1

Military-Technical Cooperation Between Ukraine
and NATO/EU Member – States: Steps Forward
Center for Army, Conversion and Disarmament Studies
NATO Liaison Office in Ukraine
National Institute for Strategic Studies
2015
(Summaries of the International Conference in Kyiv, April 2015)

Ukraine Has Every Capacity for Military
and Technical Cooperation with the West
Cooperation between Ukraine and the EU
and NATO States in the Defense Sphere Has
Significant Prospects
New Conditions for MTC with Ukraine are
Appealing to NATO, EU Companies
Ways for Fostering Nato-Ukraine Defence
Cooperation to Strengthen Ukraine’s
Defence Capabilities
Ukraine Strives to Cooperate with the
Western Countries on Joint Weapons Design
Orders
Current Problems and Methods for
Implementing Offset Schemes in the Sphere
of Military-Technical Cooperation
CONTENT
4
7
9
18
23
27

Increasing the operational capabilities of
the Armed Forces of Ukraine as a Priority in
Military Cooperation with NATO and EU
countries
The Efforts of the Private and State
Companies in the Ukrainian Defense Sector
Must Be United
Public-Private Partnership – the Current
Challenge for the Defense-Industrial
Sector of Ukraine
Opportunities and Challenges for Allied
Defense Industry Companies in Ukraine:
Practical Aspects
Ukraine - NATO Cooperation:the Importance
of Increased Institutionalization, Format,
and Management
31
36
40
44
48

he new National Security
Strategy of Ukraine clear-
ly identifies the directions
for general reforms in the
defense and security sector. A consider-
able section of it is devoted to the efforts
necessary in the military-industrial
complex (MIC).
Today, Ukraine’s independence is
under great pressure in terms of both
time and space. In this respect, it is very
important that we use all available ca-
pacities with maximum efficiency, to cre-
ate weapons and military equipment that
could counter the resources deployed by
the Russian army in the eastern regions
of our country. Thus, cooperation with
NATO member-states and their defense
enterprises can become a great incentive
that will help us quickly solve a whole
range of tasks faced by the Ukrainian
military-industrial complex.
Concerning the MIC, it is worth
reminding that in the Soviet times,
Ukraine was among the European and
even world leaders in manufacturing
of highly varied and effective weapons
system. Three branches of the Ukrai-
nian military industry were operating
at the global standard: strategic missile
systems (production based in Dniprop-
etrovsk), armored vehicle production in
Kharkiv, and shipbuilding in Mykolaiv.
Those facilities operated a closed pro-
duction cycle and supplied the Soviet
Union with weapons to be globally reck-
oned with. Simultaneously, top-class
design bureaus and centers operated in
Ukraine, specializing in design and pro-
duction of radio equipment, radio loca-
tion systems, and communications and
control equipment.
After Ukraine gained indepen-
dence, the above mentioned key indus-
tries, especially as well as , and the space
and missile field, found themselves in a
grave situation, mainly because large-
scale military orders that these indus-
Ukraine Has Every Capacity for Military
Volodymyr Gorbulin,
Director of the National Institute of Strategic Studies,
First Vice-President of the National Academy of Sciences of
Ukraine, Academic
T

5Military-Technical Cooperation Between Ukraine and
NATO/EU Member – States: Forward Ways
tries used to receive during the USSR
times were, for objective reasons, no
longer available.
At the same time, it is worth noting
that a large portion of design bureaus
that specialized in radio equipment,
radio location systems, and communi-
cation technologies, transformed into
private enterprises, which are helping
Ukraine today in a wide range of tasks
related to target acquisition and deter-
mining the characteristics of weapon
systems deployed by the enemy in east-
ern Ukraine. Today,
these tasks are re-
solved in practice
by private compa-
nies. And today,
it is imperative to
organize relevant
work (in coordi-
nation with the
General Staff and
the Ministry of De-
fense) in a way that would ensure that
national private enterprises are properly
represented in the government defense
order. This task is, first of all, political.
Having been involved in develop-
ment of the defense order in the past,
the author can testify that only a small
number of the private defense sector
companies were granted a place in the
government defense order, both in 2014
and 2015 (albeit the trend was less pro-
nounced this year) even though the au-
thor strongly believes that such private
enterprises manufacture products with
high performance characteristics. We
are not making this statement to criti-
cize the actions of the government, but to
point out the need for more efficient use
of the existing technological potential of
Ukraine, as well as its technological re-
serve, which has great room for growth.
This growth will become all the
more swift and efficient if we can come
to an understanding with NATO coun-
tries concerning our projects.
Overall, the relationship between
Ukraine and the Alliance states is remi-
niscent of the ebb
and flow of the tide.
Back in 1998, we
reached a very im-
portant step in de-
veloping the AN-70
military transport
plane. We enjoyed
support from the
EADS conglom-
erate and, among
others, the Federal Ministry of Defense
(Germany). The reason for that proj-
ect not taking off was not the position
of NATO countries, but that of Russia,
who de facto sabotaged that contract
by refusing to grant certain orders to
NATO countries in the scope of the AN-
70 project.
Failure to realize other prospective
contracts that were planned with Swe-
den and Poland can be attributed to
the lack of political will of the leaders
of Ukraine at the time. That factor pre-
vented Ukraine from reaching a serious
It is imperative to organi-
ze relevant work (in coordina-
tion with the General Staff and
the Ministry of Defense) in a
way that would ensure that
national private enterprises
are properly represented in
the government defense order

6 Ukraine Has Every Capacity for Military
level in military and technical coopera-
tion, rather than be satisfied with small-
scale ad-hoc contracts.
Naturally, Ukraine has some prob-
lems. It has been considerably slow
in the issues of standardization when
switching over to the parameters and
norms used in the weapons systems of
NATO countries. The Ukrainian legisla-
tion does not yet provide for a way to
link private and state-owned enterprises
in a single pool. It is well known that in
the West, the role of principal designers
and manufacturers
of weapons systems
belongs to large pri-
vate corporations.
But, importantly,
a certain break-
through is being
observed right now – at the very least,
in form of the strong will to improve the
situation. We believe that Ukraine has
every capacity required for that.
For example, today, the Lockheed
Martin Corporation, which has always
been Ukraine’s competitor, is showing in-
terest in Ukraine. The author, at one point,
represented Pivdenne Design Bureau, and
was directly involved in the design of SS-
18 and SS-24 systems, strategic missile
complexes that are still justly considered
to be the best in the world. Why not estab-
lish contacts with Lockheed Martin, simi-
lar to the contacts Pivdenne Design Bu-
reau has with the Antares space project?
Ukraine has great potential, and
it is not limited to its highly qualified
computer developers, who currently
are employed all over the world. Today,
life forces us to view many things dif-
ferently. It is time we stopped consider-
ing ourselves “great ones” – yet remem-
bered that we are indeed worthy of
serious military and technical coopera-
tion on any inter-
national level. The
author is convinced
that the President
and the National
Security and De-
fense Council have
a very constructive approach to these
issues, and believes that the already-
planned joint programs will start off
after the adoption of the National De-
fense Strategy, the Military Doctrine,
and the appropriate program for the
defense complex reforms.
We give particular thanks to the
NATO Liaison Office in Ukraine and the
Center for Army, Conversion and Dis-
armament Studies, for supporting and
facilitating this process.
The Ukrainian legislation does
not yet provide for a way to
join private and state-owned
enterprises in a single pool

s the Director of the
NATO Liaison Office in
Ukraine, I would like to
emphasize that the new
round of discussions on the prospects
for Ukraine’s military-technical coop-
eration with the EU and NATO mem-
ber states is the result of our continued
efforts aimed at supporting the Ukrai-
nian defense industry. Last September,
the NATO Liaison Office in Ukraine
initiated the Ukrainian Defense In-
dustry conference during the MSPO
2014 International Defense Industry
Exhibition. We strive to offer Ukrai-
nian companies new opportunities for
representing Ukraine’s defense poten-
tial on the international level.
The reform of the Ukrainian de-
fense industry is, naturally, one of the
key development factors for Ukraine’s
security and defense sector. We salute
the efforts of the Ukrainian govern-
ment aimed to ensure development
of defense enterprises under the ex-
tremely difficult conditions of hybrid
warfare.
In particular, I would like to point
out the Roadmap for the Standardiza-
tion Reforms in the Defense Industry
for 2015-2018, jointly developed by
NATO representatives, experts of the
Ukroboronprom State Concern, and
specialists of the Ministry of Defense
of Ukraine, in early April. This docu-
ment provides for a gradual transi-
tion to Euro-Atlantic standards in
the sphere of armament and military
equipment production.
We want to fully utilize the po-
tential of the NATO-Ukraine Joint
Working Group on Defense Technical
Cooperation, to support Ukraine in
this trying time. Many aspects related
Cooperation between Ukraine and the EU
and NATO States
in the Defense Sphere Has Significant
Prospects
Marcin Koziel,
Director of NATO Liaison Office in Ukraine
A

8 Cooperation between Ukraine and the EU and NATO States
in the Defense Sphere Has Significant Prospects
to the reform in the defense industry
will be addressed in the scope of prac-
tical implementa-
tion of the NATO
Trust Fund proj-
ects. With regard
to this, we welcome
the decision of the
Cabinet of Minis-
ters of Ukraine that
approves, and authorizes the Head of
the Mission of Ukraine to NATO to
sign, the Agreement between the Gov-
ernment of Ukraine and the NATO
Support and Procurement Agency.
I would also like to thank our
Ukrainian partners – the National In-
stitute for Strategic
Studies, and the
Center for Army,
Conversion, and
Disarmament stud-
ies. Thanks to the
efforts of these or-
ganizations, we
successfully brought together truly
competent professionals, and leading
specialists of official institutions and de-
fense enterprises.
Many aspects related to
the reform in the defense
industry will be addressed in
the scope of practical imple-
mentation of the NATO Trust
Fund projects

kraine has more than 15
years of experience in mil-
itary-technical coopera-
tion (MTC) with NATO
and EU countries. Unfortunately, how-
ever, Ukraine’s notorious reluctance to
modernize its own military and, to some
extent, its inability to play by Western
rules jeopardize the development MTC
with the West. Western defense compa-
nies, for their part, have not demonstrated
openness to a flexible defense-industrial
cooperation policy towards Ukraine.
Lessons learnt from the initial
period of cooperation
As the Ukrainian government has
been traditionally keen to expand the
export of arms and military equipment
(AME), the country was able to retain
some defense-related R&D and manufac-
turing capacities and even create several
new schools of thought on defense tech-
nologies, and some of them from scratch,
e.g. on armored personnel carrier vehi-
cles and modern protective equipment
for armored military vehicles.
First MTC experiences with West-
ern defense companies date back to the
1990s. Some joint projects were pretty
successful technologically, as was the tri-
lateral Ukrainian-Franco-Czech project
to upgrade the T-72 main battle tank to
the T-72AG configuration for the ben-
efit of third-country customers. Other
initiatives proved far less successful, such
as the project to use the An-70 aircraft as
a prototype for NATO’s future military
transport platform.
Despite all the problems Ukraine
was able both to sell arms for export to
European markets and to develop col-
laborative projects. Examples are Greece
(Bison-class light landing craft air cush-
ion (LLCAC) vehicles, 2000), Macedonia
(overhauled and upgraded Soviet-built
aircraft and armored military vehicles,
2003), the USA (protective equipment for
military armored vehicles, newly-built
tanks, 2004), Poland (protective equip-
New Conditions for MTC with Ukraine are
Valentyn Badrak,
Director of The Center for Army, Conversion and
Disarmament Studies
U

10 New Conditions for MTC with Ukraine are
ment for military armored vehicles and
helicopters, years after 2005) and Belgium
(precision-guided weapons; follow-up
projects after 2010). Some of the projects
had a high level of technological sophis-
tication that revealed Ukraine’s capac-
ity to perform most ambitious projects
qualitatively and efficiently. For example,
State Luch Design Bureau of Kyiv and
Belgium’s CMI (Cockerill Maintenance &
Ingenierie) Defence jointly implemented
a successful project to integrate a 90mm
Cockerill gun turret with the fundamen-
tally new Falarick 90 ATG missile.
A range of collaborative projects
with Western defense companies were
carried out for the benefit of the Ukrain-
ian Armed Forces. Especially positive
experience that Ukraine has had thus far
has been with Poland, and this experi-
ence is encouraging. Among most vis-
ible achievements are collaborative R&D
with Polish partners relating to precision-
guided weapons and protective equip-
ment for helicopters and armored vehi-
cles. Also noteworthy is the beginning of
work to formulate new concepts regard-
ing R&D on unmanned aircraft systems
and upgrade of aircraft technology in
Ukraine. Indeed, this has been made pos-
sible not least due to the more extensive
political dialogue and successful collabo-
rative efforts in dual-use technology areas
such as aerospace (Ukrainian companies
partnered in the European Vega and U.S.
Antares space launch vehicle projects and
the international Sea Launch project)
and the employment of Ukraine’s mili-
tary transports for air transportation of
NATO’s military personnel and supplies
under the Strategic Airlift Interim Solu-
tion (SALIS) program.
Most importantly, Ukraine has begun
to leverage the experience of the Western
world and is gradually transitioning to
NATO standards, which have become
the dominant standards worldwide. It
was back in the early 2000s when Ukrain-
ian defense industries created successful
designs such as the Yatagan MBT, the
Kvitnyk family of precision-guided gun-
launched projectiles, the Falarick family
of tank gun launched missiles, as well as
protective equipment for armored vehi-
cles and helicopters – all built to conform
to NATO’s compatibility requirements,
particularly through the use of Western-
supplied components such as a NATO-
caliber gun bought from Switzerland and
thermal imagers bought from France.
The leveraged experience of NATO/
EU countries suggests that military-tech-
nical policy should be regarded as a most
important State military strategy tool,
as a system of far-sighted, scientifically
grounded views on the development of
arms and the national defense industrial
capacities. Unfortunately, real changes in
the thinking of political leadership and
defense industry managers in Ukraine
have been too slow to occur. But what is
critically important is that Ukraine has
finally come to understand the need for
technical modernization of its Armed
Forces to current standards, and that this
task is obviously beyond the capabilities

of the domestic defense industry alone.
Western defense companies, for their
part, have begun to use more flexible pol-
icies with respect to technology transfers
and the engineering of collaborative de-
fense technology projects with Ukraine.
Initial significant changes in ap-
proaches to how Ukraine’s defense indus-
tries should grow occurred in 2008–2009,
the period that saw the start of impor-
tant programs such as the Mi-24 combat
helicopter upgrade assisted by SAGEM of
France, and the indigenous naval corvette
warship that is foreseen to incorporate
about 38% of components and subsys-
tems of the Western manufacture, with
potential suppliers in France, the Neth-
erlands and Germany among other coun-
tries of the Western world. However, it
took good two years of intensive negotia-
tions for Ukraine to get formal approval
for such cooperation from governments
of France, Italy and Switzerland. However
in one occurrence Germany refused to
transfer a missile technology to Ukraine.
In the long run, subcontracts were award-
ed to 35 companies, and overall level of
mutual confidence has increased signifi-
cantly. Another positive MTC experience
was with Israel, in a project that resulted
in the purchase of a tactical-level un-
manned aircraft system.
However, almost all MTC projects
with Western defense companies were
put on hold with the coming to power of
Viktor Yanukovych and his pro-Russian
administration. Obviously enough, this
was made possible by the involvement of
Russia, who set out to bring Ukraine back
into its geopolitical and economic orbit.
New times. Capabilities and
Opportunities
It is worth noting that signifi-
cant changes also occurred within the
Ukrainian defense industry. Unlike in
the 1990s when ready-made equipment
made up from 8% to 12% (by varying
estimates up and down) of the coun-
try’s total defense production, this level
has now risen to 20-25% due to imple-
mentation of a range of export market
initiatives. Beyond the aforementioned
equipment types, new projects emerged
such as the Oplot MBT (Kharkiv’s
Malyshev Factory), light armored ve-
hicles (Kharkiv’s Morozov Design Bu-
reau), ‘dual-use’ and military trucks
(AvtoKrAZ Holding Company), radar
systems (Ukrspetstechnika), trainer
simulators (MATS Holding Company),
a variety of upgrade packages for com-
bat aircraft MiG-29, Su-27, Su-25, L-39,
and Mi-24 and Mi-8 helicopters, as well
as modular assembly of armored mili-
tary vehicles of all types.
Domestic defense industries now
have the capability to produce up to
30% of the range of the AME types re-
quired by the Ukrainian Armed Forces
and other security sector institutions,
according to CACDS’ statistics, thanks
largely to the emergence and growth
of brand new R&D schools of thought,
most particularly on precision-guided
weapons (an anti-ship cruise missile, a
tactical-and theater range missile sys-

tem, a smart bomb etc). An experimen-
tal piece of the first indigenous SAM
missile system designated Alta was in-
augurated at a defense technology exhi-
bition in Kyiv on 24-25 September 2014.
Antonov aircraft maker announced
being ready to launch a fighter trainer
development project, while a number
of privately-owned
companies said
they would inten-
sify developments
of new UAV capa-
bilities.
In this new en-
vironment created
by Russian aggres-
sion in Ukraine, a
leap in the development of AME types
for the Ukrainian military, particularly
through international defense-indus-
trial cooperation has become possi-
ble. Ukraine needs to diversify foreign
sources of defense technology and
manufactured products required by
the country’s military establishment.
Therefore, an emphasis placed on lead-
ing-edge Western technology is becom-
ing a must for the growth of Ukraine’s
capacity to provide its own security.
Itshouldbeemphasizedthat,withthe
launch of the Kremlin’s aggression against
the Ukrainian State, new, sufficiently ap-
pealing opportunities have emerged for
Western defense companies. While a
persistent lack of funding for homeland
defense programs was previously the key
hurdle for Ukraine’s partnership with the
West, Ukraine is now evolving into a ca-
pacious market for defense technology.
This is precisely about the tech-
nology, rather than defense products
proper, because, given the availability of
extensive domestic defense industrial ca-
pabilities, there should be no expectation
of any significant procurements of arms
and military equip-
ment directly from
foreign suppliers.
Western part-
ners are now guided
by the statement
made by Ukrain-
ian President, Petro
Poroshenko during
festivities celebrat-
ing the 23rd Anniversary of Ukraine’s in-
dependence on 24 August 2014, wherein
he promised the disbursement of about
UAH40B in funding for technical mili-
tary modernization programs over the
next three years. This is the key signal
for European countries to launch coop-
eration with Ukraine, as this implies op-
portunities for collaborative R&D and
co-production programs and for the de-
velopment of multinational projects.
Ukraine’s Ministry of Defense budget
was set at UAH44.6B (USD2B) for 2015.
On 9th February 9, the Government ap-
proved a record high level of the State
Defense Procurement Order at UAH14B
(USD600M), of which 15% is reserved for
imported procurements. In addition, it
makes provisions for a range of new R&D
projects.
While a persistent lack of
funding for homeland defense
programs was previously the
key hurdle for Ukraine’s
partnership with the West,
Ukraine is now evolving into a
capacious market for defense
technology

Technical status of the defense in-
dustries in Ukraine might be another
contributing factor to defense-industrial
cooperation between Ukraine and the
West. For example, provisions regarding
modernization and retooling of produc-
tion lines and implementation of incen-
tives for critical technology development
in selected areas of specialization could
be incorporated into offset agreements
accompanying major armaments pro-
jects. It is known that, due to ineffective,
incompetent military-technical policy,
Ukraine is lagging seriously in important
technology areas such as microelectron-
ics hardware, microprocessor technology
and nanotechnology which are all indis-
pensable components of modern arma-
ments. In this context it should be added
that the Ukrainian Government, by its
decree issued on 24 September 2014, ex-
empted foreign defense companies from
customs duties. This is significant in the
context of technical modernization of the
Ukrainian Armed Forces as the domestic
defense industry is obviously not able to
proceed as fast as needed with moderni-
zation of the homeland defense capacities.
Important AME categories such as com-
munications, ISTAR assets, C4I systems,
some weapons types (especially ATGM
and portable SAM systems) as well as
some upgraded types of Soviet-built
military equipment (particularly fighter
airplanes and military helicopters) could
be supplied to Ukraine under the already
ongoing programs. Regarding strategic
priorities of future cooperation, these in-
clude the building of a robust air defense
infrastructure in Ukraine; production of
helicopters, ammunition and unmanned
aircraft systems; as well as the upgrade of
gun fire capabilities among other areas.
It might be recalled that Sweden
has already stepped up its cooperation
in military technology with Ukraine.
In October 2014, a team of the Swedish
Defense Research Institute visited Kiev
to meet and talk with executive officials
of the Ukrainian defense industry. At the
conclusion of the negotiations the par-
ties agreed to develop bilateral projects in
the defense technology industry. In April
2015, Ukrainian and Turkish defense in-
dustry officials agreed to launch new col-
laborative initiatives in space, aeronauti-
cal and armored industries. According to
statistics provided by Ukroboronprom as
of early March 2015, the Company added
twenty more countries to its portfolio of
international partners in the period be-
tween July and December 2014, and part-
nership talks were launched with Airbus,
Boeing, Textron, Lockheed Martin, BAE
Systems and Thales.
True, during the earlier part of 2015
Ukraine was more busy with exploring
own AME production capacities. As re-
ported by Oleksandr Turchynov, Secre-
tary of the National Security and Defense
Council on 9th April 2015, 50 new AME
types have already been delivered to forc-
es in the field. At the same time, according
a statement made by Volodymyr Bashyn-
sky, head of the Ukrainian Armed Forces’
R&D and Test Center on 31st May 2015,

defense industries have increased the pro-
portion of AMEs manufactured to NATO
standard requirements, while Western
countries have intensified their military
aid supplies to Ukraine. Particularly the
USA, who decided
to provide Ukraine
with non-lethal de-
fensive equipment
on 11th March 2015,
delivered initial ten
HMMWV vehicles
in late March, of the
total of 230 vehicles
slated for delivery to Ukraine. All those
events are contributing to an intensifica-
tion of MTC and solidify the ground for
further collaboration.
At the same time, it is urgent that the
Ukrainian military-political authorities
make the necessary actions to facilitate
the domestic defense industries’ transi-
tion to Western technology standards.
First and foremost, legislative and
administrative actions need to be made,
which implies corporization and or-
ganizational restructuring of most of the
country’s military production companies.
There is need for a transparent process to
compile a list of companies eligible to be
acquired (with a legislatively determined
stake of equity to be privatized) by West-
ern defense companies.
Second success factor in defense in-
dustrial and procurement relations be-
tween Ukrainian and Western defense
companies is the establishment of an ap-
propriate, effective legal and regulatory
framework for offset contracting in de-
fense and security procurements.
Third, Ukrainian Government needs
to appoint a single government coordi-
nator of the national defense industry,
who could be put in
charge of awarding
government defense
procurement con-
tracts and imported
procurements of de-
fense technologies.
This would made it
possible to re-direct
Ukraine’s MTC with Western defense
companies towards the establishment of
joint ventures and industrial partnerships
operating based on common free market
principles.
Areas of intensive search and
overlapping interests
In 2014 NATO and Ukrainian ex-
perts resumed consultations on potenti-
alities for developing new MTC projects.
It should be noted that a number of
MTC areas have been intensified as a re-
sult of the Russian aggression. Privately-
owned entities were first to come with
their initiatives. HC AvtoKrAZ, for exam-
ple, launched deliveries of new Cougar and
Spartan armored trucks to Ukrainian Na-
tional Guard units and, joined with Streit
Group, developed flat-bottom armored
vehicles HMPV-A and Raptor based on its
6x6 KrAZ-6322 truck chassis.
One of potential MTC areas could
include a review of previously suspended
potentialities. For example, Ukraine has
It is urgent that the
Ukrainian military-political
authorities make the neces-
sary actions to facilitate the
domestic defense industries’
transition to Western techno-
logy standards.

long had the potentialities of assembling
helicopters under a license from the
American company Sikorsky, as well as
assembling (and marketing) Antonov air-
planes (equipped with Pratt & Whitney
powerplants) joined with U.S. partners.
Another promising long-term coop-
eration project calls for getting Ukraine
engaged as partner in the development
and production of target missiles for use
under the US national missile defense
(NMD) program (previously Ukraine re-
fused to participate due to Russia’s con-
cerns). Now that Ukraine terminated the
servicing of SS-18 ICBMs of the Russian
Strategic Missile Forces in 2014, and Rus-
sia announced a refusal to continue buy-
ing airplanes and Motor-Sich engines
from Ukraine, not only the resumption
of said projects looks realistic but sensible
as well.
One more potential MTC area could
encompass projects to adjust Ukrainian
technologies to new conditions. First and
foremost, we are talking about aircraft
industry projects. It would be fully real-
istic to give a new lease of life to military
transport and specialty aircraft projects
designed and built by Antonov, such as
the AN-70 and AN-178. According to
Antonov’s officials, other promising pro-
jects for MTC between Ukraine and the
West include the An-148-300MR mari-
time patrol and border surveillance air-
craft, the An-148T light military trans-
port aircraft with a loading ramp, and
the An-178 medium military transport
aircraft with a loading ramp. The An-
178 has now become a priority project
for Antonov as the new aircraft made its
successful maiden flight in May 2015. If
accepted for MTC projects, the aircraft
could be offered equipped with a West-
ern-supplied powerplant, avionics and
some other key subsystems. Regarding
the An-70, the talk could be about West-
ern defense companies replacing Russia
who previously was key partner in this
project.
The potential areas of partnership
could include a previously suspended ini-
tiative on co-development and marketing
of sonar equipment. In 2007-2008, the
Kyiv Research Institute of Hydroacoustic
Instruments and STN ATLAS Elektron-
ick GMBH of Germany were co-working
on a project to develop and market an
active sonobuoy system. The same goes
for projects on overhaul and upgrade of
Soviet-built helicopters.
Still the key focus in MTC with
Western defense companies should be
on new high-tech developments, which
could be used by partners for enhancing
their respective homeland defense capac-
ities. The following are some illustrative
examples. Ukraine is extremely interested
in developing robotic vehicles using do-
mestic R&D and manufacturing capa-
bilities, but Ukrainian engineers have
traditionally had problems with payload
equipment. Gyroscopes and other com-
ponents are provided through imported
supplies; the quality of live video data
links is far below world standards; there
have been none of high-tech secured

wideband data links under development;
satellite communication capabilities have
not been implemented etc.
Several years ago Ukraine announced
intent to develop an indigenous helicop-
ter, which could be an appealing oppor-
tunity for Sikorsky, but with the proviso
that the partners will need to make cer-
tain compromises. JSC Motor Sich with
its 30,000 employees must become a key
partner in this program.
In a situation where there are vary-
ing opinions as to the re-establishment
of the national Naval Forces, the indig-
enous corvette pro-
gram has been put
on hold for known
reasons (limited re-
sources and the ur-
gent need to build
a robust coastal
defense and coastal
fortification infra-
structure). But resumption of the pro-
gram in a longer term perspective looks
pretty feasible, and the more so as Kyiv
Research Institute Kvant proceeds with
the development of a multipurpose ac-
tive phased array radar system (PHOE-
NICS-E), a shipboard radar-optical fire
control system for medium-caliber guns
(Stilet), an opto-electronic fire control
system for small to medium caliber guns
(Sarmat-2), as well as the shipboard
optronic countermeasures equipment
kit Facet, the optronic naval helicopter
landing system Saga, the Infrared threat
detection system Selena-X, the electro-
magnetic interference reducing system
Sovmestimost; and the shipboard com-
bat management system CMS that are all
included into the Indigenous Corvette
program. This ambitious program can-
not be implemented other than with a
high-level MTC.
A great many projects developed un-
der export contracts could be used as ba-
sis for development, in active partnership
with Western defense companies, of new
AME types for the Ukrainian military.
Particularly in 2014, special instrument
factory Arsenal in Kyiv launched produc-
tion line for the up-
graded IS-90 infra-
red-homing AAM
seeker head. Now
in production for an
export customer, it
could well be used as
baseline for a project
specifically focused
on the Ukrainian military’s requirements.
There is another example that well
illustrates the high intellectual and R&D
capacities of the Ukrainian industries.
Ukrainian Defense Consulting (UDC)
has since 2004 been actively engaged
in projects in the field of automation
and computerization of gun fire control
functions. In 2014, UDC equipped artil-
lery units of the Afghan Armed Forces
with its proprietary computerized fire
control system. According to Denis
Danko, CEO of UDC, his Company has
long partnered with U.S. firms Lockheed
Martin, General Dynamics, Northrop
So there are all the
conditions - political, techno-
logical, economic, intellectu-
al – required for the growth
and expansion of MTC betwe-
en Ukraine and Western
defense companies

Grumman and Dynacord. The first ma-
jor contract in which UDC was involved
called for the delivery of 110 BMP-1 in-
fantry fighting vehicles to the U.S. firm
BULOVA Technologies Group Inc, via
the agency of the Zhytomyr Armor Fac-
tory and the Ukrinmash Corporation.
This was followed by a major deal be-
tween Ukraine and General Dynamics
involving the delivery of 44 D-30 how-
itzers. The Americans requested that the
Ukrainian partner assist with “convert-
ing” the weapons from Warsaw Pact’s
1/6000 mil scale to NATO’s 1/6400 sys-
tem. So, UDC, in late 2008, completed
the development of its Universal Ballistic
Computer” (UBC) that would compute
the conversion values and generate data
matched to a specific type of the weapon
used – be it of the Warsaw Pact or NATO
standard. And a short time afterwards,
the Ukrainian company equipped the
Afghan National Army with a gun bat-
tery fire control system – the Univer-
sal Battery Level Fire Direction System
(UBLFDS). This system enables real time
dissemination of data across a network
to speed up the fires process and im-
prove efficiency. The system automates
the preparation and fine targeting of the
various artillery pieces. This is just one
example of international MTC for the
benefit of third-country markets, but
this experience could be highly valuable
in terms of technical modernization of
the Ukrainian Armed Forces.
So there are all the conditions - po-
litical, technological, economic, intel-
lectual – required for the growth and
expansion of MTC between Ukraine and
Western defense companies. Other suc-
cess factors may be laying in the domain
of political will, both of the Ukrainian
government and the EU and NATO gov-
ernments. In the judgment of Radoslaw
Sikorski, the Speaker of the Polish Sejm,
the West should share with Ukraine its
know-how and provide expert advice
rather than give money recklessly. A
“Marshall Plan”, which was much talked
about after the start of Russia’s military
expansion in 2014, is the most appro-
priate to include a military-technical
cooperation component. MTC is in all
respects a complex process of interaction
between Ukraine and the Western world
in critical, sensitive sectors. But what
makes it extremely valuable is a mutually
beneficial outcome achieved through the
real, not declarative partnership.

would like to address three
points: (1) the framework
for defence-technical co-
operation that exists to-
day between NATO and Ukraine; (2) an
overview of latest activities; and (3) op-
portunities for further development of
cooperation in this field.
NATO-Ukraine framework for
defence-technical cooperation
Let me start by drawing a picture of
the overarching framework for coopera-
tion between NATO and Ukraine. This
framework is underpinned by the 1997
Charter on a Dis-
tinctive Partnership.
The NATO-Ukraine
Commission (NUC)
provides direction
and serves as a fo-
rum for consulta-
tion between Allies
and Ukraine on issues of concern.
A number of joint working groups
have been set up under the umbrella of
the NUC to take forward the work in spe-
cific areas, including the Joint Working
Group on Defence Reform that facilitates
consultation and practical cooperation
in defence and security sector reform.
In 2004, a coordination mechanism was
created in the area of defence-technical
cooperation – the Joint Working Group
on Defence-Technical Cooperation
(JWG DTC).
This Group focuses on enhancing in-
teroperability of Ukrainian contributions
to international op-
erations with the
forces of NATO Na-
tions. We have had
twenty meetings so
far, with the last one
held this past Janu-
ary in Kyiv. With the
Ways for Fostering Nato-Ukraine Defence
Cooperation to Strengthen Ukraine’s
Defence Capabilities
Ernest J. Herold,
Deputy Assistant Secretary General for Defence Investment,
NATO HQ
I
In 2004, a coordination
mechanism was created in the
area of defence-technical
cooperation – the Joint Wor-
king Group on Defence-Tech-
nical Cooperation (JWG DTC)

January meeting we raised the level of co-
chairmanship to indicate the strengthen-
ing of cooperation between NATO and
Ukraine in these difficult times. This
working group is a mechanism to pro-
vide oversight of and direction to coop-
eration. This cooperation takes places
through multiple contacts in NATO
including the Conference of National
Armaments Directors – the CNAD, the
Air Traffic Management Committee or
the Consultation, Command and Con-
trol Board (C3B). Thanks to avid inter-
est from Ukraine we have seen increased
participation in all of these groups which
we believe will ensure continued interop-
erability with NATO.
Let me now give you an overview of
some of the latest activities.
Overview of latest activities
During the January meeting of the
Joint Working Group on Defence-Tech-
nical Cooperation, Ukrainian and NATO
representatives assessed Ukraine’s in-
volvement in the activities of the CNAD,
reviewed cooperation in various capabil-
ity development strands and identified
several practical areas of cooperation
in view of enhancing interoperability
and strengthening the capabilities of the
Ukrainian Armed
Forces.
To begin with,
the participation of
Ukrainian experts
in the CNAD – Con-
ference of National
Armaments Directors, is intended to
promote cooperation in the armaments
field. It brings together the top national
officials responsible for defence procure-
ment in NATO member and partner
countries to consider the political, eco-
nomic and technical aspects of the devel-
opment and procurement of equipment
for NATO forces.
CNAD has a substantial substruc-
ture. That is, various groups, sub-
groups and specialist teams under
the Army, Naval and Air Force Arma-
ments Groups as well as groups active
in the fields of ammunition safety, sys-
tem life cycle management, logistics
codification and the defence industry.
These groups support cooperation on
equipment and research projects and
serve as means of information sharing
on national programmes to the ben-
efit of both individual countries and
NATO as a whole.
A significant portion of the CNAD
substructure is open to partners, espe-
cially the Partnership for Peace (PfP)
countries, including Ukraine. I am
pleased to say that Ukraine is one of
the most active partners. Cooperation
is taking place for example in CBRN
defence, Ground Based Air Defence
and Logistics Cod-
ification domains.
I am pleased that
my division has
been able to sup-
port increased
participation by
Cooperation is taking
place for example in CBRN
defence, Ground Based Air
Defence and Logistics Codifi-
cation domains

20 Ways for Fostering Nato-Ukraine Defence Cooperation to
Strengthen Ukraine’s Defence Capabilities
Ukraine through financial assistance
to enable participation of Ukrainian
experts in the various fora.
Such participation enhances
Ukraine’s access to information on ar-
maments cooperation with Allies thus
improving interoperability between
NATO and Ukrainian forces through
networking, material standardization
and participation in multinational
projects.
Let me make a special point on
defence industry, as this is one of the
main topics of today’s conference. The
NATO Industrial Advisory Group
(NIAG) under the CNAD is a forum
where high level representatives from
the defence and security industry of
the 28 NATO Nations and partner
nations come together to discuss re-
search, development and production
of armaments and provide advice
on armaments cooperation and the
streamlining of capability develop-
ment. Recently we had representa-
tives from Ukroboronprom attend
the meetings, to deliver a report on
Ukrainian defence industry capabili-
ties; this was well received and much
appreciated.
I would also like to mention that
the NATO-Industry Forum to be
held in Lisbon, Portugal the 19th and
20th October is the venue for NATO
Leaders and Strategic Commanders
to interact with senior representa-
tives from industry and discuss fu-
ture plans and strategies. Industry
is invited to share their thoughts for
the future, and explain how they see
the geopolitical environment shaping
and influencing their investment de-
cisions. Ukrainian representatives are
welcome to participate, as the Forum
is open to PfP countries.
Beyond the CNAD, NATO is as-
sisting Ukraine in capability develop-
ment also through multinational proj-
ects and the newly established Trust
Funds. As for multinational projects,
you have probably all heard of NA-
TO’s Smart Defence initiative, which
is about harmonizing requirements,
similarly to the way the EU pursues
pooling and sharing of capabilities, to
prioritize and coordinate more cost-
efficient, effective and coherent capa-
bility delivery. There are currently 91
active Smart Defence projects, with 30
mature ones called Tier 1 and 61 less
advanced projects referred to as Tier
2. Of them, 23 Tier 1 (or 77%) and
34 Tier 2 (56%) projects are open to
partners with the agreement of par-
ticipating Nations. Ukraine currently
participates in projects on Harbour
Protection and Female Leaders in Se-
curity and Defence. And we are ready
to work with Allies to facilitate partic-
ipation in more projects should there
be interest.
The Trust Funds are an important
element of capability development
and capacity building in the areas of
command, control, communications
and computers (C4); logistics and

standardization; cyber defence; mili-
tary career transition management;
and medical rehabilitation.
The objective of the C4 Trust
Fund, managed by my division, is to
identify, fund and implement projects
to assist Ukraine in modernizing C4
structures and systems, to enhance
interoperability with NATO in NA-
TO-led exercises and operations, and
to enhance the ability of Ukraine to
provide for its own security and de-
fence. Lead Nations are United King-
dom, Germany, and Canada with con-
firmed contributions from five other
Allies and three countries that have
indicated an interest to contribute.
The Logistics and Standardization
Trust Fund also falls under the scope
of defence-technical cooperation.
Led by the Czech Republic, the Neth-
erlands and Poland, the goal of this
trust fund is to help build a logistics
and standardisation system for the
Ukrainian defence sector. This will
be achieved by the implementation of
specific logistics projects, including
Information Technologies, structures
and processes.
Finally, there is cooperation in
the field of air security. The key com-
ponent of this cooperation is the Air
Situation Data Exchange (ASDE)
programme. The programme, which
Ukraine joined in 2006, serves to im-
prove situational awareness of activity
in the national and nearby airspace to
reduce the risk of misunderstanding
through the exchange of air situation
between NATO and Partner Nations.
As a result of the ongoing crisis, air
data information provided by NATO
to Ukraine has been extended to cover
a larger area.
Opportunities for further
development of cooperation
As you can see from this short
summary, a lot has been happening
in the field of defence-technical co-
operation. Current priorities include
standardization and codification as
means for increasing interoperability;
implementation of the C4, Logistics
and Standardization Trust Funds;
cooperation in the framework of the
CNAD, including industry; Ukraine’s
participation in Smart Defence; and
air security.
Practical steps being taken in-
clude, for example, planned partici-
pation by Ukrainian representatives
in the upcoming NATO Standard-
ization courses, supported by NATO
funding. Under Codification coop-
eration, NATO will fund the acqui-
sition of an automated codification
system for Ukraine and provide as-
sociated training under the Logistics
and Standardization Trust Fund. We
expect several more projects to be ini-
tiated in 2015 under both the Logis-
tics and Standardization Trust Fund
and the C4 Trust Fund. For both Trust
Funds, several fact finding missions
by NATO staff have already taken

22 Ways for Fostering Nato-Ukraine Defence Cooperation to
Strengthen Ukraine’s Defence Capabilities
place, with significant support from
the Ukrainian side. These Fact Find-
ing missions help formulate specific
projects that will be implemented, in
coordination with Ukraine.
We hope Ukraine will continue to
send experts to the various CNAD ac-
tivities, with NATO providing finan-
cial support. We are also very pleased
that Ukraine will host a meeting of
the Land Capability Group on Land
Engagement under the NATO Army
Armaments Group in Kyiv this Sep-
tember. Conducting NATO meetings
in Ukraine sends a strong signal of
NATO’s support for your country.
NATO staff is also prepared to
help Ukraine approach relevant Allies
in the context of Smart Defence proj-
ects of interest to Ukraine.
Cooperation in air security under
the ASDE programme will also continue.
Conclusion
So to sum it all up, there are many
positive activities going on. NATO is
pleased to continue our collaboration
to strengthen Ukrainian capabilities
and capacities.
I look forward to listening to the
other panellists and fielding your ques-
tions in the discussion. Thank you.

kraine has set its course to-
wards creation of a modern,
developed, and democratic
state, towards European in-
tegration and increased cooperation with
the European Union and NATO states.
Those are the values that Ukraine is defend-
ing in its eastern regions today. Russia’s ag-
gression against our state, its occupation of
some of our territories, combat activities
in the Lugansk and Donetsk regions, con-
tinued supply of weapons to Russian-con-
trolled and terrorist groups, and continued
deployment of standby units of the Russian
Armed Forces in the vicinity of the Ukrain-
ian state border – all those facts require a
more active military-political and military-
technical cooperation of Ukraine with the
European Union and NATO countries. We
believe that such cooperation must become
an important component in ensuring the
defense capacity of our state.
Ukraine values the efforts of the Eu-
ropean Union and NATO member states
made at the highest level to stabilize our
country, as well as the efforts aimed at sup-
porting the reforms and transformation of
theUkrainiandefensesector.Unfortunately,
we are still unable to receive sorely needed
material and technical assistance in the
sphere of armaments and military equip-
ment. Nevertheless, the existing supplies of
certain armaments and military equipment,
communication devices, protective gear,
night vision devices, Hummer type vehi-
cles, AN/TPQ-49 counterfire radar stations,
aerial drones, etc., are already increasing the
effectiveness of our units.
Our cooperation in this direction is
yet to become systematic. Nevertheless,
the existing legal framework with the EU
and NATO countries creates favorable
conditions for developing a constructive
bilateral partnership with NATO mem-
ber states. We have agreements on mili-
tary and technical cooperation, as well as
on mutual data protection, with a large
number of NATO countries. The num-
Ukraine Strives to Cooperate with the
Western Countries
on Joint Weapons Design Orders
Volodymyr Grek,
Head of the Service on the Issues of the Defense-Industrial
Complex
and Military Technical Cooperation,
National Security and Defense Council of Ukraine
U

24 Ukraine Strives to Cooperate with the Western Countries
on Joint Weapons Design Orders
ber of such agreements keeps growing: for
example, execution of one with the Nether-
lands in currently underway. Based on the
resultsofthesessionsoftheNATO-Ukraine
JointWorkingGrouponDefenseTechnical
Cooperation and the NATO-Ukraine Joint
Working Group on Defense Reform, more
areas for cooperation were determined:
cooperation in the scope of NATO’s logis-
tics database and the Random Brokerage
Services, which will improve exchange
of information between Ukraine and the
member states; partnership in order to
supply the Armed Forces with material and
technical resources;
and online procure-
ment.
Implementation
of the Trust funds
is also very impor-
tant for Ukraine. We
would like to draw
attention to several
areas of concern
related to the supply of imported mili-
tary equipment to the Armed Forces of
Ukraine, including equipment received
as assistance and purchased equipment. It
should be pointed out that in the condi-
tions of the anti-terrorist operation, prop-
er maintenance and repairs for the sup-
plied equipment were not always provided
for, which meant lack of service kits, spare
parts, and specialized repair facilities. As
a result, some of the previously supplied
armament and military equipment types
have virtually no long-term use pros-
pects – unless this issue is addressed.
Import of armaments and military
equipment was not always done com-
petitively, and the offers chosen did not
always best satisfy the price/quality cri-
terion. This must be decisively changed,
especially given the need to supply the
gradual transition of the Armed Forces
of Ukraine to new armament and mili-
tary equipment models, as well as to pro-
vide certain equipment for specific tasks
and missions (including aerial drones,
digital communication equipment, and
others).
In addition to the task of supply-
ing armaments and
military equipment,
Ukraine faces the
need to create new
technologies and
production ca-
pacities in various
spheres. We must
create a good invest-
ment climate in the
defense industry. To this end, we should
determine the medium-term needs
for specific military product purchases
and hold supply competitions (with the
terms providing that the products must
be manufactured at facilities located in
Ukraine).
Resolution of the above issues will
be facilitated by the new state program
for development of armaments and mili-
tary equipment until 2020, which is cur-
rently being developed by the Ministry
of Defense of Ukraine, by instruction
of the National Security and Defense
Proper maintenance and
repairs for the supplied
equipment were not always
provided for, which meant lack
of service kits, spare parts,
and specialized repa-
ir facilities

25
Military-Technical Cooperation Between Ukraine and
Council. Ukraine has significant scien-
tific, research, technical, and defense-
industrial potential for increasing and
expanding cooperation in the sphere of
defense, allowing for a whole new level
of military-technical cooperation with
the European Union and NATO states.
We perceive the following opportu-
nities for expanding such military-tech-
nical cooperation.
First: expanding cooperation with
the leading defense companies of the rel-
evant states, in or-
der to purchase and
use specific high-
tech subsystems
that will increase
the performance of
Ukrainian defense
products; as well as
purchasing specific
defense products
not manufactured
in Ukraine. For ex-
ample, joint projects
currently carried
out by Ukraine with the leading Euro-
pean companies, such as modernization
of the MI-24 helicopter, and building of
a Corvette class ship.
Second: participation of Ukrainian
defense companies in implementation of
foreign defense projects, aimed at sup-
plying armaments and military equip-
ment to the European Union and NATO
countries, where Ukraine would design
and supply individual components of the
final products. For example, supply of
guided anti-tank missiles in the interests
of the Ministry of Defence of Belgium
and third countries; design and supply
of armored vehicle active defense sys-
tems and precision-guided munitions in
the interests of the Ministry of National
Defence of Poland.
Third: creating joint cooperatives
between the defense ministries and
companies of the EU and NATO, and
Ukrainian companies, for design and
production of new armament and mili-
tary equipment
models to supply
to the Ukrainian
Armed Forces. We
are striving towards
the fourth level of
cooperation – bilat-
eral coordination of
state development
programs related
to armaments and
military equipment,
and a gradual tran-
sition to fulfilling
joint orders for design of specific arma-
ments and military equipment by defense
ministries of several states, including
Ukraine. We believe that moving to this
level of cooperation will significantly re-
duce the costs of new armament design
for Ukraine, help direct the integration
of Ukrainian defense companies into the
European economic space, and involve
the latest technologies in the production
processes of Ukrainian defense compa-
nies.
We are striving towards
the fourth level of cooperati-
on – bilateral coordination of
state development programs
related to armaments and
military equipment, and a
gradual transition to fulfilling
joint orders for design of
specific armaments and
military equipment by defense
ministries of several states,
including Ukraine

n the light of the long-term
armed aggression against
Ukraine, when the key task
of the state is to significant-
ly increase the combat ability of the Armed
Forces and other power structures, the is-
sues of creating and implementing the mil-
itary-technical cooperation (MTC) policy
become especially important.
The main priorities of Ukraine in the
medium term should be realignment of
markets and domestic rearmament. Achiev-
ing these goals requires increasing the ef-
ficiency of state regulation in the sphere,
ensuring an adequate level of financing for
the appropriate measures, and coordinat-
ing actions in international armaments
markets. Changing the direction of MTC
with foreign states must take into account
Ukraine’s international obligations, while
giving priority to its national interests.
The priorities of structural reforms in
the defense sector should be as follows: ef-
ficient use of Ukraine’s defense potential; a
balanced MTC policy; and effective instru-
ments for financing the defense and secu-
rity sector.
The above is predicated by the fact that
the unrest in the eastern regions of Ukraine
was combated under extreme conditions
during the last year.
In 2014, the needs of the Armed
Forces of Ukraine and other military for-
mations were financed by funds provided
for in the state budget, as well as through
donations of individuals and legal entities,
from the reserve fund, and through issue
of state bonds.
This practice is unprecedented for
Ukraine. The main reasons for this state of
things were the low quality of defense plan-
ning and the implementation of programs
for development and restructuring of the
Ukrainian defense industry that could not
be sufficiently funded throughout the years
of Ukraine’s independence.
Current Problems and Methods for
Implementing Offset Schemes in the
Sphere of Military-Technical
Cooperation
Yuliya Malyshenko,
Key Officer
Ministry of Economic Development and Trade of Ukraine
I

This is why, after finding itself in a cri-
sis situation, the Ukrainian defense indus-
try turned out to be unable to fully satisfy
the AFU with the required armaments and
military equipment.
The above translates to the need for
importing modern weapons and military
equipment systems. Their high cost is a
burden for Ukraine’s budget even given the
increase of defense spending in 2015.
Thus, the need arises for Ukraine to
implement a practice that would signifi-
cantly decrease the
burden on the budget
and the economy as a
whole, in the course
of MTC with foreign
countries, and spe-
cifically, when im-
porting weapons and
military equipment.
A favorable al-
ternative would be
enabling Ukraine to use the offset scheme
for purchasing weapons and military
equipment – a compensation for the pur-
chased defense products in the form of in-
vestment in the importer’s economy.
In developing the regulatory base
on the issues of offset transactions, the
Ministry of Economic Development
and Trade of Ukraine studied the inter-
national practices of offset agreements
used by European countries and NATO
members.
When assessing the prospects for im-
plementing the researched practices, we
worked primarily based on the necessity of
evaluating state regulation of offset trans-
actions and the interdepartmental cooper-
ation between authorities and institutions
managing the issues of offset transactions.
Particular attention was paid to the status
of the defense industry in the countries re-
searched, their international cooperation
links, and their key partner states for pur-
chases of weapons and military equipment.
As a result, we created a scheme simi-
lar to that used by the Republic of Poland.
The Law of Ukraine «On the State Defense
Order» determines
the prerequisites for
offset transactions;
a resolution of the
Cabinet of Ministers
of Ukraine approves
the Procedure for
Concluding Offset
Agreements and
types of compensa-
tion; a commission
for offset transactions was created in the
Ministry of Economic Development and
Trade of Ukraine.
Implementing offset procedures in
Ukraine aims to satisfy Ukraine’s needs
in the military and civilian spheres on
terms that would be the most beneficial
for Ukraine.
The desired result of implementing
and carrying out offset transactions in
Ukraine is attraction of new technologies
and investments to the national economy.
Domestic coordination in the issues
of offset procedures has been appropriately
organized – specifically, representatives of
A favorable alternative
would be enabling Ukraine to
use the offset scheme for
purchasing weapons and
military equipment – a com-
pensation for the purchased
defense products in the form
of investment in the importer’s
economy.

28 Current Problems and Methods for Implementing Offset
Schemes in the Sphere of Military-Technical Cooperation
all state authorities that may be involved
in offset transactions are members of the
offset commission created in the Ministry
of Economic Development and Trade of
Ukraine, and will be taking part in imple-
menting measures aimed at improving op-
erations in this field.
The key aspects of offset transaction
development are aligned with strategic
program documents that determine the
methods for further development of the
defense industry, research industry, and
Ukraine’s military-technical cooperation
with foreign states.
Specifically, measures to develop, mas-
ter, and implement new technologies, pre-
pare production facilities and create new
capacities with the use of offset transactions,
should be included in
the National Target
Defense Program for
Development of the
Defense Industry un-
til 2020, and the Na-
tional Target Defense
Program for Devel-
opment of Weapons
and Military Equipment until 2020.
To this end, the Ministry of Economic
Development and Trade of Ukraine is cur-
rently working on suggestions for possible
methods to implement offset projects in
the medium term.
Together with the Ministry of Defense
of Ukraine and State Concern Ukroboron-
prom, we are studying prospective direc-
tions for attracting foreign investments,
including investments of strategic value for
the development of the defense and secu-
rity sector.
In terms of practical preparation, we
are preparing a list of companies that can be
involved as beneficiaries of offset liabilities,
and lists of defense products, goods, and ser-
vices to be purchased in the medium term
for amounts in excess of EUR 5 million.
At the same time, preparing offset pro-
jects is a lengthy process, and concluding
offset agreements during the anti-terrorist
operation is not economically feasible, be-
cause there is no real possibility to deter-
mine the expected economic effect from
the potential compensation.
Considering the above, the Min-
istry of Economic Development and
Trade of Ukraine, by suggestion of
State Conglomer-
ate Ukroboron-
prom, prepared and
submitted to the
Government’s con-
sideration a draft
of amendments to
the Law of Ukraine
«On the Govern-
ment Defense Order,» which provide,
in particular, that compensation (off-
set) agreements shall not be concluded
during the special period, in a state of
emergency, and during the anti-terror-
ist operation.
Therefore, Ukraine today has the ca-
pacity to implement and carry out offset
operations, which should result in attrac-
tion of new technologies and investments
to the national economy.
We are preparing a list of
companies that can be invol-
ved as beneficiaries of offset
liabilities, and lists of defense
products, goods, and services
to be purchased in the medi-
um term for amounts in excess
of EUR 5 million

n the context of the co-
vert military aggression
of the Russian Federation,
the ongoing «hybrid war,»
the annexation of Crimea, and Russia’s
strong support of illegal armed groups in
the Southeast of Ukraine, we are viewing
our military cooperation with NATO and
EU countries through the prism of Com-
prehensive Security and Defense Sector
Review. The priority of this cooperation
should be increasing the operational ca-
pabilities of the Armed Forces of Ukraine,
in order to repel aggression in the course
of possible escalation of the conflict.
International military cooperation
also plays an important part in the cre-
ation of a modern and combat effective
Ukrainian army. The promising directions
of this cooperation shall be as follows:
• expanding the format of military-
political dialogue between the lead-
ers of Ukrainian defense authorities
and those of EU and NATO coun-
tries;
• participating in common military
trainings aimed at operational capa-
bilities increase;
• taking part in multinational peace-
keeping and security operations;
• receiving material and technical as-
sistance to support the AFU units
deployed in the ATO zone;
• military training instructors inviting;
• cooperating in the scope of the
U.S. – Ukrainian Joint Coordination
Committee for Military Coopera-
tion and Defense Reform;
• providing for civil-military coopera-
tion and information operations;
• professional and language training
of AFU representatives in education
and training institutions of EU and
NATO countries;
Increasing the operational capabilities
of the Armed Forces of Ukraine as a
Priority in Military Cooperation with
NATO and EU countries
Borys Kremenetsky,
First Deputy Chief,
Main Department of Military Cooperation and Peacekeeping
Operations,
General Staff of the Armed Forces of Ukraine
I

30 Increasing the operational capabilities of the Armed
Forces of Ukraine as a Priority in Military Cooperation
• providing for participation of the
AFU in the NATO Response Forc-
es and EU multinational joint task
forces;
• participating in regional initiatives,
jointly with EU and NATO coun-
tries;
• providing for treatment and reha-
bilitation of injured military service-
men of the AFU in EU and NATO
medical facili-
ties.
In terms of op-
erational capabilities
increase, we must
concentrate our ef-
forts, first of all, on
establishment of
high-quality com-
mand, control and communications sys-
tem (C3), logistics network, as well as
Special Operations Forces, and effective
military medicine.
One of the main mechanisms for pro-
found reform of the above areas is the U.S.
– Ukrainian Joint Coordination Commit-
tee for Military Cooperation and Defense
Reform (JCC).
It is crucial that other countries in
the region are also mindful enough of the
present threats. Today, this includes not
only Ukraine, but also Romania, Bulgaria,
Lithuania, and other countries that share
a border with Russia and observe intense
military training exercises being conduct-
ed in their proximity.
Despite all efforts on the part of ter-
rorists, who enjoy unlimited support from
our eastern neighbor, we successfully con-
ducted three multinational training exer-
cises in Ukraine, in the last year alone. On
the part of the Armed Forces of Ukraine,
the forces involved in these training ex-
ercises included over 1,500 military per-
sonnel, 159 pieces of equipment, 7 ships,
2 planes, and 3 helicopters. In addition to
that, Ukraine took part in five internation-
al training exercises outside its borders
(including three un-
der NATO auspices).
The plans for
2015 include carry-
ing out of four train-
ing exercises on the
territory of Ukraine,
and involving per-
sonnel and equip-
ment of the Armed Forces of Ukraine
in seven multinational exercises outside
of Ukraine. Additionally, Ukraine plans
to participate in five more multinational
command-staff exercises for staff officers.
The direction of the Russian ag-
gression is not exclusively Ukraine. In a
broader context, this aggression presents
a threat to the safety and stability of all Eu-
ropean and world countries – as it leads
towards complete destruction of the exist-
ing system of international relations and
international law. This new threat requires
all countries in the region to create new
international mechanisms for overcom-
ing such challenges, as well as entirely
new instruments. An example of one such
instrument is the creation of the LITPO-
LUKRBRIG – an international military
We must concentrate our
efforts, first of all, on estab-
lishment of high-quality
command, control and com-
munications system (C3),
logistics network, as well as
Special Operations Forces, and
effective military medicine

brigade formed of Lithuanian, Polish, and
Ukrainian armed forces’ units.
Separate note should be given to the
issue of procuring assistance from NATO
and EU countries. At this time, material
and technical aid is the most effective form
of assistance for us. The national economy
is devoting significant effort to supply and
equip the AFU, but we are still lacking cer-
tain military supplies and equipment. In-
ternational technical
assistance programs
provided by the U.S.
Government are be-
ing implemented in
the AFU. Starting
from 1997, over 150
contracts have been
concluded, for a total
of almost USD 200
million.
Starting from 2014, we received over
USD 25 million in military supplies from
the USA according to valid international
technical assistance contracts, to provide
for the top-priority needs of the AFU. The
total amount of humanitarian aid received
by the AFU from all countries was over
USD 69 million.
Despite the complex situation and
certain economic restrictions, Ukraine
shall keep observing its international obli-
gations. This means that we will continue
taking part in the NATO Response Force,
the Operational Capabilities Concept, and
the Partnership for Peace Planning and
Review Process, even though the latter
would require significant adjustment. We
also view our continuing participation in
NATO operations as an effective way to
increase specific operational capabilities
of the Armed Forces of Ukraine.
NATO Trust Funds disposal is an-
other primary mechanism to achieve our
objective.
The decision to create new NATO
Trust Funds for the Ukrainian defense
sector support was made at the meeting of
the NATO-Ukraine
Commission at the
Foreign Ministers
level, June 25, 2014
(Brussels, Kingdom
of Belgium).
During the
NATO Summit in
Wales (September 4
to 5, 2014), NATO
officially announced the creation of the
following Trust Funds:
• Command, Control, Communica-
tions and Computers (C4) Trust
Fund, (lead nations: United King-
dom, Canada, Germany).
• Logistics and Standardization Sys-
tems Reform (lead nations: the
Netherlands, the Czech Republic,
and Poland).
• Military Career Management Trust
Fund, (lead nation: Norway)
• Medical Rehabilitation Trust Fund,
(lead nation: to be determined).
• Cyber Defense Trust Fund. (Lead
nation: Turkey).
At the meeting of the NATO-Ukraine
Commission at the Foreign Ministers lev-
International technical
assistance programs provided
by the U.S. Government are
being implemented in the
AFU. Starting from 1997, over
150 contracts have been
concluded, for a total of
almost USD 200 million

32 Increasing the operational capabilities of the Armed
Forces of Ukraine as a Priority in Military Cooperation
el, on December 2, 2014 (Brussels, King-
dom of Belgium), the above NATO Trust
Funds practical implementation com-
mencement was officially announced.
One of the directions for the new
NATO partnership policy implementa-
tion (adopted by NATO Foreign Ministers
at their meeting in Berlin in April 2011) is
involving partner nations in multinational
projects as part of the Smart Defense con-
cept.
At this time, a
decision has been
made for Ukraine
to participate in
Project 1.28 “Har-
bor Protection”
(lead nation: Por-
tugal) and Project 1.12 “Female Leaders
in Security and Defense” (lead nation:
Bulgaria). In this context, the Mission
of Ukraine to NATO is working with
the lead nations to formalize the issue.
Additionally, the possibility of Ukraine’s
involvement in the “Alliance Defense
Analysis and Planning for Transforma-
tion” project (lead nation: Norway) is
under discussion.
Equally, our cooperation agenda still
includes the AFU’ and NATO countries’
units operational interoperability increase.
The main top-priority directions of
military cooperation with the EU also re-
main unchanged.
Armed Forces of Ukraine’ assets in-
volvement in the EU Battlegroups forma-
tion is one of those paramount directions
of cooperation with EU.
Ukraine has been taking part in the
alert periods of EU Battlegroups since
2010, when it first participated in the alert
period of the Baltic EUBG, by acquiring
associate member status.
After consultations with the V4 States
(Poland, Czech Republic, Slovakia, Hun-
gary), a decision was made to deploy a
group of staff officers and an IL-76 air-
craft of the AFU Air Force (with crew),
as Ukraine’s contri-
bution to the Battle-
group of these states.
Its alert period is
scheduled for the
first half of 2016.
Another one of
our joint projects
is educating AFU representatives on the
subject of the EU’s Common Security and
Defense Policy. The project is being car-
ried out in Ukraine as well as abroad.
In the scope of this initiative, creation
of the Eastern Partnership Technical As-
sistance Trust Fund was an important
step. The Fund was established by Lithu-
ania, Latvia, Hungary, and the United
Kingdom; according to the Memorandum
of Understanding between the signatories,
Lithuania has been appointed as the Co-
ordinator of the Fund. In addition to the
above countries, Luxembourg joined the
Trust Fund financing.
The purpose of the Fund is facilitat-
ing cooperation between the European
Union and the Eastern Partnership states
under the EU CSDP, by providing finan-
cial support.
Armed Forces of Ukraine’
assets involvement in the EU
Battlegroups formation is one
of those paramount directions
of cooperation with EU

n view of the events in
the east of Ukraine, the
state, in the person of
the Ministry of Defense,
must change its attitude towards private
manufacturers of military products.
We cannot say that private com-
panies have been
entirely neglected.
However, govern-
ment orders were
granted primarily
to state-owned en-
terprises, including
members of Ukro-
boronprom State
Conglomerate. This remains the case
even in situations where private com-
panies are the only Ukrainian manu-
facturers of fairly specialized products.
For example, in Ukraine, only private
companies manufacture radio locating
equipment operating in the meter and
millimeter wavebands, and there are no
alternatives to them in the state-owned
sector. While this fact may have been
neglected in the past, today our heads of
state cannot afford to ignore such issues.
In general, current relations with
the Ministry of Defense are show-
ing some positive
trends. However,
some promising
directions for de-
velopment of co-
operation remain
unrealized.
For example,
both the Ministry
of Defense and the Ministry of Econo-
my have gaps in the production process
planning. However strongly we might
wish to do more, it is not possible to
shorten the production cycle, for ex-
ample, from six months to two months,
even if we work five shifts per day.
The Efforts of the Private and State
Companies in the Ukrainian Defense
Sector Must Be United
Vera Koshevaya,
Chairman of the Board
Ukrspetstekhnika Holding Company JSC
I
In Ukraine, only private
companies manufacture radio
locating equipment operating
in the meter and millimeter
wavebands, and there are no
alternatives to them in the
state-owned sector

34 The Efforts of the Private and State Companies in the
Ukrainian Defense Sector Must Be United
Amendments to the state defense
order for this year have not been adopt-
ed yet. There is no state defense order
for 2015, either. This once again creates
a situation that prevents companies
from ordering parts and components.
All components we use are imported,
with a minimum delivery term of 90
days. Therefore, it takes approximately
three months just to prepare the pro-
duction process. Only after that the
production cycle can actually start.
At the same time, in a scenario where
I am the director
of a company that
has a state defense
order, with specific
product amounts
and clear financing
terms, I can afford
to risk and order components ahead
of time, and increase production rates.
Therefore, theoretically, my company
can manufacture the necessary prod-
ucts more quickly, and deliver them at
the required rate of regularity. But in a
situation that exists today, I cannot af-
ford such risks. Therefore, the approach
must be changed here, because other-
wise, progress becomes impossible.
The Ministry of Defense also clear-
ly lacks information about private com-
panies, their capacities, designs, and
finished products. This results from the
fact that Ukroboronprom State Con-
glomerate, being responsible for its
member companies, understandably
chooses to inform the Ministry of De-
fense of such member companies first,
and continues lobbying their products.
Furthermore, contracts concluded
by companies with the Ministry of De-
fense do not create partner relations,
but rather, give the dominant role to
the defense authority and somewhat
infringe on the rights of the perform-
ers. Changing this dynamic would
open up numerous opportunities. For
example, companies should be allowed
to obtain loans, whzich they would use
to manufacture and market their prod-
ucts. In such a situ-
ation, the Ministry
of Defense, being
interested in pur-
chasing new de-
signs, could com-
pensate borrowing
expenses – in particular, loan interest.
Companies would use their own funds,
or, when necessary, borrowed funds, to
manufacture new products that would
be promptly tested and marketed. This
would allow stepping away from cost-
ly R&D projects that are financed for
years, only to produce zero results.
We have observed the above sce-
nario in many cases. In fact, we have
followed it ourselves, when developing
the Malachite radio location system.
We have conducted state tests, and are
now successfully supplying this prod-
uct to various markets. The same goes
for other products. We should also note
that the company does not always have
sufficient working capital – which is
The Ministry of Defense
also clearly lacks information
about private companies, their
capacities, designs, and
finished products

where loans are necessary. Personally,
I believe that the state should be inter-
ested in this scenario, since it results
in ready-made state products without
constant inflows of budget funds. But
implementing this scenario requires
a dialogue, so that companies can un-
derstand that they would not become
hostages to the situation, and that
their expenses would be subsequently
compensated. This method is standard
practice abroad.
To make the above scenarios vi-
able, it is imperative
to create at least a
two-year, or, bet-
ter yet, a three-year
state defense order,
as is done in many countries. Because
if we are signing the state defense order
for 2014 as late as in October 2014, and
still don’t have one for 2015 – then how,
pray tell, can we deliver on it?
Overall, the existing problems in
our relations with the Ministry of De-
fense are not always related to the fact
that our company is private. Often these
problems are present in the relations of
the Ministry of Defense with all com-
panies of the defense sector, and they
should be resolved comprehensively,
and not only pertaining to the private
or state-owned segment.
When it comes to private compa-
nies, I believe that they deserve more
attention in the current situation. To-
day, private manufacturers of military
products are not standing still, but
constantly moving forward. Why? Be-
cause they lack the bureaucracy that
plagues the state-owned sector. They
are faster at making decisions. They
are faster at reaching mutual agree-
ment. They are faster at setting up
production cooperation. They have
a wider communication circle in the
international market. And if Ukraine
is to enter the European market, we
must remember that the products of
private companies are largely manu-
factured to NATO standards.
In state-owned
companies, all of
these processes are
much more com-
plicated. They have
a huge management vertical, which
requires getting approval even for the
smallest purchases, and these approv-
als take months to procure. We can feel
that especially strongly when we work
with exporters and need to approve the
documents for supplies of some prod-
ucts we are unable to procure. The pro-
cedure takes months. Sometimes, our
partners lose interest in cooperation
because of that. And in the case of state
orders, we are losing more than the in-
terest of partners – we are losing speed
of supplying the products required for
the ongoing war.
Because of this, I believe that all
contacts with the Ministry of Defense
must be direct. Direct communication
makes production faster and products
cheaper. For example, participation of
All contacts with the
Ministry of Defense must be
direct

36 The Efforts of the Private and State Companies in the
Ukrainian Defense Sector Must Be United
Ukroboronprom in the cooperation
process between the Ministry of De-
fense and private companies with ap-
propriate licenses only makes this pro-
cess more complicated and more costly.
We always operate directly. We have no
internal contacts with the Ukroboron-
prom conglomerate, even though we
closely cooperate with various compa-
nies included in it. At the same time,
Ukroboronprom is important for us, in
the role of a unifying party that is aware
of the key trends, informed about the
development direction of the defense
sector, etc. We are always happy to take
part in their conferences, trade shows,
and other events that are important for
us. Thus, I believe that all companies
of the Ukrainian defense sector – both
private and state-owned – should com-
municate freely and should not be arti-
ficially divided. That would only harm
our common cause – the work we do to
strengthen and protect our state.

n presenting the UA.RPA
company, a Ukrainian
agency for advanced re-
search and technology, I
would like to focus on the modern hy-
brid warfare technologies in Ukraine, as
well as on the role of the private sector
and the importance of coordinating its
activities with the state in the course of
military-technical cooperation.
In the context of the ongoing hybrid
war, our military leaders often overlook
modern warfare methods. The existing
obsolete system requires practical com-
mand skills, but
does not leave room
for leadership. To-
day, we see combat
carried out by mili-
tary groups. That
also represents a past mentality present
in the military command. Combat must
be carried out by military SYSTEMS.
By analyzing the recent lessons learned
from the conflict, we often see that we
still attribute the highest importance
to achieving superior numbers of per-
sonnel and equipment. Even personnel
training is often overlooked – let alone
a focus on modern weapons systems or
technological superiority.
Unfortunately, our military com-
mand system is highly centralized, with
all decisions being made in Kyiv, while
in practice, decentralized military com-
mand is required. That is the reason for
our being reactive and static in situa-
tions that require
proactivity and dy-
namics, and in cir-
cumstances that re-
quire maneuvering
and outpacing the
enemy in both actions and time. We are
also observing exclusively linear com-
munication, while vertical, horizontal,
Public-Private Partnership – the Current
Challenge for the Defense-Industrial
Sector of Ukraine
Igor Kabanenko,
President of UA.RPA,
Deputy Minister of Defense of Ukraine (2014),
Admiral
I
We must have an upper
hand in the understanding the
advantages of modern techno-
logies for staying ahead of the
enemy

38 Public-Private Partnership – the Current Challenge for
the Defense-Industrial Sector of Ukraine
and interactive types of communication
are needed.
These things can be attained by be-
ing technologically superior over the
enemy. Effective military systems must
consist of military equipment, person-
nel, computers, software, sensors, com-
munication systems, and more. We must
have an upper hand in the understand-
ing the advantages of modern technolo-
gies for staying ahead of the enemy. We
must also be superior in mentality, or, in
other words, military culture. We must
form a positive leadership motivation
and shorten the power vertical in the
military, as well as overall in the govern-
ment authority systems.
The activities of the Ukrainian civil
society and private businesses in the
sphere of defense merit more attention.
The civil society and private companies
are demonstrating flexibility, quick re-
sponsiveness, and an adaptive approach
to real conditions, where circumstances
change fast. Plus, they have an effective
network approach to a number of high-
tech projects, from regular logistical is-
sues, to tablet solutions, drones, simula-
tors, and various sensor systems. Even
now, we see the private sector offering
a number of comprehensive automa-
tion solutions that can greatly increase
the quality of operational military com-
mand.
Another strategic issue is the need
to improve public-private cooperation in
the sphere of defense, especially relating
to the implementation of modern tech-
nological solutions. In Ukraine, different
teams can often be focused on the imple-
mentation of the same projects – which
is unacceptable in the current condi-
tions. For example, over 30 groups are
designing aerial drones. Such diffusion
of effort is the result of poor coordina-
tion. To improve coordination, a group
of companies, enthusiasts, and collec-
tives in Ukraine have created a so-called
high-tech network cluster, bringing to-
gether Ukrainian high-tech companies
in order to implement modern dual-use
defense technologies in Ukraine. Plus,
they created UA.RPA, a service compa-
ny providing coordination, support, and
expert analysis services for the cluster.
As of today, we received 76 propos-
als and high-tech initiatives in the de-
fense sphere, which will allow to finally
gain technological advantage over the
enemy. The proposals are submitted by
collectives with modern-day expertise,
high intellectual potential, the possibil-
ity to manufacture high-tech products,
and, most importantly, the enthusiasm
and energy to provide real assistance to
the state defense sphere.
The network working principle of
UA.RPA must provide for the full prod-
uct cycle, from the drawing board to the
finished product. It is already working
for specific projects that have the top-
most priority for Ukraine right now.
Today,ITandelectronicsaretakingthe
front and center spot. The foremost spheres
for their application must be surveillance,
target assignment, outpacing the enemy in

39
decision-making, troop survival, and per-
sonnel training. We have designated pro-
jects that can provide for the above. They
are labeled as «mega-projects»; in terms
of time, they are classified as short-term,
medium-term, and long-term. At this time,
I would like to point out the following pro-
jects: tactical scout-attack complex; tactical
unmanned aviation complex; automated
system for operational military command
and resource management; Ukrainian
comprehensive robot-assisted defense base;
defensesystemsutilizinginnovativemateri-
als; and tactical trainers (simulators).
It should be noted that three of the
above projects are already undergoing
operational test-
ing in the military,
while others are at
the design stage.
For example, im-
plementing the tac-
tical scout-attack
complex will help
decrease the con-
sumption of ammunition, shorten the
response time to change of conditions,
increase the probability of target dam-
age, and decrease own losses.
Now we reach the list of problems.
Today, we definitely have a potential
that the public sector does not – a huge
potential, in fact, as our structure alone
received as many as 76 applications. 11
projects are under development, and
three are with the troops. At this stage,
we already require a productive public-
private partnership, and military-tech-
nical cooperation with the Alliance’s
member- states, in order to achieve tech-
nological superiority in the hybrid war.
That needs to be done with a special
focus on energy of the Ukrainian civil
society and private companies.
We require effective communication
with the Ministry of Defense. Today, pri-
vate companies need proper conditions
in order to receive proper orders. The
high-tech cluster, UA.RPA, and other
private initiatives and companies need
the state to effectively coordinate the
society’s efforts, in order to gain techno-
logical advantage in the defense sphere.
Such coordination is currently absent,
which is regretta-
ble. It is vital to pass
the law «On Public-
Private Partnership
in the Sphere of Na-
tional Security and
Defense,» the draft
of which is already
in the Verkhovna
Rada of Ukraine.
When it comes to partnership and
support on behalf of Euro-Atlantic struc-
tures and the European Union, we must
be result-oriented. This means, among
other things, effective scientific and
technical partnership with the Ukrain-
ian private defense sector, which will
provide for the implementation of joint
projects; as well as the EU’s and NATO’s
support for high-tech research that will
benefit the interests of Ukraine as well as
the entire Europe.
We already require a
productive public-private
partnership, and military-
technical cooperation with the
Alliance states, in order to
achieve technological superio-
rity in the hybrid war

have had the opportunity
to visit Kyiv on several oc-
casions since early 2014,
and have met several de-
fense industries to better understand the
industrial landscape of this country. I
hope that I can provide some construc-
tive inputs addressing the practical as-
pects of cooperation among our defense
industries.
Let me start by disclosing that the
views and recommendations contained
in this presentation are my own.
This monologue is to discuss the op-
portunities and challenges for allied de-
fense industry companies in Ukraine. In
my opinion, opportunities and challeng-
es can be determined within a frame-
work within which European and Amer-
ican defense contractors can collaborate
with Ukrainian companies. Therefore,
I propose ten tenets for reform that the
Government of Ukraine should consider
if our industries are going to cooperate.
1. Demographics. The defense in-
frastructure in the Donesk and Luhansk
regions has been compromised if not
destroyed. An immediate effort must be
undertaken to secure and protect critical
military infrastructure in the Dnipro-
petrovsk region, and to build new, secure
and defensible infrastructure in the west-
ernregion.Thisisanexpensivebuturgent
undertaking in order to secure Ukraine’s
military supply chain and manufacturing
centers. There are three benefits to this
approach: first is the opportunity to at-
tract foreign direct investment; second, it
involves colocating critical supply chain
industries adjacent to Poland and Roma-
nia, both of whom have modern defense
industries, opening up the opportunity
for increased trade and defense coopera-
tion; and third, it provides Ukraine the
opportunity to build modern state of the
art facilities.
2. Industry Benchmark. Rees-
tablishing military production facilities
Opportunities and Challenges for Allied
Defense Industry Companies in Ukraine:
Practical Aspects
Alan Merbaum,
Lockheed Martin Corporation
I

41
cannot occur without a thorough bench-
marking Ukraine’s defense industry. An
independent audit must be performed of
manufacturing capacity for key military
hardware as well as the secondary and
tertiary supply chain in order to identify
manufacturing gaps
and redundancies.
A rigorous Tech-
nology Readiness
Level (TRL) evalu-
ation of existing
capabilities would
assess gaps and in-
vestment require-
ments. In addition,
the organization of
Ukraine’s defense industrial base should
be reviewed in terms of its competitive-
ness, quality control, production rates
and acquisition processes.
3. Research and Development
(R&D) Centers of Excellence. Assess
how Defense Research and Develop-
ment funds are allocated and prioritized.
R&D activities that do not support
warfighter capability should be suspend-
ed. The Government of Ukraine might
consider establishing strategic research
initiatives with foreign companies to
leverage investments in technologies of
mutual interest. In addition, the Finance
and Defense Ministries might consider
investment programs that attract and re-
ward Foreign Direct Investment (FDI).
4. Supply Chain mapping. Sec-
ond and third tier suppliers are cru-
cial to sustaining a defense industrial
base. First, they create jobs within the
Small and Medium Enterprise (SME)
sectors of the economy. Secondly, they
tend to be more innovative and effi-
cient than larger organizations. Third,
a distributed supplier base offers both
higher security and
increased competi-
tiveness. Suppliers
represent the ‘up-
stream’ component
of equipment man-
ufacturing. The
‘downstream’ com-
ponent, consisting
of Maintenance
Repair and Opera-
tion (MRO), and sustainability, can be
privately or government operated – or
a combination of both.
5. Standards. Adoption of stand-
ards and specifications are necessary
if Ukrainian and western defense in-
dustries are to collaborate effectively –
and if desired – interoperate. A robust
standardization program should be
established to align with NATO stand-
ards and quality control practices.
6. Simulation and Training
should be given special attention for
two reasons. The establishment of
simulation facilities will – over time –
save vast amounts of money while si-
multaneously building next generation
training capabilities. While live train-
ing is still important, the establishment
of simulation facilities aid in the devel-
opment and modernization of capabil-
Adoption of standards
and specifications are neces-
sary if Ukrainian and western
defense industries are to
collaborate effectively – and if
desired – interoperate. A
robust standardization prog-
ram should be established to
align with NATO standards
and quality control practices

42 Opportunities and Challenges for Allied Defense
Industry Companies in Ukraine: Practical Aspects
ity and support a sustainable training
environment.
7. Governance. Enforceable
policies on fair negotiations, ethi-
cal behavior, and anti-corruption are
crucial if Ukraine is to become a sta-
ble country with the ability to grow a
strong workforce and attract foreign
investment and cooperation. For ex-
ample, the Foreign Corrupt Practices
Act (FCPA) adopted in the US ensures
ethical behavior among defense con-
tractors and international customers.
Policies that punish corruption while
embracing fair business practices are
tantamount to successful cooperation.
8. Defense Procurement and
Acquisition Policy. Using the United
States Department of Defense as an ex-
ample, Defense Procurement and Ac-
quisition policy is “Responsible for all
Contracting and Procurement policy
matters including e-Business in the
Department of Defense (DoD).” In ad-
dition, this policy maintains a Vision of
Acquisition excellence through leader-
ship with integrity, with a Mission to
Enable Components to effectively de-
liver equipment and services that meet
the needs of the warfighter through
innovative policy, guidance, and over-
sight while being good stewards of the
taxpayers’ money. American Defense
Procurement and Acquisition Policy is
an acquisition model to consider. The
United States continually assesses its
defense acquisition process, and will
change its approach to assure adapta-
tion to military requirements, threats,
technologies, and budgets.
9. Foreign Sourced Acquisition.
Ukraine has the ability to build and
deliver indigenous weapon systems.
However the ability to meet urgent
needs in the face of increased aggres-
sion from the east, a foreign supplier
acquisition policy should be consid-
ered. In the case of the United States,
Ukraine will benefit from working
within the US Foreign Military Sale
(FMS) and Foreign Military Financing
(FMF) programs to fulfill acquisition
needs that are currently approved.
10. Export Policy and Market
Strategies. Ukraine can supplant Rus-
sian companies during the period of
sanctions against the Russian Fed-
eration. Ukrainian suppliers who
sold through Russian middlemen and
Original Equipment Manufacturers
(OEMs) should approach end-users
directly. Ukrainian companies can up-
grade obsolete components currently
in many national inventories served
by Russia. US defense companies are
expanding internationally. The oppor-
tunities and risks of strategic partner-
ships should be approached.
Way Forward
Based on the aforementioned ten
items for consideration, it is suggested
that Ukraine consider the following in
terms of addressing defense industry
reform:
1. Establishment of an inde-
pendent tiger team to immediately put

43
in place Benchmarking activities. This
will require the highest level of govern-
ment support and backing. Confront-
ing the ‘old way of doing business’ will
be difficult but is necessary in order
to effect change. In the absence of the
political will there will be no effective
change to Ukraine’s defense infra-
structure, and this will maintain the
country’s vulnerability as well as deter
cooperation by western industry.
2. Establishment of budgets for
the reform process, in terms of the pre-
requisite studies, and eventual execu-
tion of reform solutions.
3. Defining the Ministry of De-
fense acquisition policy that will define
defense industry reforms to meet capa-
bility requirements.
4. Continued engagement with
western industries, who if convinced
that Ukraine is serious about reforming
its defense industry, will consider vari-
ous levels of investment.
Thank You.

ussia’s war against
Ukraine, and occupation
of Crimea and certain
areas of Donetsk and Lu-
hansk regions by Russian troops, mer-
cenaries and insurgents, forces us to
review and update our approaches to
organizing and implementing Ukraine’s
cooperation with
NATO and its mem-
ber countries.
The effective-
ness of this coopera-
tion is largely held
back by insufficient
support and control
on the part of the society, as well as sub-
standard state management.
To overcome these and other flaws,
the following steps are recommended.
The President of Ukraine has initi-
ated a constitutional reform. With con-
sideration to that, it would be feasible to
record the European and Euroatlantic
vector of our country in the Constitu-
tion. Furthermore, it would make sense
to abolish the Constitution provision
that forbids establishing foreign military
bases in the territory of Ukraine.
These steps would be a re-
sponse to Moscow’s attempts to force
Ukraine to as-
sign itself a fed-
eral structure and
non-aligned status
in the Constitu-
tion. Addition-
ally, constitutional
entrenchment of
Ukraine’s European and Euroatlantic
integration vector will prevent the
latter from being abolished through
reconfiguration of the Parliamentary
coalition and specific amendments
to appropriate laws of Ukraine. It is
worth reminding that this was the
Ukraine - NATO Cooperation: the
Importance of Increased
Institutionalization, Format, and
Management
Vadym Tyutyunnyk,
Specialist of the National Institute of Strategic Research,
Advisor of the Expert Council in the Issues of National Security
R
Furthermore, it would
make sense to abolish the
Constitution provision that
forbids establishing foreign
military bases in the territory
of Ukraine

1

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