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Northrop--a Company in Turmoil

December 20, 1987|RALPH VARTABEDIAN | Times Staff Writer

While the board refuted many allegations of flaws and praised the company for its efforts to correct problems, it found that Northrop had been conducting "test station shopping," in which electronic parts--called hybrid circuits--that failed on one test machine would be retested on others until they passed. It was taken as an example of the lack of discipline that has typified Northrop's MX work for the last five years.

"These conditions understandably led to concern about the possibility of passing defective parts," the report found. It went on to conclude, "Although the Northrop engineers participating in this review appeared competent, the level of engineering discipline in the hybrid engineering and production area at NED (Northrop Electronics Division) was not adequate."

FOR THE RECORD
Los Angeles Times Monday December 21, 1987 Home Edition Business Part 4 Page 2 Column 6 Financial Desk 2 inches; 42 words Type of Material: Correction
A quote that was extracted from and displayed with a story about Northrop Corp. in Sunday's editions was incorrectly attributed to Northrop vice chairman Frank Lynch. In the story, the quote was correctly attributed to a former manager in Northrop's electronics division who was not identified.

As a result of those findings, Northrop was forced to suspend all testing of important electronic parts. The company is now recertifying its test stations, operating shifts around the clock to restart testing of circuits. The shutdown has created a bottleneck on the entire program.

The late deliveries of IMUs have left the Air Force seriously short of guidance systems. At F. E. Warren Air Force Base in Wyoming, the Air Force has placed 28 MX missiles into silos. But only 19 have guidance systems. The other nine, holding 90 nuclear warheads, are what one congressman called "unguided missiles."

The problem with test station shopping renewed concern in Congress over the reliability of the IMU and, thus, the accuracy of the missile. Northrop is being sued under the federal False Claims Act by at least five former engineers and other employees who have alleged during the last year that the IMU contains defective parts.

Such issues as the accuracy and reliability of the MX guidance system may never be fully resolved in the minds of critics. But over the next several months these and other missile guidance issues will be dealt with in a number of important legal actions, congressional hearings and military decisions that will determine how seriously the MX scandal will damage Northrop.

Return to Rockwell

The Air Force plans to buy billions of dollars worth of additional nuclear missile guidance systems over the next decade. In addition to fielding 50 more MX missiles, it plans to deploy 500 Midgetman missiles and to retrofit Minuteman missiles with new guidance systems, depending on congressional funding.

Northrop was virtually assured of most of this new business at one time, but its poor performance has caused the Air Force to go back to its old supplier, Rockwell International, to seek a second production source for IMUs. Now, Rockwell could possibly knock out Northrop out of the MX or take a significant share of the program. If it does, Northrop would suffer financial damage, according to Campbell, the aerospace analyst at Paine Webber. The Air Force is expected to announce contracts for fiscal 1988 soon.

The federal grand jury in Los Angeles is likely to act within the next several months, if it acts at all, according to sources in Washington. A number of key legal decisions also are expected in the civil suits pressed by the former Northrop engineers.

Aerospace analysts say Northrop's low stock price makes the company such a good buy that a larger aerospace firm could easily swallow it up. In an era when defense markets are shrinking, Northrop has a backlog of $80 billion worth of government programs that could be bought for a mere $1.2 billion on the stock market.

Finally, Northrop is expected to be called again before the House Armed Services Committee, the fifth time that the company's problems have been aired before Congress. Former Northrop internal auditor Terry Shielke is expected to testify, citing previous allegations that the company ignored the internal audits that he and others wrote, warning of serious operational problems that are now the subject of law suits.

One hopeful note for the company is that Armed Services Committee Chairman Les Aspin (D-Wis.) said in a recent interview that he is "feeling better" about the progress Northrop has made in recent months, though he is "not yet ready to declare the problem solved."

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