Italy's Eurofighter cancellation acts as radar catalyst
FARNBOROUGH, England (MarketWatch) -- Italy's decision to cut the number of Eurofighter Typhoon combat jets it will order has no immediate financial impact for Finmeccanica SpA, but it could be a catalyst for the funding of a new radar system for the jet, the chief executive of the defense giant said in an interview.
Earlie this week, Italian defense minister Ignacio La Russa surprised the military brass at the Farnborough Airshow with news the country would reduce its planned order for the jet by 25 aircraft due to budget pressures, saving around 2 billion ($2.56 billion).
The Eurofighter Typhoon is built by a consortium that includes Italy's Finmeccanica , EADS ( and Britain's BAE Systems .
The four initial customer nations are Germany, Spain, Italy and the U.K. Italy's decision to cancel the last tranche of its order, which was not funded yet, means it will receive 96 aircraft instead of 121.
In an interview on the sidelines of the air show, Finmeccanica CEO Pier Francesco Guarguaglini stressed that the cancellation would have no near-term financial impact on the company.
"The cut has no impact right now or next year. During that time, if we start the program to improve the aircraft, we might be able to get new customers," he said late Wednesday.
Italy's cancellation will put added pressure on the consortium to try and export the aircraft to other countries. India, for instance, is currently attracting offers from all around the world for a $12 billion contract for 126 fighter planes.
In order to have a chance of winning that deal, however, the consortium must develop an electronic radar system -- known as Active Electronically Scanned Array Radar -- for the Eurofighter as an alternative to the mechanical one the current model is equipped with. The four European air forces that fly the Typhoon have no immediate requirement for an AESAR.
"I assume they will go down the path of fitting an electronic radar. That will make it easier to sell the plane to export markets like India and Japan," Guarguaglini said.
Euroradar, a multi-national consortium lead by SELEX Galileo, a Finmeccanica unit, makes the current mechanical radar on the jet and is starting the full-scale development of an AESAR.
Beyond spurring the development of a new radar system, Italy's reduction of its order will have financial consequences.
Guarguaglini said the consortium would now start talks with the government about the cancellation fee it will have to pay.
While the penalties and compensations written in the umbrella contract signed by the four customer nations are still valid, Finmeccanica said it could not disclose them.
Finmeccanica 'confident' in Italian legal system
While Italy's Eurofighter cancellation comes as a disappointment to Finmeccanica, it may not be its biggest headache.
Over the past few weeks the company has been forced to repeatedly deny allegations of slush funds abroad and meetings between Guarguaglini and Rome businessman Gennaro Mokbel, who faces money-laundering charges in a probe by Italian prosecutors.
They are investigating whether Mokbel used a chain of holding companies to acquire a large stake in Digint with the help of a former Finmeccanica consultant, potentially using the stake to launder money, the Wall Street Journal reported earlier this month, citing people familiar with the matter.
Guarguaglini on Wednesday reiterated that the probe had no relation to Finmeccanica.
"I would like to point out that this investigation doesn't concern Finmeccanica. We only went in as person of interest," he said.
"We haven't done anything against the Italian law and are confident in the Italian justice system," he added.
Eurofighter cancellation acts as radar catalyst - MarketWatch
