Air Freight That Wasn’t Costs $1.5 Million : Dispute: Burlington Air Express of Irvine settles claims that it charged Navy for shipments that had been trucked, not flown, and had overcharged for storage.

An air cargo company has agreed to pay $1.5 million to the federal government to settle claims that the Navy was charged for air freight shipments that had actually been made by truck and for overcharges the company issued for the storage of Navy cargo.

Assistant U.S. Atty. George M. Kelly said Wednesday that the investigation of Burlington Air Express of Irvine began when Navy auditors found that the company had charged the government $1,509 to store a drill bit that cost less than $21.

Brian Cole, Burlington’s assistant general counsel, confirmed that a settlement had been reached but declined to discuss the amount of the agreement or the government’s claims against the company.

“Each of us felt that the other had not performed up to the terms of the contract,” Cole said. “We consider it resolved.”

Kelly, in a telephone interview from Norfolk, Va., said the settlement, reached this week, followed a three-year investigation into transactions made under the company’s contract with the Navy Material Transportation Office. The contract ran from 1982 to 1987.

The Navy office is in charge of transporting all Navy cargo and had recently shipped tons of material in support of the Persian Gulf War, authorities said.

Kelly said the investigation was handled by authorities in Norfolk because the probe centered on transactions made at the Navy’s center for Atlantic and Mediterranean operations in that city.

During its investigation, the government’s auditors reviewed 160,000 transactions with Burlington involving shipments in and out of the country and found that the company had also submitted “inaccurate reports to the Navy regarding cargo delivery times.”

The shipments were being made between Navy installations and makers of Navy equipment.

Under terms of the settlement, Kelly said, the government was planning to withhold payment on bills totaling $800,000, while the remaining portion of the $1.5-million settlement would be paid in cash by the company.

“The contract called for making deliveries on time and at the lowest possible rate,” Kelly said. “That’s not what happened. They weren’t getting it there on time and they were charging us air delivery rates for material that was delivered by truck.”