With its entry into NATO in 1999, Poland's enemies of forty years are now its allies. From the ashes of a centrally planned economy, a vibrant free-market has emerged, and the defense industry has had to both change its client base and reorganize itself. The military activities of Poland have aimed at meeting NATO goals. The Polish army has moved away from a draft-based army towards a smaller professional unit better suited to the NATO mission. Poland's membership in NATO has brought numerous opportunities for U.S. companies in terms of upgrades and adjustment. In addition, Poland became a close U.S. ally in Europe through its support in the international intervention in Iraq and Afghanistan, which also called for upgrades and adjustment in terms of more capable and mobile force compatible with NATO troops.
Since Poland became a member of the European Union on May 1, 2004, all external security matters must comply with the “Common European Security and Defense Policy”, which defines external action through the development of military management capability. Poland is the sixth largest country in the EU with a population of 38 million people. Its 1,100-kilometer eastern border is now the longest external border in the European Union.
A tender to supply 48 fighter aircraft for the Polish armed forces awarded to Lockheed Martin back in April 2003 substantially increased industrial cooperation opportunities for both U.S. and Polish companies in the defense sector including direct investment in form of sub-supply agreements, acquisition of knowhow, training assistance, new technologies and licenses to help modernize the Polish defense industry, enabling its involvement in greater international cooperation. All 48 aircraft have been already delivered to Poland, but various opportunities for American firms still exist, mainly in investment, technology transfer, and co-production work.
The recent discussion regarding the deployment of a U.S. missile defense site in Poland and the Czech Republic has become central to the security debate in the United States, Poland, and region. After a comprehensive, congressionally-mandated review of missile defense, President Obama on September 17 announced a new plan to strengthen missile defense in Europe. In his remarks, President Obama said, “This new approach will provide capabilities sooner, build on proven systems, and offer greater defenses against the threat of missile attack than the 2007 European missile defense program. The new missile defense architecture in Europe will provide stronger, smarter, and swifter defenses of American forces and America's allies. It is more comprehensive than the previous program; it deploys capabilities that are proven and costeffective; and it sustains and builds upon our commitment to protect the U.S. homeland against long-range ballistic missile threats; and it ensures and enhances the protection of all our NATO allies. This approach is also consistent with NATO missile -- NATO's missile defense efforts and provides opportunities for enhanced international collaboration going forward. We will continue to work cooperatively with our close friends and allies, the Czech Republic and Poland, who had agreed to host elements of the previous program.” Before making this announcement, President Obama spoke to the Prime Ministers of both the Czech Republic and Poland about this decision, reaffirming existing close ties.
In general, receptivity to American products is high due to an affinity toward the United States. American suppliers have an excellent reputation for high quality products, reliability, and technical assistance. However, technological advantage is not the only factor determining success in the market. Therefore, American companies must focus on educating end-users and other players in the defense sector as well as supporting its agent/representative at marketing efforts including trade shows, seminars, and industry conferences.
Market Overview and Market Trends
Prior to 1989 (since the collapse of communism), the Polish defense industry benefited from many advantages. Companies manufacturing for the defense sector were given absolute priority in the acquisition of raw materials, technology and preferential credits. Also, they were exempt from paying taxes. Now faced with sharply reduced government subsidies, outdated technology and an over employed work force, defense firms in Poland struggle to survive. After 1989, three main factors negatively affected the long-term prospects for weapons production. The first was the collapse of the Warsaw Pact market, which accounted for 80-90 percent of defense sector output. The second was the advent of the new market economy. The third was the shrinking world arms markets, particularly for the generally low-tech weapons that were produced in Poland. In addition, the number of special orders written by the Ministry of Defense has been seriously reduced. The Polish defense industry, however, still looks to the government for the assistance.
Until recently, the Ministry of Treasury, which is responsible for privatization in Poland, tried to bail out the defense industry by locating strategic partners and signing cooperation agreements with international companies. Successive government cabinets have focused on defense industry restructuring as a key element of both industrial and national security policy. The Ministry of Economy initiated a program to restructure and consolidate the defense industry. Under this program, two holding companies were established by the end of 2003. One is PHZ Bumar and the other is the Industrial Development Agency (ARP). Both holdings play a major role in consolidating entities for each group. These companies combined their production capacity and credit resources. At the end of August, 2007 the Council of Ministers accepted a new program to further restructure and consolidate the defense industry in year 2007-2012. Under this program, the Bumar Group will enlarge. The program is strictly tied up with the modernization and restructuring of the Polish armed forces.
The ammunition/rocket/tank group (under PHZ Bumar) includes: Zaklady Metalowe Mesko S.A., Zaklady Metalowe Dezamet S.A., Przemyslowe Centrum Optyki S.A., CNPEP Radwar S.A., Zaklady Mechaniczne Tarnow S.A., Zaklady Mechaniczne PZL-Wola S.A., WSK PZL-Warszawa II S.A., Zaklady Produkcji Specjalnej Pionki, Zaklady Produkcji Specjalnej Bolechowo, Zaklady Metalowe Krasnik, Zaklady Mechaniczne Bumar-Labedy S.A., Fabryka Broni Lucznik-Radom, PSO Maskpol S.A., Zaklady Chemiczne Nitro-Chem S.A., Osrodek Badawczo-Rozwojowy Urzadzen Mechanicznych OBRUM, and Osrodek Badawczo-Rozwojowy Sprzetu Mechanicznego OBR SM. PHU Cenrex trading company handles marketing and export for this holding. The aircraft/electronics group (under the ARP) includes: WSK PZL-Swidnik S.A., ZR Radmor S.A., and PZL Hydral S.A. PHZ Cenzin trading company handles marketing and export for ARP Group. Also, there are three repair shipyards, thirteen military repair facilities, and eight research and development institutions for the defense/military function. In addition to the above listed companies, there are several private firms, which are very successful on the Polish market including IMS-Griffin, MAW Telecom, Pimco, Siltec, Unitronex Poland, WB Electronics, and DGT.
We can produce a list of Polish company contacts in the defense industry on request.
The R&D institution which cooperates very closely with the ARP Group is the Institute of Aviation in Warsaw. From its beginning, the Institute was recognized as a leading design, research and development center for Polish governmental organizations and the Polish Aviation Industry, performing many design and research projects and scientific works. The Institute of Aviation is strictly focused on international cooperation, integration with European and worldwide R&D in the area of aerospace and similar high-tech human endeavors. They employ highly experienced scientists and technical staff. Their laboratories are ISO certified and can perform specialized tests with highly accurate measurement.
International cooperation is integral to the development of the Institute of Aviation. Particularly important is their focus on bringing together the research and development programs of new products from both the U.S and European aerospace industries. As such, the Institute of Aviation offers their expertise and diversifies its activities, i.e. specializes in areas, which might be suitable for foreign partners. One of the most effective and mutually profitable forms of international cooperation includes working as design office, research team or production center for U.S. high tech companies. The Institute has close ties with U.S. Aerospace firms, including GE and Pratt & Whitney. A good example is the Engineering Design Center (EDC), one of GE Infrastructure global engineering sites, created in 2000 based on an Engineering Alliance Agreement between GE Aircraft Engines and Warsaw Institute of Aviation. Currently EDC is working on projects in three GE Infrastructure business areas: GE Aviation, GE Energy, and GE Oil and Gas. The Polish Institute of Aviation is looking for further opportunities to cooperate with American firms.
Before the changes of 1989, the defense sector in Poland consisted of 150 companies that employed 215,000 people. Today, this sector consists of 23 companies and employs about 20,000 people. Because of their precarious financial situation, Polish defense firms have shown little interest in importing foreign equipment. The majority of defense exports include ammunition, transportation vehicles, and spare parts. The defense industry continues to search for new export markets, particularly in developing countries and in the Middle East. Many new contacts are being negotiated for the sale of weapons and technical military equipment.
Polish defense companies seek cooperation agreements or joint venture opportunities with foreign defense companies that, combined with the relatively lower cost of production in Poland (particularly tanks, armored vehicles, artillery, ships, aircraft, and helicopters), will be attractive to potential customers. The U.S. company United Technologies - Pratt & Whitney acquired 85% of the shares in aircraft engine producer WSK Rzeszow. The company has two factories, one in Rzeszow and another in Kalisz. Pratt & Whitney makes airplane engines in Poland and it is one of the largest aviation companies in the country. The Polish Air Force fly F-16s with Pratt & Whitney engines assembled in Rzeszow. Another subsidiary of United Technologies Corporation, Sikorsky Aircraft of Hartford, Connecticut, made a major strategic investment in Poland. Sikorsky Aircraft Corporation signed an agreement with Polish aircraft maker PZL Mielec to establish the assembly center for International Black Hawk helicopters and key helicopter components. Sikorsky's strategic investment in PZL Mielec provides funding for factory improvements and tooling to support assembly of the International Black Hawk helicopter and other helicopter component production. Today, United Technologies has 8000 employees in Poland.
In addition, the Polish defense sector benefited from offset agreements in connection with the tender to supply 48 fighter aircraft for the Polish armed forces, which was awarded to Lockheed Martin back in 2003. The roll-out of the first Polish F-16 fighter jet produced through the Polish F-16 Peace Sky program took place on September 15, 2006 at Lockheed Martin production facilities in Fort Worth, Texas. The Peace Sky program was the centerpiece of an enduring relationship between Polish and U.S. air forces. These forty-eight aircraft has been already delivered to Poland and provide the foundation of interoperability that enables them to carry out operations as NATO and coalition partners. The direct investment in the defense sector included sub-supply agreements, acquisition of know-how, and training assistance. Incoming streams of new technologies and licenses helps modernize the Polish defense industry enabling it to be involved in greater international cooperation.
Plans to field U.S. long-range ground-based missile defense interceptors in Poland and mid-course radar in the Czech Republic were scrapped in September, 2009. Originally, the approximate size for the interceptor missile site would have been 275 hectares (approx 680 acres) in Poland and approximately 30 hectares (12 acres) for the single radar site in the Czech Republic. The overall cost of the Czech and Polish facilities had been estimated by the U.S. Missile Defense Agency to be approximately 3.5 billion USD.
After a comprehensive, congressionally-mandated review of missile defense, President Obama on September 17 announced a new plan to strengthen missile defense in Europe. In his remarks, President Obama said, “This new approach will provide capabilities sooner, build on proven systems, and offer greater defenses against the threat of missile attack than the 2007 European missile defense program. The new missile defense architecture in Europe will provide stronger, smarter, and swifter defenses of American forces and America's allies. It is more comprehensive than the previous program; it deploys capabilities that are proven and cost-effective; and it sustains and builds upon our commitment to protect the U.S. homeland against longrange ballistic missile threats; and it ensures and enhances the protection of all our NATO allies. This approach is also consistent with NATO missile -- NATO's missile defense efforts and provides opportunities for enhanced international collaboration going forward. We will continue to work cooperatively with our close friends and allies, the Czech Republic and Poland, who had agreed to host elements of the previous program.” Before making this announcement, President Obama spoke to the Prime Ministers of both the Czech Republic and Poland about the decision, reaffirming existing close ties.
By Zofia Sobiepanek-Kukuryka