ROME — Italy’s Fincantieri and France’s Naval Group have said choosing systems like radar will be a major factor in talks to merge their naval activities.

The two firms are currently in talks to merge their naval activities to create a so-called naval Airbus, which would reduce the fragmentation of the European naval industry.

“We hope to conclude the whole operation by end 2018,” Fincantieri CEO Giuseppe Bono told an Italian parliament committee last week, a view shared by a Naval Group spokesman.

Before the committee in Rome, Bono tackled the thorny issue of whether the systems on board any jointly built ships would be Italian or French. Italy’s Leonardo typically supplies systems to Fincantieri vessels, but there are fears in Italy it may be shut out of contracts for Italo-French vessels because French competitor Thales holds a 35 percent stake in Naval Group.

Bono told the committee that Leonardo would continue to supply kits for any vessels built for Italy, while Thales would work on ships built for France. The two firms each supply radar to their own national navies for the FREMM frigates that Italy and France jointly designed. As for export ships, whoever was not picked by the customer to supply systems would receive some form of compensation. The Naval Group spokesman said negotiations being held between Fincantieri, Naval Group and officials from their respective governments would cover issues including the pick of equipment to be fitted on export offerings.

As an added complication, Thales and Naval Group compete in combat management systems, the electronic nerve centers for warships. The United Arab Emirates plans to order Tacticos from Thales over Setis from Naval Group to equip the two Gowind corvettes UAE plans to order. The UAE announced the selection of the Naval Group warships, with an option for two more, at the Dubai Airshow last month.

In a broader context, the merger would help kickstart Europe’s military integration as Britain leaves the EU, an analyst said.

“They [Naval Group and Fincantieri] will be forging the first post-Brexit collaborative program,” said Robbin Laird, analyst with consultancy ICSA in Washington and Paris. “Is it possible to be more collaborative and effective?”

The world frigate market is highly dynamic, with Australia, Britain and the U.S. reshaping the outlook, he said. A cooperation between France and Italy would create “a new European impulse,” in which it will be vital to include a “commonality of systems.” Key decisions will be needed on the systems and weapons to be offered, with a key factor in the “missilization” of frigates, he said.

“Warships are the cheapest way of firing missiles” compared to fighters, he added. The naval cooperation between Italy and France also extends to civil work, given that Fincantieri has already agreed to take a 51 percent stake in French yard STX. As part of the deal, Naval Group will take a 10 percent stake in STX.

In a document supplied to the parliamentary committee in Rome, which has been seen by Defense News, Fincantieri stated: “With the integration of Fincantieri, Naval Group and STX France, Italy and France would have an entity with an approximately 10 billion euro turnover, cutting edge technology, a strong international presence (in over 20 countries), about 35,000 staff, 120,000 indirectly employed and a 50 billion euro backlog.”

In a time chart outlining the progress of talks through until next year, the company stated that in the meantime, the possibility of a share swap of 5-10 percent between Fincantieri and Naval Group will be analyzed.”