This year's Euronaval has seen significant events and presentation, including the Fincantieri-Naval Group agreement. The Italian presence has been consistent as usual, with numerous companies showcasing their latest products. Nonetheless, the Italian defence industry could lose its prominence due to the government’s budget cuts of defence spending in a time of growing budgets in all of the NATO countries. Defence industry representatives are afraid that untimely budget constraints will have a detrimental effect on the sector and, worst still, they will deprive the country of a fundamental stimulus for its economy. In fact, the defence sector is one of the main drivers of technology innovation in Italy.
In an exclusive interview with Carlo Festucci, Secretary General of the Aziende Italiane per l’Aerospazio e la Difesa (AIAD) federation (*), Marco Giulio Barone on behalf of MONCh discusses the status of the Italian defence industry sector in the wake of recent cuts announced by the government.
*AIAD is the Federation, member of Confindustria, that represents the Italian Companies for Aerospace, Defence and Security. It includes almost all the national enterprises that operate with advanced technology in the design, production, research and services activities for the civil and military aerospace, military navy and army sectors along with all the related electronic systems connected to these sectors. AIAD maintains strong relationships with national, international or NATO related institutions in order to promote, represent and guarantee the interests of all its industries.
MONCh: To warm up, could you provide us with an overview of the Italian participation to Euronaval 2018?
Carlo Festucci (CF): As usual our presence is significant, and we have big expectations, starting with the French order for the Logistic Support Ships (LSS) based on a Fincantieri design. In addition, I consider utterly positive the remarks of French defence minister Florence Parly on French-Italian cooperation, and I think it underlines the quality of the output our defence industry companies are able to field.
MONCh: What is the status of the relations between the defence industry sector and the current government? How do they play out?
CF: In substance, relations between the government and the defence industry sector are based on institutional bounds, so it is unavoidable that all of the stakeholders have to constantly deal with each other. I believe there is nothing new in the way we work with the government in terms of methods or approaches. Rather, I would like to have a clearer view about the government’s intentions for what concerns the defence industry sector.
Italy has to deal with a complex scenario that sees the US asking for raising defence spending while the EU is working on strengthening cooperation amongst members in an attempt to flesh out EU defence capacities. Albeit these issues have long term implications, European countries are already working on agreements at the political level to respond to such trends. Evidently, political-military planning has cascading effects on the defence industry sector. In this field as well, industries will have to find deals consistent with the political agenda.
Therefore, should Italy participate to main programmes and should it allocate enough resources to stay in the club of prominent European countries, then there would be room for playing a protagonist role. Instead, should Italy downplay the issue, the country will not be amongst those driving aggregation but, rather, amongst those that will have to follow on. And this would create problems to many of our companies that do have the capacities for leading.
For this reason, it is fundamental that the government established a clear vision on industrial politics. We need the country’s bodies to work in a coordinated way, so that the other stakeholders (including industry) can follow and we can deliver on key issues as a system. For instance, the EU has allocated consistent resources to PESCO programmes. The Italian defence industry has the skills and the technology to participate, but it needs also resources, a favourable system of alliances, and coordination with other countries. Without these conditions, defence industry companies will be unable to participate even when they possess adequate technological capabilities, and Italy will be cut out. Hence, there are important decisions to be taken, and our companies need to know what the government’s strategy and position is. The defence industry sector cannot afford superficial approaches to defence policies, and today it is detrimental to put the issue on hold. Furthermore, to cut funds here and there without a clear strategy in mind is counterproductive.
MONCh: Isn’t the government doing enough to sustain national defence industry companies, in your opinion?
CF: I invite the government to bear in mind how our sector works. Armed forces are the main driver of our companies’ workflow, so when selecting programmes, the government should take into consideration what capacities the armed forces need to field. Defence industry companies work in the wake of what armed forces need. So, cutting arbitrarily defence programmes without telling what missions and tasks armed forces are expected to perform (and according to which industry produces its output) is inconsistent as a strategy.
There is no country in which armed forces are not in close relations with defence industry, and both actors are usually supported by the whole country in performing their duty at the service of the community. In this sense, budget cuts announced by the government look everything but smart, as they do not seem motivated by specific postures in foreign politics, industrial policies or defence policies. They look like mere ideologically driven cuts made for showing to the electorate that the government is committed to reduce defence spending. Instead, modification to defence spending should be done considering that defence industry needs to export to be sustainable. To successfully export it needs to be backed by the country, it needs to pledge financial capital to research in technology (to be in line with major players), and so forth. I am confident that there is no government that does not understand how these dynamics play out, so I hope that - beyond the political dynamics - the government will be able to come back to reasonable positions.
MONCh: Substantiating military postures takes years, and so do military programmes. Most of them go on throughout several governments, and for this reason most western countries rely on medium or long-term programmatic agendas. In the Italian case, is it possible to have a durable agenda that is not utterly reshaped any time government changes? How does Italy tell its allies what direction it is taking?
CF: The simple answer is that defence industry reasons in terms of “what’s next in the 20 years to come?”. So, we absolutely need solid agendas, which implies having clear goals and financially sustaining their pursuit throughout time.
Unfortunately, the answer to the specific Italian case is much more complicated than this, as each government that goes to power dismantles any legacy policy action established by the previous government. This attitude impacts a number of other industries, but the defence sector is amongst the most concerned. This is a tragic error.
Naturally, modifications are always possible according to each government’s understanding of foreign politics. But there are some structural dynamics that should not be simply disrupted from one day to another. For instance, the CAMM-ER programme was a key enabler of our country’s air defence, as legacy assets have to be retired by early 2020s. Should the programme be cancelled, as it looks to have happened, the country will experience a shortfall in its ability to provide basic defence of its airspace and of its operations abroad. I believe a fundamental programme like that cannot be erased from one day to another just because of ideological reasons or just because the previous government had approved it.
In cases like this one, each government should reason in terms of Italian best interest, regardless of its political colour. Governments change, but strategic choices for the long term cannot change from one year to another – otherwise they are no longer strategic. Some modifications can be done, some choices can be reoriented or tweaked for better coordinating with allied countries, but an utter reshape is counterproductive for the country’s best interest.
Furthermore, current moves against the defence industry sector are hard to understand. Investing in defence brings resources to Italy in terms of business, as it brings back investment, jobs, and export. Moreover, our industrial capacity is a key enabler for the country’s foreign politics. Being awarded important contracts in the US, Qatar, Kuwait, or elsewhere is much more than simple business. It means securing an Italian presence in key strategic areas of the world. Business is often a bridge for later developing political dialogue in geographic areas of interest. Today defence industry and the government are not putting the issue in these terms. Maybe things will change shortly, but for now it seems to have to do with a provincialist approach. Unfortunately, our sector cannot afford provincialism, as defence is about future perspective, significant alliances, and technological advancement. We are forced to reason in a strategic way to survive.
MONCh: Thank you for the big picture. How does the current trend impact on granular aspects? I would like you to depict what happens to companies you represent when cuts occur.
CF: The most immediate and concrete impact is the loss of jobs. The current government has focused on allocating resources for solving the problem of unemployment through measures such as the “citizenship income”. If necessary funds for that are found through cutting support to enterprises, the result will be to create another wealth of unemployment. All people that will be fired because of the government’s cut will need assistance. We risk to structurally produce unemployment, instead of solving the problem. Therefore, the current choice seems to cut resources to sectors that employ plenty of people, and that could employ much more highly skilled worked (**). On the contrary, cutting means leaving at home highly skilled workers that will hardly find a similar employment when the sector will become smaller and smaller because of cuts. Losing jobs is very easy, to recover is much harder and takes time.
**According to the Italian Trade Agency (ITA) – also known as Istituto per il Commercio Estero (ICE)- Italian defence industry companies employ more than 60.000 workers (200.000 in the related supply chain) with a turnover worth 16 billion euro.
In addition to jobs, a technology gap will occur, especially for what concerns research activities. And in our sector, these are shocks that are hard to compensate for. Should our level of technology innovation lag behind competitors, Italian defence industry would lose in relevance. Frankly speaking, defence industry is one of the few high-technology sectors in Italy capable of generating widespread wealth. Therefore, losing ground in this sector is harmful for the whole country. The Italian production of high-technology systems, most of which dual-use, is something we should be proud of.
MONCh: Cuts happen to every country and to every sector. Why do you deem the situation so terrible?
CF: I am not criticising cuts per se; I do not approve the absence of a clear method to decide what and how to cut.
For instance, the F-35 programme has been hardly criticised for years. I believe that to increase acceptance of the programme we could negotiate better conditions and we can still reach out to the US to try to obtain more in terms of economic impact for our country. We cannot cancel the programme; armed forces need it and our companies responded to that need. To do that we pledged big amounts of money and we built specific facilities to serve also other European countries. This notwithstanding, I do see the point that the country might need to reduce its economic commitment to favour something deemed more urgent. Should armed forces and/or the government agree that the CAMM-ER has a higher priority over the F-35 programme, I would understand underlying reasons for such a move, as the CAMM-ER is a relevant asset for our air defence capacities. The role of the industry would be therefore to be ready to serve the country by providing what the government and armed forces need. Instead, with no method nor strategic reasoning, we risk messing up everything. This kind of choices should not be a matter of political colour. Rather, these evaluations should be carried out as nation-wide effort to protect our best interest.
I hope the government will not permit that the defence industry sector falls into pieces and that it will be capable of letting us play as protagonists in Europe and in the world instead of cutting down our role to ancillary of the others. We have companies such as Leonardo, Fincantieri, Elettronica, and plenty of small and medium enterprises that have the right and the duty to survive in the best interest of our country.
MONCh: Thank you!