Zelensky orders PM to analyze security impact of Motor Sich sale

Ukrainian President Zelensky has submitted a letter to
PM Denys Shmyhal urging him to take “prompt action to protect the economic
interests of the state,” the president’s press service reported on Aug. 6. They
include assessing the impact on Ukraine’s economic security from a sale of
stakes in aeronautics firm Motor Sich (as well as other companies of strategic
importance for the economy and security). Besides that, Zelensky asked Shmyhal
to identify and eliminate factors blocking the operations of strategically
important state-owned companies and “take comprehensive actions” to prevent
“economically unjustified alienation of property” of strategic and
state-controlled enterprises.

Motor Sich (MSICH UK) was the biggest producer of
aircraft engines in the Soviet Union, powering all the Ukraine-made Antonov
planes, some other Russian-made planes and the vast majority of Russian-made
Mil and Kamov helicopters. Being fully privatized in the 1990s, the company
preserved its status as the biggest supplier of engines for Russian helicopters
up until the late 2010s. Also, the company launched production of engines for
military training jets, which are of special interest from Chinese aircraft
producers.

Chinese Skyrison reportedly purchased a controlling
stake in Motor Sich from the company’s head Vyacheslav Boguslayev in 2016-2017.
Since then, the Ukrainian government has been blocking the Chinese firm’s
attempts to take official sole control over Motor Sich, including prohibiting
AGMs. As a result, Boguslayev has retained control of the supervisory board and
management on a de jure basis, but likely also de facto. An attempt by Skyrison
in 2019-2020 to share joint control with Ukrainian state military engineering
holding Ukroboronprom also apparently failed. The latest attempt surfaced this
week, when the Chinese firm initiated cooperation with DCH Group of Ukrainian
businessman Oleksandr Yaroslavsky.  

Recall, DCH and Skyrison reported that they filed a joint request with Ukraine’s Antimonopoly
Committee for a permit to take control of Motor Sich on Aug. 4.
Over the last couple of years, U.S. officials have been publicly expressing
their concerns about possible Chinese control over Motor Sich, which possesses “military and sensitive technologies,”
as they understand it.

Alexander Paraschiy: We welcome
Zelesnky’s special attention to the situation around Motor Sich, hoping that
the cabinet’s assessment will allow the Ukrainian government to offer a
concrete solution on the company’s future. Hopefully, this will end the
uncertainty about the company’s future. The most likely outcomes are (1) the
Chinese firm and DCH will be let in, (2) the government will decide to take
operational control over the company, or (3) the company will find another,
more politically affordable investor.

The current situation with the company’s governance
– in which Boguslayev is de jure controlling the company which he has not owned
since 2017, coupled with the unclear future of such control and ownership, is
the worst situation for the strategic enterprise.