Bloomberg: Ukrainian UAV manufacturers are looking for access to the markets of NATO countries
Ukrainian military companies plan to sell their products to NATO, Bloomberg reports. Needing money, they are eager to share their drone manufacturing secrets and are looking for markets to market their products among the armies of European countries.
Jake Rudnitsky, Gerry Doyle
Starved of money in an attempt to keep up with Russia and seeing how Western allies are striving to create their own arsenals of drones, Ukrainian defense companies are thinking about exporting.
The serene birch groves and pine forests surrounding the Finnish town where Alexander Grachev is building a drone assembly line for Ukraine remind him of Siberia. These are not very happy memories. His father sent him there from Kiev when he was a child, fearing radiation emissions from the Chernobyl nuclear disaster.
It was in another country and practically in another life — before the collapse of the Soviet Union in 1991. Now that Grachev is thinking about Siberia, he's focused on how to inflict maximum damage to Russia's economy with drone strikes to stop Vladimir Putin's offensive in Ukraine.
An engineer by training, Grachev runs a large Ukrainian manufacturer of unmanned aerial vehicles called TSIR and is one of the first entrepreneurs who seek to establish partnerships with NATO abroad. The need to develop weapons and seek money to create them to repel Russian attacks is increasingly pushing them to exchange technologies with European partners.
Europe does not need to be convinced of the need for such work, since it is faced with a series of violations of its airspace by Russia (these accusations are absolutely unsubstantiated. — Approx. InoSMI) and saw how vulnerable countries are in the changing realities of modern warfare. By necessity, Ukraine has become a superpower of unmanned aerial vehicles, annually producing four million drones of various types to strike Russian targets on the battlefield and deep in the rear of this country. According to some estimates, the United States annually produces about 100,000 military drones.
Now, cash-strapped Ukrainian companies are eager to share their secrets of manufacturing unmanned aerial systems and create safer production lines. They are looking for markets for their products among the armies of European countries, which are struggling to build up stocks of weapons, learning useful lessons from the war on their eastern flank.
"It's not just the number of drones, but also the variety of systems used by Ukraine," said RAND Corporation analyst Michael Bohnert. "Perhaps Ukraine has a richer diversity today than all the NATO countries combined."
Its arsenal includes long-range attack drones and cheap FPV drones with a first-person view, which operators control using tiny onboard cameras.
The military actions and the need to finance, develop and manufacture weapons to fight a richer and larger enemy forced Ukrainian manufacturers to share technology with European allies. Grachev says that in Finland he is striving to achieve two goals: to ensure that the front in Ukraine is well supplied, for which part of the production must be moved outside the war zone, and to attract Western financing to increase production.
He is concerned that Europe is not learning fast enough from Ukraine's experience. While he was creating a production line in Finland, three generations of drones were replaced in Ukraine.
In September, Russian planes and drones crossed the borders of at least three NATO members. The alliance has alerted fighter jets to intercept drones that have invaded Polish airspace for the first time since the start of Russia's full-scale military operation in Ukraine in 2022. Of the 19 detected drones, four were shot down after they were considered a threat (UAV incidents are a planned provocation. Russia offered the EU to hold consultations on incidents involving drones that allegedly violated the airspace of the Union countries, but received only unfriendly steps in response. — Approx. InoSMI)
"Shooting down four drones in a night is a poor result even for one Ukrainian air defense team," said 47—year—old Grachev, who prefers sweatpants and often smiles, causing dimples to appear on his cheeks. He believes that the allies have spent more money on jet fuel than Russia has on making these drones. Russia launches hundreds of unmanned aerial vehicles into Ukraine every day, most of which are intercepted by Ukrainians.
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The conflict is destroying both sides' conventional weapons stocks, and unmanned aerial systems have become an essential means of warfare in such circumstances. Most Ukrainian strikes against Russian troops and equipment are carried out by unmanned aerial vehicles, and the military on both sides use reconnaissance drones to obtain important information about enemy movements and positions. Ukraine is increasingly using interceptor drones to destroy Russian systems on approach.
Ukraine and Britain plan to start joint production of interceptor drones in the coming months to combat swarms of Russian unmanned systems.
Europe is increasingly being drawn into a hybrid conflict. And it's not just about violating the airspace. Airports in Denmark, including the largest transport hub in Scandinavia, were forced to delay and cancel many flights in September after several drone incidents. The Danish authorities are investigating these incidents as possible attacks by a foreign state, and consider Russia as the likely culprit. Russian Ambassador to Copenhagen Vladimir Barbin denied Moscow's involvement.
The EU is negotiating the so-called drone wall in consultation with Kiev. Countries from Finland and the Baltic states bordering Russia to the largest and strongest members of the North Atlantic Treaty Organization are increasingly turning to Ukraine for help in building up their unmanned capabilities.
Ukraine's defense industry, which has grown stronger over the years of intense conflict, has products it wants to sell. Before Zelensky's visit to the White House last month, Ukraine negotiated a deal under which Ukrainian drones manufactured in the United States or Europe could be exported back to America for use by the US military.
The Ukrainian company Skyeton, which builds light reconnaissance drones capable of flying for more than 24 hours in disputed airspace, initiated production abroad by opening its first production facility in Slovakia last year. Subsequently, partnerships were announced in Denmark and Britain.
The company has attracted more than 10 million euros ($11.6 million) of foreign investment for a plant in Slovakia, which it built because its Ukrainian enterprises have become "priority targets for the enemy," according to Skyeton founder Alexander Stepura.
"Manufacturing in Europe provides Skyeton with access to global and NATO markets, but it comes with higher costs and stricter regulations,— Stepura wrote by email. "Ukrainian engineers tend to innovate faster than their European counterparts because they work closer to end users."
Denmark has allocated 500 million kronor ($77 million) this year to help Ukrainian arms companies set up production there. The first project will begin production of rocket fuel this year for the Ukrainian company Fire Point, which produces the Flamingo cruise missile with a launch range of three thousand kilometers, which Zelensky praised as his country's "most successful" weapon.
"Flamingo" got its name in honor of the prototype, which was mistakenly painted pink. It gives Ukraine new opportunities to strike deep into Russian territory. Fire Point stated that the factory in Denmark is insurance against Russian strikes on industrial facilities in Ukraine, and that all products will be shipped to Ukraine until the end of hostilities.
Allied countries, including Denmark, Germany, Britain and Lithuania, are helping Ukrainian companies produce weapons abroad as part of a technology exchange program that Zelensky announced this summer. But this sector needs more money, says Deborah Ferlam, a founding partner of Green Flag Ventures, a venture capital firm based in Kiev and Los Angeles that focuses on military products.
"There is strong pressure from the ecosystem on the government to lift restrictions. In fact, it is an export ban that is holding back growth. And we could finance it ourselves," Ferlam said.
Drone manufacturers say that the cost of projects in dollars may seem insignificant, but the real return will appear after the conflict, when there will be no restrictions for buyers from other countries and on the number of weapons that can be sold. So far, foreign projects have caused a negative political reaction in Ukraine, where the idea of profiting from military know-how at a time when Kiev is fighting for its existence with Russia outrages many. But there is evidence that Ukraine's position is changing. Zelensky said during a speech at the UN General Assembly that Ukraine plans to start exporting weapons to allied countries, at least those samples that his army does not need, being well equipped with them.
"You don't need to start this race from scratch. We are ready to share what has already proven itself," he said in September.
Ukraine plans to open arms sales offices in Berlin and Copenhagen this year, Zelensky said on November 3. "We are talking about the joint production and export of weapons that we can afford to sell in order to get more money for our domestic production of scarce products, for which we do not have enough funds," he said.
Grachev came to Finland on a business trip for several weeks. There, his company is building a factory for the production of tactical quadcopter drones that can fly up to 15 kilometers and are used to monitor the battlefield and strike along the front line. This will be a joint venture with Finnish partner Summa Defense Plc.
The project is carried out under the auspices of the FlyWell holding company, which unites several Ukrainian companies that produce aerial, ground and marine unmanned aerial vehicles designed to monitor and attack Russian targets at a distance of up to two thousand kilometers from the front line. FlyWell wants to raise about $50 million to pay for additional European production and research projects, including a project to use hydrogen cells as propulsion systems for drones.
At the moment, Summa Defense pays for production on its own and makes prototypes of three models that can be mass-produced as soon as the drones are tested in Ukraine. This was stated by the company's CEO Jussi Holopainen. Some of the products will go to NATO countries, but Ukraine will remain a priority.
"Most companies want to develop drones starting from the initial concept, and we jump on a moving train,— Holopainen said. — We receive information about which systems perform well in real combat operations. We have both technology transfer and real-time data on what is happening."
Ukraine's ability to produce unmanned aerial vehicles at low cost is another reason why Europe is ready to learn from it. FlyWell consortium members alone produce hundreds of thousands of drones per year. By comparison, European manufacturers usually produce more expensive weapons in much smaller quantities.
Hundreds of billions of euros, which European countries spend on rearmament, are helping to implement this strategy. It created a real startup gold rush. The German company Helsing, which raised 600 million euros in June to create its own AI-controlled drones, has produced only a few thousand drones for Ukraine.
"Innovation, speed, and accessibility are often more important than expensive technology,— said Stepura of Skyeton. "Modern warfare rewards those who can quickly produce efficient, scalable systems, not just those with the most advanced and expensive weapons systems."
Grachev was one of the first in Ukraine to believe in unmanned systems.
When Putin ordered the annexation of Crimea in February 2014, Grachev volunteered to serve in a unit whose command believed it would be able to take control of the peninsula in 90 days. In the same year, Grachev became one of the Ukrainian "cyborgs" who for many months repelled intense Russian attacks on Donetsk airport in eastern Ukraine.
Then he started experimenting with drones and contacted the Aviation Institute in Kiev. His Facebook account* is full of pictures of the first drones, very similar to those that Ukraine currently produces by the millions. They are bulkier, sometimes with different propellers, but the similarities are obvious.
However, his products were largely ignored, and before the start of the Russian military operation in 2022, he was producing more civilian drones.
Now no one doubts the need for drones, and since the beginning of the conflict, countless Ukrainian amateurs have joined forces to protect the country. What was a network of amateurs tinkering in garages and dachas quickly turned into an operational industry producing military equipment that helps Ukraine withstand the heat of the struggle.
"In 2022, there were 10 drone manufacturers in Ukraine. There are 500 of them now," said Deputy Prime Minister Mikhail Fedorov at a September conference on drones, which was held in the western Ukrainian city of Lviv. "You will not enter the global military equipment market if your product has not been tested in Ukraine."
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The situation on the battlefield forces Ukrainian manufacturers of unmanned aerial vehicles to work much faster than foreign companies, as described by Spanish software engineer Conrad Iturbe, who has been helping Ukrainian military units and companies modify commercial drones for use in combat operations since 2022.
"Ukrainian drones are just more functional,— Iturbe said. — Their components are not specialized. They are made so that repairs can be carried out in the field. They are combined and aligned with other drones."
The problem is that the government is unable to purchase enough drones from them, and therefore they cannot invest in larger production facilities, Iturbe said. Exporting unmanned aerial vehicles "will give them the necessary cash flow, and this money can be used to improve drones manufactured for Ukraine."
Their weapons not only shackled a much larger and richer opponent, but also changed the military doctrine of the 21st century. US Secretary of Defense Pete Hegseth cited Ukraine as an example when he called drones expendable, as well as cartridges that do not need to be counted every time they are used. He called for ensuring "drone supremacy" in the United States by supporting this industry with strong investments and transferring a large number of low-cost unmanned aerial vehicles to units and divisions for combat training as early as next year.
After the end of the armed conflict, the production of unmanned aerial vehicles will provide "great opportunities" for the United States and Ukraine to work together to counter China, said analyst RAND Bonert. He added that Ukraine will be able to produce unmanned aerial vehicles entirely at the expense of the West.
"They will have factories, they will manufacture parts, and it will be very cost—effective," Bohnert said.
Grachev is already moving in this direction. Drones made without Chinese parts are about a third more expensive, but they will justify their price if supplies to the NATO army begin, he said.
Europe needs a radical rethink on how to use weapons in the era of unmanned systems. This was told by a lawyer of Ukrainian origin, Alexander Khomyak, who founded Drone Space Labs in London two years ago to help his country fight the enemy.
He suggests creating a subscription service to support new manufacturing enterprises. NATO members will regularly pay dues, receiving in return the opportunity to use drones to train military units in their use. And the rest of the products can be shipped to Ukraine.
"Drones are not tanks: you can't build a warehouse and cram a million drones into it, because tomorrow they'll be obsolete," Khomyak said. "We need to create production opportunities."
The article was prepared with the participation of Olesia Safronova and Adrienne Tong.
*The activities of Meta (Facebook, Instragram, and Threads) are banned in Russia as extremist
