US embassy cable - 05ANKARA2024

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 002024 
 
SIPDIS 
 
STATE PLEASE PASS TO EUR/SE AND PM/DTTC 
 
E.O. 12958: DECL: 03/30/2015 
TAGS: MASS, MARR, MCAP, TU 
SUBJECT: BOEING PLAYING OUT ITS FINAL ACT IN TURKEY'S 
ATTACK HELICOPTER TENDER 
 
REF: A. ANKARA 1588 
     B. ANKARA 1557 
 
Classified By: Political-Military Counselor Tim Betts, reasons 1.4 (d) 
 
1. (C) Summary: Despite having raised with Post multiple 
concerns about the Terms & Conditions (T&Cs) in the attack 
helicopter tender issued by Turkey's Undersecretariat for 
Defense Industries (SSM) on February 10 (ref a), Boeing 
remains engaged in a dialogue with SSM over modifications 
that might permit the company to submit a proposal.  SSM 
appears eager to keep Boeing in the game and the Turkish 
General Staff (TGS), which had not commented on the tender 
until US contractor concerns surfaced, has now engaged in the 
discussion.  However, Boeing officials do not expect SSM to 
satisfy all of the company's concerns in order to allow the 
company to bid and view their outreach efforts as a final 
gesture of goodwill.  End Summary. 
 
2. (SBU) US-based Boeing representatives came to Turkey on 
March 29 to discuss a list of concerns about Turkey's attack 
helicopter tender with the SSM Aviation Department head and 
helicopter project team.  According to a read-out of the 
six-hour meeting provided to the US Office of Defense 
Cooperation (ODC), Boeing executives explained to SSM that 
Boeing would not be able to participate in the tender if it 
remained as currently written.  Boeing's objective for the 
meeting was to determine if SSM would show any flexibility in 
the T&Cs to alleviate Boeing's issues with the tender, which 
mirror those of Bell Helicopter, which withdrew from 
competition on March 18 (ref b).  These include: Technical 
Data Package (TDP) transfer and updating for 35 years; 
contractor liability for performance of integrated Turkish 
components; submission of preliminary US Government 
authorization and/or licenses with the June 10 proposal 
submission; mandatory performance bond replenishment and 
SSM's right to make unlimited performance bond drawdowns; and 
a 60% offset obligation. 
 
3. (SBU) Boeing additionally raised several company-specific 
concerns, including SSM's requirement for the adaptation of 
an SSM-approved Quality Assurance System (Boeing will not 
change its quality system); contractor compensation for 
obsolete components over 30-35 year period; and a Boeing 
requirement for specific language in the liabilities section 
to insulate its commercial aircraft business unit.  According 
to the Boeing officials, SSM exhibited some willingness to 
consider Boeing's concerns and asked for a complete listing 
of Boeing's issues in writing, along with suggested 
alternative tender language.  However it also requested 
Boeing obtain from the USG a letter stating the USG would 
grant all required export licenses.  Boeing officials told 
ODC that they rejected outright the request for a letter from 
the USG but agreed to provide the written list of concerns. 
They did not provide us with a timeframe for the response. 
 
4. (SBU)  In discussions with ODC, the US-based Boeing 
representatives were circumspect about the company's ultimate 
decision on participation in the tender, and declined to 
share the company's concerns in great detail.  However they 
did reveal that Boeing's latest cost estimate for 
participation is $4M-$4.5M, or $2M higher than originally 
thought: $2-$2.5M to write the bid and $1.5-$2M to conduct 
the aircraft demonstration and live fire test. 
 
5. (SBU) Boeing's Ankara representative was more forthcoming 
when he returned from consultations in Seattle.  In his 
estimation, Boeing was just completing the final act of a 
play with a known ending.  It would meet its commitment to 
provide SSM with suggested contractual changes to address its 
18 concerns but did not expect SSM to agree to enough of them 
to persuade the company to submit a proposal.  Since Boeing 
considers all 18 "show stoppers," SSM rejection of just one 
could stop the company from bidding.  A senior Boeing 
executive would visit Turkey in the coming weeks to emphasize 
this position with SSM and to remind the Turkish Land Forces 
Command that it could acquire Apache helicopters through the 
Foreign Military Sales program.  If SSM does not concede 
enough to allow Boeing to bid, to discourage SSM from trying 
to keep Boeing in an fruitless dialogue the company would end 
the communication until shortly before the June 10 bid 
submission deadline, at which time it would announce its 
withdrawal from competition. 
6. (C) Following SSM's meeting with Boeing, Undersecretary 
Murad Bayar told ODC Chief General Sutton that SSM had not 
been particularly surprised by Bell Helicopter's decision not 
to bid given Bell's negative experience with the failed 
initial tender.  However, he emphasized that losing Boeing 
would be a very bad outcome for the overall competition of 
the tender.  Therefore, SSM is willing to consider changing 
those contract items and T&Cs that Boeing declares to be 
absolute "show stoppers," if they are submitted soon in order 
to adjust the T&Cs for all bidders.  Aviation Department 
Chief Sedat Guldogan told Deputy PolMilCouns his impression 
was that Boeing had arrived at the meeting with SSM prepared 
to withdraw from competition, but seemed more encouraged by 
the end of the day.  He asked for any information the Mission 
could share on Boeing's latest thoughts on the tender.  After 
checking with Boeing, we plan to tell Guldogan that the 
company is making a good faith effort to be able to bid, but 
the T&Cs are making it very hard to do. 
7. (C) SSM appears eager for recognition of its outreach 
efforts to US contractors.  Guldogan told Deputy PolMilCouns 
and ODC Defense Cooperation and Acquisitions Officer on March 
22 that the tender had been altered even before issuance to 
limit the replenishable bid bond to 20% of the contract value 
and to limit contractor simple negligence liability to 20% of 
the contract value in response to concerns voiced by ODC. 
SSM had also agreed to a request by US defense contractors 
for bilateral meetings following the March 10 Bidders' 
Conference and to the March 29 meeting with Boeing in order 
to demonstrate its willingness to accommodate US corporate 
concerns.  Guldogan asked the Embassy to urge US companies 
not to leave the final decision to lawyers, suggesting they 
look beyond the contract terms to consider that SSM had never 
exercised its right to draw down a bid bond.  Separately, the 
Turkish General Staff (TGS), which had refrained from comment 
about the tender until the US concerns were raised, sent LTG 
Babaoglu, Chief of Plans and Principles, to review in detail 
with ODC officials the US contractor issues.  Judging by his 
questions, ODC does not believe LTG Babaoglu was familiar 
with the details of the tender before the discussion. 
 
8. (C) COMMENT: While the signs would suggest that Boeing 
will ultimately withdraw from the tender, it is making a good 
faith effort with SSM to work through its concerns and has 
not made a decision to withdraw.  SSM appears equally 
inclined to work for Boeing participation.  TGS engagement is 
a positive sign, although we are unsure if they are prepared 
to act to ensure a US bid.  We share Boeing's pessimism that 
SSM will not be as flexible as the company needs to keep it 
in the game.  But for now the game continues.  END COMMENT. 
EDELMAN