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Area Leaders Warn of Effects of Long GE Division Suspension

June 12, 1985

PHILADELPHIA (AP) _ The Air Force’s 21/2 -month-old suspension of General Electric Co.’s Space Systems Division has not had an immediate impact, but it threatens bids for future contracts and is causing anxiety among the group’s 7,000 workers, officials say.

GE, the nation’s sixth largest defense contractor, was suspended entirely from bidding for Defense Department contracts on March 28, two days after the company was indicted on charges of defrauding the government of $800,000 in a missile contract.

The company was restored April 22, except for the Space Systems Division, which is based in King of Prussia, Pa. The division works on a wide variety of space-related projects, including earth observation satellites, re-entry systems and components for guided missiles, and programs for the Strategic Defense Initiative.

GE pleaded guilty to the charges in U.S. District Court on May 13 and was fined the maximum $1.04 million.

An Air Force spokesman said Tuesday that the division’s suspension would continue during a review by the Air Force general counsel and a subsequent ruling by Air Force Secretary Verne Orr. The spokesman, who asked that his name not be used, said there was no timetable for acting on the suspension.

While the suspension has had little effect so far, a long-term suspension could cause problems, people inside and outside the company say.

The main problem from a continued suspension would be ″a loss of momentum″ by teams of specialists doing long-term work, said Colin J. Loxley, director of regional forecasting for Chase Econometrics, a research firm in Bala Cynwyd, Pa.

″That’s very critical. They don’t want to lose that expertise,″ he said, noting that a competitor in the defense field could hire entire groups of workers from GE ″en masse.″

The average Space Systems employee earns more than $30,000 a year, with the total area payroll at about $200 million, Loxley estimated.

John Terino, a spokesman for the GE division, said GE did not release systemwide payroll, but he said the $200 million figure was ″in the ballpark.″

″It’s a very important segment of the Delaware Valley economy,″ said Henry Reichner, executive director of the Penjerdel Council, a regional group of business leaders.

The council sent telegrams to members of the area’s congressional delegation on May 3, urging them to work toward lifting the suspension.

Dan McKenna, a spokesman for Sen. Arlen Specter, R-Pa., said the senator was monitoring the suspension.

″He’s naturally upset about anything that affects jobs in Pennsylvania. If it reaches the stage where they might lay people off, he’d try to prevent that,″ McKenna said.

Terino said the suspension had not resulted in any layoffs or major drop in business for the division, which also has offices in Philadelphia and has annual revenues of $800 million.

″We received a couple of waivers″ on government contracts, he said. ″That work is proceeding. We have not laid off anyone. We feel we don’t have to.″

″Of course, if the suspension remains in effect, in terms of future work or upcoming bids, (there’s) a certain amount of anxiety,″ he added. ″Space Systems is not like ... where there’s a production line with items (being produced) on a day-to-day basis. Most of the things we work on are long-term; it’s like a year or two or three.″

The Air Force spokesman said Space Systems had submitted ″a lot of material″ to the Air Force in an effort to convince the Air Force that the company had installed safeguards against fraudulent activity.

GE pleaded guilty to 108 counts of making false statements and making and presenting false claims for payment to the Air Force to recover cost overruns on a $47 million contract to refurbish the Minuteman Mark-12A missile. The indictment charged GE with submitting fraudulent employee time cards.

″We’ve tried to demonstrate that we are a company that acts responsibly,″ said Terino. ″We have set up a system that provides safeguards.

″All the employees have been instructed on how to fill in time cards, and new policies by the division and GE, and proper dealings with the government. It’s a continuing training program.″

Reichner noted the indictments alleged the fraudulent activity occurred in GE’s Re-Entry Systems Division - which was later merged into Space Systems - between January 1980 and April 1983.

″The Space Systems division inherited the sins of an adopted stepchild,″ he said. ″Why should all these people suffer because of what two people did several years ago?″

Former GE unit manager Roy Baessler, 40, of Topsfield, Mass., and current division chief engineer Joseph Calabria, 50, of King of Prussia, were indicted along with GE.

At the time of GE’s guilty plea May 13, Assistant U.S. Attorney Ewald Zittlau said charges against Baessler, who had agreed to testify for the government, had been dropped.

Jim Rohn, first assistant U.S. attorney, said Calabria would stand trial in July on charges he lied to the grand jury that returned the indictments.

Terino said the Space Systems workforce remains busy.

″They’re all engaged in working on projects in progress or ones that we’re preparing to bid on,″ he said.

″We can’t stop living,″ he said. ″We have to go on, we have to be positive. We are waiting for the lifting of the suspension.″

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