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<TITLE>Mr. Viktor Kucera...The Emerging Defense Industry In Central Europe</TITLE>
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<CENTER><FONT SIZE="+4">The Emerging Defense Industry</FONT></CENTER>
<CENTER><FONT SIZE="+4">In Central Europe</FONT></CENTER>
<CENTER><FONT SIZE="+3">Mr. Viktor Kucera</FONT></CENTER>
<CENTER><I><FONT SIZE="+1">Vice President R&D AERO Vodochody a.s.</FONT></I></CENTER>
<CENTER><B><FONT SIZE="+1">BEFORE 1990</FONT></B></CENTER>
<P>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. </P>
<P>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.
</P>
<CENTER><B><FONT SIZE="+1">FOLLOWING THE DEMISE OF THE SOVIET UNION</FONT></B></CENTER>
<P>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: </P>
<UL>
<LI>What can we put to use from our past?</LI>
<LI>What new design and manufacturing approaches should we apply? </LI>
<LI>How can we change products as well as the way we work and think?
</LI>
<LI>Will these new approaches enable us to survive and to create modified
new companies that can be an integral, competitive part of the world
defense industry? </LI>
</UL>
<P>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. </P>
<CENTER><B><FONT SIZE="+1">THE SUCCESS OF AERO VODOCHODY</FONT></B></CENTER>
<P>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. </P>
<P>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. </P>
<CENTER><B><FONT SIZE="+1">DEVELOPING STRATEGIC</FONT></B></CENTER>
<CENTER><B><FONT SIZE="+1">WESTERN PARTNERSHIPS</FONT></B></CENTER>
<P>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. </P>
<P>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. </P>
<P>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. </P>
<P>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 <I>profitable
business</I> results for any new partnership. </P>
<P>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. </P>
<CENTER><B><FONT SIZE="+1">WORKING WITH OTHER CENTRAL</FONT></B></CENTER>
<CENTER><B><FONT SIZE="+1">EUROPEAN COUNTRIES</FONT></B></CENTER>
<P>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. </P>
<P>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. </P>
<CENTER><B><FONT SIZE="+1">CONCLUDING REMARKS</FONT></B></CENTER>
<P>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 <I>risks</I>
and the <I>benefits</I> of the Partnership for Peace. </P>
<P>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. </P>
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<A HREF="Workshop96.htm">Return to Warsaw '96</A> <BR><A HREF="../index.html">Return to Home Page</A> </P>
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