Atlantic crossing

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On 22 October 2008, Finmeccanica completed a $5.2 billion deal to acquire US defence electronics specialist DRS ­Technologies.The deal stands as one of the biggest transatlantic defence industry acquisitions in ­history, comparable with BAE Systems' purchases of Sanders in 1998 and United Defense in 2005.

Finmeccanica gained a strategic partner with top-secret clearance in the strategically critical US defence market. DRS, meanwhile, obtained the skills of a systems integrator with a global sales network.

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© US Army
Soldiers from US 277th Aviation Support Battalion unload five OH-58D Kiowa Warrior helicopters from a C-130 in Iraq

Since the acquisition, the US company has enjoyed "a good year", says its chief executive Mark Newman. "There's an entrepreneurial nature that's kind of embedded in Finmeccanica - they way they've grown is very similar to the way DRS grew through acquisitions, then doing the job of integrating those acquisitions," says Newman. "I think we felt very comfortable with the corporate mentality of Finmeccanica."

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 DRS's Mark Newman: "An entrepreneurial nature is embedded in Finmeccanica"

Of course, the Italian aerospace giant had not been DRS's only pursuer. EADS North America declared its interest to Flight International shortly before the deal closed, while Newman names Thales as another "potential suitor", noting the "close relationship" between his company and the French defence technology group.

Ultimately, a personal rapport between Newman and Finmeccanica chief executive Pier Francesco Guarguaglini was a factor in the outcome.

kiowawarrior 
© US Army
Bell Kiowa Warriors operating in Baghdad include DRS-supplied equipment

"I got to know Guarguaglini a few years before - we became friendly," recalls Newman. "We'd see each other at trade shows and talk - not about this! And then one day he approached us and I wasn't too interested. Then he reapproached us through my attorney, my general counsel... I realised that by merging with a foreign company it was an opportunity for us to stay the same company we were before and yet have the strength of a large prime. So that actually excited me for a minute."

Newman describes Finmeccanica's offer as a "pre-emptive" one, adding: "We never really opened it to competition because I think they were doing a good job for our shareholders."

The next task was to get the deal approved by US government security officials. While acknowledging that the UK is the least problematic jurisdiction when it comes to approval of cross-border transactions, Newman puts Italy in second place because it is "such a close ally to the USA".

He adds: "Of all the other companies - if you looked at Thales or EADS - I thought the Italians had the best shot of getting this thing through. That was just a personal assessment. Some people disagreed with me at those companies. With hindsight, we made the right decision."

He is dismissive of the suggestion that L-3 and Alenia would not have partnered on the C-27J had Finmeccanica acquired DRS five years earlier, but admits: "It may have been more of a three-way partnership.

I don't know what would have evolved there. You could have said the same thing about the [now-cancelled presidential] ­helicopter ­programme, where the problem they were having is they couldn't have ­access to the ­secure information that you would have needed to integrate that system. I think we would have helped them with some of that."

In the future, Finmeccanica will presumably look to DRS to take the lead when it bids to supply new products to the US military.

One foreseeable scenario is collaboration on an offer of the Alenia Aermacchi M-346 trainer to the US Air Force. "If Finmeccanica chooses to participate in that, they may look for a US partner but there may be things we can do as part of that programme and help manage a lot of it here in the USA for them," says Newman. Generally, opportunities to ­collaborate will be considered on a case-by-case basis.

One possibility raised by Newman himself is that of DRS assisting with C-27 production. "[Alenia] was going to build a whole hangar in a facility down in Jacksonville," he recalls.

"If that programme doesn't grow to the size that it was originally they may have to look at alternatives. We have capability to build aircraft as well, at our Elizabeth City [North Carolina] facility. So there may be things we can help [with] right off the bat for them."

Just as DRS might ease Finmeccanica's access to the US market, so the US company has gained a new facilitator for export deals. Although he stresses that this "wasn't the main reason for doing it", Newman acknowledges that "it's starting to shape up as a real opportunity for us to expand our export business", citing his company's ambitions in the Indian market.

It would be difficult for DRS to build a new sales organisation in that country, but Finmeccanica already has a presence there, providing its new US subsidiary with a route in.

"In so many parts of the world where Finmeccanica has a presence, we could work closely with them, of course with the proper [international traffic in arms regulations] restrictions, to get into those markets," says Newman. "That certainly is a goal. There's no question."

There may also be opportunities to team with fellow Finmeccanica subsidiary and ­occasional competitor Selex. "I think we're off to a good start with that," says Newman. "There are some vehicle programmes in the UK right now that we are working closely on."

Where airborne systems are concerned, the possibilities are less easy to identify, but Newman is ruling nothing out. "In the UK, the big programme is the [Eurofighter] Typhoon, and that train has left the station, so I don't know where that's going to go in the long run," he cautions, before adding: "I can't think of any [opportunities] right now, but that doesn't mean that there aren't any."

Possible near-term collaborations with Finmeccanica are definitely being explored, but the DRS chief is reluctant to tempt fate by discussing them publicly.

"I'm a firm believer until we actually win a programme, and can show the success, I don't like to talk about things we're going after because it's just nothing but talk until it happens," he says.

"When something happens, then we'll be happy to toot our horn. Otherwise people start to read through this stuff and they formulate a list of programmes you're going after.

You miss the first one and they're all over you: 'Oh, it's a big failure!' We made it a policy even as an independent company to not talk about stuff we're going after. Then, when we win it, we explain what the strategy was to win."