Will Italy Cancel JSF Buy?; New Government Opens Door to Eurofighter

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Will Italy Cancel JSF Buy?;
New Government Opens Door to Eurofighter

Tom Kington (Rome) en Michael Fabey (contribution from Washington), Defense News, 17 april 2006

Italy's newly elected, center-left government is set to add its voice to the chorus of complaints from Joint Strike Fighter (JSF) partners, with one policy-maker calling for Rome to cancel purchase plans regardless of whether technology sharing with the United States improves.
Giovanni Urbani, aerospace spokesman for the Democratic Left, part of the new governing coalition, said April 11 that Italy should buy the strike-version of the Eurofighter Typhoon instead of the JSF as part of a move toward greater European industrial cooperation. Italy already is introducing Typhoons into service, but had planned to buy JSFs as well.
Urbani was speaking the day after Italy's center-left coalition, led by Romano Prodi, narrowly beat Prime Minister Silvio Berlusconi's incumbent center-right government in a general election.
Prodi won a clear majority in the lower house of parliament, but his wafer-thin advantage in the Senate left many observers predicting a short-lived administration. In the meantime, Berlusconi has asked for a vote recount, given the marginal victory, with results expected after Easter. In any case, Prodi will need to wait until a new president is elected in mid-May before he can take office.
The defeat ends a five-year term in office for Berlusconi, during which he backed the U.S. invasion of Iraq while drastically reducing defense spending at home. Under Berlusconi, state-controlled aerospace and defense giant Finmeccanica built its presence in the United Kingdom and joined joint programs on both sides of the Atlantic.
Members of the new administration have said they wish Finmeccanica to continue focusing on both the United States and Europe, but they want to give a political underpinning to European cooperation. A catchphrase has emerged: "The U.S. is an opportunity, Europe is a destiny."
That makes Italy's membership in the JSF program a hot topic. Italy became a second-level partner in 2002, investing $1 billion in the System Development and Demonstration (SDD) phase. A Lockheed Martin presentation in Rome in March indicated that $800 million in work has been contracted by or committed to Italian firms to date.
A senior Italian defense source said that broke down as $180 million in contracts in the SDD phase, plus $677 million in work "assigned" on the Low Rate Initial Production phase.
Italian center-left Sen. Lorenzo Forcieri � who is tipped to take a senior defense role in the new government � did not call for a pullout, but said Italy would need to "reconsider" its partnership on JSF if work share and technology transfer for Italian firms did not pick up. Policy planner Urbani did not want to wait.
"I propose we pull out of acquiring the JSF and look at the third-tranche Eurofighter instead, thus boosting a European production line," he said. "I also wonder if a European nation requires such an overtly offensive aircraft as the JSF."
Italy will be required this year to confirm its entry into the Production, Sustainment and Follow-on phase of the JSF program. An Italian retreat from the JSF program would little affect the ultimate cost of the fighter jets, said Richard Aboulafia, vice president and aviation expert of the U.S.-based Teal Group.
"No one JSF export partner would have that kind of effect, except the Brits," Aboulafia said. But he said such a withdrawal would undermine the program's prestige and confidence.
"It was a major breakthrough to get a partner like Italy," a Southern European country tied to the Eurofighter combat jet program, he said. "Of course, we don't know if Italy will follow through, or if this is just a negotiating tactic," he said. "In the absence of concrete information, it appears that the partners are keeping the faith."
Tom Burbage, Lockheed Martin executive vice president and manager of JSF Program Integration, said, "Italy's industry and defense strategy are deeply invested in JSF, and the country is a key international partner in the program. We have no indication that there has been any erosion of support for JSF in Italy."

Consolidation Outlook Unclear

While Urbani's remarks echo the emphasis given in the center-left's campaign manifesto to finding European partnerships for Italy's aerospace industry, Forcieri was more pragmatic, arguing that Italy needs to keep all its options open. A recent attempt by an Italian energy firm to enter the French market was blocked by Paris � a warning not to sign up blindly to European integration, he said.
Analyst Michele Nones said the desire of center-left politicians Pierluigi Bersani and Enrico Letta to buy into Airbus was also mistaken.
"The moment to consider joining Airbus has passed. Italian industry is now well qualified as a supplier of aircraft structures, and as a sharer of development costs, with both Boeing and Airbus," said Nones, who is head of the security and defense department at the Rome-based Istituto Affari Internazionali, a think tank that receives some funding from the Italian Foreign Ministry.
Finmeccanica is, however, pushing to merge its defense electronics activity � grouped under the Selex brand and worth 3 billion euros ($3.63 billion) in revenue � with Thales, a move which has already been given the green light by Berlusconi. In an Italian radio interview April 6, Finmeccanica CEO Pierfrancesco Guarguaglini said such a deal would create a company on level terms with U.S. competitors, but would render Thales "more European than French, with strong roots in France, Italy and the U.K."
One Rome-based Italian defense analyst was dubious about the deal.
"Finmeccanica will seek to take a stake in Thales equal to that now held by Alcatel, but can anyone doubt control will remain French? Look at MBDA and Airbus," the analyst said. "This means the job cuts caused by overlaps will likely come in Italy. Cuts will also come where there are more restrictions on export: Italy." Equating European industrial integration with job security could prove to be a headache for the center-left, which is closer to unions than the Berlusconi government. Italian unions have already criticized Finmeccanica's decision to merge its space activity with Alcatel.
A French tie-up could, however, brighten prospects for Finmeccanica's jet trainer, the Aermacchi M346. After investing heavily on the aircraft � and with plans to develop a combat version � Finmeccanica views France as key to kick-starting European sales of the M346 as part of a joint EU training program, particularly since EADS has held talks on marketing the rival Korean T-50 in Europe.

Foreign Policy

On the foreign policy front, Prodi's election manifesto described the Iraq invasion as "violating international law," and called for Italy to pull its troops out of the country. Berlusconi was already halfway there; Italy's contingent is to be halved to 1,500 troops by August, with all home by year's end.
Italy's role in Afghanistan could grow, though. NATO may yet take up Rome on its offer to send AMX fighter bombers to the country, while an Italian Air Force source said that up to six Air Force AB212 helicopters with new self-protection systems and reinforced floors were due to deploy to Kabul before the summer. Berlusconi's government took office promising to boost defense spending to 1.5 percent of GDP, but after five years reduced it to 0.84 percent. That has left the military with an unfulfilled procurement wish list. Long-running talks to insert Italy into the U.S. Navy's P-8A Multimission Maritime Aircraft (MMA) program, for example, are now formally "frozen," a defense source said April 7.
Forcieri said the new government would need to look closely at state finances, but that bringing defense spending back toward 1 percent of gross domestic product would be a target. He added that the Italian military, which is already shrinking toward a target size of 190,000 troops, would need to drop to "150,000 or lower." Such questions will be tackled when Italy has a new government in place and a new defense minister. Two early candidates, according to defense sources and analysts, are Marco Minniti of the Democratic Left party, and Arturo Parisi of the Margherita party, both part of Prodi's coalition.
"It will be more about dividing ministries up among parties first, then discussing individual candidates," said Roberto Menotti, an analyst at Aspen, Italy, an international nonprofit research group funded by industry members. "If Democratic Left politician Massimo D'Alema gets the Foreign Ministry, for instance, it might be difficult for another member of his party to get Defense also."
Menotti said one factor could dissuade high-profile politicians from lining up for the job. "If the new government is seen to be overly weak, then budget talks in the autumn or an international crisis like Iran could cause it to collapse," he said. "Big-name politicians who fear a brief government might not want to get burned by accepting a ministerial posting."

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