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India cancels helicopter deal with AgustaWestland

Jan. 2, 2014, Bangalore, India - India cancelled its $770 million helicopter deal with Italian defence group Finmeccanica's AgustaWestland unit on Wednesday over what it termed a breach of integrity, but agreed to take part in an arbitration process.


January 2, 2014
By Reuters

India froze payments for the 12 AW101
helicopters after Finmeccanica's then chief executive was arrested in
February for allegedly paying bribes to secure the deal, embarrassing
the New Delhi government before parliamentary elections due by May 2014.

The
scrapping of the deal, which will now go through a probably lengthy
legal process, would be a fresh setback for Finmeccanica. Delays in
selling some of its money-losing assets have prompted credit rating
agencies to downgrade the company to junk.

But it would offer an opportunity for rivals such as United Technologies Corp's (UTX.N) Sikorsky Aircraft, EADS EAD.PA unit Eurocopter and Lockheed Martin (LMT.N) to get a share of India's burgeoning defence market.

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Defence
minister, A.K. Anthony, has said he did not believe AgustaWestland's
denial that it paid bribes to swing the deal. Anthony had a meeting with
Prime Minister Manmohan Singh hours before the latest decisions were
announced.

"The Government of India
has terminated with immediate effect the agreement that was signed with
M/S. AugustaWestland 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 and the agreement by AWIL," the Defence
Ministry said in a statement on Wednesday.

Finmeccanica
spokesman Roberto Alatri, commenting on India's decision, said the
company would defend its position. It invoked the arbitration, which
would be conducted in India under the Indian Arbitration and
Conciliation Act of 1996.

"We'll do
everything that would be necessary to defend the correctness of our
position," Alatri told Reuters. "We're sure our behaviour was ethically
correct."

He said India's agreement to arbitration was a positive step.

India's
Defence Ministry said it believed "integrity-related issues are not
subject to arbitration" but nominated an arbitrator, it said, to
safeguard its interests.

Uday
Bhaskar, a defence analyst at the Society for Policy Studies in New
Delhi, said India's participation in the arbitration did not represent a
climb-down.

"Cancelling deals and saying that we will not acquire critically-needed equipment, to my mind, is not the answer," Bhaskar said.

"But there's no climb-down on this arbitration and as a matter of fact it might be the most viable via media (middle road)."

India
in October had issued a final "show cause" notice to AgustaWestland
seeking to terminate the contract. Sources told Reuters in November the
deal would be scrapped.

ALLEGATIONS

Indian
defence deals have been hit by a number of corruption allegations over
the past two decades but a Defence Ministry spokesman said this was the
first cancellation of a major deal.

Paying
or accepting bribes is prohibited by India's defence procurement rules.
The government can cancel a contract if an integrity pact in the rules
is violated, and the seller has to forfeit any security money it
deposited as a bidder.

The
Comptroller and Auditor General said in August the ministry had
initially stipulated that the helicopters should be able to fly to an
altitude of 6,000 metres (19,685 feet), which meant that AgustaWestland
could not compete since the AW101 was certified to fly only to 4,572
metres (15,000 feet).

India took
delivery of three of the helicopters before the deal stalled but the
Defence Ministry spokesman said the fate of those aircraft was
"uncertain".


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