LUCAS INDUSTRIES admits that it has "learned its lessons" from doing business in the US defence market, following the heavy penalties imposed on its Western Geared Systems division (GSD) for failure to carry out proper test procedures on a US Navy contract.

Reporting its 1994/5 annual results to the end of June, Lucas revealed that the final bill for sorting out the problems at GSD will come in at around $200 million.

GSD's failings on a contract to supply auxiliary gearboxes for USN McDonnell Douglas F-18s have cost the group nearly $107 million in fines and settlements since the start of the year (Flight International, 10-17 October).

Another $14 million was paid to settle claims over a US Army contract carried out by the group's California-based AUL electronics business, which has since been sold.

Operating losses at GSD also totalled £21 million ($33 million) over the past year, with the unit effectively unable to make deliveries. Finally, the group has made a provision of £40 million to cover restructuring at the Utah operation ahead of its likely sale.

"We've learned our lesson," says Lucas chairman Sir Brian Pearce, suggesting that the US defence businesses required "closer management attention" despite being a small part of the group. AUL and GSD contributed less than $30 million in annual sales.

The settlement was "out of all proportion" to the purely procedural failings, adds chief executive George Simpson, but says that the group had to avoid the uncertainty of "years of costly and complex litigation".

Simpson stresses that the GSD settlement is the last major step in the restructuring of Lucas Aerospace, which has shrunk dramatically during the past four years as the automotive arm has expanded.

The only other major change still in hand involves the French flight-controls operations. Lucas plans to bring high-technology parts of the operation back to the UK and to sell the remainder.

Simpson says that there is still a "...very strong argument for having an aerospace component", but the group will have to judge whether it can afford to maintain the level of capital expenditure required to expand in the sector.

He admits that, in the long term, the group will have to consider the option of quitting aerospace. The remaining aerospace business, now under the managing directorship of Ken Maciver, who has moved from Lucas Braking Systems, showed an underlying growth in profits to £44.6 million for 1994/5 before the losses at GSD.

Source: Flight International