Czechs bought three CASA aircraft for price of four, 2005 document shows

Detailed price quotation from CASA aircraft manufacturer, obtained by Czech Position, undermines Vlasta Parkanová’s case 

foto: © ČESKÁ POZICE, UrbČeská pozice

Vlasta Parkanová (TOP 09) was stripped of her parliamentary immunity last week so that she can be prosecuted for having signed off on a Kč 3.6 billion contract to buy CASA transport planes for the Czech Army when she was defense minister. At the heart of the matter is the price ultimately paid for the planes, which were unneeded and allegedly deliberately overpriced by at least Kč 658 million, according to an assessment by the firm American Appraisal.

Czech Position has obtained a document from November 2005 that lends support to allegations that the Ministry of Defense knowingly entered into a disadvantageous deal: an official offer from the Franco-German consortium EADS of four CASA C-295 transport planes for € 97.2 million (Kč 2.8 billion), not including VAT or servicing, addressed to the Ministry of Defense’s armament section.

Before the lower house of Parliament on Wednesday, Parkanová called into question the “quality” of the work of American Appraisal — as has her most vocal and powerful supporter, Finance Minister Miroslav Kalousek (TOP 09), himself a former deputy defense minister responsible for budget and acquisitions (1993–1998).

“Yes, there are CASA planes with a slightly different label in the civilian version, but what does that tell us about the price and valuation of the military version of the machines, which are armored, have passive and active protective features, and special navigational equipment, and among other things include equipment for the transport of the wounded. It does not say anything about it. This makes the claims of the police [of the CASA contract being overpriced] worthless, and further it is not known upon what their information is based,” Parkanová told fellow MPs in her defense.

Itemized costs were known to the Czechs

The 2005 offer from EADS includes a table that stipulated prices not only of the four Casa C-295 transport planes but also for other specific equipment. Among the items listed include: the cost of putting armor plating in cabins of the four planes and the cost of the Defensive Aid Sub-System (DASS), which included installing radar warning receivers and missile approach warning systems, among other features for the military versions.

The document is part of the file upon which the Czech anti-corruption and financial crime police unit (ÚOKFK) is basing its charges that Parkanová, who served as defense minister from 2007 to 2009, violated her fiduciary duties in signing off on the deal, on the day before she was replaced as minister by Martin Barták (Civic Democrats, ODS), who later came under investigation for having allegedly solicited a bribe from former US ambassador William J. Cabaniss, who went on to join the Tatra truck maker.

Presumably, American Appraisal also used the 2005 document in coming up with the amount of damages (Kč 658 million). ÚOKFK chief Tomáš Martinec said during an appearance on Sunday on the Czech public television show “Questions of Václav Moravec” that investigators had been working on the case for two years, and charges against Parkanová were based on a large body of evidence.

The 2005 price offer from EADS became the basis for a market study prepared for the Ministry of Defense in 2006, which Czech Position first reported on in October last year. The 2006 market study was prepared by the Defense Ministry’s own experts, who approached four global manufacturers of transport aircraft — Alenia Aeronautica (Italy), Antonov (Ukraine), EADS CASA (Spain) and Lockheed Martin (US) — about terms for the delivery of four comparable aircraft. During the negotiations, the Czechs ruled out the AN-74s from Ukraine planes (which weren’t designed according to Western standards or up to snuff as far as NATO regulations and compatibility) and the four-engine C-130s from the US (which were deemed too expensive).

In the end, in 2009, the Czech Republic bought three CASA C-295M aircraft. The intermediary, the Czech arms deal Omnipol, was paid Kč 3 billion (not including VAT) for its services. The Czech Army obtained the fourth aircraft in exchange for five Czech-made L-159 fighter planes. To the price of the contract must be added the framework service contract, which was concluded a year later (with Omnipol again acting as middleman) for Kč 982.3 million. Not counting the value of the L-159s, the deal cost the Czech Republic a total of Kč 4.6 billion.

Overcharged by 40 percent

In her remarks before the lower house last week, Parkanová also referred to the market study (of which she was no doubt also aware of during her time as defense minister). She insisted that the aircraft and installed equipment purchased in 2009 were fundamentally different from those outlined in the 2005 offer from EADS.

“The final configuration is based on the needs and requirements of the Czech Army, which in 2006 was not specified. On the basis of the specific requirements, the price of the aircraft then rose by about a quarter, which is not unusual for military technical purchases,” Parkanová told fellow MPs.

However, the price of the closed contract in 2009 for the three aircraft amounted to Kč 3 billion (not including VAT), and the quoted price in the 2005 letter from EADS (leaving aside the cost of the bartered L-159s and accounting for currency fluctuations) comes to just Kč 2.1 billion (minus VAT). Thus, between 2006 and 2009, the price increase was not “about a quarter” but more than 40 percent. Furthermore, according to Czech Position’s information, the price increase did not stem from any dramatic mark-up in the planes or equipment itself.

Did then-deputy defense minister Martin Barták and Jaroslav Kopřiva, the ministry official in charge of armament purchases (later dismissed by current Defense Minister Alexandr Vondra (ODS) over allegations of corruption) know of the initial 2005 offer? Ministry spokesman Jan Pejšek did not have an immediate answer when Czech Position’s posed this question last week, but has promised to findt out.

Why are services so costly?

The 2005 price quotation shows another interesting fact: the Czech Ministry of Defense armament section certainly knew that the service offer for the four CASA transport planes was € 9.2 million without VAT (Kč 266 million). Implementation of the framework service contract, negotiated with Omnipol by then Defense Minister Barták in 2010, however, cost three times as much — and was criticized by military experts. In June, the Czech police charged the former head of the armament section, Jiří Staňek, in connection with the CASA case.