Lucas US Navy law suit settled yes

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Lucas Industries has settled a US criminal investigation into the falsification of test reports on components it supplied to the American Navy.

The company said a federal court in Los Angeles will on Monday approve a proposal to pay $18.5m in fines and costs following a three-year investigation into Lucas's American activities.

However, Lucas still faces civil proceedings, which a spokesman said it hoped to settle before the end of its financial year in July. He believed the civil costs would be lower than the criminal ones, and the combined settlement would be covered by provisions made in the 1994 accounts.

The affair had left a cloud over Lucas and news that a settlement was in sight lifted the shares 1p to 198p.

The investigation covered gearboxes made for the US Navy's F/A-18 Fighter aircraft by Lucas Western. The components were said to have used sub-standard material not approved by the Pentagon.

These products were manufactured at Western's two plants in California and Utah, bought by Lucas Industries in 1987.

Lucas said it had co-operated fully with all aspects of the investigations and had instituted a series of wide-ranging remedial measures.

Lucas made provisions of £87.6m in its latest accounts for restructuring of the group and settlement of the US claims. Last May, it agreed an £8m settlement after admitting that its AUL division at Long Island falsified tests of missile launchers sold tothe US Air Force.

Investigations continued at its Western division, whose faulty components were blamed for a series of aircraft engine fires and loss of aircraft. Management at Western and AUL have been restructured, and the US forces are again taking the components.

The US Navy was said to have told the Pentagon that Lucas should be barred from all new military business. Of 167 emergency landings in the past 18 months, half were caused by Lucas components, it was claimed.

A report said to have gone to the Pentagon talked of chipped gears, damaged bearings and metal shavings discovered in the drives. The investigators alleged that Lucas employees "removed rejection tags from defective components'' then falsely logged them as acceptable.

However, Lucas, while acknowledging the falsification of inspection records, said independent studies using US Navy data showed the gearboxes had never suffered field failure.

Investigations into the company's US operations began soon after the Gulf war "friendly fire" incidents in which seven US Marines were killed.

Although Lucas equipment was cleared of any connection with the deaths, other concerns emerged. The settlement at AUL included the appointment of an independent ethics watchdog reporting directly to the Justice Department with the power to investigate quality control and changes in personnel.