Italy special: Dream ticket - Are continental Europe's two aerospace giants ready for a closer alliance?

What has kept continental Europe's two aerospace giants - EADS and Finmeccanica - apart all these years and are the prospects for a union any closer?

F ive years ago, Italy's aerospace heavyweight Finmeccanica and EADS, newly formed from the aerospace champions of France, Germany and Spain, came within a whisker of merging their defence interests - already linked through the Eurofighter project and the nascent missile house MBDA - into what would have been the European Military Aircraft Company. Acknowledging depleted post-Cold War defence budgets, the venture would have brought under one umbrella the military industrial assets of the four main powers in continental Europe. Indeed, just before 2001's Paris air show, EADS co-chief executive Philippe Camus said he was "confident we will finalise the deal within days".

It was not to be. The chaos caused by the immediate aftermath of 9/11 and complications over the value of the companies' individual businesses put paid to the negotiations. Despite joint ventures with European partners including regional aircraft manufacturer ATR, MBDA, Eurofighter, satellite specialist Alcatel Alenia Space and Anglo-Italian helicopter builder AgustaWestland, which in turn collaborates with EADS on the NH90, Italy's aerospace leader has been left on the fringes of European aerospace and defence consolidation ever since.

Many of Finmeccanica's flagship products compete directly with those of its larger Franco-German-Spanish counterpart. The companies each have their own expertise in defence electronics and space. And, perhaps most importantly, Alenia has shunned a major role in the Airbus project, preferring instead to throw its lot in as a major industrial partner of Boeing, a move which reflects the traditional transatlanticism of successive Italian governments.

Since the early part of the decade, Finmeccanica has consolidated its position in the aerospace sector, shedding non-core businesses and taking control of a series of companies it held interests in, from trainer manufacturer Aermacchi to AgustaWestland. The latter move has seen it tussle with BAE Systems for the status of biggest air defence provider to the UK government. It has also massively increased its footprint in the USA, winning the landmark deal to supply the airframe for the new presidential helicopter.

That Finmeccanica has become an aerospace name to be reckoned with is not in doubt. The business has itself evolved in a few years from anonymous holding company to a powerful umbrella brand in its own right. The question remains: does it see its future as an independent with a foothold in a number of joint ventures or a more eager participant in any forthcoming European marriage party.

Merger rumours

Rumours of a merger with France's Thales emerged during 2005 - although former EADS co-chief executive Noël Forgeard and many French politicians would have preferred to see an EADS-Thales union. Both came to nothing. Similarly, Finmeccanica has been linked repeatedly over the years with the UK's BAE Systems. The companies have collaborated on several ventures and an Anglo-Italian aerospace and defence giant was seen by many as a counterweight to the dominance of EADS in Europe. Again nothing more was heard.

The latest speculation is that an EADS-Finmeccanica alliance could be back on the cards, giving Finmeccanica a slice of Airbus in return for EADS benefiting from the Italian company's much stronger presence in the USA and Alenia's expertise in aerostructures. A combined Eurocopter/AgustaWestland would be predominant in the rotorcraft market, while Aermacchi would give EADS a foothold in advanced trainers and lead-in fighters.

Finmeccanica chief executive Pier Francesco Guarguaglini says his company is ready to foster a closer relationship with EADS, and insists the two companies already have strong ties. "We have many activities in common," he says. And, despite Alenia's strong presence on the Boeing 787, "we have already indicated our willingnesss to be a risk-sharing partner on the A350", says Guarguaglini. There is also scope for co-operation on satellite launchers and defence electronics, but it is "premature" to talk about joint ventures, he says.

EADS says the two companies work together in a range of business areas and that it is "natural that both continuously seek to capitalise on their co-operations".

Helping smooth the communication channels between the two European giants is a good personal relationship beween new EADS co-chief executive and Airbus chief Louis Gallois and Guarguaglini. "I used to speak to Noël Forgeard, but our meetings were sporadic," he says. "Now we are speaking more often."

Wedding bells

But it might be bit premature for wedding bells. Finmeccanica is a partner with Sukhoi in the new Russian regional jet and the Italian company is keener than EADS to roll ATR - the two companies' regional turboprop venture, founded in 1981 - into the project. This would give the Russian aircraft the marketing and support infrastructure it will need if Sukhoi wants to sell the Superjet outside the borders of the old Soviet Union. To achieve this smoothly Finmeccanica would have to take over EADS's 50% share in Toulouse-based ATR.

"Finmeccanica wants to co-operate with the Superjet 100, but the project lacks capabilities in marketing and financing," says one Paris-based analyst. "ATR has those skills and the idea would be for Finmeccanica to take control and use ATR's capabilities to help the business development of the new aircraft."

One London analyst is also "sceptical" about the prospects of an EADS-Finmeccanica alliance anytime soon. With Airbus taking up so much of EADS's senior executive time, the last thing they want is a merger proposal on their hands, he says: "I doubt whether they would have the management capacity." Finmeccanica too, he says, will be anxious about getting involved in EADS while its flagship programme is attracting so much negative publicity.

Much stands in the way of an EADS-Finmeccanica dream ticket, with politics, personalities, financial issues and potentially overlapping programmes and businesses muddying the waters. But sceptics said much the same about talks between the French, German and Spanish governments - and their respective national champions - that led to EADS in the 1990s.

Source: Flight International