Northrop's Struggle With the MX
By JOHN H. CUSHMAN Jr.
HAWTHORNE, Calif. -  DAVID N. FERGUSON peered through a plate-glass window into the pristine room where technicians, clad from head to toe in surgical garb, pieced together the spherical devices that would guide nuclear MX ballistic missiles through their globe-spanning trajectories. Perhaps it is fitting that this Northrop Corporation assembly line resembles an intensive-care ward. For it is here, near Los Angeles, that a billion-dollar production program is struggling to recover from a crippling, four-year bout of mismanagement. About 15 basketball-sized spheres were in various stages of assembly, their electronic entrails exposed to a whispering breeze sucking contamination from the room. ''December is going to be a good month,'' predicted Mr. Ferguson, Northrop's group vice president for electronic systems who is in charge of thw MX guidance program. There are grounds for optimism. In the last several months, Northrop has cut in half the number of units by which it was behind schedule. And while progress has been slow in recent months as Northrop has worked to fine tune its production and testing methods, managers say a backlog of nearly finished units is building. But these improvements did not come on their own: Northrop's managers were prodded into action by Congressional critics and by the Air Force's decision to stop monthly progress payments until the program is back on track. The Air Force also goaded Northrop to perform better by awarding Rockwell Autonetics a contract to become a competing supplier. Northrop's management is trying to resuscitate the MX guidance program after two years of trauma, when the company fell behind schedule for delivering parts to the Air Force. Despite its gains, Northrop does not expect to be back on schedule until spring, and Air Force officials suspect it will be later. Others are even more critical. Representative Thomas J. Bliley Jr., a Virginia Republican who sits on one committee investigating the company, said at an Oct. 28 hearing that Northrop had compiled ''a sorry record'' over the year. ''I can only hope that the reports we have received that Northrop has taken decisive actions to remedy these problems are true,'' Mr. Bliley said. Other members of the panel, the investigative subcommittee of the House Commerce Committee, are even more skeptical. Citing internal Northrop and Air Force audits that were ignored for years, Representative Ron Wyden, an Oregon Democrat, said at the hearing: ''That just strikes me as incredible incompetence.'' Representative Les Aspin, chairman of the House Armed Services Committee, said in an interview that despite claims by the Air Force and Northrop that the situation was under control, he wanted more proof. His committee in December will hear testimony from Air Force and Congressional investigators, whistle-blowing employees and program officials. In the meantime, Northrop has suffered financially and in its reputation, facing one accusation after another of poor performance in producing the MX missile's main guidance mechanism. The Air Force has withheld about $130 million in payments since March to punish Northrop for missing schedules. Members of Congress say the Department of Justice has several criminal investigations underway involving Northrop's role in the MX program. Assertions by Northrop employees of irregularities on the factory floor been published by The Los Angeles Times and CBS's ''60 Minutes.'' The company acknowledged that these whistleblowers are pressing lawsuits, under Federal fraud statutes, that could result in their sharing monetary damages collected by the Government. Perhaps most ominous, two Congressional committees have said the reliability and accuracy of the MX missile, a mainstay of the strategic nuclear arsenal, are open to serious doubt because of Northrop's conduct. Long one of the Air Force's most hotly debated weapons, the MX missile, which the Air Force likes to call the Peacekeeper, is also one of the military's most expensive ventures. The huge missile brings together several large contractors: Rockwell, Martin Marietta, Morton Thiokol, and more, doing work valued at tens of billions of dollars. Although Northrop's contribution does not dominate the project in dollar terms, it is among the most critical parts of the program: The MX relies on accurate delivery to underpin the threat of nuclear attack, a factor that makes the missile a key element in the nation's arsenal of strategic weapons. The first missiles are already in silos in Wyoming, and eventually as many as 100 missiles may be deployed. THE Air Force has said the missile's accuracy is beyond question, but has admitted that 11 of the 29 missiles deployed at Warren Air Force Base in Wyoming are not kept on full-time alert because of the Northrop problems. As long as Northrop is behind in deliveries, the Air Force says, some missiles will be kept off alert except in an emergency. In the financial community, the disturbing publicity surrounding the MX program has led securities analysts to wonder about the prospects for Northrop's other Air Force business, such as its bid in the program to build a new tactical fighter or its role as prime contractor in the top-secret Stealth bomber program. In a time of intense competition for military business, Northrop cannot afford to slip from its position as the nation's 31st-biggest military contractor because of lapses in one of its most prominent projects. The company's annual revenues of $5.6 billion come almost entirely from the Government. ''This scandal is a material handicap for the company,'' said Wolfgang Demisch, aerospace analyst at the First Boston Corporation, last week. ''You don't have to take my word for it; the stock is at 29.'' (On Friday, it closed at 28 1/2.) Northrop's share price has declined about 25 percent in the month since the Oct. 19 Wall Street collapse, while the Dow Jones industrial average has risen about 10 percent. Northrop's stock has done a bit worse than the generally poor performance of the military contracting sector, which has been declining because of prospects for cuts in military spending. Despite that, Mr. Demisch said he still has a favorable impression of Northrop management. Northrop executives insist that in spite of the bad publicity, the company's MX missile guidance production is on the verge of recuperation. While recent changes, notably in the testing of electronic parts, have temporarily crimped production rates, they say the pace of shipments will improve dramatically this winter - a fact they attribute to curative measures taken months ago. It takes about eight months to assemble one mechanism, the officials said. In March, Mr. Ferguson, a gregarious 62-year-old engineer who relaxes from time to time with a skein of yarn and a sample of needlepoint, was told by his superiors to put other Northrop projects aside and whip the MX guidance program into shape. ''I got my program people together - they were mostly people I'd known for years - and we had a come-to-Jesus meeting,'' he said, describing the first steps in his effort to revive the program. ''I told them quality was first. We needed deliveries, but not as much as quality.'' Mr. Ferguson also transferred a number of key executives. ''It was unpleasant, but necessary,'' he said. The company has named Robert G. Schlenzig as the new general manager of the electronics division. He in turn installed new heads of finance, manufacturing and quality control. Mr. Ferguson is doing duty as the MX guidance system's program manager, and had added a new deputy. In all, during the last year Northrop has replaced as many as 30 top executives because of the problems in the MX and other programs, company officials said. But getting the MX guidance parts on schedule is more than a matter of shuffling executives. Building this device, which is unlike anything else produced anywhere in the world, is a task far more tangled than the bundle of yarn in Mr. Ferguson's briefcase. The device Northrop makes, under contracts worth roughly $1.6 billion (which included early research work) is known as the Inertial Measurement Unit, or I.M.U. Linked to high-speed computers, it sits in the upper stage of the MX missile, which is designed to carry 10 nuclear warheads and deliver them within a few hundred feet of targets in the Soviet Union or elsewhere. Along the way, the missile would be subject to terrific thrust, to the earth's magnetic fields, to radiation belts in space, to the heat of re-entry, and possibly to nuclear blasts and radiation. The I.M.U. is designed to withstand these stresses while measuring the forces of motion during the missile's flight and reporting that data to an on-board computer, which compares the calculations with the pre-determined path so that steering mechanisms can correct any drift. The device weighs 126 pounds. Within a shell made of the metal beryllium, an I.M.U. contains three gyroscopes, three sensors to measure acceleration and an assembly of electronic and electrical parts. The whole shell floats in a fluid flourocarbon, perfectly suspended, allowing even the most minute shift in its position to be detected and analyzed. Each I.M.U. contains more than 19,000 parts, ranging from microchips barely visible to the naked eye to large metal hemispheres machined, according to Northrop officials, to within a hair of perfection. The parts are not all made at Northrop. More than 500 subcontractors, most of them small businesses, supply components for the I.M.U. Two factors compounded the difficulties for Northrop and its suppliers from the program's outset. First, few of the parts had ever been produced before. Second, the Air Force needs only 239 finished guidance mechanisms. The Air Force expects eventually to deploy at most 100 MX missiles. Even after tossing in additional guidance units for test missiles and for spare parts, this is small volume. WHAT makes the job difficult is the fact that Northrop is building so few units. It is hard to automate production in small numbers without wasting money. And the traditional aerospace industry ''learning curve,'' in which performance improves as the pace of production expands, is not as steep. ''We are in production, but not with a production line the way most people think of one,'' said Northro's president, Kent Kresa. To bring suppliers up to speed, Northrop has established teams to monitor their work and lend help when needed. ''That's what we should have done in 1983 - as far back as that,'' Mr. Ferguson said. Congressional investigators say much of the blame for allowing Northrop and its suppliers to lose control lies with the Air Force, which set too ambitious a pace for the program. ''Northrop was behind schedule before it even started,'' said a report published in August by the House Armed Services Committee. The start of production was delayed as Congress debated whether the missile was needed, but the Air Force did not compensate by delaying the deployment date. And the Air Force continually pressed the company to speed production even though it was unclear whether the MX missile program would survive repeated assaults on Capitol Hill. ''Consequently, a mixed message was being delivered to the industry,'' said the committee report. ''On the one hand, questions of program stability were raised. On the other, a premium was placed on pushing components and missiles out the door as quickly as possible and on minimizing program difficulties.'' At the time, the Northrop Electronics Division was growing rapidly, from a research house of 500 people to a production facility employing 10 times that many. Mr. Demisch of First Boston said he believes Northrop's managers may have slipped up on the MX guidance system in part because they were distracted by other problems in the early 1980's, when business was booming. Northrop had just been named prime contractor for the Stealth bomber, a program worth several times the value of the MX guidance system. The company was spending hundreds of millions of dollars of its own money developing the ill-fated F-20 fighter, a jet that was meant for export but was never ordered by any foreign nation. Other major programs involved producing parts of the Navy's F/A-18 jet plane, making advanced electronics for the Air Force F-15 fighter, and bidding for the Amraam advanced air-to-air missile, to name just a few. ''So they had a number of oars in the water, and the MX, among those, was probably the least worry because the system was working spectacularly well,'' Mr. Demisch said. At the time, though, the system was still being developed by engineers, and the company had yet to confront what is, even with simpler devices, a vexing task: moving from laboratory benches to full production. From the beginning of production, the Air Force saw problems with Northrop's management, the committee found. In June 1983, and the next year the military representative at the plant found problems in the purchasing system and ordered changes. In August 1985, an audit by the Air Force plant representative cited ''serious system deficiencies as well as a lack of effective progress.'' By October 1985, the head of the Air Force ballistic missile office, Maj. Gen. Aloysius Casey, was angry enough at the delays to complain to Northrop, which had yet to deliver its first product, due that month. In a letter to the company, he called the problems ''a direct consequence of inadequate planning and management response,'' and warned: ''It is imperative that you give direct, forceful, and immediate attention to the problems outlined.'' The first I.M.U. finally was delivered - 203 days late - in May 1986. But months before the first delivery, the company was rated ''marginal'' in an Air Force audit of its engineering, quality assurance and product integrity. In April 1986, payments to Northrop were reduced as an incentive to get the shipments back on schedule. In March 1987, even as further contracts were being signed, an Air Force evaluation of Northrop's compliance with production rules found that an ''apparent lack of commitment to discipline by the work force is a serious problem that needs top management attention.'' (Further production-line audits, scheduled in the next few months, will be critical in determining whether Northrop's changes have taken hold, company officials said.) As allegations of mismanagement and fraud have mounted, Northrop officials have found themselves confessing errors in a series of interviews and in Congressional testimony. ''I will admit we didn't do enough, we didn't do it fast enough,'' said Frank W. Lynch, vice chairman, in a hearing before the Energy and Commerce Committee on Oct. 28. In fact, as problems meeting delivery schedules mounted, Northrop's management allowed the following improper practices, according to a report by the House Armed Services Committee: * The company falsely certified that heat exchangers, which are tubes used in cooling the device, had been pressure-tested at its plant to demanding specifications. * It accepted a flexible electrical harness from a supplier that was improperly produced, then billed the Government for the cost of reworking the part at Northrop's facilities. * It allowed time cards showing its labor hours to be improperly filled out or altered, leading to overcharges estimated to be between $1.5 million and $14 million. * Managers allowed the division to set up shell corporations that violated purchasing practices to speed purchases of parts for test equipment. The latter is perhaps the most embarrassing allegation. Northrop employees have charged that rush-order parts were not tested or certified when the company purchased them through the shell corporations, improperly dodging the paperwork and quality controls that slow normal procurement. According to the House Armed Services Committee, there is still some suspicion that MX components, not just factory equipment, were purchased in this irregular way. Air Force officials declined to comment on any allegations that are subject to continuing investigation by the military or by legal authorities. According to the House Armed Services Committee report, the company's production and testing practices ''have raised serious questions of confidence in the reliability and performance of deployed MX missiles.'' BOTH the company and the Air Force vigorously dispute this assertion, particularly the claim that missiles already deployed may not be accurate. They say Congressional critics are misreading the data from flight tests to reach conclusions unsupported by statistics. They cite Air Force data collected from 17 flight tests of the MX, from dozens of simulated launchings using high-speed sleds, and from repetitive, detailed tests of individual components and completed systems. A study of accuracy and reliability done this summer supported Air Force assertions that the MX is reliable and accurate. The study, by an Air Force Scientific Advisory Board made up mainly of independent scientists, was published in October. The board went into detailed criticism of Northrop testing practices, but its recommendations were mainly technical. It found ''no evidence of an out-of-control condition'' in testing, and said engineers ''were not being pressured'' to alter tests simply to insure that more parts would pass inspection. Most important, the panel said the need for more discipline in the ways tests were being run ''is indicative of a management culture issue rather than the lack of engineering competence.'' Brig. Gen. Charles A. May Jr., a top Pentagon official, said he hopes to have all MX missiles in Wyoming on full alert by mid-1988. Soon after, he expects Northrop deliveries to catch up with contracted schedules. The incentive for Northrop to meet contract terms, he said, is simple: ''When you deliver, we pay.'' Photos of Northrop workers in Hawthorne, Calif., assembling the MX missile's central guidance components; David N. Ferguson with technicians at Hawthorne plant (pg. 27) Inside NYTimes.com Health " Too Hot to Handle