Augusta Westland Scam: Facts so far

The Scam

The AgustaWestland scam involves a controversial deal, and alleged bribes to the tune of ₹120 crore paid to clinch it, for AgustaWestland, a subsidiary of Italian defense corporation Finmeccanica. The bribes were paid by the firm to Indians to help clinch the 2010 deal for 12 AW 101 helicopters to ferry VVIPs, including the President & Prime Minister.

The RFP for the deal was issued in March 2002 under the then NDA-Government to replace the existing Mi-8 helicopters in use at the time; to 11 vendors. This RFP was then cancelled due to it resulting in a single vendor situation with AgustaWestland, which is not a valid process for the Defense sector.

Additionally, the EH-101 helicopter (renamed AW 101) could not be field tested as it was only certified for a height of 4572m.

A revised RFP was issued in 2006 under UPA I with certain changes:

• Altitude requirement of 6000m was reduced to 4500m. 6000m is the operational requirement for transport in many North/North East areas.
• Cabin height of at least 1.8m was introduced.

However, despite the re-issue, instead of broadening the requirements to include more vendors, they were made more restrictive, and it was only issued to 6 vendors. Once again, a single vendor situation was created and AgustaWestland was then selected. The order was issued in February 2010.

Allegations of corruption surfaced in February 2013, and the deal, amounting to US$630 million, was cancelled in January 2014. India is said to have recovered the entire sum in June 2014 by invoking bank guarantees.

Internally, the Central Bureau of Investigation (CBI) had registered a case in connection with the bribes in 2013.

It should be noted that there is a discrepancy between the company ‘AgustaWestland UK’ invited to bid on the tender, and the company ‘AgustaWestland International Ltd.’ that actually bid on the tender. While subsidiaries of the same entities, these are separately registered entities which further adds to issues related to the company not being an Original Equipment Manufacturer (OEM) as required by Defense Procurement Procedures.

The Comptroller & Auditor General tabled a report “Acquisition of Helicopeters for VVIPs” in Parliament on Aug 13, 2013. The summary states:

It was observed that the entire process of acquisition of the VVIP helicopters right from framing from Services Qualitative Requirements (SQRs) to the conclusion of contract deviated from the laid down procedures.

— Report No. 10 of 2013, Comptroller & Auditor General

The full report is available on the CAG Website.

Key findings include:

• Frequent deviations of the terms & conditions of the RFP
• The evaluation methodology did not provide equal opportunity to the shortlisted vendors.
• Benchmarked cost was unrealistic; offered cost was ₹3966 cr, while the benchmarked cost was stated at ₹4871.5 cr. Note also that the approved estimated cost by MoD in January 2006 was ₹793 cr, 1/6th the benchmark. See Cost details below.
• Field evaluation of AW-101 was conductive on representative helicopters (Merlin MK-3A & Civ-01) with mock-ups of the passenger cabin and not on the actual helicopter.
• Approval for deviation in provisions should be done with extreme caution and exceptional circumstances; several instances of the failure to do have been observed.
• It took more than 10 years to finalize the acquisition process. (Air HQ observed in Jan 1994 that the existing Mi-8 helicopters had various shortcomings).
• 4 additional helicopters were unnecessary since VVIP choppers are typically less utilized. In Aug 1999, IAF had proposed acquisition of 8 helicopters (5 VIP, 3 non-VIP), which was increased to 12 in Oct 2005.
• The offset contract also had issues: allowed offsets were not compliant, selected Indian Offset Partners (IOPs) were not eligible, issues with the type of services and export orders within the contract itself. Listed example is year-wise breakup was provided from 2011 to 2014 but work was completed well by 2010.

Cost estimation

In January 2006, the Ministry of Defense approved an estimated project cost of ₹793 cr.

The Benchmarking Committee determined a price based on the following:

• AW-101 was priced at US$27m per aircraft in 2000
• US$2m increment for new engines (=US$29m)
• 15% increment towards development & certification costs (=US$33.4m)
• Inflation adjustment of 3.5% p.a. From 2000–2010 (=US$47m)
• Additional US$20.4m towards additional fitments/fixtures such as Glass Cockpit & Self Protection Suite (=US$67m per aircraft, without cabin modification)

The CAG reports highlights that no evidence was found to support the $27m base price, or why this was the starting price used considering the RFP was issued in 2006. Additionally, the base price of AW-101 VIP helicopter was US$18.2m in 2010 according to Internet findings by the CAG. Out of 7 such contracts issued around the world, 6 were signed between 1991 and 2001, and the seventh was signed in 2007, once again questioning the use of 2000 as base price.

Finally, according to the rules (Paragraph 51 of Defence Procker meant Procedure - 2006), in case of procurement of new equipment in single vendor/resultant single vendor basis, CNC should establish a benchmark and reasonableness of price in an internal meeting before opening the commercial offer. If the price of the vendor is found to be within the fixed benchmark, no price negotiations need to be carried out.

AgustaWestland offered a price of ₹3966 cr, which was below the benchmarked acquisition cost of ₹4877 cr.

Italian Court verdict

Full text

On 7 April 2016, The Milan Court of Appeals overturned the lower court’s order, and sentenced the personnel involved for false accounting and corruption in the chopper deal:

• Guiseppe Orsi, former chief, Finmeccanica: 4.5 years
• Bruno Spagnolini, former CEO, AgustaWestland: 4 years

The judgement quoted verbatim a letter dated 15 March 2008, by Christian Milan to Peter Hulet, then India region Sales & Liaison Head for AgustaWestland.

The judgement also says that middleman Guido Haschke identified all leaders, including Congress President Sonia Gandhi, her political secretary Ahmed Patel and former Air Chief S P Tyagi, in court when their photos were shown to him during the trial by prosecution. The judgement also includes Michel’s handwritten note to Haschke on the distribution of the total commission of €30 million: 52% to politicians, 28% to bureaucracy and 20% to air force officers.

The Court held that a large portion of the money paid by the AgustaWestland to Michel (over €44 million) is ‘completely disproportionate’ to the work he did for the Company.