Ukrainian aviation industry: leadership potential, endurance tests, and the search for new support tools

The Ukrainian aviation industry today operates in extremely difficult conditions – the country has closed airspace, destroyed infrastructure, and a significant portion of highly qualified specialists are fighting at the front. Despite this, the industry has held on thanks to the professionalism of its employees and state support in the form of tax and customs benefits, which were in effect until early 2025. These benefits allowed the industry to maintain its production potential, invest in modernization, and remain competitive. However, as of January this year, these preferences have been canceled. UNN investigated what this means in practice.

How tax preferences for aviation workedUntil January 1, 2025, Ukrainian aircraft manufacturing enterprises operated under a preferential regime; they were exempt from corporate income tax (provided that profits were reinvested in modernization and R&D), land tax, import duties on components, and VAT – both on imported goods for the industry’s needs and on the results of research and development. Separately, a zero VAT rate applied to products and services financed from the state budget.

In practice, these benefits served as a state investment mechanism aimed at development, research and design work, production modernization, updating of material and technical resources, the search for innovative technologies, and ultimately – the preservation of professional personnel and investment in the training of new specialists. In fact, instead of direct subsidies, enterprises could retain part of their resources and direct them towards development, and later these resources would return to the budget in the form of increased tax revenues.

According to Viktor Popov, President of the Aerospace Association of Ukraine, in 2017–2023, leading enterprises in the industry invested over UAH 13.9 billion in modernization – one and a half times more than the tax benefits they received (UAH 9.3 billion). During the same period, aviation enterprises paid UAH 22.9 billion to the budget.

Thus, the support mechanism was well-coordinated and effective, as confirmed by both financial statistics and the implementation of innovative projects: the development and launch of new modifications of aircraft engines into production, the creation of the An-178 transport aircraft with a high level of localization, the development of new-generation unmanned aerial vehicles, the implementation of 3D printing technologies for manufacturing complex components – and this is far from the complete list of achievements.

Ukrainian Aviation Today: Between Resilience and RisksAfter losing preferences at the beginning of 2025, aviation enterprises did not cease operations – thanks to their resilience, the professionalism of their specialists, accumulated experience, and internal reserves, they adapted to wartime conditions and continue to fulfill their tasks.

As Yarema Zhugaievych, head of the Trade Union of Aircraft and Machine Building Workers of Ukraine, emphasizes, aviation in general and aircraft manufacturing in particular play a key role in ensuring the state’s defense capability, as Ukrainian enterprises are capable of supplying the army with competitive, certified, and reliable equipment.

The uniqueness of the Ukrainian aviation industry is also confirmed by Fedir Venislavskyi, a People’s Deputy from the “Servant of the People” faction, emphasizing that Ukraine is among the top ten countries in the world capable of fully independently manufacturing aircraft, and the developments of domestic enterprises have already proven their superiority in radio-technical characteristics over many foreign counterparts.

Furthermore, expanding presence in international markets remains a crucial component, providing additional revenue to the Ukrainian budget. As Iryna Kosse, Senior Research Fellow at the Institute for Economic Research and Policy Consulting, notes, the international market is an opportunity for Ukrainian aviation. A telling fact is that Ukraine has displaced Russians from 43% of the segment for humanitarian missions for the UN – this indicates not only a political factor but also the real competitiveness of Ukrainian airlines.

However, the lack of systemic state support creates serious risks. Enterprises are working at their limits, postponing investment programs, and gradually depleting resources. How long this situation will last without a new support mechanism is an open question, because the longer it is absent, the greater the threat of losing competitive positions, technologies, and personnel.

Solutions are needed todayAviation enterprises sought inclusion in the Defence City initiative, and the government took into account some of their proposals. For the aviation industry, a lower threshold for defense income was set – 50% instead of 75%, as for other sectors. This is a clear signal that the state recognizes the strategic importance of the aviation industry. Participants of Defence City will indeed be able to use tax and customs benefits within the framework of the new program. However, for truly real and tangible development, aviation needs not only general rules but also individual support tools that have previously proven their effectiveness and allowed the industry to maintain its competitiveness.

The head of the Aerospace Association of Ukraine, Viktor Popov, emphasizes that to preserve and develop the aviation industry, new program documents must be adopted, restoring tax preferences at least until 2035, expanding state orders, strengthening funding for research and development work, and integrating Ukrainian aircraft manufacturing into European and global programs for creating modern aviation equipment.

In turn, People’s Deputy Fedir Venislavskyi noted that further compromise solutions in the field of aircraft manufacturing should combine the interests of the state, territorial communities, and enterprises in the industry to create conditions for its development as a progressive and internationally competitive sector.

Thus, Ukrainian aviation is not just a story about factories and equipment, but about the country’s ability to maintain altitude even when the world seems limited by closed skies. The aviation industry has already proven that even in the most difficult conditions, it can work, modernize, and deliver results. The benefits that were in effect until 2025 showed their effectiveness – they provided opportunities for development and at the same time ensured significant budget revenues. Now that these mechanisms are gone, enterprises are holding on thanks to the experience and professionalism of people, but their margin of safety is not limitless. The future of the industry depends on whether the state can offer new support tools to preserve unique capabilities and not lose the positions that have been achieved step by step over the years.