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DEFENCE I OFFSET

Jarosław Kruk 

THE FUTURE OF THE DEFENSE INDUSTRY IN POLAND

30/01/2013

Until recently everything appeared clear. The following entities were to be incorporated in Bumar (Bumar is a leading Polish supplier and exporter of armaments and military equipment): Huta Stalowa Wola and WPRP; this would create an entity that would be called, for instance, the National Defense Concern, covering most of the Polish defense industry. Apart from this, there are a few large private companies, the most dynamic of which is WB Elektronic group and Radmor, and parallel to them, a number of small companies focused on servicing foreign suppliers and export, sometimes.

The change of the name would certainly help Bumar in foreign markets, where the name Bumar, since 2007, has been evoking the associations of unreliability and failure to perform the entrusted obligations. This solution could favour the strategy proposed by the new President of Bumar, involving the development and creation of a dozen or so of high-tech products that might be of interest to our army, as well as foreign customers. What is more, Bumar was to focus on meeting the needs of our armed forces and on their modernization program. Overall, not a bad idea, we choose partners with the appropriate technology and maximally concentrate on ‘polonization’ of products. This has a chance of success.

A few days ago another idea came to light in the media, i.e. Defense Concern, i.e. HSW WPRP headed by Siemianowice and Łabędy excluded from Bumar. Also nice, a few times more workplaces to occupy. This may be favored by the argumentation that there will be two independent and strong centers. OK, but why Zielonka and WZLe are to be included in the Defense Concern? Where is the logic? It would be more reasonable to give to Bumar WZLi and Zielonka mentioned above, and incorporate Łabędy into the composition of the Concern. The question is, where the integration center will be located – the new entity , Stalowa Wola, perhaps Siemianowice or Poznań? And will it be one company, a holding, or maybe a sort of consortium with the maximum independence from the entities?

From a legal perspective this boils down to a very simple decision of the Council of Ministers on the inclusion of stocks or shares to some entity. This is enough. Incidentally, in Poland there is no proper holding law. Each management board must act for the good of a specific company and not the entire holding. And yet again, the question arises whether we are really forming the defense concern, if so what WZE Zielonka and WZLe are there for? There is a complete lack of logical reasoning in this strategy.

You can faster create a single concern. There have been some valuation analysis conducted, some preparatory works done. We need to remember that in the Polish reality and in the Polish practice, such merging must take over a year, so if we are planning to create two new concerns, maybe we will manage till 2015, while foreign competition is scampering off.

I’ve never been a fan of Bumar. I sometimes represent companies at dispute with Bumar concerning the export transactions. I think the new management strategy, designed to focus on the country, it is not right. Conversely, the conduct as to several contracts will inevitably result in Bumar’s being entered in the blacklist by some regional Great Power. Then champagne will flow down the 27thStomynka Street. I am honestly and positively surprised with the results of the year 2012, where in November a fifty-million profit was generated. I am also amazed by the export, 300 – or even 350 million zlotys.

It would be commonsensical to support the first idea, especially that this hypothetical defense concern is, as one may read, to be incorporated in Bumar at a later time anyway. However, there should be two centres: one defense centre, without Zielonka and WZL and the other Bumar plus everything else. If one center collapses, then maybe the other one will remain steady and still. The production range of these two would be different. There would be no Polish – Polish competition. The worst thing is to maintain the current state of affairs where WPRP is subordinate to the Ministry of Defense, and HSW to the Treasury, etc. Some decision must be taken –and most importantly – implemented.

 

 

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