Opinion/Analysis : Defence Industry

A citadel under siege. That is how the French weekly Le Point describes Thales, the defence electronics giant implicated in the condemnation for corruption of Schabir Shaik, the former adviser to Jacob Zuma.

Attempts to reach Alain Thetard, the former head of Thales' South African arm, or Jean-Paul Perrier, the top executive who is said to have approved a deal struck by Thetard and Shaik to pay a bribe to Zuma in exchange for his protection in the arms deal probe, meet a wall of silence.

One after another, well-drilled secretaries and legal advisers at Thales headquarters in the plush Paris suburb of Neuilly refer all queries to the communications department, where polite but implacable spokespeople repeat the official Thales line: "No comment."

Thales at the moment prefers not to comment on anything much. Not on the scandal that erupted in the French press a few years ago over the sale of frigates to Taiwan, which is still under investigation; not on the more recent allegations of corruption in a contract to manage air waves in Argentina; not on the Shaik affair; and not on new accusations by a former employee, Michel Josserand, whose claims that Thales spends up to 2 percent of its E10.3 billion (R81.25 billion) annual turnover on illegal payments made front page news here last month.

In an interview published in the influential daily Le Monde, Josserand, the former head of Thales Engineering and Consulting, claimed that corruption was rife at Thales and that the group had set up an elaborate system to get around *1 a convention signed by countries in the Organisation for Economic Development and Co-operation (OECD) in 2000, which bans hidden commissions on deals.

Much of the money, he claimed, was paid through Thales International (Thint) and through sub-contractors in foreign countries. In Africa, in South Korea, in Greece and in Italy, illegal payments of this sort were "inevitable", Josserand claimed. "In France, it depends on local or national political interests. But in all cases the mechanism is the same ..."

Top executives at Thales were in the loop *1, he said. "It is a very widespread practice ... Thales International pays the bigger sums. Smaller amounts, of about E50 000, can be paid by subsidiaries."

Thales immediately denied the accusations, pointing out that Josserand had himself been fired for committing "irregularities" in a contract for a tramway in the Mediterranean city of Nice, that Thales had laid charges against him at the time and that he had been jailed in 2000.

It has also laid defamation charges against Josserand and against Le Monde.

Adding spice to the affair is the fact that on leaving Thales, Josserand went to work for European Aeronautic Defence and Space Company (EADS), the Franco-German group that made an unsuccessful bid to take over Thales in November 2004.

He has since been dismissed. Paris prosecutors have opened a preliminary inquiry into the corruption allegations. Josserand's accusations come at a difficult time for Thales, which is the centre of intense speculation about a possible takeover.

The French state, which holds about 31 percent of Thales shares, has made it known that it would like to sell, and private group Dassault Aviation is also keen to sell its 5.7 percent stake.

EADS is still interested in buying. And Alcatel, which holds 9.5 percent of Thales, has expressed a desire to buy the Dassault share. For EADS, the joint owner of aircraft giant Airbus with BAE Systems, a takeover of Thales would mean a leg up into the defence industry and a chance to rival its competitor, Boeing, in terms of turnover.

Also in the wings is the Italian group Finmeccanica, said to be the preferred partner of Thales chief executive Denis Ranque.

With its 60 000 employees in more than 30 countries from Argentina to Qatar, and its involvement in air defence systems, combat systems, navigation apparatus, information technology and civil security, Thales is a succulent prize *2 for any of the big players in European defence.

Ranque has tried to dampen speculation, pointing out that hostile takeover bids have no chance of succeeding since Thales is protected by its strategic position in the defence sector and by the French government stake.

Meanwhile, Thales itself has expressed an interest in buying STN Atlas, a naval electronics company owned by the British group BAE Systems.

But according to press reports, the German government, which has a veto right over defence deals involving foreign shareholdings of more than 25 percent, is backing another bidder, a consortium made up of German group ThyssenKrupp and EADS.

And the Zuma affair in all this? Well, for the moment at least, the Thales executives *3 have bigger things on their minds.