ROME — The Italian government has made another cut to defense spending and strengthened a measure designed to halt undesired foreign takeovers of Italian defense firms.
On Aug. 10, the Cabinet identified key strategic industries that can be protected from unwanted takeovers under legislation passed this spring.
The government’s decree —which has not been released but has been seen by Defense News — includes C4I technologies, electronic warfare, radar, military satellites, UAVs, underwater acoustics, counter-IED technologies, missiles, munitions, torpedoes, military pilot training systems, stealth and the construction of military aircraft and vessels.
Nonmilitary technologies also on the list are aerospace propulsion, cyber defense and encryption.
Under the law passed in May, foreign and domestic companies that have received permission to take over public and private strategic firms must give guarantees on their management strategy. The government can intervene if those strategies are abandoned.
The law was designed to replace the system under which the Italian government had veto power over strategic decisions involving firms in which it held so-called “golden shares.”
That system, which was also in use in the United Kingdom, Portugal and Spain, was ruled anti-competitive by the European Union.
Defenders of the new legislation, which can be applied to public and private companies, claim that will make takeovers of firms easier, not tougher, because a legal framework now exists to facilitate such moves.
A statement issued by Prime Minister Mario Monti’s office said he will be given “special powers” to control the trading of shares in the companies covered, have a veto power over “significant decisions” and prevent undesired firms from building up large stakes.
While the decree issued Aug. 10 defined the activities to be covered by the law, the next step will see the ministries of defense and industry advise the Cabinet on specific companies that should be covered.
The new decree will likely cover Finmeccanica units, as well as propulsion firm Avio and shipyard Fincantieri. Further decrees could cover strategic industries, including energy.
Separately, on Aug. 9 Parliament voted into law a package of measures designed to trim extra fat from various ministerial spending plans amid the country’s budget deficit.
The spending review will cut more funds from defense, following a series of budget reductions that have slowed procurement programs and helped drag spending down to 0.84 percent of gross domestic product.
Finmeccanica CEO Giuseppe Orsi has said the latest cut will not “dramatically” affect procurement spending, but it will reduce funding for overseas military missions from 1.4 billion euros ($1.7 billion) this year to 1 billion in 2013. Mission spending is sourced independently of Defense Ministry budgets.
“Around half of that 1.4 billion is spent in Afghanistan and one Italian battle group is now pulling out of Bala Murghab in Afghanistan in September, one year earlier than scheduled, which will create a savings,” said Gianandrea Gaiani, director of Bologna-based defense publication Analisi Difesa.
The effect of the cuts on spending at home will not become fully apparent until the budgets to be cut are detailed, but Gaiani predicted overall Defense Ministry spending would slip to 10 billion euros in 2015, down from 13.6 billion this year.
In an Aug. 1 address to the Italian Senate industry commission, Orsi asked the government to reverse cuts planned for 2013 and 2014 and requested that state research and development funding provided under law 808/85 — which was suspended this year — be restarted.
Orsi also talked up the firm’s plan to sell stakes in energy unit Ansaldo Energia and transport units Ansaldo STS and Ansaldo Breda, part of a plan to focus on aerospace, security and defense work. The plan would also help Finmeccanica find some of the 1 billion euros in cash Orsi has promised analysts he will use to cut debt by year’s end.
So far, Finmeccanica can count on about 300 million euros it will yield from a planned sale of its 14 percent stake in Avio to an Italian government investment fund.
Finmeccanica’s 55 percent stake in Ansaldo Energia could go for up to 700 million euros, with Germany’s Siemens in talks to buy it. Hitachi is reportedly interested in the transport units.
But the deals have become political hot potatoes in Italy. Despite an apparent green light from the government, members of both of Italy’s main political parties have opposed the sales, as have unions.
“With Ansaldo Energy and Ansaldo [transport activity], I would avoid losing control,” warned Pierluigi Bersani, head of the center-left Democratic Party on Aug. 9.
Orsi told analysts at a presentation of the firm’s half-year results July 31 that the 1 billion euros worth of sell-offs would be achieved.
Separately, he also announced the sale of six AW Super Lynx 300 helicopters to a Mediterranean customer that he did not name, but which is known to be Algeria, bringing the total number AgustaWestland helicopters — including AW101s — now sold to Algeria to around 80.