Q&A: U.S Navy work booming at Fincanieri after buying 4 American shipyards

Naval Work Booming At Fincantieri
Tom Kington, Defense News, May 16

ROME – This marks Giuseppe Bono's 13th year as head of Italian shipyard Fincantieri, following a spell as head of Italian defense giant Finmeccanica.
During his watch at Fincantieri, Bono has overseen an initial public offering (IPO) – although the yard remains majority controlled by the Italian government – and paid $120 million in 2008 to buy four U.S. yards, including Marinette in Wisconsin, which had been picked by Lockheed Martin to build its Freedom-class littoral combat ships. These derive from Fincantieri designs.
In Italy, a €5.4 billion (U.S. $6.1 billion) funding package for new Navy ships this year, which comes as the Navy prepares to retire 51 aging vessels in the next decade, has given Fincantieri a contract to build six new 4,500-ton multifunctional vessels, known by their acronym PPA, as well as a logistics vessel. A contract for a new landing platform dock will follow.
Apart from those vessels, Fincantieri is flush with naval work. It has delivered four FREMM frigates to Italy and is building another six for the same customer, in addition to two new submarines, while in December it delivered an LPD to Algeria. Naval work amounts to 39 percent of the firm's shipbuilding business, compared with cruise ships, which account for 53 percent.
Q. To build Italy's FREMM frigates, you formed a joint venture company with systems provider Finmeccanica. To build the PPA vessels you have simply formed a temporary alliance with Finmeccanica. Why the difference?
A. The experience building the FREMM taught us that the prime contractor needs to be the shipyard, to boost efficiencies in project work and construction. Navies find that convenient too. Even if Finmeccanica units Oto Melara are supplying guns, WASS is supplying torpedoes and Selex supplying radars, it will be us handling the overall design and we can profitably integrate systems from the start of design work. The French built their FREMMs with a joint venture between DCNS and Thales, and have also discovered that DCNS should lead.
Q. The Italian Navy has been more involved in the design of the PPAs than on previous vessels, including the innovative 'cockpit' bridge, which combines navigation and combat functions – and which the Navy says was inspired by aircraft design. How was it working with Navy designers?
A. They have been more involved on these ships, but we have been collaborating since the very beginning, after they came up with the concept. And it has been quick. The project started from scratch at the end of 2013 and design was finalized last December. The cockpit design also has much in common with the bridges of the cruise ships we design, where all on board functions from air conditioning to waste treatment are all run from the bridge, and where you can feel like you are on the bridge of a space ship.
Q. How do you see prospects for exporting PPAs? And what about second-hand vessels?
A. The PPAs will be technologically advanced vessels that will appeal to evolved navies and this reduces the chances of exports, since those are the navies that tend to build their own vessels using local industry.
But we could look at basic versions for export for other countries. As for second hand, two corvettes retiring from the Italian Navy will be sold to us before we sell them to Bangladesh after refurbishing them. As the Italian Navy receives new ships we will handle the resale of all those being phased out, which we originally built.
Q. Fincantieri has received orders for four submarines from Italy featuring air independent propulsion, based on technology licensed from Germany's HDW. In the meantime, you had plans to work on a submarine using the same propulsion with Russia. What happened?
A. The S1000 project for a 1,000-ton submarine has been completed, but work has halted because there is no launch program yet. The skeleton of the submarine was Russian, and it was going to be a price competitive product. The problem was installing fuel cells and air independent propulsion technology, because it is German. We could have developed it, but before doing that we would have liked to have sold the S1000 first.
The fact it came to a halt had nothing to with the embargo on Russia. It predated that.
Q. General Electric and Rolls-Royce fought a fierce battle to supply propulsion to the FREMM frigates and are again battling over the PPA contract. Who will pick the winner?
A. The Navy will decide, taking into account its own needs and that of Italian industry. We will participate in the decision-making and we will be looking to obtain a good slice of work in the process. So we are talking to both sides. Who offers more work to us will have a slight advantage. The contract for the ships has just been signed. I expect the contract for propulsion to be signed by year end.
Q. Do you forecast, and encourage, a greater integration of Europe's many shipyards?
A. After a failed attempt to integrate at the end of the '90s, I believe there is a need for all European industries to integrate today, and yes, I think it will happen with shipyards. The U.S. government has overseen mergers in its defense industry, China is emerging. Small European countries cannot push on by themselves. As for shipyards, it is already happening in Europe when it comes to cruise ships. In the naval sector there is room and need for integration. In Europe, what politics does not achieve, industry might achieve. We are making a start by managing the acquisition of the PPA vessels through the European procurement office OCCAR, which could also help exports in Europe.
Q. Fincantieri builds everything from luxury yachts to submarines to aircraft carriers. Is that a strength or a weakness?
A. It's a strength because we are at the high end in each of these sectors.
The accommodation on naval ships today is more comfortable and we have used solutions developed for our cruise and merchant ships. Methods for controlling vibration on Navy ships has been used on cruise ships. But a ship is a ship. It's a platform. If you put a garage on it, it becomes a car-carrier. With a hotel on top it's a cruise ship, with a combat system it's a naval ship. You start with a platform. It's similar with aircraft – Boeing and Airbus build every type of aircraft, as we build every type of ship. We are one of a kind because we are the only firm in the world to build cruise ships, naval ships, offshore ships and mega yachts. We don't suffer from fluctuations in one sector since we have a balance in the demand across different sectors. For example, the cruise sector is going through a magic moment while the drop in oil prices has hit offshore vessels.
Q. In 2008 you took control of the Marinette Marine yard in the U.S. and you are now building Freedom-class LCS vessels, along with Lockheed Martin, which is the prime contractor on the program. How is that going?
A. We discovered an anomaly in U.S. shipbuilding. You have one company that designs the ship, another, the prime contractor, which supplies the electronics and the combat system and the yard that builds the ship. So the designer doesn't know how the yard will build it, and the prime is not the one building it. As such, we needed to invest a lot at Marinette, more than we paid for it, bringing in know-how and improving the layout. It has not been easy; there are security rules which mean you cannot do everything you want, but it is now one of the most efficient yards in the U.S. We have five LCS vessels there in various stages of construction, which is not simple.
Q. What are these limits put down by security rules?
A. There are limits on access to certain parts of the process, for example the engineering. We needed to send engineers in to work on the program, otherwise we would never have managed it. I have talked to politicians in the U.S. about this. I believe the shipyard should be the prime contractor – that would help all parties. That is the set-up that works in Europe. The yards are efficient, lowering costs for the buyer, and able to build ever more sophisticated vessels. Boeing and Airbus build aircraft. No one would make a supplier of systems on those aircraft, like Thales or Honeywell, the prime contractor.
Q. Was it worth buying Marinette?
A. You cannot not be in the U.S. defense market, it is the number one market in the world. I am convinced that in the future, the LCS won't be the only ship like it to be built. I believe there will be fewer large vessels. Why build an 80,000-ton aircraft carrier when you can build three for the same
money? Why build a 13,000-ton destroyer when you can have three PPAs? The Americans export everything except ships because their large ships are un-exportable. But they are beginning to get requests for the LCS. I am investing in the future. Meanwhile, we have the PPA. Here's my dream. We have now gained a reputation in the U.S. based on our product and reliability. Why can't we team with the Americans, develop a ship with them, build it there for them, here for Italy and export it around the world? Just as we developed our Horizon and FREMM frigates with the French, sharing development costs.