Sale of Westland – Finmeccanica Calling?
Now's The Time To Think Of The Consequences …

The announcement by GKN that it is open to selling its 50 per cent stake in the Anglo-Italian helicopter company, AgustaWestland, arguably marks a watershed in the down-sizing of the UK defence industry. For the pessimist, the probability that the stake will be bought by the other co-owner, Italy's state-owned holding company Finmeccanica, means that yet more of the UK's defence industry will have been "Wimbledon-ised" – that is to say, it will reflect the fact that most tennis players who play for Britain at Wimbledon are not Britishborn. Does this matter at all? After all, in the brave new world of the UK's defence industrial policy "ownership doesn't matter". But – very probably – it does.

Future UK-Based Helicopter Firm

Finmeccanica is interested in accessing the UK defence market – the largest open market in Europe – and has said so openly. If the Italian company gets hold of Westland, it will have a significant means of undertaking such an entry. But would a 100 per cent Finmeccanica-controlled Westland look the same as it does today? Almost certainly not. And the takeover would bring about rationalisation of Italian and British factories. So would anyone like to guess which side of the Alps this would favour? As our American chums would say in such a situation, "Go figure". Pound to a euro, areas such as design, development and research will be rationalised sooner rather than later. Anyone who does not realise that Italy is keen on industrial politics, and the protection and growth of its defence/aerospace industry, is kidding himself.

UK Market

GKN is another company that is, by its very actions, saying that the terms of trade in the UK defence market make it an unattractive option in the medium and long terms. So it isn't just BAES that thinks this, and tells the customer so to his face …. GKN is looking at the prospects of UK orders – Battlefield Lynx/Light Utility Helicopter (BLUH) and Support Amphibious and Battlefield Rotorcraft (SABR) – and seeing a bleak outlook as budget planning has cocked up the timing for both of these programmes. Those involved with budgets and procurement will say – high-mindedly – that it is not their responsibility to look after industrial matters.

Well, if there is no longer to be a significant UK-based player in the rotary-winged aircraft business, merely a build-toprint outfit, procurers will find their options for running competitions and driving down prices severely limited. Those who say that if the UK market for helicopters looks so desolate, why is Finmeccanica trying to access it, should remember that Agusta has a nice basket of Italian government helicopter work until such time as the UK comes back to improve its degraded support helicopter force. Rome understands industrial matters – and how to get the best from them.

Future Programme Negotiations

There is a simple rule of thumb: if a company's HQ is not in your own country, the possibility of exerting any influence on it is reduced by orders of magnitude. Rome, Chicago, Munich, it doesn't matter. Although the published UK defence industrial policy says that as long as companies maintain intellectual property in the UK, and maintain and grow good quality jobs here, this is based more on hope than anything else. If there are no UK-owned or UK-managed companies – and we all know what they would look like, and what a brass-nameplate company looks like, don't we – then there can be no real competition.

As soon as this sort of situation arises, the Ministry of Defence and the Defence Procurement Agency will find that many promises about jobs and IP will become hollow – with no prospect of the situation being turned around. Service personnel involved in procurement or equipment capability may say that industrial policy is not their responsibility – but they will be proven very wrong in the near term if they stick to this view. And forget talk by government of, "We will get assurances about jobs etc" – promises made before a takeover are rarely remembered or honoured later. If there is a business decision to make, forget what someone says in order to appease government.

US VX Programme

Interesting: GKN seems bearish about this programme – election year and all, so chances of a Merlin selection look slim. Finmeccanica seems to think that there is still a good chance, and also believes that Italian operations in Iraq mean that Rome can also leverage this into orders. And if it does win, then guess where it will undertake work originally destined for the UK.

Other Options

Might there yet be other bidders for Westland? Well, anything is possible. But, of course, Finmeccanica has first dibs on Westland, via pre-emption rights. The only question then would be whether the right price can be agreed. Then – and only then – if there is no agreement, would others step in. But in a market over-endowed with firms and facilities, is Westland a "must have" for, say, a US outfit?

Access to the UK market? Well, not having a facility here hasn't exactly harmed Boeing, has it? Would Sikorsky wish to buy, and create huge overlaps with its own portfolio? Bell might be a good candidate to diversify from its niches, but …...And would Eurocopter really be up for it either? The latter would be happy to see Westland disappear so as to help rationalise European helicopter manufacture. Again, not medium-term good news for UK procurers and planners.........

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• UK MoD Row With BAES
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• UK Defence Industrial Policy
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