Italy Debates Wisdom of Cultivating Sector Competition

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ROME — Italy’s largest space company, Thales Alenia Space, urged the Italian government Dec. 18 not to create competitors in the hope of reducing the cost of government contracts, saying Italy’s budget crisis is too serious to waste money redoing the industrial landscape.

The company’s view was immediately challenged by an Italian Ministry of Defense official, who said the ministry, a regular financier of Italian space efforts, would not let Finmeccanica, which is Thales Alenia Space’s Italian shareholder, settle into a monopoly position.

Marco Airaghi, aerospace counselor to the Italian defense minister, said he understood Thales Alenia Space’s opposition to the idea. “The Christmas turkey does not walk into the oven by itself,” Airaghi said here during a debate on Italy’s space policy.

“I agree we should support Finmeccanica through government investment so that we do not lose the place we have earned on the international stage,” Airaghi said. “But I also think we should foster the creation of second and third competitors because monopolies are less competitive and thus more expensive.”

Thales Alenia Space dominates Italy’s space and aerospace industry today much as EADS’s Astrium dominated the German space industrial sector 15 years ago.

Since then, the German government decided to force the creation of an Astrium competitor, OHB AG of Bremen, saying Astrium was European, not German.

In the past decade, OHB has become Europe’s third largest space system prime contractor after Astrium and Thales Alenia Space, winning key German government contracts in space-based reconnaissance and satellite telecommunications.

Giuseppe Orsi, chairman of Finmeccanica, said government funding is so limited in Italy now that if public contracts are distributed too thinly in an attempt to create a Finmeccanica challenger, it would place at risk the viability of both.

“Trying to create a second national industry to force competition is a luxury we cannot afford right now,” Orsi said. “We would risk the collapse of both entities.”

Luigi Pasquali, chief executive of Thales Alenia Space Italy, said Italy does not have the financial wherewithal to mimic what Germany did. Pasquali said that even Germany has had to accept that creating a competitor means spending money in less than optimal ways.

Pasquali said during the conference and in an interview that Germany has invested much more than it would have otherwise to procure certain capacities, a surcharge he admitted the German government appears willing to pay to have an all-German space prime contractor.

“I absolutely respect what the German government did, and for them the end result may justify the cost,” Pasquali said. “As you know, we work regularly with OHB and they are good partners. But we cannot afford to do in Italy what Germany did. We really need to understand that in Germany they are paying a price for what they did. Can we afford to pay the same price? I doubt it.”

Pasquali said Thales Alenia Space has no argument with Italian government efforts to stimulate niches of expertise in small and midsize companies that would then compete with Thales Alenia Space for subsystem work on government contracts.

But given the gap between Thales Alenia Space and the smaller companies that work on space contracts, he said, creating a second prime contractor would be a waste of money.

In what some Thales Alenia Space officials viewed as a move in the direction of creating competitors, the Italian Space Agency in July 2012 contracted with CGS SpA of Milan to lead development of Italy’s first optical reconnaissance satellite, called Opsis, or Optical System for Imaging and Surveillance.

Pasquali said the irony of the choice is that CGS’s Italian credentials are questionable. The company is owned by OHB.