Protectionist instincts erupt as venerable Italian gunmaker goes on sale

ROME – A plan by Leonardo of Italy to sell its naval and land gun activities as well as its torpedo operation has sparked a political row over the competing merits of maintaining national sovereignty and encouraging integration European.

The Italian defense giant is planning to sell gunmaker Oto Melara and torpedo maker WASS, with Franco-German joint venture KNDS supposed to buy them out.

In the other corner is Fincantieri – an Italian state-controlled company just like Leonardo – who would like to step in and buy out the two historic Italian brands that date back to before World War II.

For Leonardo, the future counts more than the heritage because it focuses resolutely on electronics and cyber products rather than on equipment like ammunition and torpedoes.

Injecting money from a sale is also a motivation, with KNDS being in line to offer 650 million euros (US $ 738 million) according to media reports, which would help cover Leonardo’s planned purchase of ‘a stake in the German electronics company Hensoldt.

This is apparently more than what Fincantieri would offer. KNDS, the alliance of the German Krauss-Maffei Wegmann and the French Nexter, would not have guaranteed any job cuts and offers the prospect of integrating Oto Melara into its European tank project, the Main Ground Combat System.

This may seem like a sensible path towards European industrial integration, heralding cohesion around a common agenda which in turn will foster a much vaunted, but seldom reached, community in EU-wide defense policy. .

This is seen as crucial as the EU launches another bid to build a pan-European fighting force that could deploy independently of the United States.

But for many in Italy, the prospect of selling the gun and torpedo businesses to a Franco-German joint venture looks like a sale of national sovereignty and a handing over of Italian technology, ensuring that France and Germany remain the main ones. actors of the continent. and keep Italy in a lower league.

The reaction from all political horizons to the sale mentioned to KNDS was swift and hostile, starting with Defense Undersecretary Stefania Pucciarelli, a member of the right-wing League party which supports the government led by Mario Draghi.

“We are all very concerned, and with good reason, about the risks of the business being split up and sold overseas and there are heated discussions to stop that,” she said.

She was joined by Italy’s second Under-Secretary of Defense Giorgio Mulé, a member of the center-right Forza Italia party, who said it was “imperative” to prevent Italy’s sovereign defense technology to end up abroad.

Defense insiders expressed surprise at news of KNDS’s potential sale of the two companies, which employ more than 1,500 people at four locations in Italy, with one claiming Leonardo CEO Alessandro Profumo, had worked on a deal with a small team and kept it a secret.

As news broke last week, members of the center-left Democratic Party and the anti-establishment Five Star Party also opposed the sale, as did the unions, while Giovanni Toti, the region’s governor of Liguria which houses the companies said that they “must remain firmly in the hands of the Italians.

Such a degree of opposition could push Prime Minister Draghi to stage a sale to the state-controlled Fincantieri shipyard, which is “interested” in a deal according to a company source, but might be reluctant to match the price. KNDS is ready to pay.

Government pressure on Profumo to sell to Fincantieri could spark more tensions between him and Fincantieri CEO Giuseppe Bono after the two companies fought over the right to buy Italian electronics company Vitrociset, Leonardo coming out the winner in 2018.

Fincantieri is said to be a natural home for the production of WASS torpedoes and the fabrication of Oto Melara naval guns, including the 76mm and 127mm guns that the shipyard mounts on its ships.

Oto Melara’s turrets for military vehicles would not be so suitable, however, although Bono has recently shown no qualms about branching out from shipbuilding, to the point of getting involved in the construction of a new road bridge in Italy.

An industry insider in Italy also claimed that the battle tank program that Oto Melara could join if sold to KNDS has stalled and is not expected to gain momentum any time soon.

But a second source said selling to KNDS made sense anyway.

“Land vehicles are not a strategic sector for Italy. There are plenty of producers in Europe and one will always be available.

“In addition, Oto Melara’s main customer is the Italian army, which is not a sufficiently large market for the company to reach production levels that generate technological advances. Partnering with a bigger company would allow that, ”he said.

Oto Melara’s naval weapons business occupied a niche in the market and has an international market, he added. “Why not separate it and sell it to Fincantieri?” ” he said.

Oto Melara and WASS became a more attractive proposition this week as India lifted the ban on doing business with Leonardo – which was imposed following now-refuted corruption allegations. An Indian Ministry of Defense official said the suspension was lifted due to operational urgency and the lack of alternatives available to procure 127mm naval guns and heavy torpedoes.

The final decision on the sale is expected to be made by Draghi, who met with French leader Emmanuel Macron on Friday ahead of the signing of a new cooperation agreement between Italy and France scheduled for this month.

A deal to sell Oto Melara and WASS to the Franco-German alliance may well accompany the deal, but Draghi will also be keenly aware of the strong opposition from the parties that ensure the existence of his coalition government.

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