How troubles at Italy's Finmeccanica are taking a toll on India's mili

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How troubles at Italy's Finmeccanica are taking a toll on India's military modernisation​

Both men have inherited a troubled legacy. Since taking over as CEO of the Italian conglomerate FinmeccanicaSpA in May 2011, Giuseppe Orsi is said to have fired more than 40 managers to clean up the rot in the country's second largest industrial group. Similarly, his Prime Minister Mario Monti who took over from corruption-tainted SilvioBerlusconi last November has been busy waging a tough battle: to shed the country's image tarnished by his predecessor.


The makeover task isn't getting any easy for Monti, a technocrat without any political base who, according to experts, is facing a vigorous resistance from political classes over his new moves, which include an anti-corruption law and several austerity measures.

For Orsi, who is known to enjoy Monti's confidence, the going is getting tougher, not only because his name was recently linked to bribery allegations involving the company in PanamaBSE -4.80 % and India but also because he has made a lot of enemies in the 17 billion company as he fights graft, says a person close to the matter who didn't wish to be identified. "It isn't easy to fight corruption especially when you were part of such a legacy," he says.

Orsi was chief of AgustaWestland, Finmeccanica's helicopter business, when company officials allegedly bribed Indian officials in return for altering the terms of the contract in the 2010 sale of 12 VVIP choppers to the Indian Air Force. His predecessor, Pier Francesco Guarguaglini, a favourite of Berlusconi, has come under several investigations into alleged inflation of contracts and creation of slush funds to bribe politicians and others.Guarguaglini and Orsi have denied any wrongdoing.

BAD FOR ITALY, BAD FOR INDIA

The news from India, the world's largest defence spender, is especially bad for Orsi. Things aren't good for India, too, where the group he presides over as chairman and CEO is either involved or would be part of multiple, already-delayed defence modernisation projects, including the phasing out of antique aircraft and acquisition of new ones.

Several Indian officials that ET Magazine spoke to are worried that the latest controversy - over alleged kickbacks to Indian officials by Finmeccanica for securing the 12 VVIP helicopters deal - may jeopardise other projects the company plans (see Likely Delays for India). India signed the 560 million deal with AgustaWestland to supply 12 AW101 choppers in 2010 and deliveries are scheduled to begin in early 2013.

Another deal that might face uncertainty if the Italian courts find AgustaWestland guilty of bribing officials is the Indian Navy's plan to buy 90 helicopters. The $1 billion tender to buy 197 light utility helicopters (LUHs) may also be stalled. In fact, the defence ministry, headed by corruption-wary AK Antony, has already delayed "making a selection" in the competition between Russia's Kamov and Eurocopter for LUHs following reports that an IAF officer had sought money from AgustaWestland to revise the technical requirements for the LUH bid.

Antony acts swiftly and he follows a zero-tolerance approach. He has scrapped many deals whenever there was even an iota of doubt of corruption," says a Delhi-based strategic consultant, requesting anonymity. Another major deal that might be affected is the $11 billion Indian Air Force deal for 126 medium multi-role combat aircraft.

Eurofighter Typhoon, which was built by a consortium that includes Finmeccanica, and successful bidder Rafale - from Dassault Aviation - were the last two contenders for the deal. Defence analysts say a call for reviewing that deal is expected to gain momentum. "One can easily question the selection process in which a tainted company was a part," says the Delhi-based consultant.

IN TRANSITION MODE

A Rome-based defence consultant who has watched Finmeccanica for years says Orsi faces huge opposition from men close to Guarguaglini because he is trying to "weed out corruption". "Even your whistleblowers could be such people who are also corrupt," he argues.

According to this consultant who spoke on condition of anonymity, Orsi may not have known about the kickbacks in the deals that happened before Guarguaglini left (he stepped down as CEO in May 2011 and as chairman in December). He contends that when Berlusconi was at the helm, most defence deals - the Italian government owns 30% in Finmeccanica - were done by his "intermediaries". "Orsi may not have known about such transactions," he feels. ET Magazine couldn't independently verify these claims.

Then there are those like Maurizio Cotta, director of the Centre for the Study of Political Change at Universita di Siena, who argue that at "points of transition such as this one, when an era ends and another begins", the media gets into the activism mode "because the political system becomes weaker", helping unearth scandals and corruption. "You see, the end of Berlusconi was also the end of a political cycle. And politicians of the centre-right and the left were suddenly weak. It is easier for the media to bring to the open the bad deals of the past," he says.

SKATING ON THIN ICE

Sure, Orsi is under a lot of pressure because the Italian marquee company - which is in a phase of restructuring - is facing bribery allegations in key markets such as India, Brazil and Russia. "It is now that it should ideally win more deals... But greater trouble awaits him and the company in Italian courts which are known to be highly autonomous. If these courts find the company officials guilty, they will face blacklisting in major markets," warns the defence consultant. Currently, Finmeccanica faces several probes (see Under Scanner).

Separately, Orsi is under attack over charges that he was involved in giving e10m to the conservative, anti-immigrant party, Northern League, for political support. Marina Grossi, Guarguaglini's wife and former chief executive of Finmeccanica's aerospace, defence and security-related electronics manufacturing unit Selex Sistemi Integrati, is also under an anti-corruption probe. She and Orsi have denied the allegations.

There are financial hiccups, too. Its plan to raise 1 billion through sale of energy and transport units to pay down debt seems to have reached nowhere. However, a Finmeccanica spokesperson told ET Magazine that "we can reassure that significant progress has been made and that things are progressing in line with our expectations".

For his part, Italian defence minister Giampaolo Di Paola declined to comment on how charges around Finmeccanica would affect India-Italy defence cooperation, saying "it is a private company". He rued that it is a diplomatic row between New Delhi and Rome - over two Italian marines being held in India over charges of killing two fishermen -that is causing a problem.

"My first expectation is that the Supreme Court of India in accordance with international law will recognise the right of [marines] Salvatore Girone and Massimiliano Latorre to be tried in Italy," he said, adding that the case has generated "a wound" in the defence relations. "I am sure that a positive outcome of the two marines' judicial case will allow our relations to restart again," he told ET Magazine in an email response.

THE WHISTLEBLOWER ANGLE

Interestingly, the recent probe into the chopper deal follows disclosures by Lorenzo Borgogni, a former external relations manager at Finmeccanica, who was sacked after Orsi took over. He alleged that the company had used middlemen to pay kickbacks to secure the VVIP helicopter deal.

The name of the lawyer, Gautam Khaitan, had come up in his revelation in connection with the alleged irregularities in the deal. Khaitan had denied the charges. To a query on whether the wife of Finmeccanica's former Indian representative Paolo Girasole had worked for Khaitan, the company merely said that "Finmeccanica is not allowed to give any information about the private life of the company's employees and their families".

Finmeccanica - which a few years ago had come under sharp attack from human rights groups for a 300 million deal with slain dictator Muammar Gaddafi's Libyan government to set up a border control and security system in the African country - swears by its commitment to India. "It's worth mentioning that AgustaWestland manufactures AW119 [helicopters] in India in joint venture with the Tata Group," its spokesman said.

True, India is very crucial for any defence company for obvious reasons, says the Rome-based consultant. What is more crucial for Finmeccanica, he cautions, is the battle to steer clear of graft charges and financial troubles. Orsi is facing his toughest battle yet, he adds, hoping that the Monti government may back him, but may get a new CEO while he remains chairman.

"Of course, these are tough times and there is no good news for the company yet," he adds.

Clearly, it is bad news for India, too.