Andy Nativi/GENOA

The Italian Government is to provide state-owned holding company Finmeccanica with a massive cash boost. It comes ahead of an expected agreement with British Aerospace over the future of its jointly owned Alenia Marconi Systems (AMS) operation in the wake of the UK company's acquisition of GEC -Marconi.

The Finmeccanica balance sheet has been bolstered by Rome's decision to merge it with the state-owned cash-rich MEI micro- electronics business. The move, to be completed by the end of the year, will provide around L2,200 billion ($1.19 billion) for Finmeccanica.

As a result of the merger, the government will increase its stake in Finmeccanica from 62% to about 80%. A partial privatisation, possibly as early as next year, could see the state's stake shrink to 30%, although it is almost certain to also keep a golden share.

Finmeccanica is expected to use some of the cash to pay compensation of around L1,200 billion to British Aerospace to retain a 50% stake in a new defence electronics and missiles joint venture likely to be unveiled this month. The new group is expected to unite the defence electronics and missile- dominated AMS with BAe's Land and Sea Systems division. The BAe business covers activities from air defence radars and communications systems to command and control equipment.

The missile activities of Alenia are likely to be combined with the Matra/BAe Dynamics missile venture in a new operation jointly owned by AMS and the Anglo-French company.

Finmeccanica had the option of breaking up the AMS operation as a result of the BAe purchase of GEC-Marconi, but after intense negotiations it has secured the deal it wanted with BAe. The Italians had been the subject of attention from Thomson-CSF as the company attempted to convince Finmeccanica to leave the UK tie-up and form a Franco/Italian alliance.

BAe boss John Weston and Alberto Lina, the Finmeccanica chief executive, have invited Thomson-CSF to join AMS to create a pan-European defence electronics giant.

Source: Flight International