A N A LYS I S Defence Industry in Central Eastern Europe The Defence Sector in the Czech Republic: Past, Present and Future Zdeněk Rod 1. Introduction The Czech defence sector has constituted a core pillar of the national economy since the establishment of Czecho slovakia in 1918, drawing on the industrial base developed in the Czech lands during the Austro-Hungarian Empire. Over the 20th century, it underwent a succession of pro found transformations: from the interwar period, through the upheavals of the Second World War, to the Communist era, during which far-reaching state centralisation curtailed the sector’s private, innovative, and market-led character. Following 1989, the industry once again operated within a liberal democratic and market-oriented framework. Few states possess a defence industrial trajectory shaped by such turbulence and historical layering(Rod, 2025, pp. 1–2). Today, the Czech defence industry represents rough ly 1% of national GDP and generates around€3 billion in annual turnover, approximately€2 billion of which derives from exports to 98 countries(Czech Chamber of Com merce, 2025; Novák& Kozelský eds., 2025). The sector builds on a long-standing Czech industrial tradition, as a result of which it consistently ranks the Czech Republic among the top five most industrialised countries in the EU (Vejskal, 2025). The sector is thus more than 90% ex port-oriented. Comprising some 400 firms, it directly em ploys about 20,000 people and indirectly sustains a further 50,000, offering stable, highly skilled employment across a broad spectrum of technical fields(Czech Chamber of Commerce, 2025; Novák& Kozelský eds., 2025). Moreover, in the Czech Republic, more than 1,000 industrial compa nies are registered in the Czech Republic as contributors to the defence industry(oneindustry, 2025). Since 2022, the sector has experienced a striking and largely unexpected resurgence. Defence policy has moved to the forefront both in Prague and across Europe, with cer tain companies more than doubling their revenues in re sponse to soaring demand triggered by Russia’s war against Ukraine and acute shortages – particularly of am munition – which have strengthened the competitive posi tion of Czech firms(Rod, 2025). This elevated demand has produced notable spillover effects for the wider Czech economy, still recovering from the post-COVID-19 downturn and grappling with the relative decline of the automotive The Defence Sector in the Czech Republic 1

sector. Former Czech National Security Advisor Tomáš Po jar has consequently identified the defence industry as a potential strategic engine of economic growth for the next two decades, provided that adequate political support is sustained. At present, the sector is undergoing a renaissance unmatched in the past thirty years. It has also played a sig nificant role in supporting Ukraine: Czech-produced drones, remotely operated systems, and assault rifles(soon to be manufactured directly in Ukraine) are in active use, while older and modern artillery systems such as DANA and DITA have been deployed on the battlefield. Beyond Ukraine, Czech passive radar technologies – including the Vera-NG system – are earmarked for Moldova, and numer ous additional contributions remain undisclosed owing to their sensitive and strategic nature(Rod, 2025, pp. 1–2). The following text will present an in-depth qualita tive case study, designed to illuminate the character and key dimensions of the Czech defence industry. The next section provides a historical background of the sector’s de velopment. The third section examines the contemporary landscape in the Czech Republic, assessing the country’s principal defence-industrial actors with regard to their pro duction profiles, technological capabilities, and future tra jectories. The fourth section analyses foreign investment and outlines potential international and European interde pendencies. The fifth section focuses on the technological and industrial potential relevant to ongoing European rear mament efforts. The sixth section explores country-specific challenges related to industrial structure, labour availabili ty, skills and training, and the broader political and societal context – factors likely to shape the sector’s evolution in the years ahead. The final section assesses prospects for future cooperation and development of the Czech defence industry. 2. Historical Background of the Czech Defence Industry The Czech defence industry possesses a history spanning more than a century, rooted in the industrial foundations of the 19th-century Austro-Hungarian Monarchy. During this period, the Czech lands served not only as the Monarchy’s principal defence manufacturing hub but also as its indus trial heartland, accounting for as much as 80% of its total industrial output. With the establishment of an independ ent Czechoslovak state in 1918 under President Tomáš Gar rigue Masaryk, the new republic inherited a formidable heavy-industrial and engineering base. Yet its armaments production capabilities were unevenly developed: worldclass artillery and armoured manufacturing thrived in Pils en – anchored by the Škoda Works, founded in 1866 – and in Ostrava, while notable deficiencies remained in small arms, optics, aviation, and electronics. These gaps were swiftly addressed by new enterprises producing weapons both for the Czechoslovak Army and for export(Bauman, 2019; Rod, 2025, p. 2; Lehečka, 2024). Building on this foundation, the Czech defence in dustry continued to flourish in the aftermath of the First World War. As an independent state, by the 1930s Czecho slovakia rose to become one of Europe’s leading industrial powers, benefiting from a strong tradition of skilled crafts men and of businessmen adept at exporting machinery and manufactured goods(IMF, 1990). This broader industri al capacity naturally facilitated the expansion of the de fence sector. The Czech defence industry became a front runner among the world’s leading armaments producers. Between 1934 and 1935, Czechoslovakia was the world’s largest exporter of weapons, establishing itself as a global defence-industrial powerhouse. The aforementioned Škoda Works, for example, evolved into one of Europe’s largest ar tillery, weapons, and ammunition manufacturers(Odbor komunikace MO, 2025). Given this defence-industrial strength, Czechoslova kia became integral to Nazi Germany’s military ambitions, culminating in the occupation of the Czech lands in March 1939. The Nazi leadership understood clearly that its strate gic objectives could not be met without exploiting the ca pabilities of the Czech defence industry. Consequently, in the final months of the Second World War, Czech weapons factories – including the Škoda factories in Pilsen – were targeted and bombed in an effort to degrade the military potential available to the Nazi war effort(Odbor komu nikace MO, 2025). In the immediate aftermath of the Second World War, Czechoslovakia’s arms industry was largely disman tled, only to be rapidly reconstructed under Soviet direction and within a state-controlled economic system – ultimately resulting in the loss of competitive advantage relative to the capitalist market economies of Western Europe and the United States(Author’s note). From the 1950s onwards, production focused primarily on licensed Soviet designs, with Czechoslovakia emerging as a key Warsaw Pact man ufacturer of aircraft and armoured vehicles. The sector nonetheless achieved surprisingly substantial technological success, producing thousands of aircraft such as the MiG15, the Aero L-29 Delfín, and the L-39 Albatros trainer, as well as tanks(Rod, 2025, p. 3). Despite the constraints imposed by Soviet oversight, the country-maintained niches of independent design ex pertise – particularly in small arms – whose quality often exceeded that of Soviet equivalents. A notable example is the vz. 58 assault rifle, which in many aspects outper formed the Soviet Kalashnikov AK-47 and subsequently ap peared in armed conflicts across the globe(Author’s note). Exports remained vital, with approximately 70% of produc tion destined for foreign markets and accounting for 7–8% of national exports. Nevertheless, from the 1970s onwards, the defence sector’s share of the wider economy began to contract as civilian industries expanded more rapidly(Rod, 2025, p. 3). During the same period, much of the East-West stra tegic competition played out in the developing world, which absorbed up to 70% of global demand for arma ments. By the late 1980s, however, many of these states faced acute financial crises, curtailing their capacity to im port weapons. Early indications of decline emerged even as the Czechoslovak industry reached its peak in 1987, a mo The Defence Sector in the Czech Republic 2

ment shaped by global détente, evolving Soviet military doctrines, the INF Treaty, and progressing arms-control ne gotiations. That year, output reached a record 29 billion CZK – amounting to about 4% of GDP and nearly 8% of in dustrial production – with more than half destined for War saw Pact partners and roughly one-fifth for developing countries. Between 1984 and 1988, Czechoslovakia export ed arms worth$2.7 billion(in 1985 prices), placing it sev enth among global exporters, while defence spending peaked at nearly 38 billion CZK in 1988(ibid.). After the Velvet Revolution in 1989 and the collapse of the Communist regime in Czechoslovakia, the defence industry entered a new phase characterised by the re-emer gence of a market economy and the restoration of inde pendent defence planning. The dissolution of the USSR further reshaped the sector, resulting in the loss of many traditional export markets, although substantial exports continued for several years. Czech and Slovak companies were able to acquire large volumes of decommissioned equipment from the former Czechoslovak and succes sor-state armed forces and subsequently sell them to buy ers in Asia and Africa(Šiška, 2023). A further shock came with the breakup of Czecho slovakia at the end of December 1992. From January 1993 onwards, the Czech defence industry lost companies locat ed on Slovak territory, even though the major de fence-manufacturing enterprises had historically been con centrated in the Czech lands(Author’s note). Throughout the 1990s, however, the Czech defence industry confronted one challenge after another. Much of this turbulence stemmed from the privatisation of defence manufacturers, which had been state-owned during the Communist period, as well as from significant underdevel opment and insufficient research capacity within the sec tor. Moreover, once privatised, Czech producers were sud denly exposed to intense competition from Western Europe and the United States(Šiška, 2023). The second half of the 1990s was shaped by prepa rations for NATO accession in Central Europe – in the Czech Republic, Hungary, and Poland – which, together with shifts in political leadership, injected new momentum into the transformation of the defence industry. This pro cess came to be understood as the restructuring, moderni sation, and integration of existing capacities. Although Eu rope’s overall defence industrial base contracted during this period, it simultaneously consolidated modern capabilities capable of meeting a substantial proportion of the armed forces’ requirements(Valouch, 2005, p. 114) The 1990s were therefore a turbulent period of tran sition, marked by uncertainty and institutional experimen tation. Since then, however, several companies have emerged as leading actors within the sector, most notably the COLT CZ Group and Czechoslovak Group, the latter of which has developed extensive international operations and established itself as an influential player in the global defence market(Rod, 2025, p. 3). 3. The Czech Defence Industry Nowadays 3.1. The Leading Czech Defence Industry Firms Having outlined the historical foundations of the Czech de fence industry, it is now appropriate to turn to the present and examine the contemporary landscape through a closer assessment of the sector’s leading firms. At present, more than 1,000 industrial companies are registered in the Czech Republic as contributors to the defence industry. Within the Association of the Defence and Security Industry of the Czech Republic(AOBP) alone, over 200 defence firms are formally registered(oneindustry, 2025). Hence, given the di versity of companies directly or indirectly contributing to the Czech defence industry, it remains difficult to establish precise figures for the total number of firms involved. Despite the high diversity of Czech industrial firms contributing to the Czech defence sector, it remains possi ble to identify and assess the industry’s leading actors. The following Table 1 lists ten of the most prominent Czech de fence firms, ordered according to their most recently trace able data(revenue, profit, estimated valuation, number of employees and ownership structure). The table also pro vides insight into each firm’s core production focus. The Defence Sector in the Czech Republic 3

Top 10 leading defence industry firms 1 Table 1 Firm Revenue 2022 (Billion CZK) Profit 2022 (Billion CZK) Czechoslovak 25.0 5.6 Group(CSG) Colt CZ Group 14.6 2.3 STV Group 8.4 2.2 Aero 4.0 0.19 Vodochody Omnipol 1.0 n.a. L.P.P. Holding 0.577 0.082 MPI Group 0.25 0.124 SVOS 0.216 n.a. Zeveta Bojk 0.129 0.16 ovice Synthesia 4 4.7 n.a. Estimated value (Billion CZK) Number of employees in Czechia and abroad 256 14000+ 44 3900 83 700+ 2 n.a. 1300+ 55 4000+ n.a. n.a. n.a. n.a. n.a. 150 n.a. 526 n.a. 1300 Ownership Private (CZ) Private (CZ) Private (CZ) Private 3 (HUN 80%, CZ 20%) Private (CZ) Private (CZ) Private (CZ) Private (CZ) Private (CZ) Private (CZ) Count of subsidiary companies 100+ 8 10 n.a. 4 11 3 n.a. 3 n.a. Export destinations 70+ 90+ 2/3 of pro duction for NATO MSs 6 60+ n.a. n.a. 60+ n.a. 60+ Main production focus Ammunition, land vehicles, Tatra trucks, radar sys tems, aerospace (via acquisitions). Firearms(pistols, rifles), ballistic protection, US Colt and Colt Canada products. Ammunition(incl. large-calibre), artil lery shells, tank and artillery equipment. Military training aircraft(L-39NG), aerospace main tenance and up grades. Aircraft production (Aero Vodochody, Aircraft Industries), passive radar sys tems(ERA). Radar systems, aerospace technol ogies, light military vehicles(Supacat partnership). Medium-calibre weapons and am munition(via ZVI), arms exports. Development and production of ar moured vehicles. Ammunitions in cluding hand gre nades. Military-grade nitro cellulose for explo sives. Data in the Table 1 based on: Pšenička(2023); Rod(2025); Jahn(2025); Richter(2025); CSG(2025); Colt CZ Group SE(2025); COLTCZGROUP(2025); STV GROUP(2023); redakce(2023); AERO Vodochody(2022); aero(2024); Omnipol(2025); LPP Holding(2025); MPI(2025); Forbes(2025); SVOS(2025); Zeveta(2025); Synthesia(2025a); Synthesia(2025b) 1 The Sellier& Bellot firm is not reflected since it was purchased by COLT CZ Group in 2023(ČTK, 2023). 2 The STV Group announced it intends to double the number of employees due to surging demand(Aktuálně.cz, 2025). 3 2021, Aero Vodochody was purchased by the Hungarian company HSC Aerojet Zrt(militär aktuell, 2021); Czech Omnipol holds a 20% share of the company(Ehl, 2025). 4 European leader in nitrocellulose manufacturing(Author’s note). The Defence Sector in the Czech Republic 4

Table 1 hereinabove provides the most comprehensive traceable dataset on the Czech Republic’s leading defence firms. It reveals that three companies – Czechoslovak Group(CSG), Colt CZ Group, and STV Group – constitute the most consequential actors in the defence sector, each exerting meaningful international impact. Given their stra tegic and industrial weight, it is appropriate to briefly exam ine them in greater detail. First, Michal Strnad, owner of CSG , built on a family enterprise founded by his father Jaroslav, who generated early profits in the 1990s through Excalibur Army, the fore runner of CSG, by trading decommissioned military equip ment. Key expansion milestones included the acquisition of a former military repair complex in Přelouč(2005), control of the brake-system producer DAKO-CZ(2010), and a ma jority stake in Tatra Trucks(2013), alongside the cultivation of political networks and sponsorship of pro-Zeman enti ties. From approximately 1 billion CZK in turnover in 2012, CSG expanded rapidly through acquisitions and govern ment contracts to become the Czech defence market lead er, with momentum further accelerated by the war in Ukraine. In 2022, the group reported record revenues of roughly 25 billion CZK – almost double 2021 levels(14.4 bil lion CZK) – and an EBITDA of 5.6 billion CZK, again nearly twice the previous year. Continued growth throughout 2023 was influenced substantially by the prior acquisition of the Italian ammunition producer Fiocchi and its subsidiary Fi occhi(Pšenička, 2023; Rod, 2025). Second, Colt CZ Group ’s majority stakeholder, Michal Holeček, assumed control in 2014 of the fire arms-focused group originally structured around Česká zbrojovka Uherský Brod, following collaboration with its former owner, Rudolf Ovčaří, whom he knew through major industrial privatisations. The group’s current name derives from the 2021 acquisition of the historic U.S. manufacturer Colt and its production facilities in the United States and Canada, including Colt Canada. Holeček retains indirect networks into the current Czech political leadership and advisory circles linked to President Pavel, including through his charitable foundation, whose board was chaired by presidential advisor Petr Kolář and includes key decision takers in the security sector. In 2022, Colt CZ Group report ed preliminary record revenues of 14.6 billion CZK, reflect ing a 36.5% year-on-year increase, while net profit reached approximately 2.3 billion CZK – almost double the 2021 re sult. The company has stated that the war in Ukraine did not materially shape its financial results, yet battlefield systems produced by Česká zbrojovka, Colt, and Colt Cana da have been delivered for operational use, alongside bal listic protection systems(vests and helmets) supplied through its subsidiary 4M Systems. The subsidiary has sep arately confirmed deliveries of ballistic protection equip ment as well(ibid.). Third, STV Group owner Jaroslav Drda oversees what is presently the Czech Republic’s sole and strategical ly most important producer of large-calibre ammunition, including the country’s only industrial capacity for heavy munitions. STV originated in the mid-1990s, when his fa ther Václav founded STV Praha, initially focussed on trad ing surplus military material before acquiring substantial ammunition depots across northern and central Bohemia. Since 2015, Drda has held ownership of the engineering works in Polička via STV. In 2022, following a one-off“emp tying of inventories,” the group reported record unconsoli dated revenues of 8.4 billion CZK and a pre-tax profit of 2.2 billion CZK, a figure nearly four times higher than in 2021. The company has explicitly confirmed substantial deliver ies to Ukraine, including artillery and tank ammunition, as well as armoured battlefield systems and other heavy in-theatre platforms(ibid.). Lastly, Aero Vodochody , the Czech Republic’s larg est aircraft manufacturer, has quietly undergone a signifi cant ownership change since 2022: while 20% remains with the Czech defense group Omnipol, the remaining 80% held by Hungarian investors is now controlled through a com plex structure centred on Magyar Aerojet Investment Asset Management. After former owner Kristóf Szalay-Bo brovniczky sold his stake upon becoming Hungary’s de fence minister, the ownership was reshuffled among figures closely linked to Hungary’s political and business elite, in cluding MOL CEO Zsolt Hernádi, associates of former MOL executives, Slovak-Hungarian billionaire Oszkár Világi, and most notably Árpád Habony, Viktor Orbán’s influential but unofficial political strategist, who holds about 27% of the shares. The restructuring, partly routed through founda tions, reflects typical Orbán-era strategies to secure assets, and it places Aero – producer of the L-39 Skyfox trainer and supplier to the Hungarian and Czech militaries – firmly within the orbit of Hungary’s ruling power network, even as the company remains loss-making and awaits major new orders(Ehl, 2025). 3.2. The Czech Defence Industry Sectors and Exports Having surveyed the Czech Republic’s principal defence-in dustrial actors, it is now necessary to examine the structure of Czech defence-industrial production through the lens of export orientation. The Czech defence industry manufac tures a wide and varied portfolio of defence products across multiple industrial segments. The key sectors comprise: am munition and substances for explosives; production equip ment and semi-finished products; small arms; land systems (including armoured vehicles, tanks, and infantry plat forms); aircraft technologies; and electrotechnical systems (such as radars, communication suites, and associated com ponents)(Rod, 2025, p. 4). Moreover, the majority of Czech defence firms also deliver defence-oriented services, includ ing maintenance and repairs. A typical representative of this business model is MPI Group, which specialises in innova tion, repair, and reconstruction programmes(Author’s note). Examining the structure of Czech defence exports based on the latest 2022 data, Table 2 provides a percentage-based breakdown of the principal export categories, illustrating the proportional representation of each sector within total Czech defence-industrial exports. The data indicate that Czech defence exports are predominantly dominated by ammunition and substances for explosives, as well as by land systems. The Defence Sector in the Czech Republic 5

The structure of Czech defence exports by sectors in 2024 Sector Representation in% Ammunition and substances for explosives 44 Vehicles 22 Aircraft technologies 18 Electrotechnical systems 9 Production equipment and semi-finished products 4 Small arms 4 Data in the Table 2 based on AOBP(2024) Table 2 Zooming in on the export destinations reflected in Table 3, it is evident that Europe – comprising both EU and non-EU states – constitutes the dominant market for Czech de fence exports. Additional export flows extend into Asia, Af rica, and the Middle East, as well as North and South America, alongside Australia and Oceania. Military material and dual-use goods exports by region in 2024 Export destination Representation in% Other European countries 54 European Union 32 South East Asia 6 Middle East 4 Others 3 Sub-Saharan Africa 1 Data in the Table 3 based on AOBP(2024). Table 3 Moreover, when examining the countries constituting the leading export destinations by revenue, it is evident that the highest earnings are generated in the United States, In dia, and Poland. Table 4 outlines the principal export mar kets in relation to the revenues captured by Czech defence manufacturers. The Defence Sector in the Czech Republic 6

10 largest export destinations by country Table 4 for the Czech defence industry in 2022 5 Country USA India Poland Morocco Israel Slovakia Italy Ukraine Bulgaria Ghana Representation in% 8.8 7.1 5.2 4.8 4.1 4.1 3.9 3.6 3.1 3.1 Data in Table 4 based on Česká spořitelna(2023). Revenue 2022(Billion CZK) 1.33 1.08 0.79 0.73 0.63 0.62 0.58 0.54 0.47 0.47 5 most reliable publicly available data date from 2022. Given the subsequent increase in exports to Ukraine, it is likely that Ukraine now occupies a higher position in the ranking. The most reliable publicly available data date from 2022. Given the subsequent increase in exports to Ukraine, it is likely that Ukraine now occupies a more significant position in the ranking. Since Russia’s invasion, Czech defence ex ports to Ukraine have grown substantially, yet they contin ue to represent only a limited and often undisclosed share of the broader expansion of the Czech arms industry. In 2023, total Czech arms exports doubled year on year to a record CZK 60 billion, driven largely by the war in Ukraine and by European states replenishing stockpiles sent to Kyiv. Direct exports to Ukraine are frequently classified or de scribed as marginal. Major firms such as the Czechoslovak Group, Colt CZ Group, STV Group, and Omnipol recognise Ukraine as an important destination but stress that most exports go to NATO countries and other global markets, with Ukrainian orders accounting for only a small percent age or remaining confidential for security reasons. Beyond direct deliveries, Czech companies are increasingly involved in technology transfers and industrial cooperation in Ukraine, including ammunition production and rifle assem bly, signaling a shift towards longer-term strategic engage ment(Němec, 2024). Considering potential dependencies with regard to export patterns and business structure, Tables 2, 3, and 4 suggest that – given the breadth of the Czech defence-in dustrial base – the sector demonstrates a relatively high degree of resilience. This stems from the fact that Czech defence production is not concentrated in only one or two dominant defence-industrial categories or export destina tions(Author’s note). 4. Investments and National/European Pro jects The Czech defence industry remains largely self-reliant and sustains its development predominantly through export ac tivity and close cooperation with the Czech state. In 2024, Czech firms secured over 90% of public defence procure ment contracts; however, these accounted for less than 25% of total contract value, as the highest-value acquisition pro grammes – such as the F-35 fighter jets and H-1 helicopter systems – involve Czech industrial participation primarily in non-strategic or low-impact roles(EY, 2024, p. 6). This imbalance constrains the expansion of domes tic industrial capacity and underscores the need for more substantial Czech involvement in strategic, high-value de fence programmes, ideally commencing at the R&D phase. Concurrently, the Czech Republic’s defence-industrial strat egy remains insufficiently defined, generating persistent coordination inefficiencies between government stakehold The Defence Sector in the Czech Republic 7

ers and manufacturers. This further highlights that longterm capability development will hinge on deeper, technol ogy-driven strategic partnerships – particularly those built around technology transfer and localised production(ibid.). In pursuit of additional capital to support future de velopment, the sector’s three leading firms – CSG, Colt CZ Group, and STV Group – are publicly traded on the Prague Stock Exchange. This strategic posture is intended to draw in private investment and accelerate their technological and industrial development, with both domestic and for eign investors able to purchase company shares(Author’s note). A further avenue for the development of the Czech defence industry lies within the banking sector. However, in many cases banks remain reluctant to extend credit to de fence manufacturers. While some institutions that previ ously avoided the sector have begun providing financial support, others continue to regard defence as an unsuitable or undesirable investment category – an approach criti cised by industry leaders as unjustified discrimination. The European Investment Bank maintains a formal prohibition on financing weapons systems, explosives, and exclusively military technologies, limiting its support primarily to du al-use projects. This policy stance is widely understood to stem from its effort to safeguard its AAA credit rating and mitigate risks to its AAA rating, including potential impacts on its AAA credit rating and AAA rating. According to sec tor representatives, the bank considers pure defence-indus try exposure a potential threat to its AAA rating. In parallel, several Czech commercial banks continue to refuse even fundamental financial services, with some declining to of fer basic provisions such as company accounts, including the opening of ordinary business accounts for defence firms(Žižka, 2025; Rod in Gomez interview, 2025). Czech defence firms may also seek to generate addi tional development capital through programmes funded by the European Defence Fund(EDF). However, according to AOBP Vice-President Dr Kristýna Helm, accessing the re search and development(R&D) phase of European defence programmes remain exceptionally challenging, principally due to extensive administrative burdens and the structural design of European funding mechanisms. Schemes such as the EDF mandate the formation of multinational consortia comprising partners from at least three countries, frequent ly involving from 13 to 15 industrial or institutional partici pants. Such scale requires the sharing of sensitive technical data across a large partnership network, raising persistent strategic concerns relating to intellectual property theft, technology leakage, and the erosion of competitive advan tage. Although all participating states confront similar vul nerabilities, French and German firms are widely viewed as holding a comparative edge, owing to more extensive insti tutional experience and stronger representation within EU bodies – allowing them to influence strategic priority-set ting at earlier stages of programme development(Helm ac cording to Francová, 2025). While opportunities for Czech firms within these frameworks are comparatively limited(Helm according to Francová, 2025; see also Ehl, 2024), companies willing to engage in genuinely competitive pursuits can still secure meaningful success. At a European systems level, the Czech defence industrial base remains distinctive for the breadth and diversity of its production capabilities for a mid-sized state. This includes industrial capacity across both small and large-calibre ammunition, multiple catego ries of combat vehicles, aerospace manufacturing, and a foothold in emerging security domains such as AI, autono mous systems, and chemical, biological, radiological, and cyber defence technologies – along with capabilities rele vant to cyber and ISR-adjacent architectures. Despite struc tural constraints, the sector retains strategic relevance within wider European rearmament trajectories(Helm ac cording to Francová, 2025). Last but not least, CzechInvest, in partnership with the Czech Ministry of Defence, launched the DEFENCE HUB initiative as a national response to NATO’s DIANA programme, establishing a central information and acceler ation platform designed to strengthen defence and du al-use innovation. The hub serves as a single point of con tact that systematically maps and promotes national and European grant opportunities – including DIANA, the NATO Innovation Fund, and the European Defence Fund – while cultivating structured linkages between startups, es tablished defence manufacturers, and public institutions. One of its core missions is to identify high-potential inno vators and guide them through the complexities of multi national R&D consortia formation as well as DIANA appli cations, with an anticipated future role in operating the na tional DIANA Czechia accelerator as part of NATO’s broader innovation network. The hub provides expert con sultations, convenes industry events, facilitates internation al partner matchmaking, and supports early-stage technol ogy incubation, all aimed at scaling strategic defence and dual-use capabilities(CzechInvest, 2025a). Finally, the Czech government has introduced a new national support mechanism intended to help domestic de fence firms secure financing to expand production capacity within the country. The state-owned export insurance agency EGAP will insure investments undertaken by Czech defence manufacturers – widely regarded within the sector as a critical precondition for commercial banks to issue loans – leveraging capital reserves originally earmarked un der the Covid Plus programme. With 500 million CZK allo cated, EGAP is positioned to insure loans up to a total val ue of 5 billion CZK, thereby unlocking potential credit lines amounting to 5 billion CZK. The initiative, formally ap proved by the Czech government, aims to fortify national defence preparedness, reinforce Czech industrial competi tiveness, and mitigate long-standing dependencies on for eign supply chains. Government ministers noted that Czech defence firms have faced persistent and structural obsta cles in accessing fundamental banking services, and that the new EGAP insurance programme will additionally ex tend to supporting research, development, and operating expenditures for export-oriented defence manufacturers. EGAP brings considerable institutional experience in under writing defence-related exports, including platforms such as Aero Vodochody’s L-39NG aircraft and Czech radar tech The Defence Sector in the Czech Republic 8

nologies. The agency is now expected to place increased strategic emphasis on enabling domestic defence-industrial expansion. In 2023, EGAP insured Czech exports valued at over 41 billion CZK, contributing to a cumulative portfolio of more than 1.1 trillion CZK backed since its establishment in 1992. The shift toward insuring industrial investment sig nals a broader national effort to enhance indigenous de fence capacity, sustain employment in the defence-indus trial base, and accelerate Czech contributions to NA TO-aligned strategic production networks(MFCR, 2025). 5. Technological and Industrial Potential The Czech defence industry undoubtedly possesses consid erable technological and industrial potential, reflecting both the complexity of the sector and its product portfolio, and the historically well-established reality that many glob ally transformative innovations originated within defence research ecosystems(for example technologies such as GPS etc.). Czech industry is considered unusually diversified for a mid-sized country, demonstrating strengths across both small- and large-calibre ammunition, aerospace, au tonomous systems, AI, and chemical or biological defence. This breadth creates substantial opportunity for domestic sub-suppliers and secures a durable foundation for future export expansion(CzechInvest, 2025b). Czech defence and dual-use innovation further bene fits from deeply institutionalised cooperation between uni versities, research centres, and defence manufacturers. This collaborative density is reinforced by the Czech Republic’s unusually high concentration of technically specialised, comparatively high-quality engineering universities, ena bling sustained joint R&D activity and technical knowledge pipelines into industry. Sector representatives caution, how ever, that meaningful defence innovation depends on itera tive feedback loops, best generated either via real battle field deployment – as presently evidenced in Ukraine, where combat conditions have accelerated rapid advances in unmanned systems – or through structured end-user testing, ideally conducted by national armed or security forces, even outside active conflict environments. Innova tion is thus framed as an iterative, experimental cycle driv en by operational validation, with effectiveness often only conclusively proven under combat conditions. Systematic end-user testing and combat-derived insights are therefore viewed as indispensable for sustained technological pro gression(Kristýna Helm according to BusinessInfo.cz, 2025). Among Czech policymakers and industry figures, de fence capabilities are increasingly framed not merely as in struments of national security, but as sources of long-term economic opportunity. The sector is widely assessed as ca pable of sustaining employment, improving national indus trial tech performance, and evolving into a strategic engine of future economic growth, contingent on stronger technol ogy-transfer partnerships, greater clarity in national de fence-industrial priorities, leaner administrative processes, and deeper integration into international supply chains (CzechInvest, 2025b). It is generally considered by Czech experts that every crown spent by the state on purchases from the Czech defence industry brings multiple returns for the Czech economy(Czech Chamber of Commerce, 2025). 6. Country-Specific Challenges Czech defence manufacturers benefit from a long-standing industrial base, yet it is widely acknowledged that the Czech Republic lacks a sufficiently large pool of highly skilled technical labour trained via vocational technical high schools or universities. According to Dr Kristýna Helm, while forecasts point to future labour shortages, the sector is not yet facing a systemic workforce crisis. However, gaps are already visible in highly specialised professions, notably among design engineers and explosives experts, where aca demic pipelines remain limited and much of the existing expertise sits with personnel nearing retirement age. The defence industry is therefore considered more generational ly constrained and culturally conservative than fast-moving civilian technology sectors. Industry leaders emphasise that partnership decisions are shaped not only by commercial logic but by security considerations, as collaboration re quires sharing highly sensitive systems-level knowledge, making trust and long-term reliability central to workforce and business development(Kristýna Helm according to Francová, 2025). Within the political domain, Czech governments have historically been supportive of the defence sector, a posture logically underpinned by the sector’s persistent contribution to national GDP. Czech policy elites routinely frame defence manufacturing as a foundational compo nent of the national industrial economy, and successive ad ministrations have actively endorsed the sector’s role as one of the principal strategic engines of Czech economic performance. With regard to the social context, Czech soci ety generally perceives the defence sector positively, with only minor counter-currents of opposition – primarily from ecological activist networks or ultra-left political grouping which, by national impact assessments, occupy an ex tremely marginal position in Czech political discourse and strategic industry influence(Author’s note; see Vrabec, 2025). 7. Final Remarks: Assesment of Future Development and Cooperation Assuming NATO’s defence spending targets are implement ed, a key question is whether this will translate into in creased defence-industrial potential. If the majority of NATO members sustain higher defence expenditure – driv en by a deteriorating security environment and the growing Russian threat – the Czech defence industry possesses con siderable business growth prospects, not only domestically but across Europe and potentially beyond the continent (Author’s note). Despite these positive trends, substantial challenges remain. Although Czech firms secure roughly 90% of Minis try of Defence contracts by volume, they capture only around 25% of total procurement value, reflecting structur The Defence Sector in the Czech Republic 9

al imbalances that restrict domestic scaling in high-margin strategic programmes. Industry representatives also point to continued barriers to defence-sector financing, particu larly under ESG frameworks and restrictive banking poli cies, even as market sentiment shows gradual improve ment – illustrated by the marked growth of defence hold ings within ESG-labelled funds since 2022(Rod, 2025, pp. 7–8). Another major impediment is the limited adoption of long-term procurement contracts by the Czech govern ment, which industry leaders argue are essential to justify capacity investments over 15-to-20-year horizons. Addition al constraints arise from political short-termism, fragment ed industrial planning, underfunded national defence R&D, limited Czech influence in multinational priority-setting, and persistent administrative complexity within EU funding instruments such as the EDF. Sector leaders warn that any rapid expansion of defence spending must be coupled with long-term capability development, sustained public-private cooperation, and deeper integration into international de fence partnerships. Without this, increased budgets risk be ing absorbed by inefficient, non-strategic acquisitions in stead of strengthening industrial capacity or supporting domestic technological advancement(ibid.). Moreover, there are significant expectations regard ing how the Czech Republic will utilise funding from the SAFE(Security Action for Europe) programme. The Czech Ministry of Defence has submitted a plan to the European Commission outlining the potential use of up to CZK 52 billion from a SAFE loan, earmarked for the acquisition of Leopard 2A8 tanks, Tatra T-815 military vehicles, and part of the construction of the D11 motorway. The Commission is expected to assess the proposal by January, with loan agreements potentially concluded by March of next year. While submission of the plan is mandatory, it remains le gally non-binding and serves primarily to preserve the op tion of drawing on the funds(Armádní noviny, 2025). Finally, Czech defence firms remain comparatively under-represented in wider European defence programmes, largely due to bureaucratic and institutional constraints as outlined above – a gap that continues to differentiate Czech participation from that of more institutionally em bedded Western defence partners. If the Czech defence in dustry is to prosper further over the next decade, the afore mentioned challenges will need to be resolved despite the current obstacles. Sources Aero(2024). Aero a Embraer rozšiřují spolupráci v programu C-390 Mil lenium[Aero and Embraer expand cooperation in the C-390 Millennium programme]. 2 October 2024(https://www.aero.cz/aero-a-embraer-roz siruji-spolupraci-v-programu-c-390-millenium/#:~:text=Program%20 C%2D390%20se%20stal,ale%20také%20za%20jejich%20vývoj.). AERO Vodochody(2022). 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Každá koruna utracená státem za nákupy od českého obranného průmyslu přináší násobky zpět do české ekonomiky[Every crown spent by the state on purchases from the Czech defence industry brings multiples back to the Czech economy] . 10 February 2025(https://www.komora.cz/blog/tiskove-zpravy/kazdakoruna-utracena-statem-za-nakupy-od-ceskeho-obranneho-prumysluprinasi-nasobky-zpet-do-ceske-ekonomiky/). The Defence Sector in the Czech Republic 10

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hunger for weapons will not subside. We expect demand for the next 10 to 15 years]. 16 May 2023(https://www.stvgroup.cz/novinky/napsalio-nas-hlad-po-zbranich-neodezni-ocekavame-poptavku-dalsich-10-az15-let). SVOS(2025). Společnost SVOS[Company SVOS].(https://www. armsvos.cz/spolecnost.html). Synthesia(2025a). O společnosti[About the company].(https://www. synthesia.eu/cze/o-spolecnosti). Synthesia(2025b). Evropský lídr ve výrobě nitrocelulózy[European leader in nitrocellulose manufacturing].(https://www.nitrocellulose.cz). Valouch, Jan(2005). Konverze obranné průmyslové základny[Con version of the defence industrial base]. Obrana a strategie(https:// www.obranaastrategie.cz/cs/archiv/rocnik-2005/1-2005/konver ze-obranne-prumyslove-zakladny.html). Vejskal, Matyáš(2025). Český průmysl stojí na křižovatce. Firmy by měl začít zajímat obranný sektor, říkají experti z PwC[Czech industry is at a crossroads. Companies should start to be interested in the de fence sector, say experts from PwC]. CzechCrunch, 25 November 2025 (https://cc.cz/cesky-prumysl-stoji-na-krizovatce-firmy-by-mel-zacit-za jimat-obranny-sektor-rikaji-experti-z-pwc/). Vrabec, Petr(2025).„Běda, běda, pseudověda!“ Studenti protestovali v areálu soukromé vysoké školy CEVRO[“Woe, woe, pseudoscience!” Students protested on the premises of the private university CEVRO]. Alarm, 3 April 2025(https://denikalarm.cz/2025/04/beda-beda-pseu doveda-studenti-protestovali-v-arealu-soukrome-vysoke-skoly-cevro/). Zeveta(2025). O nás[About us].(https://zeveta.cz/o-nas/). Žižka, Jan(2025). Kristýna Helm: Podle některých bank obranný průmysl pořád není hoden financování[Kristýna Helm: According to some banks, the defence industry is still not worthy of financing]. Moderní ekonomická diplomacie MZV ČR, 2 June 2025(https://www. export.cz/nazory-a-analyzy/kristyna-helm-podle-nekterych-bankobranych/). The Defence Sector in the Czech Republic 12

About the Autor Zdeněk Rod serves as an Assistant Professor in the Department of Security Studies at CEVRO University in Prague, where he additionally heads research at the Centre for Asia and Pacific Studies. Alongside these roles, he holds an appointment as Assistant Professor in the Faculty of International Relations at the Prague University of Business and Economics, within the Department of International and Diplomat ic Studies. Furthermore, he is Co-Director of the Centre for Security Consulting. Other titels in the series Defence Industry in Central Eastern Europe The Defence Sector in Central and Eastern Europe – The Hungarian Case(January 2026) The Defence Sector in Poland(January 2026) The Romanian Defence Sector: An Analysis of Industrial Capacity, Fiscal Challenges, and the Potential for European Cooperation (January 2026) The Defence Sector in Slovakia(January 2026) Analysis of the Slovenian Defence Sector(January 2026) Imprint Published by Friedrich-Ebert-Stiftung e.V. Godesberger Allee 149 53175 Bonn info@fes.de Publishing Department Department for International Cooperation/ European Union and North America Department Content Responsibility and Editing Dr. Ernst Hillebrand, Director FES Budapest Contact budapest@fes.de Image Credits P. 1: Moleng24/Tymofii The views expressed in this publication are not necessarily those of the Friedrich-Ebert-Stiftung e.V.(FES). Commercial use of media published by FES is not permitted without the written con sent of the FES. Publications by the Friedrich-Ebert-Stiftung may not be used for election campaign purposes. January 2026 © Friedrich-Ebert-Stiftung e. V. ISBN 978-3-98628-812-9 Further publications of the Friedrich-Ebert-Stiftung can be found here: ↗ www.fes.de/publikationen Department for International Cooperation The Defence Sector in the Czech Republic 13