US embassy cable - 04ANKARA5262

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 005262 
 
SIPDIS 
 
E.O. 12958: DECL: 09/16/2029 
TAGS: MASS, PREL, MARR, TU 
SUBJECT: NEW TURKISH DEFENSE INDUSTRY POLICY BEGINS TO TAKE 
SHAPE 
 
REF: ANKARA 2489 
 
(U) Classified by Ambassador Eric S. Edelman.  Reasons 1.4 
(b) and (d). 
 
1. (C) Summary: During a Sept 15 tour d'horizon with the 
Ambassador, Undersecretary for Defense Industry Bayar had a 
better informed and more balanced view of the state of 
Turkish defense industry and a clearer vision of where he 
wants to take it than during their first meeting last May. 
On procurement, Bayar sees Turkey moving more to a JSF-like 
consortium model for high-performance, highly complex systems 
like advanced aircraft, with greater domestic industrial 
involvement for less technologically advanced systems.  On 
industry, he thought partnering between Turkish and foreign 
firms was still viable, provided both parties brought value 
added to the venture.  In this regard, he cited GD Land 
Systems and GE as "good" foreign partners and Lockheed Martin 
as a "bad" partner.  He thought Turkish firms should develop 
niche capabilities, with communications, software and 
shipbuilding as likely areas where Turkey could excel.  In 
response to the Ambassador and ODC Chief's point that defense 
business has a strategic as well as a commercial dimension, 
Bayar suggested that Turkey would be asking for less specific 
technology transfer in the future, instead focusing on 
capabilities, such as the technology necessary to integrate 
an indigenous mission computer in a new attack helicopter. 
He asked that organizations that make releaseability 
decisions receive appropriate "policy guidance."  Bayar 
indicated that Turkey might not use the available EXIM Bank 
facility to purchase more Seahawks.  He minimized the likely 
impact of EU reforms related to his part of defense spending, 
although he allowed that final decisions had not yet been 
made.  End Summary. 
 
2. (C) The Ambassador and Undersecretary for Defense Industry 
Murad Bayar discussed defense industry and GOT military 
procurement on Sept 15.  ODC-T Chief Maj.Gen. Sutton, Deputy 
U/S for Defense Industry Faruk Ozlu and polmilcouns also 
participated. 
 
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Turkish Defense Policy's New Direction 
-------------------------------------- 
 
3. (C) The Ambassador began by saying that he and American 
companies had many questions about Turkish defense 
procurement policies and the future role our companies might 
be able to play in Turkey.  Bayar accepted that the situation 
was unclear.  He said that for expensive, technologically 
advanced and extremely complex systems, like high performance 
aircraft, Turkey in the future would look for international 
consortium opportunities like the Joint Strike Fighter or the 
A-400-M transport programs.  For less advanced systems, 
Turkey would look for more cooperative efforts with greater 
domestic content.  Armored vehicles (other than tanks), for 
example, might be produced totally in Turkey.  There would 
still be partnerships with foreign firms, he quickly added. 
The Undersecretariat for Defense Industries (SSM) would look 
for arrangements in which both sides added value. 
 
4. (C) Unlike his comments last May (reftel), Bayar said that 
he saw both successful and unsuccessful partnerships in the 
defense field in Turkey.  FNSS (a joint venture with Turkey's 
Nurol and General Defense Land Systems) was a success which 
SSM wanted to see continue and prosper.  TEI (an aircraft 
engine firm 49% owned by GE) was another success story.  In 
both cases, the foreign partner demonstrated an interest in 
the business, seeking international sales, providing 
technology or otherwise contributing positively to the firm. 
This was in contrast to Lockheed Martin and its 42% stake in 
Tusas Aerospace Industries (TAI).  Bayar maintained that LM 
had lost interest in TAI after Turkey's two F-16 programs 
were completed.  Moreover, the partnership agreement forming 
TAI in 1984 calls for the joint venture to dissolve in 2009 
unless the partners agree to continue it.  As a result, SSM 
wanted to buy out LM's stake in the company and resolve the 
uncertainty of TAI's future.  This would allow potential 
customers to have confidence the firm could deliver on orders 
beyond 2009, he observed. 
 
5. (C) Bayar thought Turkish defense firms should carve out 
niches where they could excel.  In both communications and 
software, Turkey has demonstrated capabilities which could be 
further developed, he said.  Shipbuilding, an 
already-established industry in Turkey, had potential to 
expand into the defense arena.  Regarding reports of SSM's 
efforts to "consolidate" Turkey's defense industry, Bayar 
said consolidation was only contemplated for those companies 
that were majority owned by the GOT or the Turkish Armed 
Forces Foundation, including TAI.  After rationalizing their 
management and cost structures, it might be possible to 
consider privatizing these companies, he opined. 
 
------------------------------------ 
New Approach to Technology Transfer? 
------------------------------------ 
 
6. (C) The Ambassador noted past requests for release of 
technology had hurt American industry's ability to compete 
for Turkish contracts.  Demands for complete release of 
source codes could cut American products out of the Turkish 
market, which was detrimental not only to US commercial 
interests but also to interoperability of our forces. 
General Sutton added that Turkey's considering its national 
interests was only natural, but all that American companies 
sought was a level playing field and an opportunity to 
compete.  Bayar acknowledged the problem and suggested that 
SSM was rethinking its approach to technology transfer.  In 
the case of the attack helicopter, the new request for 
proposals would call for the installation of a Turkish 
mission computer.  It would not demand all source codes, 
simply the right connectors to permit the installation and 
sufficient information to allow the computer to interface 
with necessary systems.  He recalled when this issue came up 
with Bell and its Cobra helicopter last May, the answer to 
the releasability of this information from Navy IPO was "we 
will work on it and see."  Bayar took this as a positive 
sign.  While he understood the US's need to protect its most 
sensitive technology, such as on fighter aircraft, he thought 
technology for helicopters was "less sensitive."  "Attack 
helicopters are not strategic weapons, but tactical" he said. 
 He understood that the organizations that made decisions on 
releasability were bureaucratic and were averse to changing 
existing practices.  He asked that these decision making 
bodies receive "policy guidance" to maximize releasability. 
 
----------- 
Helicopters 
----------- 
 
7. (C) Responding to the Ambassador's question, Bayar 
confirmed that both TGS and Turkish Land Forces were 
reviewing the requirements for attack helicopters.  He 
expected a new request for proposals would be released soon. 
He opined that periodic rumors that the US Marine Corps' 
AH-1Z program was being cancelled arose from a lack of 
understanding in Turkey of the US "milestone" procurement 
system in which programs are subject to periodic reviews and 
can be cancelled at various points in the process.  The 
Ambassador and ODC Chief confirmed the USMC program remains 
on track. 
 
8. (C) The Ambassador noted that the EXIM Bank facility for 
the purchase of additional Seahawks was approaching its 
expiry and would need to be used soon or it could lapse. 
Another extension could be politically difficult, he 
observed.  Bayar was aware of the time limit on the facility 
but had not fully understood the political aspect of the EXIM 
financing or its previous extension.  He stated that SSM 
remained committed to negotating the purchase of additional 
aircraft from Sikorsky, but that the EXIM terms were not as 
attractive now as when the facility was first provided.  He 
said SSM "has money in the bank" and Turkish Treasury might 
choose to finance the purchase using different means, even if 
a deal was concluded in time to make use of the EXIM facility. 
 
---------------------------- 
Defense Budgeting and the EU 
---------------------------- 
 
9. (C) Turning to EU-related reforms and their impact on 
SSM's spending, Bayar said there is a law requiring SSM to 
submit a budget in 2005 for its 2006 budget.  However, the 
Defense Support Fund (an off-budget fund for defense 
procurements that is supplied by certain tax revenues 
specified by the cabinet) would continue to exist until 2007. 
 Bayar said he was currently discussing with financial and 
political authorities ways to preserve SSM's secure income 
stream, ability to use no-year money for multi-year 
procurement projects, and authority to hold budget resources 
in foreign currencies.  He foresaw parliament enacting a law 
that would specify the percentages of certain taxes that 
would be earmarked for SSM, although there was not yet 
agreement on this.  He also thought arrangements could be 
made for multi-year contracting and foreign currency 
transactions that would effectively preserve SSM's current 
practices and procedures.  The one significant change, he 
noted, would be that SSM would have less discretion over the 
use of its budget resources.  How it spends its money would 
be specified in the budget. 
 
----------------------------- 
More Confident/Clearer Vision 
----------------------------- 
 
10. (C) Comment:  Bayar was notably better informed and had a 
more balanced view of defense industry in Turkey during this 
discussion than he had displayed last May (reftel).  At that 
time, he could not cite a single successful joint venture in 
the defense field, even characterizing FNSS -- past SSM 
undersecretaries' model of a successful international 
collaboration -- as a complete failure.  Now, he not only 
sees FNSS as a success, but appeared committed to helping the 
company survive as its production run of armored vehicles for 
the Land Forces comes to an end this year.  While last May 
Bayar seemed at a loss to describe his 'new model' for 
defense procurement, he now has a better understanding of 
some of the limitations that domestic defense industry has. 
That said, his continued fascination with the idea of 
developing an indigenous mission computer for Turkey's attack 
helicopter may reveal he still has some misconceptions about 
both Turkish industry's capability and the amount of 
technology release required to successfully integrate an 
attack helicopter's systems with a new mission computer. 
Still, he demonstrated considerable evolution of his 
thinking, presenting a much less combative and nationalist 
approach.  Whether this more thoughtful and realistic line 
will be reflected in his organization's dealings with 
American businesses remains to be seen.  Boeing just 
completed a difficult pre-design MOU negotiation on the AEW&C 
program that suggests SSM's minions have not yet caught up to 
their undersecretary's vision.  The next test will be the new 
attack helicopter competition.  We will have to wait and see 
to what extent thinking has really changed.  End comment. 
EDELMAN