A criminal investigation into Airbus Group SE’s practices in selling planes and arranging financing overseas will seek to shed light on the use of third parties who are often critical in closing deals.
The inquiry, which the UK’s Serious Fraud Office said it opened in July and Airbus disclosed Sunday, could run for years. While Airbus may not feel the short-term impact, given that it has dropped the questionable middlemen and expects suspended financing guarantees to be restored, an unfavorable outcome could result in fines and damage the company’s reputation, Bloomberg reported.
Scrutiny of the use of third parties comes as Airbus and its rivals seek greater influence in emerging markets, which have taken over from the US and Europe as drivers of growth in the commercial aircraft business. Airbus said in April that top management had identified questionable use of third parties and alerted the UK and other regulators, but the formal investigation brings the issue to a new, more serious level.
One focus of the SFO inquiry is Airbus’s failure to disclose its use of third parties to UK Export Finance, an agency that arranges credit guarantees for overseas sales. Airbus lost export credit in April after the plane maker informed authorities of inaccuracies in a number of applications. Government guarantees are expected to resume by yearend, Airbus Chief Executive Officer Tom Enders has said.
Growing Challenges
Airbus shares fell to their lowest since July 11 and traded down 0.7% to €50.64 ($56.14) in Paris.
The investigation adds to a growing list of challenges facing the company, including delays on its A400M military transport, production teething problems with the wide-body A350 commercial jet, slow sales of the A380 super-jumbo and the grounding of the Super Puma helicopter after a fatal accident.
Managing sales in the Middle East, Asia and other fast-growing regions, where governments often hold key stakes in airlines and other businesses, has tripped up other manufacturers. Because setting up a local office can take several years, the faster route is often to rely on local, established companies with connections to people making purchase decisions. Using intermediaries for overseas sales is not illegal, but can complicate oversight.
For 2015, only 6% of Airbus’s scheduled deliveries involved government loan guarantees, compared with about 30% at the height of the credit crunch, around 2009 and 2010.
SFO investigations take an average of four to six years. Enders’s mandate as CEO extends another two years.
One incentive for Airbus to cooperate is to make sure the company could be eligible for a deferred prosecution agreement, or DPA, if criminality is found. A DPA allows for a prosecution to be suspended in exchange for promises of compliance, as well as payment of a fine, redress and helping bring cases against individuals.
