Sunday, June 5, 2011

A Flash of Opportunity

ROME - The Via Tiburtina, the old Roman road that heads east out of the Italian capital, is home today to various Finmeccanica outposts. But amid the units of the state-controlled giant stands Elettronica, the small family-run firm that has become a leading light on Europe's electronic warfare scene.
Sixty years after its founding, Elettronica is pushing into a new market it believes will help secure its future: infrared (IR) countermeasures for aircraft that do a better job than flares at playing havoc with the IR guidance systems of shoulder-fired missiles.
"With directional infrared countermeasures [DIRCM], we will be covering transport aircraft, helicopters and VIP platforms ... so we are moving into the world of homeland security," CEO Enzo Benigni said. "We see the market value for DIRCM rising above the 1 billion euro [$1.44 billion] mark."
Elettronica's supply of electronic warfare (EW) systems to large European programs like FREMM frigates, the NH90 helicopter and the Eurofighter Typhoon has allowed it to build revenue from 165 million euros in 2006 to 195 million in 2010. But Benigni knows the likes of the Typhoon program are due to wind down, and has been seeking new opportunities.
The firm's new DIRCM product, the ELT/572, is based on technology initially developed by Elbit Systems. Elettronica jointly funded the program and is now co-owner, divvying up potential markets with the Israeli company.
"Elbit proved to have the most advanced know-how to develop and industrialize the DIRCM, based on fiber laser, dual-color principles," Benigni said.
South America, India and the Middle East are key markets, he said. But the launch customer is the Italian Air Force, which has signed a 25 million euro contract to install five ELT/572 systems, each based on two turrets, on C-27J and C-130J transport planes and AW101 utility helicopters.
The ELT/572 also may be flown on the Air Force's new 767 tankers, P180 VIP/light transport and ATR maritime patrol aircraft and the Army's new Chinook helicopters.
Gen. Giuseppe Bernardis, chief of the Air Force, has said that Northrop Grumman DIRCM was unavailable in time for military export.
With its own product, Elettronica can exploit the demand for systems that lack U.S.-made components subject to Washington's International Traffic in Arms Regulations. The company also may stress the technical advantages the ELT/572 offers, with officials citing a potentially faster reaction time between the missile warning alert and the laser flash.
The new countermeasures work follows a series of joint initiatives planned with Israeli industry, a useful partnership for Italian industry after it was excluded from EW workshare on the international F-35 Joint Strike Fighter.
"Our work on Eurofighter helped us evolve to a level that gives us an undisputed technological advantage," Benigni said.
If Italy decides to acquire a new signals intelligence aircraft and opts for Israeli systems, he said, Elettronica would be a partner.
"And if Italy sells an armed version of the M346 jet trainer to Israel, we would be exploiting that opportunity, too," the CEO said.
The firm already has a strong presence in the United Arab Emirates, with business worth 1 billion euros contracted since the 1980s and a local joint venture. Electronic warfare, electronic support measures and electronic intelligence systems have been supplied for Dash-8 maritime patrol aircraft, new ships, including Baynunah corvettes, ground systems and Mirage 2000-9 fighter jets.
Orders from outside Europe now account for 9 percent of the firm's revenue, a figure Benigni said he would like to see rise to 40 percent within 10 years, alongside an overall revenue increase of 5 percent per year.
Benigni said he is encouraged by the Italian government's newfound desire to back defense exports.
"The [Ministry of Defense] is really assisting us, which is a huge change from the past," Benigni said. "Marketing in India requires a good deal of political support, particularly in the fighter contest, where I would not exclude the U.S. fighters re-entering the competition."
Founded by Benigni's uncle, Elettronica employs the CEO's son and daughter, suggesting the family tradition will continue. Stakes held by Finmeccanica (33 percent) and French company Thales (32 percent) are stable, he said. That leaves Benigni the majority shareholder.
DIRCM apart, Benigni said a second trend to watch is the combining of different emitters in one turret, which is attached to an aircraft's exterior.
Elettronica signed up in 2005 to an Italo-Swedish program to combine radar, EW and communications into one system with no interference. Though limited funding for research into the Multifunctional Active Electronically Scanned antennas was in the Italian defense budget last year, Benigni said funding is stalled.
"This was a missed opportunity," he said. "We know it's the future, and the first country to do it will have big advantages."
In the meantime, Elettronica will continue to benefit from ongoing work on the defensive aids systems it supplies for the Typhoon. Last September, a 400 million pound ($656 million) deal was handed to a European consortium, including Elettronica, to supply the Praetorian self-protection system for 112 Tranche 3A Typhoons.
But with no more Typhoon buys in the cards from Britain, Germany, Italy and Spain, what has been a solid revenue stream looks set to wind down. Benigni said a large part of the 80 percent of Elettronica revenue that comes from European programs came from Eurofighter.
"Elettronica is ... dependent on Eurofighter but has developed other technologies which are bearing fruit and can therefore maintain a good position in the market," said Michele Nones, head of the security and defense department at Rome think tank Istituto Affari Internazionali.
"Having Thales and Finmeccanica as shareholders could present problems since they are competitors, but they tend to balance each other out," Nones said. "And the firm has the attention of the Italian government since it is considered strategic. Italy believes it needs EW capability."
With a focus on engineering, Benigni said Elettronica's small size and niche status is an advantage.
"A big company does not have the same mentality. The Israelis have shown that," he said.
Elettronica recently fought off tough Israeli competition to win a contract for a naval electronic support measures system from an East Asia customer, the CEO said.
Benigni said the victory came thanks in part to Elettronica's focus on what he called "the science of architecture" - the arrangement of components in an electronic system that leaves room for growth.
About Elettronica
2010 revenue: 195 million euros.
Employees: 754.
Sectors (percentage of total revenue):
■ Fighter aircraft (44).
■ Product support (35).
■ Naval vessels (8).
■ Helicopters/maritime patrol aircraft/transport aircraft (12).
■ Land (1).

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