HIGHLIGHTS

1. Parliament adopts law on managing state property in defense industry sector
2. Government creates commission for restructuring defense enterprises
3. Ukrainian Armed Forces will be reduced to 160 thousand personnel by 2016
4. Ukraine and China sign joint declaration on strategic partnership
5. Sea Breeze-2011 naval exercises completed in Odessa; Russia protests U.S. ship
6. New Ukrainian Аn-148/158/168 aircraft might be equipped with Western-made engines
7. Motor Sich develops new small engines for Russian guided and cruise missiles
8. Government guarantees $260 mln in credit for Cyclone-4 program
9. Ilyushin Finance Co. (Russia) will purchase 10 An-158 regional jet aircraft
10. Antonov presents new An-158 regional aircraft at Le Bourget-2011

DEFENSE INDUSTRY NEWS
Ukraine’s parliament adopted a law establishing Ukroboronprom’s responsibility for managing state property in the defense-industrial sector. Ukroboronprom’s supervisory board will consisted of five members: three appointed by the President; two by the Cabinet of Ministers.

Ukraine’s Cabinet of Ministers created an interagency commission on 9 June to coordinate the activities of executive bodies in restructuring defense industrial sector enterprises. The Commission is headed by the First Vice Prime Minister of Ukraine - Minister of Economic Development and Trade [Currently Andriy Kluyev –Ed.] and includes representatives of Ukroboronprom, the Ministry of Economic Development and Trade, the Ministry of Finance, the Defense Ministry, the State Property Fund, and the State Property Agency.

Ukraine’s government has proposed removing restrictions on the privatization of several aviation enterprises and enterprises linked to the National Space Agency. The list includes Antonov, Aviant, the Kharkiv State Aviation Production Enterprise, the Kiev Arsenal factory, and Kyivprylad.

NATIONAL SECURITY & DEFENSE POLICY
President Yanukovych announced during a visit to Strasbourg, France, that Ukraine will not participate in development of European Missile Defense System. Somewhat paradoxically, he noted that Kyiv understands that Ukraine or Russia’s involvement in such system it would positively affect European security.

Ukraine’s Government approved the revised draft of the country’s Military Doctrine, and passed it to the President for signature. The revised draft reflects Ukraine’s non-bloc policy and takes into account proposals made at the National Security and Defense Council.

Ukraine’s Armed Forces announced it will downsize to 160 thousand personnel by 2016. This figure includes 130 thousand military personnel. Of these, 80-90% are expected to be contract personnel. The Armed Forces’ strength at the end of 2011 will be 192 thousand personnel, including 144 thousand military. Only 58% of servicemen are currently on contract.

INTERNATIONAL CONSULTATIONS AND AGREEMENTS
Ukraine and China signed a joint declaration on strategic partnership during the visit to Ukraine by Chinese leader Hu Jintao. The joint declaration includes a pledge by China not to use or threaten the use of nuclear weapons against Ukraine.

Ukraine and Jordan discussed cooperation in military technical, energy, aviation, shipbuilding, transport and high technology sectors during the visit by King Abdullah II bin al-Hussein to Ukraine. Ukroboronprom signed a memorandum of understanding with the King Abdullah II Design and Development Bureau (KADDB). According to experts from the Ukrainian Centre for Army Conversion and Disarmament Studies, Jordan is interested in modernizing its military equipment by purchasing Ukrainian precision-guided weapons, diesel engines for armored vehicles, modern combat modules, armored protection systems, and radiolocation systems.

Ukraine and NATO will launch new joint project on the removal and safe storage of defense-related radioactive elements. The decision was taken during the NATO-Ukraine Commission Meeting at Ministerial Level on 23 June in Brussels.

Mongolia’s President Elbegdorj announced that his country is interested in purchasing Antonov aircraft and modernizing more than 60 existing Ukrainian aircraft in Mongolia. The announcement was made on 29 June at the Ukrainian-Mongolian Forum in Kiev.

Senegal is interested in military technical cooperation with Ukraine and the two countries have started to develop an agreement on the issue, according to the Senegalese Minister of Foreign Affairs, speaking in Kyiv on 20 June.

OPERATIONS, EXERCISES, TRAINING, FORCE DEVELOPMENT
Sea Breeze-2011 international naval exercises finished in Odessa (Ukraine) on 16 June. 1200 military personnel and 90 armored vehicles from 17 countries participated. According to Ukraine’s Defense Ministry, the exercise budget was $4 mln, of which 99% was covered by the U.S.

On 12 June, Russia’s Ministry of Foreign Affairs expressed concern about the arrival of the U.S. Navy cruiser Monterey to participate in Sea Breeze 2011. Ukraine’s Foreign Ministry replied that it sees no threat from the exercise for Black Sea region states and noted that Russia had been invited to participate.  [The Monterey is equipped with the Aegis anti-missile system, which is capable of operating as part of a ballistic missile defense system. Russian concerns centered on this capability. –Ed.]

AIRCRAFT
Eight Ukrainian companies presented aircraft or aerospace equipment at the Le Bourget-2011 Paris Air Show on 24 – 26 June: Antonov, Motor Sich, the State Space Agency, Ivchenko-Progress, Pivdenmash, Pivdenne, Ukrspecexport and Vector. Antonov presented the new An-158 regional aircraft.

Antonov discussed the possibility of equipping Ukraine’s new Аn-148/158/168 regional jet aircraft with western-made engines in discussion with General Electric (USA) at the Le Bourget-2011 Paris Air Show. Other possible suppliers of engines for Antonov aircraft include Rolls Royce (UK), P&W (Canada) and SAM-146 (Russia-France). The process of adapting a  western engine for Antonov planes is expected to take 2-3 years.

Russia’s Ilyushin Finance Co. signed an agreement for the purchase of 10 An-158 regional jet aircraft from Antonov at the Le Bourget-2011 Paris Air Show. The contract is worth $300 mln. According to the contract, the aircraft will be constructed from 2012 to 2014, and are meant for Latin American countries. [An initial contract for 10 An-158 regional jets for Latin American  countries was signed at the Farnborough Airshow in 2010. –Ed.]

Ukraine’s President has proposed joint production with China of the An-148 and An-158 regional jet aircraft and the joint development of new large and medium transport aircraft.

Ukraine and Iran are negotiating on the possibility of joint production of 78 An-148/158 regional jet aircraft. Under a previously-signed agreement, 18 Antonov aircraft will be assembled in Ukraine for Iranian customers and 60 more will be constructed in Iran.

The President of Russia’s United Aircraft Corporation (UAC), Mikhail A. Pogosyan, reportedly wants to end production of An-148 regional aircraft at the Voronezh Aircraft Factory (Russia). Pogosyan, a designer of the Sukhoi Superjet 100 aircraft, is reportedly worried that the new An-148 will replace that aircraft on the market.

Motor Sich is developing new small-sized engines for guided and cruise missiles. Tests of the new MS-450 engine are almost finished, and more models are planned.

SE Ivchenko-Progress reports it and Motor Sich will produce from 8 to 30 D-27 engines for An-70 military transport aircraft by 2013. Aircraft tests are scheduled on 2012. The company also reports a 150 mln UAH ($18.8 mln) contract with Antonov for repair of 15 D-18T engines for the An-124 Ruslan super-heavy transport aircraft. In addition, SE Ivchenko-Progress is negotiating with Russian companies on improving the engine for the Be-200 amphibious aircraft, to provide for better reverse thrust and maneuverability on the water.

Parliament approved amendments to the 2011 state budget to increase the statutory capital of state-owned aircraft manufacturing to 300 million UAH ($37.5 mln) by the end of 2011.

SHIPBUILDING
Ukrainian companies participating in the 5th International Maritime Defence Show, 29 June - 03 July in St. Petersburg, Russia, included Ukroboronprom, Ukrspecexport, Zorya-Mashproekt, and the Kyiv Automatic Plant named after G. Petrovsky.

Zorya-Mashproekt opened a $55 mln credit line in Ukreximbank.

ARMOR
Ukroboronprom, Ukrspecexport and Kyiv Mechanical-Repair Plant will participate in BRIDEX-2011 (Brunei International Defence Exhibition, 6-9 July 2011). Ukrainian participation will include a demonstration firing of the BTR-3E1 and the Stugna-P anti-tank missile complex. [Ukraine and Brunei signed an MoU on defense cooperation in March 2011. –Ed.]

AvtoKrAZ plans to export 82% of its products in 2011. Of it’s total production, 42% is destined for Russia and CIS countries and 40% for the broader international market. AvtoKrAZ intends to be present on new markets, in particular in Southeast Asia (Philippines, Indonesia, Bangladesh) and Latin America (Peru, Columbia). In 2010 AvtoKrAZ exported equipment to Russia, Kazakhstan, Georgia, Azerbaijan, Uzbekistan, Estonia, Egypt, Iran and Congo.

SATELLITES & LAUNCH VEHICLES
Ukraine’s Cabinet of Ministers gave the Pivdenne State Design Bureau state guarantees for $260 mln in credit for the further financing of the Ukraine-Brazil Cyclone-4 Program. Of that sum, $83 mln is for the construction of the Cyclone-4 launch vehicle and $177 mln is for Ukrainian participation in the development of the ground complex for the Cyclone-4.

Pivdenmash Plant will produce 5-6 Zenit carrier rockets for Sea Launch, Land Launch and Russia’s Federal Space Program in 2011.

AIR DEFENSE
Ukraine will replace its foreign-build air defense systems with nationally-produced ones.  This has been done already with the Buk-M1 (SA-17 Grizzly) modernization program.

COMMUNICATION
Ukraine’s State Property Fund will start a competitive bid for the privatization of a 96.129% stake in the Orion Radio Plant in Ternopil. The starting price for the stake will be 387 mln UAH ($48.4).

MUNITIONS
Ukraine and NATO successfully completed the first stage of the Partnership for Peace Trust Fund project for eliminating surplus munitions and small arms/light weapons. Since 2006, Ukraine has eliminated 15,000 tons of munitions, 400,000 small arms/light weapons, and 1,000 man-portable air defense systems.
In the next stage of this Ukraine-NATO program, Ukroboronprom will eliminate 76,000 tons of munitions, 366,000 small arms/light weapons, and 3 mln PFM anti-infantry high-explosive mines with a total value of €30 mln. The elimination of PFM anti-infantry high-explosive mines will allow Ukraine to move toward implementation of the Ottawa Convention. Over the longer term, Ukraine’s Defense Ministry plans to eliminate more than 400,000 tones of munitions unsuitable for storage by 2018.