ROME — A plan by Italy’s Leonardo to sell off its naval and terrestrial cannon business as well as its torpedo operation has sparked a political row over the rival merits of maintaining national sovereignty and encouraging European integration.
The Italian defense giant is looking at selling off cannon maker Oto Melara and torpedo maker WASS, with Franco-German joint venture KNDS reportedly keen to snap them up.
In the other corner is Fincantieri — an Italian state controlled firm just like Leonardo — which would like to step in and buy up the two historic Italian brands that date back to before WWII.
For Leonardo, the future counts more than heritage as it focuses firmly on electronics and cyber products rather than hardware like munitions and torpedoes.
The cash injection from a sale is also a motivation, with KNDS in line to offer €650 million (U.S. $738 million) according to media reports, which would help cover Leonardo’s own planned purchase of a stake in German electronics firm Hensoldt.
That is reportedly more than Fincantieri would offer. KNDS, the alliance of Germany’s Krauss-Maffei Wegmann and France’s Nexter, has allegedly guaranteed no job cuts and is offering the prospect of bringing Oto Melara into its plan for a European tank, the so-called Main Ground Combat System.
That may sound like a sensible path towards European industrial integration, heralding cohesion around a common program which will in turn foster a much touted, but seldom achieved commonality in European Union-wide defense politics.
That is seen as crucial as the EU launches another bid to build a pan-European fighting force which could deploy independently from the United States.
But to many in Italy the prospect of selling the cannon and torpedo businesses to a Franco-German joint venture sounds like a sell-out of national sovereignty and a hand-over of Italian technology, ensuring France and Germany remain the top players on the continent and keeping Italy in a lower league.
The reaction from across the political spectrum to the mooted sale to KNDS has been rapid and hostile, starting with defense undersecretary Stefania Pucciarelli, a member of the right-wing League party which backs the government led by Mario Draghi.
“We are all very worried, and with reason, about the risks the business is split up and sold overseas and there are lively discussions about stopping this,” she said.
She was joined by Italy’s second defense undersecretary Giorgio Mulé, a member of the centre-right Forza Italia party, who said it was “imperative” to keep Italy’s sovereign defense technology from ending up abroad.
Defense insiders expressed surprise at news of the potential KNDS sale of the two firms, which employ over 1,500 at four locations in Italy, with one saying Leonardo CEO Alessandro Profumo had worked on a deal with small team and kept it under wraps.
As news broke last week, members of the centre-left Democratic Party and the anti-establishment Five Star party also opposed the sale, as did unions, while Giovanni Toti, the governor of the Liguria region which is home to the firms said they “must remain solidly in Italian hands.”
After the chorus of disapproval for a foreign sale, Italian Defense Minister Lorenzo Guerini said: “The aim is to work to maintain national protection [for the firms], while being open to European industrial cooperation.”
Such a degree of opposition could push Prime Minister Draghi to engineer a sale to state-controlled shipyard Fincantieri, which is “interested” in a deal according to one source at the firm, but may balk at matching the price KNDS is willing to pay.
Government pressure on Profumo to sell to Fincantieri could spark more tension between him and Fincantieri CEO Giuseppe Bono, after the two firms tussled over the right to buy Italian electronics firm Vitrociset, with Leonardo coming out the winner in 2018.
Fincantieri would be a natural home for WASS’s torpedo production and Oto Melara’s manufacture of naval cannons including the 76mm and 127mm guns the shipyard mounts on its vessels.
Oto Melara’s turrets for military vehicles would however not be such a good fit, although Bono has recently shown no qualms about diversifying from shipbuilding, to the extent of getting involved in building a new road bridge in Italy.
One industry insider in Italy also claimed that the battle tank program Oto Melara could join if it is sold to KNDS was stalled and unlikely to gain momentum any time soon.
But a second source said selling up to KNDS made good sense in any case.
“Terrestrial vehicles are not a strategic sector for Italy. There are plenty of producers in Europe and one will always be available.
“Moreover, Oto Melara’s main customer is the Italian army, which is not a big enough market for the firm to reach production levels which generate technological advancements. Tying up with a bigger firm would allow that,” he said.
Oto Melara’s naval gun business occupied a niche in the market, and has an international market, he added. “Why not split it off and sell just that to Fincantieri?” he said.
Oto Melara and WASS became a more attractive proposition this week as India lifted a ban on doing business with Leonardo — which was imposed over now disproved corruption allegations. An Indian Defence Ministry official said the suspension was lifted on the grounds of operational urgency and because of a lack of available alternatives for procuring 127mm naval guns and heavy-weight torpedoes.
The final decision on the sale is likely to be taken by Draghi, who met French leader Emmanuel Macron on Friday ahead of the signing of a new cooperation deal between Italy and France due this month.
A deal to sell Oto Melara and WASS to the Franco-German alliance may sit nicely alongside the deal, but Draghi will also be acutely aware of the loud opposition from the parties that ensure the existence of his coalition government.
Editor’s note: This story was updated to include a quote from Italian Defense Minister Lorenzo Guerini.
Tom Kington is the Italy correspondent for Defense News.
