The Italian Aerospace, Defence and Security industry

The AD&S sector performs a fundamental role in key areas for the functioning and
development of each territorial system, because it sets the conditions for its
security, stability and growth. In particular, there are six reasons why the AD&S
sector is strategic:

A. It guarantees, through its products and solutions, the defence of the country and the security of citizens, companies, critical infrastructures and the territory, ensuring the continuity of the economic activity and the prevention and management of emergencies.

B. Acting as an instrument of geopolitical influence, it promotes the image and the reputation of the country and encourages sales and international cooperation agreements with other governments.

C. It supports exports to foreign markets and the country’s strategies of internationalisation.

D. It is an “innovation driven” industry with high-intensity of knowledge, capital and technology which stimulates important investments in Research and Development and skilled employment.

E. It is a significant industrial sector, supporting growth with an integrated supply chain of specialised SMEs and large global and high-tech players that are highly interrelated and with effects on different sectors of the economy.

F. It develops technologies and products with dual applications, enabling transfer mechanisms and widespread benefits in other sectors.

At the global level, the AD&S industry generates revenues of 925.7 billion euros, with the United States and Europe together contributing almost 70% of the total. In Europe alone, the AD&S sector employs approximately 862,000 persons, an average annual increase of 2.7% between 2008 and 2017, alongside a 5.5% growth of revenues in the same period.

The sector substantially contributes to scientific progress, classified among the top 10 industrial sectors for investments in Research and Development worldwide: numerous innovations and technological solutions initially introduced in Defence have found widespread application in various fields of everyday life, facilitating and improving various activities that presently characterise our way of life. Moreover, Aerospace is the leading sector by ratio of R&D to value added (18.2%) in the OECD countries, ahead of Electronics and Optics and Pharmaceuticals.

• Security and geopolitics: growing geopolitical instability in various areas of the world (Middle East, North Africa and Sub-Saharan Africa) with a number of international immigrants that has reached a historic record of 258 million persons in 2017 (+50% compared to 2000).
• Globalisation of the economy: all areas of the world are going through a sustained growth phase, and the level of globalisation is increasing in terms of flows of persons and goods.
• New technologies: the AD&S industry is influenced by the introduction of new technologies and, more than others, lends itself to adopt cutting-edge innovations to be applied to other sectors.

These dynamics are inducing the majority of countries to increase budgets allocated for Defence (in particular in Asia, Africa and the Middle East). Also Europe has provided for an increase in investments for enhancing the AD&S sector, allocating, for the 2021-2027 period, additional resources to those of the Member States, for example, with a doubling of the Fund for Internal Security (2.5 billion euros) and allocations for the European Fund for Defence (13 billion euros) and the new European Space Programme (16 billion euros).

The Italian AD&S sector is among the top 10 in the world and has permitted the country to achieve leadership in several important areas at the international level (1st country in the world to have a tilt-rotor aircraft for civil use under certification and among the first countries to perform joint operational activities between aerial vehicles and uncrewed aerial vehicles; 3rd country in the world to launch a satellite into orbit; over 50% of the pressurised volume of the international module of the International Space Station was produced in Italy).

In 2016, the turnover of the AD&S sector in Italy was over 13.5 billion euros, with 69.4% destined for export, and with a contribution to the national value added of approximately 4.4 billion euros. The Italian AD&S industry employs 45,000 persons and, taking into consideration also indirect and allied-industry employment, involves over 159,000 persons.

Maintaining a developed supply chain, with a prominent leading company in the global AD&S sector, represents a fundamental strategic value because:

• It contributes to representing the country at the international level and facilitates geopolitical alliances in sensitive and critical areas of the world.
• It increases the development of strategic technological expertise in the territory by activation of a highly qualified international network.
• It is a fundamental asset for guaranteeing the security of the territory, managing emergencies and monitoring critical infrastructures.

Leonardo is the leading company of the AD&S sector in Italy, 10th at the global level and 5th in Europe. Furthermore, it is one of the main industrial operators in the country: with revenues of 11.5 billion euros in 2017, the group is positioned 2nd among the manufacturing companies and 5th among the industrial and service companies of Italy.

The international dimension is fundamental for the development of the Group, which contributes in a significant manner to the trade surplus of the country thanks to exports of high technological content. With 78% of the value of production in Italy exported, Leonardo generates 18% of the manufactured high-tech exports of the country and contributes 1.3% to national exports.

The Group contributes to the industrial fabric of the country, creating a supply chain made up of 4,000 companies, of which about 70% are SMEs with sales of 3.7 billion euros in 2017.

Leonardo is also one of the top spenders in R&D: in 2017, it invested over 1.5 billion euros (of which 1.2 in Italy), positioning it in 4th place in the international AD&S sector and in 1st place among Italian manufacturing companies.

The technological offering of Leonardo makes it possible to enhance the security of people and guarantee the defence of the territory and its key players, to prevent and manage emergencies and to guarantee the security of critical infrastructures.

As of 2017, Leonardo has 45,134 employees, of which 28,892 are in Italy (equal to 64% of the total), which positions it as the 2nd manufacturing company by contribution to employment on a national basis. Of them, 71% have a degree in a STEM disciplines (Science, Technology, Engineering and Mathematics), a value almost 3.5 times greater than the Italian average (20.2%).

At a national level, the activities of Leonardo are distributed over 48 industrial sites mainly concentrated in seven Italian Regions (Lombardia, Lazio, Campania, Piemonte, Puglia, Liguria e Toscana), with almost 54% of Leonardo employees located in the south-central Italy. The ratio of Leonardo employees to the total of employees in high technology manufacturing is particularly high in Italy (especially in the South, where the percentage reaches almost 29%).

In 2018, Leonardo employed 9,000 people in R&D activity, equal to about 20% of all employees. Of these, 6,200 are based in Italy and represent nearly 7% of the R&D employees in the Italian manufacturing sector and about 10% of employees employed in the medium-high technology industries operating within the national territory. Furthermore, in 2017 the Group invested 1.5 billion euros in R&D activities (13.4% of Group revenues), of which 1.2 in Italy (15.2% of the revenues of Leonardo S.p.A.).

Leonardo has developed a solid network with research institutions, universities and SMEs and is increasingly oriented toward an “ecosystem of innovation” based on the implementation of technological Research and Development initiatives focused on Open Innovation: the company has started over 200 projects and established research partnerships with 93 universities and research centres all over the world, of which 48 are in Italy (approximately 40% of Italian universities).

In line with its own company values and with the objectives defined by recent environmental policies, Leonardo has improved its own direct environmental performance with 54 million in environment-related investments in 2017 and about 100 million euros in environment-related projects in the 2015-2017 period in Italy. In particular:

• Reduction of energy consumption (-0.2% compared to 2016) and of electricity (-1.1%, in contrast with the average of the national manufacturing sector) and increase in energy used originating from renewable sources (at Group level, from 0% to 35.4% of total energy consumption between 2010 and 2017).
• Reduction of CO2 emissions by 45% at Group level in the last 8 years (2010-2017), compared to -21% recorded by Italian manufacturing as a whole. Only in the two-year period 2016-2017 has this made it possible to avoid economic damages (social costs) valued between 1 million euros to 5.8 million euros caused by the negative externalities of CO2. Reduction of waste products (-11.5% compared to 2016) and an increase in recycled waste (+16.5%), equal to 50.4% of the total.
• Reduction of water consumption (-12.6% from 2015 to 2017) and improvement in the water efficiency (-1.5% of water withdrawal volumes over production value from 2015 to 2017) at Group level.

Leonardo has also developed solutions that lead to environmental benefits, including: a) efficient technologies that reduce the environmental impact in the use phase by the customer (for example, carbon fibre aerostructure); b) initiatives to reduce the use of products with a high environmental impact through a transition from product to service (for example, virtual training programmes) ;c) technologies that enable the management of climate change (for example, terrestrial and meteorological monitoring); d) innovations that extend the life cycle of products (for example, upgrading of on-board systems).

The AD&S industry expresses a value that goes beyond that which is purely economic for the industrial system of a country, but it also assumes a strong geopolitical and strategic value, enabling the development of solid long-term relationships with other countries. For this reason, the main developed and developing countries have adopted specific policies to guarantee their own defence capacity in the future, to develop national industry and maintain (or create from scratch) distinctive expertise in several fields of the AD&S sector, defining in some cases a specific medium- to long-term vision.

The analysis of 15 countries worldwide shows several unchanging elements based on the national strategies for supporting the AD&S industry:

1. Government-to-Government agreements (G2G), which are instruments for supporting exports of equipment for Defence and for the creation of long-term strategic relationships between countries.
2. Research and development programmes as instruments to incentivise training in new areas of strategic technological expertise.
3. Long-term strategic vision on the part of national Governments, taking into account the needs of industry in the process of defining the future development of the AD&S sector.
4. International collaborations as preferred channel for the development of products and solutions with high technological and innovative content.

1. Promote a proactive role for Italy in integration and collaboration between the European systems of AD&S.
2. Adopt a long-term, strategic, multi-annual vision for public investments in Defence and Security.
3. Support the internationalisation of the AD&S sector.
4. Identify and manage the priority areas of technological expertise for Defence and Security at the strategic level.
5. Adopt a “service-supply” approach in the AD&S sector.
6. Integrate and aggregate the areas of expertise, create a critical mass of the Italian AD&S supply chain and guarantee its coordination.
7. Adopt Open Innovation and Venture Capital as tools for stimulating technological innovation and supporting investment.
8. Attract talents and create new skills for the AD&S sector.
9. Increase the awareness of the country on cybersecurity themes.