India Cancels Contract With AgustaWestland for AW101s

 - January 2, 2014, 9:56 AM

India’s government has cancelled its $770 million contract with AgustaWestland to supply 12 AW101 VIP helicopters to the Indian Air Force (IAF) amid bribery allegations. On January 1, the Ministry of Defense (MOD) issued a statement saying the government “has terminated with immediate effect the agreement…on the grounds of breach of the pre-contract integrity pact and the agreement” by AgustaWestland. The Anglo-Italian helicopter manufacturer denies the allegations.

India signed an agreement with AgustaWestland for the AW101s in February 2010, according to the statement. Reports of corruption first surfaced in the media in 2012, and subsequent investigations resulted in former Finmeccanica CEO Giuseppe Orsi and former AgustaWestland CEO Bruno Spagnolini facing charges in Italy. Finmeccanica is AgustaWestland’s parent company.

The Indian government suspended the contract last February, after AgustaWestland had delivered three helicopters. In October, India’s attorney general ruled that AgustaWestland breached contractual obligations and the associated integrity pact in winning the IAF selection. AgustaWestland and Finmeccanica requested arbitration over the contract.

“Based on the opinion received earlier from the Attorney General of India, it has been the view of the Government that integrity-related issues are not subject to arbitration,” the MOD said. “However, [AgustaWestland] has since pressed for arbitration and appointed an arbitrator from its side. In view of this, MOD sought afresh the opinion of the Attorney General. With a view to safeguard the interests of the Government, MOD has nominated Justice BP Jeevan Reddy as its arbitrator.”

On January 2, AgustaWestland issued a statement confirming that it had received a notification concerning the appointment of an arbitrator and a termination notice of the AW101 contract from India’s MOD. “AgustaWestland still finds that neither the termination notice by the Ministry of Defense nor the show cause notice, from which this termination notice stems, offers adequate basis to take any action against the Company,” the statement reads in part. “It is the Ministry of Defense’s admitted position…that the tender process has been duly followed. Accordingly, the termination notice received yesterday will have to be discussed within the framework of a fair arbitration process.”

The company said it will propose the names of persons to serve as a third arbitrator at the MOD's request. “AgustaWestland remains committed to working with the Government of India to resolve the issues, to allow the Indian armed forces to receive the equipment they need and is ready to perform the remaining obligations under the agreement for the supply of the 12 VVIP/VIP helicopters,” the statement said.

AgustaWestland said that it will “continue to support” the three helicopters it has already delivered to the Indian Air Force.