BAE Systems Hawk in RAF colours 

BAE did not offer the cheapest contract to supply planes

BAE Systems, the UK's largest defence contractor, has become the focus of allegations of bribery and corruption at a South African public inquiry into arms deals worth £3.9bn ($5.5bn).

BAE is among a number of firms caught up in an inquiry into claims that senior officials in the South African government siphoned off million of pounds from a £1.5bn deal to supply planes to the country's air force.

The company maintains it abides by the law in whatever country it does business.

Other weapons makers also implicated in the inquiry including Sweden's Saab, France's Thomson-CSF (now known as Thales), Agusta of Italy and the German Frigate Consortium.

In April, European Aeronautic Defence and Space company (EADS) admitted it had "rendered assistance" to about 30 government officials in acquiring luxury Mercedes cars.

DaimlerChrysler, a major shareholder in EADS, also owns Mercedes-Benz.

The "assistance" came in the years before EADS won a £37m contract to supply missiles and radar for four new navy corvettes.

Pointing the finger

BAE won its contract in December 1999 as part of the £3.9bn arms deal, which has been plagued by allegations of bribery and corruption.

A preliminary study by South Africa's auditor-general last year found serious flaws, and called for an in-depth review.

The auditor-general identified the joint BAE/Saab contract for providing 52 Hawk and Gripen aircraft for special attention.

BAE won the contract even though its Hawk jet, because of its cost, was not viewed as leading contender in the bidding race.

A key allegation was that the planes were being sold to the South African Air Force at double the basic price.

The deal

The arms deal, approved by parliament in 1999, includes the purchase of the Hawk and Gripen aircraft, frigates and four submarines from Germany, and 40 Agusta helicopters from Italy.

The package came with conditional guarantees from arms makers to invest $13bn to create 65,000 jobs.

Also under scrutiny is a £500 000 donation paid by BAE just after the aircraft contract was awarded.

The chairman of the South African standing committee on public accounts, Gavin Woods, found evidence that the project which received the money was connected to the African National Congress, the country's ruling party.

BAE in March said there was no link between the contract and the donation, which it described as a contribution to rebuilding the community.

Privatisations

BAE is, besides a supplier of weapons to South Africa, instrumental in advising the country on the privatisation of the national armaments industry.

In May, South Africa began wooing UK investment banks and institutional investors in a bid to raise more than £4bn from privatisations.

Up for grabs will be the country's key telecoms, energy and airline assets.

The government is also close to sealing a deal to get BAE help in commercialising the South African defence industry.

British business

The UK is the biggest foreign investor in South Africa, with £12bn tie-up in the country.

Nine of the 20 largest foreign employers in the country are British.

BAE too has a long and deep involvement in South Africa and has formed business ties with public and private sector companies.

These include Denel, Analysis Management & Systems (a unit of Spescom), ATE, Grintek, Contactserve, Tellumat and Paradigm Systems Technology.

Indian troubles

BAE has also become embroiled in India's arms corruption inquiry.

A former adviser to the Indian government has claimed that BAE paid commissions to the Hinduja brothers to fix a £1bn arms deal with the Indian air force for 66 Hawk jets.

British Aerospace, as it was then known, started negotiating with the Indian government almost 16 years ago and was initially awarded the contract without any competition.

It is now considered unlikely the contract will ever be signed.

The Indian press has also been highly critical of the price the Indian Air Force is paying for the planes.

While BAE has sold Hawks to Australia and South Africa for about £12m per aircraft, the Indian government is being charged £15m.

BAE has publicly distanced itself from the Hindujas and maintains it abides by the law in whatever country it does business.

With acknowledgements to BBC News.