A red flag

We’ll have to wait for the result of investigations. But it is surprising, since Satar, who headed Garuda from 2005 to 2014, is highly regarded in the industry for having pushed through a transformation at the airline which saw it re-fleet, make money and significantly improve its service standards.

In Thailand, Rolls says it paid more than A$47 million between 1991 and 2005 to agents to help it secure three separate contracts to supply Trent aero engines to Thai Airways.

In Indonesia, it gave $3 million and a Rolls-Royce Silver Spirit car to an individual in exchange for a “favour to Rolls-Royce on a contract” for Trent aero engines for Garuda.

In China, Rolls-Royce failed to prevent bribery in relation to the extension of a $8.2 million cash credit to China Eastern Airlines in exchange for the purchase of engines for aircraft in 2013. Some of the funds paid were intended to be used for employees of CEA to attend a two-week MBA course at Columbia University, including what was described as “four-star accommodation and lavish extracurricular activities”.

Rolls-Royce, which agreed to pay $1.1 billion in penalties to end the long-running dispute – investigations by Britain’s Serious Fraud Office (SFO) and authorities in Brazil and the U.S. lasted five years – has apologized for its misdemeanors. Chief Executive Warren East said the behaviour uncovered “is completely unacceptable and we apologize unreservedly for it. This was unworthy of everything which Rolls-Royce stands for, and that our people, customers, investors and partners rightly expect from us”.

Rolls-Royce agreed to pay $1.1 billion in penalties to end the long-running dispute.

Should we be surprised by this bombshell? Probably not. The business of selling engines and aircraft (there is no suggestion planemakers have been involved) is a multi-billion dollar business and amongst the thousands of decision-making executives in the airline industry it would be naïve to think there might not be one or two susceptible to temptation.

And corruption isn’t exactly an alien concept in Asia. As recently as 2010 several senior aviation officials were detained in China during a widening investigation of corruption in the country’s air-transport sector, including two general managers from China Southern Airlines. In 2006, China Eastern also sacked three senior managers for alleged corruption.

Back in the 1990s corruption was also endemic at Garuda Indonesia. In 1997 the carrier was wracked by corruption, nepotism and mounting losses but the fall of the Suharto regime in 1997 cleared the way for radical change. Following a “people protest” by airline staff, the new government brought in respected banker Robby Djohan to begin re-building the carrier. Within days he had sacked corrupt staff, began to restructure and recruited Lufthansa Consulting to help prepare a long-term business strategy. One of the things Djohan (he died last year) found: Six Airbus jets being leased for US$500,000 a month were being listed on the books at $600,000 a month, with the additional money being shared between top managers at the company.

Incidentally, Garuda has been in the news for other nefarious events. On September 7, 2004, human rights activist Munir Said Thalib, travelling to Amsterdam via Singapore on Garuda Indonesia Flight 974, was assassinated by off-duty pilot Pollycarpus Priyanto, who slipped arsenic into his drink. Priyanto, along with then CEO Indra Setiawan convicted of his murder, although it has been alleged it was under orders from the Indonesian State Intelligence Agency (BIN).

There is no doubt things are different today. Thai Airways reacted quickly to the Rolls-Royce scandal, setting up two Task Forces, one to look into past engine and maintenance procurement practices, the other to ensure systems are in place to prevent corruption. Garuda also issued a statement saying the corruption allegations are not related to current corporate activities. It said as a public company, Garuda had a mechanism in all of its business activities, from the tight implementation of a good corporate governance system to transparency of information.

The revelations of last month, however, should act as a red flag to all carriers their systems to protect against corruption need to come under constant scrutiny.