Changes and Growth in the
Czech Defense Industry
Czech First Deputy Minister of Defense Petr Necas

Along with the political and economic changes that took place in Czechoslovakia in 1989 has come a radical change in our defense force strategy, military doctrine, and objectives. This change has led to considerable cuts in defense spending, which resulted in the cessation of armed forces development and modernization between 1990 and 1994; most expenditures during that time were swallowed up in the operation of large forces that no longer met requirements. This situation had an immediate impact on our domestic defense industry.

I would like to share with you now my views on the state of that industry. I will focus on three main issues: the past, present, and future of the Czech defense industry and its conversion; the rebuilding of the Czech armed forces; and control of armament exporting.


In order to gain an overall picture of the Czech defense industry, it is necessary to take a short look into its past. After the end of World War II, our armament production was almost nonexistent. However, the early 1950s gave rise to a new industrial base, but on a completely different footing. The dominant part of the industry consisted of Soviet-designed arms and technologies. For example, between 1954 and 1962 the former Czechoslovakia produced more than 3,400 Soviet MIG-15 fighter aircraft. In the 1960s, under the uncompromising control of the former USSR, we were forced to adopt a specialization, as were other Warsaw Pact countries. Czechoslovakia was "assigned" the production of aircraft and armored vehicles.

Despite this enforced specialization, Czechoslovakia managed to continue development and production of certain articles of Czechoslovak design. We were one of the few countries of the former Warsaw Pact whose armed forces exclusively used small weapons manufactured in their own country. However, the Soviets maintained control over our exports and introduction of important weapons and forced de facto compulsory technological transfers to the other so-called socialist countries. Such efforts of the former USSR were not always unselfish. Until 1989, Czechoslovakia also maintained excessive armed forces and spent excessive funds on research and development of new weapons.


There were many reasons for converting this disproportionate defense capacity in the early 1990s. Until that time, Czechoslovakia had produced great quantities of heavy military equipment such as battle tanks, armored combat vehicles, artillery systems, and ammunition. The major customers for these products were the countries of the Warsaw Pact and the so-called friendly countries of the Third World. The production of these heavy weapons, demanding in terms of material and energy resources, put a heavy burden on our economy and the environment.

With the disintegration of the Warsaw Pact, our essentially predictable and centrally planned economy disintegrated as well. Even exports to Third-World countries raised problems. We respected armament embargoes against states supporting international terrorism, and chronically insolvent customers had debts that were practically uncollectible.

In addition to these problems, most heavy weapons produced under the Soviet license were becoming outdated. Modernization did not seem appropriate, since the worldwide slump in arms trading in the early 1990s did not guarantee marketability.

While all of these factors spoke in favor of defense industry conversion, many issues were bound up with the speed, depth, and methods through which it would be realized. In 1994, the armament production in the Czech Republic achieved approximately 15-20% of its 1987 volume in comparable prices. The decline differed among the individual fields of production, from a slight decline in aircraft production to practically a complete stop of the manufacturing of small weapons and ammunition. But a general conversion of armaments-related research and development and production facilities actually did take place. While it cannot be claimed that conversion was successful, positive aspects of the process have been manifested in the expansion of a number of non-military production facilities to fill the gaps in our market. And all of this came about without any manifest social upheavals.

These early conversion efforts have stimulated further efforts in forming a new Czech defense industry structure. While these efforts have not yet been completed, the industry has already achieved some success. This can be seen in its participation in the rearming and modernization of the Czech armed forces, in its investing resolutely in its future, in attracting new customers, and in the establishment of contacts and cooperation with foreign companies.


As our defense industry works on its new structure, we have already begun to produce many top-quality products. These include:

Some of the Czech companies engaged in this work include Aero Vodochody, Tesla Hloubetin, Synthesia Pardubice, Ceská Zbrojovka Uhersky Brod, Zbrojovka Brno, Zbrojovka Vsetin, and Policské Strojirny Policka. Affecting this work and the future work of the Czech defense industry are the fundamental and irreplaceable importance of the Czech armed forces, and the export policy, extent of international cooperation, and competitiveness of Czech companies in research, development, and production.

A principal change has taken place in industry management because of the abandonment of individual manager material and budgetary authority and because of the start-up of a planning and budgeting system. In 1995, for the first time, the Ministry of Defense's chapter of the state budget was prepared to cover recognized threats to state security and efforts leading to their elimination. Costs were budgeted for each element. The ratio of investment and operating expenditures have also been decided on, with significant emphasis placed on investments. These decisions have inevitably required a substantial reduction in operating costs, as well as a narrowing of the program structure. However, long-term plans for reduction in resources, including financial, material, and human ones, have been prepared, discussed, and approved by the Ministry of Defense through the year 2006. The 1995 and 1996 budgets as well as the Ministry of Defense's state budget chapter for 1997 are based on these long-term plans. The long-term requirements of the Czech armed forces have also been identified and the "Acquisition Plan" for developing and modernizing projects between 1995 and 2005 has been completed.

It should also be emphasized that a number of principal organizational changes have been implemented. A public tendering system is being applied to selecting business partners for both supplies and disposals, and the double-entry accounting system has been introduced, enabling the monitoring of all costs associated with individual assets and their changes.


At present, the Czech armed forces are at the end of the first phase of their transformation period. This first period can be characterized as one of predominantly quantitative changes in personnel numbers and in the numbers of weapons systems and equipment. External factors affecting this period have been the process of dividing the former Czechoslovak army and the implementation of the Conventional Armed Forces Treaty in Europe. The dominant internal factor was a quantitative change in the financial management system of the Czech armed forces and the Ministry of Defense.

To continue the rebuilding of the Czech armed forces and to further its modernization and development, 743 investment projects have been defined for the period 1995-2005 with a calculated expenditure of 209 billion Czech crowns. To date 151 projects have begun with total investment expenditures of 55 billion Czech crowns, or $1.96 billion U.S. The priority of these projects is to achieve compatibility with the NATO armies.

The Ministry of Defense expects that most of these modernization steps will be provided for by domestic producers, whom we consider potential suppliers of most of the important commodities for the Czech armed forces. Material provided by domestic companies tends to be cheaper than foreign imports, and is therefore advantageous and desirable.

International participation in providing supplies is, however, being realized or envisaged for a number of projects, since there is no appropriate domestic production base for some of these materials. In addition, practically no project can be economically successful for any producer if the products are sold only to the Czech armed forces. International cooperation in production and sales therefore brings about salability in other markets and thereby economic advantages. In this respect the Ministry of Defense and the Czech armed forces envisage supporting the penetration of foreign markets with quality products. We also realize that the sale of any domestic product to the armed forces is an important pro-export factor.


In the field of armament export, the Czech Republic has created an effective system of controls based on legislation in three relatively independent areas:

In the area of international control of armaments production and export, the Czech Republic is cofounder of the so-called Wassenaar Arrangement and a member of the Nuclear Suppliers Group. We have also expressed our interest in taking part in activities related to control of missile technologies, and are a signatory to the Nuclear Nonproliferation Treaty. We fully respect our obligations under the Convention on Banning and Destruction of Biological and Toxic Weapons and signed, in 1993, the Chemical Weapons Ban Convention. The principles and commitments ensuing from these international documents and conventions constitute an integral part of the Czech legal order.

The actual export of armaments involves applying licensing procedures laid down by the Czech Licensing Office of the Ministry of Trade and Industry in direct coordination with the Foreign Ministry, Ministry of Defense, and Ministry of the Interior. It is a two-tier process controlled by the Government: once a general license is granted for trading in military equipment, a trading license is then issued for each approved export transaction. Without the general license and the trading license, no Czech company can offer any military equipment, promote its sale, purchase it, or sell it.

In the field of dual technologies, the current national system is also based on individual review of every export transaction, with licenses issued after prescribed terms have been met. Export of weapons, ammunition, and explosives of a non-military character are also handled on a case-by-case basis.

Particular attention is now being paid to the issue of military commodities export. Legislation is expected to regulate existing procedures according to the following principles:

In 1995, the Czech Republic exported $153 million worth of military equipment to 58 countries on all five continents. The main share of this equipment was aircraft technology, although its value declined compared to 1994. On the other hand, the share of mobile ground technology almost doubled, and the share of small handguns almost quadrupled.

The total value of military material imported to the Czech Republic reached $49.7 million in 1995. The main import items were aircraft technology components, particularly aircraft engines and aircraft cannon. Communications equipment represented another significant import item. Traditional imports of spare parts for mobile ground technology also continued.


The defense industry in the Czech Republic is being fully privatized. Newly born companies generally are taking the form of joint stock companies and their owners are usually institutional investors. In the aircraft industry, the state is also a shareholder.

I would like to conclude by expressing my conviction that the time has come to develop mutual defense industry activities among the member-states of NATO and Partnership for Peace. I am certain that the Czech defense industry has much to offer in that regard and is able to contribute its share to international cooperation

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