French shipbuilders Naval Group and Italy’s Fincantieri signed an agreement on Friday, June 14 to create an 50-50 joint venture in a bid to take on rising global competition.

“This is the culmination of a shared industrial ambition, which is the long-term position of the European shipbuilding industrial market which has undergone a profound transformation,” Naval Group chief Herve Guillou told two journalists, including AFP.

First floated in 2017, the “Poseidon” alliance project initially included cross-shareholding between the two groups, but this was abandoned last year in favor of a joint venture.

The deal was signed on Friday by Guillou and Fincantieri chief Giuseppe Bono on board the frigate Frederico Martinengo in the Italian port city of La Spezia.

“We are by far the two largest European naval players, but if we rely on our domestic markets alone we cannot maintain our resources and remain competitive,” said Guillou.

The groups have said the alliance would permit the two companies to team up on research, development and procurement for some common projects, either bilateral or for export.

Competition in the industry is heating up, with China’s CSIC last year becoming the world’s largest shipbuilding company, while a Russian group is expected to be the second biggest next year.

European defense industry

In June, the European Union presented its €13 billion European Defence Fund, which will offer money to member states for research and development beginning in 2021.

The E.U. has given the EDF a budget of €13 billion over the period 2021-2027, including €4.1 billion for research and €8.9 billion for developing military capabilities.

French Minister for the Armed Forces Florence Parly said at the time that France hopes to get financing for a military drone project it is working on with Germany, Italy and Spain.

In March, the European Commission set aside €525 million to fund defense industrial and research projects in 2019 and 2020 including €100 million for the development of the Eurodrone.

The E.U. formally established the 25-member Permanent Structured Cooperation on security and defense (PESCO) pact in December 2017. PESCO was introduced by the Lisbon Treaty and allows states participating the the joint framework to develop joint defence capabilities, invest in shared projects, and enhance the operational readiness and contribution of their armed forces.

The pact has prompted U.S. concerns that it would become a protectionist vehicle used to shield European defense companies such as France’s Dassault from American competition.

With reporting from AFP