To say it has been an eventful year – or at least a stressful one – for Finmeccanica would be an understatement. On the plus side, 2014 has seen a resolution of the scandal surrounding its AgustaWestland unit’s deal to sell VVIP helicopters to India. And the group – nearly one-third owned by the Italian government and long a repository for sometimes-troubled Italian state industrial enterprises – appears to be within reach of its goal of finding buyers for its very troubled rail rolling stock and technology businesses, which lie at the root of many of its financial woes.
On the minus side, in October, ratings agency Standard & Poor’s downgraded Finmeccanica debt from stable to negative, no small matter for an organisation that has been struggling to manage the financial fallout of a disastrous 2011, which saw heavy losses at its power and rail transport divisions and a €750 million ($1.02 billion) write-down against defects in the fuselage sections and horizontal stabilisers it supplies to the Boeing 787 programme. Together, these contributed to a net loss of €2.3 billion. Debt has been a focus of attention at the company ever since, with a few chunks taken out by divestments. The group sold its 40% stake in the Ansaldo Energia power generation business in December 2013 for €277 million against debt that stood at more than €3.9 billion at year end. That has since climbed to some €4.8 billion. In August 2013, GE’s $4.3 billion purchase of Avio Aero included Finmeccanica’s 14% stake in the engine components and systems maker.
Finmeccanica stressed at the time that the downgrade was “based upon FY 2013 and first half 2014 economic and financial performances [and] hence it does not take into account initiatives launched by the new management”.
Mauro Moretti was appointed chief executive on 15 May, replacing Alessandro Pansa
Finmeccanica
That new management is led by Mauro Moretti, who was appointed chief executive on 15 May 2014, replacing Alessandro Pansa. Pansa was the chief financial officer until February 2013, when he stepped up to replace Giuseppe Orsi, who resigned on his arrest over allegations that AgustaWestland – which he headed until taking the group helm in 2011 – had bribed its way to the India deal for a dozen AW101 helicopters in VVIP trim.
Moretti, who was chief executive of Italy’s state railways until he was put into the Finmeccanica chair by then-new prime minister Matteo Renzi as part of a wider shake-up of state-owned companies, has a number of critical challenges on his plate. He says debt is moving in the right direction. But profits are looking more elusive – a situation where Finmeccanica is in the black and paying dividends could be a “couple of years” away, but Moretti is not prepared to make any firm forecasts.
Meanwhile, there are potential buyers interested in the AnsaldoBreda rail unit, but no offers. That sale, apart from pumping in some badly needed debt-reducing cash, is a critical part of the broader plan to ditch everything outside aerospace and defence to focus on that core industry.
More specifically, the restructuring plan – which is broadly in line with that spelled out by Orsi, who took charge at the tail end of that annus horribilis 2011 – is also to streamline group operations and get out of businesses where Finmeccanica is not or cannot be a market leader. In some cases, that might mean finding joint-venture partners, in other cases that might mean abandoning laggard joint ventures.
On the joint venture front, Moretti has reiterated dissatisfaction first alluded to by Pansa with Superjet International, the group’s alliance with Sukhoi to market the eponymous Russian-built 100-seat regional jet.
More worrying is probably the performance of Finmeccanica’s defence electronics business in the USA. With US defence spending under pressure, the DRS business has been a drag on growth rather than the shooting star that it must have looked like when it was bought for what in retrospect looks like an optimistic price of $5.2 billion just before the financial crisis struck in 2008.
However, the worst crisis may be in the past, giving Moretti some room to work. Early October saw an Italian court rule that there was, in fact, no “elements of international corruption” in the India deal – effectively acknowledging that Finmeccanica was not involved in any wrongdoing.
As Moretti put it at the time, that verdict will allow the company to “recover the reputation it deserves” and – perhaps even better – it “also allows us to reopen dialogue with the Indian institutions”.
Source: Flight International
