After decades of nurturing its indigenous industry back from the devastation of World War II, the Italian defense ministry is adopting a tough-love approach to sharpen its local aerospace sector for the competitive world stage.

The reduction of defense spending globally is the impetus for the Italian military's new approach of forcing industry to hone its skills and become more competitive, says Italy's chief weapons buyer and industrial policy maker.

Finmeccanica and its aviation arm, Alenia Aermacchi, are the primary targets of the approach, according to Air Force Lt. Gen. Claudio Debertolis, Italy's secretary general of defense and national armaments director. “Alenia was used to being protected, to having a guaranteed profit,” in the past, Debertolis tells Aviation Week. “Now, for the future, they need to be more competitive.” He and other Italian military officials emphasize that they aim to keep as many Italians employed in the aviation sector as possible. But they are also pushing to secure more advanced work in areas such as unmanned aircraft and composites (see story below).

This is the case for work supporting the American-led Joint Strike Fighter as well as smaller programs, Debertolis says. And gone are the days when the Italian military will simply take equipment designed and built by its industry without a firm requirement, he says.

Debertolis cites two examples. First, the Italian air force has purchased the U.S.-made General Atomics MQ-1 Predator and MQ-9 Reaper unmanned aerial systems to support forces in Afghanistan. These procurements were in response to urgent needs, not allowing time for Italy's industry to compete. And General Atomics, a notoriously introverted company, abruptly declined any chance for Italian industry to participate in work out of the deal.

Second, Italy's army recently selected AAI Corp.'s RQ-7 Shadow 200 tactical unmanned aircraft over an Italian option to fill an urgent need. The army will purchase four systems for €51 million ($66 million), says Lt. Col. Antonio Zuliani, Debertolis's public affairs chief. Shadow won over Finmeccanica's Selex Galileo Falco. “There is no way, for industrial reasons, we will change the requirement,” Debertolis says.

The systems are to be delivered by year-end, as soon as testing is complete, Zuliani says. Because they were so quickly needed in Afghanistan, Italy did not insist on industrial participation. Debertolis says that only a couple of decades ago, a decision such as this one would have been subject to political whim, possibly delaying the delivery of equipment to the front. “Now there is no more of that,” he says.

Guiseppe Giordo, CEO of Alenia Aeronautica, acknowledges the changed relationship between industry and the Italian defense ministry. “We don't want to impose requirements” on the Italian military, he says.

Alenia launched a restructuring in January 2012 that cut roughly 1,500 jobs through voluntary separation packages; about 500 younger, less expensive employees were added back.One of four facilities in Naples was closed and the company's headquarters was moved to Turin to reduce operating costs. Alenia Aermacchi also consolidated its once separate operations with the former Alenia Aeronautica, streamlining some business functions.

“I understand they want us to be more efficient, but I don't know how,” Giordo says, noting the changes already implemented.

Against this backdrop, Alenia has also reduced its strategy in the U.S. substantially. Once a virtually independent operating unit, Alenia North America is now fully integrated with headquarters in Turin and operates more like a satellite office. This is due in part to the company's lackluster success in contracting with the Pentagon.

Only a few years ago, Alenia's C-27J and G222 contracts were promising signs of the company's ability to be an effective prime contractor for the Pentagon, as well. But the U.S. Air Force has opted to shelve its new Alenia C-27J tactical transports because of budget pressure, and this spring it did not renew Alenia's contract to upgrade old transports into G222s for the Afghan air force, citing inadequate performance.

So now Alenia is shifting its strategy toward cooperating with U.S. primes, such as General Dynamics, with which it is offering the M-346 to replace the U.S. Air Force's T-38Cs. “The last years have shown [us] that we must have a reliable and solid U.S. prime,” Giordo says. “We need to team instead of competing, [and] we are lucky to have products that aren't directly competing with U.S. products.”

The U.S. Air Force's so-called T-X program is the next big opportunity for which three foreign allies are bidding: Italy with the General Dynamics/Alenia M-346, the U.K. with a Northrop Grumman/BAE Systems Hawk-based proposal and Lockheed Martin/Korean Aerospace Industries with the T-50, currently built in South Korea. Boeing says it will design a platform to the service's specifications, but USAF officials have pushed for an off-the-shelf option. The T-X program is not expected to get underway until at least 2014.