HIGHLIGHTS

1. Ukrspecexport subsidiary ‘Progress’ to merge with parent firm
2. Draft 2012 state budget to substantially increase support for aviation and space industry
3. Draft 2012 defense budget includes $363 mln to develop armament and equipment
4. NATO Secretary General invites Ukraine to participate in Alliance’s anti-piracy operation
5. Ukraine should avoid joining any missile defense system - Russian MFA
6. Willard Marine, Inc. (USA) to supply Ukrainian Navy with small boats
7. Boeing reportedly interested in producing aircraft components in Dnipropetrovsk region
8. India receives second lot of modernized An-32 military transport aircraft
9. Zenit-3SL launch vehicle puts Atlantic Bird 7 satellite into orbit in Sea Launch program

DEFENSE INDUSTRY NEWS
The specialized foreign trade firm Progress, a subsidiary of state-owned Ukrspecexport, announced a merger with its parent structure on 24 September. Creditors' claims are to be accepted within two months of the announcement. [Progress was created by the Ukrainian government in 1990 in order to import and export military and specialized goods and services. In 1996, when Ukrspecexport was created to coordinate the activity of Ukrainian special exporters on foreign military and the firms Progress, Ukrinmash and Ukroboronservice became its subsidiaries. –Ed.]

UkrOboronProm, Ukraine’s state defense industry conglomerate, led a delegation of Ukrainian companies to the Aviation Expo/China-2011 held in Beijing on 21-24 September. During the exhibition, the Kharkiv-based FED Scientific Production Corporation signed two contracts with Chinese companies to develop aircraft control system and pump components for a new Chinese aircraft engine (the company has previously signed two contracts with China partners). Ukrainian companies are reportedly interested in participating in the development of the C919 Chinese Large Aircraft, a civilian transport aircraft weighing 40 tons, as well as in the development of new medium and heavy helicopters and the L-15 training aircraft.

Ukraine's Draft State Budget for 2012 substantially increases support for aviation and space industry. Aviation industry will receive 600 mln UAH ($75 mln) of government support, which could be provided by subsidizing credit to the companies producing aircraft and aircraft components. Space industry will receive 838.12 mln UAH ($105 mln) in state funding in 2012, which is twice the level of 2011. The budget will allocate 229.68 mln UAH ($28.7 mln) to fulfill Ukraine's international obligations to reduce and eliminate strategic arms in cooperation with the USA. The Cyclone-4 and National Satellite Communication System projects will receive 349.33 mln UAH ($43.7 mln).

NATIONAL SECURITY & DEFENSE POLICY

Ukraine's president reiterated his country's support for total global nuclear weapons disarmament during his speech to the 66th UN General Assembly on 21 September.

The Finance Department of Ukraine's Ministry of Defense released information on expected funding of the Armed Forces in 2012:

- Development of armament and military equipment will receive 2.9 bln UAH ($363 mln). This will cover funding of development of the Sapsan multifunctional missile complex, the Corvette shipbuilding program, the An-70 military transport aircraft and updating the Armed Forces' command-and-control system.

- Armed Forces’ training will receive 748 mln UAH ($94 mln), about 300 mln UAH more than in 2011. This includes 327.5 mln UAH ($41 mln) for preparation of forces, 333.4 mln for international military cooperation, peacekeeping and verification activities, and 74.8 mln UAH ($9.4 mln) for personnel training.

On 21 September, Ukraine's parliament approved a reduction of 8000 personnel from Ukraine's Armed Forces in 2012. By 31 December of next year, the Armed Forces will have 184,000 personnel, of which 139,000 will be uniformed military.

INTERNATIONAL CONSULTATIONS AND AGREEMENTS
NATO's Secretary General invited Ukraine to participate in Ocean Shield, the Alliance’s antipiracy operation, during a meeting with Ukraine’s President on 21 September in New York. President Yanukovych highlighted his country’s interest in contributing into antipiracy operations, based on the substantial number of Ukrainian merchant seamen that have suffered from pirates’ attacks. Secretary General Rasmussen praised Ukraine-NATO cooperation, particularly in the Afghanistan and Kosovo peacekeeping operations and invited the Ukrainian President to visit NATO Headquarters, address the North Atlantic Council, and participate in NATO’s May 2012 Chicago Summit.

Russia advises Ukraine to refrain from joining any international missile defense system, according to a Russian Foreign Ministry official Vladimir Kozin. According to him, the US and NATO have yet to explain details of their program, and Russia is planning to create its own sea-based missile defense system.

Ukraine’s Cabinet of Ministers has started the ratification process for an agreement on Ukraine-Saudi Arabia cooperation in space research. The agreement, signed on 3 November 2010 provides for exchange of equipment, technical information, and documentation, as well as participation by Ukrainian specialists in joint space research projects and other scientific activities.

OPERATIONS, EXERCISES, TRAINING, FORCE DEVELOPMENT
The Ukrainian Navy will receive RHIB small boats manufactured by Willard Marine, Inc. (USA). Two models have been formally included into the Navy’s approved list of armaments – the 18’ (5.4m) Sea Force 540 and the 24’ (7.3m) Sea Force-730. The boats are platforms for rescue, dive ops, patrol or security work.

The Donbass-Antiterror–2011exercise took place in Donetsk, Ukraine on 28-29 September. Anti-terrorist units from CIS states took part in the exercise, along with representatives of anti-terrorism departments of the OSCE Secretariat, INTERPOL, the International Aviation Committee, the UN Counter-Terrorism Committee and the Organization of the Black Sea Economic Cooperation. The exercise tested readiness to prevent and suppress a simulated terrorist attack on the Donbass-Arena stadium during the upcoming EURO-2012 European Football Championships.

An eight-person NATO expert team visited Kyiv the week of 26 September to assist Ukrainian authorities with security planning and preparations for EURO-2012. The team met with officials from the responsible ministries, including the Ministries of Interior, Emergency Situations, and Health, as well as the Security Service. In addition to sharing experience, NATO and Ukraine are cooperating on threat assessment. No deployment of NATO nations’ forces are foreseen for the actual championship.

From 18-22 September, Ukrainian military personnel from the 13th Army Corps participated in the multinational Hungarian–Romanian–Slovak–Ukrainian computer-assisted command post exercise Blond Avalanche 2011. The exercise, which is held annually, tests the ability of the Tisa Multinational Engineer Battalion (composed of forces from the four above-mentioned countries) to rapidly respond to flooding and other natural disasters in the Carpathian region.

AIRCRAFT
Boeing is interested in locating production of aircraft components in Dnipropetrovsk Region, Ukraine, according to reports following a meeting between a delegation from that region and representatives of Boeing.
Ukraine has delivered a second lot of five An-32 military transport aircraft to India as part of a contract for repair and modernization of 105 An-32 aircraft. The first five-plane lot was delivered in May of this year.
The Konotop Aircraft Repair Plant “Aviakon” anticipates an increase in its annual turnover from 300 mln UAH ($37.5 mln) to 1 bln UAH ($125 mln) in the next several years. The prediction is based on the government’s State Program for Aviation Industry Development, which includes plans to start helicopter production at the plant.

"Market-Mats" Ltd. (Lviv) has developed a simulator for the Czech L-39 jet trainer aircraft. The simulator will be provided to the Kharkiv Air Force University and the Ukrainian Air Forces’ Aviation Training Brigade.

SATELLITES & LAUNCH VEHICLES
A Ukrainian Zenit-3SL launch vehicle put the Eutelsat Communications Atlantic Bird 7 satellite into orbit on 24 September, as a part of the Sea Launch program. The Sea Launch consortium plan to make three more Zenit-3SL launches in 2012 to lift Intelsat 19, Intelsat 21 and Eutelsat satellites.

Ukraine is ready to develop the Cyclone-5launch vehicle with Brazil, according to Ukraine’s Defense Minister, who is on a visit to that country. The Defense Minister also proposed cooperation with Brazil in the aviation, shipbuilding and tank building sectors.

The State Design Bureau Pivdenne (Dnipropetrovsk) has taken a $260 mln loan from Russia’s Sberbank. The loan is at an annual interest rate of Libor+6%. Funding should be received by 1 October.

ARMOR
The UkrOboronProm state defense industry consortium will audit the Malyshev Plant (Kharkiv) in November 2011 to clarify the situation surrounding its finances and operations. According to the director of UkrOboronProm, the Malyshev Plant has substantial problems and has run up large debts in previous years, but will be able to fulfill its current contract to supply BTR-4 APC’s to Iraq.

The BTR-7 APC, a modernized version of the BTR-70DI, successfully passed its 3000 km test in UAE. The BTR-7, produced by Mykolayiv Mechanical-Repair Plant, also recently participated in a tender for Saudi Arabia’s armed forces.

The AvtoKrAZ holding company will reduce its annual production due to the high possibility of a second wave of the economic crisis. Currently, AvtoKrAZ sells 100 vehicles per month in Russia, but sees the risk that this could decline considerably because of unstable situation surrounding the Ruble exchange rate. The company still plans to produce 1500 vehicles in 2011.

SHIPBUILDING
Ukraine’s Corvette-class ship program could be implemented in 2012 with 433.6 mln UAH ($54.2 mln) in budget funds and credit from some European banks, according to Ukraine’s Defense Ministry.
Kyiv’s G.I.Petrovsky Automated Equipment Plant is working with the Naval Underwater Weapons Enterprise to address the need for development and production of new torpedo weapons to replace old models currently in use by the Ukrainian Navy.

The Zorya-Mashproekt Plant opened a revolving line of credit at Raiffeisen Bank Aval with a €20 mln limit. Zorya-Mashproekt also opened unsecured overdraft credit with Raiffeisen Bank Aval with a limit of 55 mln UAH ($6.9 mln).

AIR DEFENSE SYSTEMS
State defense industry conglomerate UkrOboronProm presented modernized Buk-M1 (SA-11) and S-300P (SA-10) air defense systems to the leadership of Ukraine’s Armed Forces. The demonstration included live fire under simulated battle conditions during the exercise Adequate Response-2011.

DISPOSAL OF MUNITIONS AND HAZARDOUS MATERIALS
Ukraine signed an implementation agreement with the NATO Maintenance and Supply Organization (NAMSO) on 22 September in Brussels. The agreement begins the second phase of a munitions disposal program, which will eliminate 76,000 tons of ammunition, 366,000 pieces of SALW and 3 million PFM-1 landmines during 2011-2014. The total expenditure for the program will be € 24.4 mln.

The transfer of mélange liquid rocket fuel from the Lviv region to Russia was completed on 21 September. A train will deliver 210 tons mélange, a highly toxic liquid used as a rocket fuel oxidizer in liquid-fuel rocket engines, for processing at Russia’s Tehnoazot Plant). The collapse of the Soviet Union left Ukraine with nearly 16,700 tons of mélange; according to current plans, all mélange will be removed from Ukrainian territory by the end of 2012.