Poland's largest arms maker returns to battle

By bne IntelliNews April 23, 2007

Jan Cienski in Warsaw -

By Jan Cienski in Warsaw

Bumar, Poland’s largest arms maker, has recovered from the slump that followed the collapse of communism and the disappearance of its tradition Warsaw Pact markets, and is now selling weapons to India, Indonesia, Malaysia and Iraq, and is making plans to break through in South America.

Bumar is also looking to take advantage of the Asian building boom, which has so increased the demand for civilian construction machinery like cranes and bulldozers that traditional west European manufacturers such as Germany’s Liebherr are unable to cope, opening a niche for Bumar to supply precision components like frames for self-propelled cranes.

But the government-owned holding company, which last year reported sales of 2.5bn zlotys (€660m) and earned a profit of 8m zlotys, faces growing risks that its hard-won recovery could be damaged by politics.

The first problem is with the government’s personnel policies. The conservative Law and Justice government has purged the management of every large state-owned company, and Bumar is no exception. Roman Baczynski, the CEO who had led Bumar’s recovery, was recently fired, and the company has only a three-person board and an acting CEO.

The new management is sanguine about the issue.

“I have been travelling to a few countries and they understand that they are talking to the company and not to the management. Sure friendships and personal relationships are important, but they understand that the most important thing is the company you do business with,” says Artur Trzeciakowski, the company’s deputy president.

But outsiders are critical of the way in which Mr Baczynski was shoved aside with no replacement ready to step in.

“It is very disruptive not to have a fluid transition,” says Slawomir Kulakowski, head of the Polish Chamber of Armaments Producers. “It also makes it difficult to undertake complex decisions, of which Bumar faces many.”

The clumsy transition may cause headaches for Bumar as it tries to ramp up its sales to Iraq. The company sold about $400m worth of equipment to Baghdad following a series of contracts signed in 2003. But many of those supplies became embroiled in controversy following accusations by some Iraqi officials that the Poles were supplying substandard equipment, a charge that Bumar furiously denies, pointing out that Baghdad paid for and accepted all deliveries, and is negotiating a new series of contracts.

“If they were unhappy with us they would not continue talking to us,” says Waldemar Skowron, the company’s acting CEO who is in the running for the permanent top job.

He recently travelled to Baghdad to rebuild the ties that Mr Baczynski had established with his Iraqi counterparts.

Bumar hopes to sign another $400m in contracts, including training Iraqi special forces in Poland.

Bumar has to rebuild relationships with India, which spend $220m on technical support vehicles, Malaysia, which is buying $370m of PT91 tanks, and Indonesia, which is buying air defence systems from Bumar.

An additional problem caused by the government stems from the messy dissolution of the military intelligence agency earlier this year by firebrand anti-communist Antoni Macierewicz, now the head of military counter-intelligence. In his controversial report that was supposed to ferret out ex-communist agents, Mr Macierewicz accused Finnish arms maker Patria of not meeting Polish military requirements when selling Warsaw an armoured personnel carrier. The charges have been rejected by the Finns but have caused serious marketing problems for the Rosomak transporter, built jointly by the Poles and Finns, which both partners had hoped to be able to sell to third countries.

“Every negative comment, whether true or not, hurts us,” says Mr Trzeciakowski. “We would be very happy if people talking about this took the time to study the facts.”

Bumar also faces a problem because the Polish government has not devoted much time or energy to consolidating the defence industry, nor to increasing funding for research and development. That will be a problem because last year Warsaw joined the European Defence Agency, which creates a level playing field for all European arms makers by mandating open bids for all contracts worth more than euros1m. Although Bumar’s tanks, jeeps, rifles and other equipment enjoy a reputation of being tough, well-designed and relatively inexpensive, Bumar will soon have to compete with much wealthier and experienced west European arms companies.

“We have no fear of comparing ourselves to the best European companies,” says Mr Skowron. “But some of the procedures with EU companies understand well are still a bit of a challenge for us.”

The treasury ministry is working on a plan to consolidate smaller arms makers into a national producer to be built around Bumar, and of increasing research funding from 200m zlotys to about 2.5bn zlotys within five years.

“Bumar doesn’t have the experience to really compete right now,” says Mr Kulakowski.

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