The Emerging Defense Industry
In Central Europe
Mr. Viktor Kucera
Vice President R&D AERO Vodochody a.s.

The status of the defense industry in Central Europe corresponds directly to the general political and economic situation in this region; the many geopolitical and economic changes of the last five years have greatly affected it. In the years before 1990, companies involved in the defense business were strictly defined and controlled by their governments, of course under the leadership of the Soviet Union. Free markets did not exist here; the division of work was based on political decisions. However, the defense companies were relatively happy and certainly fully employed. The future was not in their hands and the respective governments were responsible for ensuring and funding busy production lines, development programs, and product upgrades.

Aero Vodochody, for example, where I work, produced thousands of jet trainers, more than 90% of which went to the Soviet Union. Production "contracts" were signed in December for delivery in early January, a few weeks later. Technically there was only one basic jet version, which was produced in large quantities with no need of customization or modification. No possibility existed for the inclusion of any Western avionics or engines until the late 1980s, and then for only two or three export customers.


After the breakup of the Soviet Union, our defense industry's "protected environment" and former markets disappeared overnight. The old-style products were no longer marketable. We were faced with several immediate challenges:

As we confronted these far reaching issues, different companies reacted in different ways. Some did almost nothing; others changed the focus of their business; still others simply went out of business. However, many others reacted positively by changing their management, work style, and way of thinking and tried to achieve a new position based on reality. This was not easy. Because of the dramatic changes in the political, economic, and legal arenas, the business environment was very turbulent. Companies had to survive on their own with practically no assistance from state institutions. Change was difficult as it still is today, and is now further burdened with frequent ownership changes, massive accumulated debts, financial restructuring based on the needs of the banking sector, and the disintegration of local networks of parts suppliers.


I believe there are two principal focal points of doing defense business today in Central Europe. The first is a project's business, economic, and customer relations aspects; the second is technology in the broad sense. Aero Vodochody, a Czech manufacturer of jet trainers and light attack aircraft, is one of the defense companies that has successfully applied new business principles and met the challenges of the initial post 1989 period. We have created new versions of proven aircraft and found new markets for them while establishing positive relationships with Western suppliers. The key was moving from the jet trainer market to the light attack category. We successfully merged the proven platform of our jet aircraft with the benefits of Western high technology to create a new, higher class aircraft, the Aero L-159. This multirole light attack aircraft now is in the prototype development stage. Using our new approaches, we have been able to deliver significant quantities of our aircraft to the Egyptian air force, the Royal Thai air force, and the Tunisian air force, thereby remaining one of the most successful producers of jet trainers in the 1990s. However, even this business success is not sufficient for a company with no direct government support and not part of a larger industrial entity to balance good and bad years in today's complicated market environment.

The Czech government strongly supports the L-159 program. They have placed an order to equip the Czech air force with 72 of these aircraft whose technical and operational capabilities will allow Czechoslovakia to be a valuable partner when we enter the NATO Alliance. However, the learning curve of the military industrial complex and the financial institutions in our country is very steep. Standard procedures allowing financing based on formal governmental guarantees or firm orders, procedures for military procurement implemented by knowledgeable specialists, and the availability of skilled workers who are able to implement new technologies are all in the process of growth. Strong, positive personalities will be needed to overcome some of the system's inadequacies. And our future success will depend on how fast we can establish the standards that exist in Western companies and on our careful selection of strategic partners. Much remains to be done, but we appear to be on the right path.


Aero Vodochody has already initiated working with several Western defense companies. We established new contacts in early 1990, but encountered difficulties resulting from lack of confidence in our profitability and problems related to technology transfer and releasing military equipment. Today, however, the list of Western companies we are doing business with is very long.

On the L-159 project, we have two principal strategic partners: Rockwell International for avionics and weapon delivery system integration the avionics package contains key components from the U.S., the U.K. (GEC Marconi), and Italy (Finmechanicca) and AlliedSignal/ITEC for engines. Aero selected Rockwell for their extensive experience in complex aircraft upgrades and for their ability to bring to us experience with modern radar, weapons, and other systems integration. Aero and Rockwell are cooperating on technology for delivery of hardware and software, and have also entered a strategic alliance whereby Rockwell assists Aero in penetrating new markets.

Aero and Western companies are experienced in different areas and have gained their experience under totally different conditions. And while Aero technicians, business and finance people, and management will be able to benefit from all the new knowledge and experience Western cooperation will bring, we are sure that Rockwell, AlliedSignal, and other defense companies will also benefit from doing business on a large scale with a former East Bloc company. In today's very complex marketplace, all new approaches can play a key role in competitiveness. We believe that the West recognizes that we too have contributions to make, and that our information exchange will not be limited to only contractual relations. We welcome the contacts between the Czech military aircraft industry, the Advisory Group of Aerospace Research and Development (AGARD), and NATO, and look forward to this cooperation as a source of new ideas.

From these examples you can see that the Central European defense industry, and Aero Vodochody in particular, are now beginning to form strategic partnerships with the West's "elite club" of leading defense companies. Aero Vodochody's contribution to this club is our extensive experience in aircraft design, manufacturing, and marketing, and our 77 year history that includes the production of nearly 12,000 aircraft of various types. Membership in this club will bring Aero Vodochody and other Czech and Central European companies the benefits of closer association with a modern, high tech industry; a new and more dynamic style of management; and a more open, transparent, and professional approach to international business relationships that are welcomed by us all. We are very pleased with our current Western partnerships and are actively seeking to broaden this cooperation with other Western firms. We welcome any opportunity to engage in serious dialogue with major international aerospace firms on both sides of the Atlantic, and are confident that, with our extensive production capacity and low labor rates, we bring significant comparative advantages that can result in profitable business results for any new partnership.

Aero Vodochody, which has been certified by the Boeing Aircraft Company, is currently producing civilian aircraft components and is interested in establishing wider business relationships in the civil field with such companies as Boeing, Rockwell, McDonnell Douglas, and Airbus. We will soon receive our ISO 9001 certification and look forward to joining and competing with the growing ranks of world class suppliers. Like our Western counterparts, we have quickly learned that competition is fundamental to establishing free market technology and an environment in which industry can flourish.


In addition to establishing strong business ties with the West, the Czech defense industry sector also wishes to develop closer cooperation with our neighbors in the Visegrad countries, in particular our kind Workshop host, Poland, with its advanced industrial capability and highly skilled labor force. We are hopeful that Poland will purchase some of our new light attack aircraft in the near future, offering an excellent opportunity for closer cooperation between Aero Vodochody and Mielec and the chance to use our jointly developed technology and production capabilities. The additional opportunity for a bilateral reciprocal purchase of defensive armaments such as the new Polish Huzar helicopter and the Czech L-159 light attack aircraft, both of which will be equipped with NATO standard avionics and weapon systems, is a practical and cost effective way to ease the financial burden on both the Polish and the Czech governments. This reciprocal purchase would also substantially assist both governments in making a major military contribution to the Western Alliance while strengthening the interoperability of our respective armed forces and those of NATO.

The governments of the Czech Republic, Hungary, and Poland will soon be making a major procurement decision on the purchase of a new airt superiority fighter. All three governments are strongly supporting their local industries by mandating that the industries take an active role in this program. All parties involved expect the anticipated decision to result in a substantial transfer of needed technology, knowt how, and work to the principal aerospace companies in Central Europe. This will no doubt add to and strengthen our overall capabilities and provide yet another opportunity for us to broaden our industrial ties to Western aerospace companies.


Although all industries in Central Europe have gone through difficult times these past six years, we remain optimistic that things will indeed improve as our respective countries move closer to Western integration at the political, industrial, and economic levels. We in industry ask for the opportunity to work closely with Western firms based on our individual abilities and to be treated as an equal partner, sharing in both the risks and the benefits of the Partnership for Peace.

Participating in this Workshop has enabled me to meet with businessmen and leaders from Europe and the United States. It has been a unique experience that should assist the Czech company I represent and our industrial partners throughout Central Europe in making a meaningful contribution to the future success of the great adventure our respective countries embarked upon six years ago.

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