Decision to scrap helicopter order will test good faith

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The recommendation of US defence secretary Robert Gates that the programme for the new presidential helicopter be scrapped is, in some ways, no big surprise.

The aircraft that shuttle the president and his staff from the White House lawn and go under the call sign Marine One are iconic elements of the broader US defence budget that the president himself has said must be reined in. Were Mr Obama to proceed with the acquisition of 23 new VH-71 helicopters to bus the first family and its entourage around, his moral authority to clamp down on others would certainly be undermined.

All the same it is awkward to have to pull the plug on a programme no one doubts the need for given that the existing Marine One fleet is well beyond its “use by” date. The current Sikorsky helicopters are up to 40 years old and reportedly even have trouble clearing the ground, so weighed down are they with new-fangled kit to protect the US commander-in-chief.

The fact that eight of the original order of 9 VH-71s have already been delivered is also tricky. On budget, these have already set the US taxpayer back some $3.8bn so it is hard to believe they will simply be tucked away in a hangar.

The programme originally ran into image problems when the US Navy, responsible for specifying the contract, asked for significant upgrades to the remaining 18 aircraft. This resulted in the budget ballooning to an embarrassing $13bn, double the original estimate.

Although Lockheed Martin and Anglo-Italian partners AgustaWestland pointed out that the agreed budget for the original specification could still be delivered, the US Navy insisted on the changes to ensure, among other things, that the VH-71 could perform even in the event of a nuclear attack. But then the Navy was never that keen on the European solution. If they ultimately selected the European helicopter it was largely because Sikorsky, which has traditionally supplied the White House helicopters, did not have at the time a competitive product to challenge the Europeans.

Sure, both Italy and the UK lobbied hard – in particular Tony Blair, the then British prime minister. Indeed, the Italians, who had recently taken over Westland, had warned that unless the group secured the US presidential contract the future of Westland’s Yeovil plant and some 4,000 UK jobs would be at risk. Opponents of the original deal also claimed the Bush administration awarded the contract to the Anglo-Italian group to thank their respective governments for their support in the Iraqi war.

By recommending a cancellation of the programme because of his new budget constraints, Mr Gates, who was also George W. Bush’s defence secretary, raises the prospect of having to pay significant penalties on the first nine helicopters. Ironically, that could in turn increase the value of the contract for its suppliers.

Indeed, the capability of the helicopter to fulfil the role has never been questioned. That raises the question of whether, to avoid additional embarrassment, the Department of Defense will suddenly discover reasons why the VH-71 does not fit the bill. This would set a dangerous precedent. Cutting budgets is one thing. Reneging on contracts is quite another.

Mr Obama has a carefully nurtured reputation as a leader who encourages his countrymen to understand that with actions come responsibilities. In forgoing his Marine One upgrade he is leading by example. However, the positive impact of his sacrifice would clearly risk being compromised if his government were to try to wriggle out of the contractual consequences of its budget decision.

Talk like an Egyptian

Some of Europe’s largest telecom operators have become addicted to emerging markets. This week, French Telecom strengthened its hold on the lucrative Egyptian market. The ruling of the arbitration court of the International Chamber of Commerce that Nagib Sawiris, the head of Orascom Telecom, must sell his shares in Mobinil – the holding company controlling Egypt’s largest mobile operator – to his partner France Telecom, is a bitter pill.

Orascom has been doing its best to put a positive gloss on a decision that brought to a close a two year legal face-off with their French partners.

Their assertion the transaction will land them $1.7bn assumes France Telecom will pay the same price for a second stake Orascom holds in the operator as it is paying for the shares in the unlisted holding company.

While the French may well make an offer for all outstanding shares, they are likely to push for this to be based on the recent market price of the listed shares rather than on the arbitration price.

For France Telecom, the decision gives it full control over one of the fastest growing mobile businesses in the region.

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