New law to introduce tax privileges for aircraft industry

On January 19, the Verkhovna Rada passed in the final reading a law on state support to aircraft industry. The law establishes a six year tax break for a number of enterprises in the aircraft industry, during which land tax is abolished and VAT for import components is partially lifted. In addition, the law introduces a number of smaller privileges in corporate profit taxation. According to Boguslayev, the CEO of Motor Sich and one of the authors of the law, its implementation would bring about ~ 7% decrease in production costs for domestic aircraft industry. Another parliamentary, Serhiy Terekhin, estimates that aircraft industry will be able to propel sales by 2.4x times in the next three years thanks to the new law. Yegor Samusenko: The law would have three positive effects for Motor Sich (UX: MSICH UK). Firstly, it would beef up Motor Sich’s working capital, as the company will not face export VAT reimbursement problems. Secondly, the law would promote cooperation between aircraft industries in Russia and Ukraine which is crucial for the serial production of An-148 and An-70 airplanes. Both aircraft models will be equipped with Motor Sich produced engines. Long term, successful launch of serial production of these airplanes will increase share of airplane engines segment in Motor Sich’s sales to ~50% from current 15%, we estimate. Thirdly, the law will improve Ukraine’s competitiveness in modernization of Soviet-built Antonov airplanes.