Alenia eyes $12 billion in contracts

Alenia North America is eyeing up to $12 billion in Pentagon contracts over the next five years to tighten its grip on the still-lucrative U.S. military market.

A part of the Italian consortium Finmeccanica, Alenia suffered a setback earlier this year when Pentagon leadership decided to slash almost by half the C-27J Joint Cargo Aircraft program, one of the company’s flagship contracts.

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The Pentagon’s decision — which Congress so far is backing — has also thrown a wrench into the company’s investment schedule in the United States. Alenia halted the groundbreaking of a new final C-27J assembly facility in Jacksonville, Fla., after it received the bad news from the Pentagon earlier this year. For now, the company continues to build the cargo planes in Italy.

Despite the recent setback, Alenia North America President and CEO Giuseppe Giordo said that his company is planning investments of up to $200 million in the United States, though the timing may change in light of the C-27J decision.

“The potential cut on [C-27J] Joint Cargo Aircraft has not changed our strategy to be present in the United States,” Giordo said in an interview with The Hill. “Since 2005, we have always said that our presence in the United States will be an industrial presence and not only a commercial presence.”

Alenia now is looking at combining operations of several aeronautical programs into one facility, Giordo told The Hill.

“We are looking at different options,” he said. “Clearly, the best would be to open a new facility.” That new facility would most likely be in Jacksonville, where the company already has a lease.

However, Alenia is also taking into account its current industrial presence, and could use existing facilities to combine operations on several programs.
Finmeccanica last year acquired U.S. contractor DRS, which works on Coast Guard aircraft programs at a facility in Elizabeth City, N.C. That plant could be used for Alenia’s expansion if the company goes with existing industrial sites instead of building a new one, Giordo said. But he stressed that the goal would be to have a new facility.

Alenia’s plan is to combine remaining work on the C-27J with two new programs. The Pentagon is considering a competition for a light attack and armed reconnaissance plane, as well as a program that would replace the Air Force’s, and potentially the Navy’s, training aircraft.

The two arising contract opportunities are essential for Alenia to strengthen its grip on the U.S. military market and make its multimillion-dollar investment worthwhile. Alenia is planning to compete as a prime contractor for the programs, rather than team up with a U.S. company that would serve as prime contractor, said Giordo. On the C-27J program, for example, L-3 Communications is the prime contractor.

The light attack aircraft contract is worth about $2 billion, while the trainer aircraft contract could be worth $10 billion if both the Air Force and Navy replace their old trainers, Giordo said. While the decisions on the new programs are still in flux, Pentagon officials have indicated that they want to see the light attack fighter contract by 2012 and a trainer contract award in the 2013-2014 timeframe.

Alenia is planning to compete with its M-346 fighter aircraft for both programs, said Giordo, who expressed optimism that the company’s plane stood a strong chance of winning. If it does win the contract, having a final assembly line in the United States “is more than possible,” Giordo said.

“We have a very positive situation,” he added. “Other U.S. defense contractors do not have similar aircraft.”

However, Lockheed Martin could stage an intense battle for the multibillion-dollar trainer contract. Lockheed is partnered with Korea Aerospace Industries (which is the prime contractor) for the T-50 aircraft, which is used by the South Korean air force.

Contenders for the light attack aircraft could be Brazil’s Embraer, which makes the Super Tocano; Beechcraft with the AT-6 Texan; and Boeing with an upgraded OV-10 Bronco.

Alenia is pegging its fortunes on the U.S. defense market, as the European market is facing a bleak time with ever-shrinking military budgets.

“The European defense market suffers a lot,” Giordo said. “I do believe that the U.S. market is still the most interesting market for us. We have products that fit with the U.S. market. We have products for the U.S. market where we do not have U.S. competition.”

Giordo also expressed confidence that the total number of C-27Js will rise above 38. The U.S. is in negotiations with other countries to sell the C-27J to international partners, according to Giordo.

Alenia’s CEO is also counting on the possibility that the military will end up asking for more planes after it starts flying them in Afghanistan and Iraq. The first four C-27Js will deploy to Afghanistan next August, and another four will follow by the end of 2010.

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Giordo said that he was “very much surprised” by the Pentagon’s decision to slash the program, because Alenia was executing the program on time and on cost and had taken all the necessary steps to build the facility in Florida.

Despite strong congressional support for the program, House and Senate defense authorizers and appropriators backed the administration’s request for eight planes in fiscal 2010 and did not fund additional planes. They also did not seek to change the Pentagon’s decision to make it an Air Force-only program after it was shared by the Army and Air Force.

Meanwhile, next Friday, Alenia is delivering the first G-222, an older version of the C-27J, to the Afghan National Air Corps under a $287 million foreign military sale contract for 18 planes it won from the U.S. Air Force a year ago. Two more planes will be delivered by the end of the year, said Giordo.