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03 Jul 03. Finmeccanica (Milan:SIFI.MI – News) and BAE Systems (London:BA.L – News) said on Thursday they had signed a memorandum of understanding (MOU) creating defence electronics partnership Eurosystems.

The companies said the MOU foresaw the creation of three joint ventures with combined proforma sales of 3.8bn euros in 2003. A deal between Finmeccanica and BAE Systems to regroup their defence electronics activities had been expected for months.

“Our companies have reached a deal with the aim to improve the operating efficiency of our joint ventures and to create new businesses that respond to the demands of the integrated systems market,” the chairmen of Finmeccanica and BAE systems said.

“A lot is still left to be done before the new businesses are operational, but we are convinced that we can create firms capable of fully satisfying the needs of our customers,” Pier Francesco Guarguaglini and Richard Evans said in a statement.

A Strategic Coordination Committee made up of senior managers from Finmeccanica and BAE Systems will ensure cooperation between the three joint ventures, which will be largely autonomous, the joint statement from the firms said.

The partnership establishes a Strategic Coordination Committee (SCC) and three majority controlled Joint Ventures, each with clear operational control of its business.

The SCC, formed by senior managers of the shareholders, will facilitate the co-operation and interaction of the joint ventures. The SCC will also ensure that the JV strategies support the multi-domain nature of future defence requirements and respond to the demand for highly integrated systems.

The three JVs will operate in the following areas:

A Systems Integration and C4ISR business, to be majority owned and managed by BAE SYSTEMS, with capabilities in C4ISR information systems and sub-systems, combat management systems, land & naval radars and air traffic control systems. The business will be formed from existing activities of AMS (a 50-50 JV of BAE Systems and Finmeccanica) and BAE SYSTEMS C4ISR (less communications).

A Communications Systems business, to be majority owned and managed by
Finmeccanica, with capabilities in strategic and tactical communication systems, networks and secure systems. The business will be formed from the existing activities of Marconi Selenia Communications and the communications activities of BAE SYSTEMS C4ISR.

An Avionics business, to be majority owned and managed by Finmeccanica, with capabilities in sensor systems, airborne radars, mission systems, electro-optics and electronic warfare systems. The business will be formed from activities within BAE SYSTEMS Avionics and Finmeccanica’s Galileo Avionica.

Having established the principle of a structure and management framework that delivers clear accountability and positions the businesses in line with the needs of the market, the two companies will move into a detailed process of valuation.

The formation of the three joint ventures is subject to the parties executing definitive agreements and obtaining all necessary regulatory clearances. The arrangements announced do not affect the interests of BAE Systems and Finmeccanica in MBDA.

The first joint venture will be controlled by BAE Systems and will include combat management systems, radars and surveillance systems. It is forecast to have proforma sales worth €1.5bn in 2003.

The second joint venture, including strategic communications and safe communications networks, will be controlled by Finmeccanica and have proforma sales of about €700m this year. The third, in the avionics sector, will be controlled by Finmeccanica and will include aircraft radars and systems for electronic warfare. Proforma sales are expected to be €1.6bn in 2003.

Comment: This is good news for BAE Systems and Finmeccanica, creating a defence electronics company to rival Thales in world markets. BAE’s C4ISR capabili

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