$99 mn fine for 'unaccounted payments' in Eurofighter sale to Austria

Over the preceding week, India’s political landscape has been roiled by accusations that the government favoured French aerospace vendor, Dassault, with a multi-billion order for 36 Rafale fighters, ignoring a cheaper bid belated submitted by European consortium, Eurofighter Jagdflugzeug GmbH (hereafter Eurofighter) for its Typhoon fighter.

But now Eurofighter too is battling damaging scrutiny over corruption allegations. On Friday, German prosecutors ordered Airbus to pay Euro 81.25 million ($99 million) to settle charges that the firm bribed Austrian politicians in 2003 to buy the Typhoon in a contract worth $2 billion.

Eurofighter is made up of aerospace corporations from four European nations. The German and Spanish entities of Airbus Defence & Space own a majority 46 per cent stake, UK-headquartered BAE Systems owns 33 per cent, while Italian corporation, Leonardo S.p.A. – earlier named Finmeccanica, and still banned in India – holds the remaining 21 per cent.

According to Reuters, “The settlement includes an administrative fine of 250,000 euros and “disgorgement” – which legal experts broadly define as the recovery of ill-gotten gains – of 81 million euros.”

German prosecutors stated they found no evidence of bribery in the Eurofighter sale to Austria, but Airbus “had been unable to account for over 100 million Euros in payments to two shell companies.”

The prosecutors stated that these funds were sent for “unclear purposes”, evading internal control mechanisms within the company.

This puts a new light on Eurofighter’s “unsolicited bid”, submitted on July 4, 2014 to the newly elected National Democratic Alliance (NDA) government, reducing the cost of the Typhoon fighter by 20 per cent, making it in retrospect significantly cheaper than the Rafale. The bid was apparently offered a path to bypass the deadlock over pricing with Dassault.

In 2011, Dassault’s Rafale and Eurofighter’s Typhoon fighters were the only two aircraft to have passed Indian Air Force (IAF) flight trials in its global contest to buy 126 medium multi-role combat aircraft (MMRCA). In 2012, Dassault’s commercial bid was adjudged the lowest offer (L-1 bid) by India’s defence ministry.

The Defence Procurement Procedure did not permit the government to reintroduce Eurofighter into the negotiating process after Dassault’s bid was declared L-1. However, once the government scrapped the deadlocked MMRCA procurement and opted instead to buy 36 fighters over-the-counter, it had the option to reintroduce Eurofighter into a competitive bidding process. Instead, it opted for a single-vendor procurement from Dassault, under a government-to-government umbrella.

Besides the financial penalty imposed on Airbus in Germany, a separate investigation is underway in Vienna, where Austrian prosecutors are enquiring into Airbus and its chief executive, Tom Enders, who headed the company’s defence business from 2000-2005. Airbus and Enders deny any wrongdoing, and accuse the Austrian government of playing politics.