But differences arise over missile and security issues, including position of MBDA

BAE Systems and Finmeccanica have finally thrashed out an agreement defining the joint ventures that will fall under their Eurosystems initiative. However, the UK company seems set to frustrate Finmeccanica's ambitions to widen the scope of the defence electronics and communications tie-up to encompass missile defence, homeland security and missile manufacturer MBDA.

Eurosystems is the umbrella brand under which Finmeccanica and BAE's communications, avionics and C4ISR (command, control, computer, communications, intelligence, surveillance and reconnaissance) businesses will be combined, with a joint steering council.

Finmeccanica says the council will also oversee MBDA, which is co-owned by BAE Systems (37.5%), EADS (37.5%) and Finmeccanica (25%), as well as "other business opportunities in areas where BAE Systems and Finmeccanica operate", including land, sea and air vehicles, satellites, homeland security, missile defence and network-centric warfare.

But BAE disagrees, saying: "This is Finmeccanica's perception; it's not how we see it. There will never be a Eurosystems office, for example. And MBDA will not be included."

The original memorandum of understanding signed in July 2003 envisaged three joint ventures, but it has now been decided that Eurosystems will have only two joint ventures, plus two businesses wholly owned by Finmeccanica.

This reflects recent developments, including Finmeccanica's takeover of communications company OTE, forcing a notional reduction in BAE's claim to the communications joint venture from 25% to 10%. BAE then opted to cede full control of the unit to Finmeccanica, which is expected to pay £300-500 million ($540-900 million) to BAE as part of the overall deal, say Italian industry sources.

Under the terms of the new agreement, BAE Systems will hold 60% of the systems integration joint venture, including most of Alenia Marconi Systems (AMS), at present a 50:50 joint venture between the two firms, and part of BAE's C4ISR division, BAE says.

Finmeccanica will take over full control of the military communications infrastructure business which makes up the rest of BAE C4ISR, and of AMS's air traffic management operations. The other joint venture, in avionics, will be formed from BAE Avionics and Finmeccannica's Galileo subsidiary, and will be 60% owned by Finmeccanica.

The two companies are now going through due diligence inspections, with a final deal - including any cash payments - still some way off.

ALEXANDER CAMPBELL / LONDON & PINO MODOLA / GENOA

Source: Flight International