Finmeccanica Moves To Forge U.S. Identity

May. 21, 2012 By ZACHARY FRYER-BIGGS   Defense News

As it consolidates to create savings amid shrinking global defense budgets, Italy’s Finmeccanica group is reorganizing its U.S. properties internally to find efficiencies and create a new, unified brand. The working title: Finmeccanica Defense.

“What defense companies need to do is to get ahead of the wave,” William Lynn, chief executive officer at Finmeccanica subsidiary DRS Technologies, said in an interview with Defense News. “You need to lower your cost structure in advance of any revenue declines, because if you don’t, your [profit] margins crash.”

Lynn, who was appointed CEO in January, is following a two-step plan, starting with the consolidation of DRS’s two units, and then creating an overarching identity for the collection of Finmeccanica’s U.S.-based subsidiaries to be led by DRS.

“We need to pull things together and manage it from a single headquarters with a single set of priorities and a unified voice to our customers,” said Lynn, who stepped down as U.S. deputy defense secretary in October.

The process should be concluded in 2013, he said. “We haven’t landed completely on names, but Finmeccanica itself has an overarching brand, and then AgustaWestland Helicopters, Alenia Aircraft and so on. We’ll have the same construct in the United States.”

Lynn said these two steps will result in a company with less overhead and greater efficiency.

“That gives us greater management agility, it gives us the ability to use all of our resources, and it’s lowered the cost structure,” he said.

The opportunity to consolidate comes not from long-term planning but rather a failure to unify the company following Finmeccanica’s 2008 acquisition of DRS. The result is a lack of identity for the company’s U.S. subsidiaries, experts said.

“Maybe in Europe they know who some of the constituent parts of Finmeccanica are, but in the United States, who the hell is Finmeccanica?” said Byron Callan, an analyst with Capital Alpha Partners. “There’s a branding exercise that they need to go through, or a rebranding exercise.”

The lack of brand recognition is a result of how the company has managed its foray into the U.S. market, said Loren Thompson, chief operating officer of the Lexington Institute, Arlington, Va., and a consultant to defense companies.

“It has almost no identity in the United States because it hasn’t pursued a consolidated brand,” he said. “This should be one of the world’s great brands, and yet it has been fragmented and not brought together in the popular mind.”

As a result, opportunities envisioned as part of the DRS acquisition have not appeared, Thompson said.

“When Finmeccanica bought DRS, it thought that it would give the American company access to the global market, and the Italian parent access to the U.S. market,” he said. “Things haven’t really worked out the way that the company planned. The Italian parts of Finmeccanica don’t have much of a footprint in America, and DRS does 90 percent of its sales in the U.S.”

By realizing cost savings, Lynn hopes to help the world’s eighth-largest defense contractor claim more than its current fraction of the U.S. defense market.

“You can try to ensure that whatever revenue level you’re at, your cost structures allow you to make a healthy margin, so that you’re a moneymaking operation and an attractive investment for shareholders,” he said.