RM300 million for US-made helicopters, bought through dubious firm and never delivered

The MD530G helicopters that the Malaysian army never got to fly as they were not delivered despite millions of ringgit paid through a third party. (Bernama pic)

KUALA LUMPUR: Military helicopters bought during the previous administration for over RM300 million have yet to be delivered to the Royal Malaysian Army, a source close to investigations into allegations of corruption and mismanagement in the purchase of defence assets told FMT.

It is understood that six MD530G light scout attack helicopters, manufactured by MD Helicopters of US aerospace giant McDonnell Douglas, were ordered in 2016 by the defence ministry (Mindef) then headed by Hishammuddin Hussein.

The helicopters, better known as “Little Birds”, had reportedly impressed Mindef officials during a demonstration at the 2015 Langkawi International Maritime and Aerospace (Lima) exhibition.

But an investigation into the deal has revealed more startling details, including the fact that the Malaysian army never took delivery of the helicopters.

“It was found that the helicopter which performed at Lima 2015 wasn’t really an MD530G but another variant, the N369FF,” the source told FMT.

FMT contacted Mindef for more details but was told that investigations are still ongoing.

The ministry recently published its findings on suspicious “land swap” deals involving military land, and urged the Malaysian Anti-Corruption Commission to investigate what it said could be discrepancies resulting in the loss of some half a billion ringgit involving 16 projects.

FMT now understands that after Lima 2015, a local company with strong ties to “a very senior” Mindef official (“Company A”), which was the appointed agent in Malaysia for MD Helicopters, had made a proposal to Mindef to acquire the six MD530G.

The proposal was then submitted to former prime minister and finance minister Najib Razak for approval.

It is understood that the finance ministry gave the green light for the acquisition from Company A through direct negotiations.

It is also learnt that the Economic Planning Unit exempted the deal from undergoing value management checks.

A contract was signed in November 2016, in which the helicopters were to be delivered in two batches with the second batch scheduled to arrive by last year.

As per the contract, Company A was paid 35% of the contract value, amounting to some RM113 million.

“The main issue is that no real due diligence was done with the government,” said the source, adding that the approval was given just about four months after submission of the proposal.

“The decision-making process for vital military assets would take time so that market research, due diligence, and value management checks could be done.”

The source said in the absence of due diligence, Mindef was not aware that at the time the agreement was made with Company A, it had already been terminated as the local agent for MD Helicopters over its failure to meet financial obligations.

“This was very irresponsible because it opened up the government to the risk of financial losses and a failure to obtain the helicopters.”

There were also concerns among the top brass of the Malaysian Air Force about the ability of the MD530G.

“One complaint was that it did not have a combat-proven record,” a retired air force official told FMT.

The contract was also “vague and lacked key details”, including issues over military specifications and the certificate of airworthiness (CoA), required by helicopters in order to operate.

There was also another major problem with the deal.

In 2015, Company A sent a proposal to Hishammuddin worth US$60 million.

“Just three months later, it submitted another proposal, this time over US$70 million,” the source told FMT.

“In just three months, the price inexplicably went up by over 20%.”

A separate investigation into Company A found that it was financially weak before the deal was struck, having suffered losses in 2015 and 2016.

The deal is also believed to have been the first contract for the company, which had no experience in implementing a multi-million ringgit agreement.

“It only owned computers, furniture and office supplies valued at under RM50,000. Mindef could have gone directly to MD Helicopters and saved millions in taxpayers’ money.”

FMT is contacting Hishammuddin for a response. - FMT