Paris Air Show

Finmeccanica shifts priorities but avoids making cutbacks

 - June 13, 2009, 12:02 AM

The world financial crisis is hitting military budgets as well as commercial aviation, forcing Finmeccanica, Italy’s leading defense and aerospace group, to keep a close eye on the evolving situation. “Although much has been discussed about possible defense budget cuts at the international level,” chief operating officer Giorgio Zappa told AIN, “we expect allocations of new resources and so we are implementing a review of priorities rather than cuts.”

Zappa is also convinced that defense production, thanks to its dual-use aspect, can represent a solid base for a restart of the economy and pointed to the group’s greater diversification as a reason for it being less worried than other players by falling demand in any particular sector. “I am convinced that we will produce the right technical and economic solutions in all markets,” Zappa remarked. As for the civil sector, the impact of the crisis is deeper at Finmeccanica “but, again, our diversified portfolio and our willingness to create greater synergies should limit the risks of stagnation and the structural problems of single sectors.”

How much the crisis will impact on a possible further rationalization within the European defense industry and the Finmeccanica group itself remains to be seen. “In Europe something is moving,” insisted Finmeccanica chairman and CEO Pier Francesco Guarguaglini, “and we just saw Dassault taking over 20.8 percent of Thales from Alcatel Lucent, increasing its share to 26 percent. Looking at the future, we will probably move toward increased cooperation on ad hoc programs, probably within the European Union or the Atlantic Alliance framework.”

Finmeccanica’s priority is to increase the synergies among the various group sectors to respond to new market requirements that increasingly focus on complex products and systems with higher interoperability, integration of new open platforms and network-centric configurations. “We are currently busy integrating DRS within our group,” Guarguaglini said, “and again the challenge is not simply the sharing of products and processes, but in enhancing the differences to make the DRS integration a real added value for the whole group to harness its commercial capacities and, crucially, its presence on the U.S. market.”

The Italian company’s aim to considerably increase its share of the U.S. market appears to have been made more difficult by recent decisions by the U.S. government, but, said Guarguaglini, “The U.S. market is and will remain strategic for Finmeccanica, and with the acquisition of DRS Technologies we believe that we will be able to maintain a good level and expect an increase in the orders from the U.S. government over the next three years. The company has already had good results in the first quarter of 2009. We also foresee a positive trend for the other Finmeccanica companies active in the U.S. market by exploiting our cooperation with Boeing, especially on the 787 Dreamliner, good prospects for the tanker contract in the coming months and our cooperation with Lockheed Martin on the Joint Strike Fighter.”

He also looks positively at opportunities for Alenia Aeronautica tactical transport aircraft, radar systems and homeland defense, as well as the helicopter sector. “We are convinced that the AgustaWestland US101 remains the best possible solution for the new presidential helicopter,” he added.

But now Finmeccanica is seeking further expansion outside the U.S. and UK markets, primarily through cooperation and partnerships. Of particular interest is the Middle East in markets such as the United Arab Emirates, where it signed a partnership agreement with Mubadala for the production of composite aeronautical components, and where its M-346 trainer was selected last February. By the end of this year, AgustaWestland hopes to build a new helicopter assembly facility in Libya and expects to obtain a contract for border control systems.

“In Saudi Arabia we have important prospects in the homeland security field and with the Eurofighter program, and not only for our companies–such as Alenia Aeronautica, Selex Galileo and Selex Communications–but also for the supply of defense systems by MBDA,” Guarguaglini stated, adding that Finmeccanica is further anticipating the possible supply of an integrated territory monitoring system for Algeria.

Naval systems, a homeland security and protection integrated system able to link up different sensors and platforms are being proposed to Nigeria, where the group is already present with helicopters and transport and maritime patrol aircraft. South Africa is also being targeted.

In difficult times, research and development is vital in order to get the
best opportunities when the economy recovers, emphasized Zappa. “Technology and innovation are vital for Finmeccanica competitiveness, and in 2008 our group invested ?1.8 billion–that is 12 percent of our revenues,” he revealed. “Most of this was spent on the three strategic pillars of our group–helicopters, electronics for defense and security, and aeronautics. In the latter we aim to reach levels of excellence in the field of unmanned air systems, which we consider strategic for the European aviation industry, and in training systems for helicopters. We are also very active in the homeland security arena through Selex Sistemi Integrati.”