France and Italy edge closer to shipbuilding alliance
Naval Group and Fincantieri join forces despite souring relations between countries
France and Italy have finally taken another step forwards in their fledgling military shipbuilding alliance, a rare if limited sign of progress in European defence consolidation and a sign of co-operation between the two clashing governments.
Late on Tuesday, France’s state-owned Naval Group and Italy’s Fincantieri started to put some flesh on the bones of their attempt at co-operation.
“It is necessary to consolidate now. Governments are aware . . . that not doing this has huge costs,” said Iskandar Safa, chairman of Privinvest, the parent company of shipbuilding group German Naval Yards.
The deal, codenamed Poseidon, is tentative and less ambitious than the original plan suggested last year — a “fig leaf”, in the words of some analysts — but it is more than some industry watchers thought was possible in the face of political barriers.
Relations between the two countries have soured since Italy formed an anti-establishment government in spring.
“If they want to see me as their main opponent, they’re right,” said French president Emmanuel Macron in August after a meeting of far-right populist leaders, Italy’s Matteo Salvini and Hungary’s Viktor Orban.
The two groups announced a 50-50 joint venture aiming to make them more competitive in international tenders, primarily against rivals from the US but also increasingly from countries such as China and South Korea.
They will also look for efficiencies in purchasing, testing and research and development.
An underpinning agreement between the two governments, including over issues of sovereignty, is still in the works but is expected next year.
But analysts criticised the deal. It is “very cautious” and its “scope of activities appears at this stage limited”, said Hélène Masson, an analyst at the Fondation pour la Recherche Stratégique.
Originally, a cross-shareholding structure of between 5 per cent and 10 per cent between the two companies was mooted in order to demonstrate commitment to the alliance, which was considered crucial to make the partnership durable.
That idea has now been pushed back in part because of political headwinds and in part because of concerns from suppliers in both countries about losing market share, rendering the “deal a no-deal”, according to one person close to the agreement.
The cross-shareholding “might be considered again in the future”, according to French government officials, while the chief executive of Naval, Hervé ́́ Guillou, simply says of closer union that “we will see step by step”.
As importantly, analysts add that while some joint projects are envisioned, this agreement lacks a large common programme to drive co-operation.
However, the alliance, which excludes submarines, does represent tentative progress.
It was conceived in September last year when French president Emmanuel Macron and then Italian prime minister Paolo Gentiloni stood together in Lyon to celebrate the takeover of a French shipyard, STX, by Fincantieri.
The two leaders also announced the creation of a study group to explore creating a “European champion” in military shipbuilding. The logic behind the plan mirrors the logic for wider defence consolidation in Europe: the crowded sector faces cost pressures and increasing competition in export markets.
But there has been little movement so far as commercial logic runs up against governments, which have conflicting strategic imperatives, are reluctant to share technologies or lose expertise, and know that shutting industrial sites is a sure-fire way to lose votes.
“Successful European joint ventures ultimately pool industrial capacity and eliminate manufacturing overlap . . . The problem is that shipbuilding is so incredibly sensitive that nobody is willing to make that commitment,” said Sash Tusa, at Agency Partners.
The deal between Fincantieri and Naval, the “only opportunity” for Europe to create a global player in military shipbuilding, according to Giuseppe Bono, Fincantieri’s chief executive, had been considered under threat after the election of Italy’s anti-establishment government in March.
European officials describe Franco-Italian relations as being at an all-time low. “France and Italy are at war,” said one senior Italian politician.
“It is not Russia which is against us but the French,” Giulio Sapelli, an economics adviser to Italy’s vice premier Matteo Salvini told business leaders last week. The event was attended by Mr Salvini.
Mr Sapelli, who was Mr Salvini’s professor at university, went on to express a nationalistic view increasingly held in Rome about ownership of corporate Italy.
Elaborating on his theory of France being hostile to Italian interests, Mr Sapelli suggested French chief executives of Italian financial groups UniCredit and Generali only intended to orchestrate a sale of those groups to French buyers.
However, French government officials say there has always been a political will to push ahead with this particular project despite frictions between France and Italy.
And Italian executives say beneath the political tensions, technocrats are seeking to keep transalpine relations on a relatively even keel.
The deal is a result of those efforts even if its form makes it nothing more than “a fig leaf designed to make it look as if there is progress”, according to Mr Tusa, which does not go far enough in merging the two companies.
“You have FREMM, the most successful global frigate programme of the last decade, and then you go from that saying ‘OK, we won’t do that for the next time’,” said Mr Tusa. “If you had merged the programmes, then merging the two companies would have been very easy, now it’s impossible.”