1987 - 1993 Market opening and the electricity gamble
The history trail
The acquisitions period
The industrial transactions carried out to this point had had their first result: Ansaldo and Aeritalia were in a leading position on the national stage and enjoyed a sound reputation on an international level. The 1987 annual report recorded the basic passage from reorganisation to the next phase: international development. At the end of the Eighties, the imminent opening of the markets meant that it was impossible for companies to delay the rationalisation of production on an international level any longer, focussing on developing economies of scale and achieving suitable production volumes to support the growing cost of research and development required to maintain technological supremacy. Acquisitions and alliances were the main instruments for achieving these objectives, signalling the start of a process, at the level of its major international competitors, which would redesign entire industrial sectors within a decade. Finmeccanica therefore started a new series of acquisitions with the primary objective of increasing the competitive strength of its business which now had to measure up on an international level.
The return of Selenia and Elsag
The most significant transaction was bringing back into the Finmeccanica framework those companies chiefly involved in electronics technology and which, twenty years earlier, had been transferred to STET. Selenia, SGS and Elettronica San Giorgio – Elsag joined in this way in 1989. The significance of the transaction lay particularly in setting up a strong shared technological base for use in market sectors which, in their diversity, still showed contiguity and complementarity. This base was represented by electronics and systems capacities: the market sectors that Finmeccanica was entering now included civil systems, automatic production, command and control systems, missiles systems, biomedical equipment, complex robotics and microelectronic components, alongside energy, transport, industrial plant design, and aerospace. At the same time, other sectors were also being affected by new acquisitions. In particular, in the area of process and services automation, with the incorporation of Elsag Bailey Process Automation, in the field of transport and railway signalling, and in electronic, avionics and military communications systems. At the end of the Eighties, Finmeccanica presented itself as a major technology company, involved in many leading areas, with exports in 1987 worth over 3000 billion lira and a positive trade balance in excess of 2000 billion. The effects of the growth process started by the Group had produced significant results: in the course of three years Finmeccanica’s revenue had tripled, going from 3,500 billion lira in 1988 to almost 10,000 in 1990. The international alliance policy, with significant agreements and strategic collaborations, brought the effect of the foreign component on income to 40%.
The birth of Alenia and Ansaldo Energia
The other essential move towards the objective of international competition was the merger between Aeritalia and Selenia in 1990, which created Alenia, a company with the objective of creating an “industrial aerospace and electronics system.” This created an industrial complex equipped with a very broad and advanced technological base, operating in aeronautics, space, electronics systems, missiles, and air traffic control. Under the shared name of Alenia, activities were regrouped into Divisions: Space, Aeronautics, Defence Systems, and Civil Systems. Alenia became an important industrial group which controlled over 20 companies, employed around 30,000 staff, with 47 plants in Italy and abroad. A “national champion” that had also to address the problem of an excess of production sites and duplicated plants requiring, the following year, the start of a restructuring plan which was particularly complex and demanding, also in employment terms. The energy sector also experienced a period of restructuring. The understanding with the Swiss company Asea Brown Boveri led to the formation of three new companies: with Ansaldo-ABB Componenti (turbines and boilers) and Ansaldo GIE (plant design), Ansaldo maintained the majority stake, transferring control of its transformer business to ABB (ABB-Ansaldo Trasformatori). But the agreement had a troubled existence and its renegotiation, one year later, led to Ansaldo leaving the area of transformers and the takeover of the remaining shares in the other two companies. The whole sector was finally structured in 1991 with the incorporation of Ansaldo Energia which merged Ansaldo GIE and Ansaldo Componenti (which, in turn, had been expanded by the businesses of Fabbrica Turbine and Caldaie Legnano).
The markets’ crisis
The early Nineties were characterised by negative situations across the globe: the major changes on an international level in these years had a profound effect on the strategies of the Finmeccanica Group, which saw a reduction in its reference markets and outlets on an international level. The end of the Cold War had led to a 30% reduction in budgets for defence spending on a global level; since the early Nineties, the air transport crisis had heavily affected the aeronautics sector; the space sector had registered a significant downturn in military and scientific orders; energy recorded a drastic reduction in the national market for conventional power stations; lastly, the liberalisation of the sector had brought independent producers into the spotlight and this meant even more competitive market conditions with prices dropping in the face of a surplus of production capacity which was seen all across the western world. In addition to this there was the cost of abandoning nuclear energy, following the 1987 referendum after the nuclear disaster at the Chernobyl power station; Ansaldo, which had reached a high level of technological specialisation within the sector, was forced to cancel around 4,000 billion lira orders and carry out a major restructuring, although it kept its own internal nucleus of expertise focussing particularly on involvement in international programmes, and decommissioning in Italy.
Finmeccanica on the Stock Exchange
1992 marked the peak of the negative trend for almost all the western industrialised countries, with consequences for production and employment in all countries. The Finmeccanica Group therefore found itself operating in a difficult international context, characterised by a widespread recession and a strong reduction in demand. In addition, to maintain growth, the Group resorted to taking on debt, but the business activities acquired did not always generate sufficient resources to balance such debts. Yet it stayed on course for the most qualifying strategic guidelines – concentration and rationalisation of the Group’s production structure, strengthening of its position on the international market, and expansion of technological assets. And, to deal with the recession, it implemented various measures geared towards making the company profitable. 1992 also marked a turning point for Finmeccanica: through a merger with its subsidiary Sifa, Finmeccanica made its debut on the official list of the Milan stock market under the new name Finmeccanica Società per Azioni. Following the listing, the IRI holding fell to around 94%. There was then a reorganisation process to transform Finmeccanica from a simple holding company into an industrial holding company: a fully integrated Group broken down into operating divisions, deriving from Finmeccanica’s merger with its listed companies Alenia, Elsag Bailey and Ansaldo. This transaction further extended the shareholder base of Finmeccanica, whose capital was now 80% held by the IRI with the remaining 20% placed on the market.
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In the twenty years it spent in STET, Selenia had continued to expand new lines of business, in the areas of space, missiles, electronic warfare and avionics, with continued investments in new technology which had made Selenia Italy’s leading high-tech company, laying the foundations for future international success. At the end of the Seventies, Selenia was organised in two large groups for civil and military production. The Space, ATC (air traffic control), ITC (IT and telecommunications) and navigation radar Divisions were part of the civil area while the Defence Systems (radar and missiles), ASIS (electro-optical and electronic warfare systems and devices) and Naval Divisions (operating through the consortium Selenia Elsag Sistemi Navali which produced electronic systems for naval military units) were comprised in the military area. In 1982 the space sector was reorganised with the creation of Selenia Spazio, which also acquired the space divisions of Italtel and other companies which operated in satellite telecommunications systems. The new company was held by Selenia (60%), Aeritalia (25%), and Italtel (15%) and rose to the top of the many space programmes in Italy and Europe, for telecommunications and observation of the Earth (Olympus, Italsat, Artemis, Meteosat, Cassini-Huygens). Amongst others Selenia Spazio lent its name to the start-up of Sicral, the first Italian satellite system for military telecommunications, which would be launched in 2001.
The Elsag company which came back to Finmeccanica was the development of the historic firm San Giorgio, operating in Genoa since 1905 for the “construction of land and sea vehicles” and transferred to Finmeccanica in 1948 when it was established. After the production of cars and railway carriages began, San Giorgio specialised in the production of optical devices, precision instruments and electro-mechanics. From the mid-Fifties, with the setting up of “Nuova San Giorgio”, the company had been involved in the development of electronics in Italy, experiencing the whole historic development, from electronic tubes to transistors, from integrated circuits to the introduction of the microprocessor. The switch to electronics was finally confirmed with the “technological turning point” in 1969, and the transformation into Elettronica San Giorgio – Elsag, which focussed on internationalising the range and expanding into new markets, in particular postal automation and technological innovation, with significant investments in research and development and partnerships with companies of excellence.
In 1988 Elsag acquired the US Bailey Controls, operating in the sector of service and process automation. The firm thus expanded its presence with production units in every part of the world (United States, France, Canada, Japan, Australia, Norway, Mexico, Germany and Great Britain). The company Elsag Bailey was established, and would be listed on the Stock Exchange in 1991. Two years later, all of Elsag Bailey’s international activities were grouped together in the subsidiary Elsag Bailey Process Automation then listed on the New York Stock Exchange. Between 1994 and 1995 EBPA then acquired the US company Fisher & Porter and the German company Hartmann & Braun, enabling Finmeccanica to become the second global group in the sector of continuous industrial process automation. In 1988 Ansaldo Trasporti acquired 100% of Union Switch & Signal, US company founded by George Westinghouse in 1881 and amongst the leading global players in railway signalling. In 1989 Ansaldo Trasporti also acquired 49% of CSEE, a French signalling company. The Eighties ended with the acquisition, by Aeritalia, in 1989, of Fiar (electronic systems), Ferranti Italia (avionics systems and military radiocommunications) and the Texan firm The Dee Howard Co. (aircraft servicing and transformation), while 1990 saw the addition of Elettronica (specialising in what was known as “electronic warfare”).