Francois Hollande (pictured above, left) announced on Wednesday that his government was unable to deliver Mistral warships to Russia and that Moscow would be refunded.

"If you don't deliver, you must refund. So far, the delivery of the Mistral is not possible," Hollande said at a press conference with Ukrainian President Petro Poroshenko.

Paris had suspended the deal last year because of the conflict in Ukraine. A French diplomat told the Associated Press that France had begun negotiating refund payments with Russia so that penalties could be avoided in the future.

Moscow had paid in advance for the Mistral vessels and another warship that France had promised to deliver, but Paris suspended the deal, accusing Russia of siding with separatists in eastern Ukraine.

Last week, Russian President Vladimir Putin warned France that he expected a refund if Paris did not supply the Mistral, which could carry 700 troops, 16 helicopter gunships and 50 armored vehicles. The ship was part of a 1.2-billion-euro ($1.28 billion) deal - the biggest arms sale by a NATO country to Russia.

There was still hope for the deal, though. Hollande said he was meeting the Russian leader in Armenia on Friday, where representatives from the two countries would participate in a ceremony to commemorate the centenary of mass killings of Armenians in 1915.

mg/bk (dpa, AP)