VIENNA Austria sued Airbus (AIR.PA) and the Eurofighter consortium on Thursday, alleging wilful deception and fraud linked to a near 2 billion euro (£1.70 billion) jet order in 2003.
The defence ministry said that following an investigation it believed Airbus and Eurofighter had misled Austria about the purchase price, deliverability and equipment of the jets.
The incurred damage could amount to 1.1 billion euros, Defence Minister Hans Peter Doskozil told a news conference in Vienna.
Airbus said it denied the accusations vigorously. "The publication of criminal charges against a listed company by means of a press conference ... is not acceptable for Airbus and can only be described as unprofessional," said a spokesman.
Eurofighter did not reply to requests for comment.
Austrian and German prosecutors have been investigating the case for years and Munich prosecutors have said they expect to complete separate preliminary proceedings by mid-year.
"As defence minister, I consider it my duty to report facts relevant for criminal prosecution and to claim compensation for the Austrian taxpayers' damage. This is what we did today," Doskozil said.
Austria had initially ordered 18 Eurofighter jets but reduced the order to 15 in 2007. It then ordered a review of the purchase four years ago following bribery allegations.
The deal was controversial from the outset and allegations surfaced almost immediately that money was pocketed by politicians, civil servants and others via brokers for side deals accompanying the purchase.
The defence ministry said it had found Airbus and the consortium illegally charged nearly 10 percent of the purchase price of 1.96 billion euros for so-called offset deals.
While such deals, which involve work being given to local companies, were part of the agreement, their cost should have been reported separately, it said in a report.
"Offset deals are obviously an ideal launcher for corruption, misery and money laundering," Doskozil said.
The Eurofighter is built by a consortium comprising Britain's BAE Systems (BAES.L) and Italy's Leonardo (LDOF.MI) as well as Airbus, which represents the other two nations in the European project: Germany and Spain.
BAE and Leonardo did not reply to requests for comment.
Airbus and Eurofighter, which coordinates the production of the aircraft and is headquartered in Munich, also deceived Austria about its ability and desire to deliver the planes, the report said, because the deal was not economic for the planemakers.
Wolfgang Peschorn, president of the legal advisor of the Austrian Republic, said the incurred damages of up to 1.1 billion euros related to extra costs paid for the Eurofighters compared with jets from rival bidder SAAB (SAABb.ST), as well as higher operating expenses.
A special committee will examine options for future jet purchases, the defence minister said. The aim was to buy jets more cheaply, though Doskozil did not rule out buying new Eurofighters.
Airbus, Europe's largest aerospace group, has said it is co-operating with a separate German probe into the fighter sale to Austria, as well as three probes into suspected irregularities in defence or security markets, including a UK investigation into a $3.3 billion communications deal with Saudi Arabia.
(Additional reporting by Tim Hepher in Paris and Shadia Nasralla in Vienna; Editing by David Holmes and Mark Potter)