ARMAMENT The strategy for the restructuring of "Romarm" does not rule out privatization

• (Interview with Vasile Marius Crişan - the general manager of National Company "Romarm" SA)

Reporter: In the beginning of October you will submit the strategy for the restructuring of "Romarm" to the Government in order to have it approved. What is the objective of this strategy?

Vasile Crişan: The strategy of CNR SA aims to reconfigure the structure of the company and to resize its production capacities, based on the the equipment needs of the army, and the requirements of the foreign market, in order to transform the company into an entity with a flexible management and a viable and profitable activity. I am considering a series of short and medium term measures, which would reduce arrears, help expand the company"s line of business and increase its turnover. On an organizational level, it will include five divisions according to their specific types of products: armament, ammunition, equipment for infantry, artillery and armored vehicles, missiles, powders and explosives. We do not rule out partnerships and consolidations on a national level, which would create the critical mass needed for bargaining power in international negotiations, and where applicable, even privatization.

The reconfiguration of the current production capacities will be supported by investments in the capabilities defined in Brussels as being the responsibility of Romania, all accompanied by a reengineering of all the main processes. Of course it would be desirable to also have a law concerning the weapons industry which would make our approaches more effective.

Reporter: What is the current structure of the company?

Vasile Crişan: The CNR currently has 15 branches which manufacture military technology, spread out all across Romania. The restructuring program which we have devised together with a judicious resizing, will enhance the competitiveness of our products, but it will be very hard to implement in the absence of a law of the defense industry.

Reporter: How many employees does "Romarm" have?

Vasile Crişan: We have about 5,400 employees, and a positive trend, thanks in particular to exports. We are concerned over the drop in the average age of our employees, as well as over the lack of dedicated professional training.

Reporter: What new products do the structures of "Romarm" manufacture?

Vasile Crişan: Currently, our researchers" work over the course of several years in the fields of armored personnel carriers, reactive guided projectiles and thermobaric weapons. Keeping in line with the model promoted by Brussels, we are also trying to establish strategic partnerships with other Romanian private players, as well as with players from other partner countries, in order to uncover additional financing sources, maximize profits and to split risks.

Reporter: How much of its output does "Romarm" export and to which markets?

Vasile Crişan: Over the last three years, the exports of Romarm have increased over 70%, meaning we are exporting about 90% of the total output. The main markets would be the USA, Asia and the Middle East.

Reporter: Do you intend to attack other foreign markets?

Vasile Crişan: Lately, together with the staff of the CNR, we have taken a series of actions towards revitalizing our relationships with the African states, which were traditional prior to 1989. As such, we went on business trips and we held presentations of our products, as well as promotional events organized with the help of our economic advisors in the region, in countries such as Nigeria, Lybia, South Africa, Egypt etc. We have the conviction that these actions will lead to a significant increase of the exports of the CNR in the area, over the medium and long term.

Reporter: How is the economic crisis affecting the activity of Romarm?

Vasile Crişan: Many of our raw materials suppliers are beginning to have liquidity problems or are even defaulting, which would cause financial deadlocks, delays in the delivery and in the payment of penalties. Also, the rise in the price of utilities is causing us to become increasingly uncompetitive, concurrently with the corresponding increase of the final price. Unfortunately, the defense sector isn"t eligible for accessing European grants, which is why I think that the government should have a different approach when it comes to our investing needs.

Reporter: Will "Romarm" be one of the first companies to be privately managed? What is your opinion on this subject?

Vasile Crişan: Personally I am skeptical on the success of such an approach. The defense industry has history, a culture that spans a long time. It is a world which needs to be understood. The constraints and the hostility of the external environment require the management to have a certain kind of attitude. I think that at least when it comes to the central apparatus, on the first and second levels of management, there are good professionals whom I respect. But in the end, what kind of management can be done through a contract of mandate?

Reporter: What investments does "Romarm" currently have under way?

Vasile Crişan: The investment objectives of C.N. "Romarm" for the current year are planned according to the Law no. 500/2002 and amount to 24,767,620 lei, as follows: ongoing works - 7,815,000 lei, new works - 1,591,000 lei and other investment expenditures - 15,361,620 lei. Investments will be made in the following sectors: modernization and reorganization of the technological process, the modernization of the utilities system and the use of safety and security in the economic entities. Last year we spent 16,055,000 lei on investments.

Reporter: What were the financial results of the company last year, compared to 2009?

Vasile Crişan: Last year, the company"s turnover passed 321 million lei and we had a loss of 119.3 million lei.

The overall loss of the company is mostly caused by the booking of the penalty payments pertaining to historic debts, accumulated from one year to the next by the branches of the company, following the recording of fixed costs caused by the ratio of non-utilization of the capacities of the defense output, expenses which were not financed by the state budget. According to the provisions of art. 8 of GD 979/2000, concerning the creation of the "Romarm" National Company, the conventionally-constant expenditures should have been borne by the state budget.

In 2009, the company"s turnover was almost 270.5 million lei, and it posted a loss of approximately 126.5 million lei.

Reporter: This year, you have attended LAAD 2011 - Rio de Janeiro. What were the results of this participation?

Vasile Crişan: We had contacts with various partners, which are aimed at obtaining various types of collaborations and to help grow the exports of technical solutions and products made by Romarm: the TR-85-M1 tank, the SAUR 1 and 2 armored carriers, assault weapons etc.

Reporter: How was the activity of "Romarm" affected by the reduction in the number of soldiers in the army?

Vasile Crişan: In the first half of the 90s, the company was seriously affected, due to the reduced needs of the Ministry of Defense, as well as due to the oversized inventory of weapons and ammunition, as the number of active soldiers decreased over 3 times. After a while, even though the number of soldiers had been reduced, the needs for equipment started appearing, and consumption, has remained constant, due to the various military actions in conflict areas. The problem is how to finance the needs of the Romanian army: equipment, modernization, maintenance, and training. And I think public private partnerships would be a solution for this matter.

Reporter: Does the placement of the anti-missile shield in Romania affect the activity of "Romarm" in any way?

Vasile Crişan: It does not affect us directly, but it can improve Romania"s image, and implicitly, its defense industry. However, we do not rule out the involvement of our division of Ploieşti, to a certain degree, if necessary, in the maintenance and secondary operation activities, as it is the only Romanian company which manufactures technology for missiles.

Reporter: And what about the potential acquisition of F16 airplanes, how would it affect the company which you lead?

Vasile Crişan: This won"t affect "Romarm" directly either, but it would be desirable if we got to be involved in the compensatory activities which the legislation provides in the case of such purchases. The existence of direct and indirect offset components will depend entirely on the negotiating power of the Romanian party if there are reasonable direct and indirect offset components, even if the procurement procedure may not necessarily impose this.

Reporter: What is your opinion on the Romanian defense industry?

Vasile Crişan: It can be said that the Romanian defense industry is increasingly nimble and competitive, in connection with the responsibilities which our country has in the NATO and the EU. Of course, we are not yet at the level of the prime-contractors in the developed countries and which have tradition in the field, but we do have an increasing number of industrial cooperation relationships with them.

Reporter: In your opinion, what are the prospects of this sector?

Vasile Crişan: Its evolution is strictly tied to the national objectives and priorities, as well as to the strategy for the creation of a European weapons market which is being pushed by Brussels. There are also some capabilities which Romania wants to develop together with the EU, some it is willing to share with other partners and others it is willing to give up on. The investments, the modernization and the privatizations will be made with the aforementioned factors in mind. We will have public-private partnerships, together with solid partnerships with companies in the European and North-Atlantic partner countries.

Reporter: How is our country affected by the new European regulations in effect?

Vasile Crişan: The two new European directives, together with the strategy for achieving a technical-industrial European defense foundation, create a competitive and transparent environment on a European level. In this context, bi- and multilateral partnerships have begun appearing, such as the one between Great Britain and France or Germany and Poland. The domestic industry will have to do the same thing, starting especially with regional partnerships, coupled with strategic domestic partnerships with the Ministry of Defense and the other components of the national defense and public order system. The Romanian professional association of the military industry, PATROMIL, of which I was elected as president, has already signed three memorandums of cooperation with the defense industries of Bulgaria, Poland and Great Britain.

Reporter: How are we doing in terms of the logistic in the segment for the production of defense equipment?

Vasile Crişan: Without going into details, we can say that at the level of private companies in the defense sector, things are quite OK, meaning that effective equipment and technologies were bought and efficient procedures were implemented. In the case of the state sector however, things have lagged behind, perhaps partly due to the special social aspects. At the moment, the branches of the CNR which manufacture armament, have relatively old production lines and technologies and the standards used are of the type "Tip EST" (Russian), but work is being done on the implementation of the NATO standards. For ordnance of up to 35 mm in caliber, there are already new or modernized lines for all these standards.

Reporter: How expensive would it be to improve our logistics to match those abroad?

Vasile Crişan: First of all, we need to establish what capabilities Romania wants to keep and develop. There are niches, such as ammunition for the infantry and for artillery, in which we are close to the European level. It is hard to put forward a specific figure, but through public-private and international partnerships, we can find malleable and intelligent financing solutions, as long as the end beneficiary - the national system of defense and public order - told us what its concrete needs were.

Reporter: What do you expect from this year"s edition of "Expomil"?

Vasile Crişan: The main objective of the participation of CNR in "Expomil" is to make our products and capabilities known, on the domestic and on the foreign markets alike. Whereas on a foreign level we want to increase the number of collaborations on the traditional markets, as well as on the EU markets, on the domestic level we will need to get involved to a greater extent in the needs to equip the Romanian army and the national defense system.

Naturally, when a company has the status of military technology provider for the army of its own country, this improves its image and the confidence of its potential foreign partners and we should focus on that.

Moreover, we have begun a project to rebrand the company, and "Expomil 2011" was the ideal occasion to launch the new brand.

Reporter: Thank you!