US-Ukraine Business Council
Aerospace & Defense Industry News Digest (ADIND)

This News Digest is published by U.S.-Ukraine Business Council (USUBC) Aerospace & Defense Industry Committee (ADIC)



AEROSPACE AND DEFENSE INDUSTRY NEWS DIGEST – UKRAINE, 07 FEBRUARY 2013

HIGHLIGHTS

§  Two senior Ukrspetcexport officials arrested for bribery in Kazakhstan

§  Armed Forces’ Chief of Staff sets reform agenda; leading independent expert skeptical

§  Ukrainian An-124 aircraft on NATO contract transport French military in Mali

§  Ukraine’s Antonov and Russia’s Aviakar  come to agreement on IP for AN-140T

§  Motor Sich contracts for 2013 increase 12% from last year to over $900 mln

§  Sea Launch program setback as Zenit-3SL fails in first stage; Intelsat 27 satellite lost

§  Ukrainian Navy ships returning to service from major overhaul

§  Ukraine and NATO sign agreement on disposal of PFM-1 anti-personnel mines

INDUSTRY NEWS

Kazskhstan has arrested two senior Ukrspecexport officials for allegedly giving a $200,000 bribe to a senior Kazakhstani Defense Ministry official. Ukrainian and local media report that the two were arrested at Astana International Airport, as they were boarding the plane to Ukraine, and are being held in two months’ pre-trial detention. Kazakh media report that General Almaz Asenov, Chief of the Defence Ministry Main Armaments Department, was arrested for receiving a bribe of the same sum. General Asenov’s responsibilities included the purchase, upgrade and disposal of weapons and equipment. The Kazakhstani secret services reportedly documented the money transfer.

NATIONAL SECURITY & DEFENSE POLICY

The Chief the Ukrainian Armed Forces’ General Staff has announced his agenda for future Armed Forces’ reform. Highlights include:

-          Establishing a Center for Standardization of Operations and Training, tasked to introduce international best practice into the Ukrainian Armed Forces;

-          Moving to a joint organizational structure by 2015, to allow development of capabilities consistent with the nature of modern warfare;

-          Eliminating redundant organizations and surplus weapons, equipment and property;

-          Continuing to establish a professional NCO corps and develop the reserve component;

-          Moving to a two-year, multi-phase training cycle;

-          Increasing the use of simulation systems and improving the work of training centers;

Taking into account the lack of financial resources, the Ministry will review weapons’ development and other programs to reduce expenses and focus resources on high priority areas: development of air-defense components, renewal and life extension of air-defense missile systems, and strengthening the capabilities of the Ukrainian Navy.

Independent experts with Kyiv’s Center for Army, Conversion and Disarmament have highlighted the lack of budget funding as a major impediment to reform of the Ukrainian Armed Forces. The experts note that the budget for 2013 remains near $2 bln for 182 thousand troops, virtually unchanged from the previous year. This is at least 5 times less than the European norm of $9-10 bln for an effective force of 100,000 troops. The Polish Armed Forces, for example, have a budget of $9.8 bln for 98, 000 troops.

Ukraine’s Defense Ministry intends to obtain additional revenues in sum of 6 bln UAH ($750 mln) from sale of surplus property and infrastructure over the next several years. Work this year will focus on developing effective mechanisms for sale of military-owned real estate.

Ukraine’s government is currently preparing three presidential decrees, with the goal of improving practical cooperation with NATO. The first defines the structure and approval procedures for Ukraine’s Annual National Programs, which forms the core of NATO-Ukraine cooperation and implementation of reforms related to NATO standards. The second decree updates regulations for the intergovernmental commission that manages internal coordination of partnership with NATO, including designation of national coordinators and their tasks.  The third decree approves Annual National Program of NATO-Ukraine cooperation for 2013.

INTERNATIONAL CONSULTATIONS AND AGREEMENTS

Russia and Ukraine have failed to reach agreement on the clearance of cargo imported into Ukraine for Russia’s Black Sea Fleet. Russia’s Foreign Ministry claims that Ukraine’s insistence on collecting customs duty on these goods violates bilateral agreements. Ukraine claims that the Black Sea Fleet cargo falls under Ukraine’s general customs legislation, which does not provide for an exclusion on such duties. Ukraine is currently detaining 14 tons of fuel destined for the Black Sea Fleet in Sevastopol, pending payment of customs duties and taxes.

Ukraine’s Defense Minister has made an official visit to Thailand. Mr. Pavlo Lebedyev, in discussions with his Thai counterpart, Suvanatat Sukumpol, noted trends toward enhancing bilateral cooperation in military-technical areas, international peacekeeping programs, and training of Thai personnel in Ukrainian military educational institutions.

OPERATIONS, EXERCISES, TRAINING, FORCE DEVELOPMENT

Since mid-January, Ukrainian An-124-100 strategic heavy lift aircraft have been transporting the French military contingent to Mali. The contract, under the NATO SALIS program, is reported to have involved the entire Antonov-owned fleet.

Ukraine’s naval infantry will have a high operational tempo in 2013. This will include long-term shipboard deployments on Navy ships in the Gulf of Aden, the Mediterranean Sea, and the Black Sea, as well as a heavy training and exercise schedule. Training will include a strong international component, including joint training with counterparts from France, Spain, and other nations, as well as international exercises. The naval infantry will also undergo internal reforms, transitioning to full contract-based service by the end of first quarter 2013. [Eds.- The current head of the Ukrainian Navy, Vice Admiral Yurii Ilyn, has a background from naval infantry, as well as experience serving on international staffs.]

training mission from the California National Guard visited the Land Forces Academy in Lviv as a part of program of ongoing support for educational programs at Ukraine’s NCO Military College. That effort is a contention of a first visit in September of last year.

AIRCRAFT

The Zaporizhzhya State Aircraft Repair Plant MiGRemont is reportedly preparing to transfer another lot of upgraded Su-27 air superiority fighters to the Ukrainian Air Force. The Air Force reportedly will receive two aircraft equipped with new pixelated camouflage, bringing the total number of upgraded Su-27s in Ukraine’s Air Force to 20.

Ukraine’s Cabinet of Ministers approved amendments to a 1997 bilateral agreement on Russia-Ukraine cooperation in aircraft engineering. The document addresses bilateral cooperation for the development, serial production, shipment and use of modern aircraft.

Antonov and the Aviakor Aviation Plant (Samara, Russia) have reached an agreement on issues related to intellectual property regarding the development of the An-140T –a military transport version of An-140 regional aircraft. Production of the aircraft is anticipated to being in 2015.

Motor Sich will have a contract volume for 2013 of more than $900 mln, a 12% increase over last year. About 90% of that total is for modifications and updates for D-436, AI-222 and AI-20 helicopter engines. Major customers are Russia, China, India, and countries in Southeast Asia, Latin America and the Middle East.

Motor Sich’s Mi-8MTV-5-1 helicopter, equipped with TVD TB3-117VMA-SBM1V engines, is undergoing a second phase of tests at Russia’s 344th Army Aviation Combat Training Centre (Torzhok, Russia). This stage will test the helicopter with the engines in emergency mode. The total program consists of 42 flight tests, 13 of which were already performed in the first stage. The completion of the certification process is expected in March.

SATELLITES & LAUNCH VEHICLES

The Sea Launch program received a setback on 1 February when a Russian-Ukrainian Zenit-3SL launch vehicle failed about 40 seconds after takeoff, resulting on the loss of the payload, the Intelsat 27 telecom satellite. Preliminary unconfirmed reports are that the problem was likely engine failure during the first stage of flight. [Eds. - The Zenit-3SL launch vehicle is composed of a first-stage DM block produced by Energia (Russia) and the Zenit-2rocket manufactured at the Ukraine’s Pivdenmash Design Bureau. Energia is a majority owner of Sea Launch.]

SHIPBUILDING

The Ukrainian Navy continues to receive ships back from major overhaul, following substantial investment in capital maintenance in 2012. The Sevastopol Maritime Plant completed dry-dock repairs of U-153 Pryluky missile boat for the Ukrainian Navy on 22 January. Repair work on the corvette-class Khmelnytsky, which has kept the ship in port at the Sevastopol Naval Base for almost a year, is almost complete. The repairs focused on hydro-acoustics, radio equipment, and torpedo/mine-laying systems.

The Zorya-Mashproekt gas turbine research and production enterprise in Mykolayiv has released a press release regarding forecasts of future production and sales:

-          In the area of maritime propulsion equipment, which constitutes one-third of all orders, the company forecasts an increase in production and sales through 2019. For the coming year, the primary focus in this area will be supplying products for frigates, amphibious hovercraft and missile boats to Indian, Russian and Chinese shipbuilders. Specific orders for the coming year include manufacturing ship boilers and turbines for China’s Harbin Ship Boiler Turbine Research Institute and a contract with Sinopec, China’s largest oil company.

-          One-quarter of production will be for main-line gas compressor stations, with Russian Gazprom remaining a major customer with the purchase of equipment for several new stations.

-          The company recently entered electric generating equipment market and predicts significant growth in the sector.

At the same time, Zorya-Mashproekt’s order portfolio is changing, and the company is exploring possibilities for new markets.

Ukraine’s Defense Ministry will allocate 6.4 mln UAH ($0.8 mln) for the continuing maintenance of the unfinished missile cruiser project 1164 (formerly the Ukrayina missile cruiser) at the 61 Communards Shipyard in Mykolayiv.[Eds.- Construction of the Ukrayina began in 1984, during Soviet times, and was stopped in 2001 due to lack of interest by Ukraine or other potential buyers. Russia, China, and India have all considered purchases. might be potential buyers at the various stages of construction. Russia is reportedly interested in obtaining the cruiser, which is armed with 16 cruise missiles, but believes that it will be able to do that for at little or no cost. ]

DISPOSAL OF MUNITIONS

An agreement on disposal of Ukraine’s stockpiles of PFM-1/1C anti-personnel mines was signed by Ukraine’s Defense Ministry, the NATO Support Agency (NSPA), and Pavlohrad Chemical Plant (Dnipropetsrovsk region) on 1 February. This agreement is part of the second phase of a NATO/Partnership for Peace Trust Fund initiative to eliminate surplus munitions in Ukraine. In addition to the landmines, Ukraine plans to dispose of 73,500 tons of unserviceable munitions and 360,000 pieces of small arms and light weapons (SALW). The second stage will take 3.5 years to complete and cost 20 mln EUR, with financial support mostly from the international community.

Ukraine’s national program for munitions disposal is likely to miss its target for 2013, due to budget shortfalls. To meet this year’s target of disposing of 578,400 tons of munitions, the program calls for 478.7 mln UAH ($59.8 mln), of which only 173.1 mln UAH ($21.6 mln) is included in the state budget.

© 2013 Effective Engagement Strategies, LLC

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