Dowty Aerospace, the components company owned by the TI Group, has confirmed that it faces a $60m "whistleblower" action for an alleged overcharge of $20m.
Dowty Woodville Polymer, the unit served with the action, supplies B1- B and F1-11 wing slot seals to the US Air Force.
The charge alleges an inflation of labour and production costs by almost 200 per cent over a 10-year period.
The company said it would vigorously defend the action for fraud and breach of contract in the US, although official proceedings have not yet begun.
Reports of the action first surfaced in February this year, but confirmation of the legal action knocked 3p off the share price to 360p.
A spokesman for the company said that Dowty's sales to the US government had totalled only $29m since 1994.
"Against this background, and from an initial appraisal of the complaint, it is hard to see how an overcharge of $20m could arise," he said.
TI said that it believed the allegations were based on a misreading of partial information and that no evidence of any dishonest conduct by any employee had been found.
Dowty continues to supply the US Department of Defense and recently won a new contract to supply the US Air Force with the same wing slot seals.
Further complications in any legal action are expected because the components company has had three owners since it started to supply the wing slot seals to the US Air Force. It originally belonged to Coltech Industries, a US group, before being sold to Dowty in the late 1980s. The TI Group bought Dowty in June 1992 for £520m in a hostile bid led by Sir Christopher Lewinton.
The civil action is being taken against the group under US "Qui Tam" rules, which encourage whistleblowers to report allegations of overcharging by contractors supplying the US government.
The former Dowty employee who blew the whistle, Jeffrey Thistlewaite, left the company before TI acquired Dowty in 1992, but stands to share in any damages won.Reuse content