Finmeccanica's 100% acquisition of AgustaWestland will strengthen its efforts to challenge the European dominance of EADS-owned Eurocopter, and potentially boost its prospects in the US market
Rationalisation of Europe's helicopter industry reached a climax earlier this year, when Italy's Finmeccanica announced plans to assume full ownership of the Anglo-Italian AgustaWestland joint venture established with the UK's GKN in 2000.
Made possible by GKN's decision to transfer its 50% holding in the concern for a little over £1 billion ($1.83 billion) in cash, the move will give the Italian company total ownership of the UK's only helicopter maker and full control of a business with 2003 revenues of €2.6 billion ($3.3 billion).
Formed at the Farnborough air show just over four years ago, AgustaWestland brought together the complementary capabilities and platforms of Italy's Agusta and the UK's Westland Helicopters, in a move intended to create a European rival to EADS's thriving Eurocopter business.
Finmeccanica's acquisition of the AgustaWestland brand is in line with the Italian holding company's strategy to focus on the aerospace and defence sectors and to expand its presence in the UK market, say officials within the helicopter producer. The latter intent is also illustrated by the company's planned control of a joint BAE Systems/Finmeccanica avionics business unit to be formed under the Eurosystems venture (Flight International, 26 October-1 November).
GKN's May 2004 decision to sell its interest in AgustaWestland to Finmeccanica prompted a period of consultation by the UK Department of Trade and Industry (DTI) and the Office of Fair Trading. This concluded last month, when the DTI granted its approval for the deal to be concluded later this year with the guarantee of "certain behavioural undertakings" from the Italian company. These, it says, will "protect sensitive information and ensure that the UK maintains a military helicopter capability".
With almost 7,500 helicopters now delivered by its consolidated interests, AgustaWestland accounts for around 12% of business within the global helicopter sector, and has around 9,000 employees in Belgium, Italy, the UK and the USA.
The company delivered 118 aircraft in 2003, including 75 for the commercial sector and 43 for military customers. It also secured fresh orders worth €1.8 billion, ending the year with a backlog worth some €6.2 billion. While this bettered 2002 deliveries of just over 100 helicopters, including 45 for commercial operators, revenues dipped slightly and the company's backlog slipped by almost €1 billion with the completion of EH101 Merlin utility helicopter production for the UK armed forces.
AgustaWestland is Europe's second largest producer of civil, parapublic and military rotorcraft behind Eurocopter, and its product range spans from light utility aircraft in the 2,500kg (5,500lb) class like the A119 Koala, to the more than 15,000kg EH101. The company also holds a 32% stake in the 9,000kg-class NH Industries NH90 medium transport/naval helicopter, programme led by rival Eurocopter.
The EH101 and NH90 have each enjoyed recent export successes, and it is on the three-engined EH101 that the company's hopes are now pinned. A decision is expected in mid-December on one of the highest-profile military requirements of recent years - to provide the VXX helicopter to transport the president of the USA.
Conscious of the aircraft's European origins, AgustaWestland has teamed with US manufacturer Bell Helicopter and systems integrator Lockheed Martin to offer a General Electric-powered US101 variant of the EH101 for the US Navy-led VXX requirement. The team faces stiff competition from incumbent presidential helicopter supplier Sikorsky, offering its VH-92 and buoyed by the S-92's recent selection by the Canadian Forces for its maritime helicopter programme.
US stakes high
Success in the highly influential, but numerically small VXX contest could lead to lucrative follow-on US101 orders to meet the US Air Force's Personnel Recovery Vehicle (PRV) combat search-and-rescue rotorcraft requirement, plus further needs within the US armed forces. EADS, meanwhile, has teamed with Northrop Grumman to offer the NH90 for PRV. Agusta Westland will support that bid also, says Stephen Bryen, president of Finmeccanica's US arm, adding: "We are great believers in 'co-opetition'."
Largely through Agusta, the helicopter company has had a presence in North America for many years, says Bryen. The A109 light twin is used by the US Coast Guard, and assembly of the single-engined A119 is being moved to Philadelphia, Pennsylvania to improve access to the US state and local law-enforcement market. The plant started operations at the end of October.
AgustaWestland is eyeing the US Army's new armed reconnaissance helicopter and light utility helicopter requirements as potential applications of its A129 and A119 or A109, respectively, but both competitions could probably require a US prime. The company has already tasted success in the US government market through its 45% share in the Bell/Agusta Aerospace joint venture, which is developing and marketing the Agusta-led AB139 medium helicopter and Bell-led BA609 civil tiltrotor. The AB139 has been selected for the US Coast Guard's Deepwater re-equipment programme, - although a contract is still several years away - and further opportunities are eyed within the US government market.
US market analyst Teal Group believes a rationalised AgustaWestland could expand its long-established links with Bell, but senior analyst Richard Aboulafia says concerns exist over the level of Italian state involvement in Finmeccanica's expanding empire. "The UK is viewed in the USA as having a more free-market economy than Italy, and Finmeccanica is a major government holding," he says.
The transformation of AgustaWestland into a single entity is expected to deliver efficiencies, with the production lines in Cascina Costa di Samarate near Milan and at Yeovil in the UK likely to experience some rationalisation. Assembly of the EH101 is split between the two sites, while commercial products are built in Italy and Yeovil builds the Super Lynx 300 naval/multirole helicopter and upgrades and supports military rotorcraft for the UK armed forces.
Licensed production has already been agreed with Japan's Kawasaki Heavy Industries and South Africa's Denel Aerospace for the EH101 and A109 light utility helicopter, respectively. The only area of real duplication in the current AgustaWestland portfolio is in attack helicopters, where the Italian-developed A129 Mangusta and Westland-assembled Boeing AH-64D Apache AH1 both provide work. Production of both types has now been completed, however, and export orders for the A129 have failed to materialise, although a new campaign is being mounted in Turkey.
Steady growth
Aboulafia believes that beyond any immediate savings in areas such as research and development, sales and marketing through the full merger, AgustaWestland's Yeovil site could bear the brunt of future cuts. Indeed, Finmeccanica's deal with GKN already includes one pessimistic clause - the seller will repay £35 million if a deal to equip the UK with the planned Future Lynx fails to take shape by May 2008.
But the future might not be so bleak for Yeovil, for success in the US VXX contest is expected to create work in the UK and Eurocopter has committed to placing substantial work with AgustaWestland's UK arm if the NH90 is selected to meet the future needs of the UK armed forces, which are planning a new round of helicopter acquisitions.
The steady growth projected for the military rotorcraft market over the next decade seems set to deliver benefits for Finmeccanica, and its £1 billion investment in the UK is likely to deliver strong dividends.
CRAIG HOYLE / LONDON ADDITIONAL REPORTING BY GRAHAM WARWICK IN WASHINGTON DC
Source: Flight International
