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Feb. 15 (Bloomberg) -- Italy will reduce its planned order of Lockheed Martin Corp. F-35 fighter jets and trim the size of the military as part of defense-spending cuts, Defense Minister Giampaolo Di Paola said.
Italy will purchase 90 F-35s rather than the originally planned 131, Di Paola said in Rome in testimony before a joint defense committee of both houses of Parliament today. The nation needs to cut the military’s size by about 30,000 soldiers and 10,000 civilians, he also said.
Di Paola said Italy “has already invested 2.5 billion euros” ($3.3 billion) in the F-35, parts of which are to be provided by Finmeccanica SpA, the nation’s biggest defense contractor. “We had committed to buying 131, now the review of the program leads us to believe that the goal of 90 aircraft can be pursued, a third less,” he said.
The announcement is another blow to Bethesda, Maryland- based Lockheed Martin’s F-35 Joint Strike Fighter, the U.S. military’s costliest program. The U.S. Defense Department will cut $1.6 billion from the F-35 program, part of $18 billion in weapons cuts proposed in the budget that President Barack Obama sent to Congress on Feb. 13 for the year beginning Oct. 1.
Italy’s defense overhaul comes amid a drive by Prime Minister Mario Monti to tame public finances after contagion from the sovereign debt crisis drove the country’s borrowing costs to record highs. Italian bond yields have fallen since Monti in December pushed through 20 billion euros in austerity cuts and the European Central Bank loaned banks unlimited funds for three years, propping up demand for sovereign debt.
Di Paola said yesterday at a Rome news conference that Italy spends 70 percent of its defense budget on staff. He said today that military headcount could be cut over the next decade by reducing new recruits and transferring personnel. In the next five years, “there will be a 30 percent reduction in defense structures,” he said.
Shares in Rome-based Finmeccanica were up 1.2 percent at 10:12 a.m. in Milan trading following Di Paola’s remarks.
A reduction in F-35 orders is “not good news” for Finmeccanica, which is expected to assemble the aircraft in Italy, Christophe Menard, an analyst at Kepler Capital Markets in Paris, said in an e-mailed note before today’s announcement. Still, “rebalancing of spending toward equipment is a positive for Finmeccanica,” even as it “will take time to materialize in figures and higher orders.”
--Editors: Jeffrey Donovan, Leon Mangasarian
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