Robert HARNEIS -TDO- (FRANCE)- Washington has been putting pressure on Kiev during the last months to block the sale of Motor Sich to China. President Trump has threatened to freeze military aid with the result that Ukraine is now ready to ban the sale of the aircraft engine company. The US does not want to see China achieve a short cut in its drive to produce better aircraft engines through the purchase of the company and its intellectual property.
With this step, Ukraine will significantly complicate relations with its major trading partner, China.
The anti-monopoly committee of Ukraine announced in March that Motor Sich could not be sold to a Chinese company “Beijing Skyrizon Aviation”. This news was immediately reported by the American edition of BuzzFeed News. The publication indicated that this decision was made by President Zelensky taking into account possible violations of the law by the Chinese side and related problems.
The Motor Sich company has been one of the largest manufacturers of aircraft engines. Most of the products were delivered to Russian aircraft factories. After 2014, deliveries to Russia ceased. In this regard, the company experienced tremendous financial difficulties. The Chinese took advantage of this and entered into a contract with the company on favorable terms.
Initially, cooperation was carried out only in the supply of engines for non-combat aircraft, such as the trainer L-15.
Chinese engineers have failed to develop an engine with a long interservice interval. And the Ukrainian side has access to former Soviet technologies. China is interested in AI-222 engines for the Yak-130 combat trainer and for the Mi-26 helicopter.
In May 2017, Motor Sich, together with the Chinese company “Beijing Skyrizon Aviation” Industry Investment Co, planned a joint construction of a plant in Chongqing, China. The parties also agreed to sell a controlling stake in Motor Sich. At the same time, the Chinese company promised Ukrainian financing in the amount of $ 250 million.
However, the transaction could not be completed. In 2018, the Security Service of Ukraine (SSU) opened a criminal case on the export of part of the Ukrainian equipment to China. The shares of the enterprise and the register of shareholders were seized and the transaction was not completed.
In the summer of 2019, the United States intervened in the process. Pentagon officials are seriously afraid of competition from China.
For this reason, Washington stopped the $ 391 million military assistance program for Ukraine and suspended the issuance of weapons and ammunition licenses, for which Ukraine paid $ 30 million.
In August 2019, the SSU launched an investigation in connection with a suspicion of illegal deliveries of products to Russia. The case was opened immediately after a John Bolton’s visit to Kiev (at that time he was an adviser to the US president on national security). This entailed a final break in the deal with the Chinese.
State Department officials decided that the “proper” buyer ought to be a little-known company “Oriole Capital Group”. However Oriole already have a bad name in Ukraine.
Chinese Ambassador to Kyiv Dai Wei at a press conference accused Americans of unfriendly behavior. The comment of the diplomat should be interpreted unambiguously as actually being aimed at Kyiv and the risk that Ukraine will lose generous Chinese investments.
If the deal is blocked, Ukraine must pay compensation of between 500 million to two billion dollars. Ukraine is not able to pay such money from its budget.
Even so if the Chinese company attempts to go ahead with the deal, the Americans will impose sanctions on Motor Sich and block the company’s foreign accounts, which will no doubt bankrupt it.
Either way the US controlled Ukraine finds itself between a rock and a hard place.
Whilst the deal may not go ahead, it is not impossible that the Chinese have already unofficially acquired much of the know how they need with suitable, equally unofficial, compensation for the relevant Motor Sich executives and engineers.