US embassy cable - 04ANKARA2489

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 002489 
 
SIPDIS 
 
 
E.O. 12958: DECL: 05/03/2029 
TAGS: MARR, PGOV, PREL, PINR, TU 
SUBJECT: TURKS REORGANIZING MILITARY PROCUREMENT WHILE 
PLAYING HARDBALL WITH US COMPANIES 
 
 
(U) Classified by Ambassador Eric S. Edelman.  Reasons:  1.4 
(b) and (d). 
 
 
1. (U) This report contains sensitive business information. 
Please protect accordingly. 
 
 
2. (C) Summary:  Undersecretary for Defense Industries Murad 
Bayar told the Ambassador April 30 that, despite his own 
efforts to limit the impact of EU-mandated reforms on his 
organization, he was hopeful of simplifying Turkey's military 
procurement bureaucracy by clearly delineating the roles of 
the different organizations currently involved in the 
process.  On specific procurement programs, Bayar presented 
an unyielding position toward two American suppliers, Bell 
Helicopter/Textron (attack helicopters) and Sikorsky (Sea 
Hawks), but a less-confrontational attitude toward General 
Atomics (unmanned aerial vehicles -- UAVs).  He hoped that 
the attack helicopter buy might be decided within two weeks 
-- a prediction we have heard numerous times over the years. 
Bayar is an intelligent and savvy individual, but his 
comments suggest that he is not interested in making the sale 
of defense items to Turkey -- traditionally a frustratingly 
slow and difficult process -- easier any time soon.  End 
summary. 
 
 
--------------------------------- 
Restructuring Defense Procurement 
--------------------------------- 
 
 
3. (C) The Ambassador called on Murad Bayar, the head of the 
Undersecretariat for Defense Industries (SSM), on April 30. 
In response to a question, Bayar downplayed the significance 
of government reform legislation currently before the 
parliament, terming it a "technical issue" for SSM.  The bill 
would eliminate independent undersecretariats except those 
that report to the prime minister.  SSM reports to the 
Defense Minister.  Bayar said the important thing was to 
preserve SSM's civilian character, direct access to the 
Defense Minister and independence, regardless of what its 
name or his title would become.  Continued access to the 
ultimate decision making body on procurements, the Executive 
Committee (consisting of the PM, CHOD and MOD), would be 
essential.  Bayar allowed that "others" may have plans for 
greater integration of SSM's functions into the Ministry of 
National Defense (MND), but "not me nor the government," he 
said. 
 
 
4. (C) That said, SSM was looking at how it interfaces with 
the Turkish General Staff (TGS) and MND, according to Bayar. 
Although a civilian procurement agency had been an experiment 
when SSM was established in 1985, everyone including the 
military accepts this now.  But part of the reorganization 
bill is the principle of one organization for one function. 
Currently, MND and SSM spend about $1 billion/year each on 
procurement for the military, with TGS and the services 
themselves spending a total of about $0.5 billion.  The 
division of labor among the entities is not clear and they 
need better defined roles, he continued.  He agreed with the 
Ambassador that some tension between operators and 
procurement officials was a natural part of the process, but 
he maintained that the military should restrict itself to 
defining requirements and setting priorities, and stay out of 
purely procurement issues such as company selection. 
 
 
5. (C) Regarding SSM's budget, currently outside the normal 
GOT budgeting system and financed with a number of "sin 
taxes," Bayar acknowledged that this special budget was to be 
phased out by 2007 in accordance with a previous package of 
reforms passed by the current government.  Beginning with the 
2005 budget, SSM's new funding would need to go through a 
system set up for "special income funds," giving parliament 
visibility on SSM's spending.  (Note: Finance Ministry 
sources tell us that this procedure would apply only for the 
2006 budget.)  Bayar noted a number of exemptions to normal 
budget procedures SSM would need, such as the authority to 
commit to multi-year obligations, as well as the ability to 
convert appropriated funds into foreign currency upon receipt 
and to hold those funds until contract negotiations are 
complete and payments begin.  (Futures contracts would be 
prohibitively expensive, he explained.)  Bayar downplayed the 
potential impact on the amount SSM would have at its disposal 
in the future.  He noted that the GOT "could" designate the 
same level of revenues to SSM's budget as currently 
contribute to it, although he allowed that in the end, the 
government would have the final say in the amount spent on 
military procurements. 
--------------------------- 
Everything is too Expensive 
--------------------------- 
 
 
ATTACK HELICOPTERS 
 
 
6. (SBU) Bayar told the Ambassador that the ATAK program (to 
procure attack helicopters) was his number one priority.  The 
Ambassador noted that he had been contacted by Bell 
Helicopter, which was sending a team out to talk to SSM the 
following week, and asked about the program's status.  Bayar 
said that he wanted to "resolve the short list." (Comment: 
SSM is reportedly in discussion not only with Bell but also 
the Russian firm Kamov that has partnered with an Israeli 
concern in the ATAK competition.)  The Executive Committee 
would be meeting within the next two weeks and he expected 
that it would either decide to go with one of the two 
competing proposals, or to cancel the program and start over. 
 He noted several factors suggesting that the competitive 
environment might be more favorable to Turkey now than six 
years earlier when Bell and Kamov were selected: 
 
 
-- Boeing is telling SSM that Apaches are now less expensive 
than they used to be; 
 
 
-- The Tiger attack helicopter was under-powered, but now has 
a better engine; 
 
 
-- Agusta had been eliminated from the competition for 
political reasons (PKK leader Ocalan was hiding out in Italy 
at the time) that no longer apply; and, 
 
 
-- Russia recently bought a new helicopter from Kamov, not 
the one proposed for Turkey, but this new model might be 
worth considering. 
 
 
7. (SBU) The Ambassador recalled a letter Bayar had sent to 
ODC-Turkey the previous day demanding all software source 
codes and USG approval of Turkish Industry performing all 
system integration.  It also requested helicopters be 
provided without mission computers as these were to be 
developed in Turkey either with or without the assistance of 
Northrup-Grummon.  The Ambassador noted that delivering an 
aircraft without a mission computer was unprecedented and, 
while it was primarily a US Navy issue to decide, he thought 
it unlikely to occur, especially in two weeks, the deadline 
SSM set.  Moreover, if the program is canceled and re-bid, 
American companies would be daunted by Bell's experience of 
difficult negotiations and great expense over the past seven 
years in vain.  These seemed to be disincentives to competing 
the project again.  Bayar agreed that there were some 
disincentives, but argued Turkey was flexible on the mission 
computer.  The important element was that Turkish industry 
have the ability to completely manage the configuration of 
the aircraft.  With only the Marines and Turkey as major 
customers, the number of units would be small and SSM was not 
confident of Bell's ability to service the aircraft for the 
20-30 years it would likely remain in Turkey's inventory. 
The Ambassador and ODC-T Chief MajGen Peterson noted that a 
major shift of USG policy on releasability was unlikely, with 
the Ambassador commenting that if this were a blanket 
requirement of SSM procurements, there would be very little 
business SSM could do with American companies.  Bayar denied 
it was a blanket policy. 
 
 
MAIN BATTLE TANKS 
 
 
8. (SBU) Turning to main battle tank, Bayar conceded that the 
current program is dead despite official statements saying 
that company proposals were still being studied.  He believed 
the Land Forces Command (TLFC) would need to reexamine and 
refine its requirement and then SSM would solicit new 
proposals.  Meanwhile, an Israeli firm was upgrading Turkey's 
M-60 tanks and the GOT might buy some used tanks to meet 
current needs. 
 
 
UNMANNED AERIAL VEHICLES 
 
 
9. (SBU) Bayar noted that the bids to provide Turkey with 
UAVs were considerably over budget and "not doable."  He 
wasn't sure how to proceed, but was certain this program 
would move faster than the tank procurement.  MajGen Peterson 
suggested that SSM approach TLFC about revising its 
requirements in light of current technology.  The result of 
looking at tasks to be performed rather than units to procure 
might be a realization that fewer units can do the job. 
Bayar was receptive to this idea.  He acknowledged that with 
such a new and rapidly evolving technology, an off-the-shelf 
purchase would result in current technology in the inventory 
soonest; a protracted co-production program would likely 
deliver technology eventually that was a generation or two 
out of date. 
 
 
SEA HAWKS 
 
 
10. (SBU) As soon as Bayar raised Sea Hawks, the Ambassador 
warned that extending the EXIM Bank helicopter guarantee 
facility for that program had been politically difficult, and 
if it were not used soon, it would likely be lost.  Bayar 
understood the need to use the credit line soon if at all, 
but noted that Turkish Treasury objected to the terms and SSM 
would likely need to work on them if EXIM credits were to be 
used.  (Turkish Treasury reportedly believes the window of 
time between when the financing is provided and when it must 
be repaid is too short.)  However, Bayar continued, the two 
sides are so far apart on price, that he had "minimal hope" 
of moving forward.  SSM staff had developed what they thought 
the price should be based on a contract for the type of 
aircraft six years earlier.  When the Ambassador suggested 
that the equipment had evolved over time and one should not 
expect to buy today's technology at yesterday's price, Bayar 
claimed the SSM price included consideration of technological 
changes and Turkish unique configuration requirements. 
(Comment:  Subsequently, a Sikorsky representative informed 
the Embassy that SSM had increased the number of aircraft it 
had previously planned to purchase from 8 to 12, eliminated 
the expensive simulators from the package, and demanded 
Sikorsky provide a discount for the increased volume. 
Turkish Navy sources told Sikorsky that they were unaware of 
SSM's changing the requirements, and that the procurement 
agency did not have the authority to do so on its own.  The 
representative expected his company to refuse to meet SSM's 
demands.) 
 
 
----------------------------- 
The Bazaar Remains the Bazaar 
----------------------------- 
 
 
11. (C) Comment:  Many American defense industry 
representatives were favorably impressed with the 
American-educated Bayar when they heard him speak at the 
American Turkish Council conference in Washington last month. 
 He was seen as an intelligent person with business savvy -- 
someone whom might be serious about trying to fix the many 
problems involved in doing business with SSM.  As a former 
career official of SSM and one of the original authors of the 
ATAK RFP, he certainly understood the organization well. 
However, feedback we have received from Bayar's performance 
in private sessions with individual industries has been 
almost universally negative -- making unreasonable demands on 
terms and conditions and on price not unlike his 
predecessors.  Certainly, demands for complete release of 
source codes and promises of an imminent decision on the 
attack helicopter program are not new.  It is hard to judge 
whether Bayar's hard line on individual programs with the 
Ambassador was part of the effort to drive down the offer 
price of American companies or reflected real readiness to 
walk away from years of negotiation with both Bell and 
Sikorsky.  In any event, it is clear that the early hope that 
Bayar would make SSM easier to deal with is not going to be 
realized, at least not anytime soon.  End comment. 
EDELMAN