(Bloomberg) — Leonardo SpA called for consolidation in the European defense sector, and said the Italian aerospace firm wants to play a central role in creating bigger entities in the region that can compete more effectively on the global market.
Fragmentation among European players has led to more than 100 distinct land, air and naval defense systems, and is hurting competitiveness, Leonardo Chief Executive Officer Roberto Cingolani said Tuesday.
“The dream would be for Leonardo to act as a catalyst to join forces among big companies in Europe,” the CEO said in a Bloomberg TV interview with Francine Lacqua. “We have learned a lesson from the Ukranian war. No country can be on its own.”
Dealmaking should primarily take the form of joint ventures and alliances, Cingolani said, though Leonardo is pursuing some direct mergers. The company has earmarked proceeds from the planned $330 million stake sale in its US unit for a handful of deals on which the company is now conducting due diligence, he said.
Leonardo said in November that it would sell the about 6.3% stake in Leonardo DRS Inc. The company has no plans to sell down its majority holding further, Cingolani said Tuesday.
“DRS fits very well” in our portfolio,” he said. “We need an outpost in the US because it’s a complex market.”
Read More: Italy’s Leonardo to Sell Stake in US Unit to Fund Future Deals
Shares of Leonardo fell 2.1% as of 12:55 p.m. in Milan, the biggest drop on the 20-member FTSE MIB index of Italian companies.
The state-controlled manufacturer provides systems and services for the defense and aerospace industry, and participates in multinational joint projects like Europe’s Eurofighter and the next-generation fighter jet with Japan and the UK. It also supplies major components for commercial aircraft made by Boeing Co. and Airbus SE.
Under Cingolani, a former government minister, the company has signaled that it will increasingly focus on sensors and cyber-security applications. Leonardo is considering investing in its own chip foundry, he said.
“That is a very specific investment we are evaluating at the moment,” Cingolani said.
Cingolani was appointed to head the company by Prime Minister Giorgia Meloni’s government in May of last year.
As minister under Premier Mario Draghi, he helped steer the country through an energy crisis following Russia’s invasion of Ukraine as Italy began diversifying supply sources.
As CEO at Leonardo, Cingolani noted that the war in Ukraine has underscored the “enormous amount of digitalization that enters into the game,” transforming the industry.
Leonardo’s market value has increased by 58% to €9.6 billion ($10.4 billion) since his appointment, amid two regional conflicts, according to data compiled by Bloomberg.
Attacks on shipping in the Red Sea are pushing the European Union toward a decision on a more active military role in the area. That’s highlighted what to date has been a fragmented regional response to geopolitical turmoil.
The challenges facing Europe’s defense sector mean “we have to make alliances,” Cingolani said, adding that no European state can make it alone.
When asked about the prospect for mergers and acquisitions for the company, Cingolani said Leonardo is conducting “due diligence because we’re trying to see in specific areas of our portfolio products what kind of M&A we can do.”
Virginia-based DRS, a major defense electronics supplier to the US military, was acquired in 2008 by Finmeccanica, which later changed its name to Leonardo. DRS last year agreed to merge with Israel’s RADA Electronic Industries Ltd., which makes tactical radar components that could complement Leonardo-produced sensors.
(Updates with further comment from CEO starting in third paragraph)