AgustaWestland asks for arbitration on VVIP helicopter deal

By Ajai Shukla

Business Standard, 5th Oct 13

Anglo-Italian helicopter company, AgustaWestland, has invoked arbitration on the Ministry of Defence (MoD) decision to suspend a contract worth Euro 556 million (Rs 4,650 crore) for twelve AW-101 helicopters to ferry Indian VVIPs in comfort and safety.

The MoD suspended the purchase after the arrest in Italy, on Feb 12, of Finmeccanica chief, Giuseppe Orsi, for allegedly bribing Indian officials to secure the contract. Orsi headed AgustaWestland, a Finmeccanica group company, from 2010 to 2012, when the contract was secured.

According to an AgustaWestland statement today, the MoD has ignored repeated requests for discussions on the suspension. The company has, therefore, exercised the next option available to it --- arbitration.

“The ongoing need to resolve this issue has left AgustaWestland with no other option but to invoke arbitration through Counsel; the next step prescribed by the contract. This is not a step we take lightly,” said AgustaWestland today.

The contract mandates that arbitration proceedings would be conducted in India under the Indian Arbitration and Conciliation Act, 1996. It provides for three arbitrators: one each nominated by the buyer and the seller, and the third arbitrator nominated by mutual agreement.

With the Italian investigation and prosecution apparently making little progress --- Orsi was released on bail in May --- AgustaWestland is pushing back strongly against what the company sees as MoD highhandedness.

Protesting “the unilateral suspension of the contract”, AgustaWestland points out that “Neither the contract nor the associated Integrity Pact confers such rights on the Indian MoD.”

Since April, AgustaWestland has repeatedly requested the MoD for bilateral discussions on the suspension. The MoD has simply ignored the requests.

The MoD suspended the contract when the Indian Air Force had received only three of the contracted twelve helicopters. There is little clarity over whether the VVIP fleet will now consist of two types of helicopters, and also over the spares and maintenance support that the IAF can expect from AgustaWestland after a contested termination of the contract.

At the centre of the controversy is the IAF’s dilution in 2006 of the VVIP helicopter’s performance specifications, allegedly to make the AW-101 helicopter compliant with the tender requirements. In 2002, when the IAF first issued a tender, the helicopter was required to operate at altitudes up to 6000 metres. In Nov 2003, a process of reconsideration led to the altitude requirement being diluted to 4500 metres in a subsequent tender issued in Sept 2006. The decision involved both the NDA government and the UPA government that followed it.

The CBI has filed a charge-sheet against former air force boss, Air Chief Marshal Shashindra Pal Tyagi, and twelve others.

Since 2005, AgustaWestland has repeatedly claimed that the AW-101, which was certified only up to 4500 metres in 2002, was undergoing certification to 6000 metres.

Says Jackie Callcut, CEO AgustaWestland India, “The allegation often repeated in the media is that there was a conspiracy to change the altitude requirement in the VVIP competition to favour AgustaWestland. This allegation simply does not follow the facts. Firstly, the 2002 competition was canceled because it resulted in a single bidder situation due to the altitude requirement.  Therefore that requirement had to change for any procurement to proceed. Secondly, the altitude requirement was an irrelevance to AgustaWestland anyway; it was well known the AW101 would have been re-certified to 6000m if needed.”