant U.S. Atty. Stephen Mansfield, coordinating the probe for the U.S. attorney’s office in Los Angeles, confirmed that a federal investigation into Natel is under way, but declined further comment, except to say that the Persian Gulf War “highlights just how important these cases are.”

While other officials said they have no indication that any Natel-made computer chips have failed in combat situations, they said the alleged negligence in testing raises an unresolvable question about the reliability of some major weapons systems in combat use.

“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.”

One target of the investigation is Sudesh Arora, an engineer and native of India who is president of the company and has been its owner for the last 15 years, The Times was told. Other targets include some of the top officials who managed the company during the years in question, a source said.

As FBI agents carried out the search Friday afternoon, 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.”

The investigation, 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.

After 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 said 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 in interviews 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 airplane rudders, Woodbury said.

The microcircuits, which are about two inches long, one inch wide and a quarter-inch thick, cost between $500 and $1,000 each. They are used in a variety of aircraft and weapons systems available for use in the Persian Gulf or already employed in active combat, according to company officials.

When properly tested, one expert said, computer chips can be counted on to have a long life span. But failure of an untested circuit could occur 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 become overstressed and burn up internally, immediately rendering them ineffective, Ross said. For example, he 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 data about an airplane’s wing flaps to the control panel in a cockpit would make it difficult for a pilot to tell the position of the flaps that help control the speed of an airplane, he said.

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

The Patriot--a system that cost almost $5 billion and took 25 years to develop--was first used in combat with spectacular success against Iraq’s Scud missiles.

In general interviews about the company before the FBI’s search of Natel’s headquarters, Natel officials said Natel microchips also are used in the guidance systems of the Stinger missile system, a shoulder-fired missile that can be used to shoot down an airliner.

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

In addition to Air Force planes, company officials said the computer chips also are in the Navy’s F-14, E-6, A-6 and E-2 aircraft.

Natel has grown at a rate of 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 he discovered that documents were falsified to show certain tests on electronic parts had been done when they had never been performed. The company also misrepresented to customers that testing had been done according to Defense Department specifications, court documents add.

Sometimes test results were altered, Woodbury said in a deposition taken 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 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. In one instance, 567 units were returned from a major distributor in England, Woodbury alleged in the letter. He said he was told by a spokesman for the distributor that such circuits were being sold to the British Royal Air Force to be installed in the majority of its aircraft.

Woodbury began investigating the circuits and discovered that 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 asserts in his lawsuit, he documented the “extraordinarily high failure rate” of such units to his superiors.

A week later, according to Woodbury’s lawyer, Woodbury was told his position was being abolished.

Woodbury, 37, said in court documents that he worked for seven years in a supervisorial position at Hughes Aircraft before taking the job at Natel.

Times staff writer Carlos V. Lozano contributed to this report.