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Further Reading

Finmeccanica

Finmeccanica, owned approximately 65 percent by the Italian government, has about 28,000 of its 60,000 total employees dedicated to defense related work and had 1997 defense and aerospace billings of nearly $3.5 billion. About 65 percent of Finmeccanica's annual revenue comes from defense and aerospace, and two thirds of the annual revenue is from export markets.

Alenia Aerospace is the largest of the Finmeccanica subsidiaries with 1997 revenues of over $1.9 billion.10 Most of that is concentrated in the EF-2000 Eurofighter program and the start of a new C-130 transport version in conjunction with Lockheed Martin and other avionics systems partners. Alenia Defensia is the second largest Finmeccanica subsidiary with 1997 sales of approximately $2 billion. Defensia's main product lines are: radar, missiles, naval artillery and radar systems, and avionics. Alenia Spazia with 1997 orders of approximately $688 million is focused on the international space station to support the European Space Agency (ESA) and NASA requirements, the SICRAL communications satellite for the Italian military, the European Helios 1 military observation satellite and other communications satellites for commercial applications. Agusta, currently a helicopter and systems company, is the smallest of the subsidiaries with 1997 orders of $526 million.

Italy's has prepared a grand design for defense consolidation: sector oriented joint ventures that cut across borders but still safeguard the strengths of its national industry. This has resulted in several joint ventures established as test cases for Italy's defense consolidation strategy. Finmeccanica began the transformation in 1994 when it took over the state-owned Ente Partecippazioni e Finanziamento Industrial Manifatturiera (EFIM) Group. This Group included Italy's major helicopter manufacture, Agusta, an electronics company (SMA), the sensor company Galileo, the light artillery maker Breda, and the naval arms and armaments producer OTO-Melara. To assimilate these capabilities, Finmeccanica created a new management structure dividing its defense operations into three groups: helicopters, avionics and equipment, and armaments. This acquisition gave Finmeccanica control of about 70 percent of Italy's defense industry. As a part of the acquisition, the Italian government also guaranteed to Finmeccanica a stable order flow, sustained R&D funding at previous levels, financing of restructuring costs, and help promoting exports. One of the government's rationales in establishing Finmeccanica as the single Italian missile manufacturer was to posture Italy to play a more active role in the anticipated restructuring of Europe's missile industry.

Finmeccanica is also heavily engaged in the commercial market. In 1994, defense revenues accounted for only 17 percent of the company's total revenues. After restructuring was completed in 1995, Finmeccanica began to focus on export sales, with a goal of rising to a level of 70 percent of its annual defense revenues coming from the export market. To support this goal, Finmeccanica depended on a change in government policy that will relax the restrictions on export sales that are automatically prohibitive to countries no longer embargoed by the United Nations. The planned increase in export sales was expected to come from four major operating companies: Agusta (helicopters), Otobreda (ordnance and vehicles), FIAR (avionics and systems), and Alenia (aerospace, especially tactical missiles). Finmeccanica's international business strategy focuses on joint ventures rather than mergers with larger European groups for fear of eventual takeover.

In 1995 Finmeccanica's parent state-owned company, Instituto per Ricostruzione Industriale (IRI) was heavily in debt. This led to considerations within the Italian government to split or sell Finmeccanica, which is one of the most attractive IRI assets. IRI viewed the most attractive option to be the split of Finmeccanica, privatizing the civilian sector elements to generate revenue while keeping the defense and aerospace businesses under state ownership. Finmeccanica leadership opposed this plan, arguing that future survival depends on maintaining a diversified civil-military high technology business base.42 Nevertheless, in May 1997 IRI announced intentions to divide Finmeccanica's assets into three companies (Alenia Aerospace, Alenia Defense, and Agusta) and privatize them separately.

This action led to the prompt resignation of Finmeccanica's CEO, Fabiano Fabiani, arguing that this step would lead to the "transformation of its best industrial properties into subsidiaries of competing foreign groups." The IRI approach was diametrically opposite to the consolidation initiatives that Fabiani had been pursuing over the last three years, although in pursuit of the same declaratory objective- to facilitate international agreements. Italian defense industry analysts expressed concern that the reversal would increase costs and inject delay, which in turn may prevent Italy from full participation in European-wide consolidation and restructuring.

In 1998 Finmeccanica's leadership argued that she had been able to maintain her competitive position in radar, missiles, naval weapon systems, satellites and fighter aircraft. At the same time, she urgently needed to pursue four priority areas: partnership entry into the Airbus consortium; completing the GEC-Marconi joint venture arrangement; integrating Agusta with either Westland or Eurocopter; and concluding a space-sector alliance with either the Matra-Marconi Space-DASA or the Alcatel-Thompson-Aerospatiale groups. These were seen to be strongly interrelated measures to both insure Italian participation in the major European consolidation initiatives and also to motivate Italian industry to achieve the level of modernization and efficiency associated with the high standards of the UK.

Both of the new large European defense giants, BAE Systems and EADS, offered to form a military-aircraft joint venture with Finmeccanica's Alenia Aerospazio subsidiary. As a matter of policy, Finmeccanica did not intend to join either company directly but rather intended to emphasize partnerships targeted to specific industry sectors. According to defense industry analysts, the BAE Systems offer was not based on a 50/50 joint venture because of the unequal size of the two companies, whereas the EADS offer not only proposed a 50/50 split, but also offered Finmeccanica an equity share of EADS. Finmeccanica subsequently decided to accept the EADS offer, judging that it would better support Italy's objective of improving its domestic defense and aerospace industry. A part of the EADS offer was the opportunity for Finmeccanica to acquire a 5 percent equity share of the commercial Airbus Consortium.

The new company was expected to be a major player in the world defense aerospace market, with special strengths in combat aircraft, military transport aircraft, special mission aircraft, and trainers. The new company had at least three subdivisions - Italian, German, and Spanish- because of the lack of common national laws and regulations governing transnational corporations. Additionally, the new company was approached by the Greek Hellenic Aerospace Industry (HAI) with an offer to have it acquire a 49% equity share of HAI (which has also been offered to Dassualt).