Kyiv woos defence groups to set up factories in Ukraine

Paris — Western defence companies are interested in making weapons in Ukraine, but not until after the war, according to half a dozen executives contacted by Reuters at the Paris Airshow.

Ukraine is desperate to boost its weapons arsenal, from drones and munitions to tanks, as it battles to repel Russia’s invasion. It also wants to boost job opportunities and stabilise an economy ravaged by war.

On Monday, a Ukrainian deputy minister told Reuters that Kyiv was in talks with defence companies in Germany, France, Italy and eastern Europe on the possibility of making weapons in Ukraine.

But company executives at the world’s biggest aerospace industry gathering said there Is too much risk now.

“You just have to think about, more broadly, the state of the situation ... and the risk associated with that co-production,” said Greg Ulmer, who leads US defence giant Lockheed Martin’s aeronautic business and was not aware of any direct discussions with Ukraine on co-production activities.

Representatives of two major defence groups said they had heard of the Ukrainian initiative. One said his company was prepared to sign a letter of intent to discuss an industrial partnership in Ukraine once hostilities end.

But none of those interviewed expressed an interest in investing directly while the war rages, with security the top concern.

Germany’s Rheinmetall said in May it had set up a joint venture with Ukrainian state-owned conglomerate Ukroboronprom to build and repair tanks in Ukraine.

Also in May, President Volodomyr Zelensky said Ukraine was working with Britain’s BAE Systems to set up a Ukrainian base to produce and repair weapons from tanks to artillery.

But executives said that repair sites are easier to set up than full-scale assembly lines.

Former Russian president Dmitry Medvedev, a close ally of President Vladimir Putin, has said Russia would retaliate by hitting any facility Rheinmetall set up in Ukraine.

Micael Johansson, CEO of Sweden’s Saab, was cautious: “It takes some time, as in any country, to try and evaluate who are the right partners, who can do what. And doing that, at the same time as they are fighting a war — it’s not an easy task.”

Ukrainian officials would not comment on the defence companies’ concerns or say whether they were offering any insurance or other incentives to investment.

Major insurers are generally excluding Ukraine from policies, saying the risks are too great, although Britain and France said separately on Wednesday they are planning war risk insurance mechanisms to aid Ukraine’s recovery.

Defence ministries in Britain, France, Germany and Italy declined to comment on any arms production in Ukraine.

“We are committed to supporting Ukraine ... including its efforts to rebuild its significant industrial base. We have no specific or additional information to offer regarding defence co-production at this time,” said a senior US defence official.

Support from afar

Many executives see a potential big opportunity in Ukraine once the conflict ends, though.

“What we know is that there is a highly skilled workforce of people that are eager to learn, extremely resourceful and have a culture of getting things done,” said Ricardo Mendes, CEO of drone company TEKEVER, based in Britain and Portugal

TEKEVER has no concrete plans for its postwar operations but said it intends to “invest and contribute significantly to the development of the Ukrainian drone industrial base”.

Some executives warned existing regulations could restrict companies’ ability to work with Ukrainian industry even after the war.

“When it comes to co-production, the US government looks at those things very carefully ... and always with an eye towards making sure that we’re not completely transferring all technical know-how to the foreign partner,” said Nicola Johnson, senior director of government affairs for US drone maker General Atomics.

But getting the idea in the heads of executives early could be a savvy move, analysts said. If the war ends within the next year, Ukraine’s strategy could help kick-start discussions on the construction of a defence industry in peacetime.

“It’s a great idea. It’s just a matter of time,” said Richard Aboulafia, an aerospace analyst at AeroDynamic Advisories.

“Long run, it will be a top objective to bring Ukraine into the Western industrial ecosystem and perhaps even the political and military alliance.”

For now, though, most manufacturers want to continue to support Ukraine with weapons from afar.

“Never say never, right? But right now the focus is on [making] sure that they have what they need,” said Chris Calio, COO at US defence major RTX.

Reuters