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.
