Ukraine's Motor Sich accuses US newspaper of lobbying Russian business

Ukraine's Motor Sich accuses US newspaper of lobbying Russian business
Ukraine Motor Sich makes engines for the Chinese trainer jet JL-10
By bne IntelliNews August 21, 2018

Ukrainian aerospace engine producer Motor Sich has accused the Washington Times of alleged lobbying for the interests of the company’s Russian rivals after it published an article that included 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 into alternative markets, including China," the company said in a statement on August 17.

In 2017, Chinese investors bought a 56% stake in Motor Sich, however the deal was blocked by Ukraine’s SBU security service, 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.

"Russians use AI-222 engines - produced with breach of license agreements - in their Yak-130 training jets, as well as trying to organise supplies of such engines to China, instead of Ukraine-made engines," the company added in the statement.

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 statement, 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 on the Ukrainian government to "protect the interests of Ukrainian producers."

The Washington Times cited last week an unnamed expert calling on the US 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 $380mn 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 allegedly used "to train in the challenging task of aircraft carrier landings," therefore strengthening the military power of China, which has been identified by the US "a strategic competitor that American forces could one day face in a shooting war".

"Basically the Ukrainians are getting away with taking the US taxpayer’s money in the one hand while stabbing the US Navy in the back with the other, said the expert, who once served as counsel to the US Senate Foreign Relations committee.

Alexander Paraschiy at Kyiv-based brokerage Concorde Capital shares 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," he said in a research note. "It has already acted to prevent the company’s deals with its Chinese counterparts."

Concorde believes that it's possible the US government will begin to pressure the Ukrainian government on this matter, if it hasn't done so already.

But the administration of Ukraine's President Petro Poroshenko "could have its own reasons" to pressure Motor Sich, which are more related to business and politics rather than national security,” Paraschiy added. "All these intrigues add nothing to Motor Sich stock’s investment attractiveness," he wrote in the note.

The company has had an uneasy relation with the authorities, which raided its headquarters in April, accusing management of trying to usurp the state’s role in the running of the company.

In 2017, the SBU initiated an investigation of the sale of 56% of Motor Sich shares to a group of investors related to the Chinese company Beijing Skyrizon Aviation Industry Investment. As part of that investigation, a Ukrainian court froze 41% of the shares in Motor Sich.

In July's statement, Motor Sich rejected fraud accusations made by national prosecutors and will take "all legally available measures" to protect its honour, dignity and business reputation.