ANKARA, Turkey — A recent report released by Turkey's procurement authorities has exposed fundamental weaknesses of the country's local industry.

The study by Turkey's procurement agency, the Undersecretariat for Defense Industries (SSM), said that the local industry is dominated mostly by companies owned by the Turkish Armed Forces Foundation, a government-owned foundation that is a majority shareholder in Turkey's top defense companies. It WHAT IS THIS? highlights that 13 out of the 25 biggest companies are headquartered in Ankara.

"This is a simple diagnosis that says the private sector still lags behind … that there is heavy market concentration, a dominance of the government sector and the Turkish industry mostly features a government-to-government business practice," commented one Ankara-based defense analyst said.

SSM's report said that the fundamental weaknesses observed in the sector before 2012 still persisted.

It said the bulk of corporate turnover went to prime contractors, with little cash flowing into subcontractors. Subcontractors typically would earn too little from the entire business in the industry, the report noted.

Smaller companies (sub-contractors) got received 12 percent of the annual turnover in 2013, compared to with a slightly better 13 percent in 2012.

"Smaller companies usually do not hope to win contracts. They often lobby with the heavyweights to get subcontracts. These contracts are generally small," the executive of a medium-scale Turkish defense company complained. "I am not sure if smaller companies will grow or disappear in the years ahead."

Smaller companies would also have difficulties in having accessing to financing. In addition, particularly among naval and land platform manufacturers, operating capitals are generally low, according to the report.

In 2013, the report said, Turkey's top 25 companies reported US $4.1 billion in sales, accounting for 82 percent of $5 billion total business in defense and aerospace. In the same year, the industry invested $608 million in research and development activity.

Of the $4.1 billion generated by the top 25, $1.5 billion (or 36.6 percent) came from electrical and electronic equipment and software; $1.4 billion (or 34 percent) cane from aerospace business; and $518 million (or 12.6 percent) came from land vehicles.

The top 13 companies, headquartered in Ankara, generated $2.656 billion, or 53 percent of entire defense business in Turkey.

"These figures portray a near oligopolistic market structure," said the Ankara-based analyst said. "Only 13 companies represent more than half of all business in a sector where nearly 300 companies operate."


Burak Ege Bekdil was the Turkey correspondent for Defense News.

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