October 11, 2016 / 11:22 AM / 9 months ago

Airbus lifts lid on helicopter talks after Poland scraps deal

A multi-role military helicopter EC 725 by Airbus Helicopters is pictured at an international military fair in Kielce, southern Poland September 2, 2014.Kacper Pempel/File Photo

PARIS/WARSAW (Reuters) - Airbus Helicopters (AIR.PA) hit back on Tuesday at Poland's decision to cancel a multi-billion-dollar military helicopter deal, deepening a defense procurement row that has soured relations between France and its eastern European NATO ally.

In an open letter to the country's prime minister, Europe's largest aerospace group accused the Warsaw government of shifting the goalposts as Airbus competed with U.S. and Italian rivals and attempting to contravene European Union regulations.

Airbus Group Chief Executive Tom Enders accused Poland of misleading the company during negotiations and threatened further action, without giving details.

"Never have we been treated by any government customer the way this government has treated us," Enders said in a separate emailed statement.

"The controversial and contradictory declarations of the Polish government over the course of this procurement proceedings created the impression of unprecedented confusion," he said.

Poland's previous centrist government, which was beaten by rightist Law and Justice (PiS) party in elections last October, had provisionally agreed with Airbus to buy 50 of its Caracal multi-role helicopters in April 2015 as part of efforts to modernize its military at a time of tensions with Russia. But on Oct. 4 the new government said it was scrapping the contract.

France reacted angrily, saying Paris would review defense cooperation with Poland and cancelling a presidential visit to Warsaw.

Industry sources estimated the cost to Airbus of running the helicopter sales campaign at several tens of millions of euros.

Polish government officials said Airbus had had ample notice to adjust its offer, which they said was not satisfactory.

"The ending of negotiations with Airbus is fuelling an emotional reaction, that's understandable," Radoslaw Domagalski-Labedzki, a deputy economy minister, told reporters.

"I would like to explain the government hasn't broken the negotiations but ended them when we became certain continuing them made no sense. These negotiations lasted a year, long enough to ensure that there was no further room for compromise."

Jobs, Offset

The Polish government appears to have dismissed Airbus Helicopters Chief Executive Guillaume Faury's argument that the deal would have led to the creation of 3,800 local jobs and generated more value for Poland than for Airbus itself.

Speaking at a news conference in a helicopter repair factory in the city of Lodz, Prime Minister Beata Szydlo said her government wanted the army to be equipped by Polish-made kit.

"We are doing what is being done by all other countries which protect national interests," Szydlo said. "For Poland, it is important we buy equipment here, in Poland."

Defense Minister Antoni Macierewicz said Warsaw planned to obtain two helicopters from the Polish factory of Sikorsky Aircraft Corp, a unit of U.S. Lockheed Martin Corp (LMT.N), this year and eight next year.

"The Polish army needs helicopters as quickly as possible," Macierewicz told a joint news conference with Szydlo, adding the helicopters would be serviced in Lodz, in a plant which was meant to be developed with Airbus under the scrapped deal.

Lifting the lid on the typical secrecy surrounding defense contracts and the economic trade-offs or "offsets" that typically go with them, Faury said the decision to cancel the deal came a day after Airbus had offered new concessions.

He said Airbus Helicopters had offered offsets worth more than the net value of the helicopters, or 10.8 billion zlotys ($2.8 billion).

He also said the ministry of economy had slapped an additional 23 percent in value-added tax (VAT) on the deal, bringing the overall value to 13.4 billion zlotys.

"Although compensation of a value-added tax through offset is not standard practice, Airbus Helicopters agreed to compensate this gross value," the letter said.

He said the ministry also introduced other new requirements in August, some of which Airbus had been unable to meet because they contravened European Union laws. He gave no details.

Airbus said the deal would have led to the transfer of 45 items of security-sensitive technology and provided 30 years of work for state-owned companies, modernizing an industry depending on servicing "old-generation Russian helicopters".

Faury claimed Airbus had gone further than its rivals, Lockheed Martin's (LMT.N) Sikorsky and Italy's Leonardo (LDOF.MI) in offering a state-owned assembly plant.

Parent Airbus Group says it employs 900 people in Poland and spends 204 million euros annually there.

Additional reporting by Marcin Goettig and Pawel Florkiewicz in Warsaw, Editing by Greg Mahlich, Justyna Pawlak and

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