Czech Republic - Defense Industry

The Czechoslovak munitions industry, which was already well developed when the country was a part of the Austro-Hungarian Empire, continued to produce arms and military equipment in the 1980s. The Skoda armament works of Plzen was famous long before World War I, and the British Bren gun of World War II fame was originally developed in Brno, from which its name was derived. Skoda and other manufacturers of munitions have maintained a reputation for quality during the communist era, and Czechoslovakia has become a major supplier of arms to Third World countries. The industry also has supplied weapons and equipment for the country's own forces and for other Warsaw Pact forces. Production has included small arms, machine guns, antitank weapons, armored vehicles, tanks (of Soviet design), and jet aircraft.

The transfer of arms from an industrialized nation to a third World country is a common feature of international foreign relations. The first such transfer of notable scale occurred in 1955 when the Soviet Union began shipping large quanities of modern arms to Egypt. This transfer, known as the Czech arms deal, is widely recognized to have been a turning point in the relative influence of the Soviet Union and the United States in the Middle East. Nevertheless, the specific details of the deal itself and of the events and decisions associated with this precedent setting incident are not well known or understood.

With the end of the Cold War, the question of the transformation of the Czech armaments industry, consisting particularly of the necessary liquidation of the hypertrophic production of heavy armored vehicles, was on the agenda of the day with all urgency. Unfortunately, much energy was consumed in useless polemics, dialogues, the organization of longterm research and the preparation of theoretical elaborations on this topic. Initially, the dynamics of the conversion wave had not been overly asserted in the enterprises to assist them in working out specific projects involving new production with good sales prospects.

In looking for the specifics of conversion pertaining to armaments production, as opposed to other no less extensive projects involving structural changes, one aspect is frequently overlooked. The Czechoslovak arsenals lived in strict secrecy, which insulated them in an airtight manner from developed world producers. The consequences of this tough cloistering were extraordinary. There was a lack of knowledge and experience from the world market, and modern management and marketing are in their embryonic stage. Collaboration with potential capital partners was predominantly in the phase of initiating contacts and exchanging information which, for the most part, moreover flows in one direction — to foreign countries.

There was initially a lack of credible economic analyses and clear notions regarding the assertion of new production which would guarantee that unsalable products of military equipment will not be replaced by similarly unsalable goods. The weak areas of projects were then supplanted by a single firm point — the demand for subsidizing financial resources from the state budget of the federation. Disquieting indications of the sales crisis involving heavy armored vehicles had been showing up since 1986 when the reality of "economic disarmament" began knocking on the doors of the countries of the former Warsaw Pact, to be shortly followed by the insolvency of customers in Third World countries. As early as 1988, the directorate general of the ZTS [Heavy Machinery Plants] Combine at Martin was working on the Principles of Structural Change in the State Enterprise of the ZTS Combine at Martin which, upon their conclusion, became the basis for discussion by the then federal government.

In practice, these principles were a sort of first conversion project. They reached the conclusion that the program for developing the combine in the future was based on the dynamization of civilian production sectors. As a matter of fact, the presidium of the Adamec government gave its approval for the halting of tank production on the basis of these principles in 1989. The new post-November federal government confirmed this approval of halting the production of tanks in the CSFR and, on the basis of the deteriorating situation, also approved the halting of production of infantry combat vehicles. It did not, in other words, issue any prohibition nor did it make any "imprudent decisions." Production which then continued within the framework of entrepreneurial activities is declining as a result of the actions of objective conditions, rather than as the result of an administrative incursion.

By missing the decisive time frame, by deferring and dismantling residual sales to the Czechoslovak Armed Forces as a result of the drastic curtailment of the military budget, producers found themselves in a crisis situation. There was no other choice than to strive for support from the state budget. In 1990, the conversion subsidies, which amounted to 1.2 billion Czech korunas [Kcs], which were distributed in an atmosphere of an expiring state plan still directly to the enterprises involved, dissolved without having any more express effect.

The notion that the Czechoslovak armaments industry produced only obsolete equipment is deeply misleading. This applied only to a part of the production based on Soviet clearance sale licenses, where the product was already obsolete at the moment its production began with our manufacturer. With an excellent aviation industry, by the end of the Cold War Czechoslovakia was the largest producer of training jet aircraft in the world. The Model L-39 and its modernized version, the L-39-MS, was an aircraft which has great chances of prevailing in a number of Western markets. Production of pilot training simulators was also advanced in the Czechoslovak aviation industry.

The production program for the Model DV-2 aircraft engine at the Povah Engineering Works had become an important component of aircraft production in this country. The engine is a high-quality product, capable of competing in comparable categories. Its predominant use in the Model L-39-MS aircraft constitutes cooperation between two manufacturers, established from the very beginning on a commercial basis and on market principles.

The production of airfield radars and systems for passive radar reconnaissance at the Tesla Plant at Pardubice was considered as having promise and of being capable of competing. The production by this experienced manufacturer, whose radar systems have proven themselves in the long term under operationally as well as climatically particularly demanding conditions on tens of airfields in the Soviet Union.

In handling this difficult task of working out conversion projects under the complicated, unstable, and frequently unclear conditions that govern the future development of the Czechoslovak economy, the majority of these establishments will have difficulty getting by without assistance from foreign consultants and foreign capital. If there is hesitation on the part of foreign capital for well-known reasons generally, then the careful approach here manifests itself even more expressly. Foreign interestees are waiting for guarantees.

Similar to defense industries throughout the world, the Czech industry found that it must diversify and seek dual-use technologies to expand its market potential. The Czech Republic has a long industrial history of producing high quality aircraft and heavy equipment, as well as sophisticated technologies for radars. The Czech Republic's massive privatization program included restructuring and consolidating firms. The descendants of the former state owned defense sector include two primary consortia, or holding companies: Aero Holding, and Omnipol.

Aero Holding manages several independent companies within the aviation sector; however, 99.96% of Aero is state-owned through the Czech Consolidation Agency. The Czech aviation industry is regulated by the Ministry of Industry and Trade. Omnipol deals with the purchase of goods for the purpose of further sale; trading brokerage; economic and management consulting; development, manufacturing, repairs, modification, transport, purchase, sale, lease, storage, degradation and destruction of weapons and ammunition; destruction, degradation, purchase and sale of explosives.

Companies trading in the defense industry are required to have licenses. Nowadays, most Czech commercial companies have English-speaking staff members, and the same is true at the MoD. The number of sufficient and experienced personnel with foreign experiences is growing significantly.