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US Bank Rebuffs Aselsan After China Deal

Dec. 16, 2013 - 01:28PM   |  
By BURAK EGE BEKDIL   |   Comments
Turkey has chosen the FD-2000 export variant of the Chinese-built HQ-9 for its long-range air and missile defense system.
Turkey has chosen the FD-2000 export variant of the Chinese-built HQ-9 for its long-range air and missile defense system. (Wendell Minnick / Staff)
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ANKARA — Aselsan, Turkey’s biggest defense company, has become the first casualty of what could become a series of US sanctions on Turkish firms slated to help build an air defense system with the Chinese.

Bank of America Merrill Lynch, a US investment bank, has pulled out of a joint bid to advise Aselsan on the company’s second listing on Istanbul’s stock exchange, citing Turkey’s contract negotiations with China Precision Machinery Import-Export Corp. (CPMIEC) to build the country’s first long-range anti-missile air-defense system.

An Aselsan official confirmed Merrill Lynch’s withdrawal from a joint bid with Turkey’s Halkbank, but shrugged off the move.

“That’s hardly a blow to our planned listing,” he said. “We’ll go ahead ... possibly selecting another bank for the task.”

Scores of Turkish defense companies that would act as subcontractors on the US $3.44 billion contract could face US sanctions because the Chinese company is on a US blacklist for breach of the Iran, North Korea and Syria Nonproliferation Act.

Turkey’s top arms procurement agency announced on Sept. 26 the selection of CPMIEC, sparking a major dispute over whether the Chinese-built system could be integrated with NATO assets stationed in Turkey.

The Chinese contender defeated a US partnership of Raytheon and Lockheed Martin, offering the Patriot air defense system; Russia’s Rosoboronexport, marketing the S-300; and Italian-French consortium Eurosam, maker of the Aster 30.

In October, Francis Ricciardone, the US ambassador here, said, “We are concerned about that [Chinese] company, and its role as a nuclear weapons technology proliferator in the world. This is not a NATO system. China is not a member of NATO.”

US diplomats said Turkish companies working on US products or technology could be subject to intense scrutiny, or requested to adopt stringent security measures to erect a wall between US technology-related activities and CPMIEC.

They said the sanctions would be imposed on any company or individual cooperating with the blacklisted firms, especially when the use of US technology is in question.

“[Merrill Lynch’s] move is a corporate decision, but not surprising at all. More of [these] moves, especially in defense-related business, may follow suit,” a US diplomat said Dec. 10.

Meanwhile, if the 2014 US defense spending bill goes through as proposed, it will ban the use of US funding to integrate Chinese missile defenses with US or NATO systems.

A Turkish procurement official said: “It would be better if our American allies tried to improve their bids instead of trying to put extra pressure on us.”

An industry source said Congress’ budget move may make the Chinese offer more expensive.

“If the extra costs of interoperability, like firewalls as they would be required by NATO and other modifications, should be paid by Turkey/China, the Chinese offer would come with a higher price tag,” he said.

Turkish officials said if contract negotiations with CPMIEC fail, talks would be opened with the second-place finisher, Eurosam.

Next in line would be the US bidder. The Russian option has been eliminated.

“We have asked other companies to present revised bids, but that has not yet happened,” chief procurement official Murad Bayar said Dec. 5 in televised remarks.

Bayar said US and European contenders have until Jan. 31 to submit new bids, and talks with CPMIEC continue. “If there is a new proposal, we will evaluate it ... and if we are unable to reach an agreement with the first company, we will look to the next,” he said.

The Turkish program consists of radar, launcher and interceptor missiles. It has been designed to counter enemy aircraft and missiles. Turkey has no long-range air defense systems.

About half of Turkey’s network-based air defense picture has been paid for by NATO. The country is part of NATO’s Air Defense Ground Environment. Without NATO’s consent, it will be impossible for Turkey to make the planned Chinese system operable with these assets, some analysts said.

To defend against missile threats, Turkey needs satellite and dedicated ballistic missile detection and tracking radar systems, such as the NATO radar deployed last year in Kurecik, in southeastern Turkey.

For the anti-aircraft component, Turkey needs an overall picture of the surrounding skies for data fusion.

The Patriot system can detect threats with its own radar. So does the Chinese system. But without integration into a full air picture, the Chinese system could not work efficiently, analysts said.

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