The Italian Aeronautical Industry: Evolution Toward The New European Military Aircraft Alliance

Mr. Carmelo Cosentino
Senior Vice President, Alenia Aerospazio

FINMECCANICA'S EVOLUTION IN THE EUROPEAN FRAMEWORK

Finmeccanica, a privatized multi-segment high-tech Italian manufacturer, has evolved since the early 1990s. Alenia, National Champion for Aerospace and Defence, which was formed from a merger between Aeritalia and Selenia and was directly involved in the operation of many businesses, became one of the most active realities of the Finmeccanica holding, and since then has followed the strategic lines of the Group in order to maximize both shareholders' value and customer satisfaction.

In the current European scenario, the major aerospace players are tailored to different concepts. BAE Systems is still very much a national company, though with a much bigger overall dimension, a strong transatlantic link, and a significant presence in the U.S. (a workforce of 25,000 spread throughout 29 states, producing 12.7% of the company's sales in 2000). EADS is very much the transnational company (in France, Germany, and Spain, with a possible linkage to Italy). Finmeccanica is smaller and linked differently to Europe and the U.S., in principle through equal-share joint ventures in Europe and on a base of business opportunity in the U.S.

THE RECENT ITALIAN EXPERIENCE: ALLIANCES AS STRATEGIC INVESTMENTS

With a diversified business portfolio and its medium size, Finmeccanica pursues an industrial strategy in Europe based on parity alliances in specific business sectors (e.g., AMS, LMATTS, Agusta-Westland). This approach permits us to:

• Balance our smaller dimension through balanced contributions by segment to specific ventures with larger partners;
• Have a recognized industrial role in international cooperation using fair governance rules;
• Keep a balanced mix between civil and military fields;
• Continue making autonomous decisions in a number of proprietary programs.

Finmeccanica's preferred partner for the Aeronautics Division has been envisaged with EADS. This choice signals our strong European engagement, evidenced by participation since the 1970s in the Tornado and later in the Eurofighter programs. Our equally longstanding and successful collaborations with U.S. industry represent another important asset: Alenia brings to its partners the opportunity to establish and enlarge fruitful cooperation across the Atlantic.

THE JOINT VENTURE COMPANY WITH EADS

On April 14, 2000, Finmeccanica and EADS signed an M.o.U. to create by mid 2001 a new joint venture company in the aeronautic field. This company is to be characterized by equal participation in all businesses in a wide range of military and civil programs, with the aim of providing European leadership, increased product quality, increased market penetration, satisfaction of customer needs, and increased profitability.

JV Co is a 50/50 joint venture-in economic rights, governance, and voting rights-between Finmeccanica and EADS. JV Co is to have three corporate bodies: the General Meeting of Shareholders, the Board of Directors and an Executive Board. The Company would act through three national entities: JV Co Italia SpA, JV Co Deutschland GmbH, and JV Co Espana SA, but should be a true integrated 50/50 joint venture across all businesses.

European Leadership. JV Co would bring three national champions and their home markets into one integrated company. It offers a complete product range and related services to satisfy all its customers' needs. It also invests in technology and engineering excellence and is to be the driving force behind the next generation of European combat aircraft. JV Co's aim is also to be a preferred transatlantic partner with a superior profit outlook and will become a European leader in military aircraft.

Company Profile. JV Co will transform a partnership into an integrated company. Almost 50% of JV Co's current business is organized in successful partnerships and joint ventures between the two founding partners. The company's Eurofighter and trainer/light combat business would generate substantial growth in the coming years, its aerostructures business playing an important role in future civil aircraft programs. There are great JV Co opportunities for platforms integration with other EADS and Finmeccanica products, especially in the defense electronics field. JV Co revenues exceed 2.5 bn Euro and are set to grow rapidly.

A strong partner in European aeronautic programs, JV Co is to acquire the strongest share of major European aeronautical military programs that could benefit from rationalization, efficiency, and quality. JV Co's presence will assure spin-offs to the customer and growing profits to the shareholders.