Finmeccanica has been busy building in Britain to create a major European player. Now it is beginning to reap rewards from its investments
Almost two years on from the publication of the UK Defence Industrial Strategy (DIS), which vindicated its decision to acquire controlling stakes in the nation's leading avionics and rotorcraft companies, Finmeccanica's love affair with the UK shows no sign of fading. With over 9,100 employees now in work across its six UK companies, the Italian firm's interests are approaching the size of European rival Thales, and are already comfortably larger than those of long-term US residents Boeing, Lockheed Martin, Northrop Grumman and Raytheon.
Finmeccanica UK has as its cornerstones 100% holdings in helicopter manufacturer AgustaWestland and sensors and defence electronics house Selex Sensors and Airborne Systems (S&AS), which account for around 7,800 of its employees. The company's 2004 amalgamation of long-term collaborators Agusta and Westland Helicopters created a company with a stable to rival that of EADS-owned Eurocopter, and laid the foundations for the signature in 2006 of the first sector-specific strategic partnering agreement between the UK Ministry of Defence and its industrial supply base.
The best known of Finmeccanica's UK-held interests produces aircraft that include the EH101 Merlin and Lynx helicopters at its Yeovil plant in Somerset, with control routed through the Dutch-headquartered AgustaWestland company.
Finmeccanica also moved in 2005 to take a 75% stake in Selex S&AS, which amalgamated the interests of BAE Systems Avionics and Italy's Galileo Avionica. BAE initially held a 25% interest, but earlier this year exercised an option to sell its holding to the Italian giant. Former BAE chief operating officer Steve Mogford joined S&AS in May as chief executive, further underlining its British credentials, which include facilities in 15 UK locations including Basildon, Edinburgh and Luton.
"The way we operate as a business model across Finmeccanica is through cross-border subsidiaries," says Finmeccanica UK chief executive Alberto de Benedictis, who during 2006 headed an organisation that secured sales worth £1.7 billion ($3.4 billion). Despite defence equipment and support minister Lord Drayson standing down a month before the scheduled publication of an updated volume of the DIS, de Benedictis - speaking before Drayson's announcement - is optimistic that his company's success in delivering to date will position it well for the challenges of the years to come.
Expanding on sectors
"DIS2 will expand on sectors that didn't receive adequate attention [originally], and be a bit more specific about implementation in sectors in which it took a broader brush at the time," says de Benedictis. "We would like the government to tell us where they are going to invest, which programmes are going to be significant going forward, and to make some hard choices, rather than moving things always to the right."
The new document - which is officially scheduled for publication before year-end, but which industry sources say could now slip into early 2008 - should also provide greater clarity on the MoD's plans to implement its October 2006 Defence Technology Strategy, and identify cross-cutting technologies that could be applied across several platform types or sectors, de Benedictis says.
"We have a lot of investment and private venture funding that we have to direct in the best way possible, so we'd like to have a better view of where the priorities in research and development are for the MoD. We have to decide how we maintain, and how we enhance."
Other elements of the Finmeccanica UK brand - which has around 15% of its parent company's total 58,000 employees - are Selex Communications, which has around 850 UK staff specialising in providing secure communications services to the nation's armed forces, and supporting homeland security initiatives.
Work on the six-nation Typhoon programme dominates business at Selex S&AS
Selex Sistemi Integrati's modest presence of around 150 employees - taken from a global workforce of over 3,000 personnel also based in Germany, Italy and the USA - is meanwhile performing systems integration work for the UK National Air Traffic Services.
Finmeccanica's UK arm is also responsible for railway communications and signalling firm Ansaldo STS and Bristol-based computing house Quadrics, which provided the mission computer for Alenia Aeronautica's Sky-X unmanned combat air vehicle demonstrator. "There are centres of excellence here that we wouldn't have in Italy, and vice versa, which bring a good balance to our business," says de Benedictis.
Before the publication of the original DIS, Finmeccanica sought to "reflect the capabilities that we had across the Selex companies that we had also acquired", says de Benedictis. "One of the things that the DIS hadn't originally envisaged was looking at the technologies that then were going to be embedded in the platforms. We made sure that there was a recognition that what was going to keep the platforms operating over their life was actually the electronic systems that we had."
The company also attempted to highlight its investment in technological centres of excellence in the UK, he adds, saying: "It is significant from a DIS and an intellectual property rights point of view to have a domestic capability to maintain, support and upgrade the platforms that you have in place."
Using the Royal Air Force and Royal Navy fleets of EH101 Merlin transport and multi-mission helicopters as an example, de Benedictis asks: "What are you going to do to these helicopters in the future? What kind of capability are you looking for 10 years from now?" Noting that AgustaWestland has invested heavily in the Lockheed-led US101 presidential helicopter programme to enhance the baseline EH101, which is now being marketed for fresh sales as the AW101, he says: "How are we going to take some of those capabilities and get them into the Merlin fleets? Let's look at a 15- or 20-year horizon."
AgustaWestland has enjoyed a flourish of activity since the signature of its rotary-wing partnering agreement with the MoD, and now receives more than 40% of its revenues from supporting in-service equipment, says Finmeccanica. With the Integrated Merlin Operational Support (IMOS) deal now in place and industry paid using an "as you fly model", de Benedictis says: "It's challenging in terms of changing the way people work and changing the culture of the organisation, but there's a lot of good coming out of it." Availability rates across the UK Merlin fleet rose by 10% over the first year of IMOS operations, with AgustaWestland having moved fast to address a tail boom corrosion issue affecting the RN's Merlin HM1s (Flight International, 6-12 November).
AgustaWestland's strategic partnering agreement with the UK MoD launched the future Lynx
"There was an acknowledgement at the time [of DIS] that there needed to be a second phase of discussion, and an obligation on the platform organisations to think about the key technologies that are going to be needed to sustain those sectors," says Mogford, who identifies active electronically scanned array radar technology as a leading example. "We hope that DIS2 will identify e-scan technology as important in terms of future capability. It's both a capability and a through-life cost argument."
Selex S&AS has already delivered an AESA version of its Seaspray maritime radar for use by some of the US Coast Guard's Lockheed C-130s, and is under contract to produce Seaspray 7000E systems for the UK Royal Navy's fleet of 30 Future Lynx maritime helicopters. Mogford identifies the unmanned air vehicle sector as another potential market for electronically scanned systems, but it is in the fighter radar market - and specifically with the Eurofighter Typhoon - where his company is focusing much of its current radar emphasis (see box right).
Providing equipment for the now six-nation Eurofighter Typhoon project dominates current S&AS business, with electronics and radar equipment for the aircraft produced at its Edinburgh facilities in Scotland, along with laser rangefinder/designator and electro-optical targeting system elements for the Lockheed F-35 Joint Strike Fighter. The company also produces infrared countermeasures equipment for rotorcraft including Boeing's AH-64 Apache attack helicopter and a host of military transports under a collaborative venture with Northrop, in addition to defensive aids systems for the Typhoon.
The company also manufactures a range of thermal imaging equipment and EO sensors, such as the Titan 385 devices recently ordered by Canada's Kelowna Flightcraft for integration with Kazan-built Mil Mi-17V5 transport helicopters on order for the Kazakhstan air force.
The Finmeccanica group's global sales totalled almost �12.5 billion ($18.1 billion) in 2006, with before-tax earnings worth around �880 million. Defence electronics represented 29% of its business last year, with helicopters providing a further 21%, other aeronautics activities 17%, and defence systems 10%. The rest was split between Finmeccanica's energy, space and transport interests. The group's UK activities provided over 8% of its business, but both de Benedictis and Mogford believe that this contribution could increase further.
"Finmeccanica has a very solid European base, expanding into the USA," says Mogford, adding: "The UK sensor business was a key move in that strategy." With opportunities now emerging to upgrade operational IRCM systems with laser technology for the North American market and to supply other defence electronics, he adds: "We are getting leading edge technology positions. For us the USA has significant growth opportunity."
Turning back to the UK, de Benedictis says: "The challenges are going to be to sustain our growth. We are looking to see that we deploy our capabilities as broadly as we can in terms of opportunities, and are looking at the scope for expanding into areas where we may not have traditionally been. We want to make sure that we bring in the best that we have."
British army projects
An example of this strategy has seen Finmeccanica UK show recent interest in increasing its land sector activities through British Army projects such as the Warrior Lethality Improvement Programme and the Future Rapid Effects System, in part drawing on its experience in working with the Italian army. However, its attempt to secure the lucrative role of system of systems integrator for the FRES project's vehicle fleets ended in disappointment, when its Team Fusion group - also including BAE, General Dynamics UK and MBDA, lost out to a Boeing/Thales proposal.
Other near-term opportunities for the Finmeccanica group include the potential to offer the Alenia Aermacchi M-311 basic trainer for use as part of the UK Military Flying Training System (MFTS). The company previously tried to offer its developmental M-346 to provide the advanced jet trainer element of the project, but the MoD instead opted to award BAE a non-competitive deal to supply its Hawk 128 design. With the Lockheed Martin UK-led Ascent consortium tipped to receive its first contract for the MFTS programme in the near future, the basic training contest is likely to heat up significantly within the next 12 months.
Moving beyond military aircraft, Selex S&AS is a member of the MBDA-led Team Loitering Munitions consortium behind the Fireshadow weapon unveiled at September's DSEi exhibition in London (Flight International, 18-24 September). Another recent activity saw S&AS team with BAE to integrate Lockheed's Sniper targeting pod with the BAE Harrier GR9 ground-attack aircraft a capability now in use by the UK's Joint Force Harrier in Afghanistan.
Finmeccanica UK also looks to the UAV sector as an area of likely growth, with the company having moved fast to support the ParcAberporth development and flight-test centre in Wales, and having flown Galileo Avionica's Falco tactical UAV at the site for the first time in mid-2006. S&AS is also a key member of the UK's Systems Engineering for Autonomous Systems defence technology centre, and has worked on the Damselfly vertical take-off and landing air vehicle.
"We see UAVs as a spectrum of different capabilities," says Mogford, citing Finmeccanica's wider unmanned systems pedigree through Alenia Aeronautica and Galileo Avionica. "The key component that we have got in the UK and Italian businesses is a strong capability in the provision of sensors: radar, EO, electronic intelligence and jamming." The company will also offer such systems to potentially equip other platform types, he adds.
"Finmeccanica has one hell of a train-set of capability that we can harness into the UK for organic growth," says Mogford. "We're not just an air business."