Commentary
There’s little to celebrate about the Italy-US frigate contract
Why did Italian companies and governments deem it useful to invest hundreds of millions of dollars in production and jobs far away from Italy?
The news, published almost with pride by the main newspapers and with a prominence rarely given to updates on military manufacturing, seems clear and simple at first glance: the U.S. Navy has signed a multi-billion dollar contract with Fincantieri (an Italian naval giant under public control) for the production of a new class of frigates.
Thus we were treated to a plethora of enthusiastic comments and rather over-the-top analysis, which even appeared to predict a sort of “economic renaissance” based on such orders. Leaving aside for a moment the problematic nature of a post-coronavirus reconstruction based on the arms industry, these optimistic reactions are at odds with the reality of the situation, which has practically nothing positive to offer for Italy.
Let us reconstruct the facts. In the last few days, the US Navy decided to assign the contract for the construction of the prototype for its new medium-small tonnage ships to Fincantieri Marinette Marine, a US subsidiary of the Italian group (with production headquarters in Wisconsin). The FFG(X) project that won the tender is derived from the FREMM ships developed for the Italian and French Navies.
However, only the order for the first ship is guaranteed (hence the “X” of the acronym, which should be removed in case of final confirmation of the order), at a value of $795 million. The total order of $5.58 billion, already assumed to be a certainty by many commentators (perhaps in order to magnify the importance of the agreement?), will actually depend on an option that the U.S. Navy will choose whether to exercise later on (the final design phase of the project will begin immediately, while construction should begin by April 2022). Moreover, if in some ways we can really speak of a “design success” for the abovementioned modification of the design (which beat the competition from Austal USA, General Dynamics and Navantia, among others), one can hardly consider it a “manufacturing success” for Italy.
That is because all production will be carried out at the already-mentioned US-based plants, a condition explicitly deemed “necessary” by the Trump Administration, which considers Fincantieri Marinette Marine for all intents and purposes to be an American company, regardless of its shareholding. The end result is a negligible, and only indirect, return for our country.
Certainly, Fincantieri will profit as a business conglomerate, but the revenue will be realized far from Italy, and, most strikingly, at a rather high cost of access. Fincantieri had to invest a lot in order to enter the lucrative US military procurement market (we recall that according to recent data from SIPRI, the US has a military expenditure of $738 billion, still growing and making up 38% of the world total). The acquisition of the Wisconsin company was decided and completed between 2008 and 2009, under the aegis of the then-CEO and current Chairman of the Board Giuseppe Bono, while the Berlusconi government was in office (at a time when the company was practically 100% controlled by the state).
At a time when the financial crisis was already becoming evident, the decision was taken to put around $120 million on the table to buy the Manitowoc Marine Group, whose name was then changed. It was an investment in US jobs, one implemented with the establishment of new companies in Delaware (practically a tax haven within the US – one more count against the “benefit to Italy” claims). It was made possible by “short-term credit lines” which later became “a medium/long-term loan for the value of the acquisition” granted by leading Italian banks (which ones exactly is unknown), at a time when financial institutions were cutting off many other companies.
The message is clear: when it comes to weapons and military business, money can always be found! And Fincantieri would find even more funding for its US subsidiary later on: $80 million have already been spent to improve the shipyards in Wisconsin, and now another $100 million will be invested.
The real facts and figures are enough to unmask the “triumphalist” version that can be read these days from many media outlets. All of this makes us ask a number of questions: why did Italian companies and governments deem it useful to invest hundreds of millions of dollars in production and jobs far away from Italy? Why do many commentators consider such an obvious delocalization a positive thing (which is not the case for other industries)? Why are many politicians and analysts rejoicing about a contract won against European competitors, while at the same time they’re asking for more and more money to support “military cooperation in the EU”?
And, finally, the central question: why is it that the crisis that arose from COVID-19, which has swept away quite a few of our certainties, hasn’t even managed to make a dent in the privileges of “arms business”?
Originally published at https://ilmanifesto.it/contratto-italia-usa-poco-da-esultare/ on 2020-05-03