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DE RUEHPG #0202/01 1001340
ZNR UUUUU ZZH
R 101340Z APR 09
FM AMEMBASSY PRAGUE
TO RUEHC/SECSTATE WASHDC 1288
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
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RUEAIIA/CIA WASHDC

UNCLAS PRAGUE 000202 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EZ MAPP PREL
SUBJECT: CZECH REPUBLIC: AERO VODOHODY NOW FOCUSED ON 
PRODUCING CUSTOM PARTS AND ASSEMBLING HELICOPTERS FOR 
FOREIGN PARTNERS 
 
1.(SBU) Summary: Aerovodohody (Aero), located just north of 
Prague, was once one of the largest producers of aircraft in 
the world. Since the fall of communism, the company has been 
restructured several times and is now wholly- owned by the 
Penta Private Investment Group. Aero no longer manufactures 
complete aircraft and now concentrates on manufacturing of 
structural parts for a number of major U.S. and foreign 
aerospace companies and the assembly of helicopters for 
Sikorsky, the U.S. helicopter company. In the latest 
restructuring, Aero's workforce shrunk from 6000 employees to 
around 1300 and has become profitable. Penta is now seeking 
to expand Aero's markets and production lines. End Summary. 
 
Long History of Aircraft Production 
 
2.(SBU) Founded in 1919, Aero was historically one of the 
largest producers of aircraft in the world. The firm produced 
over 6500 jet trainers that were used in over 30 countries. 
From 1953-1972, the company produced 3700 MIG-15s, MIG-19s, 
and MIG-21s. From 1971-1999, the company manufactured 3600 
L-29 and L-39 aircraft. To produce these aircraft, Aero 
occupied a huge facility that includes its own airport. 
 
Failed Marriage with Boeing 
 
3.(SBU) In 1998, Aero entered into a strategic partnership 
with Boeing. Boeing took a 35% stake in the company, with the 
Czech Government being the other major stakeholder. Aero and 
Boeing hoped Aero's long tradition of producing high quality 
trainers could leverage Boeing,s marketing and avionic 
expertise to increase aircraft sales. The first major test of 
this project was the L-159 aircraft. Per reftel, Aero signed 
a contract to provide the Czech Air Force with 72 L-159 
Advanced Light Combat Aircraft (ALCA). However, no other 
orders materialized and Boeing withdrew from the partnership 
in 2004 and transferred its 35% stake back to the Czech 
Government. 
 
Aero Sold to Penta, Refocuses Efforts 
 
4.(SBU) In January 2007, the Czech Government sold its stake 
in Aero to the Penta Group, a Czech-Slovak investment firm. 
The new owners re-organized the firm into two units: the 
military division that focuses on Czech Air Force and L-159s 
and the aero structures division that builds helicopters and 
parts for a number of foreign partners. During emboff's 
recent visit to the plant, an Aero official stated that the 
military division will not be a future area of growth for the 
firm. Aero's military division largely focuses on sustaining 
the Czech Air Force's operational L-159s. The military 
division also provides spare parts, overhauls, and other 
logistical support to countries and individuals that continue 
to fly older L-39s and L-59s. 
 
5.(SBU) Aero considers its major area of growth is producing 
aircraft parts and assembling helicopters for Sikorsky. As an 
example, Aero, in partnership with Allenia, the Italian 
aerospace company, manufactures the central wing box for the 
C-27J. The two companies signed the first contract in 2006, 
with the first wing box produced in December 2007. Aero works 
with 20 different partners on this project. Since 2008, Aero 
has produced door sub-assemblies for the Embraer 170/190 
regional jet. Since 2001, Aero has also produced 300 gun bay 
doors for the F-18. Since 2000, the firm has assembled 250 
S-76 C helicopters for Sikorsky. The company has the ability 
to produce around 55 helicopters per year. Of the 8500 parts 
required for each S-76, Aero produces 3700. Two hundred other 
suppliers make the remaining parts. Aero has also provided 
parts for Airbus, Saab, and other aircraft manufacturers. 
 
6.(SBU) Aero officials told us that since the painful 
reorganization in 2007, the company is now profitable with 
growing sales. In 2006, the company, with 104 million Euros 
in revenue (around USD 135 million) and 96 million Euros 
(approximately USD 125 million) in exports, lost 24 million 
Euros (around USD 32 million). By the end of 2007, the 
company posted revenue of 148 million Euros (approximately 
USD 192 million) and 124 million Euros (around USD 184 
million) in exports. The company made a profit of 10 million 
Euros (approximately USD 13 million) in 2007. For 2008, the 
company forecasted that it would reach 212 million Euros in 
revenue (around USD 275 million), exports of 160 million 
Euros (approximately 208 million), and a profit of 20 million 
Euros (around USD 26 million). Although Aero officials did 
not discuss it during the meeting, the world-wide recession 
and the resulting decline in demand for aircraft will 
undoubtedly impact their sales. 
 
 
 
7.(SBU) Comment: Aero Vodohody and its overall compliance 
with U.S. export controls makes it a solid candidate for 
onward U.S.-Czech defense cooperation. It could serve as a 
model for other ageing defense companies in this area of the 
world on how to profitably restructure and use its niche 
capabilities to cooperate with Western aerospace and defense 
companies. 
Thompson-Jones