The government will not terminate or suspend its contracts with aircraft maintenance company Airod which is being investigated for corruption, said Deputy Finance Minister Dr Shafie Salleh today.

Speaking to reporters at the Parliament lobby, he said the government will not draw a conclusion until the police complete their probe into the report lodged by two opposition parties on June 5.

"The government will not simply suspend a contract with a company which has been working with us for quite some time. The accusations contained political motives," he said.

He added that if the contract was terminated, the government needed to do the aircraft maintenance abroad and this would be costly.

Corruption-ridden

In their police report , PRM and Keadilan alleged that the president of the company - which holds multi-million ringgit contracts with the Royal Malaysian Air Force - Ahmad Johan was guilty of corruption.

The parties claimed they possessed evidence which showed an improper awarding of a RM5.7 million contract by Airod to Quality Ranch, a company which Ahmad used to be a director in.

According to the police report, Airod is indirectly owned by the Finance Ministry's bailout vehicle Khazanah Nasional through its 10 percent stake in Aerospace Industries Malaysia (AIM).

According to Shafie, AIM possessed a 19 percent equity holding in Airod, which means that the ministry holds 1.9 percent equity in the company.

The deputy minister said this in a reply to a question from Mahfuz Omar (PAS-Pokok Sena) during the question-and-answer session at the Dewan Rakyat this morning.

"Ministry of Finance Incorporated (MOC) does not have equity holding directly in Airod and SME Aerospace Sdn Bhd (SMEA). The equity holding of MOC (in Airod) is indirectly through AIM which is owned by PJS Industries Sdn Bhd (PJSI) with the equity holding of 90 percent and MOC at 10 per cent.

"AIM holds 100 percent equity in SMEA and 19 percent equity in Airod. This means MOC only holds 1.9 percent equity holding in Airod and 10 percent in SMEA," he said.

AIM has a number of subsidiaries dealing with the defence industry such as ATSC, which services the Russian-made MiG aircraft while SMEA owns a number of subsidiaries producing rifles, weapons, hand grenades and aircraft components

Renowned regionally

Keadilan and PRM claimed that the three companies - Quality Ranch, PJSI and Airod are registered under the same address in Taman Setiawangsa, Kuala Lumpur.

Second Finance Minister Jamaludin Jarjis is a director of Airod and is also believed to be the biggest individual shareholder.

The police report also alleged that the Airod president had abused his position by issuing 34 separate RM100,000 cheques to his personal account.

In addition, it was also claimed that since Ahmad ( photo ) took over Airod, the company procured aircraft parts from another one of his companies, Fabel (UK) Ltd, rather than from the original manufacturers as previously practised.

The significance of this change, the report claimed, was that Airod and by extension the ministry, were most probably being charged higher prices for the same parts.

Responding to a supplementary question from Zulhasnan Rafique (BN-Wangsa Maju), Shafie said Airod was renowned regionally and has been awarded contracts from Sri Lanka, Brunei, Philippines and Indonesia.

When met later, Mahfuz said the government should probe the allegations seriously as it could affect the country's defence industry and is a matter of national security.

In June 2001, the Defence Ministry signed a deal worth RM102.3 million with Airod.