* India says terminates $770 mln contract immediately
* New Delhi appoints former judge as its arbitrator
* AugustaWestland parent Finmeccanica says to defend
* Finmeccanica says its "behaviour was ethically correct"
By Nigam Prusty and Krishna N Das
NEW DELHI, Jan 1 India cancelled its $770
million helicopter deal with Italian defence group
Finmeccanica's AgustaWestland unit on Wednesday over
what it termed a breach of integrity, but agreed to take part in
an arbitration process.
India froze payments for the 12 AW101 helicopters after
Finmeccanica's then chief executive was arrested in February for
allegedly paying bribes to secure the deal, embarrassing the New
Delhi government before parliamentary elections due by May 2014.
The scrapping of the deal, which will now go through a
probably lengthy legal process, would be a fresh setback for
Finmeccanica. Delays in selling some of its money-losing assets
have prompted credit rating agencies to downgrade the company to
But it would offer an opportunity for rivals such as United
Technologies Corp's Sikorsky Aircraft, EADS
unit Eurocopter and Lockheed Martin to get a share of
India's burgeoning defence market.
India's defence minister, A.K. Anthony, has said he did not
believe AgustaWestland's denial that it paid bribes to swing the
deal. Anthony had a meeting with Indian Prime Minister Manmohan
Singh hours before the latest decisions were announced.
"The Government of India has terminated with immediate
effect the agreement that was signed with M/S. AugustaWestland
International Ltd (AWIL) on 08 February, 2010 for the supply of
12 VVIP/VIP helicopters on grounds of breach of the Pre-contract
Integrity Pact and the agreement by AWIL," the Defence Ministry
said in a statement on Wednesday.
Finmeccanica spokesman Roberto Alatri, commenting on India's
decision, said the company would defend its position. It invoked
the arbitration, which would be conducted in India under the
Indian Arbitration and Conciliation Act of 1996.
"We'll do everything that would be necessary to defend the
correctness of our position," Alatri told Reuters. "We're sure
our behaviour was ethically correct."
He said India's agreement to arbitration was a positive
India's Defence Ministry said it believed "integrity-related
issues are not subject to arbitration" but nominated an
arbitrator, it said, to safeguard its interests.
Uday Bhaskar, a defence analyst at the Society for Policy
Studies in New Delhi, said India's participation in the
arbitration did not represent a climb-down.
"Cancelling deals and saying that we will not acquire
critically-needed equipment, to my mind, is not the answer,"
"But there's no climb-down on this arbitration and as a
matter of fact it might be the most viable via media (middle
India in October had issued a final "show cause" notice to
AgustaWestland seeking to terminate the contract. Sources told
Reuters in November the deal would be scrapped.
Indian defence deals have been hit by a number of corruption
allegations over the past two decades but a Defence Ministry
spokesman said this was the first cancellation of a major deal.
Paying or accepting bribes is prohibited by India's defence
procurement rules. The government can cancel a contract if an
integrity pact in the rules is violated, and the seller has to
forfeit any security money it deposited as a bidder.
India's federal auditor said in August the ministry had
initially stipulated that the helicopters should be able to fly
to an altitude of 6,000 metres (19,685 feet), which meant that
AgustaWestland could not compete since the AW101 was certified
to fly only to 4,572 metres (15,000 feet).
India took delivery of three of the helicopters before the
deal stalled but the Defence Ministry spokesman said the fate of
those aircraft was "uncertain".