Western defense firms wary on Ukraine’s weapons production pitch

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Western defense 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’s also looking to boost job opportunities and stabilize an economy ravaged by war.

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On Monday, a Ukrainian deputy minister told Reuters that Kyiv was in talks with defense companies in Germany, France, Italy and eastern Europe to potentially make weapons in Ukraine.

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

“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 defense giant Lockheed Martin’s aeronautic business and was not aware of any direct discussions with Ukraine on co-production activities.

Representatives from two major defense companies confirmed they had heard about the Ukrainian initiative, with one adding 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.

No easy task

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

In May, President Volodymyr Zelenskyy said Ukraine was working with Britain’s BAE Systems to set up a Ukrainian base to both produce and repair weapons from tanks to artillery.

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

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

“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,” said Micael Johansson, CEO of Sweden’s Saab.

Ukrainian officials declined to comment on the defense companies’ concerns or to 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 were planning war risk insurance mechanisms to aid Ukraine’s recovery.

Defense ministries in Britain, France, Germany and Italy declined to comment on any potential 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 defense co-production at this time,” a senior official at the US Department of Defense told Reuters.

Support from afar

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

“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 Britain and Portugal-based drone company TEKEVER.

TEKEVER doesn’t have concrete plans for its post-war operations but said it intended 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 defense industry in peacetime.

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

“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, chief operating officer at US defense major RTX.

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