Indian arms scandal threatens BAE deal

Hawk deal could be shot down over bribes scandal

A £1bn deal by BAE Systems to sell 66 Hawk trainer jets to India could be delayed or scrapped because of the latest Indian arms bribery probe.

The scandal came when journalists from an Indian news website, Tehelka.com, posed as sales agents.

They caught politicians and senior military and civil service officials taking bribes to facilitate a fake arms sale.

Before the scandal broke on 13 March, the Indian government said the deal would be concluded by the end of this financial year on 31 March but defence officials have since said the order was in "deep freeze".

"(The scandal) will not compromise our modernisation process of the air force but it will most likely delay the process of finalising the Hawk deal by several months at least," an unnamed source at the Ministry of Defence in India told Reuters news agency.

BAE deny delay knowledge

A spokesman for BAE Systems told BBC News Online that the company had no knowledge of a delay, but said it would be disappointing.

BAE Systems has been negotiating with the Indian government for almost 15 years to sell them Hawk jets and was named as the preferred bidder last year.

India's Prime Minister under pressure over bribe scandal

The scandal forced the resignation of the then Indian defence minister George Fernandes who has also been accused of allegedly manipulating procurement of the Hawk trainer.

The government of Prime Minister Atal Behari Vajpayee has set up an inquiry led by a retired Supreme Court judge to look into the scandal. The probe will complete its findings in four months.

In February 2000, Mr Fernandes ordered a corruption inquiry into major defence contracts over the last 15 years. The Hawk contract was not included in the investigation.

Losing the Indian deal would be a huge blow for BAE Systems, which has warned that the future of its 3,000-employee Hawk factory at Brough, East Yorkshire, is under review because of a shortage of orders.

The Indian government started renegotiating the contract price because it felt too dependent on the BAE order after the company issued a profits warning along with the jobs warning in January.

The company is thought to have made major concessions to secure what is thought to be the last major Hawk contract.