Govt scraps VVIP chopper deal - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Wednesday 1 January 2014

Govt scraps VVIP chopper deal

By Ajai Shukla
Business Standard, 1st Jan 14

The ministry of defence (MoD) has unilaterally terminated a Euro 556 million (Rs 4,730 crore at today’s exchange rate) contract with Anglo-Italian helicopter company, AgustaWestland, for 12 high-end AW-101 helicopters to ferry top leaders and high officials in safety and comfort.

The MoD announced on the evening of January 1, “The Government of India has terminated with immediate effect the Agreement that was signed with M/s. AgustaWestLand International Ltd. (AWIL) on 08 February, 2010 for the supply of 12 VVIP/VIP helicopters on grounds of breach of the Pre-contract Integrity Pact (PCIP) and the Agreement by AWIL.”

MoD procurement policy requires every overseas defence vendor to sign an “Integrity Clause”, strictly prohibiting the bribing of Indian officials to win a deal.

The decision comes almost 11 months after Italian prosecutors in Milan arrested Giuseppe Orsi, the boss of giant Italian defence corporation, Finmeccanica, on February 12, 2013, for allegedly bribing Indian officials to win the deal. Orsi had headed AgustaWestland in 2010, when the IAF contract was signed.

The MoD responded immediately by freezing the contract, suspending payments to AgustaWestland, and initiating a Central Bureau of Investigation (CBI) enquiry. A senior MoD official was despatched to Italy to obtain evidence of wrongdoing that could have influenced the award of the contract.

The MoD has since stonewalled AgustaWestland’s requests to discuss the issue. The one face-to-face meeting between the two parties on November 20 was treated by the MoD as a “final hearing” rather than as a discussion. The Anglo-Italian company invoked legal arbitration on October 4, but Defence Minister AK Antony said on November 26 that the government would not accept arbitration. After Mr Antony public declared on October 30 that AgustaWestland had “violated the contract”, the company responded combatively that “the outcome of the proper legal processes should be awaited.”

Today, while terminating the contract, the MoD is attempting to minimise collateral damage. A “termination” means that the Indian Air Force (IAF) will retain the three AW-101 helicopters it has already taken delivery of. Payment for these will be adjusted from the amount India has already paid to AgustaWestland, that is about 45 per cent of the contract value.

“Cancelling” the contract would have required New Delhi to return the three helicopters and encash bank guarantees for the full amount paid, something that AgustaWestland had already signalled it would contest with all its might.

The MoD was also measured on Wednesday in its response to AgustaWestland’s arbitration request. While contending that a violation of the Integrity Clause did not merit arbitration, the government went ahead and named its arbitrator.

The MoD announced today: “Based on the opinion received earlier from the Attorney General of India, it has been the view of the Government that integrity-related issues are not subject to arbitration.  However, AWIL has since pressed for arbitration and appointed an arbitrator from its side.  In view of this, MoD sought afresh the opinion of the Attorney General.  With a view to safeguard the interests of the Government, MoD has nominated Hon’ble Mr Justice BP Jeevan Reddy as its arbitrator.”

On November 20, AgustaWestland had named former Supreme Court judge, Justice B. Srikrishna, as its arbitrator on this issue. According to the Indian Arbitration and Conciliation Act 1996, which governs this contract, a third, neutral arbitrator is also to be appointed by mutual agreement.

Contacted for a comment, Jackie Callcut, CEO of AgustaWestland India, says: “We haven’t received any communication from the MoD yet. We have no comment to offer other than to deny any wrongdoing and to reiterate that AgustaWestland will robustly defend the company’s reputation.”

In parallel with the Italian investigation, the CBI is pursuing its own probe. It has registered an FIR against a former IAF boss, Air Chief Marshal SP Tyagi, and 14 others.

While the CBI has not produced clinching evidence yet, Italian investigators in Milan have presented before court a “budget document”, that key middleman, Guido Haschke, allegedly prepared in 2008, along with his accomplice, Christian Michel. Reports from Italy say this budgets for payments to politicians (“POL” in the document) and some 15 million Euros to a family (annotated as “FAM”).

According to the Italian case, AgustaWestland paid some 51 million Euros to Haschke, Michel and another accomplice, Carlo Gerosa to seal the deal. The money was allegedly funnelled through software companies, Mohali-based IDS Infotech and Chandigarh-based Aeromatric Info Solutions Pvt Ltd.

Graphics: Timeline

Aug 1999       :           IAF proposes purchase of 8 VVIP helicopters, to replace outdated Mi-8 choppers

Mar 2002       :           Global tender floated, requiring helicopters to fly up to 6000 metres. Only Eurocopter EC-225 qualified in trials

Nov 2003       :           Brajesh Mishra, Principal Secretary to PM Vajpayee, convenes a meeting to suggest that the helicopter’s operational ceiling be lowered from 6,000 metres to 4,500 metres to make more choppers eligible.

Nov 2003 to Sept 2006        :           This issue and others like raising cabin height discussed between IAF, NSA, PMO, SPG and MoD. Helicopter numbers also increased from 8 to 12.

Sept 27, 2006:           Fresh Request for Proposals (RfP) issued to six vendors. Three respond --- Sikorsky (S-92 helicopter); AgustaWestland (AW-101) and Rosoboronexport (Mi-172).

April 2008     :           After field trials, AW-101 recommended for purchase.

Feb 2010       :           Contract concluded with AgustaWestland for 12 AW-101, including “Integrity Clause” banning use of undue influence, and middlemen.

Feb 12, 2012 :           Media reports appear on Italian investigation into bribery in AW-101 contract with India. The MoD freezes the contract, with three choppers delivered.

Oct 2012        :           AgustaWestland invokes arbitration. The MoD is required to name its arbitrator by Dec 3, but does not.

Jan 1, 2014    :           MoD “terminates” contract. Names arbitrator 


  1. I wish they could call off the Rafale negotiations too and instead fasttrack the Tejas MK 2.

  2. MoD... Waited... out going Chief... demitted office... impeding the inevitable... ???...

  3. Root cause of this problem is the acquisition process. On paper, it looks excellent but its process including RFI, to proposal, to evaluation and finally approval & order placement allows the suppliers abroad to compromise the system. At each step of the way officials are involved. That is where honesty goes to hell. Top it all this greedy politicians ("FAM" - this ruling Italian family which is misleading the nation) is compromise the whole acquisition process in order to raise money for party work.

    The Defence Minister, who is honest but not very smart administrator is neither capable od dealing with clean acquisition process, nor could speedily haul up the corrupt officials.

    It is difficult to tell whether Air Marshall is corrupt or his brothers took him on a ride to get some money. Imagine the national interest is being compromised by person as high as Air Marshal who is head of the Air Force.

    Persons like Air Marshal should not have a lengthy trial in civil courts. A military court should try him and hang this him from the nearest flag pole.

  4. Is the 45% of money paid is equal to 3 helicopters only? If this is the case then AW is not at loss for termination of the deal. Kick backs also given and company also is benefitted.

  5. Such a waste of money.


  6. Hang 1 or 2 air marshalls within 2 months. Corruption will be dead within 3 months.

  7. Bravo, so now each helicopter which we have costs approximately Rs 709 crores and that too without support, technical or otherwise.

    Great way for the middleman to make more money by now charging astronomical amounts for all the spares wich this country will require to keep these white elephants flying. The CAG should look into these business of 'black listing' firms so that each spare part bought from a third company or from the black market makes for windfall profits for someone - and that too without the taint of corruption.

    So, once again, Bravo. Great economic and strategic move by Mr Anthony and his corrupt ilk!


    Please take a look into this Ajay, The Devyani issue. This explains the issue very well.

  9. "Sau (100) Me se Assi (80) Beimaan Fir bhi mera bharat mahan"

    Sad to say this but I think "Beimaani" is in our khoon only. Ghoos khor hamare hi log hai.

    It's really a 80 v/s 20 fight. Just heart breaking stuff.

  10. Why can't they just use Dhruv??

  11. This action shows India to be a child to the world.
    Zero evidential justification or attention to legal specifics.
    Laughable attempt to avoid arbitration...
    yet the Attorney General himself cannot professionally condone that,
    so they concede that in the end. Fun times!
    What's to bet the whole point of this is to present a front
    of "fighting corruption" going into the election?

    Agusta or specific actors may very well have committed bribery.
    OK. There is still a process for dealing with that.

    Following that process, even if it takes a bit longer,
    doesn't hurt anything, India does not lose legal position for
    not acting prematurely and outside of the law...
    In fact India's position is WEAKENED by acting in this manner,
    because Agusta can rightly claim it was wronged on procedural issues.
    If Agusta bribed then India can claim it's money back,
    and in fact, the EH101 is a world-class helicopter,
    winning the United States' VIP helicopter competition
    and otherwise offering top notch capabilities used by many militaries.

  12. I am surprisded at the comments...some want to hang air marshalls without even thinking..the air marshall alone cannot swing the deal...even if he wanted to...

    How the MoD goes scot free always...i remember VP SIng's days when he raked the BOFORS gun deal..after that the hype started by him continued my the MoD stopped the whole defense up gradation. DRDO and HAL basicaly have a reputation of worldwide to try and study other's brochure and fail miserably to copy yet propagate such height of excellence , that the armed forces have imaginary eqwuipment..after all the kargil war was fought with a gun locating radar as DRDO scuttled the procurement as it was on the threshhold of making one a couple of years before it...and many more such

    Most laughable of MoD and their bandwagon is that they have scuttled major deals after themselves signign it..which makes them liable for wasting time and not doing their job wee in the first place..more laughable is that most of the deals scuttled is at a time when the delivery stage has surpasses,,eg of the deal with Israel signed in 2006, deliver date of first missile 2012 and in 2013 the MoD decided somehtign was wrong whith what they did at the begining in the contract and thus scuttled it...DRDO a laughable joke as most say that it canot exoect to sppin feed DRDO, HAL made a mark for itself, the rafelle have clearly said that it is not happy with HAL production line and cannot afford its image to have a beating just as the MiG series took by wrong propoganda and ill conceived idea that are in contradiction tho those flying the 21s...

    If not corruption charges errupting in final stages of a deal, MoD thru DRDO/HAL scuttles the upgradation of the armed forces....and one wonders if there lies the greater danger or in peoples mindsets that gullibly buys into hanging personnel in uniform , letting those reasponsible for the whole fiasco, wasting time and money and buying weaponry only after being outdated as done with the BARAK..after crying foul for so many eyars go scot free

  13. Why the ministers need this helicopter at 400 crore when HAL Dhruv comes at 40 crore? With the same ferry distance and higher rate of climb, the HAL Dhruv is equivalent in terms of performance. Only in size the AW101 bigger, and if we're not transporting some RAVANns what's the need of such a big helicopter? Is the civilian version of DHruv not enough? Also 12 Dhruvs at a total of 480 crore govt saves 4250 crore over AW101. This money is enough to provide water to people in Delhi for the 240 crore for one year. So its enough to provide water free of cost for 17 plus years. Delhiites may die of drinking water rather than dying without getting it. :)

    1. How will sonia earn the money if we dont import. Haschke is the new quatrrochi. Cbi is there to bail her out any way. People of india are not serious. They get what one deserves.

  14. @LARSING

    Don't worry.. Your wish shall come true. Please wait for the general Elections.

  15. U know what is the root cause... Propensity and Ease with which we can IMPORT and JUNK the Indeginous.

    Force them Not to Import and Make do with whatever INDIAN and see... Ine 10 Years We shall be One of the best producer of military Goods.

  16. Good riddance ! Make an example out of FINMECCANCIA and all its partners, so that OEMs learn the lesson of their lives and never think about greasing palms to earn business in India again in the future !!!


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