VZCZCXRO4201
PP RUEHFL RUEHNP
DE RUEHRO #0688/01 0941153
ZNR UUUUU ZZH
P 041153Z APR 07
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 7604
INFO RUEHFL/AMCONSUL FLORENCE PRIORITY 2298
RUEHMIL/AMCONSUL MILAN PRIORITY 8528
RUEHNP/AMCONSUL NAPLES PRIORITY 2446
RUCPDOC/USDOC WASHDC PRIORITY
RUEHNO/USMISSION USNATO PRIORITY 2852
RUEHBS/USEU BRUSSELS PRIORITY 4504

UNCLAS SECTION 01 OF 02 ROME 000688 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: MARR MASS PGOV EFIN ETRD IT
SUBJECT: U.S.- ITALY DEFENSE TRADE 
 
REF: 2006 ROME 343 
 
Sensitive But Unclassified.  Not for Internet distribution. 
 
¶1.  (SBU)  Summary.  Defense trade is a crucial and mutually 
beneficial component of the U.S.-Italy bilateral 
relationship, in which both U.S. and Italian firms benefit 
through collaboration on defense projects and technology 
transfer.  The Italian military is involved in seventeen 
major weapon system programs and purchases approximately 380 
million dollars annually from U.S. defense firms.  The 
Italian military prefers U.S.-made equipment because of its 
quality, reliability, supportability, and because it ensures 
Italian interoperability with other NATO forces.  Budgetary 
pressure on the Italian military has resulted in an increased 
focus by the GOI on industrial participation and a reduction 
in funds for military investment, procurement, and research 
and development.  End summary. 
 
¶2.  (SBU)  Italian military spending is hampered by an anemic 
economy and the domestic political priorities of the 
center-left governing coalition.  (Note.  Although the GOI 
projects two percent GDP growth in 2007, GDP grew at an 
average of 0.67 percent between 2000 and 2005.  End note.) 
In 2006, the budget for the "defense function" totaled 12.107 
billion euros, or 0.82 percent of GDP, and included 1.511 
billion euros for procurement, research, and development.  In 
2007, some recovery is projected, with defense spending at 
14.449 billion euros, or 0.96 percent of GDP.  The 2007 
budget includes 3.272 billion euros for procurement, 
research, and development, intended to compensate for cuts to 
the procurement budget in 2006.  At 2.391 billion euros, the 
average of the 2006 and 2007 funding for procurement, 
research, and development falls below the 2.588 billion euros 
allotted in 2005. 
 
¶3.  (SBU)  The Ministry of Defense purchases a wide variety 
of U.S.-origin defense goods.  The MOD is currently leasing 
or purchasing a number of aircraft, including the F-16, 
AV-8B, C-130, C-17, 767 Tanker, CH-47 and Joint Strike 
Fighter aircraft; stinger and TOW missiles; and Predator 
UAVs.  The MOD is also interested in purchasing Tomahawk 
(T-LAM) missiles.  Italy is a seventeen percent partner in 
the Medium Extended Air Defense System (MEADS) and has 
committed 595 million dollars to the program.  The GOI plans 
to use the Patriot Advanced Capabilities II system to bridge 
the gap between the 2008 retirement of its Nike anti-missile 
defense system and introduction of the MEADS system in 
2012-2013.  The Italian Navy recently awarded the propulsion 
contract for the FREMM Euro Frigate to General Electric.  In 
addition to equipment purchases and leases, the GOI spends 
about 120 million dollars annually to send Italian military 
personnel to the United States for training. 
 
¶4.  (SBU)  In the short-term, 2008-2009, Italy intends to 
purchase Signals Intelligence (SIGINT) and CH-47F aircraft. 
The SIGINT program will consist of two to three aircraft and 
two ground stations, valued at approximately 300 million 
dollars.  The CH-47F aircraft program consists of 16-24 
replacement aircraft for Italy's aging CH-47 helicopter 
fleet.  In the mid-term, 2009-2011, the GOI may purchase two 
additional aircraft, the Airborne Early Warning and Command 
(AEWC) aircraft and Multi-Mission Maritime Aircraft (MMA). 
The AEWC and MMA programs are a high priority for the GOI. 
Cuts in the Ministry of Defense's 2006 procurement budget 
delayed purchase of these aircraft. 
 
¶5.  (SBU)  Italy is also a Level Two partner in the Joint 
Strike Fighter (JSF) program, and has invested 1.02 billion 
dollars in the early stages of JSF.  In February, the GOI 
signed a memorandum of agreement to invest an additional one 
billion dollars in JSF.  Italy plans to purchase 131 JSFs, 
valued at seven billion dollars.  Follow-on logistics and 
support contracts will raise this value significantly. 
 
¶6.  (SBU)  In addition to sales to the Italian military, 
American firms are engaged in sales to Italian security and 
police forces.  Motorola is currently bidding to provide the 
Italian public safety agencies (Police, Carabinieri, Guardia 
di Finanza, and Forestry Corps) with a TETRA (Terrestrial 
Trunked Radio) communications network.  In 2003, Motorola and 
Finmeccanica, the Italian defense industry conglomerate, 
entered into an agreement to provide a TETRA system to the 
Italian public safety agencies.  Finmeccanica let the 
agreement lapse in 2005, and has begun exploring the 
possibility of filling the TETRA contract in cooperation with 
another European firm.  Motorola estimates its share of the 
 
ROME 00000688  002 OF 002 
 
 
TETRA contract to be worth up to 12 million euros, and has 
asked for USG assistance to counter Finmeccanica's moves to 
cut Motorola out of the TETRA contract.  Embassy and Motorola 
officials have begun advocacy with high-level GOI and 
Finmeccanica officials. 
 
¶7.  (SBU)  Italian defense exports in 2006 totaled 2.2 
billion euros, a 61 percent increase from 2005 exports.  The 
top three export markets for Italian defense firms were the 
United States (exports valued at 350 million euros), the UAE 
(338 million euros and Poland (227 million euros). 
Finmeccanica, the Italian defense manufacturing conglomerate, 
has been especially active in establishing a presence in the 
United States, including the construction of manufacturing 
facilities, and is pursuing a number of possible sales to the 
U.S. military.  Agusta Westland, a Finmeccanica subsidiary, 
partnered with Lockheed Martin to win the competition for the 
Presidential Helicopter replacement program (VH-71).  The 
VH-71 program consists of 23 helicopters, valued at 
approximately 7.7 billion dollars over the life of the 
program.  A considerable percentage of the VH-71's components 
are manufactured in Italy.  Alenia, also a Finmeccanica 
subsidiary, has partnered with L3 and Boeing to bid on the 
contract for the U.S. Joint Cargo Aircraft (JCA) program. 
The winner of this competition will be announced in May 2007 
and will supply 145 cargo aircraft worth approximately six 
billion dollars to the U.S. Army and Air Force. 
 
¶6.  (SBU)  Comment.  The Italian military overwhelmingly 
prefers U.S.-made weapon platforms, due to their quality, 
reliability, supportability, and interoperability with NATO 
and U.S. forces.  However, as the Motorola case illustrates, 
pressure to "buy European" has increased since the election 
of the center-left government last year.  Additionally, U.S. 
defense industry companies have come under pressure to 
increase Italian "industrial participation" in defense 
contracts, and have been led to understand that without more 
Italian industrial participation, Italian parliamentary 
approval is less likely.  Despite increases in the 2007 
budget for defense procurement, the pressure for improved 
industrial participation comes at a time when the Italian 
defense budget is under parliamentary scrutiny and amidst 
increased political pressure to maintain high levels of 
spending on pension and other social programs (reftel).  End 
comment. 
SPOGLI