US embassy cable - 05ANKARA2890

C O N F I D E N T I A L ANKARA 002890 
 
SIPDIS 
 
STATE FOR EUR/SE, PM/DTTC AND EB 
 
E.O. 12958: DECL: 05/10/2015 
TAGS: MASS, MARR, PREL, EFIN, BEXP, TU, EXIM 
SUBJECT: SIKORSKY SEAHAWK SALE TO TURKEY CONTINGENT ON EXIM 
FACILITY EXTENSION 
 
Classified By: Ambassador Eric S. Edelman, reasons 1.4 (b) and (d). 
 
1. (C) SUMMARY: Sikorsky Aircraft Corps, after three years of 
negotiation, may be closing in on an agreement with Turkey 
for the sale of Seahawk helicopters to the Turkish Navy. 
According to the local Sikorsky rep, the Turkish Naval Forces 
Commander wants an agreement finalized before the Prime 
Minister and Deputy Chief of the General Staff (DCHOD), go to 
Washington in early June.  Since the Turkish Undersecretariat 
for Defense Industries (SSM) recently submitted a counter to 
Sikorsky's stated "Best and Final Offer," it is debatable 
whether an agreement will be signed before June.  However, if 
it is, SSM will insist that the existing EXIM facility -- 
which has already been extended once -- be extended yet 
again.  END SUMMARY. 
 
2. (C) After years of negotiation with the Ministry of 
National Defense and SSM on both the package components and 
the approx. $400M price tag for 12 Seahawk helicopters with 
an option for an additional five (Lot 2 of a 1992 sale won by 
Sikorsky), Sikorsky submitted a letter to SSM on April 5 
stating that its offer presented on February 16, 2005 was its 
Best and Final Offer.  Subsequently SSM responded with what 
has been characterized as a "frosty" response, accepting some 
of the items offered in the Feb. 16 offer but requesting 
others that had been rejected by Sikorsky or never discussed. 
 Sikorsky's local rep told PolMilCouns that he advised 
Sikorsky headquarters to stick to their guns and to send a 
letter reminding them that the 16 Feb. offer is final. 
Through his contacts in the Turkish Navy, the Sikorsky rep 
understands that Turkish Naval Forces Commander, Admiral 
Ornek, would like to see this agreement signed before DCHOD 
Basbug addresses the annual American-Turkish Council 
Conference in Washington from June 6-8.  According to 
Sikorsky, Admiral Ornek may also consider this agreement a 
deliverable for Prime Minister Erdogan, who will be in 
Washington during the same time frame and has requested a 
meeting with President Bush. 
 
3. (C) Sikorsky Lot 1 and Lot 2 helicopters were to be 
covered by an extraordinary $1.366B EXIM facility under the 
1990 Foreign Operations Appropriations Act, which was due to 
expire in June 2001.  After a very difficult process, this 
facility was extended to allow helicopter delivery and 
payment by May 15, 2008.  The loan repayment deadline 
remained December 31, 2011.  The lengthy negotiations on Lot 
2 have eaten into the validity of the facility and, if an 
agreement is signed this year, Sikorsky will be physically 
unable to deliver 12 helicopters by mid-2008.  Additionally, 
the Turkish Treasury has requested a 10-year repayment period 
through 2015.  Under the current facility, Turkey's exposure 
fee will significantly increase after 2011.  We understand 
that SSM intends to make EXIM facility extension a 
pre-condition to contract effectivity and executability and 
will hold Sikorsky accountable for its approval. 
 
4. (C) COMMENT:  According to the local Sikorsky rep, when he 
and others in the company pulsed several high-ranking EXIM 
officials, they received a clear message that it would be 
extremely difficult to get a second extension of the loan 
facility.  Throughout the negotiation process, both Sikorsky 
and the mission have emphasized repeatedly to SSM and Defense 
Minister Gonul that Turkey needed to make a decision in 2004 
in order to ensure the sale could be implemented under the 
existing facility, and underscored that an extension was 
highly unlikely.  However, SSM discounts the threat of no 
EXIM extension as it does the claims by Sikorksy and other US 
defense contractors that any offer is the company's "Best and 
Final."  Both are viewed as just another opportunity for 
further negotiation.  Discounting the difficulty of achieving 
the first EXIM loan extension, SSM points to the fact that it 
was in fact granted, and therefore presumably could be 
extended again.  In addition to selling these 12 (potentially 
17) helicopters, Sikorsky would like to remain in the market 
to participate in a general helicopter tender and other 
tenders expected later this year.  If it gets the nod from 
SSM, Sikorsky will try its best to meet SSM's requirement for 
a second EXIM loan extension.  END COMMENT. 
EDELMAN