Probe Clears 3 in Satellite Report Case : Defense: Inspector concludes that a study on a cheaper space system was handled properly and says competition explains unusual controversy.

A confidential investigation by the Air Force inspector general has cleared the president of Aerospace Corp. and two senior Air Force officers of allegations that they improperly quashed a proposal to save $10 billion on a satellite system.

The investigation followed a flurry of unusual accusations that Gen. Charles Horner, Gen. Garry Schnelzer and Aerospace President Pete Aldridge prevented Congress from learning about a lower-cost alternative to a sophisticated new spacecraft under development.

The accusations were taken seriously because they came from senior defense industry executives, Air Force officers, a member of Congress and whistle-blowers who have yet to be named.

The controversy centered around an obscure technical report written by two engineers from Aerospace, a nonprofit engineering firm in El Segundo that assists the Air Force on space programs.

The engineers had proposed that the Air Force abandon a Cold War-era satellite development program and instead simply update the existing Defense Support Program satellite, which can provide early warning of missile attacks on the United States.

Aldridge and the Air Force officials had suppressed the Aerospace report, which said that an update to the DSP system would be $10 billion cheaper than building a next-generation satellite and would provide much of the same capability.

The dispute was particularly touchy because it pitted the major California military satellite producers against each other and inflamed passions at an increasingly tough time in the aerospace industry.

Lt. Gen. Marcus Anderson, the Air Force inspector general, noted in his report that the bitter allegations were a byproduct of the lean times facing the military and the defense industry. The Times obtained a copy of the investigation report’s executive summary.

“In the space arena and perhaps across the acquisition spectrum, the intense competition for dollars in the (Department of Defense) and among its defense contractors is producing distrust, suspicion, breakdowns in communications and ultimately allegations of impropriety, both from within the Air Force and from defense contractors,” Anderson wrote.

Lockheed, Hughes Aircraft, TRW and Grumman are competing to build the next-generation system, which would replace future production of the existing DSP. TRW in Redondo Beach and Aerojet’s Electronic Systems Division in Azusa make the current DSP system.

Carl Fisher, president of Aerojet’s Azusa unit, charged in a letter to Anderson in October that Air Force officials had suppressed information about lower-cost updates to DSP, had misrepresented facts and had intimidated industry officials who did not agree.

In addition, Fisher charged that Aerojet’s proprietary technology had been leaked to its competitors by Air Force officials who wanted to favor competitors’ systems, according to a letter Fisher wrote to Anderson that was also obtained by The Times.

While Anderson found that the report on an updated DSP was quashed, he asserted that the actions were proper because an updated DSP system could not have met the Air Force’s technical requirements. Those requirements call for a satellite capable of detecting short-range missiles, such as the Scud used by Iraq in the Persian Gulf War.

The issue is hotly debated, however. An independent technical panel last year doubted whether any satellite system could effectively warn of short-range missiles--those with ranges of as little as 42 miles. The panel recommended that the Pentagon rely on ground radar to defend against such missiles.

After Aldridge, Horner and Schnelzer blocked the report, it was leaked to senior defense officials, congressional staff members and the news media.

“Mr. Aldridge was embarrassed with the report, as was the Air Force, about the content and the way the report was written and distributed,” Anderson wrote.

Anderson investigated more than 17 allegations brought by various unnamed informants, defense executives and Rep. John Conyers (D-Mich.). Of those, Anderson substantiated five charges, though he downplayed the significance of them and said that in some cases the actions were justified.

Aerojet’s allegation that its proprietary technology was parceled out to competitors was separately investigated by Air Force officials in Los Angeles, who substantiated the charge, Anderson wrote. He termed the release of data as inappropriate but did not indicate whether any disciplinary action was taken.

Summing up, Anderson asked: “Where do we go from here? There is no simple fix.”

Tough times in the industry raise the possibility that similar allegations will be made in the future, he said.