MARRIED COUPLE

Respected global aerospace leaders Boeing and Finmeccanica have formalized their long-term partnership and agreed to work side by side on a variety of upcoming projects and programs.

BY MAUREEN JENKINS


Consider this analogy, if you will, about the signing of this year's Memorandum of Understanding between Boeing and Rome-based Finmeccanica.

These aerospace industry giants know each other well, sharing a relationship that spans more than four decades. Their companies and business units have worked together on the ground, in the air with commercial airplanes, and in space on ballistic missile defense and the International Space Station. But until this January's Memorandum of Understanding signing, there was nothing official binding these two entities to each other. No real union, in other words—just an agreement that working together was, well ... working.

But with the signing of the MOU—in simultaneous ceremonies in Rome and Washington, D.C.—it's almost as if the two partners moved from an unspoken relationship to one formally linking each other's common interests. Sort of like a marriage.

And while it's sometimes said that legal marriage is "a piece of paper," that binding commitment means a lot in the minds of those being joined together. Likewise, this MOU means a lot to those at the top levels of Boeing and Finmeccanica—as well as to employees on both sides.

"More than anything," said Cecilia Matuschek, "it formalizes the relationship and is a recognition at the top of both companies that this is an important relationship." The Integrated Defense Systems director of International Alliances and Strategy Integration says Boeing sees Finmeccanica and its various companies "as a good match, as a key player in Italy. We look for companies that are very stable and influential to help us gain a good foothold in that country. It's turning out to be a very good two-way street."

On their own, both Boeing and Finmeccanica are respected global aerospace leaders. But through this wide-reaching MOU—which IDS President and CEO Jim Albaugh and Finmeccanica Chairman and CEO Pier Francesco Guarguaglini signed—the two industry powerhouses are agreeing to collaborate on a variety of upcoming projects and programs across Boeing Integrated Defense Systems, Commercial Airplanes, Connexion by Boeing, Air Traffic Management, and more.

Currently at the forefront is the new 767 Tanker Transport program, of which Italy became the first customer when it selected the Boeing aircraft to replace the Italian Air Force's aging 707 tankers. Also taking center stage now are the new 7E7 airplane and missile defense—joint projects being powered off the ground thanks to this MOU.

After about two years of discussion, it will serve as a roadmap of sorts for the development of future alliances designed to enhance both partners' global growth strategies.

Stu Thomson, IDS vice president for International Business Development, said that until now, the two companies' collaboration has largely been a "project-by-project relationship. [But] program-by-program agreements are more short-term, and don't look much across the depth and breadth of either organization for future opportunities."

From Finmeccanica's perspective, said Alberto de Benedictis, a senior vice president who heads Business Development for the Italian company, the Memorandum of Understanding signals a shift in its relationship with Boeing.

"We are trying to successfully elevate our responsibilities as a supplier," he said, "to participate in the design of subassemblies and take responsibility for those subassemblies. We're trying to grow in that role and become a partner more than just a supplier to Boeing."

In this case, familiarity—gained by the companies' teaming on projects including Commercial Airplanes aerostructure and modification work and the International Space Station—has built trust. Over the years, hundreds of Finmeccanica engineers have worked in Seattle on the 767, as Alenia has been a program partner since the aircraft's inception.

"To make this work, you certainly need to have the experience of having worked together," de Benedictis said of the decades-long collaboration. "It's almost a natural that these companies would come closer together on this sort" of arrangement.

"The MOU in itself is a box that has to be filled," said Boeing Italy President Rinaldo Petrignani. "We are proud to have created with Finmeccanica this long-term strategic relationship, and Boeing has every intention to make it real."

And as part of his charge, Petrignani—who previously served as Italy's ambassador to the United States—is helping Boeing "intensify our presence in Italy and create new synergies and new contacts with a view to be seen more and more as a company which is deeply committed to the Italian market."

As Italy's second-largest manufacturing company and one of its country's high-tech leaders, Finmeccanica is a major player. But it employs about 45,000 employees to nearly 160,000 at Boeing.

"The concern a smaller company would have with Boeing is that it could be overwhelmed," he said. But because the two companies share not only decades of history but complementary goals, the relationship works.

On Finmeccanica's part, the company wants "access to the United States and access to programs Boeing would like to give a more international flavor." De Benedictis thinks there may eventually be room for some collaboration on defense projects—and "given the relationships with our [two] governments, there's probably more potential than there ever has been" for such teaming.

"Our objective is to enhance our role in the United States," he said, "and in the European aerospace and defense industry, this is seen as a plus."

For sure, Finmeccanica participates in MOUs with other companies, as does Boeing with Japan's Mitsubishi Heavy Industries, United Kingdom-based BAE Systems and Israel Aircraft Industries Ltd. As one of Europe's major high-tech players, Finmeccanica works with BAE Systems, EADS and other major continental aerospace firms. Those alliances don't concern Stu Thomson, as he said "what this demonstrates is Finmeccanica's recognition that they are independent, and are a global aerospace company that can choose to do things that are in the best interest of their company and shareholders."

The aerospace family—especially the one consisting of companies at the highest levels of technology—is a small one. That's another reason Boeing wanted to partner with a diversified European player like Finmeccanica. Thomson said this MOU is probably more far-reaching than others Boeing has signed in the past, and "has probably matured more quickly than any of the others.

"Certainly market access is very important to both of us as we seek to profitably expand our businesses," he said, "but so too is the exchange of technology and of processes. As two world-class companies, we continue to seek the best technologies for our products while also looking for process improvements that will help us each enhance our productivity and our quality. There is much we can learn from each other."

In place to monitor the MOU's overall progress is an executive steering committee, headed by top leaders at both companies, which will meet at least once a year. The Senior Management Review, consisting of business development specialists at both companies, will ensure that working groups are teaming successfully on specific projects and program initiatives. These groups are set up based on specific focus areas—including aeronautics, space, and rotorcraft—listed within the Memorandum of Understanding and will meet a few times each year. Smaller subgroups will meet more frequently. Thomson said these are currently "defining opportunities where we can work together jointly."

Of these areas, de Benedictis said that "some are innovative, such as network-centric operations," while others such as air traffic management "had not been identified previously as areas of cooperation, but we are exploring [those] now. The relevance of this approach is you have an open table at which you can explore ideas at very high levels."

In fact, work groups from various Finmeccanica companies and from Boeing IDS, Commercial Airplanes, and Connexion by Boeing business units sat down at the Paris Air Show in June to hammer out some ideas. Albaugh and Guarguaglini also met and were briefed on the MOU's status during the show.

The much-heralded 767 Tanker program falls under the MOU's scope, even though the tanker deal was signed first, since much work remains until the first aircraft is delivered to the Italian Air Force in 2005.

Likewise, both parties are excited about the collaboration potential for the 7E7. In June, Boeing Commercial Airplanes announced that Finmeccanica's company Alenia Aeronautica had been named among the five external candidate companies to participate in the design and manufacture of large subassemblies. Discussions on work specifics and business arrangements are ongoing.

At the July 2002 Farnborough Air Show, Boeing and Finmeccanica's Alenia Spazio announced the signing of an MOU to cooperate on ballistic missile defense. "There was good support from the Italian government," Thomson said, "and because of Boeing's leadership in missile defense, we stepped up to hammer out this alliance." Still, the MOU signed in January supersedes all other agreements between the two companies, actually complementing projects and programs already in the works.

Maintaining the momentum, Boeing and Finmeccanica have teamed up to sponsor an international missile defense conference scheduled for Oct. 1 and 2. The Germany-based Aspen Institute Berlin think tank is coordinating the conference, which will offer a forum for public policy discussions on this critical topic. In fact, Thomson said, Jim Albaugh asked Finmeccanica's Guarguaglini to cosponsor this event even before the January MOU was signed, although the initiative comes under its auspices.

Falling under the MOU on the Commercial Airplanes side is an agreement for Boeing and Aeronavali to team on the 767-200 passenger-to-freighter conversions, said Don E. Brown, Commercial Airplanes Global Strategy director. In an agreement signed last month, the Finmeccanica units will take over the modification work through a licensing arrangement. The Italian company already does conversion work on DC-10s, MD-10s and MD-11s with Boeing, Brown said, "so this is a natural extension.

"We've decided in 'Vision 2016' that we're going to concentrate on large-scale systems integration," Brown said, so "we're relying more on our partners to do what they do best, with Boeing retaining the critical elements that we have to be responsible for. It's very important in our new business plan that we partner with relatively fewer major partners like Finmeccanica who have the resources and capability to both design and manufacture major portions of our aircraft."

But beyond manufacturing, the 2003 MOU also opens the door to possible joint research and development opportunities—something that the two companies have barely explored in the past. De Benedictis is excited that such work could also take advantage of the high-tech capabilities that exist throughout Italy.

"We pride ourselves at Finmeccanica on enhancing the technological capability of the group," he said. "We have a number of products that could be of interest to the U.S. market and elsewhere."

While the MOU technically expires in two years, the signers can renew it if both feel they've benefited from the deal and want to continue this joint path. Both sides already are extolling the agreement's success.

"We have expanded the number of people from our side on the dialogue," de Benedictis said. "In the last six months, we've seen more of Boeing than we ever have. And I suspect as we go on with the process, this will increase.

"We're really just at the beginning."

maureen.l.jenkins@boeing.com