Motor Sich accuses U.S. paper of lobbying Russian business

Ukrainian aeronautics engine producer Motor Sich
(MSICH UK) accused on Aug. 17 The Washington Times newspaper in lobbying the
interests of the company’s Russian rivals when publishing an article that
mentioned criticism of the firm for selling its engines to China. “Motor Sich
lost its traditional Russian market after the events of 2014, and has made
serious efforts to expand onto alternative markets, including China,” the
company wrote in a press release. “At the same time, Russians use AI-222
engines – produced with breach of license agreements – in their Yak-130
training jets, as well as tried to organize supplies of such engines to China,
instead of Ukraine-made engines.”

An Aug. 15 article in The Washington Times cited an
expert calling on the U.S. government to pressure Motor Sich to halt sales of
its AI-222 engines to China. The engines are supplied for new Chinese JL-10
(L-15) military training jets under a USD 380 mln contract signed in 2016.
China chose to purchase the engines “after trying unsuccessfully to produce
copies of the engines indigenously,” the newspaper said. The planes will be
used “to train in the challenging task of aircraft carrier landings,” therefore
strengthening the military power of China, which has been identified by the
U.S. “a strategic competitor that American forces could one day face in a
shooting war.” “Basically the Ukrainians are getting away with taking the U.S.
taxpayer’s money in the one hand while stabbing the U.S. Navy in the back with
the other,” said the expert, who once served as counsel to the U.S. Senate
Foreign Relations committee.

The loss of the Chinese market by Motor Sich won’t
affect the combat effectiveness of the Chinese air force, Motor Sich responded
in its press release, highlighting that analogous engines will simply be
supplied from Russia. At the same time, such a loss will intensify the crisis
in Ukraine’s aeronautics industry and will lead to job losses, Motor Sich said.
The company called upon the Ukrainian government to “protect the interests of
Ukrainian producers.”

Alexander Paraschiy: We share
Motor Sich’s view that halting engine supplies from Ukraine to China will only
benefit Russian engine producers and will kill Ukrainian industry.
Unfortunately, the Ukrainian government does not look like it’s willing to
protect Motor Sich. It has already acted to prevent the company’s deals with
its Chinese counterparts.

Recall, last year, Chinese investors bought a 56% stake in Motor Sich,
only to have the deal blocked by Ukraine’s
Security Service (SBU), which cited possible threats to national security. As a
result, Motor Sich shares, which used to be the most traded stock on the local
UX exchange, have been banned from trading.

We think it’s possible the U.S. government will begin
to pressure the Ukrainian government on this matter, if it hasn’t done so
already. But the Poroshenko administration could have its own reasons to
pressure Motor Sich, which are more related to business and politics rather
than national security. All these intrigues add nothing to Motor Sich stock’s
investment attractiveness.