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Ukraine aerospace sector's push for Western tie-ups met with skepticism

By Valerie Insinna and Joanna Plucinska

LONDON/WASHINGTON (Reuters) - Ukrainian aerospace group Motor Sich has little to show so far for a wartime effort to woo potential partners in the West, as it seeks new direction after it lost Russia as its biggest client and had a China tie-up blocked.

The challenges facing one of Ukraine's best-known conglomerates underline how hard it is for the country's companies to expand when there are concerns over their track record on corruption and as the conflict with Russia grinds on.

State-owned Motor Sich is Ukraine's main manufacturer of aircraft and helicopter engines, including for some of the world's largest cargo planes.

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"We want to turn to the West," Chief Executive Olexiy Nikiforov told Reuters in an interview.

For almost a year, he has chased meetings with U.S. defense contractors like Lockheed Martin and RTX at air shows and government events.

He hopes to get another chance to make his case for greater industrial collaboration this week when U.S. and Ukrainian defense officials and industry executives gather in Washington for a summit on Wednesday and Thursday hosted by the White House.

Kyiv is stepping up its weapons production and also hopes joint ventures with international armament manufacturers can help to revive its domestic industry.

But Reuters' interviews with more than a half dozen U.S. defense executives, former U.S. officials and experts suggest many hurdles are hindering progress for Motor Sich.

U.S. businesses are open to future cooperation with Ukrainian firms, but it will take time to prove they can conduct business in a way that complies with U.S. and European regulations, they said.

Many legacy Ukrainian defense companies will trigger "red flags" during the lengthy due diligence and compliance reviews conducted by Western defense companies, said one U.S. defense executive.

Those issues are not insurmountable but can drag out the approval process for co-production agreements, he said.

Ukraine's defense industry has had trouble with efficiency and transparency, said Pavlo Verkhniatsky, director of COSA solutions, a Ukraine-based strategic intelligence firm helping Western businesses enter the Ukrainian market.

"It has baggage and a bad reputation in terms of operating its assets and the efficiency of launching projects, developing projects," he said.

Ukrainian President Volodymyr Zelenskiy has repeatedly warned that his administration would not tolerate corruption and has fired officials suspected of it.

OFF TO WASHINGTON

Sergiy Korzh, one of Motor Sich's top board members, said that any results from the summit would have little immediate impact.

"You can imagine how long it will take ... for the results of such cooperation to come to the battlefield," he told Reuters.

Still, Korzh said he had made some headway recently after a meeting with representatives of the U.S. Department of Commerce and a few major U.S. companies at the Dubai Air Show last month.

He did not give details for security reasons, as the talks related to defense.

A spokesperson for the Commerce Department's International Trade Administration said it was not a formal meeting.

A Motor Sich representative stopped by ITA's booth and spoke briefly about their company's capabilities, the spokesperson said.

ROOTING OUT CORRUPTION

Zelenskiy has made rebuilding Ukraine's defense and aerospace sector a top priority, which includes deeper investment in drone technology.

Ukraine's government also used wartime authorities to wrest control of Motor Sich away from Chinese shareholders – resolving a key concern of U.S. defense officials during the Trump administration.

The budgetary realities of the war with Russia following the 2022 invasion of Ukraine, which Moscow calls a special military operation, pose further headaches.

Motor Sich's earnings have fallen by almost 40% since Russia invaded Ukraine in February 2022, Korzh told Reuters.

Its production facilities in Zaporizhzhia have also suffered repeated missile strikes from Russian forces, putting equipment and 15,000 workers at risk, CEO Nikiforov said.

U.S. defense contractors have shown little interest publicly in partnering with aerospace companies like Motor Sich on production projects in the immediate term.

Lockheed Martin said in a statement it was "working closely" with the U.S. government to support its response in Ukraine. Lockheed Martin declined to comment when asked about a Motor Sich proposal to outfit Ukraine's Sea King helicopters with its engines.

When asked for comment about potentially working with Ukraine defense companies, Boeing said: "While we do not comment on rumors of potential discussions or transactions, we continually review our markets and portfolios to ensure we are delivering the best capabilities and value to our customers."

General Electric and RTX declined to comment. Northrop Grumman did not respond to a request for comment.

While the talks in Washington later this week and last month's Dubai air-show contacts are potentially promising, the political realities that Western defense officials are grappling with could hinder any progress.

One U.S. defense executive said U.S. weapons makers are closely watching whether the conflict in Gaza – as well as dwindling support among U.S. Republicans for Ukraine – dampens Washington's appetite for future collaboration with Ukraine.

(Reporting by Valerie Insinna in Washington and Joanna Plucinska in London. Editing by Tim Hepher, Jo Mason and Jane Merriman)