After More Changes At the Top, Leonardo Seeks Equilibrium

At media briefings in London and Rome earlier this year, Mauro Moretti claimed full credit for making Leonardo financially healthy. But the fortunes of Europe’s second-largest aerospace and defense company are still largely determined by the Italian state, which owns 30 percent. And that includes the fortunes of its leadership, with the government subsequently having replaced Moretti as CEO for a reason that is entirely unconnected with his three-year stewardship of the company that was until last year known as Finmeccanica.

“Today, Leonardo is a solid business with all the characteristics needed to compete in global markets,” said newly-appointed CEO Alessandro Profumo in May. He is a former banker who was nominated by Rome in preference to Fabrizio Giulianini, who had risen after a lifelong career in the company to become head of Leonardo’s largest-earning division--electronics, defense and security systems. Giulianini has now resigned from the group.

That may be a downside. But the upside of the state’s continuing control is the near-certainty of government launch orders for Leonardo’s defense products. Previous examples include the C-27J tactical airlifter, military versions of the ATR72 regional airliner, the M345 basic jet trainer, and the M346 advanced jet trainer. The latest example is a new attack helicopter that the company is designing to replace the Italian army’s A129 Mangusta, thanks to a near-$500 million contract. 

Before his departure, Moretti said that Leonardo was “now an export-led business.” That may be true of the helicopter division, which has competed well in a depressed market. But international competition is fierce in the market addressed by the aircraft division. It is fortunate to have Italian air force contracts for the Eurofighter and the Lockheed Martin F-35 final assembly and checkout (FACO) line to pad the business. This division is the lead contractor for Kuwait’s order of 28 Eurofighters, placed with the Italian government in 2015 and worth just under €8 billion ($9 billion).

Moretti said in London that Leonardo “now speaks to customers with a single voice.” That was a reference to his reorganization that scrapped Finmeccanica’s independent group structure in favor of seven divisions. As an example, he told AIN that there was no longer any competition for airborne radar business between the former FIAR business in Italy, and the former Selex Galileo business in Edinburgh.

During Moretti’s tenure, various activities were sold or closed. But “our next stage is growth, and we are planning to invest,” he insisted. But with such a diverse range of products, from guns to torpedos, sensors to mission systems, space systems to aerostructures, the question is where.

One example of that is the 100-seat multirole jet that Moretti wanted to develop at ATR. But he departed without having persuaded Airbus – Leonardo’s 50 percent partner in ATR – to support that ambition. Moretti also reaffirmed support for the joint venture with Sukhoi on the Superjet 100, although he refused to join a Russian government bailout of the troubled project in 2015.

Meanwhile, the AW609 civil tiltrotor is another risky project that Leonardo continues to pursue. Two prototypes are flying from the company’s U.S. facility in Philadelphia. A third crashed in 2015. A fourth is being built. Leonardo still hopes to gain FAA certification next year.

Apart from helicopter production in Philadelphia, Leonardo’s U.S. turnover derives from DRS, the defense electronics company that it bought in 2008. According to Moretti, the price paid was “double” its real worth. DRS is now fronting Leonardo’s bid to have the M346 chosen as the winner of the US Air Force T-X competition. It’s not clear why Leonardo originally chose to partner with Raytheon instead.

Leonardo claims some unique strengths in unmanned aerial vehicles (UAV). It has achieved some notable firsts with the Sky-X and Sky-Y demonstrators. It is a partner in the Neuron UCAV program being led by France’s Dassault Aviation. The Falco has achieved export success in the surveillance role.