Michal Strnad on the defence industry: ‘There’s a lot of talk but reality lags behind. Slovakia’s defence is ahead of the Czech Republic’ | info.cz

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Michal Strnad on the defence industry: ‘There’s a lot of talk but reality lags behind. Slovakia’s defence is ahead of the Czech Republic’

“We are a pro-Western company. We are more interested in other markets than Russia, such as the US or the Middle East,” says Michal Strnad, CEO of the holding company Czechoslovak Group (CSG). INFO.CZ interviewed him during the Globsec Forum on security in Bratislava where he told us about his plans for the Tatra and Avia brands or his vision for the future of CSG. He also explained in what ways Slovakia is ahead of the Czech Republic in the arms industry.

At the end of last year, you replaced the executives of your companies Tatra Trucks and Tatra Metalurgie. Can you see any effects already?

Yes, we can. We have said in the past that the previous management was not an entirely right choice for us. So we have agreed to end the collaboration. Now we have hired Petr Karásek as a short-term executive – he knows Tatra, he was the chief executive for two years since 2013 when we were restructuring. We chose him because he knows what needs to be done. (Editor’s note: On 1 June Pavel Lazar became the head of Tatra. He has been the CEO of Tawesco, Tatra’s neighbour company owned by Tatra’s minority shareholder René Matera, for many years.)

Tatra was growing very quickly and we haven’t managed it completely successfully. We needed someone who would look at the company’s processes, who would make sure tasks are being completed and start enforcing deadlines. So we would never take our foot off the pedal, as I call it. Tatra is the kind of company where when you take your foot off the pedal, the company will crumble. We also made some changes in our middle management.

Now we have contracts for the whole of this year. Last year’s numbers weren’t as great because some of our orders were moved to 2019. We have orders from Jordan, Egypt, Saudi Arabia, and also from the Czech Army. I believe we will surprise everyone again this year and achieve better numbers. We are already closing contracts for 2020.

What’s your vision for the future of Tatra?

Tatra itself should be a market nicher as we call it. It means it should make undercarriages for specialized purposes, for the army, for drilling platforms and so on. We are not planning to make tens of thousands of vehicles like other manufacturers, we want to find the gaps and make things that others don’t know how or don’t do it for reasonable prices

Last year after Tatra you’ve started to revive another brand, Avia. What is the development there? Is it going as you’ve hoped?

Frankly, I can tell you that it isn’t going as we’ve planned. We’ve hoped for a little more, we had different plans. The emission standard Euro 6d has a big impact. We were working on a vehicle complying with Euro 6 so we could sell it in the EU. Clients are happy with it, they’d like to buy it but we won’t be making new ones because Euro 6d will become effective in September. It would require so much investment into development that it wouldn’t pay off in the small-scale production we have in Avia.

We’ve changed our strategy. We’ve decided to only make 4x4 diesel vehicles and Avia should focus on electric vehicles. We have signed a memorandum of understanding with an international company which deals in electromobility. But it’s still in the process so I don’t want to announce anything yet.

In an interview for E15 from last year, you talked about the possible split of CSG into more divisions. How would you like to balance the civilian and military areas of your activities?

The plan is to be active in 5 areas – the defence industry, aerospace, rail transport, automotive, and a kind of mixture, where we’ll have the remaining companies from Prim to safety boxes. Those are the 5 areas where we want to invest and grow. I don’t want to diversify any more than that; you can’t catch a 100 rabbits at the same time.

What this means on an organizational level is that we will gradually create divisions where companies in similar fields can cooperate. We started the aerospace division in 2018 where we have our radar companies and companies providing services in the aviation business, such as flight training. By the way, we’re the only private corporation in Europe that has American Sikorsky UH-60 Black Hawk helicopters in their fleet.

This year we are founding a Land Systems division which will comprise companies that make mostly land machinery and ammunition.

The defence industry now makes up about 50% of the group’s turnover. But the civilian sector is supposed to grow and should be larger than the defence industry in a short time, maybe even this year. But it doesn’t matter to me if the ratio is 60/40 or 50/50. The companies in our group are autonomous and my concern is that they are all successful and moving forward.

I am asking because I’d like to know if you see a potential for the defence sector to grow.

I do. But it will be a more organic growth, rather than in terms of acquisitions. I’m not saying we won’t make any but we want to invest into products and into the companies we already have.

You’re licensed to make Pandur armoured vehicles. In the E15 interview when asked if you have an order for Pandurs from abroad, you said you are working on deals but can’t be any more specific yet. Can you tell us more now?

Yes, we’ve made some progress with these orders. Apart from the Czech Army, we have a client in Southeast Asia. We should sign that contract shortly so be patient and we will let you know. I am cautious in these matters; I wouldn’t want to count our chickens before they're hatched.

Do you expect the Czech Ministry of Defence to start investing more now? Will you get more opportunities on the domestic market?

We can see a trend in that direction. The Ministry, the Minister, and the Prime Minister all declare that they will invest more in the defence industry and that Czech companies should take part. We would like to be one of them.

We have been working for some time on a deal with the Czech Army for Titus vehicles, together with a French arms manufacturer Nexter. It’s one of the projects we’re working on which should be signed. There’s also an order for replacing combat vehicles for the infantry. As a domestic manufacturer, we would like to offer our services and abilities as much as possible in terms of subcontracting to the foreign company which will win.

The willingness to invest more in defence is partly motivated by Donald Trump’s demand that NATO countries keep their commitment to spend at least 2% of their GDP on defence. Have you seen an increase in new deals in the last two years that Trump has been in office?

As far as the Czech Republic is concerned, yes, we can see that there’s more pressure to invest in the defence industry. On the other hand, I have to say that we can see a trend but the results are coming slower than everyone thought. There’s a lot of talk but concrete steps are lagging far behind the rhetoric.

We’re now talking in Bratislava, your group’s name references Czechoslovakia. How important is Slovakia for your business?

Slovakia is as important to us as the Czech Republic. I always say that we’re just as much at home here as in Czechia. We have several defence industry factories here, employing over 2.000 people. Mostly, we manufacture ammunition, plus we have establishments for its testing. In this regard, Slovakia is very important to us.

Can you compare the attitude of the two countries to defence and the defence industry? What are their differences?

It depends on what military branch we’re discussing, the land force, air force or other branches. Slovakia, unlike Czechia, has managed to buy Black Hawk helicopters. They’re talking about F-16 fighters. The last big projects in the Czech Republic – and problematic ones at that – were the acquisitions of Pandurs and Casa airplanes a decade ago. In this aspect Slovakia is ahead of us.

How important for your business are aviation projects?

We have two companies that make radars in this sector. One makes mostly civilian radars, for airports. The other makes radars for armies and command and control systems. We provide flight training at the Košice airport in Slovakia. We also have a strategic partnership with the American company Raytheon. So you can see aviation is very important to us, we see its potential and we think we have something to offer. Unlike large international corporations, we can be more flexible and meet the client’s needs.

I was aiming at your training centre in Košice. Is that something that opens doors for you when talking to potential American partners?

We have been working there for more than three years; it’s a successful venture and definitely something we can refer to. It helps us. It’s one of two references we use in the US. The other is our collaboration with General Dynamics from whom we got our Pandur licence. Raytheon won’t make a partnership with just anyone. Before we could start collaborating with them, we had to pass detailed background checks.

How happy are you with your activities on the American market?

They are mostly activities in the direction from the US to here. We deal with American corporations but the business is mostly taking place in Czechia or Slovakia. We have founded a company called CSG USA which we use to coordinate our activities in the US. We already have some employees and are trying to be more successful than up till now. I believe it has a great potential for us as a Czech-Slovak group with many abilities.

What about your collaboration with Lanny Davis, former legal counsel to President Bill Clinton? Was it a success? Are you still working with him?

We are not right now. We worked with him in the past but that was a project with a limited time span. It was a success; it helped us and fulfilled our expectations.

We’ve talked about your activities in the West. What about the East? Which is more important for CSG, Western or Eastern market?

If by ‘the East’ you mean Russia, then our priority is the West. We have no activities in Russia other than Tatra supplying civilian undercarriages to mining companies. In terms of quantities, we are talking about single or double digits per year; they buy them because they can drive through places where their Kamaz vehicles can’t. Other than that, our priority is the West; we are a pro-Western company. We can’t collaborate with Russia anyway, due to the sanctions.

And if we’re talking about the East more generally, which regions are attractive for you?

The Middle East is an interesting market for us. We supply products there in both the defence and civilian sectors. For instance, Tatra is finishing the construction of an assembly plant in Saudi Arabia. So that’s an interesting region for us and so is Southeast Asia.

 

 
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