Ministers from France and Italy meet in Rome on Thursday to discuss their planned naval business integration with one cloud on the horizon — Italy’s fast approaching March election.
Planners from both countries are working on how best to merge Fincantieri and Naval Group — Italy and France’s state ship yards — which is being seen as a crucial step towards fuzing Europe’s fractured defense industry.
Following the formation of a working group last September, the two sides have committed to producing a blueprint by May.
On Thursday, Fincantieri CEO Giuseppe Bono and the head of Naval Group, Hervé Guillou, are expected to give a progress report on talks to a Italy’s defense, industry and treasury ministers, Roberta Pinotti, Carlo Calenda and Pier Carlo Padoan, respectively. Alongside them will be French Armed Forces Minister Florence Parly and Finance and Economy Minister Bruno Le Maire.
Also present will be Italy and France’s defense procurement chiefs, Carlo Magrassi and Joël Barre, who are both members of the working group, alongside the two CEOs.
Bono and Guillou are likely to get the blessings of the ministers to push on towards closer integration, which could initially see a share swap between the firms, followed by an eventual full merger.
“It’s good news,” said Eva Pejsova, senior analyst at the Paris office of European Institute for Security Studies. “There is a lot of competing tension between EU member states, particularly in Asia. On the strategic level, the more consolidation there is in research and development and cooperation in deals, the better it is for European leverage at the global defense market,” she added.
The hitch is that the three Italian ministers present at Thursday’s meeting may be out of a job on March 4 when Italy holds a general election, leaving a large question mark over how talks will proceed.
Italy’s ruling Democratic Party is lagging in the polls, and may be supplanted on March 4 by a right wing coalition of three parties backed by former prime minister Silvio Berlusconi.
One analyst who declined to be named said that if a new government is announced, it would not take office until the end of March, leaving the outgoing government to take care of final business during March.
“For that reason, the naval working group may want to produce its blueprint before the ministers step down at the end of March,” he said.
Analysts suggest that even if Berlusconi wins the election, his coalition may not have enough seat in parliament to form a government, leading to drawn out talks on building a broader coalition. If that is the case, the outgoing ministers may find themselves staying in office beyond the end of March, giving them more time to sign off on the naval integration blueprint.
But even if they do, the final signature may still be needed from the new government. Italy’s ‘Golden Power’ law requires the government cabinet sign off on all changes in governance at strategic industries — which would be the case if Fincantieri integrates operations with Naval Group. “Ministers may want to leave that sign-off to the next government,” said the analyst.
The thorny question still to be resolved in the talks is the role to be played by Italian defense group Leonardo, which supplies systems and armaments for the naval vessels built by Fincantieri.
If a choice has to be made between systems supplied by Leonardo and France’s Thales for ships jointly built by Fincantieri and Naval Group, analysts have suggested Thales will get the nod because it holds a 35 percent stake in Naval Group.
Furthermore, Naval Group itself offers Combat Management Systems, meaning less of a chance for Leonardo to supply its own rival systems to joint platforms.
Speaking to Italian financial daily Il Sole 24 Ore this week, Leonardo CEO Alessandro Profumo repeated his proposal for giving Leonardo a seat at the table in talks.
The integration deal should be struck between Naval Group and Orizzonte Sistemi Navali (OSN), not Fincantieri, he said.
Tom Kington is the Italy correspondent for Defense News.