India scraps AgustaWestland helicopter deal, agrees to arbitration

Wed Jan 1, 2014 12:07pm EST
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By Nigam Prusty and Krishna N Das

NEW DELHI (Reuters) - India cancelled its $770 million helicopter deal with Italian defense group Finmeccanica's SIFI.MI 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 junk.

But it would offer an opportunity for rivals such as United Technologies Corp's (UTX.N: Quote) Sikorsky Aircraft, EADS EAD.PA unit Eurocopter and Lockheed Martin (LMT.N: Quote) to get a share of India's burgeoning defense market.

India's defense 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 Defense 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 behavior was ethically correct."   Continued...

Central Bureau of Investigation (CBI) officials carry a bag of documents after conducting a raid at a building as part of probes into the AgustaWestland bribery case in New Delhi March 13, 2013. REUTERS/Mansi Thapliyal