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Thursday August 3, 2000

CH-47D: Boeing to pay up to $54 million

WASHINGTON, USA ( Reuters ) - Boeing Co. has agreed to pay up to $54 million to settle two lawsuits alleging the Seattle-based defence contractor placed defective gears in helicopters sold to the U.S. Army, the Justice Department said on Thursday.

The department alleged the gears in CH-47D ``Chinook'' helicopters failed in at least three flights in the late 1980s and early 1990s, including one in 1991 during the Gulf War, resulting in crashes and a number of deaths and injuries.

The Justice Department said Boeing used two subcontractors -- Litton Precision Gear of Bedford Park, Illinois and SPECO Corp. of Springfield, Ohio -- to make the transmission gears for the helicopter, which can carry up to 33 soldiers and a four-person flight crew.

``This case demonstrates the tragic consequences that can occur when faulty parts are sold to the Defence Department,'' Acting Assistant Attorney General David Ogden said in a statement announcing the settlement agreement.

``The lives of our service members, not only dollars, are at stake. This lawsuit sends a message that the United States will not stand by if contractors provide our military with substandard and dangerous equipment,'' he said.

In the settlement agreement, Boeing denied all the allegations in the lawsuits and maintained it did not submit false claims to the government or engage ``in any conduct in violation of law or of its contractual obligations.''

Boeing said in a statement that it ``believes that it acted not only legally but also ethically and responsibly in addressing the issues covered by this litigation.''

The company said it entered into the settlement agreement ``because resolving this protracted litigation is in the best interests of both Boeing and its U.S. Army customer.''

The Justice Department said one of the gears manufactured by Litton Precision Gear -- which Boeing bought from Litton Industries Inc. (NYSE:LIT - news) in 1994 -- failed in flight in Honduras in 1988, causing the helicopter to crash and burn and killing five servicemen.

Two gears manufactured by SPECO failed in flight, the department said. One crash occurred in 1991 in Saudi Arabia during the Gulf War, injuring two individuals, while the other incident involved a training flight in 1993 at Ft. Meade, Maryland.

The Justice Department said the Army's Chinook fleet has been partially grounded since January because of additional defects found in SPECO transmission gears, which are being replaced.

In 1997, SPECO, which filed for bankruptcy, settled the allegations against it by agreeing to pay the government $7.5 million.

The civil lawsuits, brought under the so-called whistle-blower law, were filed in federal court in Ohio by Brett Roby, a former SPECO quality engineer.

The U.S. government joined the lawsuits, which alleged that Boeing and its subcontractors violated the federal false claims law by selling the Army more than 140 helicopters with defective gears, the department said.

Of the $54 million, Roby will get $10.5 million while the rest will go to the federal government.

Of the $54 million to be paid by Boeing, $19 million plus interest will depend on the outcome of the aircraft manufacturer's appeal of two legal issues, the department said. A federal judge in Ohio previously ruled for the government.

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