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The Warsaw Voice » Special Sections » April 30, 2014
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Air Defense and the Role of Polish Industry
April 30, 2014   
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The Polish Defense Industry (PPO) platform is a component of the national security system and its value is proportional to its role in the modernization of Poland’s armed forces.

The top priority in modernization plans is the country’s air defense system. Below, PPO experts present their assessment and opinions on the involvement of Polish companies in these efforts.

The operational significance of a modernization program should determine the level of the PPO’s commitment to its implementation, of course accounting for the industry’s capacity in terms of production, technology and design of a given type of armaments. Production results must be guaranteed and any equipment must meet the military’s expectations. The results of such a model of government-military-industry collaboration will bring measurable security benefits.

The program for modernizing Poland’s air defense system includes new sets of anti-aircraft missiles of medium, short and ultra-short range. Taking advantage of experience acquired during the implementation of numerous programs in cooperation with international industry, the Polish Defense Holding (PHO) has developed a strategy for supplying the armed forces with new anti-aircraft and anti-missile batteries taking into account the ambitions of Polish manufacturers.

Analytical, conceptual and research-and-development work has continued for three years, financed from funds provided by companies from the PHO group themselves and from the National Center for Research and Development (NCBR). Simultaneously, a search was conducted for a foreign partner, and organizational changes were made in the companies. Modern management systems were put in place and managerial and design staff received training.

The search for an international partner is the result of assessing Polish industry’s capacity for building medium- and short-range anti-aircraft missiles.

The OPL Consortium (or “anti-aircraft defense consortium”) was established on March 19, 2013 in consultation with the Defense Ministry. Its aim is to develop and provide an advanced air defense system for Poland by Polish industry and with support from a foreign supplier of missile technology. The technological and HR potential of companies in the consortium guarantee that the key objectives of the Air Defense operational program – building medium-range anti-aircraft missile batteries and then short-range anti-aircraft missile batteries – will be achieved.

How this potential is actually utilized will depend on the choice of international partner to work with Polish industry, and what that partner will offer. This decision will be of key importance to the future of the PPO since it will enable the platform to join a group of manufacturers of advanced weaponry and transform it from a supplier of parts and components into a shareholder and equal partner. It will open the way to many years of cooperation in research and development of new types of weaponry and guarantee the expected technological progress. But it could also minimize the expected benefits and thus erase all the positive aspects for the Polish economy and the defense industry, limiting companies’ capacity to operations in maintenance, perhaps assembly, depriving industry of opportunities for development and, in the case of more serious service needs or technical problems, condemn users to a long and costly process of obtaining support. This opinion stems from observations of talks held so far with prospective partners – suppliers of missile technology.

In the PPO’s view, more than 50 percent of the production of medium-range anti-aircraft and anti-missile batteries and over 70 percent of production of short-range anti-aircraft missile batteries, including the missiles for both types of batteries, should be based in Poland. This condition is the key to making rapid technological progress.

The benefits of modernizing the air defense system:
- the Polish government’s credibility in terms of fulfilling its joint security commitments undertaken at the NATO summit in Lisbon and Chicago
- increasing Poland’s military importance in NATO structures
- playing a leading role in the development of the NATO eastern flank’s anti-missile and anti-aircraft defense capability, including by creating regional solutions with the Visegrad Group countries
- gaining defense capabilities in combating ballistic missiles and cruise missiles
- creating an air defense system with the capacity to cooperate with NATO’s anti-missile defense system in Europe
- security of supplies and logistic support, especially in situations of conflict
- the appearance of new devices developed under this program for use in other military formations
- keeping key technical, organizational and deadline-related decision-making in Poland
- ensuring cyber-security by developing appropriate software and cryptography systems
- freedom in deciding on missile and spare part inventories

According to PPO experts, the operational safety of equipment is a special requirement that has to be considered when making a decision on how and where to obtain the equipment that will be the foundation of the country’s defense system in times of danger and create conditions for efficient management of the military part of this system. The armed forces must be guaranteed continual deliveries in case of loss or damage of equipment. Fulfilling the operational safety requirements requires the state to maintain control over the system, something that can only be guaranteed by a national business organization controlled and overseen by state/government bodies.

Advantages related to equipment operation:
- software modernization and updating
- maintenance/repairs in Poland and abroad
- shortened overhaul duration
- development of Poland’s training base
- training cost reduction thanks to training provided in Poland by Polish instructors
- ease of introducing changes and modernization during a product’s life span
- reducing the necessary spare part inventory
- shortening the supply chain for parts and components.

It is important for the armed forces to have a direct influence on the timeframe of maintenance inspections, software updates, overhauls and modernization. Having this work done by Polish industry decidedly reduces costs and makes equipment operation more efficient. It enables purchases of missiles and spare parts to be shaped flexibly to accommodate the defense ministry’s financial capacity. The ministry thus has a direct influence on maintaining the production capacity of companies, which guarantees prompt attainment of the system’s full combat capability and quick replenishment of missile inventories.

Benefits for economic development:
- stimulating economic activity in areas with high unemployment (most armaments factories are based in such areas)
- benefits from acquiring export capacity in advanced technology, resulting in increased exports
- increased competitiveness of Polish companies on European and world markets
- possibilities for promoting Poland’s industry and economy
- developing Poland’s own technologies and acquiring new ones
- obtaining a large return on investment by the government

Benefits for the Polish budget:
- limiting the outflow of funding to other countries.

When building the air defense system according to the PPO’s proposals, about zl.10 billion would have to be spent on foreign supplies, from a total of zl.26.5 billion earmarked for modernization of all of the system’s tiers. If the PPO’s role is reduced to that of a maintenance service provider for a foreign supplier and of a manufacturer of the simplest parts, foreign deliveries would claim about zl.21 billion.

By entrusting the leading role in carrying out the program to a Polish consortium, the aim is to make sure that at least 50 percent of the funds designated for medium-range missile batteries (Wisła) and about 70 percent of those to be spent on short-range batteries (Narew), remain in Poland.
- limiting the outflow of funds abroad in product operation cycles.

It takes around 30 years from acquiring a product to the end of its operation. During this time, the product is subject to overhauling and modernization. The modernization cycle for such advanced systems is every three to five years on average, while overhauls are carried out every eight to 12 years. NATO analytical materials presented at various meetings and conferences define a product’s total life span cost as follows: research and development – 10 percent, equipment purchase costs – 30 percent, technical operation costs throughout the product’s life span – 60 percent. The costs of operation are double the purchase costs. What percentage of these costs flows abroad and to what extent these funds will stimulate the Polish economy depends on the size of PPO involvement in carrying out the program and thus in building operational independence.

If the predominant role is given to the PPO, about 75 percent of the costs of operating the medium-range batteries will stay in Poland, and for short-range batteries this will be almost 100 percent. Manufacturing missiles and missile equipment domestically and their logistic security will be of key importance to the financial system.

Analyses of predicted tax reimbursements, ZUS social security payments and other payments made to the national budget and local budgets suggest it will be possible to obtain a tax refund of about 35 percent of the amount spent when the entire program is implemented with a Polish consortium in the leading role and with the participation of domestic capacity.

Obtaining missile batteries with a predominant role for Polish businesses in this process will also result in a lower overall price of manufacturing the system and making it operational, due to lower labor costs in Poland compared with highly advanced countries offering similar products.

Production in Poland of selected components according to the foreign partner’s documentation will be cheaper and at the same time, thanks to cooperation with that partner, all technical and quality parameters will be maintained.

Launching the Polish air defense modernization program will cause large sums to be spent from the budget over the course of many years or even decades on obtaining missile batteries and keeping them efficiently in service. This spending will have an impact on economic development and thus on jobs. The number of new jobs created will depend on where equipment is purchased. The degree of Polish involvement will help increase employment in Poland—or contribute to the creation of new jobs in other countries. Three degrees of Polish involvement were considered in the analysis.

First degree: the entire system is purchased abroad apart from chassis/undercarriages, power generation sets and selected communications components. The estimated value of the “Polonization” package is 5 percent.

Second degree: “Polonization” of the basic devices of which a missile set is composed does not exceed 20 percent, except communications equipment, which is 90 percent made in Poland. The total estimated value of second-degree “Polonization” is 14 percent.

Third degree: proposed by the PPO – most of the basic devices are made by the Polish defense industry. Production involving missile technology is carried out in cooperation with a foreign supplier. In this case, it is assumed that medium-range missiles will be 15 percent “Polonized” and short-range missiles will be 60 percent “Polonized.” Ultimately, the ambition of the Polish defense industry is to increase this share. The total estimated value of third-degree “Polonization” exceeds 50 percent.

Benefits related to the transfer and commercialization of Polish technologies:
- commercialization of technologies developed under the program and adapting them to civilian applications
- expansion and modernization of company scientific research facilities and research institutions involved in the program
- increased value of companies and their stronger market position following the implementation of advanced technologies in terms of manufacturing anti-aircraft defense equipment
- the possibility of conquering new markets thanks to the advanced nature of the products and the comprehensive nature of the offered range.

Due to the program’s magnitude and complexity, its implementation will not be limited to production companies within the OPL Consortium. It will require the start-up of an entire chain of companies acting as subcontractors. Analyses suggest that the program will involve practically all of the major PPO companies as well as leading universities and scientific institutes.

The PPO platform, currently being consolidated within Polska Grupa Zbrojeniowa (Polish Arms Group, PGZ), reports annual sales of about zl.5 billion. This sum does not reflect the PPO’s full design and production capacity. If the anti-aircraft defense modernization program is anchored in Polish industry, a 60-percent “Polonization” package will yield an extra zl.1.5 billion annually over a period of 10 years. This corresponds to 30 percent sales growth and means more effective utilization of the PPO’s available capacity.

The PPO platform boasts technological achievements in all fields except short- and medium-range missiles, namely in areas such as sensors, communications equipment, automated command and control equipment, contamination protection, and transport systems. These achievements qualify Poland as a supplier of missile systems. The extent to which these achievements are utilized will determine the program’s benefits for the Polish economy and the defense industry’s development, while also influencing the costs of the system’s future operation. The program’s implementation will produce results in terms of the development of missile technology and contribute to technological progress in the industry.

Carrying out such a large technical modernization program with funding guaranteed under a law passed by parliament ensures the necessary stability in terms of financing and production continuity. This is another element that, thanks to such stability and predictability, enables orders to be accumulated and production costs to be reduced.

Benefits related to the development of semiconductor technology for radar needs
Advanced radar systems rely on cutting-edge semiconductors thanks to which antennae can be composed of a large number of semiconductor amplifiers based on GaN (gallium nitride) technology. This technology is being developed by Polish institutes while manufacturers linked with them sell these materials successfully all over the world. Obtaining power transistors based on this technology will enable us to build radar stations of a technological standard comparable to that offered by top global leaders.

Benefits related to building our own command and data transmission systems

Automated command systems have been developed in Poland since the 1970s. This work involves military institutes and civilian universities. A range of original Polish solutions was developed even before Poland joined NATO, and after accession cooperation in this area was developed successfully with European institutions and NATO.

Communications systems designed in Poland are of world-class standard and require no technology transfer. Wasting this development will cause the degradation of an important segment of military and civilian communications.

Missile technologies require specialist knowledge from many technological fields. In Poland, we owe the development of this knowledge to work on an ultra-short-range missile, conducted by both military and civilian universities. The results of this work have been applied in the modernization of short-range anti-aircraft missile batteries. High-energy material technologies purchased or obtained as part of offset agreements are successfully being developed in cooperation with scientific research centers. Cooperation with a foreign partner will help absorb new knowledge in this area and lead to developing our own short-range missile.

The strategy proposed by the Polish Defense Holding and the OPL Consortium for building Poland’s anti-aircraft defense system based on Polish industry means boosting Poland’s independence in defense and consolidating Poland’s position on the international arena. Pursuing this strategy will bring measurable benefits to state security, the economy and technological development as well as ensuring the effective functioning of anti-aircraft and anti-missile missiles in the Polish armed forces. With support from a foreign partner, the PPO has the potential to fulfill this task within a satisfactory timeframe.

Implementing a program for modernizing the air defense system with a leading role for the Polish defense industry will reduce the amount of money flowing out of the country from zl.21 billion to zl.10 billion, where the total cost of the system will be zl.26.5 billion, compared with direct purchases; in the case of the Wisła batteries the reduction will be from zl.14.25 billion to zl.7.5 billion, with the cost of the batteries at zl.15 billion.

The decision on where to obtain anti-aircraft and anti-missile missiles will become a benchmark of the PPO platform’s role in production, but it will also be a decision defining the future of the PPO in terms of technological development and competitive edge. This decision will have a crucial influence on the PPO’s position on arms trade markets.
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