On November 17, 1994, about 0635 mountain standard time (MST), a Fairchild SA227, N380PH, experienced a contained engine failure while en route from Helena, Montana to Spokane, Washington. The airline transport rated captain, his first officer, and the two passengers were not injured, and the aircraft sustained minor damage. The FAR Part 135 passenger flight, which departed Helena at 0608 MST, was operating in visual meteorological conditions at the time of the engine failure. The aircraft was on an IFR flight plan, and there was no ELT activation. According to the operator, the number two engine failed while the aircraft was in cruise flight, and the crew diverted to Missoula, Montana. At Missoula, a successful precautionary landing was completed about 15 minutes after the failure. At Missoula it was determined that the impeller did not penetrate its protective shroud, but some portion of the engine structure exited the engine intake, impacted the propeller, and was thrown into the side of the fuselage. As this was the first reported operational failure of a TPE331 compressor impeller, the investigation focused on the failure mode of the impeller body. A metallurgical analysis completed by Allied-Signal Aerospace, under the supervision of the FAA, revealed that the impeller failed from a low cycle fatigue fracture mode initiating from multiple areas in the backface fillet. Further examination revealed numerous other cracks within the backface fillet area.