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Leonardo CEO defiant on his role in company turnaround

March 15, 2017 (Photo Credit: Giuseppe Cacace/AFP via Getty Images)
MILAN, Italy — As he waits to hear if his mandate will be renewed by the Italian government, Leonardo CEO Mauro Moretti has announced year-end profits of €507 million (U.S. $534 million), and claimed during a tough news conference Wednesday that he saved the company from disaster.

With a decision on his fate at the state-controlled firm expected Friday or Monday, Moretti proudly noted that Leonardo’s share price and ratings were up since he was appointed in 2014 following a career at the helm of Italy’s railway network.

Results for 2016, released Wednesday, showed new orders were up 61 percent to €20 billion thanks to the order for Kuwait for 28 Eurofighters, a program in which Leonardo is a significant partner. Debt was down 13.2 percent to €2.8 billion.

A dividend was paid out for the first time in six years.

On the flipside, turnover was down almost €1 billion to €12 billion, part of a slide from €16 billion in 2013. Moretti said the year-on-year fall was due to a drop off in helicopter sales, including Leonardo’s big selling AW139 helicopter, thanks to the slow down in demand for offshore helicopters for the oil and gas sector.

The longer-term decline since 2013 was due to the sell off of non-core transport activity and the deconsolidation of joint venture activity from the results due to new accounting rules, he said.

Moretti was aggressively critical of the financial state in which he found the company in 2014, when it was known as Finmeccanica and operated as a group structure, overseeing a galaxy of small companies.

Some of those companies were “useless" and run by “little bosses,” he said. “I was amazed to find external contractors were doing final quality control,” he added. Accepting loss-making “toxic” orders was par for the course, and the company was underpinned by a “shaky ethical base,” he claimed.

DRS, the U.S. electronics company purchased in 2008, was bought at “double” the price it was worth, he said.

Looking ahead, Moretti said Leonardo was pushing to develop a new 100-seater version of the ATR aircraft it builds with Airbus, which could be sold in passenger, cargo or military transport configuration, the latter acting as replacement for the C-27J tactical transport aircraft the company currently sells.

“To develop the new aircraft we will need €1.7 to 1.8 billion over eight years,” he said, adding that Leonardo still nursed ambitions to take a majority stake in the ATR partnership in which it is currently a 50-50 partner with Airbus. “We could also bring in new partners."

Moretti added the firm needed to bulk up its electronics and cyber activity through acquisitions in view of potential European consolidation in the sectors.

Whether he will be around to make those decisions will be decided within days, with Italian media speculating he will be replaced at the helm by Leonardo’s electronics sector head Fabrizio Giulianini.

Moretti’s chances of being reconfirmed have been damaged by his conviction in January for his alleged role in a train crash that resulted in 32 deaths in 2009, during his time as head of Italy’s railways.

His seven-year sentence is suspended as the case heads for an appeal hearing and then a likely second appeal before Italy’s supreme court, and the case may be timed out by Italy’s statute of limitations. After the sentence, the Leonardo board gave Moretti its “full trust."

Asked on Wednesday if the conviction might be the reason the government drops him, Moretti replied: “If I am not reconfirmed because of the firm’s results, I would be shocked.”

Moretti has earned plaudits for creating a divisional structure at Leonardo by amalgamating its overlapping firms, which each had their own board of directors and often had close ties with local politicians and unions.

His abrasive style and lack of knowledge of the defense industry, however, earned him foes, who claimed he lost export competitions because of it.

Determined to slim down the management structure, he released tens of veteran managers who took valuable industry knowledge with them and promptly joined competitors.

On his watch, the firm was beaten by Airbus in a bid to supply search and rescue aircraft to Canada, and could not convince the British government to let Leonardo assemble new Apache helicopters in the U.K. Most recently, his bid to sell the M-346 jet trainer to the U.S. has been weakened by Leonardo’s divorce with its U.S. prime partner on the program, Raytheon.

Big wins included the Eurofighter sale to Kuwait and the acquisition of Italian Navy vessels by Qatar, which will be kitted out with Leonardo electronics. Both contracts however, came thanks to a serious sales effort by the Italian government, teamed with senior Italian military officials.

On Wednesday, Moretti claimed his results at Leonardo would have been much better if he had had more government backing on export campaigns.

“We don’t have a structured government-to-government organisation like the U.K., France or the U.S.,” he said. “We don’t ask for more money from the government, just the ability to compete.”
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