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Cablegate: Restructuring Turkey's Defense Industry--A

This record is a partial extract of the original cable. The full text of the original cable is not available.




E.O. 12958: N/A

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
--------------------------------------------- -

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.)

--------------------------------------------- -------
Turkish Industry Transformation: From Co-Producer to Co-
--------------------------------------------- -------

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.

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.


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