AT the formerly top-secret Tulamashzavod weapons factory in this provincial city, technical director Evgeny Dronov is busy overseeing the assembly of everything from motorcycles to miniature sewing machines.
Just four years ago, when the Soviet Union collapsed, the factory was mainly making defense items such as machine-gun mounts. Since then, the factory has successfully converted 85 percent of its production line to commercial civilian goods.
And Mr. Dronov is smiling all the way to the bank.
''Last year we made enough to pay for all our salaries and equipment,'' he says from his office on the sprawling grounds of the factory, where workers ride shiny red motorcycles to get from one building to another. Exact profits are a ''commercial secret,'' but he says: ''If we make the same profit this year, we're going to survive.''
Keeping close watch
Tulamashzavod illustrates a rare success story in Russia's difficult and expensive process of military-to-civilian conversion, introduced by Mikhail Gorbachev in 1988 to transform to peaceful purposes the former Soviet Union's vast military-industrial complex.
While the West hailed the move as an end to the cold war, these days it is closely watching Russia's demilitarization process, which will determine how much of a threat Russia will be in the future. In particular, there are concerns that the country could export all types of weapons.
Roughly 2,500 factories, institutes, and other organizations employing 8 million people were involved in the former Soviet Union's defense sector. The process of converting it to civilian purposes has emerged as one of the crucial factors of the new market economy in post-Soviet Russia -- but one extremely difficult to fulfill.
Government military spending fell 7 to 8 percent from last year, and the number of defense workers dropped 17 percent in the last year. Many defense factories have been forced to close, and overall weapons production has fallen by 80 percent since 1990, according to Defense Ministry statistics.
At the red-brick Tulamashzavod factory in Tula, about 120 miles south of Moscow, the work force has shrunk from 20,000 to 14,000 in three years, technical director Dronov says. But he adds that just a few months ago he started rehiring, thanks to increased sales of his factory's consumer goods.
''Our best people left to find higher-paying jobs in other areas, especially in trade,'' he says, looking more the businessman than the technician in a tailored Western suit. But he hopes eventually to woo them back.
For Russians whose livelihood depends on the defense sector, conversion has largely brought unemployment, uncertainty, and shrinking salaries. Many cash-strapped factories find it impossible to raise funds to purchase new equipment and adapt existing machinery. And those with cash often make products that can't compete on the world market.
The Soviet collapse meant that relying on cheap parts from former Soviet republics is no longer an option. And attracting Western investment has been next to impossible for most enterprises.
Tulamashzavod is the most profitable factory in Tula, a sleepy backwater of roughly 750,000 people with a long tradition of manufacturing weapons. In some factory workrooms, missile warheads lie stacked alongside machine-gun mounts, and automatic rifles.
''We love weapons in Tula,'' says Mikhail Sevasyanov, director of the factory's Section No. 4, which makes guided missiles. ''In Tula, we have a different attitude to weapons than anywhere else.''
In the past, defense plants took orders directly from three state bodies, which decided what to sell, to whom, and for how much. These days, those functions have been taken over by the state-run Rosvooruzheniye state arms monopoly, founded in 1993 by presidential decree.
''We'd like to sell our weapons abroad ourselves. Such a monopoly isn't good for the economy,'' says Mr. Sevasyanov, as he leads the factory's first foreign visitor on a tour of the plant. ''If you want, we'll sell our technology to the United States so your army will be stronger,'' he jokes.
Defense Minister Pavel Grachev, seeing a market for increased arms sales, said earlier this month that he wants his ministry to coordinate all arms trading without Rosvooruzheniye, which has been charged with gross mismanagement of millions of dollars of funds.
On Tuesday, Mr. Grachev addressed a World War II victory parade in Moscow by calling for an even stronger and more modern Army, using the possibility of regional threats as a pretext to beef up existing forces. He has been widely blamed for the Kremlin's military misadventure in rebel Chechnya, where thousands of soldiers and civilians have been killed.
Russian arms sales have dramatically declined since 1987, when the Soviet Union supplied its satellite states and others with an estimated $22 billion of weapons. But last year Russia exported $1.5 billion of arms and equipment in the first three months in 1995, compared with only $1.7 billion in 1994.
Tulamashzavod, which was privatized three years ago, has extended its weapons line to include motorcycles, medical laser equipment, woodworking machinery, and coal shearers. Immediately after privatization, they started exporting. Today, 70 percent of its goods are sold to 18 countries, including Argentina, Mexico, Brazil, Colombia, Iran, and Tunisia.
''Our motorcycles are not as good as Japanese motorcycles, but the price is better,'' Dronov says. ''If we can produce good military equipment, we can eventually produce good motorcycles. But to do that we need money.''
High taxes and uncollected payments pose the biggest problems, he says. While his employees are paid on time, unlike in many former defense enterprises, Russian customers still owe the plant 20 billion rubles [$4 million] from 1994 purchases.
And the Ministry of Defense has an outstanding debt of 4 billion rubles ($800,000) left over from last year.
''We don't have a complete market economy yet, we have a big bureaucracy that has to be fed. Even if one part of the military complex puts out civilian goods and turns a profit, that profit still goes back to the bureaucracy,'' Alexander Goltz, a defense analyst from the Red Star military newspaper, says.
Communist posters down
Tulamashzavod was originally built in 1879. Backwardness is still evident in some areas of the plant, where workers meticulously assemble parts by hand while antiquated machinery chugs away. Communist Party posters, once the mainstay of every Soviet enterprise, have simply been replaced by capitalist ones.
''You are the owner of your factory. So be a good owner, caring and polite,'' reads a carefully lettered poster on one wall.
Employees say they are largely satisfied with the factory, which still provides its workers with day-care centers, sports clubs, vacation vouchers, and housing.
''We need weapons,'' says Vyacheslav Chechushkov, who has worked at the factory for seven years for a 700,000-ruble [$140] monthly salary. An Afghan vet with three small sons, he says he has no qualms about making weapons of destruction. ''My sons will definitely serve in the Russian Army,'' he says. ''It's a good school.''