LUCAS INDUSTRIES chief executive George Simpson says that the group will seek to rebuild its aerospace business once its restructuring has been completed over the next 18 months.

"We would like to see aerospace becoming a more important part of the business than it is, but I believe that our task is to get the operational performance up to scratch first," said Simpson, revealing the group's half-year results to the end of January.

Simpson says that aerospace margins have traditionally been twice those of the group's main business in the automotive industry. He adds that the business cycles of the two industries are expected to balance out as aerospace comes out of decline over the next two to three years.

At its height in 1991, aerospace accounted for 30% of group sales, but has since undergone a major restructuring which has seen it slip to only 17%. The issue of reversing this decline is likely to form part of a strategic review, which is now taking place within the group.

Lucas Aerospace is close to the end of its restructuring programme, which will have seen the closure of ten sites by the end of this year as well as the sale of operations on both sides of the Atlantic. The sale of, the remaining US communications and electronics businesses, is also expected to be finalised by the end of the year, says Simpson.

Further problems, have blown up around the division however, over falsifying of quality checks by Lucas Western Geared Systems Division (GSD) and AUL on US defence contracts.

The US Navy has proposed a blanket ban on Lucas, from bidding on US defence contracts, although, the UK group believes that it can at least limit this to the offending GSD and AUL operations. The Navy has also backed a civil action, which centres on the wrongdoing at GSD over the supply of gearboxes for its McDonnell Douglas F-18 fighters.

Simpson believes that the civil action is designed to strengthen the US Navy's negotiating position in claiming damages for what it says have been performance shortfalls by the gearbox. Simpson says that Lucas is prepared to fight a protracted legal battle if necessary, and refutes claims of any fundamental performance problems.

The GSD operation, which has only recently restarted production, lost £5 million in the six months to January, but losses are now expected to fall, following the closure of its Los Angeles site.

Despite the GSD losses and another 7% fall in turnover, Lucas Aerospace held first-half operating profits at the £9 million marks. Some signs of recovery have shown through in a 5% rise in spare orders and Lucas is forecasting an improved second half.

Source: Flight International