The Boeing Corp. is embroiled in a growing controversy in Egypt in which the Seattle plane manufacturer is reported price of the planes meant that Egyptian paid a total of $83 million for aircraft it could have had for $53 miur overpriced and unneeded 707 jets.
Boeing sold the planes to Egyptian in 1972 for $46 million. $6 million above the price that other airlines were paying for similar equipment at the same time, according to the Egyptian state prosecutor.
A former consultant to the airline who has been arrested on charges of taking kickbacks for his part in the transaction has admitted receiving $150,000 for his part in the deal and has implicated others whom he says received more.
Two former cabinet ministers have been named as suspects in the case but have been arrested. One of them, former Civil Aviation Minister Ahmed Nouh, has told Cairo newspapers that he will turn over documents that incriminate other prominent personalities if he is prosecuted.
No member of President Anwar Sadat's current Cabinet has been implicated in the so-called Boeing affair, nor have any of his close advisors. But the scandal clearly comes at a bad time for the president, contributing to the atmosphere of popular dissatisfaction and resentment against the goverment that boiled over into last week's food-price riots.
The controversy recalls the scandals involving payoffs on airplane deals by the Lockheed Aircraft Corp. to officials in Japan, Canada and several countries in Europe.
The Egyptian consultant, Hilmy Shams, a former pilot, has admitted receiving $150,000 from Boeing in the 1972 deal.
According to Socialist prosecutor Anwar Habib, Egyptian's purchase of the four 707s was tainted in several ways. The airline paid Boeing $11.5 million per plane when the going rate at that time was about $10 million.
The purchase was made with money borrowed through the New York investment house of Kidder Peabody at 8 per cent interest when there is evidence that a 5 per cent loan was available from other sources.
"Still more astonishing," says a report by Egypt's official news service, is the fact that "when objections to the unjust terms of the contract were finally voiced, top officials forged the minutes of a meeting saying that the contract had been approved."
That account said that a former deputy prime minister and another Cabinet member would be indicted along with Shams. It did not name them but they have been identified in the press as Nouh and Mohammed Abdallah Marziban, deputy prime minister at the time.
Marziban has pointed out that the transaction was approved by the Cabinet, which is apparently technically correct, and has called for an independent inquiry by Egypt's parliament, where questions about the Boeing deal were first raised nearly a year ago.
According to Habib, the prosecutor, the combination of the high interest rate on the loan and the inflated price of the planes meant that Egyptian paid a total of $83 million for aircraft it could havd had for $53 million, a loss the economically trouble airline could ill afford.
In addition, there were operating losses incurred from using the long range intercontinental 707s on short hops for which the cheaper, smaller 727 would have been better suited.
Egyptair has since purchased several 727s.
The prosecutor claims that Egyptian officials and independent consultants knew the 707s were inappropriate, but their recommendations were overriden by government officials who are now suspected of having enriched themselves in the deal.
Shams has told investigators that when Boeing delivered his $150,000 in Switzerland he complained that the amount was insufficient, and was told that others had received more so that there were no more funds available for him. No total amount of the alleged payoffs has been revealed.
There has been no suggestion that Kidder Peabody made any illicit payments. The Middle East has been a lucrative market for Boeing in the past few years with Iraq and Libya and well as Egypt making major additions to their fleets.
[A spokesman for Boeing, in Seattle, said that the sales of the jetliners "were transacted properly and directly with the airline." He said that Boeing had "no further comment."]
[A spokesman for Kidder Peabody in New York said that the 5 per cent interest rate cited by Egyptian sources was "unrealistic" and that he did not know where such rate could have been obtained by Egyptair. He said that Kidder Peabody made no payments to anyone in connection with the deal.]
Police sources say that Shams, a former military pilot, owned a chocolate factory in Switzerland and a substantial villa there at the time of his arrest. It has been reported that he was ordered to repay the $150,000 to the airline and wrote a check for the amount, but his Swiss bank refused to honor it. The reasons for that are not clear.