GOT CANCELS $2B ATAK HELICOPTER, $1B UAV, AND AN

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 002791

SIPDIS


STATE FOR EUR/SE


E.O. 12958: DECL: 05/05/2029
TAGS: MASS PREL TU IS
SUBJECT: GOT CANCELS $2B ATAK HELICOPTER, $1B UAV, AND AN
ALREADY DEAD TANK TENDER


REF: ANKARA 2489


(U) Classified by Ambassador Eric S. Edelman. Reasons: 1.5
(B and D).


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SUMMARY
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1. (C) The Executive Committee (PM, CHOD and MOD) announced
May 14 that it had canceled procurement programs for attack
helicopters and UAVs, as well as a moribund program for main
battle tanks. The EC publicly explained its decision as an
effort to better acquire new models based on domestic
production and indigenous designs to meet the current needs
of the Turkish military. SSM told Bell-Textron (BT)
unofficially there were other reasons for the cancellation:
differences in price, budgetary constraints, attractiveness
of other offers (i.e. Europeans),and the parties' inability
to conclude negotiations after more than seven years. We
believe heavy lobbying by Europeans -- including a call from
Russian President Putin to PM Erdogan -- may have also played
a role. BT is scheduled to meet with SSM U/S Bayar at 1130
local on May 18 to formally discuss the decision. We do not
expect the GOT to award new contracts before December 2004,
given Turkey's current budgetary constraints, need to adhere
to the IMF program, and its desire to entice Europeans with
the prospect of winning large defense contracts in exchange
of support for Turkey's EU aspirations. While the EC's
decision will further strain relations between US defense
firms and SSM, we do not believe it will lead the GOT to
cancel existing contracts with US firms (i.e., Boeing's AEW&C
program). End summary.


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TURKEY CANCELS THE ATAK, OTHER MAJOR DEFENSE PROGRAMS
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2. (U) The Executive Committee (EC) announced May 14 that it
had canceled the attack helicopter and other major defense
procurement programs, including the UAV and main battle tank
program. In a statement released to the press following the
meeting, the EC (comprised of PM Erdogan, TGS CHOD GEN Ozkok
and MOD Gonul) said that "it has been decided to meet the
needs of the Turkish Armed Forces with new models based on
domestic production and original designs and by making use of
national resources." The statement also said there would be
opportunities for Turkish firms and partnerships between
Turkish and foreign firms.



3. (C) Bell-Textron's (BT) local representative told deputy
pol-mil counselor May 15 that SSM officials involved with the
attack helicopter program had confirmed the EC's decision to
cancel the program. In addition to the reasons included in
the statement, SSM reportedly said there were a number of
other factors that influenced the decision, including:


--Failure of the parties to conclude a contract after
numerous years;
--Budgetary constraints;
--Excessive number of aircraft (145) in original Request for
Proposal (RFP); and,
--Offers from others (i.e. Europeans' Tiger, Boeing's Apache,
Russia's Kamov) had become more attractive since Turkey
down-selected BT in 2001.



4. (C) SSM also told BT that it intended to re-issue the
tender for the attack helicopter program and said the number
of aircraft would be reduced from 145 to 90. SSM did not
indicate when the new tender would be issued.



5. (C) The BT representative said that, according to an
individual who attended the EC meeting, SSM U/S Bayar did
"all of the talking." PM Erdogan reportedly appeared
reluctant at times to cancel the program, but did not oppose
Bayar's recommendation. Ozkok reportedly said little.



6. (C) A journalist who specializes in defense matters told
pol-mil counselor May 15 that, according to an individual who
attended the meeting, TGS Deputy CHOD GEN Basbug and SSM U/S
Bayar had met for an hour before the meeting. TGS had
reservations about Bayar,s alternative approach which, for
attack helicopters, included an off-the-shelf purchase of a
few aircraft followed by production in Turkey with much more
local content than what Bell was offering. (Comment: This
sounds like the alternative Bayar has been discussing with
Bell-Textron for the past month. End comment) However, TGS
was not happy with this alternative in part because it
resulted in little if any cost savings.

7. (C) The journalist said there was little discussion during
the meeting among the PM, CHOD and MOD. Most of the meeting
was taken up with presentations by SSM on the three
significant projects they considered (attack helicopters,
main battle tanks, and UAVs). Ozkok reportedly went into a
separate holding room from MOD Gonul and PM Erdogan during a
break, something the jounalist,s source interpreted as a
result of continuing tension over the Imam-Hatip issue
(septel). Because the EC did not accept SSM,s alternative
procurement model, they decided to cancel the programs as
currently structured, and issue only a brief statement to
that effect. Ozkok reportedly left the EC meeting through a
side door to avoid the media.



8. (C) The journalist noted that several sources had been
saying for some time that TLFC Commander GEN Yalman has long
preferred the Kamov alternative, while TLFC staff had been
arguing their preference for BT,s Cobra. The journalist
suggested this might reflect Yalman,s Eurasian,
anti-American, sentiments. (Comment: During meetings with
visiting US military officers and the Ambassador during the
last year, Yalman routinely expressed his preference for US
military equipment, while highlighting the importance of
providing the GOT and Turkish industry access to sensitive
technology. End comment.) The journalist added that TGS
under Ozkok generally does not like to impose its will
regarding procurements on the Services; concern about
Yalman,s position vis-a-vis the Russians and the debate
within TLFC produced gridlock at TGS. The journalist opined
this could explain why Ozkok reportedly did not take a firm
position in the Executive Committee meeting. The journalist
understood that the new helicopter tender would be for "91
aircraft" (sic),down from the 145 maximum under the canceled
project.



9. (C) Regarding the main battle tank (MBT) program, the
journalist's source said that Turkey would look for 250 used
tanks, probably from Germany or the Netherlands, and would
work on a new tank probably with South Korean interests who
have been promising considerable technology transfer.
(Comment: The MBT program has been dormant for several
years.) Regarding UAVs, Turkey would purchase two Israeli
Harpy systems and an unspecified number of other UAVs.


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WHAT HAPPENED
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10. (C) We believe there are a number of factors that led the
EC to cancel the programs. They include:


--A shared view between the PM, CHOD and MOD that Turkey
could not afford (both financially and politically) to spend
large sums of money (approximately $2B in the case of the
ATAK program) on defense-related equipment at a time when the
GOT is operating under budgetary constraints, trying to
adhere to the IMF program, and make its case to the EU that
it has enacted the necessary defense-related reforms to
receive a date in December 2004 to begin accession talks.
Furthermore, the lack of funds has been a persistent problem
for SSM. Several weeks ago, Bayar told the Ambassador that
this was a major issue in the UAV program (reftel).


--Acceptance that the Turkish Armed Forces do not have an
immediate operational requirement that would justify spending
large sums of money to acquire the equipment. At the time
the RFP for the attack helicopters was issued (1997),the
Turkish military was very concerned about the presence of PKK
terrorists in southeastern Turkey and northern Iraq. That
threat has largely dissipated.


--Inability of the parties to conclude negotiations after
many years of negotiations. (BT has been working with the
GOT on the attack helicopter program for more than seven
years.)


--Heavy lobbying by Europeans (including at least one phone
call from Russian President Putin to Erdogan advocating
Kamov). Several reports of the meeting cite a participant as
saying that the new models for these projects will draw
Turkey closer to Europe. We have heard Bayar was the one who
made that comment.


--In the case of the ATAK helicopter program, an increasing
belief (in part fueled by the Russians, Europeans and other
US defense firms) that Turkey could "do better" (i.e. a
better system in a shorter period of time for less money and
with a greater share of the equipment produced locally).
--A perception that Bell-Textron and (to a lesser extent) the
USG was unnecessarily restricting Turkey's ability to
manufacture the helicopter in country and to obtain access to
sensitive technology.


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WHAT IS NEXT?
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11. (C) While we expect the GOT to issue new, revised tenders
for the attack helicopter (and possibly the UAV and main
battle tank) programs, it will not make any procurement
decisions before December 2004. Turkey's current budgetary
situation, its focus on implementing the IMF program, and its
apparent desire to entice the Europeans to support Turkey's
EU candidacy with the promise of large defense contracts all
argue against prompt action. When the GOT does reissue the
tenders, we expect SSM and the Turkish Armed Forces to
continue their (often times unrealistic) practice of
requiring foreign companies and governments to allow local
Turkish defense industry to manufacture and assemble as much
of the equipment as possible in Turkey. We can also expect
similar demands for the transfer of sensitive technology. If
this is the case, we believe it will be difficult for
American companies to successfully compete -- a point the
Ambassador stressed to Bayar during their meeting a few weeks
ago. Given the importance the GOT places on developing local
defense industry, and the widespread belief Turkey can obtain
such a capability only through Direct Commercial Sales (DCS),
we believe DCS will continue to be the procurement vehicle of
choice in Turkey.



12. (C) We do not believe that the EC's decision will lead
the GOT to cancel existing contracts (i.e. AEW&C) with US
firms. The EC canceled tenders, not contracts. While US
firms will continue to experience their ups and downs in
trying to implement their programs, we do not believe SSM or
others will cancel existing signed contracts and run the risk
of further tarnishing their reputation and losing money
already paid to effect programs.
EDELMAN