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What's going on?
Britains Serious Fraud Office has opened a criminal investigation concerning European aircraft maker Airbus use of third-party intermediaries when selling passenger jets in emerging markets.
What does this mean?
Third-party middlemen are often used to help close deals of various sorts in foreign countries, including large aircraft orders. The allegations against Airbus focus on fraud, bribery and corruption regarding these middlemen. Airbus had previously disclosed that an internal investigation had unearthed potential issues, but the announcement of a formal criminal investigation is a big, and apparently surprising, development.
Why should I care?
For the stock: Bad news for Airbus in an already tough environment.
Its not been easy for aircraft manufacturers lately as demand for their biggest jets has waned. This news doesnt appear to be a massive negative for Airbus (its stock sold off less than 2% on Monday) but it will be a distraction as the investigation is likely to last for a number of years and could result in a large fine. Also, some European government agencies that lend money to foreign buyers have suspended the financing they provide to buyers of Airbus aircraft – which could impact sales in the near-term.
The bigger picture: Its difficult to do business in many countries without local partners.
The idea itself makes sense: an international company that wants to sell goods into a new country partners with a well-connected local firm to help it sell its products. But this can put international companies in a difficult quandary: they have to rely on foreign partners in countries where business practices are often questionable, while adhering to stringent anti-corruption standards set by governments in their home jurisdictions.
Originally posted as part of the Finimize daily email.
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