French drone makers eye Ukraine deals amid funding uncertainty

By Florence Loeve and John Irish

PARIS (Reuters) -French and Ukrainian drone makers are racing to clinch co-production agreements and orders by year-end, industry, diplomatic and military sources said, even as financing and competition from other European countries pose major challenges.

The war in Ukraine and a surge in drone activity at sensitive sites in several European cities have thrust the sector into the spotlight, driving innovation in interception systems as well as kamikaze and surveillance drones.

Ukraine offers a trove of frontline data on drone performance and can test new systems almost immediately in combat - information European manufacturers lack as they seek to improve their products.

Dozens of French and Ukrainian companies, along with financiers and military and political officials, met in Paris on November 17 alongside the two countries’ presidents to explore ways to accelerate cooperation.

FRANCE LAGGING BEHIND

"French firms have lagged behind so we’re really working on the very short term - that is, co-production channels in Ukraine or in France that could be set up in the coming weeks or months, which would benefit from the Ukrainians’ very strong engineering expertise on the subject and could yield tangible results fairly quickly," said a senior French diplomatic source.

Executives from French drone makers including Delair, Alta Ares, Parrot and EOS Technologie attended, along with the French drone lobby ADIF and major defence contractors MBDA, Thales and Safran.

"There are needs expressed, and now we’ll see if this really leads to substantial contracts," an Alta Ares representative told Reuters.

The company, which builds interceptor drones, could seal a deal in Ukraine after its product was deemed capable of intercepting Iranian-made Shaheds, two officials said.

Denmark and Ukraine agreed in September to allow Ukrainian weapons makers to start producing in Denmark, and French officials said Paris was considering a similar model because some investors are wary of operating in Ukraine.

A project to encourage carmaker Renault to consider drone production was also given fresh impetus, according to one source familiar with the matter.

"On the front, products change from day to day. For Ukrainians, the challenge isn’t just to draw up a wish list for allied countries hoping for quick delivery (...) but to ensure that these products can evolve over time at a much faster pace than before"," said Jean-Marc Zuliani, head of EOS Technologie, which makes kamikaze drones.

Participants also flagged the need to design a framework to safeguard intellectual property rights.

SHOW ME THE MONEY

Officials said competition was fierce across Europe, notably from Britain and Germany, which are also seeking closer ties with Ukraine. London has taken the lead in providing capital to support projects and contracts.

The Paris meeting aimed to address that gap, bringing together venture capitalists and private and public investors who could offer loans or invest directly in projects, officials said. Funding for Ukraine’s research and development was also discussed.

Paris is largely betting that European Union instruments or a possible loan deal using frozen Russian assets to buy European weapons could ultimately help finance the sector.

Elie Tenenbaum, security studies director at the French Institute of International Relations, said EU money would only go so far and that given France's spending on Ukraine defence was small, there was little appetite from partners to back such support.

(Reporting by John Irish. Editing by Mark Potter)