In February 2013, Italian prosecutors arrested Giuseppe Orsi, the chief executive of Italian defence multinational, Finmeccanica on suspicion of paying bribes to facilitate the sale of VIP helicopters to India. Since then, the ministry of defence (MoD) has been in a quandary about whether to blacklist Finmeccanica and all its subsidiaries, or only AgustaWestland, the subsidiary that built and sold the AW-101 helicopters to India.
Blacklisting all Finmeccanica companies - which include marine specialist, WASS; radar and communications specialist Selex Electronics Systems; aerospace giant, Alenia Aeromacchi; and armaments major, Otomelara - would undermine Indian tenders, in which they are important players.
On Saturday, Defence Minister Arun Jaitley said the MoD would see how wrongdoers could be punished without blocking acquisitions and the flow of spares.
"It is a serious challenge. We have to balance between two competing public interests. One is contracts are meant to be abided with and not violated, even by our suppliers. The other is the larger public interest in terms of our national security and defence preparedness. We are finding an answer. You will hear from us soon."
Referring to the AW-101 VIP helicopters, of which India had taken delivery of three before ending the contract with AgustaWestland for twelve, Jaitley said the decision "relates to cases where (a) violations have taken place and (b) the consequences of those violations affect our defence preparedness…particularly where parts and spares are to be made available."
The MoD has been alarmed by the potential consequences of blacklisting all Finmeccanica subsidiaries. WASS has been selected in a $300-million tender to supply 98 Black Shark torpedoes for the Scorpene submarines. A reconsideration of this would delay the operationalisation of the Scorpene, several years late. When the submarines start joining the navy's fleet in 2016, it will be armed only with the Exocet anti-ship missile. There will be no weapon to take on Pakistan's silent new Khalid-class submarines, the French Agosta-90B. WASS is also a contender for a new decoy system for torpedoes.
Finmeccanica company, Otomelara, is the licensee for 76-millimetre (mm) guns, built by Bharat Heavy Electricals, which equip all Indian warships. Otomelara is a leading bidder in the navy contract for heavier 127 millimetre guns, considered more suitable than the lighter, older guns. It is being considered for supplying 12.7-mm stabilised guns.
A subsidiary, Selex Electronics Systems (Selex ES), is fitting radar systems on the INS Vikrant, the navy's indigenous aircraft carrier being built by Cochin Shipyard. Cancelling this would cause major delay in a project three years behind schedule. Selex ES is bidding to upgrade the navy's Kamov-28 anti-submarine helicopter. It has completed trials for supplying an advanced pilotless target aircraft, for training air defence gunners.
Meanwhile, Alenia Aeromacchi, a subsidiary, is a desired partner in the project for the Indian private sector to build 56 transport aircraft to replace the obsolescent Indian Air Force (IAF) Avro. Alenia's C-27J transport aircraft, a proven design, is considered closest to what the IAF desires.
AgustaWestland is a leading contender for supplying the navy with a multi-role helicopter in the 12-tonne class, to fly from warships and perform the job the Sea King 42B has been doing for decades. With three AW-101 VIP helicopters delivered, ending the contract would create uncertainty about spares and support.
Since the blacklisting of AgustaWestland, the United Progressive Alliance government failed to take a decision on Finmeccanica. Since it came to power, the Bharatiya Janata Party-led National Democratic Alliance government has sent mixed messages.
In June, Minister of State for Defence Rao Inderjit Singh had indicated he would not favour trigger-happy blacklisting that may hinder Indian defence procurement by preventing many companies from responding to Indian tenders. Yet, earlier this month, the MoD sent a circular directing that, while tenders involving Finmeccanica companies could continue being evaluated, no Finmeccanica company would be awarded a contract.