"People and Know-How, not corruption, now stymie Ukraine's defense industry," says Ukrainian Armor director

Ukrainian Armor is the only private company importing weapons for Ukraine's Ministry of Defense. It buys and sells grenades, artillery shells, and missiles through a trans-European network of intermediaries. In addition, the company itself produces armored vehicles, mortars, and even ammunition. There are also plans for BMPs and even air defense systems. However, Ukrainian Armor had a questionable reputation before Russia's major invasion. The company is associated with former Ukrainian MP Serhiy Pashynskyi, although he denies this. Officially registering a company under certain people while others actually own it is a common practice in Ukraine. At the beginning of his presidential term, Volodymyr Zelenskyy called Pashynskyi a '100% bandit,' and Ukraine's National Anti-Corruption Bureau conducted searches of his associates. However, as revealed by the NYT's investigation, Pashynskyi himself ensured the supply of critically important weapons for the Ukrainian army at the beginning of Russia's invasion when there was not yet military aid from the West. He used his connections with the international arms business and the Ukrainian Armor company to do this. Within weeks of the start of the war, the company received tens of millions of dollars in state contracts for mortar mines, missiles, reactive shells, and grenades. In March 2022 alone, Ukraine agreed to pay Ukrainian Armor over $100 million. Bogdan Miroshnychenko, a journalist at Ekonomichna Pravda, spoke with Ukrainian Armor's director Vladyslav Belbas about how the company operates. We summarized the key points for you.

130% surge in revenue

In 2022, following Russia's full-scale invasion, the Ukrainian Armor's revenues skyrocketed by over a hundred times, reaching 13 billion hryvnias ($350 million). Belbas acknowledged further income growth in 2023, though he did not disclose figures. The primary revenue source is arms imports for the Ukrainian army, followed by armored vehicle and mortar production.

"I must disappoint you. Since founding, the company has not once paid dividends, instead investing all profits into defense assets. The profits themselves are modest – around 3%," Belbas said.

"People and Know-How, not corruption, now stymie Ukraine arms industry," says Ukrainian Armor director — Ukrainian Armor’s director Vladyslav Belbas. Photo: Vladyslav Belbas via Facebook.

Before the invasion, Ukrainian Armor held $200 million in export contracts. However, as the invasion began, export vehicles supported frontline forces, terminating contracts.

"The contracts have lost power, but I believe we will have a long line of buyers post-war. Our products have proven themselves," Belbas stated.

Challenges of relocating production in Ukraine

Relocating production is tricky due to Ukraine's open registries. Once land is purchased, data becomes public, enabling Russian targeting. In 2023, Russians in a day destroyed a missile program participant's facilities across Ukraine. To minimize risk, Ukrainian Armor diversifies information flows. For instance, the President's office is unaware of plant locations. Additionally, the company operates on leased premises with non-convoy equipment transport.

"Some companies mandate polygraph tests for entry. We don't go that far, only hiring based on published resumes without our own listings," says Belbas.

Relocating doesn't guarantee full staff acquisition. The company once struggled with hiring after a move, returning to Kyiv. Regarding spies, according to Belbas, there have been none among his subordinates.

"We find GPS trackers on ammunition and component trucks. How they got there – we don't know. They somehow appear across the border or at crossing points. But catching perpetrators is difficult with cargo traveling through six EU countries," says Belbas.

Ukraine underinvests in strategic company security around construction, land, and relocation. State funding focuses on state-owned entities.

The Pashynskyi factor

Belbas denies rumored actual ownership by the former Ukrainian MP Serhiy Pashynskyi.

"Registers show beneficiaries in detail. Pashynskyi is not our owner. We have a fairly transparent ownership structure; all the beneficiaries are currently in Ukraine. People who want to hide an owner use offshore companies and trust declarations. We don't have anything like that," Belbas says.

Belbas states that he, Lyudmyla Petryha, and Mykola Kuzma own the company. Nevertheless, Ukrainian Armor regularly contacts Pashynskyi, now the head of the Association of Employers in Ukraine's defense industry.

"Pashinskyi has strong defense experience and leadership. That's why we and others communicate with him on security, asset disclosure, addresses, and financials," Belbas assured.

Wartime production boom

The flagship product of Ukrainian Armor is the Novator armored vehicle. They have manufactured several hundred units and continue to ramp up production, now producing in a month, which used to take a year. All state agencies except the Border Guard commission Novator. The vehicle boasts a 50-50 ratio of Ukrainian to imported components, considered a high standard by Belbas.

The company recently unveiled Novator-2, designed for 10 military personnel, to supply the Defense Ministry in the coming months. While Ukrainian companies can meet military vehicle needs at a 20-30% cost advantage over foreign options, the frontline still sees a higher presence of foreign armored vehicles.

"Ukraine's General Staff and Ministry of Defense have a somewhat flawed perception of Western technical support. Western governments, not companies, purchase the equipment for us, yet Western manufacturers take advantage of this. They come to Ukraine and say: we gave you 200 vehicles for free, now buy more from us for money. But this is not necessary or obligatory," said Belbas.

A key modern trend is the need for lighter armored vehicles to enhance speed and reduce vulnerability to anti-tank guided missiles (ATGMs). The company is developing

drone protection for Novator using dome-shaped electronic warfare systems, likely to be provided by the company Kvertus, known for cost-effective EW solutions. While Ukraine doesn't manufacture infantry fighting vehicles (IFVs), Ukrainian Armor is exploring licensing options for local production of the ASCOD IFV, initially developed by several EU member states.

Before the Russian invasion, Ukrainian Armor achieved serial production of a 120-millimeter mortar, all components of which are Ukrainian, except for the NATO sight. The company meets the Ministry of Defense's mortar needs and supplies them to charitable foundations and military units.

Furthermore, Ukrainian Armor produces projectiles. Since the dissolution of the USSR, Ukraine has lacked ammunition production facilities, leading to collaborative efforts among companies. Approximately 30% of domestic components are integrated into Ukrainian projectiles. However, the wait for new equipment for ammunition production is two years, hindering a rapid increase in projectile domestic output.

"Ukraine does not have gunpowder production, and building such a factory during wartime is impractical. Gunpowder loves to explode. As soon as such a factory appears, the Russians will destroy it," said Belbas.

Currently, a court case involves a subcontractor of Ukrainian Armor, namely, the company Vohnyana Varta. The investigation alleges the use of blank cartridge gunpowder in shells. Ukrainian Armor covers warranty repairs independently and has severed ties with the subcontractor.

In 2024, the company aims to lead in mortar ammunition production, diversify calibers, upscale Navigator vehicle production, introduce an upgraded Varta vehicle, and manufacture ten armored cabins monthly for the Ukrainian self-propelled gun Bohdana. Moreover, it is involved in producing a Ukrainian air defense system set to enter serial production next year.

Skilled trades in demand

At the outset of the full-scale invasion, 30% of the Ukrainian Armor's staff were combat veterans. All of them volunteered for active duty; recalling them is not an option. The company needs more experienced designers and developers with expertise in designing armored vehicles and ammunition. The market lacks experienced professionals in the defense sector, as Ukrainian universities still need to produce such graduates. Among skilled trades, there is a significant need for more highly qualified welders. Recalling engineers from the front or assigning them to factories could address this. Efficiently utilizing human resources is crucial, especially given Russia's population of 140 million compared to Ukraine's 30-40 million.

"Alternatively, form those evading service into labor battalions for military factory work. Welding is complex, but operations like assembling mortars are accessible," Belbas suggested.

Belbas claims Ukrainian Armor runs more efficiently than state-owned defense firms, pouring profits back into manufacturing rather than big salaries and trips. However, Russia tries to impede purchasing weapons abroad.

"We located fighter jets in a country across the planet and started negotiating a purchase. But somehow Russia obtained a letter about the prospective deal. A representative of the Russian embassy in that country began walking around with this letter, threatening local officials that Russia would shut down certain projects for that country. As a result, the deal was ruined," he said.

Ukrainian military gear actively features in global exhibitions, but contract discussions are restrained due to concerns about the perceived risks of collaborating with Ukrainian companies. Simultaneously, Western firms are entering Ukraine, eyeing the establishment of their factories.

"Corruption is often said to be the main problem plaguing the industry. But no! The real issue lies in the lack of qualified people and competencies. And when Western companies come with their own people, knowledge, and technologies - that is an absolute positive," Belbas believes.

Belbas fights $2.2 million embezzlement case

From 2014 to 2018, Belbas served as the deputy director of the state-owned company Spetstechnoexport, which buys and sells weapons abroad. During that period, management faced accusations of embezzling $2.2 million from an export contract. Allegedly, they paid this money to an agent company that provided no services. Belbas denies wrongdoing, saying there was no damage.

"I've been going to court for 5 years without understanding why. The plant says it's not a victim, and inspections revealed no misappropriation. The Audit Service claims payment asset losses, but not damages," he said.

Belbas argues an agent is necessary to enter any foreign market, and the investigation can't prove services weren't provided.

"They claim illegality because a letter terminated agent cooperation, but agents are paid from buyer funds proportionally if you sign the contract and receive payment," he asserts.

Navigating profits in Ukraine's defense

Ukraine needs a long-term policy for manufacturing planning. Bielbas says his company only receives chassis paid for in November 2022, while state contracts last 6 months. Ukrainian Armor wants a more extended plan to know the number of vehicles to supply by year-end to ease building production chains. Meanwhile, the Defense and Strategic Industries Ministries prioritize contracts with domestic manufacturers, which is good. Partially opening weapons exports could utilize idle capacity. Some companies have full domestic orders, but many are partly idle or producing goods the military doesn't buy.

"Why do we limit our economy when we talk of the economy of war? We need a market, not a farce," said Belbas.

Profits for weapons makers in Ukraine need to be appropriately regulated. The Audit Service decided the $66 million budgeted as 2022 'profits' for suppliers were paid out improperly and constituted state losses. They rely on a post-invasion government resolution not mentioning profits. To resolve this, in July 2023, the government allowed defense contractors to make profits. But Belbas' company still works under old rules, budgeting just 1% for parts and 30% for labor and materials. He says budgeting higher profits makes no sense as it would raise costs and lose contracts. The Ukrainian military needs domestic weapons to shorten the logistics chain for repairs. Equipment must be repaired at the front line, 100 km away, not shipped to Poland: three days one way, a month for repairs, three days back.

"To win, Ukraine must stock spare parts, train maintenance crews, and keep equipment combat-ready with short supply lines. And develop what Ukraine's industry can produce. Then it will pay off," assures Belbas.

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