Blindly Muddling Through With Eyes Wide Open

This, at best sums up the approach taken by those ‘desi’ journalists who, until recently, had vociferously alleged that the deal to acquire 12 AW-101 VVIP transportation helicopters from UK-based AgustaWestland was a tainted one. And the reason these ‘desi’ nitwits went totally off course was that instead of concluding that 2 + 2 = 4, they ASSUMED—based only on circumstantial evidence—that 2 + 2 = 22. No wonder they are all now in collective shock after an Italian court decided that all charges of international corruption would be dropped against Finmeccanica (the Italy-based holding company of AgustaWestland), and Finmeccanica would only pay a “negligible fine” for falsifying invoices, but this was “not in any way an admission of any wrongdoing or liability” by Finmeccanica. What this means I will explain later, but let us now examine how the ‘desi’ journalists missed the woods for the trees by, first, misinterpreting facts, and second, by jumping to untenable conclusions. 

The investigation into charges of international corruption involving Finmeccanica commenced in 2011 after an open succession war between Francesco Guarguanglini, who was then heading Finmeccanica, and his successor, Giuseppe Orsi, who in 2011 was Finmeccanica’s Chairman and CEO. In late 2012, when Silvio Berlusconi’s coalition government, which had as coalition partners parties such as the far-right Lega Nord (which was alleged to have received financial kickbacks), was replaced by one led by technocrat Mario Monti, this reportedly prompted Lorenzo Borgogni, a former top employee of Finmeccanica and an Orsi-baiter, to blow the whistle on the Rs 3,546 crore (Euro 556 million, or US$757 million) AW-101 contract, which had been inked on February 8, 2010. Borgogni told prosecutors in a detailed statement that kickbacks were allegedly paid by AgustaWestland for securing the AW-101 contract through the use of middlemen and that the total amount of financial kickbacks came up to Euro 51 million (Rs.362 crore). Borgogni detailed how the money was paid through a network of middlemen and consultants like Guido Ralph Haschke, Carlo Gerosa and Christian Michel, with the main allegation being that at least Euro 10 million was funnelled back to Italy and paid to the Lega Nord political party in return for its support to Orsi’s bid to become Chairman and CEO of Finmeccanica. In his statement, Borgogni said that Finmeccanica had decided to divert Euro 21 million for commissions meant for Europe-based consultants, knowing how risky it was to hire Indian citizens as agents for securing Indian military procurement contracts.

Borgogni had alleged that the Euro 21 million was generated through inflated bills and bogus engineering contracts, with regular monthly tranches of payments being made between 2007 and 2011. These payments averaged to a Euro 55,0000 per month towards the end. Guido Haschke, on the other hand, had claimed in his confession that he received a kickback of Euro 20 million of which Euro 400,000 was paid off to the brothers Juli ‘Jolly’ Tyagi, Docsa Tyagi and Sandeep (Julie) Tyagi, who in turn allegedly transferred a certain amount of money, not yet quantified, to ACM S P Tyagi, CAS of the Indian Air Force (IAF) from 2004 to 2007. In addition, another Euro 11.6 million came through inflated bills and invoices that were in the guise of engineering contracts placed with IDS Infotech, a Tunisia based engineering consultancy. While Guido Ralph Haschke is the CEO and partner of GADIT SA of Lugano and Tunis-based GORDIAN SERVICES SARL, Carlo Gerosa is Haschke's partner in the above companies (as well as in Chandigarh-based Aeromatrix, an engineering and IT outsourcing company), and British citizen Christian Michel is the owner of London-based Global Service Trade Commerce, and of Dubai-based Global Service FZE. Allegedly, Finmeccanica first paid the sum of Euro 400,000 to Haschke and Gerosa, through a consultancy contract between AgustaWestland and Gordian Services SARL. Later, these two signed engineering contracts with companies IDS Infotech India and IDS Infotech Tunisia, allegedly to cover up the payments of money to pay unidentified Govt of India officials. Christian Michel allegedly received Euro 30 million for supporting the corruptive activities meant to bag the AW-101 order. The first kickbacks, however, were allegedly made as early as on December 6, 2005, with Haschke receiving Euro 100,000 through an India Services Agreement vide letter AG/ME/05/188 by AgustaWestland to Haschke's Gordian Services SARL. This agreement was renewed for the next three years through more follow-on agreements, including one marked AG/ME/06/235 and sent by AgustaWestland.

AgustaWestland’s contract with IDS Infotech had promised a payment of 5% of the value of the AW-101 deal. The contract was signed on January 1, 2007 and said that AgustaWestland will utilise its engineering activity and consultancy if it secures the AW-101 order. It also said that AgustaWestland would avail the engineering, design and software services of IDS once the sale & purchase agreement is signed by AgustaWestland and the Govt of India. Payment records have shown that AgustaWestland made regular transfers to IDS Infotech between 2007 and 2011 through Tunisia, totalling over Euro 21 million, which is just under 5% of the total value of the AW-101 contract.

One contract (known as post-contract services agreement) worth Euro 6 million (paid in 22 installments of Euro 275,000 each), placed with Michel’s Global Services FZE by AgustaWestland, was meant for ensuring positive media coverage of the AW-101 deal. This agreement also stated that Michel was required to ‘advise and assist’ AgustaWestland in all aspects of performing the contract and provide it with details of changes in the laws pertaining to India’s MoD procurement procedures. Michel was also required to identify and inform AgustaWestland of any hostile press activity that may have impacted on the execution of the contract, in addition to assisting AgustaWestland in the development of risk mitigation strategies to minimise the impact of any hostile press activities, and also give routine feedback on Indian media activity. Such payments were indeed made after the AW-101 contract was signed. For instance, Euro 275,000 was paid to Michel’s company account 60601358922302 in Lloyds TSB Bank’s Dubai branch on May 5, 2010. In another transaction, the same amount was debited from AgustaWestland’s Barclays bank account number 52773044 to Michel’s Dubai account on August 3, 2011.

Plausible Inferences

Following the Italian court’s recent verdict, it can now be stated with certainty that A) there is no prima facie evidence of any kind of wrongdoing, such as engaging in bribery, international corruption or contract violation; and B) the case was always about ‘falsifying invoices’ in order to ensure compliance with contract implementation. Explained further, what this means is that as per the MoD’s Defence Procurement Procedures, if the contracted OEM cannot ensure full compliance with the agreed-upon quantum of direct industrial offsets, then the OEM is mandatorily required—as penalty—to surrender a quantum of funds amounting to 5% of contract value to the MoD. In fact, this is exactly what Fincantieri SPA of Italy did three years ago when it voluntarily paid back to the MoD 5% of the contract value of the Euro 159.32 million procurement contract for two fleet replenishment tankers that were ordered for the Indian Navy back in October 2008. Therefore, in all probability, what Finmeccanica and AgustaWestland did together was create the façade of trying to fulfill their mandatory direct industrial offset obligations in the hope of not being required to surrender the amount of 5% of contract value back to the MoD.

It is also now abundantly clear that AgustaWestland never had to solicit anyone’s help either within India or outside for securing the AW-101 contract. How come? Simply because the three-engined AW-101 was from Day-1 the only viable contender to satisfy an operational requirement whose prime prerequisite was the provision of the best degree of survivability. That’s precisely the reason why the AW-101 was selected in the previous decade by the US Marines and the US Secret Service for serving as the primary VVIP transportation helicopter for the US President. In fact, the IAF and the Special Protection Group had to do hardly any spadework in terms of evaluations and bidding processes, and whatever was eventually done by both was to merely ensure the façade of conducting a global, competitive bidding process. No wonder the Central Bureau of Investigation (CBI) has to date registered hardly any progress in its investigations, despite it taking just days to file a First Information Report (FIR) in March 2013 against ACM (Ret’d) S P Tyagi, and 12 others, alleging cheating and criminal conspiracy, and subsequently interviewing ACM (Ret’d) Tyagi, former National Security Adviser M K Narayanan, former Special SPG Director B V Wanchoo, and former Intelligence Bureau Director, E S L Narasimhan.

But that still does not explain why the services of the three Tyagi brothers were enlisted by Haschke and Gerosa. The only plausible reason for this that their services were enlisted for lobbying on behalf of AgustaWestland with various potential civilian helicopters operators—a crucial point totally overlooked by both the ‘desi’ journalists as well as the CBI. For, unknown to many is the fact that the projected civilian helicopter market in India will be at least thrice the size of the country’s combined military helicopter market between now and 2020. Potential customers include the various state governments, private hospitals, and corporate charter companies specialising in servicing the private tourist charter market as well as providing offshore helicopter services to the oil-n-gas industry in India.

Presently, the market leader in all these sectors is US-based Bell Helicopters, which has sold more than 100 helicopters, inclusive of the Bell 407, Bell 412EP and Bell 430. Coming next is AgustaWestland with its already-sold A-109E Power and AW-139. Next comes Eurocopter with its Dauphin-2s, AS.355 Twinstar and EC-135, and lastly followed by Sikorsky with its S-76C and S-76C++ variants. Over the years, the AW-139 has emerged as the choice favourite for both various state governments as well as private air-charter companies like Global Vectra Helicorp Ltd, Heligo Charters Pvt Ltd and India Flysafe Aviation Ltd. The AW-139 is also the frontrunner for meeting the Indian Coast Guard Service’s requirement for 14 shipborne medium-lift SAR helicopters, as well as for replacing Pawan Hans’ existing fleet of Dauphin 2s. And since neither state governments nor state-owned entities like Pawan Hans are subjected to stringent procurement norms of the type codified by the MoD, an intense ‘do-whatever-it-takes’ lobbying effort is always required in order to taste success. The CBI would therefore be well-advised to explore this particular angle, instead of groping in the dark with the AW-101 deal. 

But way beyond all this, the greatest damage to India, her MoD and the IAF has been done by none other than the former Raksha Mantri, Arakkaparambil Kurian Antony. And here’s why. By unilaterally terminating the contract on January 1, 2014 after only three AW-101s had been delivered, Antony for all intents and purposes created a horrendous precedent by WRONGLY admitting, without any prima facie evidence on hand, that the MoD’s procurement procedures were deeply flawed, and that they had loopholes despite the most stringent, redundant and multi-tiered checks-and-balances having been put in place. Translated into layman’s terms, what this means is that each and every procurement decision either already taken or to be taken by the MoD can now be easily challenged and even reversed by anyone who is not a wellwisher of India. Needdless to say, Antony has caused incalculable damage to the IAF’s hard-won institutional reputation.   

What Antony should have done was await the legal verdict from the Italian courts and based on the verdict’s pronouncements, he should have decided on the next step forward, i.e. if AgustaWestland and/or Finmeccanica were guilty of violating the MoD’s contractual norms and procedures, then by all means go full-speed ahead to seek financial compensation through liquidated damages from the OEM. What eventually happened was exactly the opposite, i.e. the MoD unilaterally encashed the bank guarantees worth about Rs.2,200 crore that had been provided by AgustaWestland to the State Bank of India, and followed it by terminating the AW-101 contract. Consequently, the nett loser in this sordid episode is once again the end-user, i.e. the IAF. Therefore, it is now more than obvious that when the UPA-2 coalition government decided to terminate the AW-101 contract, its decision was based purely on its own non-negotiable prospects for political survival, with the country’s supreme national interests becoming totally negotiable.     

The Future

To be honest, it’s quite bleak for the IAF’s VVIP transportation aircraft fleet at this point in time. And that’s because the IAF now has no other choice but to go for a VVIP transportation variant of the Mi-17V-5 helicopter. In this helicopter, the main gearbox drives the hydraulic pumps, which supply hydraulic power for the flying controls. Though the Mi-17V-5’s hydraulic system has a main and standby channel and both of them have independent tanks, pumps, accumulators and pipelines, both the pipelines feed only a single booster, which in turn moves the control surfaces. Though there are a total of four boosters in the system, one critical weakness is that if there is a leakage in any of the four boosters, there is a possibility of the entire oil from both the main and the standby systems leaking out. The mandated emergency procedure for a total hydraulic failure is to have both pilots flying the Mi-17V-5 in unison to a landing. As per the Flight Manual of this helicopter, the aircrew is required to abandon the Mi-17V-5 in case of total hydraulic failure. In case they cannot, then they have to resort to flying by both pilots to land immediately. Therefore, the procedure given in the Mi-17V-5’s Flight Manual for total hydraulic failure does not inspire confidence in those helicopter pilots who are certified for VVIP transportation. All of them feel that this helicopter cannot be flown with a total hydraulic failure, and that this aircraft cannot even be taxied on ground with total hydraulic failure.

Consequently, the only available common-sensical and logical option now left on the table is to bite the bullet, restore the bank guarantee that’s already been encashed, and commence negotiations with AgustaWestland for both a revised delivery schedule for the remaining AW-101s and for restoring the already-delivered AW-101s back to flightworthy condition. To even contemplate doing anything else to replace the AW-101s will only result in fatal disasters in future—this being the writing on the wall and not just a mere prophecy.