Chopper scam: Finmeccanica's India expansion plans may crash, Tatas say no threat to JV


    The Rs 3,760-crore helicopter scam may affect India expansion plans of Finmeccanica, whose subsidiary AgustaWestland is at the heart of the affair.

    File Photo of AW101 VVIP Airforce Helicopter. The Rs 3,760-crore helicopter scam may affect India expansion plans of Finmeccanica, whose subsidiary AgustaWestland is at the heart of the affair.
    MUMBAI/DELHI: ​The Rs 3760 crore helicopter purchase scandal may affect the India expansion plans of Finmeccanica, the euro 17.3 bn ($23 bn or Rs 1,24,305 crore at Thursday’s exchange rate) Italian aerospace, defence and security conglomerate, whose UK subsidiary Augusta Westland is at the heart of the affair. Finmeccanica, which has contracts with the railways, the Navy and a number of airlines is also seeking to expand its India footprint though a joint venture with the Tatas, the country’s largest business group, which was signed in 2010.

    The joint venture, Indian Rotorcraft Limited (IRL) is between Tata Sons and Agusta Westland and was set up to establish an assembly line for the AW-119 helicopters meant for both the defence and civilian sectors in India and overseas.

    A year later in 2011, GMR signed an in-principle agreement with Indian Rotorcraft to locate its assembly and testing facility within the GMR aero SEZ adjoining the Hyderabad airport.

    On Wednesday, defence Minister A.K. Antony said that India may cancel the Agusta deal and blacklist Finmeccanica, if the bribery allegations are proven.

    Defence industry analysts said that in early 2010, when the former Tata Group Chairman Ratan Tata signed the agreement with his Finmeccanica counterpart Giuseppe Orsi, Agusta had offered 197 AW-119 choppers to the Indian army to replace the ageing fleet of Cheetha and Chetak light helicopters. Orsi has recently been arrested.
    As per the 2010 agreement, Indian Rotorcraft was responsible for the final assembly, completion and delivery of the AW-119s while Agusta had to manage global marketing and sales. The first aircraft was scheduled to be delivered from the new Hyderabad facility in 2011 with production scheduled to 30 aircraft per year to meet worldwide demand. However the assembly is now scheduled to begin only next year – two years after the ground-breaking ceremony.

    Sources add that it was also planned that the JV would bid to be a supplier for the reconnaissance and surveillance helicopter (RSH) programme of the Indian Armed Forces, for which Agusta had already proposed that the AW119 be manufactured locally.

    Tata officials played down any threat to the JV saying Agusta Westland is just one of the many partners it is working with in the defence and aviation sectors. They also added that the scope of the JV is limited to civilian usage.

    A spokeswoman from Tata Group’s external communication agency Rediffussion said, “ IRL is a proposed Joint Venture with AgustaWestland, the business of which is to assemble AW119Ke helicopters for export to AgustaWestland or for sales in the domestic civil market for civilian usage.”

    “IRL has no connection with the Indian Air Force purchase of AW helicopters. To reiterate, IRL’s business is to assemble helicopters, which in any case is only slated to begin in April 2014, subject to various statutory approvals. IRL will assemble the AW119Ke, which is a very different product from the one purchased by the IAF. We do not envisage any impact on our proposed Joint Venture,” the spokeswoman added.

    While refusing to disclose details of investment, citing “commercial confidentiality,” the spokeswoman said she was also not aware of the plans to replace the Army’s light helicopters with AW119 or even plans to be part of the RSH programme.
    A press release from Finmecanica, issued in December 2009 on the occasion of the establishment of the JV, had, however, referred to possible contracts from the Indian armed forces.

    "It is envisaged that the joint venture company would be a supplier for the current Reconnaissance and Surveillance Helicopter (RSH) programme of the Indian Armed Forces, for which AgustaWestland has already proposed the AW119 to be manufactured in India. Additionally, AgustaWestland and Tata companies plan to explore additional commercial opportunities in India for AgustaWestland helicopters and the subsequent industrial co-operation."

    A GMR spokesperson, when contacted said: “IRL is just a tenant on the SEZ. Beyond that we do not have any comments to offer.”

    Defence industry analysts say Finmeccanica Group could be clocking at least a Rs 1000 crore annual turnover from India --- making it amongst the top 3 markets outside Europe for the diversified Italian group.

    If the government were to impose a wide-ranging ban, the business prospects of existing Finmeccanica JVs we well as future ones would be cast into doubt. “The 4 decade long India connection is under serious threat of unravelling,” says a New Delhi based defence industry analyst on condition of anonymity as he has business links with the group.

    “Finmeccanica has been increasingly exploring ways to expand its India footprint through new equity JVs in electronics surveillance, unmanned aerial systems (drones) and data systems. This current environment will be a blow to all those ongoing negotiations,” he added.

    “When we blacklist big companies like Finmeccanica, it will have ramifications on the company's earlier commitments The ongoing commitments and future contracts will also be negatively impacted,” warned Deba Mohanty, New Delhi-based defence analyst and director at Indicia research & advisory.

    Starting with the delivery of 41 Sea King helicopters in 1971, Finmeccanica SpA’s association with India goes back 40 years and cuts across the entire spectrum of India’s armed forces. (see chart). Not just that, its business links – through at least 6 operational group companies and subsidiaries --- also include many names from India Inc and various government ministries and departments.

    For example according to the company, ATR, an equal joint venture company between Finmeccanica Group company Alenia Aermacchi and EADS has supplied over 50 turborop aircraft to Indian carriers such as Jet, Kingfisher or even Air Deccan since 2006.

    Yet another Finmeccanica arm Ansaldo STS – specialising in the energy and transportation vertical – bagged a large contract from the Indian railways four years ago to upgrade the signalling and communication systems between the busy freight corridor of Ghaziabad and Kanpur. In the 1990’s Oto Malera supplied 31 76/62 mm naval guns to Indian Navy, while just last year Selex ES signed a MoU with Chennai-based Data Patterns Group to set up a 26:74 joint venture company for a broad range of defence electronics products.

    Both Selex and Oto Malera have India offices. Selex has also been awarded a contract to supply Indian Navy with surveillance radars which will be installed on-board a new aircraft carrier being built at the Cochin Shipyard.

    “As of now we are going ahead with our JV plans and awaiting FIPB approvals. For us, it makes sense to collaborate with Selex and I think our JV will not get impacted,” S Rangarajan, CEO, Data Patterns told ET.

    An Indian Railways spokesman said he could not respond to specific queries about the contracts awarded to Ansaldo STS at short notice.

    For its part, Finmeccanica officials are operating on a business as usual basis and continue to work with their stakeholders in India but privately they acknowledge that the current situation has created an unwelcome backdrop for ongoing and future business dealings.

    (Additional reporting by Yashodhara Dasgupta)

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