MILAN, July 16 (Reuters) - Fitch Ratings has cut Italy's Finmeccanica to junk with a negative outlook, citing weaker market outlook and delays in its 1 billion euros ($1.30 billion) asset disposal plan.
Fitch is the second rating agency to cut its credit rating for the debt-laden aerospace and defence group to below investment grade after Standard & Poor's in January.
Analysts have said downgrades to junk could impact the ability of Finmeccanica, Italy's second-largest private sector employer, to receive pre-payments from customers and harm its competitiveness outside Italy.
"The previously assumed improvements in the financial profile relating to de-leveraging and underlying cash generation in the short term are unlikely to be achieved," Fitch said in a statement on Tuesday.
The agency reduced the long-term issuer default rating (IDR) to 'BB+' from 'BBB-' and the short-term IDR to 'B' from 'F3'. It kept its outlook on negative - a warning of the risk of another cut.
Fitch said it had previously assumed that the Rome-based group would complete asset sales worth up to 1 billion euros by early 2013, the proceeds of which were to be applied to cut debt.
Political wrangling has slowed the sale of company units AnsaldoEnergia, AsaldoBreda and Ansaldo STS. To date the group has only agreed to sell its stake in aero engine parts maker Avio for 260 million euros.
The group generates over half of its revenues from defence markets including Italy, the US and Britain which are facing uncertain budget outlooks.
Finmeccanica is targeting a net profit in 2013 after two years in the red. It has been hit by a corruption probe relating to a helicopter deal in India and has recently named a new chairman.
Company shares were down 0.16 percent at 3.72 euros at 1248 GMT, while blue-chip Milan index was down 0.18 percent.