Alliant blacklisted by USAF

The Air Force has temporarily blacklisted defense contractor Alliant Techsystems Inc. from future launch-system contracts until a lawsuit accusing the company of making defective flares is resolved, Alliant officials said Wednesday.

Edina-based Alliant officials called the ban "unjustified," and vowed to appeal. They expect to meet with Air Force officials this month.

They noted that Alliant's launch systems group is the only division that has been placed on the Air Force's "Excluded Parties List." That placement is expected to thwart new contract awards but leave existing contracts intact. The action is not expected to be material to earnings, and officials reiterated their guidance for fiscal 2008 and 2009.

Alliant stock still slid $4.09 a share on the news, to $102.37.

The launch systems group is one of four divisions at Alliant, the $4 billion defense and space components firm. Last week the division reported that its nine-month sales rose 16 percent, to $931 million, with the help of new NASA contracts involving its next generation space shuttle, the Ares I. The launch division, which has long made the rocket boosters for NASA's retiring space shuttle, is making the rocket boosters and a new launch-abort system for the Ares I. Those two contracts are worth $140 million, which highlights the seriousness of a potential ban on new contracts.

In speaking to investors Wednesday, CFO John Shroyer said the launch division's NASA contracts could produce $1 billion a year by 2012. He added that the company expects its ban from Air Force contracts to be quickly resolved.

Spokesman Bryce Hallowell said, "We are very encouraged that this action will be reversed in the near term, and we are working closely with the Air Force to ensure that."

The Air Force's unusual blacklisting stems from a now-sealed lawsuit that was filed in April 2006 by former Alliant flare program manager Kendall Dye in federal court in Utah.

In that suit, Dye alleged that Alliant failed certain safety "drop tests" of its baton-size LUU-19 illumination flares, and that the company sold the flares to the military anyway. Alliant denies that.

Dye alleged that his test found that the flares may prematurely ignite if dropped from a height of 3 feet, far below the government's 40-foot requirement. The lawsuit also contends that Alliant failed to do further safety tests, and that a company vice president asked Dye not to share his drop-test information with the Navy.

The U.S. Department of Justice joined Dye's whistle-blower lawsuit in June, after launching a preliminary investigation.

Alliant has filed a motion to dismiss the case, and a ruling is expected by March or April.