Finmeccanica's familiar bubble chalet returned to the Farnborough International Airshow this year, but inside, new CEO Mauro Moretti was figuring out ways to cut costs. (Leon Neal / Getty Images)
FARNBOROUGH, ENGLAND — Finmeccanica returned to the Farnborough International Airshow this year with its hard-to-miss white bubble pavilion, but in his first air show appearance, new CEO Mauro Moretti promised that just about everything else at the Italian group is due for a radical shake-up.
Three months into his tenure, Moretti said he would not only rein in the group’s largely autonomous units as mere divisions, but centralize all investment, technology and marketing activities. Although just one meeting had been held on the matter, he said, decisions would be taken by the end of July.
The savings from ending overlaps? Twenty percent of group costs, he said.
Moretti added he had been charged by Prime Minister Matteo Renzi to “reposition and revitalize” state-controlled Finmeccanica. “If I accepted, it’s because I think I can do it,” he said.
Finmeccanica is struggling with debt, sluggish performance and a series of scandals which saw a former CEO, Giuseppe Orsi, sent to trial for kickbacks. Moretti is the fourth CEO at the firm in three years
By the end of the year, Moretti said he aimed to have a new industrial plan in place, under which he would cede non-core activities in order to invest in high-tech, profitable ones.
“He has said he is happy to relocate engineers by the dozen from loss to profit-making activities,” said a source at the show who discussed strategy with Moretti.
“Moretti is asking questions, taking decisions quickly and there are no sacred cows, which is great,” said Charles Armitage at UBS.
A company source said Moretti has spoken to Bill Lynn, CEO of DRS Technologies — the US electronics firm Finmeccanica bought in 2008 — about the sell-off of DRS’ non-core activities, a plan which has admittedly long been in the works at Finmeccanica.
But at Farnborough, he also hinted he could put DRS as a whole up for sale if he could not find synergies between it and other group units.
“DRS was meant to provide synergies, to give other Finmeccanica products leverage in the US market,” said Phil Finnegan, a companies analyst at the Teal Group. “Instead, Finmeccanica has had its setbacks in the US on the C-27J and the presidential helicopter, and while DRS does have a homeland security footprint in the Middle East, Finmeccanica was unable to win a homeland security contract in Saudi Arabia. Finmeccanica and DRS also both have UAVs but nothing happened.”
Finmeccanica paid $5.2 billion for DRS in 2008, but it has seen its order book decline as US operations in Afghanistan wind down.
Companies, such as L-3 Communications, Harris and BAE Systems all might be interested in acquiring DRS, said Byron Callan, an analyst with Capital Alpha Partners.
DRS has niches in the market and weathered a decrease in US war spending in recent years, he noted.
Armitage said DRS might be priced today at $2 billion to $2.5 billion if it was put up for sale, less than half what Finmeccanica paid. Selling off the firm, he added, might not be a wise idea.
“You can’t claim to be global if you have nothing in the US,” he said. “If Finmeccanica is being constrained by its debt burden, selling decent businesses may help that, but otherwise you do little to create value by selling off good businesses. There is limited integration you can obtain with firms like DRS, Oto Melara and WASS, so do you sell to create value, or just cover up the firm’s underlying problems? Selling off transport activity should be a priority, but I’m not convinced that selling off other parts is necessary.”
Loren Thompson, an analyst at the Lexington Institute, also said Finmeccanica was better off keeping DRS.
“Selling DRS would largely eliminate Finmeccanica’s presence in the world’s biggest defense market,” he said. “It is hard to see how that could serve the company’s long-term interests.”
At Farnborough, Moretti met with Airbus CEO Tom Enders as well as with management at Lockheed Martin, Thales, Boeing and Bombardier.
Since arriving at the helm of Finmeccanica in April, Moretti has overseen the departure of a slew of senior managers. “He forms impressions very quickly of people,” a company source said. “He is hot-blooded, but with brains.”
Before being appointed, Moretti was CEO of Italy’s state rail company, where he trimmed management from 1,200 to 800, cutting the overall headcount from 87,000 to 67,000.
Moretti has signaled his determination to crack down on nepotism at Finmeccanica and the hiring of relatives of politicians and military officers. A letter has been sent to all Finmeccanica managers asking them to list any relatives they have working at the company or at supplier companies.
Italian daily Corriere della Sera reported that the head of one of Finmeccanica’s units greeted Moretti for the first time with the words, “Welcome and good luck,” to which Moretti replied, “I am the one who should be saying ‘good luck’ to you.” ■