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Can Turkey Afford Its Extensive Defense Plans?

Jul. 29, 2012 - 12:18PM   |  
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ANKARA — Turkey’s top procurement body twice this year has reviewed several multibillion-dollar programs on its agenda without making any decisions, leaving some analysts to wonder if Turkey could afford those projects.

The country’s current $4 billion defense budget is scheduled to double in a few years, but analysts ask how the procurement of so many systems would be possible when Turkey, so far, has spent so little on them.

But procurement officials claim the process is proceeding according to plan, which features an incremental approach to contracts and lengthy negotiations that sometimes produce better terms for Turkey, although these tactics carry risk.

At the Jan. 5 meeting of the Defense Industry Executive Committee, the group needed to settle on how many aircraft Turkey would purchase in its first batch of F-35 fighters so it could acquire the aircraft by 2015. So the committee came up with a number: two. The expected figure was six. Turkey would spend only a few hundred million dollars for the first batch.

“Our industry has billions of dollars of business with the F-35. We are not going to disappear soon,” one procurement official said.

The executive committee includes the prime minister, defense minister, chief of the General Staff and chief of the SSM arms procurement agency.

“Many of Turkey’s large-scale programs with foreigners, including the long-range air- and missile-defense system, costing up to $4 billion, are with foreign loans. So when a decision is made, the money to begin the project is ready. Then the Undersecretariat for Treasury takes on the debt,” one foreign analyst said. “It may look cumbersome at first, but that is how the system works here, and it’s quite effective.”

Turkey’s healthy economic outlook makes the debt assumption acceptable, the analyst added.

Still, another defense analyst said, “Turkey should simply not go forward with the long-range air- and missile-defense system program. They are both expensive and won’t protect even a small part of the country.

“Similarly, the program to acquire a landing platform dock [ship] is redundant,” the analyst said. “It’s just a huge helicopter carrier and wouldn’t help [make] things much easier.”

But according to another analyst, “the lack of money is the last obstacle you would have here. The government has a number of advantages to lengthen the process. Within the process, you may come up with better terms and conditions, better loans.

“The only thing you should be careful is not to [annoy] the seller. Because the longer the process is, the likelier that the seller may run away,” the second analyst said. “Recently, the German [shipyard] HDW got a 3.6 billion euro contract with Turkey to build six U214 submarines, but contract talks lasted more than a year, within which the project fell below 3 billion euros, so Turkey was the winner. But this was risky.”

The second analyst gave an example of Russia and China among impatient sellers.

“A few years ago, China was really willing to sell some unmanned aerial vehicles to Turkey. Then came the Israelis with their Aerostar and got the Turkish contract. The Chinese were furious. They were saying, ‘Look, they were out of the competition, and they got the contract.’ This was the last time the Chinese were around to sell UAVs.”

The first analyst also emphasized the time factor.

“If the committee again fails to make a decision on the long-range air- and missile-defense program at its next meeting sometime in November, some of the competitors might go away.”

Competitors in this program include U.S. partners Raytheon and Lockheed Martin with their Patriot-based system; Eurosam with its SAMP/T Aster 30; Russia’s Roso-boronexport, marketing the country’s S-300 system; and China’s CPMIEC (China Precision Machinery Import-Export Corp.), offering its HQ-9 system.

Eurosam’s shareholders include MBDA — jointly owned by Britain’s BAE Systems, Italy’s Finmeccanica group and pan-European giant EADS — and France’s Thales. These companies will work with Turkish partners.

Many Western officials and experts said the Russian and Chinese systems in the Turkish competition are not compatible with NATO systems. Their potential victory could inadvertently provide them with access to classified NATO information and compromise NATO procedures.

Despite this criticism, Turkey has ruled against expelling the Chinese and Russian options.

Increasing unit numbers to help get a contract signed is another tactic Turkey employs in negotiations.

“Last spring, Turkey chose the U.S. Sikorsky aircraft, against Italy’s AgustaWestland, with its T-70, the Turkish version of its S-70 Black Hawk International, in the country’s utility helicopter program. And a contract still is pending,” U.S. Ambassador Frank Ricciardone said.

“What has happened is that at the time of Turkey’s decision, the general move was to build some 150 helicopters. It got up to about 600 now,” Ricciardone said.

Sikorsky agreed to boost the buy to help get the contract signed, the ambassador said.

From this point on, Turkey plans to build corvettes and frigates locally for its Navy, and to construct, possibly with South Korea, a new type of fighter jet, and to buy a landing platform dock.

“In short, defense business is still profitable with Turkey. Only the other side should be patient,” the second analyst said.

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