Defence industry Poland: Modern weaponry
The purchase of the American medium-range air and missile defence system will allow Polska Grupa Zbrojeniowa to obtain the technology ultimately allowing the company to manufacture approximately 90% of components for launchers of these missiles. However, the Polish defence system still needs investments which would make it more competitive on the global market.
As part of the contract concerning the purchase of the defence system based on the ultra-modern Patriot missiles, the value of the anticipated offset ranges between PLN 1-1.4 billion, thanks to which the Polish defence industry will gain access to advanced military technology. As a result of this and a few similar programmes aimed at technical modernization of the Polish army, the arms industry may rely on significant economic and technological boost. This will create the conditions for making the previous poor market offer more appealing and consequentially obtaining new contracts. All of this may ultimately lead the industry to enjoy the favourable market conditions. This, on the one hand will encourage domestic companies’ business approach to be more active, also within the areas of innovation and R+D (research and development) and on the other hand will result in more interest from investors with capital, technologies and distribution networks as well as greater co-operation with Polish arms companies.
The most important segments of the Polish defence industry
The core of the Polish defence industry includes entities belonging to Polska Grupa Zbrojeniowa (PGZ) which was established in 2013 and belongs to the State Treasury. PGZ consists of 33 companies specialized in the development, manufacturing and repairs of arms and military equipment as well as 30 other entities representing the shipyard, offshore, property and new technologies industries. The companies focused on defence employ the total of 17.5 thousand people. In 2017, PGZ’s turnover amounted to PLN 4.5 billion which gave it the 31st place in the ranking of the Stockholm International Peace Research Institute (SIPRI) amongst the largest arms concerns in Europe and 75th place worldwide.
One segment of the Polish defence system whose importance has grown significantly over the last 10 years includes private enterprises partially based on the Polish capital - WB electronics, TELDAT and Lubawa S.A. being in the lead. A separate part of the domestic defence industry includes aviation manufacturers located in e.g. Rzeszów, Mielec and Świdnik, all of which have been taken over by foreign, mainly American, capital (UTC and its subsidiaries – Pratt & Whitney, Sikorsky Aircraft Corporation, Goodrich, Hamilton Sunstrand), with the exception of PZL-Świdnik which was acquired by AgustaWestland in 2010 and in 2015 became part of Leonardo-Finmeccanica’s Helicopter Division.
Supplier’s difficult choice
In 2018, the MON’s (Ministry of Defence) budget totalled PLN 41.1 billion (2.0% of GDP planned for this year), including expenditure for purchasing arms and military equipment totalling PLN 6.7 billion. At this point, the proportion of these funds benefitting the Polish defence industry vs. foreign companies is uncertain. Currently, Poland imports many defence systems for its army which are not manufactured domestically for technological and economic reasons, whilst the foreign exchange balance concerning this industry remains negative. This state of affairs will not change in the near future despite Polska Grupa Zbrojeniowa (PGZ) signalling the increase of export capacities in 2017. This is why it is important for Polish companies to increase their participation in defence contracts and in justified cases to commence licenced production of weaponry purchased abroad, and this way successively increasing the Polish participation in the manufacturing of such products.
Frequent changes to modernization plans affected by political climate, the long process of developing tactical and technical foundations by MON which the ordered weaponry would conform to, prolonged negotiations concerning supply contracts and complex anti-corruption procedures have all had a negative effect on the defence ministry’s co-operation with the industry.
Potential market niches of the Polish defence industry
The arms industry should only become a supplier of weapons and military equipment if it is able to make competitive and rational offers that can compete with international ones. Participation in national and international research and development programmes must be an important strength. It must also be emphasised that the purchase of a arms system is only the beginning of its life cycle. Hence, a professional supplier must provide services associated with the maintenance, repair and modernisation of the equipment.