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Finmeccanica: Sector Partnerships More Likely Than Mega Mergers

Jun. 16, 2013 - 07:41AM   |  
By TOM KINGTON   |   Comments
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PARIS — Finmeccanica’s strategy chief Giovanni Soccodato believes the future for Europe’s defense industry lies in sector partnerships, with different firms taking leadership in different sectors, rather than mega-mergers like BAE-EADS.

In a wide-ranging interview on the eve of the Paris Air Show, Finmeccanica’s executive vice president for strategy, business development and innovation also discussed the state of integration between DRS and Finmeccanica’s US operations, how Finmeccanica is lowering prices and reducing its product line, how Europe has missed the boat on medium-altitude, long-endurance (MALE) UAVs, and why he was surprised Italy did not get permission from the US to arm its Reapers.

Q: With the failure of the BAE-EADS merger, is the pressure off Finmeccanica to look for partners in Europe?

A: The BAE-EADS talks set off an alarm bell and started a debate about integration. You ideally need a unified customer and common requirements, but as budgets decline it will become inevitable. The question is whether it will happen sector by sector — lots of MBDAs for example — or on a large scale such as BAE-EADS. That is yet to be decided. Which drive will be stronger? I predict we will see different leadership being taken in different sectors.

Q: Bill Lynn was brought in to run all Finmeccanica’s US activities, including DRS. How is that going?

A: The plan to have a single interface with the customer in the US is going ahead. We have started to implement shared services across our US subsidiaries, taking advantage of DRS staff capabilities. Although there is no direct reporting, Bill Lynn is more and more involved in our overall activities in the US. Furthermore, as of March this year, a new group management committee has been established, which meets every 15 days to share information and key decisions, including Lynn, Alenia Aermacchi CEO Giuseppe Giordo, Selex CEO Fabrizio Giulianini, AgustaWestland CEO Daniele Romiti, myself, CFO Gian Piero Cutillo and Human Resources head Roberto Maglione. Video conferencing is used and the language spoken is English.

Q: When Finmeccanica bought DRS, it talked about global marketing for DRS products and synergies with other units. Is that happening?

A: While the US market was strong, the need to find global markets for DRS was less felt, but that is changing. As for synergies, DRS is now teaming with Selex on infrared development, with work underway in Texas, California and Southampton in the UK. Selex and DRS are also teaming on communications intelligence, and we are working to get DRS to adopt Selex developments in smart energy use for its tactical generators.

Q: Why can’t Europe build a common UAV? And will Italy go it alone if the US won’t allow it to arm its Reapers?

A: Due to delays and operational needs, Europe missed the window on UAVs and must now think about its next step. The next step could be straight to a [combat UAV] program, with optionally manned aircraft as a possibility. As for Italy, the armed forces do need UAVs, but low volumes would make it difficult to build autonomously. A partner is needed, preferably European, but the bottom line is that we must move on this. I was surprised that the UK was allowed to arm its Reapers, while Italy was not, although I am convinced the situation will evolve in the near future.

Q: How will Finmeccanica evolve over the next five years?

A: We are currently too widely spread, and we must focus more on aerospace, defense and space activities, while persevering with key capabilities in the civil sector. Moreover, we need to reduce the number of products we offer within those areas. That will in turn free up funds to work on new products including, among others, the 90-seat ATR aircraft, armed and surveillance MALE UAVs, and the further development of our Sky ISTAR [Intelligence, Surveillance, Target Acquisition, and Reconnaissance] product. We will also work on smart solutions and the intelligent use of energy using our command-and-control skills, and use our defense experience to provide security and transport systems, including the new surveillance system for the Expo in Italy in 2015.

Q: How can you make your products more attractive to the market?

A: We need to ask whether our products are really suited to the customer and whether the cost is right. Can we simplify our engineering process to lower costs? We have already worked on the C-27J, our Empar and ATC radars and torpedoes. We must also create families of products to have common certification, maintenance and training. Can we use common components in different combinations, such as using the same consoles or software modules for the same applications? That means reducing costs and development time and giving customers products they will be familiar with. This concept was invented in the automobile industry and has already been applied by Finmeccanica unit AgustaWestland.

Q: Is technology transfer the key to entering emerging markets?

A: In emerging markets you need to create a local industrial presence through partnerships. As regards technology transfer, we can offer autonomy in certain components, but it is more about exploiting local resources to help meet specific local requirements. The Turkish ATAK helicopter, which is an evolution of the AgustaWestland AW129, is an example. ■

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