Fincantieri: Do the multiple open fronts portend something for the future?

At the end of August the Italian shipyards of Fincantieri published the financial results for the 1The half of 2022. The Italian Fincantieri has a net loss of 234 million euros. A catalytic role according to the financial review of the Italian Fincantieri was played by the increase in the cost of raw materials as well as some losses of financial assets that led the Italian shipyard to extraordinary expenses of € 156 million.

Fincantieri, apart from the unfavorable financial data, is also reportedly facing serious problems in its supply chain of raw materials. Something that is not due to the pandemic as the problems were observed before the COVID-19 pandemic.

Problems in the supply chain

Indeed, as outgoing chairman Giampiero Massolo told the media earlier this year, Fincantieri is not the only “big company [που] affected by supply chain congestion’. While not specific to Fincantieri, the situation “will have an impact on the group”, Mr Massolo acknowledged, which has already started to happen: Fincantieri is currently renegotiating several of its contracts under pressure from the significant increase Of the cost. For example, Fincantieri Marinette Marine recently modified a $39.4 million contract for the US Navy’s Constellation-class frigate program. The Italian trade union FIM-CISL said in a press release at the end of April 2022 that management will have to respond to the current problems seen in the group’s supply chain and present a new industrial strategy – in the wake of a major leadership reshuffle.

Crisis in its leadership Fincantieri

In April 2022, the Italian government dismisses Giuseppe Bono (CEO) and Giampiero Massolo (Chairman) from their positions, renews the entire board and introduces new management at Fincantieri. Pierroberto Folgiero, until now CEO of Maire Tecnimont (engineering and contracting company in the chemical and energy sector) has been appointed.

In this way, the Draghi government has clearly shown its intention to renew the management of Fincantieri. The Italian press reported that the government decided to “eliminate the old guard” of Fincantieri to “start a new chapter in the life of the group”.

Corruption issues

Another major change is the dismissal of Giuseppe Giordo, General Manager for the warships division. He was fired after the so-called “Colombiagate”, an embezzlement scandal related to the sale of warships to Colombia, in which Mr. Giordo was suspected of involvement. Former Italian Prime Minister Massimo d’Alema has been identified as the “informal negotiator” of the contract for two frigates and two submarines in Bogota and is said to have asked for an €80m commission to “convince a reluctant interlocutor”. Following press revelations about these discussions, the Naples prosecutor’s office opened an investigation and suspended negotiations between Fincantieri and the Colombian government, which were close to completion.

Change in corporate strategy

These changes – aimed at reshaping the face of the Italian company – led to a major strategic shift. In his first public statement, Fincantieri’s new CEO outlined his strategy: He believes the Italian company’s two main growth areas are warship building and the cruise shipbuilding market.

In the military sector, Mr. Folgiero still expects an increase in military spending, especially in Italy, due to the current geopolitical context and sees this as an opportunity for Fincantieri to consolidate its leadership in the military (naval) sector. In addition, to stand out from the competition, he said Fincantieri must show “religious respect” for meeting deadlines and costs – adding that “competitors can rarely give [τέτοιες]

While ambitious and promising, this new strategic vision carries a significant risk factor. Thus, the Italian trade union FIM-CISL expressed its “concern” that “what has been achieved in recent years, in terms of job growth and workload in industry” will be jeopardized by the new administration’s reform policies. FIM-CISL invited Mr. Folgiero to perpetuate the investments made to improve the productivity of the group.

Complaints about lack of work safety measures and poor working conditions?

Another concern for Italian unions is recurring human resources and workplace safety issues at Fincantieri’s shipyards. These incidents currently entail legal and financial consequences, which call Fincantieri’s basic production model into question. For example, in March, unions again denounced repeated violations of safety rules at the Italian shipyard, the result of what they said was the abusive use of subcontractors.

This statement was made following an incident at the Monfalcone shipyard where a subcontractor was hit by a crane load and seriously injured. The company is also facing multiple lawsuits related to the deaths of workers from asbestos exposure while working at Fincantieri shipyards, attracting national media attention. More recently, the unions informed the press about an incident at the Muggiano shipyard in La Spezia where a worker fell from the hatch of the aircraft carrier “Trieste” on August 18 during a bad weather incident. The worker was not “seriously injured”, but the unions expressed their displeasure at what they called a “cover-up” of the incident by Fincantieri.

Therefore, between the pressure of trade unions to guarantee improved employment and working conditions and investment in production, and the massive crisis in raw materials and the supply chainthe new CEO’s promise to keep contract costs and deadlines under control seems far-fetched, unless Folgiero intends to lead Fincantieri down the path of austerity in its international programs, reducing all risk factors, but above all keeping production under strict surveillance in Italy.

Indeed, building ships in the customer’s country leads, most of the time, to higher prices and longer delivery times, especially as Fincantieri has no experience in technology transfer (ToT) programs: Since the early 2000s, most military export contracts to European and Middle Eastern customers have taken place at Fincantieri’s shipyards in Italy, without the customer country participating in production: FREMM frigates for Egypt, LCS frigates/ MMSC (Marinette Marine shipyards, USA) for Saudi Arabia, Doha-class corvettes, San Giusto-class amphibious ships and patrol ships for Qatar, Algeria amphibious ships, Falaj-class patrol boats and Abu-class corvettes Dhabi” for the UAE… Only the sale of the “Sirio” class patrol vessels to Turkey was implemented by RMK Marine, with limited ToT on documents and technical assistance.

Today, the Italian company is discussing the domestic production of advanced warships with Indonesia – for the construction of FREMM at the PT PAL shipyard in Surabaya – and Greece, for the construction of FCx30 corvettes at the Elefsina Shipyards.

However, in a context of major strategic renewal, led by a new management team in the company and multiple external pressures linked to the geopolitical context, carrying out large international expansion or technology transfer programs seems unlikely and too risky for a company willing to focus on its reorganization and business activity. The new restrictions should direct the company to secure its supply and production chains in Italy, by divesting certain activities and guaranteeing investments at the national level.

Undoubtedly, Mr. Folgiero’s future announcements and consolidated results for the year 2022 will soon shed new light on these matters and the state of one of Europe’s leading shipbuilders.

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The article is in Greek

Tags: Fincantieri multiple open fronts portend future

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