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Finmeccanica Tries To Break Streak of Program Bad Luck

Jan. 27, 2013 - 01:23PM   |  
By TOM KINGTON   |   Comments
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ROME — Italian defense giant Finmeccanica — after sealing a deal with General Dynamics to market its M-346 jet trainer in the U.S. — is trying to break a series of program cancellations in the world’s largest defense market.

This month, General Dynamics signed a deal with Finmeccanica unit Alenia Aermacchi to market Alenia’s trainer, renamed the T-100 for the U.S. campaign, to replace the U.S. Air Force’s aging T-38 trainers.

“We thought it was important to be together before an Industry Day at Wright-Patterson Air Force Base in Ohio on Jan. 29-31,” said Michael DiBiase, vice president, Air Force T-X program, at General Dynamics C4 Systems.

“We know that initial operating capability is required in 2020, and we think that means a request for proposals will come in 2014 with an award in 2015,” he added.

The Italian giant, which has been struggling to cope with program cancellations, financial woes and restructuring challenges is eager to land a big order in a market top executives once had high hopes for.

And for a while, Finmeccanica defied the odds, analysts and critics by landing a series of major victories in the United States.

In 2005, its AgustaWestland unit — teamed with Lockheed Martin — beat incumbent Sikorsky to deliver the U.S. president’s new transport helicopter.

Two years later it beat EADS to win a contract to deliver up to 150 light transports to the U.S. Air Force.

In 2008, it bought DRS Technologies for $5.2 billion, giving it clout and reach in the DoD market.

But the following year, citing cost growth, the Obama administration terminated the presidential helicopter contract.

And as budget pressure rose on the Air Force, the C-27 program was steadily trimmed, cancelling it entirely last year. Service leaders lauded the C-27 as a capable and quality product, but said that with Afghanistan operations to end in 2014, and with demand to find immediate savings, it had to cut the twin-engine light transport.

In December, the Air Force made a surprise decision not to renew Alenia’s contract to refurbish and supply old G222 transport planes to the Afghan Air Force — blaming poor performance.

Given the setbacks, the Italian giant is eager for a big win, and it sees the Air Force trainer contract.

“Finmeccanica had the best entry for the White House and the C-27J was uniquely suited to the requirement, but it did not have the political clout,” Loren Thompson of the Lexington Institute think tank, who consults for Pentagon contractors including General Dynamics and Finmeccanica units.

Finmeccanica’s weakness had also stemmed from the lack of synergy between its Washington office and its U.S. unit, DRS, Thompson added. “That was until last year, now the D.C. operation is being unified under Bill Lynn, whose party has just been re-elected.”

Lynn, a former U.S. deputy defense secretary, now heads Finmeccanica in the U.S.

Thompson said General Dynamics might also provide much needed clout on the jet trainer bid. “GD has a very capable congressional lobbying operation,” he said.

A Finmeccanica spokesman said the company continues to focus on the U.S. market, and is targeting growth.

“Finmeccanica’s presence in the U.S. dates back more than a century, and our commitment here is long-term,” the spokesman said. “We remain highly optimistic about our future prospects in the largest defense and security market in the world.”

Teal group analyst Richard Aboulafia agreed that Finmeccanica has a right to feel “dispirited” after its recent reversals, adding that the C-27J had been the victim of a “turf war” between the Army and Air Force.

But he sounded a note of caution about GD’s power to keep programs safe in Washington: “The M-346 is one of the top two contenders, but how much weight can GD bring as a non-military airframer?”

GD’s DiBiase said he has no such concerns.

“We have not done a clean-sheet design in about 25 years, but the [Air Force] wants an off-shelf solution, and this will be an off-the-shelf systems integration job, which is right up our alley,” he said. “We are a top-five DoD systems integrator, having done Abrams tanks, submarines, large communications systems. It is a role we are comfortable with.”

GD is already teaming with Alenia to pitch the C-27J in a pending fixed-wing search-and-rescue tender in Canada.

In the U.S., the T-100 will compete with the supersonic T-50 built by Korea Aerospace Industries and backed by Lockheed, and the BAE Systems’ Hawk, on which Northrop Grumman is teaming.

“More importantly than supersonic, the [Air Force] is specifically looking for a high sustained-G environment, and the M-346 was designed for that,” an Alenia source said.

“The plan is to assemble the plane in the U.S., with U.S. content increasing from the current 50 percent,” DiBiase said.

The T-100’s non-U.S. origin would not count against it since the T-50 and the Hawk were similarly non-American, he said.

One wrinkle for Alenia could be if the Air Force’s assessment of past performance takes into account the nonrenewal of the firm’s Afghan G222 contract in December, which the Air Force blamed on Alenia’s failure to get enough aircraft flying.

But a source close to the firm said Alenia should not take all the blame.

“Early reports that it was all the contractor’s fault are not fair,” he said. “Training Afghans is challenging, the operational environment is challenging,” he said, adding that Alenia has spent $20 million to make up a shortfall of spares after the Air Force “underordered parts.”

“I don’t know if the G222 contract will be germane to the jet trainer evaluation, but even if it is, I do not think it will be a problem,” the source said.

Aboulafia said the G222 story was not clear cut.

“Was the U.S. just not willing to rebuild the Afghan Air Force?,” he said. “I would put this down to more than just performance.”

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