ROME — The CEO of Italian defense group Leonardo has given his strong backing to the European Union’s new defense fund, despite fears that Italian firms — starting with Leonardo — could struggle to take advantage of the fund.

During a Q&A session with Italian parliamentarians on Oct. 25, Leonardo chief Alessandro Profumo was asked about the fund, which envisages a €500 million cash injection into Europe’s industry in 2019 and 2020 for the development of new equipment — with the aim of getting firms to work together across borders.

Profumo said he was “profoundly convinced that without European programs, this industry, above all Italy’s industry, will have great difficulty in being sustainable in the long term.” Joining joint defense initiatives in Europe was “absolutely key,” he added, although he warned that Italy could only sign up to a European future if it was backed by strong investment by the Italian government.

The CEO’s speech echoed doubts raised by Italy’s defense industry association that if firms like Leonardo do not receive healthy R&D funding from Rome, they will not have the kind of programs up and running that will attract further funding from the EU. A report from the Italian senate has also pointed out that the EU has provisionally excluded the dissemination of funding to support activity operated by firms outside the confines of the European Union. That is a problem for Leonardo, which owns facilities in the U.K., which is about to leave the EU.

But one Italian analyst said the problem would be solved by an inter-government working group which is fine tuning the EU plans.

“European groups with capacity outside the EU will need to give guarantees that the know-how being funded is not used outside the EU without specific authorization,” said Michele Nones, scientific adviser at the IAI think tank in Rome. “If you develop a product with EU funds you will need to keep control of that technology. If you have production in the U.K., you must guarantee the results stay in the EU,” he added.

The Italian senate also worried about the EU suggestion that companies receiving funding should be at least 50 percent EU owned. Leonardo is only 30 percent owned by the Italian state. Nones said that problem would also be tackled.

“This is a criterion which in not practical if you consider the continual evolution of company share ownership and how European companies can enter into international groups,” he said. “These things don’t change the European identity of the firms if their technological capacity and management continues to be in the EU. Moreover, in all big EU states, foreign investment in strategic sectors is monitored.”

Leonardo has in any case already joined cross border consortia to apply for funds for the first two research programs the EU has said it will invest in, with recipients to be chosen by year end. Leonardo is team leader of a group of 16 EU firms, seven research institutes, 14 small companies and five potential customers — together representing a total of 15 member states — which is applying for an initial €15 million in funding to research naval unmanned helicopters. The Italian firm is part of a group led by Germany’s Rhinemetall which is applying for €7 million in research funding on the second program announced, which covers force protection and advanced soldier systems.

During his address to the Italian parliament, Profumo said he was concerned about one aspect of European integration — the mooted team-up between Italian and French shipyards Fincantieri and Naval Group. The two firms are talking about jointly developing new naval vessels, but questions have been raised over potential competition between Leonardo and France’s Thales, which both make naval systems.

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As talks proceed between Fincantieri and Naval Group, Thales will have a seat at the table since it owns 35 percent of Naval Group, while Leonardo will not have a look in.

“There are three components to a ship,” said Profumo. “The platform, the combat systems and the radar. In Italy, Fincantieri makes the platform and we make the combat systems and the radar... In France, Naval Group makes platforms and combat systems, while Thales makes radars and sensors. We think our work on combat systems and radars is a patrimony of this country, in which we have invested, and which requires protection.”

“I am concerned because our French friends are good at protecting their capabilities and it seems opportune to pay specific attention to this,” he added.

The CEO also turned his attention to the TX trainer competition in the U.S., in which Leonardo is competing its M-346 jet trainer.

“We are participating to win,” he said. “It is fundamentally a competition based on the price of the aircraft. I can assure you we will not offer a price which would lose us money on the aircraft. Therefore it could be we lose....We will not put Leonardo at risk in order to win the competition.”

Tom Kington is the Italy correspondent for Defense News.

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