Eurofighter sale

Unraveling Airbus’ murky offset deals in Austria

Eurofighter in Österreich
Hunting €100 million. Source: DPA

Airbus is flying through stormy skies. Investigators are still trying to determine the whereabouts of €100 million ($124 million) tied to the sale of Eurofighter Typhoon combat jets to Austria. Though the recipients may never be found, the missing funds are proving costly to Airbus, in fines and sky-high attorney fees.

In 2003, EADS, a European aerospace consortium which later changed its name to Airbus, struck a €2 billion deal for the sale of 18 Eurofighters to Austria. For years, officials at the prosecutor’s office in Munich have been poring over documents related to the sale. The accusations: bribery, corruption and bogus transactions.

Airbus, however, denies any wrongdoing. “We won the bid in accordance with the law,” said a company spokesman. To investigate the bribery and corruption accusations, Airbus asked Clifford Chance, the international law firm, to conduct an independent review in 2012. “Their results have been made available to the authorities,” the spokesman said. “There is no evidence of corruption.”

Handelsblatt examined more than 10,000 documents including official reports, emails and financial statements. At the heart of the investigation are so-called “offset” deals in which a supplier helps drum up business for others to offset the costs of a contract. The practice is often seen as going the extra mile for a customer, but in the case of EADS, it seems to have gone off the rails.

29 p15 Only few customers-01

In order to secure the Eurofighter contract, EADS agreed to initiate counter deals worth €4 billion for Austrian companies. Agreeing to scrounge up offset business worth twice the original contract is quite unusual, according to experts, and proves that Airbus – then EADS – really wanted the job.

Once agreed, Airbus offset managers got busy generating work for local Austrian firms. Every company that closed a deal on behalf of EADS in Austria had to confirm to the Austrian federal ministry of economics and labor that it was done with the help of EADS. In exchange, the company would receive a commission from EADS.

Germany’s Leica Geosysteme bought €13.8 million in measuring equipment from an Austrian supplier. Italian paper company Sofidel bought paper-making equipment for €28.3 million there. And Ferrari ordered parts for its Maserati 139 from Austrian contract manufacturer Magna Steyr for €9 million. All on behalf of EADS.

So far, so complicated. It gets worse. Even though — or perhaps because — it was a 15-percent EADS shareholder, Daimler also got involved in offset deals. One of its divisions agreed to funnel a 2005 order from Croatia for 210 fire trucks through an Austrian supplier on behalf of the aerospace company. EADS executive Klaus-Dieter Bauer (not his real name) then visited Daimler at home in Stuttgart. During his visit, Bauer allegedly insisted on running all offset deals through a new London company, Vector Aerospace LLP. Although the Daimler managers said they’d never heard of the company, Bauer insisted all other partners in the Eurofighter consortium had already agreed to use Vector. The managers asked Daimler’s lawyers, who advised against dealing with Vector. Daimler, they said, didn’t do business with companies not listed in the commercial register.

Bauer was furious and called Daimler’s continued refusal to sign a contract with an unknown company a “running battle.” In the summer of 2006, Daimler received an email from a man named Gianfranco Lande, who claimed to be the managing director of Vector. But not even Mr. Lande could convince Daimler, which eventually, in February 2007, signed an offset agreement with the partner they had actually negotiated with – EADS.

Bundeskanzlerin Angela Merkel im Gespräch mit einem Eurofighter Piloten vor dem Kampfflugzeug.
Ms. Merkel's not involved. The Eurofighter might be. Source: Picture Alliance

Investigators in Munich think Vector was, in fact, a shell company, set up for only one purpose: the establishment of slush funds. Once money arrived at Vector, the millions continued to flow into companies with dubiously vague names such as Centro Consult, Comco International Business Development, Columbus Trade Services and Euro Business Development. The prosecution is convinced that Vector, EBD, Centro and many others were just deceptions. The whole construct was “deliberately created to have money available for bribe payments.”

The money trail spans the globe and also leads to tax havens. One of the companies connected to the Eurofighters was based in Cyprus, two others on the British Isle of Man. Hidden behind these structures were foundations in Liechtenstein or arms lobbyists from Austria. They submitted invoices for consulting work prosecutors feel was never performed. In some cases, money was moved the day it landed. Sometimes, millions were even withdrawn in cash – for example, in the aerospace mecca of Mongolia. Investigators suspect the money was ultimately meant for politicians with sway over the Eurofighter order.

The last Eurofighter was delivered to Austria in 2009 after the order was reduced to 15 jets from the original 18, with the ultimate price tag sliced to €1.7 billion.

Eight years later, prosecutors in Munich are close to completing the mammoth investigation, which also included a murky sponsorship contract involving Vienna’s pro-soccer club, Rapid Wien. As the investigation in Germany is coming to a close, a separate case in Austria could take another 6 to 12 months. The probe targets several Airbus executives for alleged fraud, including chief executive Tom Enders. The CEO, who denies the allegations, has agreed to step down at the end of his term in 2019 anyway.

The public prosecutor’s office in Vienna thinks the price for the Eurofighters is far too high, partly because bribes were involved. Although prosecutors in Munich have found no evidence of politicians involved in bribes, the case will still cost Airbus dearly. Funds that can’t be traced may not be deducted as business expenses. Airbus has already had to pay back a double-digit million amount to tax authorities. And the company — and its managers — are still under suspicion for illegal activities: When executives make payments without their employer getting anything in return, it’s considered breach of trust. Several of the accused are rumored to be ready to accept pleas.

So far, only one person has ended up in prison: Gianfranco Lande, the founder of Vector. In mid-2008, Lande resigned as CEO. He was arrested three years later in Rome. But not because of Vector. He is accused of having scammed €200 million from 1,700 investors. The “Madoff of Rome” also smuggled Mafia money through his network of more than 50 shell companies.

This article was reported by Sönke Iwersen, Markus Fasse, Mona Fromm, Thomas Hanke, Martin Murphy, Hans-Peter Siebenhaar and Volker Votsmeier. It was adapted by Stephanie Ott for Handelsblatt Global in New York. To contact the authors: Iwersen@handelsblatt.com, hanke@handelsblatt.com and s.ott@extern.handelsblattgroup.com

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