‘Mega deal’ or no, Ukraine’s wartime drone tech seems poised to get to NATO militaries

KYIV ― Ukrainian President Volodymyr Zelenskyy recently teased a “mega deal” in progress to swap the latest Ukrainian drones for American air defense and ammunition.

“The people of America need this technology,” the Ukrainian president told the New York Post, known to be a favorite paper of US President Donald Trump, on July 17. “We will be ready to share this experience with America and other European partners.”

While details remain thin, the news comes at a time when Ukraine’s domestic drone industry is straining against Kyiv’s reluctance to allow technology to leave the country, while NATO militaries eagerly eye the defense breakthroughs of the war-torn country.

Advancements in drones and electronic warfare along Ukraine’s frontline have caught the eye of Western militaries since the outset of the full-scale invasion. NATO member militaries have tried to make analogs but have not been allowed to get them from the source. That’s because of an unofficial but very real block from the government on approving exports for military and dual-use hardware since the imposition of martial law following Russia’s full-scale invasion on Feb. 24, 2022.

Deals where foreign companies agree to build systems within Ukraine have been allowed, including a series of coproduction deals with European nations, as well as one US-based drone company, Swift Beat, founded by former Google CEO Eric Schmidt. But Ukraine’s arms makers have lamented that their inability to export is holding up their ability to increase production and bring in much-needed cash flows — which, they argue, would only benefit efforts to arm Ukraine.

While the government has not codified this export ban, industry participants are well aware of its impregnability.   

“We have Schrodinger’s export. There’s no legislation closing it, but de facto it’s just not happening,” Ihor Fedirko, who recently left the Ministry of Strategic Industries to head a new trade association called the Council of Defense Industry, told Breaking Defense.

Yaroslav Azhnyuk, the founder and CEO of Odd Systems as well as AI start-up the Fourth Law, laments that the export control office “have never given a single permission unless it has been approved from the very top.”

If a major deal with the US were to happen, industry here is hopeful it would serve as the death knell to the de facto export ban. 

But a major deal, as Zelenskyy is proposing, leaves major questions as to how a sudden opening of exports will work, which markets Ukraine should target if it happens, and which companies will get to take part — questions that very well could decide the future of Ukraine’s homegrown defense industry.  

The American Gambit 

The “mega deal” under negotiation entails Zelenskyy trying to sell $10 to $30 billion in drones to the US, the Ukrainian president told reporters in Kyiv on July 24. He did not specify as to whether this would be in exchange for American funding or quid pro quo for weapons.

Given Trump’s open questioning of Ukraine since returning to office, Kyiv is eager for any chance to increase ties. Longer-term, Ukrainian industry players hope to set up production in the US along the lines of what is happening in the EU. Those agreements could entail teaming Ukrainian firms with US companies who would build on Ukrainian IP.

The US is the largest market for weapons, as well as the largest producer on whom Ukraine depends for outside aid. That is particularly noticeable in the latest air defense systems, like Patriots and the PAC-3 missiles that remain the gold standard for shooting down Russian ballistic missiles like the Iskander and the Kinzhal.

Less glamorous but still essential, American production of propellants and explosives also remains a dependency for Ukraine, particularly as the Chinese supply chain for nitrocellulose looks more and more precarious.

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The basic reason for Ukraine’s reluctance to sell weapons internationally is that they need them domestically. The more political reason is that Ukraine remains dependent on international aid for many weapons systems.

“For the time being, only President Zelenskyy knows the answer to this question. Indeed, it depends on his political decision,” Ukrainian media personality Oleksiy Kovzhun said in a recent podcast on arms sales. “I understand his hesitation, since we are one hand asking for weapons, and on the other, we’d be selling weapons.”

The US Department of Defense remains a notoriously tough nut to crack. The relocation of Ukrainian defense manufacturing onto EU and US soil and, as with the recent deals, actively joined into local manufacturing facilities, presents a means of entering into those military alliances in a substantive way.

Relocation of production to the US, however, risks losing the price advantage of Ukraine’s low regulation and labor costs.

“It makes no economic sense for Ukrainian drone makers to set up in the US, as they would lose most of their competitive advantages of cost, adaptation, and speed,” Perry Boyle, founder of MITS Capital, which focuses on Ukrainian defense tech, wrote to Breaking Defense.

“It would be a much bigger bang for the US taxpayer to source drones made in Ukraine. However, if producing in the US is the only way to access the US defense budget, then Ukrainian manufacturers should do it.”

The European Model

There is a model to be found in coproduction thanks to the EU, whose member nations have been quick to sign a host of agreements to fund Ukrainian production inside of Ukraine. 

Denmark in many ways led the charge in direct funding to Ukrainian weapons development with a deal from the start of 2024. Subsequently, the UK redirected Russian assets into helping fund Ukraine’s arsenal, including of domestically made kit. Germany more recently announced €5 billion in funding for Ukraine to make more long-range drones and missiles at home, with some ambiguous help from German weapons makers.

Denmark, creatively, reached an agreement that will see Ukrainian weapons produced in Danish factories, but those systems then will be sent back to Ukraine during the war. In a future peacetime scenario, however, those will become new bases for production for the host country.  

“Long-range drones will be produced there and supplied to us during the war,” Zelenskyy said on July 24. “But after the war, they will stockpile them for themselves — for their own army.”

“We’re working currently on a program to facilitate getting Ukrainian companies into Denmark,” Eric Wanscher tells Breaking Defense. Wanscher is a Danish Air Force Reservist who runs a government-funded business hub called Erhvervshus Fyn, in which capacity he is matchmaking between Danish and Ukrainian miltech firms.

“In Denmark we are very close to Ukraine in support and help. But also, I think this could be a gateway for Ukrainian companies to develop, but also to merge into the European market, and defense technology [merge] into NATO,” said Wanscher.

Producing weapons outside the country benefits Kyiv, as weapon firms often find themselves under frequent Russian bombardment. Ukrainian arms makers hope to find safety in Western factories — quickly, Fedirko says.

“They’re planning to open around 10 such firms abroad by the end of the year. And exclusively the upper echelons of Ukrainian political leadership will say which countries this will entail, and which firms,” Fedirko told Breaking Defense. Wanscher, for his part, anticipates terms of the government deals to be published sometime in September.

Terma, the largest Danish defense company, recently announced a deal with Ukrainian drone start-up Odd Systems, to meld the former’s sensor technology into the latter’s ambitious AI-enabled interceptor drones — a key project to help fight off swarms of Russian Shaheds that grow ever-larger across Ukraine’s night skies.

That deal was inked before the inter-government sale, representatives for the two companies tell Breaking Defense.

However, coproduction deals are, local arms makers remind, not a full cessation of export controls.

“It definitely moves the needle, but I don’t think it has opened exports,” said Odd Systems’ Azhnyuk. “I think that these were just sort of one-off deals.”

Azhnyuk also objected to what he saw as the Ukrainian government’s single-minded emphasis on exports to NATO members. 

“Saying we will only export to Europe and the US basically is the same as saying that we will leave India, Southeast Asia and Africa for the Russians to sell to. And we don’t want that. We don’t want to give [the Russians] that market. We do not want to give them that profit. We do not want to give them that diplomatic influence and leverage. So I think we, as the good guys, should be selling weapons to the world and sort of having those controls and gaining that influence. And that also holds for the EU, for the US, and sort of for other allies and forces of freedom.”

The Conflict At Home

If exports are going to change, it then raises the very big question of who, exactly, will be able to export. And that is where current internal events in Ukraine come into play.

Ukraine’s internal weapons procurement processes have been largely opaque and out of the public eye. While reasonable amid a full-scale war that threatens even weapons producers located in the relative safety of the European Union, this opacity has resulted in no small number of accusations of kickbacks and corruption within Ukraine itself.

Against that backdrop, this month the Zelenskyy administration set about crippling anti-corruption agencies founded in the aftermath of 2014’s Euromaidan. This follows what many view as a consolidation of power, including a massive reshuffling at the top of the Zelenskyy administration in July and the firing of Maryna Bezrukova, the notoriously independently minded head of the Defense Procurement Agency, in January.

The recent anti-corruption legislation jump-started the first real protests against Zelenskyy since the start of the full-scale war and alarmed EU allies who have been paving the way for Ukraine’s eventual membership. (Zelenskyy eventually relented to the pressure, and many of the changes were rolled back this morning.)

Ukrainian domestic defense procurements have not been free of reported self-dealing. In one recent investigation, reporter Yuriy Nikolov claimed a previously unknown drone company made 4.5 billion UAH, or $108 million, in the first six months of 2025 on the strength of personal ties between company leadership and Arsen Zhumadilov, Bezrukova’s successor as the head of the DPA.

While the details of new coproduction or international trading details remain foggy, activists warn that they could replicate the vulnerability and opacity of domestic defense purchases internationally.

“We are trying to understand what’s, let’s say, the percentage of the intermediaries among the contracts, because contracts with intermediaries were the largest corruption risk,” Daria Kaleniuk, the executive director of the Anti-Corruption Action Center, told Breaking Defense.

“We should be aware that during war, it shouldn’t be transparent, but there has to be trust.”