Lucas pays $88m to end claims

Aerospace: Final settlement ends two-year Pentagon investigation
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The Independent Online

Lucas Industries has agreed to pay another $88m (pounds 58m) to settle claims that it supplied sub-standard parts to the US Navy after a two-year Pentagon investigation.

The company will make further provisions of pounds 95m when it announces its profits on Monday, and has also announced that the division which caused the trouble is to be sold.

Lucas has already paid a pounds 12m fine to settle criminal proceedings and last year said provisions of pounds 200m included an undisclosed amount to cover the US action. George Simpson, Lucas chief executive, said the financial impact of the US troubles was "out of all proportion to the issues involved, but we believe this was the best settlement available."

The settlement avoids years of costly and complex litigation and the possibility that Lucas would struggle to win new US defence contracts until the problems had been settled.

The $88m agreement is believed to be the largest ever paid by a company facing such charges from the US military, which is cracking down on breaches of its quality control regulations.

The US authorities filed a civil suit accusing a group subsidiary, Lucas Western, of having falsified inspection documents relating to the gearboxes for F/A-18 fighter planes.

Lucas said that when the products were delivered, they more than met the performance criteria laid down in the contracts, and that the problem related only to irregularities in testing and procedures.

On Monday the company will set aside additional provisions of pounds 55m for the year to last July, which will also cover costs of settling a conflict between the US Government and another subsidiary, Lucas Aul, which was sold earlier this year. Lucas said further provisions of pounds 40m will be made to cover the costs of restructuring its Lucas Western, which will be sold. Mr Simpson said: "Lucas will be seeking a strong joint venture partner to whom the business could eventually be sold." He said the pounds 40m provisions "will cap the group's future financial exposure and provides for all anticipated scenarios".

The company said that apart from the provisions, Monday's results would be in line with market forecasts. Analysts are expecting profits of around pounds 140m, with the dividend maintained at 7p.

Investment Column, page 18