ROME — Italy's Finmeccanica is seeking a partner to help run its US-based electronics unit DRS, and also plans to sell off activity at DRS worth €200 million (US $225 million) in revenue in a bid to push the firm back to profitability.

The activities to be sold are DRS' Aviation and Logistics, as well as Training Communications and Network solutions units, CEO Mauro Moretti told analysts in London on Jan. 28.

Moretti's plan for DRS forms part of a new industrial plan the firm has launched, based on a study of the company Moretti undertook after he was appointed CEO by the Italian government in April.

Moretti said DRS' volumes had halved since Finmeccanica bought the firm for $5.2 billion in 2008, citing declining US defense spending, but also problems Finmeccanica has had managing the firm.

There were, he said, "clear difficulties managing the business effectively as a true domestic player if you are not American," he said.

When Finmeccanica bought DRS, it signed up a number of high profile Americans as managers to help retain the firm's US profile. But Moretti appeared to suggest that had not been sufficient to endear DRS to the Pentagon.

Moretti also claimed DRS had an overly-diversified product portfolio and complained that too few synergies had been achieved with other Finmeccanica units, notably Selex.

"We have done a lot to restructure the business, but we need to do more, so our intention is to strengthen it with a financial or industrial partner and restart it on the path to growth," he said. "Then we will look at longer term options."

The decision on a partner will would be made within a few months, he added.

Moretti's plan for DRS forms part of a new industrial plan the firm has launched, based on a study of the company Moretti undertook after has undertaken since he was appointed CEO by the Italian government in April 2014.

Last summer, Moretti said he did not exclude selling DRS in its entirety, and one analyst who tracks Finmeccanica said he suspected that might still happen.

"Bringing in a financial partner won't change much and Moretti has already said he doesn't like industrial partners," said the analyst, who declined to be named. "It sounds a bit like an exit strategy — first finding a partner, then selling up," he said.

Moretti's industrial plan for Finmeccanica includes €150 million in annual cost cutting by rationalizing through rationalization of operations, the improving of engineering productivity by 10 ten percent and €250-350 million in savings on procurement costs.

The firm said that in 2015, it will would also cede to Boeing activity it carries out on the B787 aircraft worth €300 million in revenue.

Savings would also be gleaned are also planned by turning the group's units into centralized divisions — a process due to conclude by end 2015 — which will allow "stronger integrated offers."

The firm will also focus its operation on profitable, high technology aerospace, defense and security work, and is close to selling off its civilian rail activity.

In a revision of its 2014 forecast, Finmeccanica said it expects 2014 earnings before interest, tax and amortization of up to €1.06 billion, above the previous guidance of up to €1.03 billion. For 2015, it expects €1.15-1.20 billion.

At his meeting with analysts, Moretti said "We have built momentum in the last eight months," Moretti said at his meeting with analysts." Change is already happening, we have started delivering improved performance."

Calling the industrial plan "a serious turnaround plan," he said, "The company lost its way during the financial crisis and has not adapted to the new world. I will change this."

Moretti, who ran Italy's rail system before joining Finmeccanica, said problems were still to be solved. "We lack focus," he said, adding, "We do lots of things and we are not good at some of them."

"We will do more with less resources," he said, adding Finmeccanica will would reduce its product line.

The analyst said the detailed cost reductions are were a lot larger than the forecast increase in profit. "That means they are either underpromising on results or planning to give up those benefits through a reduction in the price of products," he said.

Moretti has been reportedly mulling the sell off of units and he warned that there are there were no "sacred cows" that could not be sold, but said no conclusions had been reached.

"There are no pressing liquidity problems," he said. "I won't be pressured into selling."

That said, a slide Moretti showed indicated that the firm's aerostructures and civil electronics activities could be assessed for sale.

Moretti also repeated his dislike of joint ventures, suggesting Finmeccanica either must had to "aim at achieving control," or "evaluate other" options.

That said, he praised missile-maker MBDA, in which Finmeccanica has a 25 percent stake, and referred to the space industry, where Finmeccanica has two joint ventures with Thales, as "core." But he was less enthusiastic about Superjet, Finmeccanica's civil jet partnership with Sukhoi.

The joint venture, said Moretti said, has had involved "very significant investment for no return so far."

That, said the analyst, "sounds like an exit strategy."


Tom Kington is the Italy correspondent for Defense News.

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