Decision reflects UK manufacturer's move towards integration and away from supply

BAE Systems and Finmeccanica have restructured their planned Eurosystems partnership in a surprise move away from closer co-operation on European defence electronics. The existing AMS joint venture will be split up, and Finmeccanica will pay BAE up to c500 million ($620 million) for control of both companies' avionics businesses and other assets.

The revised deal is "more of an acquisition than an alliance", says Finmeccanica president Pier Francesco Guarguaglini. "This move was done at the request of BAE Systems." Insiders at the Italian holding company suggest the restructuring may be due to a desire by BAE to raise cash to pay compensation for delays on the UK's Nimrod and Astute programmes.

BAE says the revised structure is consistent with its "intent to enhance its systems-integration and network-enabled capabilities in the UK". Finmeccanica will have an option to buy out BAE's reduced stake in the avionics business, which produces airborne radars, sensors and electronic warfare systems, signalling the UK Company's intent to be a system integrator and not an equipment supplier.

When the memorandum of understanding to establish Eurosystems was signed in July 2003, it was portrayed as reinforcing strategic co-operation by bringing together the two companies' defence electronics activities under three joint ventures. A revised agreement was unveiled in March, under which two joint ventures would be formed, a systems-integration business majority owned by BAE and an avionics business 60% owned by Finmeccanica.

The restructured deal still combines BAE's UK avionics activities with Finmeccanica's Galileo Avionica, but gives the Italian company 75% ownership of the business and an option to buy BAE's 25% stake after 25 months. "Such options are usually exercised, so I could foresee Finmeccanica owning 100% of both companies' avionics business by the end of 2006," says Remo Pertica, co-general manager of its newly formed defence electronics division.

AMS, the 50:50 joint venture formed in 1998, will be split into two competing entities. BAE will form a wholly owned systems-integration business by merging the UK operations of AMS and its C4ISR Networked Systems & Solutions unit. Finmeccanica will acquire the UK air traffic management business of AMS, its US ASI and German Gematronik subsidiaries, and all of the Italian operations of AMS, as well as CDI, BAE's secure communications business.



Source: Flight International