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Morton Thiokol Gives Up $10 Million in Profits in Face of NASA Fine

February 25, 1987

WASHINGTON (AP) _ Morton Thiokol, facing a possible $10 million penalty for the failure of its booster rocket in the Challenger explosion, voluntarily accepted a reduction of that amount in profits for its work, space agency officials say.

In addition, the firm has agreed to take no profit from $409 million worth of work to fix future rockets, and it will replace the boosters lost in the Jan. 28, 1986, space shuttle accident that killed seven crew members, NASA said Tuesday.

The agreement avoids lawsuits.

″Both NASA and Morton Thiokol believed it was in the best interest of all concerned to resolve the matters without resorting to lengthy and expensive litigation,″ the space agency said.

Morton Thiokol Vice President Thomas Russell said the understanding, which will be incorporated into new contracts, involves ″no admission by Morton Thiokol nor determination by NASA as to Morton Thiokol’s responsibility or liability for the accident.″

The company already has agreed to pay an unspecified portion of reported $1 million-plus settlements the government reached with four of the dead crew members’ families. It also faces a damage suit filed by the widow of a fifth, Ronald McNair.

In addition, a former Morton Thiokol engineer who told investigators about problems with the booster rocket seals is suing the company for $1 billion, claiming he was defamed for telling the truth.

Morton Thiokol makes the reusable solid-fuel booster rockets that provide 80 percent of the power to get space shuttles into orbit. A leak of hot gases from a joint in the Challenger’s right booster is blamed for last year’s explosion that grounded the nation’s shuttle fleet for at least two years.

The presidential Rogers Commission, which investigated the accident, said Morton Thiokol ″did not accept the implication of tests early in the program that the (rocket) design had a serious and unanticipated flaw.″

Both the contractor and NASA, it said, failed to recognize there was a flaw, ″then failed to fix it and finally treated it as an acceptable flight risk.″

The contract under which the boosters were built included a $10 million fee penalty that could be invoked for such a failure.

NASA said that as a result of Morton Thiokol’s voluntary reduction in its profits, ″it is unnecessary for NASA to further consider a levy of the fee penalty.″

″Further, Morton Thiokol will perform, at no profit, approximately $409 million worth of work required to fix the faulty joints, rework existing hardware to include the design fix and to replace the reusable motor hardware lost in the Challenger accident.″

Morton Thiokol, which builds the rockets at its Utah plant, will complete contract work remaining at the time of the accident, plus additional work ordered for safety and reliability enhancements not connnected with the accident.

That part of the work will cost about $487 million, and Thiokol’s profits will be based on its performance.

At the time of the accident, the company already had completed about $418 million worth of work, so the remaining tasks will bring its total contract to $1.3 billion, NASA said, adding:

″The maximum potential profit Morton Thiokol can earn for the total effort will be $86 million. To date, about $41 million in profit payments have been made.″

Russell said the agreement with NASA will affect significantly the earnings of Morton Thiokol’s aerospace group, one of three divisions. He said its earnings for the year ending June 30 are expected to be $2.80 to $3 a share.

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