AgustaWestland chopper deal set to crash out of Indian skies

India has decided to cancel a scandal-tainted chopper deal with Anglo-Italian firm AgustaWestland, prejudging the outcome of a meeting on Wednesday between company executives and defence ministry officials to discuss the contract, three sources said.

The decision draws a line under a dispute that has embarrassed a government heading into elections under a cloud of corruption scandals, and could re-open the contract to rivals, including United Technologies Corp's Sikorsky Aircraft, EADS' Eurocopter and Lockheed Martin.

Scrapping the euro 560-million ($757.40 million) deal to buy 12 helicopters for top politicians will not necessarily lead to New Delhi blacklisting the firm, sources have said, a move some officials fear would set back efforts to modernise India's military. However, it closes a chapter of the struggle by AgustaWestland, a division of Italian defence group Finmeccanica , to keep the contract alive.

A senior defence ministry official said there was no hope that AgustaWestland officials could salvage the deal in the meeting scheduled for Wednesday. "This is just a face-saving exercise by Agusta. But the government has already decided to cancel the deal because they have violated the integrity pact," said one of two sources in the ministry who declined to identified.

A spokesman for Finmeccanica declined to comment. Under India's defence procurement rules, the integrity pact prohibits paying or accepting bribes. The government can cancel a contract if the pact is violated, and the seller has to forfeit any security money it deposited as a bidder. Last month, AgustaWestland called for arbitration in the dispute, but defence ministry sources say there is no case for this because the firm breached the integrity pact. However, under the rules, it could still take the case to an Indian court.