Finmeccanica warms to UK alliances

The head of Italy’s largest defence group says his country should co-operate with the UK on a new generation of unmanned aircraft, helicopters and warships.

Pier Francesco Guarguaglini, chief executive and chairman of Finmeccanica, argues the two countries are the best fit in Europe given their similar foreign policies and common defence equipment programmes.

“All the focus to date has been on France, but Italy is as good a fit for the UK if not better. This is something we’ve highlighted to the Ministry of Defence, that there are other options. The choice doesn’t have to be binary. It can also be a complementary one,” he told the Financial Times at Finmeccanica’s headquarters in Rome.

According to Mr Guarguaglini the UK and Italy make natural partners for several reasons: both countries supported the wars in Iraq and Afghanistan; the two countries spend similar amounts on new equipment – Italy spends between €5bn-€5.5bn ($6.6bn-$7.3bn) while the UK spends about £6bn ($9bn); and the two countries share common products and programmes.

“The questions the UK has to ask itself when selecting a defence partner are: ‘Do we invest in the same things? Do we have the same requirements? Is there common ground?’ On these counts, in several areas, Italy shares more with the UK than France,” he said.

The prospect of closer co-operation between the UK and its European allies, in particular France, has gained traction in recent months as governments struggle with budgetary constraints and operational pressures.

Mr Guarguaglini believes Italy and the still partially state-owned Finmeccanica should have a seat at the table. The company is already a big player in the UK where it is the second-largest defence company by sales and as a supplier to the MoD. It also owns the helicopter maker AgustaWestland and has invested close to £2bn in the UK defence market over the past five years.

However, given Finmeccanica’s substantial investment in the UK, the tight defence budget is a worry. There is also “some concern”, he admits, regarding “the level of work” at AgustaWestland’s plant in Yeovil. The company builds all the AW101s and the AW159 Lynx Wildcat helicopters at the plant and also has several support and upgrade contracts for other types there, but has won no recent orders for new build programmes from the MoD.

“We are selling the AW101 to other countries but you cannot rely only on foreign countries. You also need some new programmes in the UK, so it is clear we are waiting for the new government,” he says. His concern, he adds, is a “medium-term” one.

Like its peers, Finmeccanica is therefore aggressively targeting opportunities in emerging markets for future growth. The company said in March at its full-year results for 2009 that it expects more than 50 per cent of its orders to come from outside Italy, the UK and the US in 2010.

“If you consider that the EU and US budgets are flat, then you must go round the world and get orders,” says Mr Guarguaglini.

Libya is “a very important opportunity for us” in defence, transport and security, according to Mr Guarguaglini, with potential sales of more than €5bn over the next three to four years.

He also singles out Algeria, Turkey, India, Malaysia and Brazil as other lucrative markets. The company is also eyeing more opportunities in Russia where it already has Superjet, a partnership with Sukhoi for 75-100 seater regional jets.

His biggest concern, he says, is Finmeccanica’s rolling stock business where “we are doing a lot but at the same time the recovery is at a slow pace”. He hopes to win some large orders on several new Italian programmes coming up later this year.

Mr Guarguaglini’s other passion is football, in particular the fortunes of Juventus.

He recently invited Fabio Capello, the England football manager and a former Juventus manager, to address the company’s annual management convention earlier this year. Were there any tips for him and his executives from the football pitch?

To fight, fight, fight and not to give up, he grins.

http://www.ft.com/cms/s/0/31e06c48-54b8-11df-8bef-00144feab49a.html by Sylvia Pfeifer. Copyright The Financial Times Limited 2010.