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Bribery Scandal Could Leave India's President Stranded on the Tarmac

By Rich Smith - Jan 4, 2014 at 3:59PM

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An Italian defense contractor beat out an American to build India's new "Marine One" -- but had to pay bribes to do it. And now, India says it won't "stay bought."

In America, we call it "Marine One" -- the one particular helicopter, from a fleet of specially designed, special-order helos, tasked with ferrying President Obama on short, less-than-airplane-length flights.

In India, they don't call it "Marine One." Instead, they call it a scandal.


Think President Obama could give Indian President Pranab Mukherjee a lift on Marine One? Source: Wikimedia Commons

Earlier this year, as you may recall, India was rocked by scandal. It was alleged that certain officials, responsible for awarding a $753 million contract to buy "Very VIP" helicopters for the nation's political elite, had taken bribes from a subsidiary of Italian contract winner Finmeccanica SpA (FINMY -0.22%).

In February, the scandal cost Finmeccanica CEO Giuseppe Orsi his job, and landed him in the slammer to boot. On Wednesday, it also cost Finmeccanica the contract. Arguing that by bribing its officials Finmeccanica had breached an "integrity pact," India's Ministry of Defense terminated the contract to buy a dozen of Finmeccanica's EH101 helicopters "with immediate effect."

The MoD says it's willing to consider arbitrating the dispute with Finmeccanica, which has already delivered three of the 12 helicopters it was asked to produce. But with the contract now officially canceled, it's hard to see what's left to arbitrate -- other than how much money, if any, India might still owe Finmeccanica.


Finmeccanica's EH101 -- grounded for good? Source: Wikimedia Commons

What you need to know
Also unclear -- but in a good way -- is what India's decision might mean for America's defense contractors. It's been more than five years since a U.S. company -- United Technologies' (RTX -1.12%) subsidiary Sikorsky -- was thought to have a chance of winning the Indian helo contract. That hope ended in 2008, when India rejected Sikorsky's entry, an S-92 transport, saying the aircraft failed to meet certain essential "engine and technical specifications."

If it turns out that Finmeccanica won those specs by paying bribes, however, this could permit Sikorsky to resubmit its bid -- and potentially win the Indian contract.

Sikorsky would have a good chance of winning, too, in the event of a resubmission. Already, the United Technologies' subsidiary has taken the lead in the contest to build President Obama's new fleet of "Marine One" helicopters. In cooperation with partner Lockheed Martin (LMT 0.49%), Sikorsky is expected to win America's "VXX" helicopter competition to build the U.S. President's new ride.

If and when that happens, it would lend further strength to a Sikorsky bid to build presidential helos for India... and maybe for other countries' presidents after that.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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