NEWS
An Italian court has barred India from encashing bank guarantees worth over 2,360 crore by AgustaWestland as part of the penalties imposed after scrapping the scam-tainted 3,600 crore VVIP chopper deal. India has decided to file an appeal against the decision of the Italian court, a Defence Ministry spokesperson said while asserting that the Government, “will vigorously pursue all options” for encashment of the bank guarantees. India has already encashed bank guarantees of 240 crore deposited in in India. “The Court granted the requests made by Finmeccanica recognising the manifestly abusive enforcement of the guarantees made by the Indian Defence Ministry, given the vagueness of the complaints against the alleged breach of contract,” Finmeccanica stated.

VIEWS
In March 2010, the Government of India signed a 3,600 crore contract with AgustaWestland, an Anglo-Italian company under the Finmeccanica group for the acquisition of 12 AW-101 helicopters for VVIP travel. The contract included a five-year logistics support package as well as initial training of aircrew and technical personnel of the Indian Air Force (IAF). This deal was of critical importance for the nation as the fleet of VVIPmodified MI-8 helicopters had already been overtaken by obsolescence and was really not the right platform for the task. AgustaWestland on their part regarded this step by the company as visionary and to be the right strategy for entry into the lucrative Indian market as well as into the indigenous industry, both holding considerable promise. AgustaWestland had identified India as “one of the pillars of the company’s expansion strategy in India”. The company had also built up strong industrial relations with the Tata Sons with whom it had established a joint venture for the production of the AW-119 helicopter and had plans to further expand its industrial activities in the region.

Having been associated with the Indian defence market for over four decades, AgustaWestland is not really new to India. It has been providing product support since 1971, when it had supplied the Sea King helicopters to the Indian Navy. The company has also built up a sizeable presence in the civil market as well beginning with the sale of one AW-109 helicopter to the Government of Rajasthan in 2005. The AW-119 was also one of the platforms in the running for the Indian Navy’s tender for a Reconnaissance and Surveillance Helicopter and had already completed a series of trials as part of the evaluation process. AgustaWestland has also been eyeing the potential market for 600 military helicopters in India over the next ten years valued at several billion Euros. These were seen by the company to the requirement of the Indian Army, the Indian Navy, the IAF and the Indian Coast Guard by way of helicopters for light observation, anti-surface and antisubmarine warfare, combat, border and coastal patrol duties.

Then all of a sudden things went awry. Following disclosure by a former company executive Lorenzo Borgogni of the €51 million ( 362 crore) pay-off in the AW-101 contract, the Italian Government initiated a probe that led to the arrest of Giuseppe Orsi, CEO of the Italian defence giant Finmeccanica. After a period of feigned ignorance and diffidence, the Indian Ministry of Defence (MoD) ordered investigation by the Central Bureau of Investigation (CBI) especially as several Indian parties were also alleged to have been involved. Finally, in January this year, the MoD terminated the contract on the grounds of “breach of the pre-contract integrity pact and the agreement by AgustaWestland”. Meanwhile, three helicopters were already flying with the IAF, training of the first batch of aircrew and technical personnel completed, spares package for long-term support received and 45 per cent of the value of the contract already paid to AgustaWestland. And now as per the latest reports, the nation will have to wage a prolonged and arduous legal battle with the Italian legal system to recover even partially, the staggering losses incurred on this account. In the final analysis, there is the need to introspect whether cancellation of the contract was the right step.

Till such time appropriate alternative is found, VVIPs who were looking forward to travelling in one of the finest and most modern rotary-wing platforms in the world, will have no option other than to make do with the vintage and ageing helicopter fleet of Russian origin currently with the IAF.

Fortunately for the IAF, the fleet of AW-101 helicopters was not going to be a part of its operational inventory and as such, cancellation of the contract would have no impact on its operational potential. However, should a major contract for defence equipment be made to run aground in a similar fashion, the impact on the operational capability of the armed forces could be debilitating.

While interacting with the media during the Defexpo 2014, the Minister of Defence A.K. Antony admitted that, “the military procurement process may not be 100 per cent clean”. It would, therefore, be necessary to devise methods to deal with corruption in a way that crime is separated from defence contracts and is dealt with separately without jeopardising the contract itself. Unless the MoD learns to handle such issues with greater diplomatic finesse, it will end up shooting itself in the foot more often than not.