17 June 2014
At a meeting of the National Defense and Security Council on June 16, Ukrainian President Petro Poroshenko “categorically forbid” any cooperation with Russia in the military industry, Vice PM Vitaliy Yarema told the ICTV television network. Previously, the policy adopted by the interim president, Oleksandr Turchynov, banned cooperation with Russia in weapons production, but allowed cooperation in dual-purpose goods, such as helicopter engines, Yarema said.
Alexander Paraschiy: At the moment, we can’t say with full certainty whether the president’s declared ban will apply to helicopter engines produced in Ukraine and sold to Russia. But the risk of such a ban is very high, when Russia’s military aggression against Ukraine is obvious.
For aircraft engine producer Motor-Sich (MSICH UK), which sells about 50% of its products to Russian helicopter assemblers, such a move might mean the loss of the entire Russian market, we believe. At the moment, Motor Sich is the near-monopoly producer of engines for Russian copters, while the Russian government has been yearning for more than a decade to replace the Ukrainian engine with Russian products, however outdated they are. If the export ban is enacted by Ukraine, it will be a good excuse for the Russian side to urge programs of import substitution in helicopter projects. Once being forced out of this market, Motor Sich will be unlikely to re-enter it.
We treat the news as strictly negative for Motor-Sich and expect the market will damn its shares today.