Titanium mined in China may also have been used to build part of a
new Standard Missile-3 IIA being developed jointly by Raytheon Co
and Japan, said a senior U.S. defense official, who said the
incidents raised fresh concerns about lax controls by U.S.
U.S. law bans weapons makers from using raw materials from China and
a number of other countries, amid concerns that reliance on foreign
suppliers could leave the U.S. military vulnerable in some future
The Pentagon investigated the incidents in 2012 and 2013, and
granted the waivers after concluding the non-compliant materials
posed no risk, Defense Department spokeswoman Maureen Schumann told
Frank Kendall, the Pentagon's chief arms buyer, issued five such
waivers after a change in U.S. law in 2009 expanded the restrictions
on specialty metals to include high-performance magnets, Schumann
said. The change affected a radar system built by Northrop Grumman
Corp for the F-35, which uses a number of such magnets.
Reuters reported in January that the Pentagon permitted Lockheed to
use Chinese magnets to keep the $392 billion F-35 program on track,
even as U.S. officials were voicing concern about China's espionage
and military buildup.
The other, previously undisclosed waivers covered the B-1 bomber,
F-16 fighter jets for Egypt equipped with a specific radar system,
and the SM-3 IIA missile, Schumann said in response to a query from
The U.S. Government Accountability Office is expected to brief
Congress in April on its comprehensive audit of the issue of Chinese
specialty metals on U.S. weapons systems.
China is the largest supplier of specialty metals and materials
needed to build magnets that work even at very high temperatures,
although congressional aides say progress has been made on
developing alternate sources in the United States.
Kendall initiated a broader Pentagon review after the initial F-35
issue was reported in late 2012, but ultimately granted the waivers
because there was no risk involved with the parts, said the senior
In some cases, it would have been expensive to take apart complex
equipment to swap out magnets potentially made with Chinese rare
earths; in others, the parts will be swapped out during future
"You don't break a multimillion dollar radar to replace twenty
dollars' worth of magnets. There was no technical risk," said the
official, who added that the issue involved only raw materials. No
weapons systems specifications were sent to China, the official
The F-35 waivers included a range of equipment, including $2 magnets
used in radars on 115 F-35 jets. The F-16 and B-1B bomber waivers
also involved magnets made from Chinese raw stock, the official
A separate issue involving thermal sensors built for the F-35 by a
Chinese subsidiary of Honeywell International Inc did not require a
formal waiver because it involved a unit of a U.S. company, the
official said. Honeywell now builds that part in Michigan.
Honeywell acknowledged in January that the U.S. Justice Department
was investigating import and export procedures at the company after
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Defense officials say the incidents underscore the need for greater
vigilance by arms makers about their supply chain to ensure they
comply with U.S. laws.
"It's really just sloppiness, frankly, when this happens," said the
defense official. "It's not enough to say, 'I'm pretty sure it
didn't come from China.' That doesn't work for us. We're looking for
Officials at Lockheed, Northrop, Boeing and Raytheon referred all
questions to the U.S. government. Without the waivers, the companies
could have faced stiff penalties for violating U.S. laws; instead
the Pentagon is likely to seek compensation from the companies.
The defense official said the waivers were granted with the
expectation that the companies would tighten up their buying
procedures to reflect changes in procurement rules.
"It's not a 'get out of jail' free card. This is something we should
be good at. We shouldn't be caught short on these," said the
official. "Hundreds of regulations change yearly and there's a whole
group of folks whose job it is to make sure that those (changes) are
properly implemented in contracts."
Kendall initiated a review of all systems on Lockheed aircraft
programs after Northrop Grumman, which builds the active
electronically scanned array (AESA) radar for the F-35, found it may
have used non-compliant Japanese magnets.
The Pentagon's Contracts Management Agency later widened its review
to include high-performance electronics across the industry. "We
have looked very hard and systematically to flag these (issues),"
said the official.
One industry official declined to estimate the costs involved, but
said the department was clearly taking a more aggressive approach on
supply chain problems.
The Pentagon had shared the cost of such incidents in the past, but
U.S. officials were now insisting that companies paid for the cost
of retrofits with their own funds.
The case of the SM-3 missile that Raytheon is developing jointly
with Japan involved titanium produced in China, and the incident was
self-reported. But the missiles were produced for testing and the
Chinese materials would not be used in any subsequent missiles, the
defense official said.
(Reporting by Andrea Shalal; editing by Ros Krasny and Ken Wills)
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