“Engineers create, and presidents sell. Representatives of the aircraft industry warn about the risks of a systemic crisisUkrainian aircraft manufacturing, which services Western aircraft and modernizes military aircraft, lost state support from
January 1, 2025. The Defence City initiative could be a lifeline, but it needs changes to include aircraft manufacturing
enterprises and lower the income threshold from defense contracts.
”, — write: unn.ua
– Are you familiar with the amendments proposed by members of the Verkhovna Rada Committee on National Security and Defense to the Tax and Customs Codes, the so-called Defence City package? Do you support them?
Of course, our association has very carefully reviewed and processed all the amendments that people’s deputies have now submitted to the draft laws, and we fully support them. The amendments concern the inclusion in the package of draft laws on Defence City of a list of aircraft manufacturing entities, which was previously defined by a resolution of the Cabinet of Ministers and is currently in force. The enterprises of the aircraft manufacturing industry that were included in the list approved by the government underwent a strict selection process and all necessary checks.
In addition, deputies propose to reduce the share of enterprise income from its own production, work performance, or service provision in the defense sector required for inclusion in Defence City from 90% to 50%.
Our association, even before the first reading, proposed to amend the draft laws on Defence City (in terms of changes to the Tax and Customs Codes) regarding the support of aircraft manufacturing. The proposals covered all aspects of enterprise activity for their sustainable development.
This includes:
– exemption from income tax provided that it is reinvested in enterprise development;
– exemption from VAT and land tax;
– customs preferences for critical equipment;
– state guarantees and insurance of export contracts;
– exclusion of the provision on tax refund by enterprises when criteria change.
This is not about one-time support, but about long-term support. It is very important that we are talking about providing certain benefits and preferences. This is not about allocating funds. The state does not finance the aircraft manufacturing sector in Ukraine, although this is normal world practice.
Aircraft manufacturing is a complex industry that requires significant investment in new developments, without which it does not develop, and without them, products become uncompetitive. We understand that the country is at war and the state is trying to accumulate maximum funds for the development of weapons and for financing the army. Therefore, we are not asking for funds from the state budget.
We see a way out in providing benefits and preferences, the released funds from which enterprises could invest in developments, improving production capacities, etc. That is, the industry can develop itself, provided there are tax savings. The state will only benefit from this.
Our amendments to the bill, on the contrary, would increase tax revenues, increase social contributions in the form of new jobs, wage growth, and enterprise development. And we showed all of this.
However, the Verkhovna Rada Committee on Finance, Tax and Customs Policy did not want to consider our proposals for amendments to the draft laws. It defined the Defence City package as a new wave of support for the defense industry. But who is the foundation of the defense industry? In particular, these are small enterprises of the aircraft manufacturing industry.
Undoubtedly, the Defence City initiative is of strategic importance, I do not deny that. Support for the defense industry is critically important in wartime conditions. However, if the amendments from the members of the parliamentary defense committee, which fully correspond to the vision of our Association, are not taken into account, small and medium-sized enterprises will simply cease operations due to the lack of state support.
The main problem is the unrealistic 90% threshold for defense contracts to obtain resident status. This criterion automatically excludes even industry flagships – “Antonov”, “Motor Sich”, and “Ivchenko” – from joining the initiative, not to mention smaller companies.
It should be understood that enterprises engaged in aircraft manufacturing were created in Ukraine for the development of civil aviation. Their production infrastructure is geared towards civil aviation. The war has made its adjustments, and companies have partially reoriented themselves to military aviation. That is, all modernization and repair of military aircraft takes place on the production infrastructure that was created to service civil aviation.
Foreign partners are transferring new types of equipment to Ukraine, American F-16s, French Mirage 2000s, who services and repairs them? This happens here, in Ukraine, at our enterprises. And those planes that remained abroad, the “Ruslan” that was recently moved from Ukraine to Germany? Our Ukrainian enterprises also service, repair, and manufacture parts for them. Therefore, it cannot be said that there is no aircraft manufacturing in Ukraine now.
What the deputies from the defense committee proposed resonates with our proposals, which the Association submitted before the first reading, and taking their amendments into account, in our opinion, will ensure proper state support for the aircraft manufacturing industry.
– In your opinion, what changes do these draft laws need so that the aircraft manufacturing industry truly feels supported?
The proposed amendments reflect what was previously provided by the law that was in effect from 2010 until January 1 of this year. This law provided benefits and preferences for the aircraft manufacturing industry, and they were the same as those now proposed for Defence City residents. Therefore, we decided to insist on involving aircraft manufacturing enterprises in this initiative. We are not proposing anything new – only those benefits and preferences that already existed and have expired.
They have already proven their effectiveness, and that is important. There is no need to invent anything new. For the aircraft manufacturing industry, we propose to restore the support that was provided by law until January 1, 2025. In general, these proposals are taken into account in the Defence City package, but with one exception: companies from our industry are not yet included.
Another extremely important amendment proposed by deputies, which we fully support, is that the Cabinet of Ministers should form the list of aircraft manufacturing enterprises that can join Defence City. Currently, the draft law stipulates that the Ministry of Defense will form the list of defense industry enterprises. We propose to amend it so that the same benefits and preferences apply to aircraft manufacturing companies, but their list is formed by the government. Currently, as I said, there is already a valid government resolution that has already formed such a list. The companies that joined it have passed the selection, so here we propose not to reinvent the wheel and use the existing tool.
Therefore, we believe that the aircraft manufacturing industry can receive state support through the Defence City initiative – this is the simplest way to avoid entering into procedures for adopting separate laws. It is enough to supplement the already submitted draft laws and use the current Cabinet of Ministers resolution.
– How do you assess the threshold set in the current version of the draft laws — 90% of income from defense activities? How realistic is it for enterprises such as “Antonov” or “Motor Sich” to meet this requirement?
As I have already noted, the 90% threshold is unrealistic. This is understood by the defense committee of the Rada as well. Therefore, people’s deputies proposed to reduce this threshold to 50%, including for the aviation industry. This will enable aircraft manufacturing enterprises to receive state support. Currently, during wartime, the production capacities of these enterprises are not fully loaded. Therefore, at meetings with the Ministry of Strategic Industries and the commission of the Ministry of Defense, we said that a 61% threshold is already the finish line, meaning that with such a threshold, capacities will need to be 100% reserved for defense contracts.
– During the period of tax and customs preferences from 2010 to 2025, the aviation industry demonstrated significant achievements. Could you list the key successes of enterprises that became possible precisely due to these benefits?
During the period of the law, which expired on January 1, 2025, enterprises released new models of aviation products. For example, the “Antonov” plant made a whole series of modifications. These include modifications of AN-140, AN-148, AN-158, and AN-132 aircraft. In addition, this also includes the modification of the AN-178 transport aircraft, which was carried out during wartime. And it flew. This says something.
Also, SE “Ivchenko-Progress” and “Motor Sich” plant carried out a whole series of modifications of aviation equipment during this time, which is competitive worldwide today. And they constantly sign new contracts, including for new weapons.
While the benefits and preferences were in effect, the industry managed to double the tax revenues to the state budget from enterprises.
But most importantly and pleasantly, our Ukrainian manufacturers were able to displace Russia from the international transport aircraft markets.
But for some reason, Ukrainian enterprises are not in demand within Ukraine today. It must be understood that the task of companies is to create new types of equipment and weapons, to develop, repair, and modernize, and the task of the state, including deputies, is to adopt the necessary laws for this. Companies need domestic orders, which are not available.
Because new aviation equipment is created by specialists, and sold by presidents. That is, the state sells.
What I have listed for you is clear confirmation that the industry is working and, with state support, is ready to develop.
– Since the beginning of 2025, tax preferences have been abolished. How has this affected the work of aircraft manufacturing enterprises? Do we understand correctly that this increased the cost of production, reduced competitiveness, and effectively took away the opportunity to reinvest profits in new developments?
Absolutely correct. First of all, enterprises that could develop, invest in production capacities, new developments, and qualified personnel with their working capital lost such opportunities.
Now, when importing new imported equipment, a company must pay 20% VAT and another 3.5%-4% duty (depending on VAT). This immediately drains the working capital of enterprises; they cannot afford it. That is, the rearmament sector is put on hold, and it cannot be put on hold in the current conditions.
For example, during the period of tax and customs benefits, enterprises purchased hundreds of millions of dollars worth of imported equipment, and now they are deprived of such an opportunity.
The second point is that the full return of all taxes and duties automatically increases the cost of products manufactured by companies, because the cost of the product must include tax payments. For understanding, after the benefits and preferences for our industry expired on January 1, 2025, the cost of aircraft manufacturing products increased by at least 25-30%, and in some cases even by 40%. This, in turn, leads to a decrease in competitiveness. Concluding foreign contracts with our enterprises will simply become unprofitable, and this, in turn, already threatens our country’s export potential. As you can see, everything is interconnected.
No less important, I would even say critically important, is the risk of losing qualified personnel. Due to Russia’s full-scale invasion, we have already experienced a certain outflow of professional workers in the industry, and without state support, enterprises will be forced to resort to such steps as staff reductions. If we do not pay attention to the problem now, we risk losing more than 50,000 highly qualified jobs, and, in my opinion, it will be impossible to return them after the war ends. It is no secret that Ukrainian minds, especially in areas such as aircraft manufacturing, are in great demand among foreign companies.
– Some believe that with the beginning of the full-scale invasion and the closure of the sky over Ukraine, the aircraft manufacturing industry stopped. Do we understand correctly that military aircraft are currently being produced and repaired at civilian aircraft manufacturing facilities, and without support for the industry as a whole, as a civilian one, difficult times may come for the military?
You answered your own questions. Of course, with the beginning of the war, civilian aircraft manufacturing enterprises were forced to reorient themselves to meet the needs of our military. Production capacities are partially occupied by production for defense orders, but I emphasize, partially. Some capacities are not loaded at all, because there is no opportunity for this now, no opportunity to develop. But the part that remained and is working must be preserved. Now there is a real chance to change the situation, there is a chance that with the return of state support, production will increase.
Imagine what will happen if an aircraft manufacturing enterprise, which has reoriented, for example, 40% to defense, closes because there is no support for civil aviation? And what if I tell you that most will close and only a few will remain, working at minimum capacity? Do you imagine the consequences? Who will then repair the F-16s, Mirages that our Western partners give us? And our helicopters, which the Air Force is actively using now? It is very easy to say that there is no aircraft manufacturing now, because of the war and the closed sky. But only those who cannot or do not want to look deeper and deal with the issue say so.
If the industry is ignored now, it will lead to a systemic crisis of enterprises and negative consequences for the entire state economy in the future. It is not for nothing that aircraft manufacturing was recognized as a critically important industry.
RecallOn July 16, 2025, the Verkhovna Rada supported in the first reading three key draft laws aimed at creating Defence City. The documents provide for the creation of a unique legal regime in Ukraine for state support of defense industry enterprises. Defence City residents will have a number of tax benefits until January 1, 2036, will be able to use simplified customs procedures, facilitated export control for military technologies, state support for relocation, and a special regime for currency supervision and other tools to strengthen defense production.
Experts generally positively assess the first steps in creating Defence City, noting that such decisions should have been made at the beginning of the full-scale war. At the same time, experts emphasize that the current vote is only the beginning, and for the initiative to truly work, further refinement of the draft laws is necessary.