MTS Systems is back in Air Force's good graces

The U.S. Air Force has lifted sanctions that barred MTS Systems Corp. of Eden Prairie from doing business with the service.

MTS, which makes sophisticated test systems and sensors, issued a statement Monday saying it had reached an administrative agreement with the Air Force to lift a suspension that was imposed in March. The agreement calls for tighter ethics and contract compliance programs, employee training to ensure compliance, stricter self-reporting obligations and the hiring of an independent compliance monitor, the company said.

An investigation into possible export law violations by the U.S. attorney's office in Minnesota, which began in January and was expanded in July, remains underway and was not affected by the agreement with the Air Force. The Star Tribune reported in August that the U.S. attorney's office had issued grand jury subpoenas related to MTS export issues.

A spokeswoman for the U.S. attorney's office Tuesday declined to comment on the status of the investigation.

The probe marks the second time in three years that the company has been investigated for its export activities. Last month Laura Hamilton, who had served as CEO since 2008, resigned without explanation.

MTS officials did not respond to phone calls Tuesday. In a prepared statement, interim CEO William Murray said the company was pleased to have reached an agreement with the Air Force to resume business.

"We take our obligations to be a responsible contractor very seriously, and we will perform our commitments in the administrative agreement," he said.

In its most recent quarterly earnings report, the company said revenue from U.S. government contracts varies from year to year but accounted for 7 percent of total revenue for fiscal 2010 and for 5 percent of total revenue for the nine months ended July 2. The company also said that since the suspension it had lost out on competing for about $13 million in active market opportunities through July 2.

In its most recent quarter, MTS reported net income of $11.0 million on sales of $116.8 million.

In addition to losing out on government contracts, MTS has also lost business from some customers whose policies prohibit them from doing business with companies that are on the federal government's excluded-parties list.

That includes the University of Minnesota, where engineering departments that had previously bought from MTS could not go to the company for two contracts worth $180,000 for materials-testing equipment, according to Tim Bray, interim director of the university's purchasing department.

Bray said the engineering departments chose not to go with another supplier because they have been happy with the quality of the MTS equipment. "We'll verify that it's off the excluded-parties list and then move forward," he said.