Bumar Group: Poland’s Defense Industry Champion
Bumar is now a household name in Poland and one in circulation for over 55 years. But it was only in the last 10 years that it became a high-roller in Poland’s defense industry as a core company around which a concern of Bumar Group was built.
It all started in 1953 when Bumar Construction Machinery Industrial Union was organized in Warsaw as a state holding company governing construction machinery, manufacturing and trade. Of course, as was a matter of custom in the Communist Block, ‘construction machinery’ was anything on tracks, especially if mounting a gun. In other words, it was a cover name for exporting tanks and other military tracked vehicles, built by leading Bumar subsidiary, the Huta Łabędy in Gliwice. Over the years the emphasis was drifting away from manufacturing – even though Warynski-branded excavators and lifts, as well as tanks, were still manufactured by specialized companies within Bumar especially after Bumar Foreign Trade Enterprise came into being in 1971. After the fall of Communism, Bumar quickly evolved into a limited liability company and commercialized itself with foreign trade being its main activity.
Polish Defense Industry prior to Bumar Group
In the early 1980s there were as much as 150 enterprises listed as ‘National Defense Enterprises’ (NDEs), while a total of 300 others had some kind of con nections with national defense. All of these were 100% state-owned, and every nut and bolt they manufactured made its way into the Polish Army or abroad. The national defense industry development reached its apogee during 1985-1988 when it employed as much as a quarter of a million employees. At the same time, these were the years when the international political climate warmed, beginning another period of thaw, or détente, between the rival military blocks, with a corresponding fall in defense spending. The crisis struck the Polish defense industry as early as the late 1980s. In 1989, a mere year after its peak, the coveted status of NDE has been retained by only 84 plants, compared with 150 in 1985. At the same time the employment fell from 250,000 in 1987 to just over 180,000, mostly by massive layoffs.
Political changes started in Poland and eventually leading to the fall of the Berlin Wall in November 1989, pushed the nation’s defense industry past the edge. Decomposition of the Warsaw Pact nullified the orders almost overnight, both domestic and Warsaw Pact export contracts. Export outside the Pact diminished as well, as the traditional buyers like Iraq or Libya, were now almost all blacklisted. It was very difficult to find new markets – the prices offered ceased to be competitive, the offer was not much attractive, and some of the best, most sophisticated and best selling products had to be discontinued when the co-operation ties within the Warsaw Pact were broken. Both the managerial and technical cadres knew very little about the realities of the free-market economy, and at the same time had to cope with aggressive marketing moves by both the Western and Russian, Chinese or former Warsaw Pact allies’ industries on the foreign markets.
As early as 1989-1991 the first steps were taken to save the defense industry’s assets, at first by their restructuring and ‘conversion’ – a forced change of scope towards civilian products. Most of the weaker companies did not survive that phase and there were only 31 NDEs left in 1991, but still employing between them as much as 135,000 people.
The situation started to turn critical for the surviving plants, usually gigantic and at the same time crucial to the national defense capabilities. Their debts skyrocketed while the highly specialized plants won just token contracts for both domestic and export needs.
Then in 1993-1996 another program was implemented, aimed at commercialization and debt restructuring of the most endangered plants. 28 state-owned enterprises were converted into state-owned stock commercial companies while the rest were commercialized with the state retaining their controlling share. The employment fell to 68,000 in 1997 mostly through group layoffs, companies shedding most of their social and other non-production infrastructure and filial companies being trimmed from the parent company. But still, remaining companies remained at the verge of economic collapse. The defense industry was not able to earn their keep as employees were taking part in street protests, often turning into violent riots. Something needed to be done to galvanize them into new life – and quick.
The mid-1990s marked the first signs of a significant turn to the better. The technological modernization of the Army turned from fashionable figure of speech into a hard necessity with Poland’s entry in NATO became real and imminent ‘before this decade is out’-style plan. ‘Strategic Government Programs’ (like the HUZAR helicopter gunship, and LOARA self-propelled anti-aircraft system) were launched, aimed at creating or implementing a license-production of the modern armaments programs for both domestic use and export. Much hope was put into the new combat and transport aircraft contracts for the Polish Air Force, which was deemed to revive the ailing Polish aeronautic industry with foreign investments. The Land Forces had their own wheeled APC program, and needed new tanks, anti-aircraft and anti-tank missiles. The Navy started their GAWRON-class frigate program as early as the 1980s, hoping to regain a first-order Baltic sea power status with it. Most of these hopes turned out to be in vain as in this brave new world there really were no free lunches. Modestly cut orders for the new hardware, as well as overhauls and spares for the old one, although gave some breath to the industry, were too little and too late to let it out of the quagmire on its own. In 1999 the defense sector netted a combined loss of 149.9 million PLN (ca. 50 million USD), with debts amounted to a staggering 1.575 bln PLN (.5 bln USD). Only about 30% of the manufacturing capabilities were employed for military production. Despite numerous declarations the Polish defense industry failed to attract their NATO and EU counterparts into any sizeable co-operation efforts during the latter 1990s. Such cooperation started only several years later. At the same time, the effort to privatize the NDEs failed due to lack of interest. But then in 2001 the government started at long last the long awaited technological modernization of the Armed Forces, while at the same time consolidating (concentrating) the defense industry into capital groups. This was dictated by the European and American experience of the previous decade, when such development increased the competitive potential of the consolidated companies, while at the same time enabling rationalization of the management, costs and workforce.