Firefly looks to bolster aerospace ties with US, investing in Ukraine for the long-haul

It’s been a long time since Ukraine has been able to boast about its aerospace accomplishments – not much has been achieved since the country became independent in 1991.

While it inherited a large chunk of the Soviet Union’s space and rocket industry, Ukraine was too weak to sustain the industry due to the economic crisis and hyperinflation of the 1990s. Russia’s continuous attempts to establish regional hegemonic influence and ongoing deep-rooted corruption also played a part. Ukraine’s two state-owned enterprises – Yuzhmash and Yuzhnoye Design Office – continued to deteriorate as aerospace engineering universities withered.

But Firefly Aerospace says it wants to change all of that. The company, based in Austin, Texas is developing small and medium-sized rockets and satellites for making commercial launches into orbit.

The Kyiv Post sat down in Firefly Ukraine’s Kyiv office on Desyatynna Lane with three of the company’s executives – one of the founders Max Polyakov, CEO of Firefly Ukraine Yuriy Zabiyaka and John Isella, director of international business development – to discuss its future plans in Ukraine.

US cooperation

“We are in the (U.S.) State Department talking all of the time in D.C. and here with people from the embassy,” Isella said. “We have to be, we are obligated to be highly coordinated and integrated with U.S. government.”

Right now Firefly is in an important phase in which it has applied to the U.S. government for a Technical Assistance Agreement under the International Traffic in Arms Regulations, which is under the State Department’s umbrella. If the TAA is approved, Firefly will be allowed to work with foreign entities, and it will be the first new private company globally to apply and to be granted a TAA license by the Department of State to do this type of development work in the space industry, the company said. It is hoping to get the license in about two months.

“Even though Firefly Ukraine is a U.S. company, it’s still in Ukraine, so therefore we have to have this license in place to actually do in-depth technical work between the U.S. and Ukraine,” Isella said. “So until we get that, the activities that are going on in Dnipro are like independent of the U.S. part of the company.”

Right now the Dnipro plant is doing a lot of research and development, “basic” science and rocket manufacturing techniques.

“We are kind of focused on research and development, some design engineering here and prototype operations, test activities here, perhaps in the future some manufacturing,” Isella said. “That’s also governed by some of the requirements to do U.S. government business. For instance, as a U.S. company, to fly U.S. government satellites and payloads, it has to be a U.S.-built launch vehicle. So in that regard, we are driven to build things mostly in the United States. But, you know, there are many possibilities down the road.”

John Isella, director of international business development at Firefly Aerospace

All of Firefly’s activity and ownership is U.S.-based. Firefly Ukraine is a subsidiary of the U.S. company and from a legal regulatory perspective is also treated as a U.S. company, as it has to comply with all of the U.S. export laws and regulations.

“So we are more highly regulated, more compliant (than Yuzhnoe and Yuzhmash), like the highest level of compliance when it comes to non-proliferation,” Isella said.

The company was launched two years ago and just this past May opened its research and development center in Dnipro. In the United States, Firefly employs about 130 people – mostly located at the 200-hectare site in Texas – and more than 100 in its Ukrainian subsidiary. It also has operations in Washington D.C. and Tokyo, Japan.

Another legal battle for Firefly in Ukraine is for the parliament to change legislation on aerospace matters, as it constrains commercial activity, Isella said. “The future of space activities in the world is all commercial and the idea that Ukraine, a highly competent country in the space industry, has laws on the books that constrain commercial space is ridiculous.”

Why Ukraine?

There are several reasons why Firefly decided to have such a strong presence in Ukraine, one being that Polyakov is from Ukraine himself, and has a passion and sense of patriotism for his country.

Max Polyakov, one of the three founders of Firefly Aerospace

But the company also sees Ukraine as an unworked space and rocketry goldmine, as the country inherited a strong school of rocket science from the Soviet Union.

“We are trying to combine former Soviet Union engineering school of rockets with the U.S.A school of rocket building. And for these goals we have employed a lot of people from the industry, we have bought modern equipment and (are doing) some research, tests,” Zabiyaka said. “Dnipro was a closed city for a long time and was secret and… contained all of the facilities that it needed: science facilities from the Dnipro University, the design bureau Yuzhanya, and people.”

But now there is a challenge for Ukraine to keep and sustain its aerospace brainpower, as many are looking for better job opportunities elsewhere such as South Korea, China and India.

Despite the brain drain, however, Isella says there’s still a “tremendous amount of knowledge, capability and expertise in the people.”

Most of the experts are at Yuzhnoye Design Office and Yuzhmash (an enterprise that managed until 1992 by Ukraine’s second President Leonid Kuchma) both located in Dnipro, which is why Firefly established its Ukraine facility there, as well as for luring the human capital. Isella himself used to work for Yuzhnoye Design Office.

Firefly’s goal is to combine the U.S. and Soviet-inherited rocketry schools of thought, “and that’s the best possibility that you can do. It’s really the two foremost schools of thought in rocketry in general,” Isella said.

Firefly at a glance

Firefly was first known as Firefly Space Systems and was formed in 2014 by a group of entrepreneurs. It then had to furlough their entire staff in 2016 after an anticipated Series B private equity financing failed. In 2017, all of the assets of FSS were sold at an auction organized by Polyakov’s EOS Launcher Inc., according to Space News. After going bankrupt and being liquidated, the company was renamed as Firefly Aerospace by Polyakov’s Noosphere Ventures, which bought out the assets.

Firefly is a closed company and does not provide financial statements, including the amount it invested in Ukraine. This is its first official year of operations so it does not expect to be making revenue. Its first launch is scheduled for the end of 2019 at Vandenberg Airforce Base in California, and it hopes to gradually ramp up to 24 launches per year in about three years. The company is negotiating to have another launching site in Cape Canaveral, Florida.

With a thick eastern European accent, the Ukrainian entrepreneur who now lives with his family in Menlo Park, California, explains his relatively new aerospace passion because of “business reasons” as he sees a lot of untapped potential.

“Right now when there is a new space bubble, a lot of money will be coming from a lot of companies that don’t understand what they are doing or they just sell bubble to bubble – satellites companies thinking that they will sell so much data so they build a lot of satellites.”

But Polyakov’s approach is different in the sense that his company is “vertically integrated” consolidating every part of the value chain.

Firefly is planning to have everything from start to finish – its three types of rockets called Alpha, Beta and Gamma (Gamma will be operational within the next four years), and its own spacecraft, which they also design and develop, will also be used to create new and proprietary data and imagery for a data analytics platform called EOS DA.

“So we understood everything in the chain from start to finish. And in the future when consolidation happens… only vertically integrated holdings will survive,” Polyakov said.

Instead of simply producing data, his company will target the specific needs of its customers.

So far, Firefly’s clientele consists of 16 international government agencies, commercial companies coming from agriculture, land management, transportation, and optical imagery among others.

CEO of Firefly Ukraine Yuriy Zabiyaka

The only publicly announced client is British aerospace company Surrey Satellite Technology, which has signed up for about half-a-dozen launches. But overall, there are many letters of intent to buy launches from all of the major satellite companies, worth a “billion dollar backlog,” says Polyakov.

“We’re talking to other foreign governments. Pretty much anybody who launches a satellite,” Isella said.

But Firefly is not hoping for its sales of rockets to be the main source of revenue. It is betting on the data analytics acquired from the satellites.

“The launch service by itself is not that profitable a business if you don’t get that many government contracts,” Polyakov said. “Ninety-five percent of the data that is produced has not been used, and satellites just have been launching because they think that the data will be required – not what the customers think.”

Polyakov’s ambition in the aerospace industry might have surprised many, as he made his first major fortune in the online dating industry: he was the co-founder of Cupid Plc and CEO of Easy Date Holdings.

Polyakov went into the online-dating industry, shortly after studying gynecology in medical school.

Haunting criticism

A lot of criticism has been directed at Polyakov on the internet. Some associate his name with the porn industry, others call him a friend of Maksym Krippa, the owner of a gambling business, while others say that he tricked his former Cupid plc Scottish business partner Bill Dobbie by making him sell all of his shares to a company that Polyakov owns.

Polyakov denies all of the claims, and says that now he simply ignores criticism. He says that often he would get anonymous letters asking to pay money, and some people are getting paid to hurt his reputation.

“Yes, its fake news,” he said. “How many guys do you know who built half-a-billion company which (was sold) to Oracle, and which keeps his name? How many guys do you know who take a company public?… You know, the natural habit of people is to hate, for various reasons.”

(Back in 2013, the Kyiv Post investigated Cupid plc’s involvement in a scam operation that created fake dating profiles.)

Polyakov continued his path within the consumer internet business in finance, marketing, games, online real estate, travel, e-commerce, knowledge management among others. Polyakov’s chief communications officer Tanya Snopko would not disclose how many companies he owns.

What is publicly known, is that he is managing partner at investment firm Noosphere Ventures, founded IT-Ukraine, HitDynamics, Maxymiser (purchased by Oracle in 2015), Maxima Group, Private Space Projects, Earth Observing System, the online gambling games Murka, and Renatus Media, among others. But he is heavily involved in either having shares, founding, managing or advising dozens of companies.

“From a legal point of view, there is no holding. There are different companies,” Snopko said.  “We have a (non-governmental organization Noosphere) so this NGO makes all these social responsibility projects and all those companies pay a fee to make it possible.”

Altogether, Noosphere members employ 4,000 people.

Philanthropy

To ramp up Ukraine’s aerospace human capital, Polyakov’s company network is pumping money into education.

Noosphere has been providing grants to various initiatives around Ukraine. Last year it spent around $2 million on philanthropic work, and this year it plans to spend up to $4 million. The company has built laboratories in six universities around Ukraine. The most recent – Space Engineering School in Dnipro – has been working for only the past six months, having 145 students. Altogether, 6,000 people went through the programs and projects conducted at the company’s laboratories.

Noosphere is also going to renovate the Serhiy Pavlovych Korolyov Museum of Cosmonautics in Zhytomyr and the Dnipro planetarium.

“We are doing projects that are easy to preserve and to replicate knowledge… or which, after we invest money, can be self-sustainable,” Polyakov said.

Security and government

Polyakov is confident that his 18 years of experience in the IT sector provide a strong foundation for the security of his company.

“One of my companies, called Maxpay, which does online billing, banking – we have financial licensing and we have rights to store credit card information. So the rules for storing credit card information… they’re much stronger than any that the American rocket companies have,” he said.

Firefly Ukraine also has a cybersecurity unit that advises the government’s cybersecurity personnel, as well as the cyber police. It is also involved in investigations when needed by the authorities.

“Our government loves us, of course,” Polyakov said, pointing to the government struggle to finance the aerospace industry itself.

“They’re looking for a new way to keep the knowledge, still keep Ukraine as a space country. But I mean the old models are definitely not working, and we’re the first guys who for (our) own money are really transforming the Ukrainian space industry too, but obviously under the American flag,” Polyakov said. “So that’s why we’re the instrument that will finally allow America to use Ukrainian (intellectual property) and brains…

The president loves us because we’re doing good for Ukraine. We’re good guys. If somebody pressures us we have a lot of protection instruments, and we have a different skill set in protection,” Polyakov said.

Oligarch connections?

With a plant site in Dnipro and an office right next to oligarch Ihor Kolomoisky’s Millenium business center, some might think that Polyakov has a close relationship with the oligarch.

But Polyakov says that he has no business with Kolomoisky or any other oligarch.

“We don’t deal with resource-based oligarchs at all. It’s my rule,” he said. “… I’ve created everything by myself. No (government) resources have been taken. No government money has been taken, ever.”