Identifier
Created
Classification
Origin
02ROME6149
2002-12-27 17:31:00
CONFIDENTIAL
Embassy Rome
Cable title:  

MOD WHITE PAPER: DEFENSE INDUSTRY OVERVIEW

Tags:  PGOV PREL MARR MCAP MOPS IT NATO 
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C O N F I D E N T I A L SECTION 01 OF 02 ROME 006149 

SIPDIS

E.O. 12958: DECL: 12/26/2012
TAGS: PGOV PREL MARR MCAP MOPS PGOV PREL MARR MCAP MOPS IT NATO ITNATO
SUBJECT: MOD WHITE PAPER: DEFENSE INDUSTRY OVERVIEW

CONFIDENTIAL

PAGE 02 ROME 06149 01 OF 02 271744Z
REF: ROME 5430

CLASSIFIED BY: A/POLITICAL MINISTER-COUNSELOR GARY ROBBINS FOR REASONS
1.5 (B) AND (D)

C O N F I D E N T I A L SECTION 01 OF 02 ROME 006149

SIPDIS

E.O. 12958: DECL: 12/26/2012
TAGS: PGOV PREL MARR MCAP MOPS PGOV PREL MARR MCAP MOPS ITALY'>IT NATO ITNATO
SUBJECT: MOD WHITE PAPER: DEFENSE INDUSTRY OVERVIEW

CONFIDENTIAL

PAGE 02 ROME 06149 01 OF 02 271744Z
REF: ROME 5430

CLASSIFIED BY: A/POLITICAL MINISTER-COUNSELOR GARY ROBBINS FOR REASONS
1.5 (B) AND (D)


1. (C) SUMMARY. ITALY'S 2002 DEFENSE WHITE PAPER (WP)
PRESENTS THE DEFENSE INDUSTRIAL SECTOR AS A PILLAR OF ITALIAN
NATIONAL SECURITY. THE NATIONAL ARMAMENTS DIRECTOR HAS
OVERALL RESPONSIBILITY FOR DEFENSE PROCUREMENT AND
NEGOTIATING INTERNATIONAL DEFENSE INDUSTRIAL COOPERATION
ACCORDS. STATE-CONTROLLED COMPANIES AND A FEW LARGE PRIVATE
FIRMS DOMINATE THE DEFENSE SECTOR, ALTHOUGH A HANDFUL OF
HIGHLY SPECIALIZED NICHE CONTRACTORS ARE COMPETITIVE. THE
GOI SHOULD CONTINUE TO FUND PROGRAMS TO HELP INCREASE EXPORTS
AND MARKET COMPETITIVENESS, AND NEEDS TO SPEND MORE ON BASIC
R&D, ACCORDING TO THE WP. THE WP CALLS FOR GREATER
INTRA-EUROPEAN COORDINATION OF DEFENSE INDUSTRIAL POLICY, BUT
AT THE SAME TIME AFFIRMS THAT ITALY WILL CONTINUE TO RELY ON
THE U.S. FOR SOME KEY DEFENSE SYSTEMS. DEFENSE MINISTER
MARTINO IS COMMITTED TO RATIONALIZING ITALIAN DEFENSE
PROCUREMENT AND SPENDING SCARCE FINANCIAL RESOURCES ON
BOLSTERING ITALY'S BATTLEFIELD CAPABILITIES. THE
COUNTERVAILING NEED TO PROTECT ITALY'S INDUSTRIAL BASE AND
JOBS LIMITS HIS ROOM FOR MANEUVER, HOWEVER. END SUMMARY.


2. (U) THIS IS ONE IN A SERIES OF REPORTS ON ITALY'S 2002
WHITE PAPER (WP) ON DEFENSE. THE WP SETS OUT THREE PILLARS
OF ITALIAN NATIONAL SECURITY: DEFENSE INDUSTRIAL POLICY,
FOREIGN POLICY, AND MILITARY POLICY. UNDER THE MINISTER OF
DEFENSE, THE NATIONAL ARMAMENTS DIRECTOR (NAD),CURRENTLY
ADMIRAL GIAMPAOLO DI PAOLA, IS RESPONSIBLE FOR DEFENSE

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PAGE 03 ROME 06149 01 OF 02 271744Z
PROCUREMENT. THE PROCUREMENT BUDGET IS FUNDED THROUGH
MULTIPLE APPROPRIATIONS, INCLUDING THOSE FOR THE MINISTRY OF
PRODUCTIVE ACTIVITIES (MPA). IN ADDITION TO ACQUISITIONS,
WHICH ARE BASED ON PROGRAMS DEFINED BY THE CHOD, DI PAOLA
DIRECTS RESEARCH AND DEVELOPMENT AND HAS RESPONSIBILITY FOR
SOME 500 PERSONNEL IN THE NATIONAL ARMAMENTS DIRECTORATE. AS
THE ITALIAN NAD, DI PAOLA TAKES THE LEAD IN NEGOTIATING
BILATERAL AND MULTILATERAL ACCORDS ON DEFENSE INDUSTRIAL
COOPERATION.


3. (U) THE MAJOR STATE-CONTROLLED DEFENSE CONTRACTORS ARE
FINCANTIERI (SHIPBUILDING) AND FINMECCANICA (AEROSPACE,
HELICOPTERS, ELECTRONICS, ENERGY, AND TRANSPORT),WHICH
INCLUDES ALENIA DIFESA AND ALENIA AERONAUTICA, AND ALENIA
SPAZIO. THE LARGEST PRIVATE FIRMS ARE FIAT AVIO (VEHICLES,
PROPULSION SYSTEMS, AND ELECTRONICS); ELETTRONICA (ELECTRONIC
WARFARE, AVIONICS); MACCHI (TRAINING AIRCRAFT); BERETTA
(SMALL- AND MEDIUM-CALIBER WEAPONS); AND INTERMARINE (NAVAL
CONSTRUCTION). THE WP PUTS MARCONI (ELECTRONICS AND
COMMUNICATION) IN THIS CAMP, BUT FINMECCANICA IS NOW IN THE
PROCESS OF REABSORBING ITS FORMER SUBSIDIARY. TOGETHER,
THESE FIRMS ACCOUNT FOR 80 PERCENT OF ITALY'S NATIONAL
DEFENSE REQUIREMENTS, PROVIDE APPROXIMATELY 30,000 JOBS, AND
EXPORT EQUIPMENT AND MATERIEL WORTH SOME 1.6 BILLION EUROS
ANNUALLY, ACCORDING TO THE WP. (COMMENT: A HANDFUL OF SMALL-
AND MEDIUM BUSINESSES HAVE DEVELOPED INTO SPECIALIZED
PROVIDERS OF ADVANCED TECHNOLOGY DEFENSE EQUIPMENT, SUCH AS
THE ROME-BASED SOFTWARE SYSTEMS ENGINEERING FIRM, DATAMAT.
THESE FIRMS HAVE TYPICALLY SERVED AS SUBCONTRACTORS TO
FINMECCANICA, BUT MORE THAN A DOZEN ARE COMPETING
INDEPENDENTLY FOR JSF CONTRACTS UNDER THE "BEST VALUE"
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PAGE 04 ROME 06149 01 OF 02 271744Z
CONTRACT AWARD SYSTEM. END COMMENT.)


4. (U) THE GOVERNMENT SUPPORTS THE DEFENSE INDUSTRIAL
SECTOR THROUGH A JOINT PUBLIC GOVERNMENT-PRIVATE SECTOR
COMMITTEE CHAIRED BY THE DEFENSE MINISTER, ACCORDING TO THE
WP. WITHIN THE COMMITTEE, OFFICIALS FROM ACROSS THE GOI WORK
WITH REPRESENTATIVES FROM ACADEMIA AND THE HIGH-TECH SECTOR
(VIA THE ASSOCIATION FOR AEROSPACE DEFENSE INDUSTRIES) TO SET
OVERALL DEFENSE INDUSTRIAL POLICY, PROMOTE EXPORTS, AND
COORDINATE ASSISTANCE TO ITALIAN FIRMS COMPETING FOR
INTERNATIONAL ARMS CONTRACTS. THE MPA, WITH ITS SUBSTANTIAL
BUDGET FOR AIDING ITALIAN INDUSTRY, PLAYS A KEY ROLE ON THE
COMMITTEE. THE GOI HAS ALSO AIDED THE DEFENSE INDUSTRIAL
SECTOR'S ORGANIZATIONAL AND FINANCIAL RESTRUCTURING WITH
INTERVENTION TO HELP FINANCE DEVELOPMENT, INCREASE
INTERNATIONAL COMPETITIVENESS AND MARKET ACCESS, AND BETTER
FOCUS COMPANIES ON END-USERS. BUILDING A STRONGER MILITARY
R&D BASE IS ANOTHER GOI PRIORITY, ACCORDING TO THE PAPER.
HOWEVER, IT ACKNOWLEDGES THAT EVEN THOUGH ANNUAL SPENDING HAS
INCREASED TO 130 MILLION EUROS, ITALY STILL APPROPRIATES MUCH
LESS THAN OTHER MAJOR EUROPEAN COUNTRIES.


5. (U) ACCORDING TO THE WP, ITALY HAS SIGNED 48 BILATERAL
DEFENSE INDUSTRIAL COOPERATION AGREEMENTS WITH COUNTRIES AS
DIVERSE AS FRANCE, GERMANY, RUSSIA, CHINA, AND SAUDI ARABIA.

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CONFIDENTIAL PTQ1466

PAGE 01 ROME 06149 02 OF 02 271745Z
ACTION EUR-00

INFO LOG-00 NP-00 AID-00 AS-01 ACQ-00 CIAE-00 COME-00
DOTE-00 SRPP-00 DS-00 EAP-00 EB-00 FAAE-00 VC-00
FRB-00 H-01 TEDE-00 INR-00 IO-00 L-00 VCE-00
AC-01 NRRC-00 NSAE-00 NSCE-00 OIC-02 OPIC-01 PA-00
PM-00 PRS-00 ACE-00 P-00 SCT-00 SP-00 IRM-00
STR-00 TRSE-00 USIE-00 EPAE-00 SSD-00 PMB-00 DSCC-00
PRM-00 DRL-02 G-00 SSR-00 NFAT-00 SAS-00 /008W
-------------- 1D67C7 271745Z /38
R 271731Z DEC 02
FM AMEMBASSY ROME
TO SECSTATE WASHDC 7508
INFO EUROPEAN POLITICAL COLLECTIVE
AMCONSUL FLORENCE
AMCONSUL MILAN
AMCONSUL NAPLES
SECDEF WASHDC
HQ EUCOM VAIHINGEN GE
JOINT STAFF WASHDC
DIA WASHINGTON DC

C O N F I D E N T I A L SECTION 02 OF 02 ROME 006149

SIPDIS

E.O. 12958: DECL: 12/26/2012
TAGS: PGOV PREL MARR MCAP MOPS PGOV PREL MARR MCAP MOPS IT NATO ITNATO
SUBJECT: MOD WHITE PAPER: DEFENSE INDUSTRY OVERVIEW

TWELVE MORE ARE CURRENTLY BEING NEGOTIATED. THE GOI SUPPORTS
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PAGE 02 ROME 06149 02 OF 02 271745Z
COORDINATION OF DEFENSE INDUSTRIAL POLICY AT THE EUROPEAN
LEVEL -- THROUGH OCCAR, LETTERS OF INTENT, AND THE WEST
EUROPEAN ARMAMENTS GROUP -- BUT ACKNOWLEDGES THAT IT IS STILL
INCHOATE. THE WP ARGUES THAT JUST AS IT MAKES LITTLE SENSE TO
DO NATIONAL DEFENSE PLANNING WITHOUT FOCUSING ON
INTER-SERVICE OPERABILITY, THE INCREASING OVERLAP BETWEEN
ITALY'S NEEDS AND THOSE OF ITS EUROPEAN PARTNERS MAKES
INTRA-EUROPEAN PLANNING ESSENTIAL. HOWEVER, THE GOI WANTS
THIS ACCOMPLISHED IN A WAY THAT COMPLEMENTS RATHER THAN
COMPETES WITH THE NATO PLANNING PROCESS.


6. (U) COMMERCIALLY, ITALIAN FIRMS ARE LOOKING FOR
OPPORTUNITIES TO PARTNER WITH THEIR EUROPEAN COUNTERPARTS
ALONG THE LINES OF THE APRIL 2001 AGREEMENT AMONG
FINMECCANICA, EADS, AND BAE SYSTEMS TO COOPERATE ON MISSILE
DEVELOPMENT, ACCORDING TO THE WP. (COMMENT: FRUSTRATED WITH
THEIR INABILITY TO STRIKE EQUITABLE ACCORDS WITH EUROPEAN
CONTRACTORS, ITALIAN DEFENSE CONTRACTORS ARE INCREASINGLY
LOOKING TO PARTNER WITH U.S. COMPANIES SUCH AS BOEING AND
LOCKHEED, WHICH ARE VALUED FOR THE ADVANCED R&D THEY BRING TO
BEAR ON PROJECTS, THE HIGH QUALITY OF PRODUCTION, AND THE
BENEFITS OF TECHNOLOGY TRANSFER. FOR EXAMPLE, BOEING AND
OTOMELARA/FINMECCANICA RECENTLY AGREED TO BEGIN CO-PRODUCTION
OF JOINT DIRECT ATTACK MUNITIONS IN MARCH 2003. END
COMMENT.) WHILE THE GOI WILL LOOK TO THESE ALLIANCES FOR
PROCUREMENT OPPORTUNITIES, THE WP ACKNOWLEDGES THAT ITALY
WILL CONTINUE TO RELY ON THE U.S. MARKET AS A KEY SOURCE FOR
DEFENSE EQUIPMENT AND TECHNOLOGY BECAUSE OF THE COMPETITIVE
ADVANTAGE HELD IN MANY SECTORS BY AMERICAN CONTRACTORS.


7. (C) COMMENT: MINDEF MARTINO IS COMMITTED IN PRINCIPLE
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PAGE 03 ROME 06149 02 OF 02 271745Z
TO RATIONALIZING ITALIAN DEFENSE PROCUREMENT AND TO SPENDING
SCARCE FINANCIAL RESOURCES ON BOLSTERING ITALY'S BATTLEFIELD
CAPABILITIES. RECENT ACTIONS (A400M WITHDRAWAL),AGREEMENTS
(JSF LEVEL II PARTNERSHIP),AND PURCHASES (BOEING 767
TANKERS) SUGGEST THAT ITALY IS INDEED MOVING IN THE RIGHT
DIRECTION. HOWEVER, ITALY IS OVERSTRETCHED IN TERMS OF
PROGRAMS THAT ARE ENTERING THE LATTER STAGES OF PRODUCTION,
SUCH AS THE EUROFIGHTER COMBAT AIRCRAFT, AND WILL HAVE TO
MAKE SOME HARD BUDGETARY CHOICES OVER THE NEXT 2-3 YEARS.


8. (C) COMMENT CONTINUED. PER REFTEL, MARTINO IS TRYING TO
SHIFT EVEN MORE OF THE PROCUREMENT BUDGET TO THE MPA AND
OTHER MINISTRIES. WHILE CURTAILING PARTICIPATION IN SOME
EUROPEAN COLLABORATIVE PROGRAMS MIGHT MAKE SENSE FROM A
COST-BENEFIT STANDPOINT, THIS RUNS COUNTER TO THE INTERESTS
OF ITALY'S STATE-DOMINATED AEROSPACE AND DEFENSE INDUSTRY.
MOREOVER, WITH FIAT'S AUTOMOBILE SECTOR IN DIRE STRAITS, THE
GOI WILL BE EVEN MORE AVERSE TO RISKING THE EROSION OF
ITALY'S INDUSTRIAL BASE AND SACRIFICING JOBS FOR ECONOMIC
EFFICIENCY. IT ALSO MAY WELL BE A POLITICAL BRIDGE TOO FAR
FOR A GOVERNMENT THAT, DESPITE ITS PRO-U.S. BENT, STILL
CLAIMS SOME COMMITMENT TO BUILDING A COMMON EUROPEAN DEFENSE.
SEPTEL WILL FOCUS ON IDENTIFYING MORE PRECISELY THE TRENDS
WITHIN THE ITALIAN DEFENSE INDUSTRY, COMMERCIAL AND
GOVERNMENTAL ALLIANCE STRATEGY, AND THE NEXUS BETWEEN
DOMESTIC POLITICS, BUSINESS IMPERATIVES, AND DEFENSE
INDUSTRIAL POLICY. END COMMENT.

SEMBLER

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2002ROME06149 - Classification: CONFIDENTIAL