The Italian’s job

Posted on 6 Apr 2011 by The Manufacturer

Alberto de Benedictis’s challenge exemplifies the manufacturing riddle faced by the Government and large parts of manufacturing in the UK. He needs to finesse three, at times contrary, forces: the need for more advanced manufacturing to help balance the economy; the demands of a foreign-owned, publically listed parent company; and a dwindling defence budget. He talks to Will Stirling.

An Americanised Italian based in London, Finmeccanica UK’s chief executive has become an accomplished broker of complex situations. Alberto de Benedictis runs what is now the second largest defence company in the UK, balancing the interests and needs of Finmeccanica’s diverse portfolio of UK companies – covering helicopter, radar and avionics manufacture, and more – with the requirements of the giant Finmecannica Group.

He is on the board of manufacturers’ organisation EEF and the aerospace, defence and security association, A|D|S, and has spoken to the Government directly on industrial strategy matters. Through these channels, he strives to get the clearest picture of his biggest client’s plans, at a time when the budget of that client, the UK Ministry of Defence, is being squeezed. Finmeccanica is a highly diversified conglomerate, but in the UK it is largely – although not wholly – dependent on the spending decisions of the MoD.

For those outside the defence sector, it is hard to appreciate Finmeccanica UK’s reach. The company became better known here in 2000 following the merger of GKN-Westland Helicopters and Finmeccannica’s subsidiary Agusta, but for many it is not a household name like BAE Systems or Rolls-Royce (Finmeccanica now owns all of AgustaWestland). Visit the Farnborough International Airshow, however, and its pavilion dominates the airfield near one of the main entrances. Of the 10,000 people it employs in the UK, 3,700 are engineers or scientists. Turnover in the UK in 2010 was about £2.3bn. It is primarily an advanced manufacturer “at the top end, especially prime contracting, large systems integration within the helicopter business and a lot of electronics work, the design and assembly of complex subsystems,” says Mr de Benedictis. “We work with about 1,500 UK SMEs and typically outsource over 70 per cent of production into the supply chain.”

What is not sold to the MoD is exported, mainly to the US and Europe. Other markets have developed, for example it has recently sold helicopters for non-military applications to China.
The company’s importance to the UK defence industry and supply chain should not be underestimated. The Finmeccanica owned SELEX companies – SELEX Galileo, SELEX Communications and SELEX Sistemi Integrati – have Italian sisters, but are all based in the UK, at sites in Edinburgh, Basildon and Luton with smaller sites elsewhere.

SELEX Galileo makes nearly 60% of all avionics for the Eurofighter Typhoon (an aircraft receiving heavy press coverage for its vital role in the Libyan crisis); and plays a lead role in the electronics consortia on the Captor-M Radar system; the Praetorian Defensive Aids system, which detects threats and issues countermeasures; and the PIRATE Infrared Search and Track (IRST) system.

Then there is missile manufacturer MBDA, formed in 2001 from the merger of EADS, Finmeccania (25%) and BAE Systems.

In short, while the company is diversified, much of its UK proposition is built around its core defence business. Given de Benedictis’s board roles at EEF and A|D|S, how is government responding to Finmeccannica’s calls for more clarity? The Manufacturer spoke to Alberto de Benedictis about his company’s UK investment programme, its Centres of Excellence, defence cuts and his hopes for a more visible long term industrial picture.

Where does the UK sit in Finmeccanica’s global strategy?
“From my professional point of view, the UK is the right bridge between continental Europe and the US. It has been in the financial sector, but also in other areas. Finmeccanica has made a big investment in the US, with more than 12,500 people there now. The US works well with the UK; it adds value to having a strong UK base as well. The UK MoD of course is extremely important to us.”

Where are you investing: in R&D, for example?
“Setting up the production line for the AW159 Lynx Wildcat costs tens of millions of pounds. We will start delivering this to the MoD by the end of 2012, beginning of 2013.

“We have a sizeable capital investment in our electronics companies. In radar, for instance, SELEX in Edinburgh has a lot of clean rooms, which are expensive. The company builds complex electronic assemblies, including radars and laser systems used in countermeasure production and targeting systems. We also develop new types of manufacturing processes.

For example we’ve recently started work on a simulation system to model molten metal flows. It tests how different temperature and pressure conditions will affect the flow of metal in sophisticated, high pressure castings used in avionics turrets with our sensor systems, where tolerances are very minimal. Not many companies do this kind of simulation and development.

Another example is AgustaWestland’s part in the British Experimental Rotor-blade Programme [BERP], now in its fourth generation, to develop advanced composite helicopter blades. The manufacturing process is very sophisticated, says de Benedictis.

“The blades, effectively the helicopter’s wings, are subject to extreme conditions where the tips move at almost supersonic speed. The manufacturing process, applying materials in different layers, improve the life of the aircraft and the efficiency of movement. We believe we have among the most advanced technology in this area in the world.”

Centres of Excellence assist exports
Finmeccanica UK has six centres of Research & Technology excellence. The first, for hard blade capability in Yeovil, is researching beyond BERP Phase 4, where the company works with several universities in this area. The other Centres are in radar; thermal imaging – or night vision – technology; cryptology, used for secure communications; electronic countermeasure and counter IED equipment for the MoD.

“These are considered world class technology centres by any standard,” says de Benedictis.

“This is important because it provides the UK MoD with a unique capability but is also a good export opportunity for the UK. The measure of success is the sizeable increase in exports into US Department of Defense programmes, where we operate principally through UK primes, but also through Lockheed Martin and Northrop Grumman. Our exports from UK to US ran to £500m last year, and have increased in the last five years by 200 per cent. The UK MoD has adopted, and therefore showcases, some of these capabilities and due to it being a reference customer it increases the opportunity for us to sell to UK’s allies.”

Insuring your investment: apprenticeships and skills
“In this country there is a very strong science and technology community…but we always worry about the UK’s skills base. Over the years it has been very difficult to find the right STEM candidates.

We have made a concerted investment to ensure that we have the right skills and we build consistent relationships with academia. We work with 27 UK universities, in different fields – it underlines the importance of the scientific infrastructure that you need if you want to operate a World Class capability of this kind.

“Across the UK we’d typically have 250 apprentices, 120 graduates and post-graduates going through our programme at any one time, the greater part of which are in engineering and sciences. The apprenticeship training is a big but a very high quality investment. We were awarded ‘Outstanding’ by Ofsted for the quality of the apprentice programme in 2009, which signifies that we’re doing the right thing.

“Our apprenticeship programme lasts about four years, and we’ll invest 2-3 years minimum in our graduate and post-graduate engineers programme. It’s why the average wage for degree-educated people in our sector is significantly higher, about £40,000, than the average graduate manufacturing wage.

“In the skill sets we seek there is always a lack of appropriate skills. At the moment we haven’t seen a depressed market for these kind of people, but we still see a gap in the demand and supply for these jobs. Aerospace and defence are fungible, so there is a natural defection of people from defence to aerospace when defence is under pressure.”

How does the UK compare with Europe in the calibre of job candidates?
“In the UK, engineering has not been seen as a profession in the same way as in continental Europe. My bigger worry, can we keep these businesses engaged with the customer community in the UK, in light of the financial constraints that the UK public sector is facing? We have to accept the fact that this will put pressure on defence contractors in the UK.

Exports are not going to cover all of the expectations so we are going to have to continue to rely on government defence spending. We are trying to maintain a level of excellence in our business that hopefully will provide the discriminator. With those come pressures to reduce costs, and improve efficiencies, and we’ll work to meet those.”

How has Finmeccanica been hit by specific defence programme cuts?
“Nothing is ringfenced. My assumption is that those programmes that deliver the capabilities that need to be retained as prescribed by the SDSR will continue, and we hope, and expect, that most of the programmes we’re involved with are within that envelope. Clearly there may be reductions in some areas, for example a drop in Tornado numbers where we provide a lot of support, and Harrier is terminated, which has affected some areas of our business. We invest for the long term – its visibility that we need, and that is what the Government indicated would be available with the SDSR, the CSR planning rounds and subsequent White Paper on defence industry and technology policy, expected later this year.

As far as the Green Paper consultation, there is an increasing emphasis on off-the-shelf purchases and competitive pricing. We have never shied away from either. But these approaches will affect the industrial base, which is high technology. Without defence spending by the UK Government it’s going to be very difficult if not impossible to retain the skills required to feed this base. While I’m not advocating an industrial policy I’d like to see how the Government wants to deal with the footprint that is there, and how we can ensure that this footprint evolves in the right direction. The defence industry in the UK is a very large part of the UK’s advanced manufacturing base – you cannot divorce the two.”

Are you confident that with the Growth Review for Advanced Manufacturing and the SDSR, and the Green and White Paper, the Government can articulate such a long term strategy?
“Reading the tea leaves in the Green Paper, I would say no. If I interpret the interest from senior government officials about promoting advanced manufacturing in the UK, I’d say yes.

The question is how to develop a policy that encourages that. The Government is trying to devise the right formula.

“I feel – because this is where my investment is – that the defence industry is not necessarily well understood by the Government, yet, and its contribution to the advanced manufacturing agenda is not appreciated. This is where the effort, on my part needs to be, so we at least are all starting from the same informed base.

Because if we’re not, then policy decisions can be made but they may not do the bidding that we want them to. This is where I’m most closely involved, with A|D|S and EEF, and I’d include the CBI. They’ve worked hard, and we’ve supported their effort, to spread the understanding in an environment with such a big change in government, in direction, in strategy, with the big constraints of the Budget.”

How does the company engage with government?
“We communicate to Government through those three bodies and, where appropriate, directly. We talk to our MPs regularly and we invite them to our facilities. It will take a while – it is impossible to appreciate sitting behind a desk in Whitehall what is involved in creating these systems and the products we create.”

Biography – Alberto de Benedictis

School of Economics of La Sapienza University, Rome Georgetown University School of Foreign Service, Washington D.C.

Economist at the World Bank, Washington

Joins Finmeccanica in New York

Appointed North American representative

Senior vice president, North America

Senior vice president, Strategic Finance at corporate HQ in Rome. Responsible for the recapitalisation and privatisation of the company, through one of the largest equity offerings in Europe in 2001.

Appointed head of business development for Finmeccanica Group

Head of USA/UK Operations

Alberto has held board positions in NASDAQ and NYSE-listed companies, and has served on audit, remuneration and strategy committees of these Boards. Outside work, he provides time and advice to the American Academy in Rome, a charity which provides American artists and writers with fellowships to live and work in Rome. He is married and has three children.

CEO performance check

Ask around the defence industry, the message is that Alberto de Benedictis has done a good job, consolidating several disparate businesses into a group that has become the UK’s second biggest defence company. The softly-spoken, American accented Italian is widely respected within the sector and his peers acknowledge that he lobbies the Government hard with EEF and A|D|S. He has been credited with making a success of AgustaWestland, given the costs and complexities associated with building three distinct aircraft platforms; the AW Merlin 101, Super Lynx 300 and the new AW159 Lynx Wildcat.

Italian companies tend to be quite patriotico. Finmeccanica is no exception – it has no non-Italian nationals on the main board, unusual for a big multinational, although in the UK senior management are largely British. But there was a fear among some commentators that, with the full acquisition of AgustaWestland and the merger of the SELEX and Galileo avionics businesses, some parts of Finmeccanica’s UK production would be ‘expatriated’ to Italy. This has not happened and the company is keen to point out the group companies in Britain are deep rooted here.

So has he got everything right? One defence insider said that the UK boss needs to sort out turnaround times on supplying overhauled helicopter parts to the Royal Navy and RAF, where it can take much longer than expected for parts like gearboxes to be repaired in Italy and returned. But overall this is a success story. The mélange of different companies that Finmeccanica has put together in the UK were not integrated, so as one commentator put it, “the potential for something to mess up was quite high. Considering the recession, the defence-heavy weighting and its position today, many people would have done much worse than Alberto.”

“What have the Romans ever done for us?”
Key facts: Finmeccanica in the UK

• Finmeccanica employs about 10,000 people, 3,700 of which are engineers or scientists
• The company has invested nearly £2bn in the UK since 1995 and is the largest overseas investor in the UK defence sector
• Operates from 16 different locations/sites across the country from Christchurch to Edinburgh
• Was the first defence company to sign a strategic partnering agreement with the UK MOD
• Is the largest Italian investor in the UK
• Is the third largest exporter of defence products in the UK
• Invests around £200m in research and development annually in the UK
• SELEX Galileo Edinburgh jointly won the Institution of Mechanical Engineers’ MX Award for Product Innovation in 2009, with Randox Laboratories