McDonnell Write-Off Is Probed : Defense: Pentagon auditors find that Army settled $50.3 million in claims on the Apache copter program for $2.4 million. Congress wants to know if it was part of plan to bail out the firm.

Astonished Defense Department auditors have discovered that the Army quietly settled $50.3 million in alleged overcharges by McDonnell Douglas on the AH-46 Apache helicopter program for just $2.4 million, The Times learned Tuesday.

The settlement in late 1990, which was disclosed to senior Pentagon auditors only two weeks ago, now is under investigation by Congress to determine whether the $48-million write-off was part of a plan to bail out McDonnell Douglas, which was in financial straits at the time.

“They apparently tucked this bailout into so many nooks and crannies that it leads me to wonder whether or not they were trying to hide it,� said Rep. John D. Dingell (D-Mich.), whose House Energy and Commerce Committee is continuing a longstanding probe of McDonnell. “Maybe we ought to call it the Stealth bailout.�

Defense officials have staunchly denied that they carried out any plan to bail out the St. Louis-based aerospace firm, though they acknowledge that a rescue effort was examined for McDonnell, the nation’s largest defense contractor.

A confidential report issued in February by the Defense Department’s inspector general said the Pentagon had a secret plan to “fix� McDonnell’s severe financial problems in late 1990. The report makes no reference to the Apache overcharges. But it says the Air Force on two occasions made questionable payments that advanced the firm a total of $220 million.

Since obtaining that report, Rep. John Conyers Jr. (D-Mich.), chairman of the House Government Operations Committee, has asked the inspector general for a full investigation of the bailout plan--including a determination of who authorized it and what was spent to execute it.

Pentagon spokesmen and defense auditors declined to comment Tuesday, as did a spokesman for McDonnell.

In response to an inquiry from The Times, the Army’s Aviation Systems Command in St. Louis issued a statement late Tuesday confirming that 15 audits conducted by the Pentagon on the Apache program found $50.3 million in claims against McDonnell. The statement said the claims were then settled for $2.4 million.

The Army said it is reviewing its settlement to determine whether it was “reasonable� and to make sure the agreement is “final.� If not, the Army “is prepared to pursue all available remedies,� according to the statement.

Audit claims on major defense programs are not unusual. In the case of the Apache helicopter--which was used to attack Iraqi tanks in the Persian Gulf War--the claims involved the allowability of certain costs under the contract.

The Army statement said that such “defective pricing� cases are “often substantially reduced during fact-finding and negotiations.� But congressional experts said that the $2.4 million--or 4%--collected by the Army on the Apache claims is far below typical settlements.

It is unclear who authorized the Army to settle the audit claims on the helicopter program. The settlement agreement was first disclosed to William Reed, director of the Defense Contract Audit Agency, during a a meeting two weeks ago with Army Maj. Gen. Donald Williamson and representatives of McDonnell at the Aviation Systems Command, according to knowledgeable sources.

Until then, the audit agency was preparing to enter into litigation to resolve the audit claims, which resulted from an investigation into McDonnell billings on the Apache production contract.

When the issue of the audits came up, the McDonnell representative said the claims had been resolved in late 1990 for about $2 million, evoking an astonished reaction from Reed, according to knowledgeable sources.

The Army is trying to explain its actions as a “mistake� made by a low-level contracting officer at McDonnell’s helicopter plant in Mesa, Ariz., the sources said.

But congressional sources asserted that the settlement appeared to fit a pattern of helping McDonnell under the alleged bailout plan.

“The thing about this bailout is that it was fractured into so many pieces that they thought nobody would notice. But when you put all the little pieces together, it is a bailout that rivals the one for Lockheed,� a congressional investigator said, referring to the assistance package Congress approved for Lockheed in 1971.

The allegations of a McDonnell bailout have evoked an angry reaction from some members of Congress--including some who have used the issue to push their own agenda.

Sen. Alfonse M. D’Amato (R-N.Y.), a member of the powerful Senate Defense Appropriations subcommittee, called McDonnell “a charity case the American taxpayers can no longer afford.�

D’Amato delivered the jab as he demanded a federal study to determine whether a new model of McDonnell’s F-18 fighter would be a more costly alternative for a new Navy jet than the Grumman F-14D, which is built in D’Amato’s home state.