In July of 1988, Air Canada purchased 34 Airbus A320s at a total cost of C$1.8 billion, or US$1.5 billion at the time. The deal also included parts for the aircraft. The deal would subsequently be plagued by a great deal of controversy – which would include accusations of collusion involving lobbyists, cabinet ministers, senior government advisers, bureaucrats, and Air Canada management.
Before we begin, we have to note that there is a lot to this scandal. Lengthy reports have been produced by both the Canadian government as well as the FBI in conjunction with American agencies. However, this will be a very rough overview of the scandal, looking at the big picture with more focus on Airbus and Boeing rather than Canadian politics.
Setting the scene
It was the early-mid 80s when Airbus revealed its 2nd commercial passenger jet to the world: The single-aisle A320 – touted as the world’s first fully computerized civilian aircraft. One of the goals of this new product was to go head-to-head with the already popular Boeing 737. As such, the competition for aircraft orders was fierce at this time as Boeing tried to hold on to its dominance while Airbus was aiming for some market traction.
How heated did this competition get? Well, Boeing went so far as to drop C$155 million to purchase De Havilland Canada from the Canadian government with the intention of making “significant additional investments for ongoing product development and modernization of the de Havilland plant” the LA Times writes. Air Canada was still a government-owned airline at the time* (Crown Corporation), and so Boeing saw its De Havilland purchase as a way to get into the good graces of a potential customer.
*Air Canada would be fully privatized by 1989.
Airbus wins, and Boeing drops DHC
In the end, Air Canada would make a deal with Airbus for A320s, much to Boeing’s dismay. A Boeing spokesperson said the following to the Associated Press at the time:
″We’re very disappointed in Air Canada’s selection of Airbus…The new generation (Boeing) 737-400 would have provided Air Canada with airplanes featuring both proven technology and considerable Canadian content, airplanes which we felt would have best met the airline’s fleet replacement needs.″
Boeing would almost immediately put De Havilland Canada up for sale – with the division eventually going to Bombardier.
Official investigation begins seven years after the deal
It wouldn’t be until 1995 that Canada’s national police force – the Royal Canadian Mounted Police (RCMP) – would conduct an official investigation into the deal.
A Canadian government report states Airbus paid International Aircraft Leasing (IAL) a large sum of money for the deal – the amount was believed to be C$20 million. IAL was controlled by a German businessman by the name of Karlheinz Schreiber, of which the American report states:
“When in Canada, Schreiber spends his time and someone’s money with senior Conservative politicians and friends. It is strongly suspected that he has funnelled large sums into Conservative campaign coffers.”
Schreiber would indeed go on to testify that some of his commission earnings would be paid to the Canadian Prime Minister. Something the PM would deny, saying: “I never received a cent from anyone for services rendered to anyone in connection with the purchase by Air Canada from Airbus of 34 aircraft in 1988.”
Another aspect of the scandal was the replacement of a majority of the Air Canada board of directors by the Conservative government under Prime Minister Mulroney. The premise of this is that strategically selecting board members would have influenced purchasing decisions.
The investigation would more or less fizzle out, with spurts of activity in 2008 and 2010. Sources note that the US allegations about Airbus money ending up in political party campaign coffers were unsupported. Meanwhile, a 2010 ‘Commission of Inquiry’ would conclude that Schreiber and Mulroney reached no agreement while the latter was still a sitting prime minister. Money was indeed exchanged, but it was to promote the sale of military vehicles in the international market.
In the end, Schreiber would assert that the money he received from Airbus was a commission and a normal part of business, saying:
“…it is money based on success. It was a commission. Do you understand? No business, no commission. In other words, the official agreement was made with Airbus through a company, IAL, which is the trust company in Liechtenstein.”
As we mentioned above, the full details of this story are complicated and would not serve to provide a brief overview of the entire scandal. However, here are the few details we know in terms of outcomes to this controversy as per The Globe and Mail:
- Schrieber accused his accountant of pilfering his secret Swiss account.
- The accountant retaliated by leaking to German publication Der Spiegel explosive documents that revealed a scheme to bribe businesses and politicians in Germany and Canada. The documents led to officials being jailed in Germany.
- In Canada, no one would be held to account, although several lawsuits would emerge. One resulted in a C$2.1 million settlement to Mulroney, which also included an apology from the Canadian government.
- Schreiber launched a C$35 million libel suit against CBC and one of its journalists.
- Former Air Canada board member Frank Moores sued for C$15 million.
Airbus and controversy
While the Air Canada scandal is old news, Airbus has been facing a criminal corruption inquiry for the last few years headed by British, French, and United States authorities. They were investigating allegations that Airbus bribed or coerced different firms and agencies for airline sales, through an ‘agent’ network.
The European planemaker agreed to a record US$4 billion settlement with France, Britain, and the United States. French prosecutors say their corruption probe involves transactions in several countries, including Kuwait. Other countries mentioned include China, Japan, Russia, Brazil, and Turkey.
Do you have any thoughts on this scandal or the general practice of hiring external lobbyists to influence customers? Let us know your thoughts in the comments.