How U.S. military aid freeze affects Ukrainian miltech

BLUF: Freezing military assistance to Ukraine will affect American companies as well. The Ukrainian battlefield is the biggest testing range for Western producers to research and improve weapons. In other news: Ukraine plans to adopt a draft law on export control and update the list of dual-use goods. A new VTOL drone with a guidance system is preparing for serial production.

THE BIG STORY: The future of Ukrainian defense sphere without U.S. help

On March 3, the United States decided to suspend all aid to Ukraine after a blowup in the Oval Office between presidents Volodymyr Zelenskyy and Donald Trump. 

The order applies to all US military equipment not yet in Ukraine, including weapons on planes and ships or waiting in transit areas in Poland. 

This decision came into effect immediately: Poland has already confirmed that the logistics hub in Rzeszów-Jasionka has suspended equipment transit.

The Ukrainian government said they have enough weapons for six months. However, this suspension could also affect the defense industry.

How might the suspension of military aid affect Ukraine’s miltech?

The American influence on Ukraine's defense industry development is primarily non-public. In January, the NYT reported that the US declassified its support for Ukrainian drone production, and that the amount spent amounted to $1.5 billion.

Another known program is the integration of Western weapons into Soviet systems within the ‘FrankenSAM’ program. It includes the integration of:

• RIM-7 Sea Sparrow missiles into the Buk air defense system;

• MIM-104 Patriot systems and Ukrainian radar systems;

• AIM-9M missiles with Soviet radar;

However, most funds allocated to Ukraine remained in the United States. America supplied weapons from warehouses and allocated funds to replace them with new equipment. Another part of the funds also went to placing orders with American manufacturers. 

"We cannot say that the United States is strongly helping our defense-industrial complex. It's a small percentage," said Roman Kostenko, Secretary of the Verkhovna Rada Committee on National Security, Defense and Intelligence. "But the Ukrainian defense-industrial complex will be forced to develop more, and for this, investments are needed."

US participation in Ukrainian defense industry was already low, so the impacts are limited, said Perry Boyle, CEO of American accelerator MITS Capital, which is investing in Ukrainian defense and dual-use startups. This also means that the Trump administration's decision will not affect the accelerator’s strategy. 

"I don't know if Trump can restrict MITS Capital activities in Ukraine, but given that we are a U.S. company, and I am a U.S. citizen, we can't rule out that possibility. I will personally resist. No one from the U.S. government has ever contacted MITS Capital on any topic," said Boyle.

U.S. companies also have not been very active in partnering with Ukrainian manufacturers — only a few companies have entered the Ukrainian market. One of them is Shield AI, a manufacturer of V-BAT drones used in Unmanned Systems Forces. They have an R&D office and training center in Ukraine. 

Currently, the whole picture is unknown, and the company was not ready to comment on it, said Damina Serbyn, Office Manager at Shield AI.

However, the Ukrainian defense sector may experience both a psychological and material blow, predicted Sergiy Koshman, Managing Director of Frankenburg Technologies, which develops rocket systems. 

Therefore, to compensate for part of the losses, Ukraine might allocate additional funding for investments in the defense sector, said Kostenko. It also needs to deepen cooperation with European countries. 

And this cooperation is already growing, said Kateryna Bezsudna, CEO and co-founder of Defence Builder, an accelerator for defense tech startups. 

"So far, as an accelerator, we didn’t have a significant pipeline of U.S. investors who committed to investing in promising startups. Meanwhile, engagement from European partners is growing," said Bezsudna. "They are actively supporting Ukrainian startups, collaborating on joint R&D projects, and providing essential components as aid. This enables us to develop long-term plans and strengthen cooperation with European investors, governments, and industry partners."

The European Commission plans to raise 800 billion euros to rearm the EU and Ukraine. They will also allocate 150 billion euros in loans to produce air defense systems in the EU and supply weapons to Kyiv. On March 4, Zelenskyy announced that the EU will send Ukraine additional air defense systems and anti-aircraft missiles. 

But freezing of aid may affect the U.S. too:

"If the Americans stop everything themselves, they will close themselves down. How will they improve their own drones if nothing goes [to Ukraine]?" asked Koshman in a conversation with Counteroffensive.Pro. 

Critical Armament for Ukraine

For Ukraine, drones remain key to striking targets on the front line. In 2024, 65 percent of enemy personnel strikes and 75 percent of enemy equipment strikes were done by drones, emphasized Kostenko. He also said that the key component suppliers remain China and Taiwan, not the U.S.

However, around 30 percent of weapons in the Ukrainian army are still American. One of Ukraine's critical issues is replacing American weapons, especially sophisticated ones. The most vital issue is replacing the Patriot air defense system, which can shoot down ballistic missiles. Only the Italian-French SAMP/T and Patriot can intercept such types of targets.

The issue of developing Ukrainian systems has been raised more than once, but anti-aircraft missiles require a significant amount of time. In 2021, the ‘Pivdenne Design Bureau’ announced the development of the Kilchen’ air defense system, which can intercept ballistic missiles.

Also, in September 2024, it was announced that the US is working with Ukraine on replacing the Soviet S-300 air defense system. On February 23, Zelenskyy stated that Ukraine is developing an analog for the Patriot system.

Still, the Ukrainian military and special services have developed a plan "in any development of the situation", said Zelenskyy in his evening address on March 4.

"This is not 2022. Our resilience is higher. We have the means to defend ourselves, but normal partnership with the U.S. is essential for us to end the war," said Zelenskyy.

BUSINESS LUNCH TOPICS: What our reporting shows!

1. Ukraine’s export control agency sets its 2025 priorities:

In the first half of 2025, the State Service for Export Control (SSEC) expects the new export draft law and legal acts to be adopted, said Oleksandr Pavlichenko. In particular:

• The draft law about improving the export control system (currently awaiting approval by the Ministry of Economy);

• Updating the list of dual-use goods that hasn’t been changed since 2018;

• The procedure for the international transfer of dual-use goods.

Ukraine might somehow open up export opportunities for products that the Armed Forces of Ukraine do not need, Pavlichenko told Counteroffensive.Pro – in particular, drone-related products. 

“We can make progress in this. Everything depends on the authorities' applicants and their understanding of the problem. There must be one vision of the problem. We often misunderstand each other. And this must be recognized and improved. I hope that there will be progress,” he said.

2. New approaches to drone purchasing in the Defense Procurement Agency

A new system of procuring UAVs for the Ukrainian army, ‘DOT-Chain Defense’ will allow units to independently choose the quantity and types of drones within their budget. 

It will work like a drone marketplace, which can also provide effectiveness ratings, explained Alyona Zhuzha, IT advisor at the State Logistics Operator, a non-lethal supplier for the army. 

"This will stimulate competition between manufacturers… it will benefit them to offer the best UAVs since the demand for their products will depend on this. It will also ensure transparency, as manufacturers will see through the system exactly how the need for drones is formed," said Zhuzha. 

In February, the new leadership of the Defense Procurement Agency (a supplier of lethal weaponry) announced they would implement the ‘DOT-Chain Defense’ IT system for procuring UAVs. It should accelerate contracting, making it more effective and digitized.

3. A new VTOL drone is preparing for serial production

Ukrainian drone maker Do or Die Production presented the X-35, a vertical take-off and landing kamikaze drone. The team made more than 100 testing flights and is producing prototypes for final testing. 

The main advantage of VTOL is that it takes less time to launch and is quick to deploy, Yaroslav S., representative of Do or Die Production, told Counteroffensive.Pro. Developers also integrated the guidance system to lock on target on the final stage of flight. 

The X-35 has these capabilities:

• Range – up to 60 km;

• Flight time – more than 40 minutes;

• Maximum speed – up to 160 km/h.

• Warhead weight – up to 3 kg.

These drones are being prepared to be tested on the battlefield, said Yaroslav. 

ON THE MOVE: Professional movement, promotions and industry news.

Know someone in the defense tech space who has made a professional move? Drop us a line at [email protected]! 

• Oleksandr Kamyshin, an advisor to Ukraine’s president on strategic tasks, has been appointed chairman of the Ukrainian Armory Council, a union of Ukrainian private defense organizations. Previously, he headed the Ministry of Strategic Industries.

• Ihor Fedirko was appointed as executive director at the Ukrainian Armory Council. He also leads the State Centre of Humanitarian Demining.

• Alina Guseva was promoted to Chief Operations Officer from Event & Community Lead at United Angels Network, helping startups find investments.

30 SECOND ELEVATOR PITCH:

WING TECH LLC is a Ukrainian manufacturer of fixed-wing UAVs with an operational range of 300–600 km. Its portfolio includes decoy aerostats, communication relay drones, and payload delivery UAVs, which have already been deployed in military operations.

The aircraft's custom-designed flight controller features inertial navigation, a ballistic calculator, and autonomous landing capabilities. The system ensures GPS-independent operation, allowing the drone to navigate and complete missions even under jamming and spoofing conditions.

“We are seeking an investment of $200,000 to expand our R&D department and scale up production,” said Anton Zhupan, CEO of WING TECH LLC.

MUST READS:

• Skyeton, a Ukrainian drone producer, announced the guided munition Remora for its Raybird drone. It weighs 25 kg with a 1.5-2.5 kg warhead and speed after discharge 140 km/h.

• Finland’s MoD announced a new approach to support Ukraine. The country will allocate 660 million euros to produce weaponry for Ukrainian needs instead of shipping weapons from its warehouses.

• Kongsberg will integrate new interceptor missiles based on Ukrainian technology into the NASAMS air defense system. Also, they will open an office in Ukraine.

• The Ukrainian government prolonged the period to get an exemption from mobilization for defense sector employees until March 31.

• For the first time, Russians filmed a Ukrainian light-weight airplane in an unmanned bomber.

• Ukroboronprom, a government-run defense conglomerate, has announced a joint venture with Roshel, a Canada-based armored vehicle producer. They will produce armored personnel carriers in Ukraine.

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