Italian Copter Scandal Puts Defense Deals Worth Billions in Jeopardy

Leon Neal/Agence France-Presse â€" Getty Images A Finmeccanica banner at the Farnborough Air Show in U.K., in this July 22, 2006, photo.

Finmeccanica risks losing contracts in a significant market if India determines that the Italian aerospace group bribed Indian government officials to win contracts, analysts said.

India is investigating allegations that AgustaWestland, a subsidiary of state-controlled Finmeccanica, bribed the former Indian Air Force chief, Shashi Tyagi, through his cousins. Mr. Tyagi has denied the accusations.

The allegations came after the chief executive of Finmeccanica, Giuseppe Orsi, was arrested in Italy earlier this week in a bribery investigation related to the sale of 12 AgustaWestland helicopters to India for 556 million euros ($741 million).

Guy Anderson, senior defense industry analyst at IHS Jane ’s in London, estimated that from 2007 to 2011, Finmeccanica secured orders from the Indian government worth an average of 250 million euros, with revenues of around 100 million euros per year.

Oto Malera, a subsidiary of Finmeccanica, supplies 76/62 mm guns to the Indian Navy. Selex, another subsidiary of Finmeccanica, provides navigation and communication systems.

“For Finmeccanica, long-term debarment from India’s defense and security markets would have significant consequences in general and its aerospace units in particular, given that the Italian company is pursuing opportunities valued more than $12 billion as of 2013,” Mr. Anderson said ! in an e-mail.

In India, the military procurement process, which already moves slowly, has frequently been delayed by bribery charges. In March 2012, the government blacklisted six defense firms including Israel Military Industries and two Indian companies, after an investigation by the Central Bureau of Investigation found they had bribed government officials.

Indian experts say that blacklisting firms could hinder the country from getting the best price for necessary supplies. “The Indian market for helicopters is about 800 to 1000 helicopters in coming decade. There will be less competition if a significant player is kept out,” said Laxman Behera, a defense procurement expert at Institute of Defense Studies and Analysis in New Delhi.

Mr. Anderson said that the companies that are likely to compete with Finmeccanica for aerospace contracts would obviously benefit if Finmeccanica is barred from bidding.

AgustaWestland entered into a joint venture in 2010 with Tata Sons, an Indian company, to set up a helicopter assembly line in India. It is unclear how this joint venture would be affected by any charges of bribery.