State clearance sales

(To Caio Mussolini)
26/11/21

For several weeks there have been news regarding the possible sale of Oto Melara and WASS, now incorporated in the defense division of Leonardo, to Fincantieri (in the best case), Iveco (for the land part) or even to the KNDS group (French of Nexter and KMW Germans) at worst.

I have worked for several years in Oto Melara as area manager for South America and the Middle East. I know well the products and the people (now only the oldest) who work in that factory founded in 1905, and whose attachment to the company and to the territory I know. The products, especially those in the naval field of medium (76mm) and large (127mm) calibers are state-of-the-art, and recognized as the best on the market.

The name Oto Melara is synonymous with "naval gun" in every navy of the globe. With the development of "intelligent" ammunition (which in many cases can replace the use of more expensive missiles) for the 76 and 127mm (also applicable to larger calibers such as the 155mm), the company has conquered after 20 years of investments a very important niche sector, with a unique product in the world.

As a submarine officer I also know the WASS, acronym for Whitehead Alenia Underwater Systems, another niche industrial reality born in Livorno as Moto Fides at the end of the 30s, and excellence in the production of underwater systems, light and heavy torpedoes. They too with an important presence among the players international companies in the sector.

The turnover of the two companies is around 550 million euros a year, with approximately 1.500 employees in the various offices (Spezia, Brescia, Livorno and Pozzuoli). Therefore it would be legitimate to assume that the two companies are "strategic" for industrial and defense interests in our country. However, this does not seem to be the case, given the evolution of the situation and the rumors of a possible sale. Sale that sees the Franco-German group KNDS (8.200 employees and a turnover of 2.4 billion euros) at the forefront, and this means that the assets for sale are "delicious morsels".

For about ten years we have witnessed the impoverishment of some state defense companies. Just look at the transformation of Finmeccanica into Leonardo, going from 70.000 employees to less than 50.000 and with orders going from 17.4 billion (2011) to 13.8 billion (2020) and with an increase in net financial debt, despite the sales of subsidiaries made in the past. What is the strategic vision driving these changes?

In the English world there is the principle of "accountability" or the responsibility and obligation to answer for something. Here it is non-existent, with the results we have seen for decades. Perhaps we should start from here and think about what has gone wrong in recent years.

What does the government want to do with these companies and this (mistreated) important sector of our economy? Continue to sell them after the rearrangements and acquisitions made in the past at times when managers consolidated companies rather than liquidating them to raise cash, see DRS in 2008?

It is also surprising that a company in which the state has a stake can start discussions on a possible sale with a foreign group, without the government (i.e. the majority shareholder of Leonardo) being informed and having given a priori indications for the protection of national strategic interests.

What is missing is an industrial, non-financial, strategic vision that is shared and structured for the benefit of the country. And at this moment the only ones who seem to have clear ideas are the experienced top management of Fincantieri.

Fincantieri, let us remember, is the company that with a forward-looking move in 2017 had started the acquisition of 50% of the Chantiers de l'Atlantique (formerly STX France) by taking over the shares of the Korean STX OSV put up for sale by the Singapore court. That acquisition was later blocked by President Macron and the French government, which had called the acquisition a "strategic error for the risks to the occupation and French sovereignty". In the face of Europe ...

Now Fincantieri could, even better dovrebbe, to be the preferred partner in the case of sale, also considering the consolidation in the electronics sector (see IDS acquisition and non-acquisition of Vitrociset, blocked by Leonardo). And it is here that the government should hopefully intervene, to prevent Oto Melara and WASS from falling into Franco-German hands and to oppose their offer to Leonardo, which should be about 200 million euros higher than that of Fincantieri. And this is the point: it doesn't have to be just a question of cash. Indeed it must be a matter of strategic interest, to at least allow Fincantieri to play an ever greater role in the future panorama of European defense, with Oto Melara and WASS within it. But with well-defined business models, with integrated engineering and production and a sales force that leads to the expansion of the naval systems business abroad, and the land-based one in synergy with Iveco on the national market, also taking advantage of the opportunity to play a adequate role, and not by helots, in the program of the new European chariot.

Photo: US Navy / Online Defense / Ministry of Defense