The move put an end to previous Chinese attempts to control the enterprise and its technologies, which worried the Americans
Moreover, the Motor Sich director and former owner Viacheslav Bohuslaiev was arrested and accused of collaboration with the Russians. He was one of the main symbols of the post-Soviet oligarchy in Ukraine, which is now coming to an end. We trace the path of Ukraine’s helicopter czar from Soviet “Red director” to charged with treason. [/editorial]
Long-standing Chinese and Russian attempts to control Motor Sich have failed
Motor Sich was one of the five companies nationalized by Ukraine’s National Security and Defense Council on 6 November 2022.
Motor Sich is of particular importance because not only had the state seized the company’s property, but it also arrested its former owner and president Viacheslav Bohuslaiev.
China and Russia also viewed the company as an important goal.
Russia first attempted to acquire the company in 2007, offering Bohuslaiev up to $200 million. He declined the offer. Instead, he released part of the shares to the stock market to show the company’s actual value. At that time, its market value reached $700 million.
“The Russians refused to buy the company at that price. It can be said that this initiative prevented the takeover of Motor Sich in 2007. Otherwise, Russia would have had a chance to gain full control of the company and move it to Russia at the earliest convenient opportunity,” says Oleksandr Parashchiy, director of analysis at Concorde Capital investment company.
Since 2016, the Chinese have been attempting to acquire Motor Sich to obtain engine-building technologies, which alarmed America.
In 2016, several Chinese companies paid $700 million to Bohuslaiev to acquire Motor Sich. In 2018, a Ukrainian court suspended the agreement after determining that the formally separate Chinese companies that bought Motor Sich were, in fact, related. In response, the Chinese demanded $4.5 billion in compensation from Ukraine at the Hague Court.
While neither Russian helicopters can fly without engines from this Ukrainian company nor Chinese programs can be implemented, the nationalization of Motor Sich effectively ended Chinese and Russian attempts to control and profit from the company.
However, it turned out that Bohuslaiev was supplying engines for Russian helicopters both before the 2022 invasion and during the full-scale war. Motor Sich is the only company of this size producing engines for Soviet-era helicopters.
Motor Sich director: a long journey from Soviet “Red director” to an oligarch, treason, and finally arrest by Ukraine
Having served as the company’s director during Soviet times, Bohuslaiev privatized it during Ukraine’s early years of independence. He rapidly expanded the company. This expansion primarily focused on supplying engines to Russia, the company’s main customer.
The case of Motor Sich is a perfect example of the emergence of oligarchy in the 1990s and its demise in contemporary Ukraine.
Viacheslav Bohuslaiev, born in 1938, belonged to the typical late USSR class of “red directors” – top state enterprise managers. After a career as an engineer and then a manager, he became the director of Motor Sich three years before the Soviet Union’s dissolution.
“There was strong competition in the industry for orders and budgets. You had to be able to negotiate and settle with the ministry and party bodies. Bohuslaiev understood how,” said Volodymyr Horbulin, who headed Ukraine’s Communist Party Committee’s rocket and space department shortly before the USSR disintegrated.
After the collapse of the USSR, Soviet models of helicopters were popular worldwide. Thus, Motor Sich was the only factory producing unique engines for them. For example, since 1965, more than 10,000 Mi-8 engines have been manufactured there.
In the 1990s, the government prohibited the sale of strategic enterprises. For example, Ukraine’s largest aircraft manufacturer, Antonov, remained state-owned. However, due to the close friendship with Leonid Kuchma, Ukraine’s president, in 1994-2003, Bohuslaiev was granted permission to commence Motor Sich’s “experimental” privatization.
An audit subsequently determined that the enterprise was sold for a price 30 times below its market value. Moreover, the shares were distributed in small increments among the enterprise’s 25,000 employees, which made little sense for each employee. However, Bohuslaiev and his partners quickly bought back most shares from employees at near-zero prices.
Bohuslaiev, like all oligarchs at the time, sought political influence after amassing wealth. Between 2006 and 2019, he was elected as a national MP several times. The elections were fair, but Bohuslaiev’s victory was assured because his company was the largest employer in his district. Thus, he could easily persuade workers to vote for him. The situation changed in 2019 when Bohuslaiev lost elections to wedding photographer Serhiy Shtepa. The latter is a member of Zelenskyy’s Servant of the People party, which was extremely popular then.
Motor Sich expanded alongside the political influence of Bohuslaiev. Ekonomichna Pravda notes that the company’s gross profit increased by 660% from 2000 to 2011, according to YouControl’s analytical system.
However, the company’s problem was that it did not manufacture entire helicopters, only engines for them. Motor Sich’s primary driver of revenue growth was Russia’s efforts to revitalize its aviation industry.
Motor Sich supplied engines to Russia after the 2022 invasion
Motor Sich is the only company in Ukraine capable of manufacturing spare parts and engines for Soviet helicopters. It is also the only company capable of producing some spare parts for Soviet helicopters globally. Furthermore, by 2013, the company had introduced several modernized versions of Soviet helicopters, particularly the Mi-8 MSB.
The Ukrainian aviation industry, particularly helicopters, relied heavily on Motor Sich. In addition, Motor Sich engines were installed in Ukrainian Neptune anti-ship missiles, explains Andriy Zahorodniuk, chairman of the board at the Center for Defense Strategies.
Motor Sich, a critical enterprise for Ukraine’s defense industry, at the same time continued to make helicopters for Russia even after the 2014 invasion and through 2022. Despite numerous attempts and the formation of similar Russian companies, Russians could not fully replace Ukrainian engines. They thereby remained dependent on Motor Sich spare parts.
According to intercepted calls published by Ukraine’s Security Service (SBU), Bohuslaiev supplied engines to Russia “by the dozen” in 2021 and 2022. In a press release, the intelligence and security agency stated that Bohuslaiev is suspected of collaborating with and aiding Russia by illegally supplying military goods for Russian attack aircraft.
The investigation states that he acted in collusion with representatives of the Russian corporation Rostec. The latter is a major producer of weapons for the Russian military. The Russians used Motor Sich products in the production and maintenance of Russian attack helicopters such as Mi-8AMTSh-VN “Sapsan,” KA-52 “Alligator,” and Mi-28N “Night Hunter.”
Ekonomichna Pravda notes that Bohuslaiev is also a co-owner of several Russian aviation companies. In addition to working for the Russian Federation’s armed forces, they also cooperated with Motor Sich.
For example, in 2015-2016, Bohuslaiev’s Russian company VKMS officially imported parts for the TV3-117 engine from Motor Sich to the Russian Federation. After 2018, deliveries to Russia were made via intermediary companies in other countries.
“We are ready to send you the spare parts. Think about it: through Croatia or where did you have… Montenegro? You had good connections somewhere,” Bohuslaiev said in March 2022, already during the full-scale Russian invasion, in a conversation with Sytnov A. P., a representative of a Moscow-based company.
Viacheslav Bohuslaiev was arrested on 24 October 2022. He was charged with treason and collaboration with the enemy. Two weeks later, the factory itself was taken over by the state, along with four other strategic enterprises:
“On 6 November 2022, by a directive from the Headquarters of the Supreme Commander-in-Chief and out of military necessity, the following five enterprises were confiscated: Motor Sich, Zaporizhtransformator, AvtoKrAZ, Ukrnafta, Ukrtatnafta. The confiscated assets were designated as military property, and their management was transferred to the Ministry of Defense of Ukraine,” the secretary of the National Security and Defense council Oleksiy Danilov, said.
Forbes estimates the value of the assets appropriated by the state in a 6 November ruling to be $956.5 million. Before the Russian invasion on 24 February, their total value was 2.5 times higher, at $2.4 billion.
With the elimination of ties to Russia and oligarchic influence, the newly nationalized Ukrainian enterprises, particularly Motor Sich, stand a good chance of furthering their independence and advancing Ukraine’s security interests.
Once the war is over, they could potentially become global competitors. However, this would require substantial effort to modernize their products to international standards. This would also need finding a new system of management, one that is less paternalistic and centralized than that of Bohuslaiev’s.
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