Well Johnny, it is obvious that we will not convince each other since this is the second time you have brought your Father's knife sheath into a discussion of neatsfoot oil. Let me say that there too many "unknowns" here:
(1) What kind of neatsfoot oil did your Dad use? Pure neatsfoot oil or neatsfoot oil compound? There is a BIG difference in the two.
(2) How often did he apply the oil and how much did he apply each time? Most people think "If a little is good, more is better" when it comes to neatsfoot oil. Not saying your Dad did this, but some people will fill a coffee can with oil and drop the scabbard in it to sit over night, effectively drowning the leather. Too much oil, whether pure oil or one of the compounds containing mineral oil, can severely darken the leather, no doubt about it, it's the nature of the beast. Heavily used working horse harness needs oiling once every three to five years - that's on a Mennonite farm where the horses are the only propulsion for farm equipment. A leather knife scabbard, even one used regularly like the small one in your photo, only needs oil once every 5 to 10 years. In 37 years, this scabbard should have been lightly oiled 4 to 6 times. I have a feeling that this one received more oil than that. True?
(3) How much use did the two scabbards get? Obviously the larger knife, while carried a little, is a "safe queen" compared to the smaller one. The smaller knife has seen more carry and exposure to sunlight, dirt and abrasion common to a well used leather item. When you say that "the leather is coming apart", what do you mean? If the leather is cracking, splitting, hardening or flaking, those are indications of too much oil or some other treatment. Is the stitching failing? That indicates the use of a neatsfoot oil compound. Mineral oil, used to cut neatsfoot oil to make the compound will damage linen thread, pure neatsfoot oil will not. Over oiling (with anything) causes leather cells to swell and burst causing the leather to fail, especially under the stitching where the holes made by the awl act like perforations making failure certain.
Not being able to hold the knives in my hands, it is hard to make a completely accurate assessment of their condition but I do think that, based on over 30 years of working with leather with hide to finished product I have made what I consider to be a pretty accurate judgment of their condition. And please understand, I am not saying anything disrespectful about your father, he obviously liked this knife, used it a lot and took good care of it, carrying it often and taking what can be considered good care of it and it's sheath. It is obvious that it has been well used where the larger 1960 knife and especially it's sheath show much less use. Too bad it was treated with Pecards, it would have looked better and retained it's original color better if left alone, it probably didn't need any treatment.