Stealth frigates deal eludes France and Italy

UPDATE 2-Stealth frigates deal eludes France and Italy

Tuesday 4 October 2005, 11:30am EST

Reuters

By Paolo Biondi and Sophie Louet

PARIS, Oct 4 (Reuters) - A last-minute failure to agree on a major defence deal to build "stealth" frigates at a Franco-Italian summit on Tuesday threw the fate of Europe's largest single naval construction project into confusion.

The two NATO allies backed away from signing the 11-billion-euro ($13.12 billion) deal to build the 27 frigates to modernise their navies that should have crowned talks between President Jacques Chirac and Prime Minister Silvio Berlusconi.

Delegates said the two sides also failed to make progress in long-running discussions over whether Italy's state power firm Enel (ENEI.MI: Quote, Profile, Research) should be allowed into the French energy sector or whether their national airlines should deepen existing ties.

In an embarrassing setback, French officials were forced to retract a statement that the frigates deal had been signed after apparently discovering a last-minute hitch in negotiations.

Neither side explained why the deal had not been signed as expected.

Plans to announce the deal unravelled behind the scenes even as Chirac was highlighting its benefits in a joint post-summit news conference with Berlusconi.

"We are going to put in place our project for multi-purpose frigates," Chirac said, adding that the venture reflected strong defence ties which also include a deal to allow each side to use the other's airspace to prevent terrorism.

In chaotic moves alongside the summit, French state shipyard DCN called a news conference for late Tuesday to discuss the frigates deal once it had been signed, then brought it forward to avoid French transport strikes, then cancelled it suddenly.

Italian Defence Minister Antonio Martino played down the significance of the delay.

"The signing slipped back because of a small technical problem," he said, adding that he hoped the deal would be signed soon.

French defence industry officials put the blame on the Italian side and said they would press ahead with their own part of the plan, which could create 2,000 French jobs.

"The signature was delayed for administrative reasons (in Italy)," said one French source close to the deal.

STEALTH TECHNOLOGY

The order for advanced FREMM multi-role frigates would be Europe's biggest confirmed naval project if it is launched, and covers 17 advanced warships for France and 10 for Italy.

The ships, armed with modern stealth technology to avoid detection, are designed for anti-submarine warfare and attacks deep inland and are expected to enter service in 2008.

Negotiations to build the ships have been dogged in part by uncertainty over how Italy, which is struggling to meet European Union fiscal targets, would finance the deal despite Italian Senate approval of a 4 billion euro funding measure in May.

The 27 ships are due to be built in France by a joint venture between DCN and arms firm Thales (TCFP.PA: Quote, Profile, Research) and in Italy by Orizzonte Sistemi Navali, a joint venture between shipbuilder Fincantieri and aerospace firm Finmeccanica (SIFI.MI: Quote, Profile, Research).

If original indications are confirmed once the deal is finally signed, the first firm part of the order is expected to be for eight vessels worth more than 3 billion euros.

The French share of the total order is worth 6.5 billion euros, making it the country's biggest naval order.