In our exclusive interview with the President of Defense Industries Prof. İsmail DEMİR, we revisit various subjects, obtaining the latest information on the ambitious export goals set under the vision 2023 plan, including government to government sales which are strengthening Turkey’s position in export markets, to the SSB’s approach on trade financial models. We also discuss the latest on the ALTAY Main Battle Tank program as well as the T129 ATAK program, Turkey’s warship procurement plan for the balance of power within the scope of the Blue Homeland, and the latest status of the Unique and Multi-National Air Defense Projects. Has France’s attitude regarding the EUROSAM program changed? Will the end-product of Hisar+A Systems be commissioned by the end of the year? Is the first S-400 system operational? Are joint production and technology transfer a sine quo non for the purchase of the second system? Following Turkey’s removal from the F-35JSF program, what approach will Turkey take amid deployment of the S-400 systems.
Issue 101
Defence Turkey: Dear Prof. İsmail DEMİR, thank you for your time today. This April you completed your sixth year in office as the President of the Defense Industries. Could you evaluate the developments that have occurred during your term in office? Have there been any targets that the Presidency of Defense Industries (SSB) could not fully achieve during this period? And do you have any projects set to be realized in 2021?
İsmail DEMİR: If you take a look at the course of previous events, you may realize that we are striving to structure a Presidency of Defense Industries that is more integrated with the Forces, and that focuses on areas required by the procurement authorities. We are expanding our workforce. Surely, speed is quite critical at this point, the requirements of our country are clear, and the procurement authorities normally want to receive the products rapidly and in full performance. However, when we look closely at global developments, we witness that these types of projects require a certain amount of time. Bearing this point in mind, we say that we need to progress faster, yet we are aware that we are certainly not slower than the others. We are doing well for the time being, yet we need to gain speed when the requirements of Turkey are considered. We must adapt a structure that stimulates the sector more rapidly and that could be integrated into the ecosystem in a better way. We have taken crucial steps to this end, but still the importance of coordination in the defense industry as well as our role need to be perceived better. When we think of the accomplishments İsmail DEMİR wished to achieve, actually I do not often speak about the local content rate that is mentioned frequently, then again, absolute independence in strategic products is quite critical for us. I will not mention the names of any products, but the critical technologies of the products we aim to generate must be developed indigenously and they need to be prepared today. Think of a system or a platform, when you fail to own certain technologies that would add vital features to that system or platform when the time comes, then the power of that product may have no effect. For that reason, such critical technologies should already be available today. We can qualify this point as the most prominent article on our agenda.
Defence Turkey: What is your vision for the Presidency of Defense Industries in terms of staff structure, project sizes and budgets in the year 2023, the year that we will be celebrating the 100th year of the Foundation of our Republic. A goal of US$ 10.2 billion was set for defense and aviation export revenues for 2023; however, there are views projecting a recession in defense budgets in parallel with recessions in many economies caused by the pandemic. So, in line with the target of achieving a sustainable defense industry, what are your projections for both domestic procurement programs and exports, considering the present circumstances?
İsmail DEMİR: Starting with exports, certain challenging periods may possibly occur. Rendering our products competitive and technologically attractive in such periods is of course quite essential. Particularly in the defense industry, despite the intensity of marketing efforts exerted for a product, the actual value is achieved upon the utilization of that product. An operational and efficient product is quite valuable. I would like to remind you of the boom in the sales of the Exocet Anti-Ship Missiles during the Falklands War. When we look back and examine that case, we see that the effectiveness of any of our products on the operational field is observed and followed and will continue to be followed worldwide. Without doubt, I do not express these words to suggest the launch of a conflict to sell our products, I merely underline this point to emphasize that the performance of our products are quite good. Of course the strategies, conjuncture and policies in the world are also influential, but if they are all on track and if you are confident with your product and conduct the required talks, you will surely be successful. Your attitude and how you are perceived by the world are even more important during challenging periods. If the number of companies in the Defense Top 100 List reached seven and if it is soon to increase to nine or ten, an image of Turkey is formed in the head of the counter party. In this respect, we believe that a bright future awaits us if the defense industry continues to proceed in this way and maintains its momentum.
Defence Turkey: The economic recession emerging throughout the pandemic has led to the reallocation of resources from the defense sector to healthcare sector in all countries. Do you think there is an opportunity to transfer defense industry expertise to other prominent sectors during this challenging period?
İsmail DEMİR: It always exists, and it must exist. It is a bidirectional structure; you cannot say you have an advanced defense industry, but you fail in other leading sectors. To assert that you have expertise in the defense industry, you need to have a sound industry and technology structure as a whole. The defense industry may serve as a locomotive, that’s certainly another story, but when you achieve technological competence, its multifaceted utilization could, without doubt, be observed across the globe and in Turkey. Claiming that Turkey is not at a sufficient level may be partially right because I believe it needs to be more popular and the dialogues need to be intensified. All generated technologies and solutions should always be supporting multifaceted utilization and to this end our talks including our negotiations with various public institutions are in progress. Moreover, from time to time, either for access to required technology or to contact defense companies, certain public institutions prefer to execute their various activities through the SSB.
Defence Turkey: Seven of our defense companies were listed among the Top 100 defense industry companies in the world, according to the publication issued in August 2020. In total, these companies have defense revenues of approximately US$ 6.2 billion. On the other hand, we observe that only one company can achieve such figures on its own in countries such as Japan and Italy. In the past, regarding the Turkish Defense Industry, there were frequent arguments on merging the companies within a single structure as the competition between foundation companies and the other companies caused a dilemma. There was also another argument claiming that uniting under the roof of a single holding company would result in a more robust, stronger and more competitive company capable of securing better proposals abroad. In your opinion, is there a need for building a more robust structure especially in terms of exports by merging foundation companies under a holding company, particularly with the participation of other companies?
İsmail DEMİR: This is surely brought to the agenda from time to time and it has its pros and cons. Instead of the structure of a holding company, there is the Turkish Armed Forces Foundation (TAFF) which already exists. A rearrangement has been implemented recently in this foundation, and there has been a slight change in the structure of the board of trustees. More importantly, by taking into consideration the limited meeting frequency and follow-up of the board of trustees, an executive board has been established. Through the executive board, the foundation will reach a position where it is able to follow internal processes and other issues more closely. The executive board will meet more frequently, thus a structure that has a say in the management will be formed. When we examine the tasks and functions of the Presidency of Defense Industries, in fact we have a responsibility of regulating the defense industry. The President of SSB is in fact a member of the board of trustees and a member of the executive board. Hence, such a balance emerges. Our Presidency of Defense Industries can in a sense take this as a duty, effectively use its role in the Foundation and take charge of such regulations to a certain extent. In my opinion, it should not be too strict, then again, their activities should be in harmony, they should not step on each other and unfair competition should be avoided. In short, even if we do not officially call it a Holding Company, there is a formula which we can actually launch if we take the structures of the Foundation and the Presidency of Defense Industries into consideration, the critical point at this stage is to render that structure functional.
Defence Turkey: Exports will play a key role in achieving the targets of the Turkish Defense and Aviation Industry defined by the Strategic Plan. The financing issue plays a significant role in realizing tangible negotiations and to see the finalization of ongoing negotiations with friendly and allied countries regarding the export of our defense and aviation solutions with indigenous designs and products that will create high added value. Within this scope, main activities were being conducted for the actualization of Government to Government Sales like FMS (Foreign Military Sales) and the Barter System. What would you like to tell us on the procurement and financing model implemented for the export agreements that have already been signed with Pakistan and the Philippines?
İsmail DEMİR: As the Presidency of Defense Industries, we are ready to create formulas in any model that will pave the way for exports, and we are doing so. We are striving to assume an utterly different role in Pakistan, Indonesia and the Philippines. If the counterparts ask for Government-to-Government Sales, then we can be involved as a signatory authority in the projects. When the counterpart requests its own government to sign the agreements with the company and asks for the official authorities in Turkey to be involved in the contract in some way, then we take part as the third signatory party. In short, regarding exports, the Presidency of Defense Industries is working in an extremely active manner to adapt itself to the circumstances of the country where we will conduct sales and create new opportunities. If a loan is required, we step in regarding state credits or alternative funding mechanisms. When a third country requires a loan, we can go those countries and launch negotiations for funding. In this regard, we do not experience any problems as the Presidency of Defense Industries in building methods and adapting ourselves to those methods, because the demands, requirements of the countries and the picture they wish to see during the sales process may vary. We are capable of aligning with these alternatives.
Defence Turkey: In conjunction with this issue, the U.S. government’s approval of the export license has been expected for a long while for the LHTEC CTS800-4A turboshaft engines to be utilized in the T129B ATAK helicopters which will be built for the Pakistan Land Forces. This was true of the Philippines as well. Could you please inform us on the latest status of this issue?
İsmail DEMİR: So far, we have not experienced any drawback in the Pakistan engine export license process. Nor do we expect any problems in the process of the Philippines. However, especially in the Pakistan process, the U.S. authorities’ rejection of granting export licenses would cause a loss to all three parties, the U.S., Turkey and Pakistan. We believe in common sense and we hope there would not be any abdication of reason at this stage. The indications we have been receiving from the U.S. imply a positive approach. We have not received any adverse signals to date, but definitely we need to wait for the result.
Defence Turkey: What is the perspective of Pakistan and the Philippines and their approach on the final kick-off date for the projects?
İsmail DEMİR: They surely expect the licenses to be granted, but this case requires the utmost efforts of these countries as well. They do not have a negative attitude towards us as they have witnessed our efforts. The restrictions are clear, they have been clear from the outset, and therefore, there are no surprises for the purchasing states. They are aware of the risks and altogether we are striving to eliminate these risks.
Defence Turkey: Touching back on the topic of export sales again, according to the data provided by the Turkish Exporters Assembly, we see that Defense Industry exports reached US$ 1.240 billion as of August 30th this year. Following the sharp decline in the first quarter of the year, export sales figures sales fell by 26% by the end of August, compared to the previous year. How do you assess the performance of our companies during the pandemic faced with travel restrictions where promotion activities have been limited or deferred and deliveries are postponed? How do you think Q4 performance will pan out? Will we be able to come anywhere near last year’s figures?
İsmail DEMİR: Clearly all actors have been affected by the pandemic. Therefore, we need to consider this year unprecedented. Our products and sales are speaking for themselves, but our sales figures have been affected adversely by a series of factors such as delays in fairs and the limited contact situations. We do not expect any changes for the remaining four months, and hopefully we will have a positive period and our efforts to this end are in progress We have critical early negotiations with a few countries. We may perhaps get some results from this but it may not be in the form of sealing the deal. In respect to upcoming years, various figures may become a reality when we are able to see fruits of our labor in terms of activities that we will conduct this year.
Defence Turkey: As far as we understand, it sounds like you are not expecting a sharp decline in 2020’s export figures…
İsmail DEMİR: I cannot make any statements on whether or not we can get ahead of last year’s figures, but we do not expect a critical sharp decline.
Defence Turkey: Have our companies made any changes in terms of their foreign marketing activities during this period? How have bilateral negotiations and marketing activities been conducted during travel restrictions?
İsmail DEMİR: They carry out their contacts and negotiations through tele or video conferencing. They continue to engage in visits if the counterpart’s country does not impose any restrictions. We have adopted and taken all the measures and we are keeping up with our itinerary visits abroad. For instance, I never came across a situation where one of our companies saw an export opportunity and suspended it by claiming, “We cannot travel to that country due to the pandemic.” We are not stepping back in anyway. Without doubt all countries are affected from the pandemic yet we maintain our marketing activities as much as possible.
Defence Turkey: There is tension in the Eastern Mediterranean due to the conflicts with countries such as Greece, France and Egypt. With all its military bodies, Turkey stands against opposition in the region to protect its sovereignty rights in the Blue Homeland. We’ve seen during this period that countries such as Greece and Egypt are speeding up their direct procurements comprising secondhand vessels, strengthening their existing fleets. Meanwhile, Turkey’s battleship and submarine projects are underway. In the big scheme of things, would Turkey’s procurement of secondhand warships from allied countries come up on the agenda in this conjuncture where armament has gained significant momentum? How will Turkey approach this issue?
İsmail DEMİR: Turkey must evaluate all relevant options. Surely, we give preference to local production and utilize our unique platforms in the theatre of operations, but each process has its own pace. In other words, it is not possible to wake up in the morning and say, “Hurry up! I need a frigate” or ask the related shipyard to build a frigate by January 2021. Therefore, our indigenous platforms have their own delivery schedules and their own course and the projects we launched or will be launching have a certain pace. When you request a platform to be commissioned in five months or eight months, and ask for it to be operational, to render such a request is possible, so under such circumstances, Turkey may take the necessary action if required.
Defence Turkey: Have you received any requests from end users (Turkish Naval Forces) regarding this?
İsmail DEMİR: We have not received any requests so far.
Defence Turkey: Can you give an update on the National Combat Aircraft (MMU/TF-X) and the HürJet Project, the Preliminary Design Stage of which was completed in July 2020?, even though the F110-GE-129E for the MMU/TF-X and the EuroJet EJ200 turbofan engines for HürJet were opted for the Prototype Phase and interim engine requirement, the employment of indigenous turbofan engines in both projects in the later stages was targeted. What are your comments on the latest status of the procurement activities regarding the aforementioned engines?
İsmail DEMİR: The processes are on course. Regarding the decisions made on the selection of the engines, these engines have already been considered for the initial prototype aircraft. It could probably not be realized in a certain number of aircraft, but ultimately, we aim to provide our own engines for these aircraft. There is also this case: the engine is selected, and the aircraft is designed accordingly, we are aware of this. We opted for these engines as we wanted the engines that we selected for the prototype to be similar to the engines we developed in terms of specific parameters. Therefore, we emphasize the need for speeding up our projects. We have made substantial progress. We hold revision meetings from time to time and analyze the course of events.
Defence Turkey: What would you like to say on the projects such as the SİPER (HİSAR-U) National Long Range Air Defense Missile System, the RFP of which was issued in 2016 and the contract of which was signed on January 15, 2018 between the business partnership of Aselsan, Roketsan, TÜBİTAK SAGE and the SSB, which was declared to be launched in 2021-22, and the Enhanced Long Range Area/Air Defense Missile System Project being conducted in cooperation with EUROSAM?
İsmail DEMİR: We have achieved a maturity level regarding the HİSAR & SİPER program which has already been launched, even before its announcement. There is a multiple consortium within that scope and we expect it to proceed more effectively. When a member lags behind in their work share in consortiums, the other members are affected. We observe the necessity of clearer and stricter supervision in this regard. Moving onto EuroSam, the project launched with EuroSam was an identification project. Identification studies were finalized. One of the three members slightly lagged behind regarding data exchange, but it was resolved. After all, with the identification study, the three countries would be identifying their own demands, achieving a common intersection, and launching the development activities according to that basis. Actual joint product development has not yet started but collaborative work and an identification document was prepared. After this, a new agreement needs to be launched with new signatures. France took a positive step as part of the identification stage; it seems there will not be many problems.
Defence Turkey: Within the scope of the HİSAR-A and HİSAR-O Air Defense Missile System Projects, which were initiated to meet the low and medium-altitude air defense needs of the Turkish Armed Forces through indigenous solutions, the first HİSAR-A delivery was expected to be completed in the first half of 2020. What can you tell us about the latest status of the projects? Can you inform us about HİSAR-A+ that you’ve recently announced to the public? What are the technical differences between HİSAR-A+ and HİSAR-A? The HİSAR-RF Missile was tested for the first time a few months ago. When will the system become operational?
İsmail DEMİR: In projects, it is important to progress by testing and developing. In the HİSAR-A and HİSAR-O Air Defense Missile System Projects, we carried out around 28-29 launch tests. These products have reached a considerable level of maturity. While Hisar-A was in the serial production phase, we saw that we could further improve the system's range and altitude. Our friends at Roketsan worked on this issue. We evolved the existing HİSAR-A to a new product we call HİSAR-A+.
Air defense systems are one of the most technologically complex systems. They have several command control and guidance systems with different software. It is like shooting bullets in the air. You have to be good at Radar technology, you have to be good at Electronic Warfare, and you have to integrate the Antenna, Guidance System, their software, and identification friend-or-foe (IFF) system altogether. Both HİSAR-A and HİSAR-O have reached a notable maturity level. We transformed the HİSAR-A serial production process to HİSAR-A+. There are some problems with a few critical materials at the serial production phase. When we solve these issues, the system will be ready to be used in the field. After a few small steps, the systems will become fully operational by the end of the year. We redesignated the enlarged version HİSAR-A as the HİSAR-A+.
We changed the structure of the proximity sensor that we had previously procured abroad and started to produce it ourselves. Because in some areas, we need to be as independent as possible to use our products without any restrictions. We are developing our own RF proximity sensor, and we will use them in our final product; and hopefully, this will be accomplished by the end of the year.
Defence Turkey: Speaking of the other projects briefly, due to the German Government’s disapproval of the export license of the EuroPowerpack’s sales to Turkey, the activities regarding serial production could not be launched as these power packs were to be used in the tanks within the scope of ALTAY MBT Serial Production Project, the contract of which was signed on November 9, 2018 valued at EUR 3.5 billion. Are there any developments on resolving the export license problem regarding the power pack? When will the project schedule start? Can the activities for the indigenous power pack to be used in the tanks be completed in line with the planned schedule?
İsmail DEMİR: Perhaps public opinion has had a distorted reaction to the delay in serial production. A powerpack was selected during the production of the prototype and we are telling the company to maintain production in line with that prototype. If the source country stopped to the procurement of the powerpack which we developed the prototype over, then it is not befitting to only blame the party in charge of serial production at this point. They are exploring a solution with our support as well; they conducted a comprehensive study on how to carry on with another country along their own engine development project. A multi-player case emerged there, not only in the powerpack but also in the specific component of the powerpack. In other words, a product may not come from just a single point, if even a small part is imported from another country, then it should be seamless. We reached a certain level regarding the engine with another country and meanwhile our activities on the indigenous engine are in progress. In the first stage, the production of the tank may be kicked off with a few engines that were procured during the development phase. But if you ask why it has not yet been launched, well it is meaningless to manufacture 3-4 tanks and later suspend the program for two or five years. We will start when we manage to form a consecutive chain. At this point, I would like to emphasize that public opinion seemed to have attached great importance to serial production, but the improvement activities on our existing tanks really have reached a pivotal stage. We achieved substantial performance increases, and in this respect, Turkey is in a good position regarding these tanks. Undoubtedly, we wish to see the launch of the program, and it should be known that there is no major gap here.
Defence Turkey: We see that quite positive progress has been achieved on an option other than Germany? So, what are your comments on the ongoing process?
İsmail DEMİR: If there is a blockage at a certain stage, you cannot expect for it to be resolved. Regarding the process, negotiations are being held with parties, and some stages have passed but a specific component may be dwelled upon. We are doing our best to manage this process in the best way possible. And it seems like we reached the final point. Sometimes, a minor issue takes a lot of time to settle. Practically we have reached the final point but still we have the qualification process ahead. We need to qualify the powerpack over our own product as well.
Defence Turkey: So, will there be a loss of time for a certain period during this qualification process?
İsmail DEMİR: If a blockage beyond the control of the contractor emerges regarding this product, it will be considered as force majeure. So, what can one do about this? It is not a product that could be procured off the shelf and integrated to a platform. One can hardly say product A could not be procured, so I will utilize product B. In fact, negotiating and coming to an agreement with the related country on the powerpack to be procured is a process in itself, then integrating that system to your product and its qualification over that product is another stage, not to mention the remaining processes such as negotiating with the country and maturing the agreement terms.
Defence Turkey: You have mentioned that the negotiations on the export of ATAK with Pakistan and Philippines are proceeding well. Are there any B and C plans available on the table in the event that the export license could not be obtained?
İsmail DEMİR: We have plan B and plan C in all our projects. It may be in the form of procurement from another country, but our actual plan is to use indigenous engines in these two platforms, whether in a helicopter or in a tank. The day we achieve this we will also handle the issue of engines, but unfortunately this issue is not an easy one which could be solved immediately in a day or two. We have been striving to speed up the process to get a favorable result. The launch of a product does not necessarily mean that it could be used immediately in this platform or another.
Defence Turkey: Could you provide an update on the latest situation with the F-35 Lightning-II JSF Program, the largest defense project in Turkey's history in terms of both value and scope? The Turkish Defense and Aerospace Industry was expected to receive over US$9 billion during the project. After the procurement of the S400 Triumph System from the Russian Federation, the US Government suspended Turkey from the F-35A SF Program and took the necessary steps to transfer the first batch of 14 F-35A JSF aircraft to the US Air Force (USAF) service. What is the SSB’s plan B? Is F-35A Lightning-II procurement still possible in the medium to long term? What is the position of US authorities regarding the fate of the US$1.5 billion paid for the JSF Program so far?
İsmail DEMİR: Our position in the program has not changed. We are still committed to our signature on the program. We are a partner in the program, we have fulfilled the terms of the partnership, and we will continue to meet these conditions. The other party is violating the terms here. We did not show any negative attitude. We have invested a lot to realize this partnership. We held our stance on the matter. Turkey has a critical place in this partnership; the US side acknowledges the capabilities of Turkish companies and the difficulties of finding substitutes in various circumstances. Their attempts hurt both the program and other partners. We have already stated that this is wrong. We have repeatedly stated that we will not accept S-400 or any other preconditions regarding our return to the program. We will not accept a one-sided decision in the F-35 program; Turkey's return to the program will be discussed mutually. If this stubbornness continues, we will take the necessary steps. Turkey's stance has not changed. We have options and studies on issues such as reimbursement and how the legal process will work. Turkey will seek its rights in every situation. We will take the necessary steps on these matters in due time.
Defence Turkey: As a final question, the public is quite curious about the assembly and utilization status of the first S-400 system procured from Russia, what would you like to say on this? Also, what would you like to share about the procurement of the second system?
İsmail DEMİR: Our statements regarding the S-400 are similar. We are talking about two systems; the 1st system has already been delivered and it is presently in Turkey. The end-user can utilize it upon its own request, anywhere and at any performance level. This is now entirely the initiative of the end-user. Regarding this point, there is an expectation from the end-user to declare where, in which way, for how many hours and in which capacity these systems will be utilized. It is not fair to expect the end-user to declare on those points. The end-user must have confidential information and strategies. The end-user does not have to clarify what it will be doing with the system and it should not be expected to do so. We must maintain a stance as a country regarding this issue.
In respect to the 2nd system, there are specific sub conditions such as joint production and technology transfer. We have reached a certain level within this scope. We look forward to the rapid completion of pre-conditions as it is a pre-condition for starting production. Because you lose leverage regarding the pre-conditions as soon as you complete the procurement process. To maintain this leverage, we wish to proceed by taking a step forward in return for a step forward taken by our counterpart.
Source: defenceturkey