More Krab Howitzers for the Armed Forces. PGZ President: “We need 11 years to develop a new APC” [Interview]

What are the challenges that the PGZ Group is facing now? What’s next for the K9PL howitzers? What is the expected number of Borsuk IFVs manufactured during the first stage? What is ahead for the „Miecznik” Programme? Is it known what PGZ Group would be presenting during MSPO this year? These and other questions have been answered by the President of the Management Board at PGZ S.A., Krzysztof Trofiniak, who talked to Defence24.pl Editor-in-Chief, Jędrzej Graf.

Jędrzej Graf, Defence24: You have been leading the PGZ Group for a few months now. We are facing tough times, since PGZ, and the defence industry as a whole, need to respond to increased equipment demand, increasing the manufacturing capacity at the same time, even though almost no investments were made in that area recently. How do you view the PGZ’s condition from that point of view? What are your priorities?

Krzysztof Trofiniak, President of the Management Board at the PGZ Group: Let me start by saying that the PGZ’s condition, as the parent company, has been good so far. When we speak of the condition in which the PGZ Capital Group finds itself, as a whole, two points of view need to be taken here. First, from the point of view of the product offer, meaning whether they are able, now, or in the future, to deliver equipment and meet the increased demand of the Armed Forces. Secondly, the individual financial and HR condition, and the potential within the scope of infrastructure, or manufacturing capacity.

Here I can list at least two companies that, here in Warsaw, have potential as such, both when it comes to the products, both when it comes to products, supply capacity, development opportunities, or the financial situation of the companies themselves. These are PIT-RADWAR and PCO. There are many other, excellent examples, within the framework of PGZ, in different domains. Of course, as it sometimes happens, some businesses are in weaker condition.

The companies that have been dealing with overhauls of the post-Soviet equipment are in worse condition. This equipment, the majority of it, has already been sent to Ukraine or will be sent there soon. What is the concept of their activities? Entering supply chains for western systems, or products manufactured by PGZ today? Transition to the civil sector?

One cannot define it in one way. A broad spectrum of entities was dealing with overhauls of legacy equipment. Some businesses that, for many years, have been involved in support efforts for legacy equipment are part of larger companies, and they are assigned critical manufacturing tasks within the framework of those entities. WZInż (Military Engineering Works) is a good example of that, as this facility has become a part of HSW S.A. For instance, all signs suggest that the Baobab scattered minelaying platform is going to be assembled there.

Many other businesses have been dealing with overhauls so far, and now they need to be involved in manufacturing, in projects like the ZSSW-30 turret for instance. This is a challenge, especially for the minor entities, as they can, and should be incorporated into larger companies, this also entails a necessity to make investments, primarily in the area of machinery and manufacturing capacity, so that the said entities are steered towards those new programmes.

Other businesses, where we are tackling certain problems, like Autosan, also exist. Although that company, as it seems, should be a natural support for Jelcz, in the programme focused on increased manufacturing of wheeled, heavy goods vehicles.

Is the Waran 4x4 vehicles programme in collaboration with Tatra an idea for Autosan’s future?

This cannot be the baseline business for this company, as it is too large for so minor manufacturing project to be 100% decisive for its survival. Nevertheless, within the framework of different programmes, a production assortment may be created, that would not only keep the facility in question alive but also allow for development. The needs of the Polish Armed Forces have been huge. Let us not forget about export too. The whole manufacturing needs to be properly planned, coordinated, and secured.

You have mentioned the investments. Recently PGZ has received extra financing for PLN 3 billion. Over a couple of years that money would be directed to consortium companies involved in the Narew programme. How do you assess this? What are the current Group’s investment needs? The previous management mentioned amounts of several billion zlotys.

Firstly, we should not talk about the provision of extra financing for PGZ. It is an investment by the state in increasing the production capacity of a specific range of military equipment to serve the defence of our country - it is simply an investment in the Polish arms industry.

These funds are therefore earmarked for capacity building in companies that participate in air and missile defence programmes. This is primarily associated with the Narew programme, but it is not the case that the expanded capacity will only serve Narew. By expanding certain capabilities in companies, the needs for other types of equipment, other branches of the Armed Forces, can also be supported. Let me give you an example: if we expand the production capacity regarding the Jelcz trucks intended for the Narew programme, it will also be possible to equip other types of troops and other specialised weapons systems with similar vehicles.

It is therefore an investment of more than PLN 3 billion, intended to significantly strengthen the production capacity of the companies: the aforementioned Jelcz, but also HSW or PIT-RADWAR. PIT-RADWAR receives most of the support, within the most important subject matter: target detection and tracking. This is an investment made in our defence, in our security.

When it comes to other areas, what is the total amount of investment that the PGZ Group needs?

I can confirm that the total amount that we received, following summaries prepared by previous management, is several billion zlotys. These investments are spread across a timeline of many years. We are currently verifying that, to answer the question of whether those amounts are properly sufficient, or whether that financing is overdone. Surely, this, and next year we will be verifying this, to properly allocate those means.

We are checking whether, in some cases, instead of building a new production hall or other facilities, the existing infrastructure shall be used. In such a case, we could use funds to customize those buildings and infrastructure, to match the new needs and to purchase machinery.

K2 and K2PL programmes are a key topic when it comes to the establishment of capacity. A consortium agreement has recently been signed by and between PGZ and Hyundai Rotem. Earlier on, the consortium had also involved the WZM Poznań facility. To what extent the arrangements that had been made by the previous consortium, or the memoranda like term sheet, would be taken into account, and to what extent the industrial cooperation arrangements would be made from scratch? How do you perceive the involvement of the PGZ Group companies in maintenance, and potentially, the co-manufacturing of those main battle tanks?

When it comes to the so-called MRO, no doubts emerge here. Term Sheet agreement exists, mentioning primarily the transfer of know-how related to maintenance of the main battle tanks in Poznan, at WZM, regardless of whether this refers to K2PL or K2GF. The Term Sheet regulates the mutual relationship between the provider and recipient of know-how - PGZ and WZM - remains valid. No changes are happening here.

Currently, the company needs to get involved in a detailed discussion with the South Korean partner, and come to an agreement on what elements can be transferred specifically when, and be adapted to conditions at the Poznan-based facility. When it comes to manufacturing the main battle tanks, I cannot say much more beyond what has already been made public. The transfer of main battle tank manufacturing know-how can only happen once the second executive contract becomes valid. Currently, discussion as such would have no merits. Only after the second agreement enters force, could we speak of manufacturing.

Let me recall that the new consortium agreement has been signed because the previous contract had its term limited to the end of June this year unless certain conditions are met. One of those conditions was the conclusion of the second executive contract, which did not happen. The consortium agreement negotiated by the previous PGZ management has lost its validity.

K9PL Howitzers is the second, big Korean programme. Discussion on its financing is still underway. According to the statements that had been made previously, it is expected that more than 600 such systems would be procured. As the K9PL’s development progressed, maintenance and a certain portion of manufacturing were to be transferred to Poland. Is the K9PL manufacturing still planned? Is this howitzer competing with Krab? How the MRO and support would be arranged?

PGZ and HSW delegates recently visited South Korea. The talks covered paving the way towards establishing a maintenance capacity for the K9 howitzers in Poland, as per the agreement that had been previously signed. Currently, industrial talks are underway, involving the Koreans, but when it comes to the K9, the talks apply solely to MRO. The MRO capability is to be established at HSW.

We have defined the timeline already, and we would like HSW to be ready to service the K9 howitzers as of January next year. A deadline so short can be achieved, as this is solely tied to a transfer of know-how, regarding the turret maintenance. We can already work on the chassis, based on the documentation that had been received earlier, on the occasion of launching the Krab howitzer manufacturing. This, essentially, grants us the capacity to maintain the chassis at 100% right now.

When it comes to maintenance of the turret and elements installed on the turret, the differences compared to what is installed on Krab are minor. When it comes to the gun itself, the K9 has hydraulic drives, Krab is driven electrically. This is the key difference. Although the design does differ, when it comes to maintenance and recovery of combat readiness this equipment is very much similar to what we have in the case of Krab. Thus, HSW itself designated a deadline in January next year. And that deadline can be kept.

Should you ask about the competition between Krab and K9, especially when it comes to deliveries for the Polish Armed Forces, competition as such does indeed exist. I have no doubts though, that Krab will be manufactured and delivered for the Polish Armed Forces.

Are talks underway, involving the Armament Agency, regarding the future Krab deliveries, within the framework of new contracts?

The new agreement covering the delivery of four squadrons, 96 Krab howitzers, is currently being negotiated. It is also not a secret that the howitzers in question would be delivered in a new specification, both when it comes to the autoloader, and the modular propelling charges as well. It is still too early to speak of the details. The negotiation is still underway. I do hope, however, that they will soon be finalized in the form of the conclusion of another procurement agreement, regarding 96 Krab howitzers.

Many things have been said about the manufacturing capacity of the Krab howitzer, and the plans to increase that capacity. What is that capacity now, and what is the expected target manufacturing output? Is it justified to create another manufacturing line for Krab howitzers, at ZM Bumar-Łabędy?

Whether the establishment of another Krab manufacturing line is justified largely depends on the customer demands and the fact whether large orders regarding those howitzers would still be placed. If it turns out to be economically viable, and HSW’s capacity - is insufficient - we will establish another Krab production line. The Polish Ministry of Defence is our customer. The necessity to create another line depends on whether this would be economically rational when it comes to orders placed by the MoD. If a demand as such occurs, I will do everything in my power to establish such a line.

When it comes to HSW’s manufacturing capabilities, as these need to be considered not just for Krab, HSW is consistent in its investment and expansion efforts. We need to remember that products like Krab, or the ZSSW-30 turret are being made with the involvement of numerous businesses, belonging to PGZ Group, and not being a part of it. And these capabilities need to be enhanced continuously, should a need as such emerge, not just at HSW, but at other companies as well.

The discussion on what the manufacturing capacity is, regarding the Krab howitzer, has been ongoing for quite some time now. It remains untrue that 2 to 4 years ago the manufacturing capacity at HSW was 16 or 24 howitzers per year. This referred to the requirements expressed by the Polish Armed Forces, not to the HSW’s manufacturing capacity. The capacity at HSW has been and is much greater, but we need to remember that the increase in deliveries is tied to the process of placing orders with cooperating entities, which needs to be done in advance.

What are these components?

Power-packs and special materials for barrels are the key elements here. The increased manufacturing output in these areas always requires around 18 months of wait, up to 2 years. This is the manufacturing cycle at our partners. Currently, HSW can deliver much more Krab systems. One needs to remember, however, that the whole logistics chain needs to be propelled beforehand, this includes the power-pack, barrel materials, barrel half-products, breech base, and other components.

There are many bottlenecks in supply chains, besides engines, it is also transmissions. Allison is the baseline type for Krab now. Are other manufacturers being considered, like Korean S&T already delivering gearboxes for K9, very similar to Krab?

Alternative solutions always need to be worked on, when it comes to the key components. For the drivetrain, this concerns not just gearboxes, but also the engines. We are seeking alternative solutions, work as such is underway, not just when it comes to Krab, but also for Borsuk.

Surely, we will be forced to consider this for other new products. We always need to take the risks into account. The risks can only be mitigated if an alternative solution is available at hand. Diversification of the supply chains is a proper assumption, especially given the scale of production that we would achieve in a few years.

Borsuk which you’ve mentioned is a flagship product, not just for HSW, but also for PGZ as a whole. The Armed Forces wait for it, 1,000 examples is the expected target quantity, and this refers to the baseline, standard variant alone. Negotiation regarding the first Executive Contract is to commence soon. What is the expected number of manufactured IFVs, at stage one?

The negotiation regarding the first executive contract regarding the delivery of the first series-manufactured Borsuk IFVs is to commence in early August. Not only is that contract relevant to HSW, but also the PGZ Group as a whole.

When it comes to the manufacturing capacity, I would like it to be as high as possible. We should not count on the first deliveries to be bigger than ca. 50-60 examples per year. This, however, does not stem from the exhaustion of manufacturing capacity. Let us remember that any product as such needs to go through the „infancy period”, a cycle of errors, and enhancements, for instance in the manufacturing method. As the test lot is being manufactured, series manufacturing is launched. The manufacturing is then retrofitted with elements, machinery, and hardware that facilitate the process, diminishing the costs. The aforesaid initial manufacturing tempo is tied to that more. 100 or even 150 vehicles per year would be a good output.

Is the idea for some production to be reassigned to other facilities even on the table?

Yes. Certainly. For now, broad cooperation between the PGZ companies within that project has already been established. Depending on the scale of manufacturing, and demand, and also the capacity available simpler, or even more complex elements would be manufactured at the individual companies of the group.

I would like to stress it, the broad involvement of PGZ companies is our assumption. Relatively new members of the PGZ Group, like HCP, would also be involved in the manufacturing of the new IFV, alongside the longstanding companies.

What are other areas in which HCP could be engaged, new areas where the potential of that company could be utilized?

Talks between Cegielski and Jelcz are already underway, within the scope of manufacturing elements for the Jelcz vehicles. This also happens as Jelcz is facing a massive demand for trucks that have been ordered by the Army, as of next year.

HCP is already determining its capacity and manufacturing potential. This would surely refer to welded components. I do not want to unveil any specifics for now, the companies need to come together when it comes to the division of work and manufacturing costs. However, I am sure that HCP would become a part of the Jelcz trucks manufacturing supply chain.

There are talks underway with HSW as well, on the launch of manufacturing of elements, and then, complete command vehicle hulls for HSW.

Let us move on to another, prospective programme - the NKTO (New Wheeled Armoured Personnel Carrier). During Defence24 Days you said that the claim that PGZ can design this vehicle on time and launch manufacturing is not realistic, which would mean that a foreign partner would be needed. We also know that numerous proposals come from Europe, Turkey, the US, and South Korea. What can you say about the direction, in what way the talks are planned? And will the Siemianowice-based Rosomak company be the one that would be manufacturing the NKTO platform?

When it comes to the NKTO programme, Rosomak cannot be a participant of it as the key contractor. Ultimately, the company will be a part of this programme. For now, it is too early to judge as to who the contractor will be, as no decision has been made on what APC would be manufactured in Poland.

This decision is not going to be made by PGZ but by the Polish Ministry of Defence. And only then will we be able to mention a selection of individual companies. Our job is to prepare an offer so that the Polish Ministry of Defence can make the most beneficial choice.

I would like to stress that the Polish industry can develop its own, new indigenous APC design, but this would take 10-12 years of development work. If the deliveries are to commence in 2-3 years, it is impossible to handle this using solely the industrial capacity. A new project would take ca. 11 years, as in the case of the Borsuk IFV - which is the best example.

In the western states, the development programmes lasted even longer.

A lot depends on how deep we want to go into the development of new components, drivetrain, power pack, and so on. One needs to assume that in Poland, 10-12 years is the time needed to finalize work as such, using the industrial capacity. The former managements were making declarations on a significant shortening of that term, even halving it. I see no possibility as such. I am basing these calculations on my own experience, and hard data.

Let me reiterate. If we want to shorten the time needed to begin deliveries, as per declarations made by the previous management, we cannot speak of proprietary development with such a timeline. This is misleading for the future customer, it is simply cheating. We have been discussing this with the Ministry of Defence. We have stated clearly, that there is no chance for a fully proprietary development on such short notice - in less than 5 years. And the Polish Ministry of Defence accepted that. Time that was used to develop Borsuk, and other vehicles, shows what term is needed for a fully proprietary development.

The procurement of a new chassis for Krab is a good example of accelerated commissioning, in circumstances in which it turned out that the original idea was not right. And using that pathway, the acquisition of broadly available know-how is possible, enabling us to work in other marketplaces, not just in Poland. Primarily, however, we need to be able to implement modifications without the approval of the know-how provider. And I am inclined to say we need to go that way.

What the next steps would be?

To examine the possible further implementation of the NKTO programme, as per the assumed timeline, we have brought a work group to life that, would select a single or two solutions, from the available catalogue, that would be beneficial technology- manufacturing- and know-how-transfer-wise.

The initial timeline that we have adopted is quite tense. We would like to be able to sign the NKTO contract by the end of the year, Q1 2025 at the latest. To conclude that agreement, we need to submit an offer to the Polish Ministry of Defence first, and show how we want to deliver the new APC, and based on what schedule. If the bid is approved, then the path is paved towards the conclusion of an agreement with the know-how provider. Currently, we cannot really point specifically to the best bid. From our point of view, apart from meeting the technical requirements, we also need to check as to with whom the fastest launch of manufacturing in Poland would be possible.

Apart from NKTO, heavy IFV is also to be developed. This is yet another armour-focused programme. The former PGZ leadership declared back in 2023, right after the announcement had been made, that the technology demonstrator would be unveiled during the same year. This did not happen. Can we hope for it to be unveiled this year, at MSPO?

When it comes to the Heavy IFV (CBWP), a few words of clarification are needed. Unveiling any studies now, given what we have been given when it comes to that project, is purposeless. The initial plan adopted mentioned a term of 5 to 6 years until manufacturing is launched for a solution that was formally created as procurement with customization. This requires the development of the base platform from scratch.

This is simply unachievable, for several reasons. First, the requirements within the scope of IED and ballistic protection levels are high, even when currently introduced designs are taken into account. We don’t have this in our know-how. This needs to be developed from the ground up.

Most probably we will need to utilize a method similar, to the one adopted for NKTO. If these deliveries are to be as rapid as the Ordering Party expects, the acquisition of external know-how is a must. Change of plans and postponement of the heavy IFV deliveries is the only alternative. The development works have a specific nature. Time is needed here for implementation. It is not just shown in the case of products that we implement, like Borsuk, or the ZSSW-30 turret, but also in projects pursued by other NATO member states. The delivery dates, even those specified by the framework agreement, with terms of 4-5 years, truly are impossible to achieve for a proprietary solution. HSW needs to develop specialist varieties of the Borsuk IFV during that period. For now, we have an excellent IFV developed, with a very modern turret, but without support platforms that need to be developed as well. These, and the Krab upgrade, need to be a priority for HSW now.

How should the PGZ Group approach the development of NKTO or heavy IFV?

The assumption that two new projects, NKTO (New Wheeled APC) and CBWP (Heavy IFV), would be being worked on at HSW at the same time was unrealistic from the outset, given the design resources and capabilities found at HSW, especially with such a short lead time. I believe that in both of these projects, there should be very broad cooperation between all the companies of the Polish Armaments Group, which can carry out development work, and create design and technological documentation, to be able to present an offer to the Ministry of Defence in the shortest possible time. Similarly, when it comes to production, it will be important to have it well-planned and involve many PGZ companies. And probably, assuming pre-approved delivery times, we will have to use a foreign partner when it comes to know-how.

I would like to ask you about the Naval domain. Miecznik is the key project here. We know that an audit was being conducted. PGZ War Shipyard’s management is also new. Will any serious changes be needed for this programme, and the management?

As a general rule, in the process of managing such a large, multi-year programme, it is natural that some changes must be made. Continuous change is natural - as it also happens in the case of development works.

The objective is always the same. Our job is to build three vessels, as the agreement stipulates. I would like for this to be implemented by any conditions when it comes to timelines and any elements of the vessel specification. The parameters defined by the Ordering Party undergo certain changes as well.

We need to remember that for a programme so significant, everything is precisely defined right from the start. Some elements are specified, perhaps not so much during the physical construction of this product, but more during the creation of the documentation. I can confirm that in the Miecznik programme such changes are made, as agreed with the client. As I said already, our goal is to deliver three vessels compliant with the requirements, as per the agreed schedule. Nothing changes here.

Piorun MANPADS is an important air defence programme, serving different branches of the Armed Forces, Navy included. Mesko has orders secured, by 2026. Piorun is proving its worth in Ukraine. It is an export hit, but it needs to be developed further. Are any steps made in that direction? What about financing the Piorun upgrade? Are talks underway, with the Armament Agency?

Piorun is, above all, another example of consistent action, when it comes to the modernization of armament manufactured and modernized by the PGZ companies. Approach as such is a part of our DNA, as a systemic action towards product development throughout the lifecycle as a whole, based on knowledge and gathered experience. A proper research and development process has already been launched. I can assure you that the next variant of the Piorun missile will be better, not just when it comes to the range of the system, but also within the scope of flexibility of operation, and lethality on the modern battlefield. The ongoing influx of orders allows us to further develop the manufacturing capacity.

In less than a month, the MSPO 2024 event in Kielce is scheduled, an important annual highlight for the defence sector. What premieres and key elements of the exhibition will be showcased by the PGZ Group, especially in the areas that we’ve mentioned - armoured and mechanized platforms, air defences, artillery?

Most of the equipment and activities expected to be showcased at MSPO by us this year stems from the talks underway, and the conclusion of new agreements. I am happy that the market is so interested in our business. We perceive this as a positive assessment of our business so far. I would like to invite you to visit us during the show. We will use every square inch of the space in Hall C and in front of it. Our tagline for PGZ is Products Worth Contracting (Produkty Godne Zakontraktowania). We expect things to happen!

And, last question from me: what modernization or delivery agreements do you expect this year, to be signed in Kielce, or later?

Negotiations are a complex process, and at the same time, we understand and share the opinion that contracts for modernization and supply of equipment are a priority when it comes to providing the Polish Armed Forces with modern weapons. For us, consequently, this is also a top priority issue on which we focus our daily efforts. There is still some time left until the end of the year, but I can already say that the second half of the year in terms of obtaining new orders from the army is very busy for us.

Thank you for this conversation.