Italy Halts Safran Deal Citing National Security Worries

22 Nov, 2023

Italy Halts Safran Deal Citing National Security Worries

Italy has disrupted French jet engine maker Safran's $1.8 billion acquisition of Collins Aerospace's flight controls business, citing concerns about potential disruptions to key supply contracts for the Eurofighter program. Safran revealed that the Italian government invoked its "golden power" to oppose its acquisition of Microtecnica, a subsidiary of Collins Aerospace based in Italy, as part of US-based Raytheon Technologies (now RTX).

The Italian decree, examined by the Financial Times, highlighted a government investigation indicating uncertainty regarding Safran's commitment to prioritize industrial production lines critical for national defense. Italy consulted with Germany prior to the decision, where concerns were voiced about possible interruptions in spare parts and services for the Eurofighter and Tornado jet fighter programs, crucial for meeting NATO's operational requirements.

This opposition from Giorgia Meloni's right-wing government underscores the hurdles faced by European defense firms in their consolidation efforts. The involvement of national interests often gives governments more leverage to intervene compared to other sectors.

Olivier Andriès, Safran's CEO, expressed surprise at the decision, stating the group had not engaged in discussions with the Italian or German authorities. He refuted implications that Safran would not be a reliable supplier for the Eurofighter, highlighting their existing contributions to the program through various subsidiaries.

While reviewing its options, Safran affirmed its commitment to the announced acquisition, which would have been its most significant since 2018. Microtecnica, responsible for about 15% of Collins's flight controls business revenue, operates three factories in Italy.

An Italian government official defended the decision, citing the need to avert potential risks to the readiness of their armed forces. Concerns were raised regarding potential disruptions or slowdowns in the supply chain resulting from the deal.

Italy's 'golden power' regulations, initiated in 2012, empower the government to intervene in foreign mergers or acquisitions of Italian companies deemed strategically important. These powers have predominantly been exercised to prevent Chinese acquisitions of Italian assets in the past.

Experts noted the rarity of Italy blocking acquisitions from European or NATO allies. Italy's decision, instead of imposing conditions on the transaction, was based on the complexity of ensuring compliance to safeguard public interests, the official claimed.

Andriès lamented Italy's differential treatment, expressing dismay that while Microtecnica was under a US shareholder, Italy did not raise objections but opposed the involvement of a French company. He underscored the detrimental signal this sends for the future of European defense collaboration.