Offset & Grow

Turkey’s defense industry has grown significantly since the government’s policy to increase investment in local R&D in 2004. How has the use of offset agreements helped to encourage this growth?

It is a remarkable fact that Turkey’s defense industry has grown significantly in the last decade, and offsets played an important role in this growth. It should be remembered that, in Turkey, offset policies and applications were identified by our Ministry after taking the needs of our defense industry into consideration. Within this context, two offset directives have been published since 2004 with the aim of directing offset activities toward the defense, homeland security, and aerospace industry to raise the level of local content and increase export capacities as well as our share in the global defense/aerospace market. Moreover, in order to improve the penetration of the defense sector in Turkish industry, we made the necessary changes in our offset policies to encourage SMEs to be more involved in defense procurement programs. We believe that such changes in the offset policy have encouraged Turkish companies to create their own indigenous designs for defense acquisition projects, which eventually resulted in the growth of the defense industry. On the other hand, it should be kept in mind that offset programs not only create additional business possibilities for defense industry companies, but can also be utilized as a significant instrument to realize new investments in Turkey’s defense sector. In such cases, both the investment amount and the exports to be realized as a result of this investment are accepted as offsets.

Which Turkish defense products do you believe are the most competitive on the international marketplace?

I believe that both land and naval platforms are very competitive on the international market, especially coast guard boats, fast intervention boats, and modern patrol boats that are produced by our shipping industry. Also, Turkey has reached a certain level of technology in armored and tactical wheeled vehicles, and those land platforms are highly reputable and widely exported. In addition to those platforms, I would like to mention the amphibious assault bridge project, which is being locally developed for the specific requirements of the Turkish Armed Forces. This product has a great potential market, as it is unique in its category.

What steps are being taken to achieve Turkey’s aspirations in the aerospace industry? How has TAI helped to boost Turkey’s global profile in this industry?

Turkey has given particular attention to aerospace projects, especially in recent years. There has been a remarkable increase in indigenous projects such as the Anka and Hürkuş, and Turkey is aiming to have its own fighter aircraft by 2023. Turkey’s leading aerospace company, TAI, is a key player in these local projects. While on the one hand we are moving to locally designed and manufactured platforms, on the other hand we are supporting the involvement of SMEs in aerospace projects. In the aerospace industry, it is crucial to follow standards, and it takes time to developed local industry up to the necessary levels. Via offsets, we encourage foreign companies to work with local industry, especially in areas where the technology is moving toward export potential. SMEs can also benefit from TAI’s experience via the Kazan Hub, through which they can become sub-contractors for TAI easily.

How will the new light helicopter program fit into Turkey’s growing defense manufacturing capabilities?

Turkey’s vision has significantly changed from direct procurements to indigenous projects over the last decade. Turkey now has the vision to establish a local aerospace industry that will have the ability to design, test, manufacture, and export aircraft. The aim is not just to manufacture aircraft, but to have them manufactured to world standards and made compatible with their competitors. In order to achieve this goal, both industry and government need to harmonize their activities. With TAI being the prime contractor, guiding local sub-contractors, and the SSM governing and directing TAI and local industry, the helicopter program will be a success story for the coming generation.

What steps are being taken to establish Ankara as a hub for the defense industry? Are there other manufacturing centers, such as Kırıkkale, that are also surging ahead?

Most defense industry companies, such as TAI, ASELSAN, HAVELSAN, Roketsan, FNSS, and MKEK are all set up either in Ankara or in its vicinity. We are eager to improve the involvement of SMEs in the defense industry. In that sense, we have initiated the establishment of a hub adjacent to TAI’s facilities in Kazan (Ankara) in April 2011. An area of 3 millionsqm was reserved for the Kazan Hub, and it is expected that 100-200 sub-industry companies and SMEs will benefit from it. This industrial zone will be a clustered and specialized establishment, especially for the aerospace sector, to improve the manufacturing, technological, and management capabilities of the companies present under the leadership of TAI. In addition to this hub, there is another defense and aviation cluster, called OSSA, situated in the organized industrial region of OSTİM in Ankara. This cluster was built in July 2008, and houses 89 SMEs that aim to become preferred sub-suppliers in the international defense marketplace. Running parallel to these initiatives, the Ankara Development Agency has declared Ankara as being at the heart of the defense sector, and announced that there will be incentives for clustering activities on offer in the defense sector. By these means, the involvement of local industries in defense procurement programs will be realized in a broader sense.

Turkey is becoming renowned for its military electronics and armored vehicles. Where do these segments of the industry stand in a global context?

Turkey has become an emerging and well-known actor in military electronics and armored vehicle systems in recent years. This can easily be seen by taking a brief look at the export statistics. In military electronics, ASELSAN, HAVELSAN, and many large-, medium-, and small-sized companies are gaining power in communications, simulators, electro-optics, jamming, weapon control systems, and similar military applications on a global basis. In addition, Otokar, FNSS, and BMC are exporting their locally made armored vehicles around the world. FNSS’ exports to Malaysia in 2011 set a record for the Turkish defense industry of more than $600 million.

How will the national main battle tank (MBT) Altay program help to encourage the development of the local defense industry?

Phase I of the Altay project, involving prototype design, development, and qualification, was launched three years ago to fulfill the third-generation MBT requirement of the Turkish Land Forces. Within the scope of the project, all design, development, production, and test activities will be carried out in Turkey. The Altay tank will be a unique and indigenous platform, and the intellectual property rights of the Altay tank will belong to SSM. Otokar, the main contractor for the project, is responsible for system design, development, and the overall performance of the tank. In addition to the national armor system, the main electrical/electronic systems including the fire control system and 120 mm/55 caliber main gun system are being developed and manufactured respectively by Roketsan, ASELSAN, and MKEK. Currently, detailed design activities are ongoing and a mobility test rig (MTR) prototype is under production. Although Phase I is only the design and development stage for the Altay Project, there are already more than 40 local companies involved. In the serial production phase (Phase II) the number of local industries that will participate in the project will increase. Considering that MBTs are the most complex platforms among all land systems, and that the number of countries having the ability to produce their own MBT is very limited, the Altay project will boost local industries by bringing in new technology. For example, armor design, development, and test capabilities before the execution of the Altay Project were very limited. However, we now have a state-of-the-art National Ballistic Protection Center established in Roketsan’s facilities. Considering the technical specifications of the Altay tank, it will be superior to its global rivals. Hence, by means of the features and technical and tactical performance of the Altay tank, local companies will enhance their ability to design, develop, and manufacture any type of military land vehicles. Consequently, the technology and know-how gained during the project can be dispersed to SMEs to guarantee permanent infrastructure for our MBTs. The serial production and manufacturing phase for 250 Altay tanks will commence five years after the successful completion of the design and prototype phase. In addition, it is aimed to strengthen Turkey’s defense industry infrastructure by increasing local content and boosting local partners.

Are we likely to see the further development of Turkey’s warship building capabilities, and in what ship classes is Turkey looking to specialize in?

In recent years, Turkey’s naval shipbuilding industry has developed extensively and succeeded in producing fast boats, offshore patrol vessels (OPVs), corvettes, amphibious vessels, and auxiliary warships. Besides surface ships, new submarine production and design capabilities have been developed. The sustainability and development of these capabilities shall be the main objective of future strategies. Within these process, several systems and equipment such as command and control systems, fire control systems, and sonar have been developed by Turkish companies. Studies such as a national propulsion system have already commenced and the development of naval defense capabilities shall continue. Turkey has achieved internationally competitive capabilities and has exported fast boats and OPVs to several friendly countries. Furthermore, the MİLGEM class corvette has received strong interest from the international market. In line with international needs and the development of Turkey’s naval shipbuilding industry, the country aims to specialize in frigate and submarines in the future as it has succeeded already in fast boats, OPVs, corvettes, amphibious vessels, and auxiliary ships.

© The Business Year – May 2012