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New Finmeccanica Head Faces India Crisis Fallout
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The new head of Italian defence group Finmeccanica has inherited a corruption crisis over a $750 million helicopter deal with India that risks hurting the company's business in other foreign markets.
Italy's second largest corporate employer moved chief operating officer Alessandro Pansa into the top job after police arrested CEO and Chairman Giuseppe Orsi on 12 February' 2013.
Orsi, who is being held in jail but has not been charged, faces allegations of paying bribes to win a 560-million-euro contract for the company's AgustaWestland unit to supply 12 helicopters for use by senior Indian politicians.
He denies any wrongdoing.
Finmeccanica shares fell 1.75 per cent on 14 February' 2013 and have lost 12 per cent in the aftermath of Orsi's arrest.
Concerns over the potential long-term damage to sales from the taint of corruption claims outweighed relief at swift action to fill the management vacuum.
"The speed at which the company tried to fix the corporate governance issues is a positive," Italian bank Mediobanca said.
"We still see reputational risk and we wonder if some other countries may try to cancel orders," it said.
India will make no more payments and will not take delivery of the remaining nine helicopters until a probe by its Central Bureau of Investigation (CBI) is complete, two officials at the Indian Defence Ministry told Reuters on Wednesday.
The bribery case is having political repercussions in both India and Italy.
In India, where national elections are due next year, the opposition Bharatiya Janata Party (BJP) lambasted the Congress-led government for not acting sooner over the allegations.
In Italy, elections are only just over a week away and all sides are trying to make political capital from the latest in a series of corruption cases to shake the Italian business world.
Former Prime Minister Silvio Berlusconi, who has fought a series of legal battles himself over his business empire and private life, said on Wednesday that overzealous prosecutors risked harming Italian business.
The Italian state remains the largest shareholder in Finmeccanica with a stake of about 30 per cent.
Centre-left leader Pier Luigi Bersani, whose group was ahead in the last opinion polls published before the February 24-25 election, said on Thursday it was the wrong moment to consider further privatisations.
"In this moment it would be crazy... I am talking about Eni, Enel, about Finmeccanica," Bersani said when asked about potential privatisations in a television interview, referring to state-controlled oil giant En and utilities group Enel.
Ratings agency Moody's confirmed its rating of Finmeccanica debt after Pansa's appointment but cut the outlook to negative from stable.
"The negative outlook reflects heightened challenges in achieving a stronger operating and financial profile that is consistent with expectations for the Baa3 rating," it said.
Moody's cited a soft outlook for defence spending and the need for Finmeccanica to sell off more assets.
Pansa, who joined the company in 2001 as chief financial officer, will be supported by Guido Venturoni, 78, a former admiral who becomes vice chairman and who was the senior independent director on the Finmeccanica board.
Shareholder meetings will be held in April to finalise the new board which is when a new chairman could be appointed to work alongside Pansa.
The heavily indebted group is trying to sell units including its AnsaldoEnergia power engineering business to focus on its core aerospace and defence activities.
The 50-year-old Pansa, a graduate of Italy's prestigious Bocconi University where Italian prime minister Mario Monti also studied, was involved in disposal talks alongside Orsi.
Aerospace analyst Nick Cunningham of London-based Agency Partners said Pansa could benefit from the restructuring started by Orsi in his two years in charge.
"If Alessandro Pansa is really lucky he could end up being at the helm of Finmeccanica when all the benefits of all that hard work comes through in the numbers."