RUAG Does Not Send the DDPS Excessive Invoices
(Source: RUAG; issued Dec 17, 2018)
RUAG firmly rejects the accusations made in the article in “Zentralschweiz am Sonntag” on Sunday 16 December 2018 and responds: "The allegations about expenditure on research and development and the conclusions drawn from them are wrong. The conclusions drawn on the basis of the analysis of the business figures are wrong.

The profit margins achieved by RUAG Aviation on orders for the Swiss Air Force range between 8% and 10% and are therefore in line with the contract. RUAG does not question the SFAO's competence, especially when it comes to carrying out price audits. Cooperation with the SFAO is good.

The article in “Zentralschweiz am Sonntag”, published on 16 December 2018 under the title “RUAG unter schwerem Verdacht” (RUAG under serious suspicion), demonstrably makes false statements based on information provided by a former RUAG employee. RUAG has no knowledge of the documents cited and has not been asked about them.

-- RUAG does not question the SFAO's competence, in particular when it comes to carrying out price audits. However, the expert opinion cited in the article draws attention to the fact that the Swiss Code of Obligations and the Auditing Act contradict each other with regard to RUAG. In the meantime, this has been clarified with the SFAO and cooperation with the SFAO is good.”

-- Price checks have been around for a long time. They are carried out both internally by the DDPS and externally by the SFAO. These confirmed RUAG's compliance with its invoicing practice in accordance with the contract.”

--The SFAO's 2016 criminal complaint to the Office of the Attorney General of Switzerland was directed against unknown persons, not against RUAG. RUAG has no knowledge of the content of the criminal complaint and has never been questioned by the Office of the Attorney General of Switzerland.

--RUAG has not dissolved its Business Aviation division. It has only placed the Berne and Lugano sites under the control of the Head of Military Aviation. However, revenues and costs will continue to be booked and consolidated in the Business Aviation business unit. The two locations account for just under 10% of Business Aviation's sales and are therefore not decisive for its key figures.

--The data on research and development and the conclusions drawn from them are wrong. Firstly, it is necessary for a company to invest in R&D if it is to survive in the long term. Secondly, the figures published in "Zentralschweiz am Sonntag" also include order-financed R&D expenditure. These include, for example, the development contract won in the competition to maintain the value of the Cougar helicopter.

--The conclusions drawn in the article on the basis of the analysis of the business figures are wrong. Even if we do not publish any figures at business unit level, we make the following comments: Due to their higher complexity and the associated risks, military third-party contracts generally show higher profitability than simpler maintenance contracts for civil aircraft.

--The owner strategy of the Federal Council stipulates that RUAG "has a profitability that keeps pace with comparable technology and defence technology companies in Europe and sustainably increases enterprise value" (Section 2.1). There is no general federal profit restriction for RUAG.

--The maintenance contracts quoted are fixed-price contracts negotiated with armasuisse with an annually increasing discount. RUAG's invoicing is always based on and in accordance with existing contracts. This was also analysed by the SFAO in its audit on cross-financing. The SFAO found no cross-financing in its audit. RUAG therefore behaves in accordance with the contract.

--RUAG discloses annually to its customer armasuisse the returns in the individual areas of these fixed contracts. The DDPS has confirmed that the profit agreement with armasuisse will be adhered to. The system has proved its worth and was agreed between RUAG and armasuisse at the end of 2017 with new fixed-price contracts (again with discounts) with a term of a further five years.

--For armasuisse's orders (5-year period 2013-2017), it has concluded a profit agreement with RUAG and armasuisse under which the maximum profit is limited to 8%. It was also agreed that RUAG must disclose the profit margins of the individual systems to armasuisse. Finally, the procedure has been agreed should RUAG exceed the 8% profit margin: In such a case, this must be taken into account when setting the price for the follow-up contracts.

This is exactly what has happened. The profit over the entire five-year period for the fixed price portion 2013-2017 (contract term) was higher than 8%, but lower than 10%.

The new contracts negotiated from 2018 onwards at the end of 2017 are accordingly based on the detailed results of the previous 5-year period. By the way: if RUAG had achieved a margin lower than 8%, cost overruns would not have been compensated; the risk was therefore borne entirely by RUAG

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