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20 Nov 2013

Fee for a new course

Intergation of Ukraine with the EU will  hurt its aviation industry. But Belarusian industry can benefit from the aggravation of relations between Russia and Ukraine after the latter's convergence with the EU.

   Not so long ago, in Belarus was on an official visit Prime Minister of Ukraine Mykola Azarov. According to him, one of the main purposes of his trip was to develop joint projects with Belarus in the field of industrial cooperation, including in the sphere of military-industrial complex.

   This announcement was seen by many experts as an attempt of the Ukrainian leadership to mitigate the negative consequences for the country of possible actions from Russia after signing an agreement with the EU on associate membership which Ukraine is planning to do next week in Vilnus.
   According to experts, the first who will feel the disadvantages of the new course will be heavy industry and high technology manufacturing companies. And first of all - the military-industrial complex of Ukraine, which during  Soviet times was the second largest after Russia. After all, today many companies in Zaporozhye, Lutsk, Lviv, Kremenchug, Kherson, Simferopol and other cities continue to work just because they use the supplied from the Russian parts, components and assemblies.

   As expected by analysts, Russia will review most of the contracts for the mutual supply of components in the sphere of military and technical cooperation. It dramatically accelerates the pace of  replacement Ukrainian parts by purchasing from other partners in the international arms market. And it's already work load  of military enterprises of Ukraine currently does not exceed 50% and the number of employees, even in comparison with the 1990s declined by 2.4 million people.

   It is fair to say that this process started already several years ago and influenced on some of the most important areas of Russian- Ukrainian defense industry, including the aviation sector. For example, since 2010 JSC "Helicopters of Russia" has decreased to 30% its purchases from "Motor Sich" - the leader of engine market, replacing them by products of  Russian and a number of Western (particularly French) companies.

   Will suffer a significant financial loss and other companies of Ukraine military-industrial complex, who are already implementing or do co-production with Russian companies, or are in the process of signing agreements and joint production structures. For example, the largest Ukrainian aircraft manufacturer "Antonov ", which not only has a large number of contracts for the production of various types of aircraft for Russian customers, but also provides maintenance and modernization works for almost the entire fleet of  "An"s operating in the Russian Federation.

   There is also an ongoing, albeit a pretty haphazard, the work of the joint Russian - Ukrainian operational and tactical military transport aircraft "An-70", quite unique in the world. And also attempts to create on the basis of "Antonov" and OAO "Aviacor Aircraft Plant" joint venture to produce the An -140. In the case of Ukraine's plans to join the EU are associate members of the Russian initiatives "Antonov", promising to bring huge financial investment in the Ukrainian budget will be in jeopardy.

   It is also important that the aviation industry of Ukraine receives from Russia Today, almost 70 % of finished products and 95 % of the materials and semi-finished products. In co-operation involving about 100 Russian enterprises. And the materials and components for aircraft engine production Ukrainian deliver more than 400 component manufacturers in the CIS, mainly from Russia.

   Significant financial damage from the drift of the country to the West may suffer and another leader of the Ukrainian aerospace industry - Dnepropetrovsk State Enterprise "Yzhmash" that produces a wide range of products in aerospace area, including launch vehicles and accessories.

   Currently, Ukrainian and Russian enterprises implement a joint program "Kosmotras", under which they do commercial launches of spacecraft. Them into orbit launch vehicle "Dnepr", which is almost fully produced by said GP " Pivdenmash " based on recyclable heavy intercontinental ballistic missile RS-20 (by NATO classification:  SS-18 Mod 6 and 5 Satan). They are produced in Soviet times there on the project "Southern."

   But this is not it. Part of the RS-20 (around 50) is still on active duty in Russia and is the most important part of the arsenal of the Strategic Missile Forces (SMF) of the Russian Federation. Until the end of last year warranty supervision and technical Analysis RS-20 missiles were part of the agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine carried out by a number of specialists from the Ukrainian enterprises (especially KB "Southern" and SE "Pivdenmash").

   To pay for their services from the Russian budget alocated considerable funds. But the agreement expired last year. Now, apparently, to carry out work on the extension of the service life up to 2022 will be done by the Russian experts, not by representatives of the developer.

   As experts, given the close co-operation "Southern " and SE "Pivdenmash" the agency NASA's launch vehicle Antares, continue to depend on them for strategic nuclear safety is not possible. The fact that the Antares uses a range of technical solutions that are related to strategic missiles were armed with Russian Strategic Missile Forces. For the same reason, according to Russia, you can not interact with the Ukrainian side to develop new missile systems.

   Among the "disenfranchised" and risked Kharkiv plant transport engineering plant "Malyshev", the largest tank manufacturer in Europe, which since the end of 2012 is in a state of bankruptcy. Release of its main products is largely dependent on the supply of components produced by the Russian subcontractors.

   In a similar situation also are shipbuilding enterprises of Ukraine. Huge production capacity of shipyards in Nikolaev is simply idle. But in the Soviet era the city was second only to Leningrad shipbuilding center. In particular, it produced the famous aircraft carriers.

   As stated by Russian experts, in the case of association with the EU and the conversion of Russia and Ukraine in the competition on the arms market Ukrainian shipyards can no longer rely on military orders from Russia and from there to the delivery of parts required to carry out existing contracts.

   The above concerns are shared by experts in Ukraine. As the head of the Ukrainian Association "Suppliers of the Customs Union" Oleg Naginsky, the national industry could be greatly affected by lowering level of cooperation with Russian enterprises. So Vladimir Putin's statement about the possible de-industrialization of Ukraine are not without any reasonable grounds. From high-tech industries it primarily can affect engine and aircraft manufacturing. Certain losses incurred and the Kharkov factory "Turboatom", working in close cooperation with the Russian nuclear business.

   In these conditions, the formation of reliable horizontal macro-economic relationships and reduce costs substitute Moscow will have to look for businesses in the vehicle or re-discover them. At the same time, Russia's partners in the Customs Union - Belarus and Kazakhstan - will gain noticeable competitive advantage from dropping out Ukrainian industry.

   This is especially true for Minsk, which has skilled technical personnel. There is also a strong card for Kazakhstan - cheap labor. Therefore quite likely that new production facilities and markets, and the new jobs that will lose Ukraine, will go to Belarus and Kazakhstan as well as Ukrainian share of the Russian markets.

   But even without these conflicts accession to the European market will be a real test for all the enterprises of Ukraine. Even for those who currently have no prospects for development and increased production volumes.

   New customs conditions, fees, standards of the European Union, will put Ukrainian defense enterprises and enterprises of heavy engineering in tough competition with the most powerful European companies.

  If before our neighbors could only guess that they produced weapons and military equipment that Europe does not need, but now we can talk about direct opposition from the Europeans to Ukrainian products on the arms market, despite the friendly rhetoric of the West.

   And the strongest opposition will be felt by such powerful companies as "Antonov". The products of this company is fully capable of competing with the products of Airbus, SAS, British Aerospace, etc. Therefore, successful European players are unlikely to support the "would-be" long-term competitor.

   Thus, in early September of this year, Prime Minister Mykola Azarov said that the company Airbus openly declares its plans to counter the promotion of the An -70.

"I had a meeting with the French leadership and the leadership of the aviation company Airbus, and they told me that your plane is better than ours, but we will do everything that it will not find market."

   The same applies to the other giants of Ukrainian military-industrial complex. Leaders of the European economy are unlikely to invest significant funds in the development of Ukrainian high-tech and military production. And despite the fact that the very integration of these industries in the western industrial space is a very expensive undertaking, as it implies a transition from the Soviet to the European technology standards.

   As a consequence, it is likely the result of Ukraine's integration into European political and economic structures will be curtailing production cooperation and the reduction of trade with Russia. This will inevitably lead to a significant reduction in the volume of industrial production, the reduction in the number of jobs, wages and thus have negative consequences for the entire social sphere.

   But Kiev can estasblish its own "get away" strategy and move some capacity of Ukranian military enterprises on the territory of the Customs Union through establishment there joint venture companeis with local manufacturers.

   As an example of a successful implementation of this strategy one can be considered an extensive modernization project in Belarus for the fleet of the most massive in the world of transport and assault helicopters Mi-8T, developed in the USSR in the 60s of the last century. For this project, JSC "Motor Sich" (Zaporozhye, Ukraine) has acquired the Belarusian government's controlling stake in JSC "Orsha Aircraft Repair Plant".

   Another thing is that other similar projects are not yet visible..

Alexander Alesin


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