Turkey’s Largest Defense Companies May Be Merged by the Government
Last month Turkey’s defense officials pushed the button for a huge consolidation plan when Turkish Aerospace Industries Inc. (TAI), the country’s second largest defense company, and Turkish Aircraft Industries (TUSAS), TAI’s parent company, agreed to merge under a single corporate identity. TAI and TUSAS formalized the merger plan at their extraordinary general meeting of Feb. 18, 2005. TAI assembled F-16 fighter jets at its plant in the 1980s and 1990s, and presently manufactures parts for Boeing Co. of Chicago and U.S. helicopter maker Sikorsky. The company also is a participant in the multinational Joint Strike Fighter and Future Large Aircraft programs.
Now the Undersecretariat for the Defense Industry (SSM) plans to create a Turkish Defense Industry Holding Inc., or Turk Savunma Sanayi Holding A.S., as a parent entity for the country’s top defense companies presently owned by the government and/or the military.
Under the plan, Turk Savunma Sanayi Holding will hold majority stakes in most of Turkey’s key weapons/systems manufacturers. These will include TAI; software company Havelsan; military electronics manufacturer Aselsan, the country’s largest defense concern; missile manufacturer Roketsan; and ammunition supplier MKEK.
A senior government official said that government and military leaders have given their go-ahead for the plan, but there is a rising tide of dissent and discontent in Turkey – even as a ‘silent war’ begins for top jobs in the consolidated company.
Ironically, some analysts believe the move will work to undermine the very department who initiated the move. They point out that the SSM will come under pressure to award most of its contracts on a sole-source basis to the new defense giant, killing off competition and opening the door to monopolistic prices on each program. Fears have also been raised that the merger will create a military-controlled, bureaucratic giant and a kind of monopolistic market where the remaining smaller, privately owned companies will not be able to thrive.
The consolidation plan has significantly deviated from its original purpose, which stems from a May 2004 meeting and white paper that made a gloomy diagnosis of the market situation at the time. According to the white paper, Turkey’s local industry met only a fraction of national requirements. The restructuring white paper outlined the necessary strategy as follows: (a) to create a competitive industry; (b) to materialize original (national) design models in programs; (c) to restructure the defense industry so as to make it efficient and productive; and (d) to achieve, by the year 2010, systems integration and software; network, information and satellite systems; electronic warfare and missile, guidance and control capabilities.
One industry source notes that the original idea was to create a national aviation company bringing together the capabilities of several smaller companies. Observers now see it as a larger centralizing plan that consolidates along corporate lines rather than along product lines, and is leading to battles for power between military and industry figures.
As Reha Tartici, director of the Istanbul-based research house Consensus, notes: “Such big plans either bring about big gains or big losses.” Turkish Daily News: Plans for ‘defense giant’ unnerves industry; Burak Bekdil, TDN: What if the right men are doing the wrong things?