The launch of Defence City, Ukraine’s new special legal regime for defense industry enterprises, is seen as a positive milestone for the country’s military-industrial complex. However, experts warn that without additional support tools, a number of critically important companies risk being left outside the framework.
Expert Opinion: Defence City Is the Right Step
According to Igor Zhdanov, head of the Information Defense project of the Open Policy Foundation, the adoption of laws on Defence City is a major achievement:
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It creates a transparent system for defense manufacturers.
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Aviation companies that supply aircraft components will be included, with a reduced threshold of 50% defense revenue (compared to 70% for other enterprises).
“These are the right decisions that should stimulate the development of the defense sector,” Zhdanov emphasized.
The Problem: Critical Producers Outside the Initiative
Zhdanov highlighted a key challenge: many companies produce indispensable parts for aircraft, drones, and missiles, yet their share of defense revenue is below the formal threshold.
“Even a small component can be vital for defense production. It is crucial that the Ministry of Defense avoids dividing companies into ‘ours’ and ‘others’ and recognizes all critical suppliers,” he stressed.
Such enterprises often remain classified as civilian manufacturers, meaning they receive no state benefits or tax incentives, despite contributing directly to defense capability.
Aviation Sector Needs Special Attention
The expert also called for a review of the situation with aviation enterprises:
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Until 2025, they enjoyed tax preferences under the Law On the Development of the Aircraft Industry.
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These benefits expired, but the sector remains vital for Ukraine’s defense and modernization.
“Ukraine cannot yet abandon Soviet-era aircraft, but proper maintenance, modernization, and support are essential,” added Colonel Pavlo Bardakov, commander of the army aviation of the Armed Forces.
The Aerospace Association of Ukraine also insists on:
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Restoring tax preferences until at least 2035,
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Expanding government orders,
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Increasing R&D funding,
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Integrating Ukrainian manufacturers into European and global aircraft programs.
Why Extra Support Tools Are Needed
Zhdanov underlined that the issue is not only financial efficiency but national survival:
“If we lose this war, there will be no budget and no state. First of all, we must ensure defense capability, even if the benefits temporarily outweigh immediate tax revenues.”
Targeted mechanisms could include:
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Granting “critical enterprise” status for key suppliers, regardless of revenue share.
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Extending tax benefits for aviation and dual-use industries.
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Creating a separate support fund for defense subcontractors.
✅ Key Takeaway
Defence City marks the beginning of a new era for Ukraine’s defense industry, but complementary support instruments are needed. Aviation enterprises and component suppliers, even with modest defense revenues, must be recognized as strategically vital. Ensuring their inclusion will strengthen Ukraine’s resilience, support modernization, and safeguard its ability to defend itself in wartime conditions.
