US embassy cable - 04ANKARA2791

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 002791 
 
SIPDIS 
 
 
STATE FOR EUR/SE 
 
 
E.O. 12958: DECL: 05/05/2029 
TAGS: MASS, PREL, TU, IS 
SUBJECT: GOT CANCELS $2B ATAK HELICOPTER, $1B UAV, AND AN 
ALREADY DEAD TANK TENDER 
 
 
REF: ANKARA 2489 
 
 
(U) Classified by Ambassador Eric S. Edelman.  Reasons:  1.5 
(B and D). 
 
 
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SUMMARY 
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1. (C) The Executive Committee (PM, CHOD and MOD) announced 
May 14 that it had canceled procurement programs for attack 
helicopters and UAVs, as well as a moribund program for main 
battle tanks.  The EC publicly explained its decision as an 
effort to better acquire new models based on domestic 
production and indigenous designs to meet the current needs 
of the Turkish military.  SSM told Bell-Textron (BT) 
unofficially there were other reasons for the cancellation: 
differences in price, budgetary constraints, attractiveness 
of other offers (i.e. Europeans), and the parties' inability 
to conclude negotiations after more than seven years.  We 
believe heavy lobbying by Europeans -- including a call from 
Russian President Putin to PM Erdogan -- may have also played 
a role.  BT is scheduled to meet with SSM U/S Bayar at 1130 
local on May 18 to formally discuss the decision.  We do not 
expect the GOT to award new contracts before December 2004, 
given Turkey's current budgetary constraints, need to adhere 
to the IMF program, and its desire to entice Europeans with 
the prospect of winning large defense contracts in exchange 
of support for Turkey's EU aspirations.  While the EC's 
decision will further strain relations between US defense 
firms and SSM, we do not believe it will lead the GOT to 
cancel existing contracts with US firms (i.e., Boeing's AEW&C 
program).  End summary. 
 
 
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TURKEY CANCELS THE ATAK, OTHER MAJOR DEFENSE PROGRAMS 
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2. (U) The Executive Committee (EC) announced May 14 that it 
had canceled the attack helicopter and other major defense 
procurement programs, including the UAV and main battle tank 
program.  In a statement released to the press following the 
meeting, the EC (comprised of PM Erdogan, TGS CHOD GEN Ozkok 
and MOD Gonul) said that "it has been decided to meet the 
needs of the Turkish Armed Forces with new models based on 
domestic production and original designs and by making use of 
national resources."  The statement also said there would be 
opportunities for Turkish firms and partnerships between 
Turkish and foreign firms. 
 
 
3. (C) Bell-Textron's (BT) local representative told deputy 
pol-mil counselor May 15 that SSM officials involved with the 
attack helicopter program had confirmed the EC's decision to 
cancel the program.  In addition to the reasons included in 
the statement, SSM reportedly said there were a number of 
other factors that influenced the decision, including: 
 
 
--Failure of the parties to conclude a contract after 
numerous years; 
--Budgetary constraints; 
--Excessive number of aircraft (145) in original Request for 
Proposal (RFP); and, 
--Offers from others (i.e. Europeans' Tiger, Boeing's Apache, 
Russia's Kamov) had become more attractive since Turkey 
down-selected BT in 2001. 
 
 
4. (C) SSM also told BT that it intended to re-issue the 
tender for the attack helicopter program and said the number 
of aircraft would be reduced from 145 to 90.  SSM did not 
indicate when the new tender would be issued. 
 
 
5. (C) The BT representative said that, according to an 
individual who attended the EC meeting, SSM U/S Bayar did 
"all of the talking."  PM Erdogan reportedly appeared 
reluctant at times to cancel the program, but did not oppose 
Bayar's recommendation.  Ozkok reportedly said little. 
 
 
6. (C) A journalist who specializes in defense matters told 
pol-mil counselor May 15 that, according to an individual who 
attended the meeting, TGS Deputy CHOD GEN Basbug and SSM U/S 
Bayar had met for an hour before the meeting.  TGS had 
reservations about Bayar,s alternative approach which, for 
attack helicopters, included an off-the-shelf purchase of a 
few aircraft followed by production in Turkey with much more 
local content than what Bell was offering.  (Comment:  This 
sounds like the alternative Bayar has been discussing with 
Bell-Textron for the past month.  End comment)  However, TGS 
was not happy with this alternative in part because it 
resulted in little if any cost savings. 
7. (C) The journalist said there was little discussion during 
the meeting among the PM, CHOD and MOD.  Most of the meeting 
was taken up with presentations by SSM on the three 
significant projects they considered (attack helicopters, 
main battle tanks, and UAVs).  Ozkok reportedly went into a 
separate holding room from MOD Gonul and PM Erdogan during a 
break, something the jounalist,s source interpreted as a 
result of continuing tension over the Imam-Hatip issue 
(septel).  Because the EC did not accept SSM,s alternative 
procurement model, they decided to cancel the programs as 
currently structured, and issue only a brief statement to 
that effect.  Ozkok reportedly left the EC meeting through a 
side door to avoid the media. 
 
 
8. (C) The journalist noted that several sources had been 
saying for some time that TLFC Commander GEN Yalman has long 
preferred the Kamov alternative, while TLFC staff had been 
arguing their preference for BT,s Cobra.  The journalist 
suggested this might reflect Yalman,s Eurasian, 
anti-American, sentiments.  (Comment:  During meetings with 
visiting US military officers and the Ambassador during the 
last year, Yalman routinely expressed his preference for US 
military equipment, while highlighting the importance of 
providing the GOT and Turkish industry access to sensitive 
technology.  End comment.)  The journalist added that TGS 
under Ozkok generally does not like to impose its will 
regarding procurements on the Services; concern about 
Yalman,s position vis-a-vis the Russians and the debate 
within TLFC produced gridlock at TGS.  The journalist opined 
this could explain why Ozkok reportedly did not take a firm 
position in the Executive Committee meeting.  The journalist 
understood that the new helicopter tender would be for "91 
aircraft" (sic), down from the 145 maximum under the canceled 
project. 
 
 
9. (C) Regarding the main battle tank (MBT) program, the 
journalist's source said that Turkey would look for 250 used 
tanks, probably from Germany or the Netherlands, and would 
work on a new tank probably with South Korean interests who 
have been promising considerable technology transfer. 
(Comment:  The MBT program has been dormant for several 
years.)  Regarding UAVs, Turkey would purchase two Israeli 
Harpy systems and an unspecified number of other UAVs. 
 
 
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WHAT HAPPENED 
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10. (C) We believe there are a number of factors that led the 
EC to cancel the programs.  They include: 
 
 
--A shared view between the PM, CHOD and MOD that Turkey 
could not afford (both financially and politically) to spend 
large sums of money (approximately $2B in the case of the 
ATAK program) on defense-related equipment at a time when the 
GOT is operating under budgetary constraints, trying to 
adhere to the IMF program, and make its case to the EU that 
it has enacted the necessary defense-related reforms to 
receive a date in December 2004 to begin accession talks. 
Furthermore, the lack of funds has been a persistent problem 
for SSM.  Several weeks ago, Bayar told the Ambassador that 
this was a major issue in the UAV program (reftel). 
 
 
--Acceptance that the Turkish Armed Forces do not have an 
immediate operational requirement that would justify spending 
large sums of money to acquire the equipment.  At the time 
the RFP for the attack helicopters was issued (1997), the 
Turkish military was very concerned about the presence of PKK 
terrorists in southeastern Turkey and northern Iraq.  That 
threat has largely dissipated. 
 
 
--Inability of the parties to conclude negotiations after 
many years of negotiations.  (BT has been working with the 
GOT on the attack helicopter program for more than seven 
years.) 
 
 
--Heavy lobbying by Europeans (including at least one phone 
call from Russian President Putin to Erdogan advocating 
Kamov).  Several reports of the meeting cite a participant as 
saying that the new models for these projects will draw 
Turkey closer to Europe.  We have heard Bayar was the one who 
made that comment. 
 
 
--In the case of the ATAK helicopter program, an increasing 
belief (in part fueled by the Russians, Europeans and other 
US defense firms) that Turkey could "do better" (i.e. a 
better system in a shorter period of time for less money and 
with a greater share of the equipment produced locally). 
--A perception that Bell-Textron and (to a lesser extent) the 
USG was unnecessarily restricting Turkey's ability to 
manufacture the helicopter in country and to obtain access to 
sensitive technology. 
 
 
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WHAT IS NEXT? 
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11. (C) While we expect the GOT to issue new, revised tenders 
for the attack helicopter (and possibly the UAV and main 
battle tank) programs, it will not make any procurement 
decisions before December 2004.  Turkey's current budgetary 
situation, its focus on implementing the IMF program, and its 
apparent desire to entice the Europeans to support Turkey's 
EU candidacy with the promise of large defense contracts all 
argue against prompt action.  When the GOT does reissue the 
tenders, we expect SSM and the Turkish Armed Forces to 
continue their (often times unrealistic) practice of 
requiring foreign companies and governments to allow local 
Turkish defense industry to manufacture and assemble as much 
of the equipment as possible in Turkey.  We can also expect 
similar demands for the transfer of sensitive technology.  If 
this is the case, we believe it will be difficult for 
American companies to successfully compete -- a point the 
Ambassador stressed to Bayar during their meeting a few weeks 
ago.  Given the importance the GOT places on developing local 
defense industry, and the widespread belief Turkey can obtain 
such a capability only through Direct Commercial Sales (DCS), 
we believe DCS will continue to be the procurement vehicle of 
choice in Turkey. 
 
 
12. (C) We do not believe that the EC's decision will lead 
the GOT to cancel existing contracts (i.e. AEW&C) with US 
firms.  The EC canceled tenders, not contracts.  While US 
firms will continue to experience their ups and downs in 
trying to implement their programs, we do not believe SSM or 
others will cancel existing signed contracts and run the risk 
of further tarnishing their reputation and losing money 
already paid to effect programs. 
EDELMAN