The Turkish government insisted that the country should finally have the intellectual property rights and export licences for each part of the engine.
In March 2015, TUMOSAN signed a €190 million (approximately US $200 million) contract with the Turkish government to design an engine for the Altay.
The program involves the indigenous design, development, prototype production, testing and qualification of an engine for the Altay. TUMOSAN also will design and develop a transmission for the tank and produce critical parts for its engine, including the diesel pump, electronic control unit and injector.
With know-how from AVL, TUMOSAN hoped it would conclude the program within 54 months and "with maximum possible local content."
But TUMOSAN recently announced that it terminated its contract with the Austrian company due to unresolved disputes over export licences.
A statement from the Turkish company said: "Under the contract [with AVL] the company had to provide us with the necessary [Austrian] government licenses within 90 days. After the company's requests for extension for several times it became clear that the Austrian government insisted on issuing export licences on conditions that it would be interfering with the domestic [political] affairs of Turkey. After those conditions were rejected by SSM [Turkey's procurement agency, the Undersecretariat for Defense Industries] our company canceled the Technical Support Provider agreement [with AVL]."
TUMOSAN also said it is negotiating with SSM a number of alternative engine solutions based on maximum local industrial input.
Turkey and Austria have had problematic relations in recent months after Vienna began to loudly criticize Turkey's alleged democratic shortage, especially after Ankara announced an emergency rule in response to a failed coup last July.
Tens of thousands of Turks have been arrested and more than 100,000 government employees have been purged since the coup attempt. The Austrian government has said it would block Turkey's membership in the European Union due to its failure to share common democratic culture with the rich European club.
TUMOSAN's deal with AVL was the first of its kind, ending up in failure due to political rift between Turkey and a western country. But it may not be the last.
"Most Western government[s] will likely have a more pragmatic approach and ignore Turkey's poor democratic credentials when it comes to arms sales," said one London-based Turkey specialist. "Yet there may be some that may act more on political motives."
Turkish procurement bureaucracy shrugs off the threat. "Our local industry's capabilities are far more advanced than they were a decade ago. It may cost us extra time, but we can develop systems on our own," said one SSM official. "Or buy know-how from countries that do not interfere with our domestic [political] affairs."
Industrialists say that may push Turkey into solutions from manufacturers from the politically Eastern world. "Save for a couple of strategic systems, Western producers are no longer 'indispensable' for customers like Turkey," according to one source.
The rift between Turkish and Austrian engine makers may cause delays in the Alay program, analysts agree. SSM will announce a bidding for the serial production of the tank. The multibillion-dollar contract may eventually involve 1,000 tanks to be acquired in batches of 250.
Burak Ege Bekdil is a Turkey correspondent for Defense News. He has written for Hurriyet Daily News, and worked as Ankara bureau chief for Dow Jones Newswires and CNBC-e television. He is also a fellow at the Middle East Forum and regularly writes for the Middle East Quarterly and Gatestone Institute.