U.S. Investigates Northrop Over Navy Aircraft Projects : Defense: Allegations of false testing and billing prompt federal raid. Firm says it doesn’t understand probe.
The U.S. Justice Department has opened a criminal investigation into alleged false testing and improper billing on two important Navy aircraft programs at Northrop Grumman Corp., prompting a raid by 70 federal agents this week at six Northrop facilities in Hawthorne and El Segundo.
The investigation is focusing on whether Northrop cut corners in an effort to meet tough government schedule and cost requirements on the Navy’s F-18 jet fighter, a multibillion-dollar program crucial to the company’s future, government and industry officials disclosed.
In addition, federal agents are looking into allegations that Northrop made improper charges under its longstanding Navy contract to build aerial target drones known as BQM-74C.
The raid was among the largest ever conducted against a single contractor, starting about 9 a.m. Wednesday and not ending until the late evening. Agents from the FBI, the Navy and the Defense Criminal Investigative Service were involved.
“It is early on in the investigation,” said Michael Emmick, chief of the government fraud section at the U.S. attorney’s office in Los Angeles. “All we can say at this time is that we executed a search warrant.”
The raid was prompted by allegations from an unidentified Northrop employee suggesting that a sealed whistle-blower fraud suit might have led to the criminal probe. Emmick declined to discuss how the case originated.
The investigation puts a new cloud over a company that has struggled to clean up an image that was tarnished during the late 1980s. The company pleaded guilty to 34 counts of criminal conduct in 1990 and has agreed to civil settlements on other cases involving the MX missile and the air-launched cruise missile.
Federal agents have executed a number of search warrants and raids on Northrop facilities over the years. Yet some of the government’s high-profile investigations against the company, including allegations that it bribed South Korean officials to sell weapons, have fizzled.
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Although the allegations in the new case suggest that serious violations may have occurred, it was still too early in the probe to know whether criminal charges will be sought or to make any estimate of the monetary damages to the government, according to a federal law enforcement officer in Washington who asked not to be identified.
Northrop said it did not understand why the raid occurred. “We are not aware of the issues involved, but we are working and cooperating with the government,” company spokesman Tony Cantafio said.
Navy spokesman Lt. Conrad Chun said that the service is aware of the raid and the investigation but that it has not taken any action against Northrop or the two aircraft programs while the probe is under way.
Northrop, a subcontractor to McDonnell Douglas on the F-18 Hornet, has been under intense schedule and cost pressure in a program to develop a new version of the F-18 known as the E/F. Northrop builds the aft, or rear, fuselage section of the F-18, comprising about 40% of the aircraft, at a large hangar in El Segundo.
Northrop recently shipped the first aft fuselage section of the new model to McDonnell. But federal agents are looking into whether Northrop was able to meet those tough requirements by falsifying certain tests and whether the company improperly shifted charges on the program to other accounts, according to the sources knowledgeable about the probe. The investigation also is looking at production on the F-18C/D version.
It was not known which parts of the aircraft may have involved improper testing, but the sources said the alleged improper testing would have represented a threat to flight safety if it had not been caught.
Northrop has long counted on the F-18 program to be one of its cash cows--a reliable and long-term program.
The Navy, which is spending $3.2 billion to develop the E/F model, has indicated that it might buy as many as 1,000 of the planes--making the program one of the biggest in the Pentagon and potentially worth tens of billions of dollars.
In 1994, Northrop reported F-18 revenues of $819 million out of total corporate sales of $6.7 billion, making the program its second leading revenue source after the B-2 bomber program. Northrop has about 4,000 employees on the F-18 programs in Southern California.
Among all of the Pentagon’s new development programs, the F-18 has been the least controversial. The program is aiming to increase the aircraft’s range and reduce its weight through extensive use of plastic composite materials instead of aluminum. Plastic will account for 27% of Northrop’s portion of the new aircraft’s weight.
Meanwhile, Northrop has been making the BQM-74C for the Navy for more than 15 years, the most recent in a long succession of drone jets that the company formerly built in Ventura but transferred to Hawthorne in a consolidation a few years ago.
The raid occurred during a disappointing week for Northrop. A Defense Department study of the B-2 bomber that was released Wednesday recommended against buying more than the 20 aircraft under current order.
Merrill Lynch aerospace analyst Byron Callan said he doubts that the raid will have an adverse effect on either the F-18 or B-2 program. “The irony of this raid is that they have built over 1,000 F-18s so far, and the E/F version has been the most successful development of them all,” Callan said.
