US embassy cable - 04ANKARA6239

UNCLAS SECTION 01 OF 02 ANKARA 006239 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED 
 
E.O.  12958:  N/A 
TAGS: MASS, PREL, TU 
SUBJECT: RESTRUCTURING TURKEY'S DEFENSE INDUSTRY--A 
WORK IN PROGRESS 
 
 
1. (SBU) Summary: Turkey's Undersecretary for Defense 
Industries (Savunma Sanayi Mustesarligi - SSM) Murad 
Bayar outlined restructuring plans for the Turkish 
defense industry during a September 28 Turkish-American 
Defense Symposium hosted by SSM and the American- 
Turkish Council (ATC).  In the first such conference 
organized in Turkey, U.S. and Turkish businesses 
discussed the bilateral defense procurement 
relationship and Turkey's expectations of U.S. industry 
as it looks towards Western Europe and eventual EU 
membership.  Acknowledging the role of politics in 
defense procurement, Bayar called for a new paradigm in 
the bilateral procurement relationship in which the 
U.S. looked to Turkey as a source for products and not 
just a market for US goods, suggesting that other 
countries, particularly EU member states, were eager to 
partner with Turkey.  SSM and Turkish industrial 
representatives called for US firms to increase Turkish 
work share and expand technology transfers.  We doubt 
Europeans (and Israelis) are the panacea for Turkey's 
defense industry woes that GOT procurement officials 
suggest.  However, frustration with the US technology 
transfer approval process seems to be motivating them 
to seek alternatives to US suppliers.  End summary. 
 
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Four-Phase Defense Industry Restructuring Plan 
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2. (U) During a one-day symposium, SSM Representative 
Sedat Guldogan presented the Turkish Defense Industry 
Restructuring Project, launched to improve Turkish 
industry capacity, and increase sales and technological 
capability.  Guldogan underlined the importance of 
consolidating Turkish defense companies.  The strategy 
behind the restructuring project was to increase local 
industry capacity (especially to meet the needs of the 
armed forces), to adopt and produce new technology, to 
enter international programs with mutual dependence and 
meaningful work share (not just as a supplier or 
component producer), and to utilize existing capacities 
and make effective investments, in order to compete 
internationally and increase exports. 
 
3. (U) SSM plans to implement this project in 4 phases: 
(1) consolidate majority state-owned companies - 
primarily ASELSAN (produces electronic technologies), 
HAVELSAN (produces avionics, fight simulators, command 
and control information management systems), TUSAS 
(Turkish Aircraft Industries - joint venture company 
between Turkish government and General Electric Co.), 
TAI (Turkish Aerospace Industries -produces aerospace 
components) and ROKETSAN (produces missile/rocket 
components); (2) consolidate other state-owned 
facilities like MKEK (Machinery & Chemistry Industry 
Corporation), THY maintenance (Turkish Airlines), HABOM 
(Aero-Maintenance Repair & Overhaul Center); (3) 
consolidate armed forces maintenance and repair 
facilities and capabilities; and (4) privatize the 
entire defense industry. 
 
4. (U) The first phase calls for the establishment of a 
central holding company for TUSAS, TAI, ASELSON, 
HAVELSAN and ROKETSAN (companies where SSM is the 
principal share holder) responsible for management, 
business development, strategic planning, finance, 
human resources, R&D, procurement and marketing.  The 
holding company would focus on technology-based 
cooperation, design and development projects, projects 
for joint ventures, and improved and sustained 
developments with foreign companies. No time line for 
completion of this phase was provided.  (Comment: A 
Nov. 3 Turkish press report stated that only four 
companies would be included in the consolidation plan, 
excluding TUSAS.  SSM confirmed for us Nov. 3 that 
TUSAS is still slated to be included.  End Comment.) 
 
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Turkish Industry Transformation: From Co-Producer to Co- 
Developer 
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5. (U) Undersecretary Bayar, in a panel discussion on 
the `Turkish-US Defense Industry Relations', commented 
that the Turkish-US defense cooperation paradigm needed 
to shift, with the U.S. viewing Turkey not only as a 
market for its products but also as a source of quality 
technology and finished components.  His goal is to 
transition TU-US cooperation from co-production to co- 
development.  In response to a question on whether 
Turkey's EU aspirations would impact its procurement 
policy, Bayar acknowledged that procurement deals were 
political and that Turkey would look more closely at 
Europe, not only because of Turkey's desire to join the 
EU but also because European firms appear more eager to 
work with Turkish firms and are more open to 
partnerships that include investment and technological 
transfer.  Bayar further indicated that Turkish and US 
companies should seek opportunities to develop joint 
products given that the new restructuring project 
foresaw procuring many materials through partnerships 
like the current model in Germany. 
 
6. (U) While Turkish participants agreed that Turkey 
may not become a major exporter of equipment or systems 
to the US, they expected to be able to supply sub- 
systems and components for US companies.  Turkish 
panelists stressed that U.S. technology transfer 
restrictions were a serious obstacle, and that US 
companies should consider using Turkey as bridge to 
find new markets in Europe.  Several US panelists noted 
that Turkey's low research and development (R&D) budget 
and lack of investment in high-tech equipment limits 
its competitiveness in world markets.  While 
acknowledging this comment, Bayar did not provide any 
information to suggest that Turkey planned to increase 
R&D or technology investments as part of the industry- 
restructuring plan. 
 
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Comment: Is Europe the Answer 
----------------------------- 
 
7. (SBU) Comment: SSM presented the new restructuring 
project as a well-developed concept that had been in 
the works for six months. However, this was the first 
time it was explained publicly and many details appear 
to be left hanging, including the mechanism for 
eventual private sector participation.  We do not 
believe SSM's confidence in European and Israeli 
eagerness to transfer technology rings true but the 
lengthy US transfer approval process is a regular 
source of complaint by Turkish government and industry 
officials alike.  SSM's goal is to turn the Turkish 
defense industry into a net exporter of military goods 
and the government is looking for foreign partners that 
will help make this a reality.  End Comment. 
 
Edelman