HIGHLIGHTS

1. Ukraine’s government expected to approve 4 new defense programs
2. Substantial increase in revenue and profits for Ukrspecexport, Antonov, and Motor Sich
3. Russian carrier aircraft pilots will not train at Ukraine’s NITKA complex this year
4. Ukraine to create a separate Special Operations Forces branch by 2017
5. Ukraine discussing participation in NATO’s Operation Ocean Shield
6. Russia’s Defense Ministry has bought its first Ukrainian An-70 military transport aircraft
7. Motor Sich to supply AI-222-25 engines  for Chinese L-15 LIFT aircraft
8. An-158 regional jet to receive Russian-French SaM14 engines
9. Iraq applied financial sanctions on Ukraine for unfulfilled commitments to supply 26 APC

DEFENSE INDUSTRY NEWS
Ukraine’s government is expected to soon approve 4 defense procurement programs on:
-          Armament and military equipment development and acquisition during 2012-2017;
-          Development and production of the Sapsan multifunctional missile complex;
-          Development and construction of corvette-class ships; and the
-          Procurement of the An-70 military transport aircraft.

MOD claims that under these programs funding on development of armament and military equipment is expected to approach 20% of the MOD budget. Over the last several years this figure has been closer to 5%.
Ukrspecexport doubled its revenue in the first half of 2011, to 1.14 bln UAH ($142.5 mln), as compared to the same period last year. Net income for the period was 4.55 mln UAH ($570 thousand), as opposed to a net loss of 3.32 mln UAH ($415 thousand) in the first half of 2010.

Antonov increased its net income by 2.6 times in the first half of 2011, to UAH 102.41 mln ($12.8 mln), as compared to the same period in 2010. Revenue increased 27.61% to 1.23 bln UAH ($154 mln).

Motor Sich’s turnover in 2011 will increase to $1bln according to preliminary results from the first half of 2011. This represents a 17% increase in production and orders, as compared to the previous year.

NATIONAL SECURITY & DEFENSE POLICY
Ukraine’s Cabinet of Ministers had approved a draft of the new edition of the Military Doctrine and Strategic Defense Bulletin. Those documents will be considered during a National Security and Defense Council meeting in late August 2011. The Concept of Reforming the Armed Forces through 2017 is still under development. These policy and planning documents are meant to ensure the timely implementation of the overall State Program for Armed Forces’ Reform and Development.

The technical condition of weapons and military equipment used by Ukraine’s Armed Forces is critical, according to Deputy Defense Minister Volodymyr Omelyanchuk. Nearly all Ukrainian Army equipment is beyond its service life. This applies in particular to aircraft, air defense systems, ships and Navy weapons. In the period 2010-2012, the service life of many armaments – missiles of all kinds, mine and torpedo armament, guided aerial bombs, and artillery munitions – will expire, threatening the Armed Forces’ combat readiness. In the first half of 2011, the Ukrainian Armed Forces repaired 2630 major items of armament and military equipment, including 7 combat aircraft and three helicopters.

INTERNATIONAL CONSULTATIONS AND AGREEMENTS
Swiss officials and the deputy commander of Ukraine’s Air Forces held discussions on 2 August regarding the possibility for Ukraine to use the Swiss SKYGUARD airspace control system to provide for security during the EURO-2012 competition.

Russian aircraft carrier pilots will not train at Ukraine’s NITKA carrier aviation training complex this year. Pilots will instead do their flight qualifications directly on the Admiral Kuznetsovaircraft carrier. [The Russian decision to not use NITKA may have safety implications for their carrier aviation training program. The decision appears to be linked to an ongoing discussion between Russia and Ukraine regarding the conditions of use of NITKA, with Russia seeking a long-term lease agreement. –Ed.]
Kenya is negotiating with a number of Ukrainian companies on possible cooperation, including the AvtoKrAZ holding company, Yuzhmash, Mykolayiv Shipbuilding Plant Ocean, and the ‘61 Communards’ shipyard.

OPERATIONS, EXERCISES, TRAINING, FORCE DEVELOPMENT
Special Operations Forces will be created as a separate branch within Ukraine’s Armed Forces by 2017. The new branch will have the mission of participating in antiterrorist operations, psychological-information operations, ensuring security of navigation in national waters, and protecting Ukrainian citizens internationally.

Ukrainian specialists will train Afghan personnel in helicopter maintenance as part of the Latvian helicopter unit in Afghanistan. Ukraine has also suggested that it could provide training in the use of dogs for border control and combating drug trafficking.

Ukraine is seriously studying the feasibility of designating and preparing a warship for participation in NATO’s Ocean Shield anti-piracy operation. The possibility to participate in the operation was raised in April 2011 during the Ukraine-NATO commission meeting in Berlin.

The Ukrainian-Polish-US military exerciseSafe Sky 2011is currently being held in various locations in Ukraine and Poland. The exercise involves personnel and equipment from aviation units and radio technical units. Aircraft participating included the Su-27 air superiority fighter, MiG-29 jet fighter, L-39 jet trainer, Аn-26 military transport, An-26 “Vita” medevac transport, Мi-8 medium transport helicopter, F-16C/D jet fighter, and C-130 Hercules military transport.

The Rapid Trident exercise is being held in the Lviv region, Ukraine, from 24 July - 5 August. Assault and airmobile units from USA, UK and Ukraine are participating.

The Ukrainian Air Forces trained 70 pilots this year, with an average flight time per pilot of about 11 hours.

Ukraine’s Air Forces renewed their participation in the Royal International Air Tattoo, held 16-17 July in RAF Fairford, Gloucestershire, Great Britain. The Ukrainian exposition included the Su-27 air superiority fighter and the Il-76 multi-purpose strategic airlifter. This is the first time that Ukraine has participated in the tattoo since 2000. Participation began in 1996.

AIRCRAFT
Ukraine’s Cabinet of ministers is develop a mechanism to allow Ukrainian aviation companies to lease aircraft produced by domestic manufacturers with a 2% annual interest rate – the “world standard” according to Borys Kolesnikov, the Minister of Infrastructure. The aim of the new mechanism is to increase the purchase of domestic aircraft by domestic airlines. Results are expected to be seen in 2012.

NPO Saturn (Yaroslavl region, Russia), Ilyushin Finance Co. (IFC) (Moscow Region, Russia) and Antonov (Ukraine) plan to equip the An-158 regional jet aircraft with the Russian-French SaМ146 engine. A memorandum is reportedly to be signed at Russia’s MAKS International Aviation and Space salon, to be held 16-21 August.

Ukraine may suffer from low production of An-148 regional jet aircraft in Russia this year, as the Voronezh Aircraft Production Association is expected to produce only 4 aircraft, instead of the 9 that were planned. Motor Sich has already produced 20 D-436 engines for the Russian-built twin-engine An-148, leading to a loss of $65 mln.

Russia’s Defense Ministry bought its first An-70 military transport aircraft, according to Motor Sich Chairman of the Board Vyacheslav Boguslayev. The building of a second An-70 for Russia is to begin this year in Kyiv.

Antonov will design new modifications of the An-140 military transport aircraft for the Russian Defense Ministry in two versions: one with back doors, and one with side doors. The Russian Defense Ministry has already ordered 9 of the aircraft.

The modernized Мі-2М multipurpose helicopter equipped with АІ-450М engines will be presented on the International Aviation and Space salon MAKS, 16-21 August 2011, (Zhukovsky, Russia).

Flight tests of An-3 turboprop light agricultural and civil transport aircraft equipped with the MS-14 turbo engine is scheduled for late 2011. Two engines have been prepared for testing.

Motor Sich (Ukraine) and JSC Aviaremont (Russia) have created a joint company for producing the TV3-117VMA-SBM1 helicopter engine. Motor Sich has certified the Russian Defense Ministry’s 218th Aircraft Repair Plant (Gatchina, Leningrad region) for assembling, testing and shipping the engines. Motor Sich noted that this is a unique precedent in which a Russian military repair facility is being converted into a civil-certified manufacturing plant.

Motor Sich is to supply AI-222-25 engines for Chinese L-15 LIFT supersonic trainer/attack aircraft. Delivery of 250 engines will be made over three years.

Motor Sich has received orders for nine D-436ТP engines for Be-200 amphibious aircraft.
SE Ivchenko-Progress has developed a new modification of the D-436TP engine for the Russian Be-200 multipurpose amphibious aircraft. The modernized engine will have 8200 kN of thrust, a 9% increase from the current version.

SHIPBUILDING
The first ship within Ukraine’s Corvette program should be assembled and tested by 2016. According to Deputy Defense Minister Volodymyr Omelyanchuk serial production of three Corvette class ships will be launched in 2014-2020.

LIGHT WEAPONS
A Russian Interior Ministry delegation visited Ukraine’s Fort scientific-industrial association, which is located in Vinnitsya and attached to the Ministry of Internal Affairs. Russian Interior Ministry special forces will reportedly buy several types of light weapons from “Fort.”

ARMOR
Iraq applied financial sanctions against Ukraine for unfulfilled commitments to supply 26 armored personnel carriers under the country’s bilateral contract. The Iraqi side stated that $3 mln out of the $21 mln that should have been transferred to Ukraine were withheld as financial sanctions. Ukraine delivered the first shipment of BTRs under the contract in April 2011 instead of the previously date in late 2010.

DISPOSAL OF MUNITIONS AND HAZARDOUS MATERIALS
NATO and Ukraine are moving forward in establishing a program to eliminate radioactive waste that has accumulated as a result of Soviet-era defense programs. A technical site visit and risk assessment have been completed; designation of a lead nation on the NATO side and signature of an implementation agreement are pending. [The project may provide substantial opportunities for contractors, particularly in the area of purchase and installation of additional equipment that may be needed by the Ukrainian implementers. –Ed.] 

The Ukrainian Government has allocated 40 mln UAH ($5 mln) for a program to dispose of solid rocket fuelfrom SS-24 intercontinental ballistic missilesat thePavlograd chemicalplant (Dnipropetrovsk region). In addition, during 2011 Ukraine is projected to dispose of 5800 tones of mélange and 68,7 thousand of tones of surplus munitions.

UPCOMING EVENTS
Ukroboronprom and Ukrspecexport will participate in the Aviation and Space Salon MAKS 2011, Zhukovsky (Moscow region, Russia), 16 - 21 August 2011. The Ukrspecexport exhibition will include the Delta omnidirectional radiolocation system and other new developments from Ukraine’s defense industrial complex.