Under the communist system, the Ministry of National Defense ran nineteen manufacturing and repair plants, but about eighty plants were designated as defense industry enterprises under branches of the Ministry of Industry. In the late 1980s, the largest military goods producers were the Stalowa Wola Steel Works, the Kasprzak Radio Works, the Krasnik Ball-Bearing Plant, the Wifama Textile Machinery Combine, the Stomil Tire Plant, the Polish Aviation Combine, the Pronit firm, the Northern and Wisla shipyards in Gdansk, the Lucznik Works, the Starachowice Truck Factory, the Polish Optical Works, the Bumar-Labedy Engineering Equipment Combine, and the Olkusz Enamel Plant. In most cases, over 85 percent of a plant's production went to nondefense customers the shipyards, the Bumar-Labedy combine, and the Stalowa Wola Steel Works were among the few producers whose output went mostly to the military. In 1988 military goods producers employed about 260,000 people and accounted for about 3 percent of total output of enterprises under the Ministry of Industry. At the same time, over 6 percent of Poland's total exports were military products. Of military output, 49 percent went to the Polish military, 46 percent was exported, and 5 percent went to the ministries of justice and internal affairs. By 1992 military goods had dropped from 3 percent to 1 percent of total industrial output.

Polish military industries began planning for conversion to civilian production in 1987, when the Warsaw Pact was developing its new defensive posture. Some twenty of the eighty designated defense industry enterprises were considered for closure or conversion to civilian functions. Meanwhile, all defense industries made long-term plans for greatly reduced orders between 1991 and 1995. By 1990 military contracts had dropped by 30 to 80 percent, depending on the plant. Spending on weaponry had dropped by 84 percent. These reductions in demand led to unemployment and unused industrial capacity. Defense industries also lost the privileged position they had enjoyed in the communist economy. Gone in 1990 were supply priority, lowinterest credit, state subsidies, and tax exemptions. Industry pessimism increased in 1990 and 1991 when military planners considered replacing Soviet- and Polish-made equipment with Western equipment.

Conversion of defense industry plants to civilian production faced serious obstacles. Deep cuts in the defense budget left little money for a centrally administered program or for the massive investment required to convert heavy industry. Because long-range military needs remained undefined in 1992, the degree of conversion would require guesswork. Finally, some plants simply could not be converted at any reasonable cost.

In 1992 the Ministry of Industry proposed a program to restructure the defense industry. The program would create three classes of linked holding companies, classified according to the degree of competition in which they engaged. One group, including producers of munitions and electronics, would be fully controlled by the State Treasury. The second group, including pead producers of aircraft, armored vehicles, and the Northern Shipyard at Gdansk, would have the State Treasury as controlling shareholder. The third group, including private firms supplying specialized production, would operate as market-economy enterprises. This structure was designed to focus production on critical military items and efficiently convert remaining capacity to free-market production.

By 1992 budgetary uncertainty and the high cost of Western equipment caused planners to rely more on domestic production of high-technology equipment and on joint production projects between Polish and Western firms. Projects considered in 1992 included an improved T-72 tank, new armored combat vehicles, a new ground attack helicopter, and a light attack aircraft. Many new products were suggested to replace Soviet equipment. Among the new products developed by the Polish industry were the I-22 Iryda combat training jet, the first such airplane completely designed in Poland, and the PW light military vehicle. In its testing stage, the I-22 Iryda jet trainer was evaluated as a very well-made airplane lacking a first-class engine. In 1992 Polish manufacturers sought joint ventures with Western firms to supply appropriate Western components to upgrade the Iryda and the PW.

In the Warsaw Pact decades, Polish production of sophisticated guidance and communications equipment was generally discouraged. As a result, in 1990 Polish industry was unable to supply the armed forces with modern avionics, electronics, and guidance systems that would make up some of the ground lost by relying on Soviet technology. The greatest manufacturing capabilities were in airframe design, small weapons design, and ammunition manufacturing.

A top procurement priority was electronic friend-or-foe aircraft identification units to upgrade the primitive air defense system. In the late 1980s, the Soviet Union had refused to complete a contract to supply such equipment--a fortunate development in light of ensuing changes in Polish threat perception and the advantages design familiarity would have given Russian attack planes. In 1992 Polish planners were considering both domestic design of an identification system and coproduction with a Western firm.

The Bumar-Labedy combine manufactured the T-72 tank by license with the Soviet Union, using Polish manufacturing technology. Until 1988 a seller of tanks to many countries of the world, Bumar-Labedy suffered from reduced world and domestic demand, and by 1989 its plants were working at half capacity. Like many other defense-oriented heavy industries, Bumar-Labedy found conversion to civilian production difficult. Meanwhile, the firm's financial condition deteriorated because of the high cost of maintaining a spare-parts inventory and serious payment lapses by the Ministry of National Defense.

Data as of October 1992