US troubles in landing Turkish defense contracts set to continue

US troubles in landing Turkish defense contracts set to continue

During a March 15 hearing in Congress, a senior Pentagon official criticized Ankara’s defense acquisition policies in unusually candid language, saying the present approach by the Turkish procurement agency “is hindering Turkey’s military modernization, interoperability with NATO allies and U.S.-Turkey defense industry cooperation.”"Onerous terms and conditions – liability, work share, technology transfer, and upfront U.S. government approval requirements in Turkey’s standard contracts – have kept U.S. firms from bidding,” Dan Fata, deputy assistant secretary of defense for Europe and NATO, told the hearing on U.S.-Turkish relations at the House of Representatives’ Committee on Foreign Affairs.Since then, U.S. concerns voiced by Fata have remained in place, with Ankara selecting non-U.S. suppliers in three critical programs altogether worth billions of dollars over a decade. And the future does not look bright for potential American commercial sales to Turkey.To avoid misunderstandings in evaluating the current status of Turkish-U.S. defense industry relations, the relationship’s foundations should be first analyzed correctly. It is a two-fold relationship: First, Turkey’s government-to-government purchases from the United States, based on a Foreign Military Sales (FMS) mechanism; and second, commercial sales in which US companies usually have to compete against rivals from other countries. It is the second category where the Americans face problems.The United States has been Turkey’s closest Western partner and largest weapons supplier in modern times. Each year Turkey buys defense equipment worth more than $1 billion from the United States on the FMS scheme. FMS loans are U.S. government credits designed to enable allied nations to buy U.S. defense equipment.And such government-to-government weapons sales will continue to flourish, with Turkey set to buy new aircraft and related fighter services worth nearly $15 billion over the next 10 to 15 years.

Lucrative FMS deals:

Those deals include a Turkish plan to buy 100 next generation F-35 Joint Strike Fighter jets worth $10.7 billion; an agreement for the sale to the Turkish Air Force of 30 F-16 Block 50 fighters worth $1.85 billion; and an ongoing modernization of older Turkish F-16s for $1.1 billion. In all these cases, U.S. Lockheed Martin is the prime contractor.

In addition, Turkey continually buys various types of Air Force and naval missiles and other related services under FMS deals with the United States.Now back to commercial programs. In the 2000s, U.S. companies have managed to secure only two major direct commercial sales: First a nearly $1.6 billion contract with Boeing in 2002 for four airborne early warning and control (AEW&C) aircraft (which is faltering, bythe way, with huge delivery delays because of Boeing’s bad planning); and a $580 million agreement with Sikorsky Aircraft last year for 17 S-70B Seahawk naval warfare helicopters. Sikorsky is the only major U.S. survivor in the rocky Turkish defense market in terms of commercial sales.But in major commercial deal decisions over the past few months only, the Turkish government and military opted for non-U.S. solutions for attack helicopters, training aircraft and a model for main battle tanks.Earlier this year, the Defense Industry Executive Committee, Turkey’s top decision-making body on defense procurement whose members include the prime minister, the chief of the general staff and the defense minister, selected the Italian-British AgustaWestland, maker of the A-129 Mangusta International, over South African rivals. The program is estimated to cost $2.7 billion for 90 platforms.And in late June the Executive Committee opted for South Korean solutions for the tank and trainer aircraft programs.The trainer aircraft program is worth about $450 million and involves up to 54 platforms. Ankara awarded the deal to Korea Aerospace Industries (KAI), maker of the KT-1 Woongbi, which beat the Super Tucano from Brazil’s Embraer.

US faltering in commercial sales:

On the tank program, South Korea’s XK-2 platform, developed by the Agency for Defense Development, was chosen as the model on which Turkey’s new main battle tank would be based.Turkish officials said that the fresh business for Korean companies may easily exceed $1 billion as the tank program would most likely involve several follow-on contracts. U.S. companies were non-players in these three competitions. Boeing, maker of the U.S. Army’s AH-64D Apache Longbow, and Bell Helicopter Textron, maker of the U.S. Marine Command’s AH-1Z, could not bid for the attack helicopter contract, and Raytheon failed to take part in the trainer aircraft competition, all blaming the Undersecretariat for Defense Industries (SSM), Turkey’s procurement agency, for drafting strict terms and conditions for program specifications, which they said were incompatible with U.S. export laws and regulations.And two years ago, U.S. General Atomics lost a major contract on Turkish unmanned aerial vehicles to the Israeli Aircraft Industries.The target of criticism by Pentagon’s Fata, other officials and U.S. companies, SSM rejects the charges. SSM chief Murad Bayar says his undersecretariat has greatly softened its terms and conditions to enable U.S. participation in Turkish programs, but American officials say the changes in Turkish specifications are cosmetic and not sufficient for their participation.”We have done what we can. Other countries do not have such complaints, and can easily bid for our programs,” countered one SSM official.

Undeclared policy?

“The Turks are sick and tired of the United States’ notorious restrictions on technology transfer and strict rules of export, which have caused so many problems for Turkey in past years,” said one Turkish defense analyst. “So in a kind of undeclared policy, the Turks are now selecting non-U.S. suppliers whenever they can, to avoid hassle with the Americans.

They are effectively saying, ‘OK, if I can buy this system from this or that country, why should I beg you?’”SSM is happy with the Ankara government’s selections in the recent commercial sale programs, and has no plans to further soften its rules to meet U.S. demands for many future programs. That means the United States may have no chance to sell defense systems that arealso offered by companies from other countries meeting Turkish requirements, the analyst said.But there are exceptions. For future commercial sales, U.S. military helicopters appear to be items that Turkey likely will continue to buy. For example, in ongoing competition between U.S. and European companies for 32 military utility helicopters worth more than $500 million, Ankara is expected to buy versions of Sikorsky’s S-70 Black Hawk, continuing its tradition for this platform.Also Turkey in the longer term plans to buy up to 10 heavy lift helicopters, and Boeing’s CH-47 Chinook has emerged as the strongest candidate.

Except for the United States and Russia, no other country manufactures heavy lift helicopters, and Russian equipment is incompatible with Turkey’s NATO-based systems.In another example, the Raytheon/Lockheed group, maker of the Patriot PAC-3 systems, is expected to compete with Russian rivals marketing the S-300 or S-400 systems for Turkey’s $1.3 billion program for anti-missile air defense systems. For the Russian option there is a compatibility problem, but Greece, another NATO member, has been operating the S-300s.So in the foreseeable future, Turkey will continue to buy U.S. systems when it specifically needs them, but may opt for other solutions whenever it can, as seen in several recent examples.