Kyiv cites ‘national security’ as reason for returning Motor Sich to state ownership
Roman Olearchyk in Kyiv
March 11, 2021
FT
Ukraine is set to nationalise Motor Sich, one of the world’s top makers of engines for cargo aircraft and helicopters, to prevent a long-running Chinese takeover attempt that has been strongly opposed by the US. “The Motor Sich enterprise will be returned to the Ukrainian people, it will be returned to the ownership of the Ukrainian state in a legal, constitutional manner in the near future,” said Oleksiy Danilov, Ukraine’s national security chief, on Thursday. “This is being done for the national security of our country,” he added.
Danilov was speaking shortly after the country’s defence council, which he heads, formally approved the nationalisation plan. Legislation enforcing the move is expected to be swiftly adopted.
China’s Skyrizon is the majority shareholder in Motor Sich. Danilov did not refer to it by name in his remarks. There was no immediate comment from Skyrizon.
Skyrizon is actively seeking to acquire intellectual property and technology to advance key military capabilities that threaten US national security, including the capability to develop, produce, or maintain military items, such as aircraft engines, satellites, and cruise missiles.
Based in the central Ukrainian industrial town of Zaporizhia, Soviet-built Motor Sich produces helicopters and turbines for civilian, cargo and military aircraft. Its turbines are used in some of the world’s largest cargo planes, including the Mriya (Dream) produced by Ukraine’s state-owned Antonov aviation factory.
Ukraine’s move comes weeks after the administration of Ukrainian president Volodymyr Zelensky followed a decision by the US to impose sanction on Skyrizon.
The Chinese company has “significant ties to the PRC and the People’s Liberation Army”, the US State Department said in a January 14 statement, adding: “Skyrizon’s predatory investments and technology acquisitions in Ukraine represent an unacceptable risk of diversion to military end use in the [People’s Republic of China]. “Skyrizon is actively seeking to acquire intellectual property and technology to advance key military capabilities that threaten US national security, including the capability to develop, produce, or maintain military items, such as aircraft engines, satellites, and cruise missiles,” the statement said.
US support is crucial for Kyiv as it enters an eighth year of undeclared war with Moscow following Russia’s 2014 invasion of Crimea and role in a separatist war in Ukraine’s eastern Donbas region.
Motor Sich was privatised in the 1990s, with shares sold off to employees. A majority stake was gradually consolidated by offshore companies. Skyrizon, controlled by Chinese businessman Wang Jing, set its eyes on Motor Sich in around 2015, eventually acquiring a majority stake. Over the years, Skyrizon is said to have transferred technology from the Ukrainian plant to a newly built China-based facility.
However, Skyrizon’s attempted acquisition of Motor Sich was not approved by Ukrainian regulators. In 2017, a Ukrainian court froze shares in Motor Sich after the country’s SBU state security service launched legal action and an investigation, citing a “conspiracy” by “foreign companies . . . to move the company’s assets and production capacity outside Ukraine”.
Both sides have been at loggerheads ever since. In recent months, Skyrizon has threatened to retaliate with a multi-billion-dollar lawsuit against Ukraine.
Danilov hinted on Thursday that Ukraine would not cave into legal threats. “People who have invested money” into the factory itself instead of “[offshore] companies” would receive compensation following nationalisation, he said. A minority of Motor Sich shares are publicly traded.