2009 - 2013 Crisis in markets and new perspectives

The history trail

The financial crisis of 2008

At the end of 2008 a global crisis exploded in the financial sector and gradually expanded into the real economy, triggering a phase of recession which affected, albeit in different ways, all the traditional aerospace and defence markets, highlighting extreme drops in investments and in industrial production. Finmeccanica – like all big companies – found itself facing a complex international situation, characterised by political and financial instability and the drop in demand in western countries due to budget restrictions imposed by Governments to get out of the deficit and public debts. By way of example, the USA cancelled the order for presidential helicopters, which Finmeccanica had won in 2005. But Italy and the United Kingdom also need to tighten their belts, with budgetary reductions which are reshaping many of the investment programmes in the defence sector. We are entering a new phase where competition is more marked and we are looking towards the world’s emerging countries which, on the contrary, are experiencing strong growth in domestic demand and commercial exchange. Many of these countries are in fact allocating huge resources to modernisation projects in both the military and civil sectors. The Finmeccanica Group is entering a new phase which will focus on a dual objective: firstly, selective expansion towards international markets with high potential and which show the best opportunities for growth, targeting stable and sustainable growth based on structured long-term partnerships and agreements. Secondly, greater focus on the competitive nature of products and technologies, in order to strengthen the offer in strategic business sectors and as such ensure that the Group maintains its position as a market leader.

High potential markets

In terms of high-potential markets, Finmeccanica thus defined a strategy to promote its offer in some target countries such as India, Brazil, Russia, Turkey, China, Saudi Arabia, United Arab Emirates and North African countries. The Finmeccanica Group aimed to gain credit in these countries not so much as a supplier of products and solutions as a reliable industrial partner, through cooperation agreements with local actors, structural investments in specific business areas and the creation of long-term strategic partnerships with local industry. Today, the Finmeccanica Group can count on several partnerships established in many of these countries. In Russia, with joint ventures SuperJet International (with Sukhoi), for the marketing of the Superjet 100, and HeliVert (with Oboronprom), for the assembly of the AW139 helicopter, in addition to long-standing partnerships in the areas of postal automation. In India, with the joint venture Indian Rotorcraft (with Tata Sons), for the assembly line of the AW119 and its subsequent commercialization. In Turkey, with the joint program ATAK (with TAI and Aselsan) for the T129 helicopter. In the UAE, with the joint venture ADSI - Abu Dhabi Systems Integration (with Abu Dhabi Shipbuilding), for programs involving naval corvettes and patrol boats. In Malaysia, with the joint venture Advanced Air Traffic Systems (with Tirai Variasi and Tahap Harmoni), for the support and maintenance of air traffic control radars.

Poland: a new market

With regard to competition, the last few years have seen Finmeccanica committed to a phase of rationalising its industrial presence with the aim of making its own business structure more reactive and flexible in the face of the challenges of the new and complex international scenarios. In 2009, AgustaWestland acquired the Polish company PZL-Swidnik, operating in the production of helicopters and aircraft structures, which broadens the geographic positioning of the helicopter sector in Europe and opens up new prospects for access to various geographical markets. At the end of the same year, the microelectronics sector was released. Finmeccanica sold to Cassa Depositi e Prestiti the remaining stock held in STMicroelectronics' capital, for an amount of around 172 million euro. This transaction completed the process of transferring the role of Italian shareholder of reference in STMicroelectronics from Finmeccanica to Cassa Depositi e Prestiti which will guarantee fair governance shared with the French public shareholder. In June 2011, Finmeccanica signed an agreement with the US investment fund First Reserve Corporation, specialising in the energy sector, for the transfer of 45% of the share held in Ansaldo Energia. Through the partnership with a specialist operator, the transaction is intended to guarantee Ansaldo Energia new prospects for growth on an international level. In the same period, the merger transaction between SELEX Communications and Elsag Datamat, under the new name SELEX Elsag, was concluded, with the objective of creating a unique skills centre at group level in the Information and Communication Technology sector and to rationalise relationships with end clients.

From defence company to high technology company

At the end of 2011 the crisis continued to exert a significant impact on all western markets. The United States, although it remained the most significant market, began a serious reduction in military spending, through the cancellation of existing programmes and a substantial block on new initiatives. European budgets are under even more pressure than the USA and companies in the sector, to face up to this new phase, are developing increasingly aggressive commercial activities in countries with high potential for growth in Asia, South America and the Middle East. Global military spending remained essentially flat in 2011, while the most important global companies in the aerospace and defence sector record reduced earnings from the defence industry, down from 32.8% al 30.8%. Defence costs continue to rise in the emerging markets, however: in 2012 defence spending in Asia for the first time exceeded European spending which, since 2008, has been shown to be in a progressive dip from 201 billion euros to 194 billion euros in 2010 (source: European Defence Agency). In a context which is therefore still difficult for the aerospace and defence industry, Finmeccanica is launching guidelines for a new path for the Group, which focuses decisively on development from Defence company into high technology company, able to handle any demand from the Italian and European industry on the frontier of applied technology: a new Finmeccanica, deeply rooted in the Defence sector and committed to maintaining and developing the leadership positions it has achieved but, at the same time, able to find new spaces for growth in the civil sector, making a cornerstone of the “dual” application of its technologies. That is to say technologies which, originally developed within systems for Defence, enable the design and development of new solutions in all areas linked to the needs of modern society, such as security, sensitive infrastructure management, new concepts for smart cities, intelligence and cyber security activity, management of air, sea and naval traffic, protection of civilians, land and infrastructures, climate and environmental monitoring, energy and mobility management.

New reorganisations and future prospects

The strategy set in place by Finmeccanica to achieve its objectives revolved around some essential points: rationalizing the business portfolio, targeting investments on priority technologies, focusing on institutional and civil applications and repositioning on markets with high growth potential. This called for a reorganization of its activities, both to recover competitiveness in the markets and to ensure a future for activities not part of the core business whose development the Group was no longer able to support. Therefore, corporate restructuring began for Aeronautics, Defence and Security, along with the disposal process for the areas of Energy and Transport. It had become clear that, in the situation of crisis that the Group was facing, these activities could be exploited only through agreements with industrial partners dealing in the sector that could ensure the adequate critical mass to compete in the markets. The year 2012 began with the new Alenia Aermacchi, a result of the merger between Alenia Aeronautica (which had previously absorbed Alenia Aeronavali) and its subsidiaries Alenia Aermacchi and Alenia SIA; all the industries of the sector gathered under a common denominator with the goal of consolidating and reviving the company's production lines in order to set the conditions to successfully face the challenges of international competitiveness. 2013 brought major innovations in the areas of Defence, Security and Energy. The new Selex ES became operational, bringing together the Group's European companies dealing in Defence and Security electronics, forming a new global leader in the field of electronic and computer technologies, with 17,900 employees, revenues exceeding 3.5 billion euro, domestic markets in Italy and the UK and a strong international presence. At year's end, Finmeccanica approved the sale of its stake in Ansaldo Energia to the Italian Strategic Fund. An operation that, in line with the Group's strategic plan, contributes to the consolidation of Finmeccanica assets and allows a greater focus on strategic business areas.