26 May 2004

Roman Baczyński, chairman of the board of PHZ Bumar, talks to Michał Jeziorski.

Over 18 months ago a holding company involving armament and military equipment producers was set up under the patronage of PHZ Bumar. Has the consolidation of the Polish arms industry passed the test of time?
The Bumar capital group in its original shape emerged as a result of the fusion of eight plants. Within a year three more plants joined the group, so now the group associates as many as 11 plants. Their number will eventually reach 16. The creation of the Bumar Group was accompanied by thorough restructuring. We have created new logistics and material supply systems bringing us very measurable savings. Now the group is entering the stage of industrial consolidation. We will move some companies to other places, reducing production costs and creating better opportunities for technological development. The process involves mergers, efficiency improvement and cost cutting.

The value of the products contracted for export has already exceeded $800 million. This is a very significant jump. Only three years ago the total export of the Polish arms industry reached about $80 million. The financial result for 2003 is positive, which means that for the first time profits were actually recorded in the consolidated balance sheet. These results are good and I therefore believe that optimistic forecasts for the future can be formulated-especially since this was achieved during a thorough industrial and technological restructuring in the plants when considerable costs were engendered. Additionally, the plants which are to enter the Bumar Group next, such as Bumar Łabędy or Mesko of Skarżysko Kamienna, have already undergone thorough restructuring and achieved positive results for last year.

Positive financial results provide the best proof that the Polish arms industry's restructuring was the right move. First of all, the plants have survived and they are accepting increased export orders. Moreover, the Ministry of Defense (MON) is implementing a long-term plan of orders for those plants. This procedure is a novelty. The new regulations permit MON to order armaments from industrial outlets a few years in advance. This is very important since a great deal of inertia is characteristic of heavy industry-the industry responds to needs no faster than within 12-18 months. The long-term plans for MON's purchases are one of the mechanisms that most efficiently encourages the restructuring of the Polish arms industry. It allows for the formulation of long-term plans for development, production and material supply processes.

The condition of our arms industry would be much better if the Polish army ordered equipment and munitions in accordance with the training requirements valid for NATO armies. Isn't the 1.95 percent of GDP earmarked for the armed forces too small a sum?
This is obviously one of the greatest pains, but we should act within the Polish reality, that is the reality of a high budget deficit. I always strongly encourage the budget authors to increase the sums earmarked for the army's needs. I think that money would be spent in a very good way, since money spent on the armed forces is money spent on our security. The Polish army has to be modernized. The equipment used by Polish soldiers has to be state-of-the-art equipment. We cannot forget that the "threats" identified by the state have changed fundamentally. Such a transformation should be accompanied by a change in the equipment used by the army. Luckily, the people responsible for the army, ministers Jerzy Szmajdziński and Janusz Zemke, are perfectly aware of the problem and regularly opt for an increase in expenditures on the army's modernization.

There is also another factor that makes money spent on the army well-invested. The arms industry can become the sector that sets the whole Polish economy in motion and provides jobs. Over 12,500 people are employed by the Bumar Group. If all plants with which we cooperate are added to that number, we provide employment for over 35,000 workers.

What significance will the offset, connected with the purchase of the American F-16 multi-role plane, have for the Polish arms industry? The offset is perceived as an opportunity.
The offset carried out in Poland at the moment concerns the multi-role plane, an armored personnel carrier and guided armor-piercing shells. The total value of the offset exceeds $10 billion. This sum can trigger remarkable economic recovery. The offset creates the opportunity for an inflow of new technologies and financial support for Polish entrepreneurs. The offset is now entering the execution stage. Since this is the first time we, as the state, are implementing offset regulations, some difficulties and mistakes are inevitable. Nevertheless, I think that we are very quick to draw conclusions from them and make up for the shortages. I find the opportunities stemming from the offset very beneficiary.

Bumar recently signed two big contracts for the supply of weapons to India and Malaysia. Some may say that we only achieve successes with less demanding partners.
People who say that are not professionals in this field. I can perceive no difference whatsoever between the demands of the Indian or Malaysian army and those of European armies. When you see the way in which Indian or Malaysian soldiers are trained, the whole technological training process, it is obvious that these armies represent a very high standard. Both these countries earmark much greater parts of their budgets for the maintenance of their armed forces than most European states. As a consequence, they have perfect officer staff and are very demanding and aware of state-of-the-art arms devices produced in the world. I can assure everyone that negotiating there is very difficult and that contracts have to satisfy very detailed standards.

Let me illustrate my reasoning with the fact that for six months, that is since the first day of the production process, officers of the Malaysian army have been staying in Poland. They are approving the smallest parts of the tank and watching us very carefully during the production process. They estimate, analyze and grant permission for the assembly of particular components for the tank.

Our cooperation with India does not only involve sales. It is actually multilateral cooperation. We have already agreed upon the establishment of a production joint venture which will most probably be launched next year in cooperation with Bharat Earth Movers Ltd of India. The venture will undoubtedly improve our competition abilities. On the Malaysian market we cooperate closely with the MMC company. Beside the PT-91 tanks supplied by us, the Malaysian army is also interested in our radar units.

How about the Russian market? Isn't it interested in cooperation with Poland?
We obviously do cooperate with Russia. We can't assume that suddenly we will be able to exchange the technical potential of our armed forces and be left with solely Western equipment at our disposal. This course of events is by no means probable. We have a lot of respect for our Russian partners and we cooperate with Russia in a number of areas, particularly in the domains of missiles and air unit renovation. We are also planning to cooperate on the creation of certain modernization programs concerning post-Soviet equipment, not only on the Polish market but also on third markets.

Bumar is taking part in the repeated tender for arming the Iraqi army. What are your chances of winning the tender?
I was truly surprised at what happened during the first tender. Bumar presented a very well-prepared bid featuring Polish products which perhaps are not the cheapest in the world, but we should be aware that price is not the most important criterion in undertakings of that kind. We discovered that the tender was proceeding improperly and, as it turned out, we were right. Some expected that since the Polish army was taking part in the campaign in Iraq we automatically deserved the contract. However, a number of states are present in Iraq and all of them apply for tenders.

An unquestionable asset of the Polish bid from the user's point of view is that most of the armament and equipment types offered by us to the Iraqi army are used by subdivisions of the Polish Military Contingent in Iraq. It is very important that the experiences connected with the equipment's usage in the conditions specific for the potential orderer can be taken into account.

I must say, however, that every year we bid in about 60-70 tenders of different sizes and types, held in different parts of the world. We win about 10-15 of them. It is impossible to win every time, particularly when the competition is really tight. Losing a tender is just as normal an occurrence as winning it. Naturally, we try to apply for tenders in which we think we have considerable chances of winning. The preparation of a tender bid is not cheap and since we are spending the money of a state-owned company we have to do it in a very thoughtful way. I think we do have a chance to win the tender for the Iraqi army's modernization. That is why we are taking part for the second time. We are offering an international bid with a clear majority of Polish products. I don't want to talk about the details so as not to inform the competition of our activity. I can say, though, that supplying equipment to the Iraqi army is a logistically difficult task. It will be a great challenge for us, especially now that the situation is becoming increasingly tense rather than settling down.

Irrespective of the ultimate decisions, the Iraqi tender is neither the beginning of Bumar nor its end. It is a big tender, but not the only one. Americans are spending their own money and they will be the ones to make the ultimate choice. Which does not mean that all choices are good.

The well-being of every corporation depends on its products. What products do you find attractive as export goods?
The first such product is the PT-91 tank. The Malaysian version is one of the best tanks in its category in the world. In autumn it will be presented in motion on a range. The electronic devices and systems installed in the tank make it a very dangerous weapon.

The second such product is the Grom surface-to-air missile of an entirely Polish design. It can be used as a hand launcher, a launcher installed on a car or on anti-aircraft machine guns. Radar fire control systems can be installed in the missile as well. The Grom missile is effective and reliable. It has already been introduced to the Polish army and enjoys great interest.

The Loara anti-aircraft system can become another export hit. The system is equipped with two anti-aircraft quick-firing cannons coupled with radar and range stations. I personally guarantee that no helicopter can fly through the fire blockade created by this system. We also have outstanding radar early warning and guidance systems. These are all top-class products compatible with various world systems. We are one of the best European companies producing such devices.

What is the scientific and technological back-up of the Polish arms industry?
In our plants we use the services of our own construction centers. We have already applied at the Ministries of Treasury and the Economy for adjoining two research and scientific centers to the Bumar Group. In Obrum, the first site, all construction and development work for heavy industry would be carried out. The second, PIT, would be responsible for electronics, photoelectronics, radar devices and smart weapons design. Our move constitutes another step in the consolidation of the Polish arms industry, offering good prospects for the sector's technological development. Cooperation with other European companies is significant too. We are generally open to research and developmental cooperation of any kind.

Previous governments had a number of plans concerning the actual shape of the army. Some wanted our army to be entirely professional. Arms companies should wholeheartedly support that idea. In a professional army money is not wasted on the proverbial shoe laces for every conscript. It is instead spent on professional training and state-of-the-art equipment.
I believe that a professional army is much cheaper and more efficient than a non-professional one. A professional soldier, who takes part in a specific series of training programs, is a much better soldier. We also want our equipment to be used by experts. A professional soldier knows the equipment much better and knows how to use it properly. Many mistakes can thereby be avoided.

From the point of view of the Polish arms industry movement towards an entirely professional army is the proper one, since it leads to emergence of an army of specialists. The equipment we provide soldiers with is in many cases very complicated technologically and very expensive. It takes two to three years for a soldier to achieve proficiency and the training is very expensive. Shooting a target from one missile can even cost more than zl.200,000. Training soldiers with the help of highly specialized equipment only to see them leave the army after 18 months brings no positive effects.

The arms trade is sometimes determined not so much by the market as by politics. What are the principles governing the arms sector?
The basic principle of the arms market is that only products which are officially used by the country's own army can be sold. This is a warranty of reliability and the product's usefulness. No sale would be possible without cooperation with the Ministry of Defense. Cooperation with the army itself is equally important, since the army is the owner of both equipment and ranges. We would not be able to present a tank in combat ourselves. A lot depends on the attitude of the Ministry of Defense and the army.

Obviously, the political stability of a given state is significant as well. Armament contracts are usually signed for a number of years and the period is extended by maintenance. All governments making weapon purchases estimate the political stability of the given state. Our credibility certainly increased when we entered the European Union, which can serve as the basis for some hopes for the future. The government's interest is simply inevitable. The last factor of significance for a contract's success is obviously the quality of the equipment.

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