TURKEY'S PROCUREMENT CHIEF COMPLAINS ABOUT USG

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 000945 SIPDIS USDOC FOR 534/BIS/WDEUK E.O. 12958: DECL: 02/23/2031 TAGS: MASS PREL PGOV TU SUBJECT: TURKEY'S PROCUREMENT CHIEF COMPLAINS ABOUT USG TECH TRANSFER RESTRICTIONS (AGAIN) REF: 05 ANKARA 6507 Classified By: Ambassador Ross Wilson for reasons 1.4 (b) and (d). ¶1. (C) Summary: U/S for Defense Industries Murad Bayar complained to the Ambassador March 22 about American companies' unwillingness to compete in Turkish defense tenders. He reserved his harshest criticism for -- USG restrictions on technology transfer, citing specifically Sikorsky's Black Hawk/Sea Hawk marketing license that forbids co-production of dynamic parts and engines as well as local systems integration work; -- The American Turkish Council (ATC) and this Mission, complaining that we are taking companies' claims of discrimination in the Turkish market at face value without knowing the "facts;" and, -- The Joint Strike Fighter (JSF) program, arguing that the USG was discussing technology transfer to the UK but had done nothing to help lift Turkey's work-share above 10% of Turkey's projected procurement value. The Ambassador responded that the USG had no issue with Turkey's desire to develop indigenous defense industries, but the Undersecretariat of Defense Industries' (SSM's) procurement model was having the effect of excluding American firms. Bayar agreed that this was not desirable and to work with the USG to rectify the situation. He will be looking to discuss his problems with ITAR restrictions, licensing and the JSF program when he goes to Washington at the end of March for the annual ATC conference. During a subsequent meeting, Defense Minister Vecdi Gonul told the Ambassador that he had instructed Bayar to get Americans back into the competition, beginning with Sikorsky on the utility helicopter tender. End summary. -------------- Why No American Bids? -------------- ¶2. (C) At their initial formal meeting on Feb. 23, the Ambassador asked SSM U/S Bayar for his view of the current situation with Turkey's procurement system and US companies. Bayar went on at length, arguing that his intent was to create a level playing field for all as SSM pursues its legislative mandate to equip the armed services while building indigenous defense industry. In fact, SSM challenges military requirements that are written too narrowly and might limit the competition because SSM does not want to exclude anyone or any country that is eligible to compete. (He explained that MFA has a "red list" of countries with which Turkey will not do business.) Bayar asserted that Turkey wanted the broadest possible competition and that he wanted to understand why American companies -- but not others -- were not bidding. ¶3. (C) Bayar said he was trying to separate reasons companies present for not competing in Turkish defense tenders into two categories: legal issues the companies cannot control and commercial issues. On commercial factors, he is telling companies to just price in the requirements; on legal matters he needed the USG to help. He recalled seeing a number of press reports about ITAR and the need to update it, suggesting his problems with US export restrictions were not unique to Turkey. To illustrate, he cited the case of Sikorsky that was currently considering whether to compete for Turkey's requirement for 52 medium-lift utility helicopters (the TSK program). Bayar said Sikorsky's marketing license had three provisos prohibiting co-production of dynamic systems and engines as well as local systems integration. Turkey has not produced dynamic systems for aircraft in the past so this restriction "might" be acceptable, but Turkey already co-produces aircraft engines and is determined to do local integration. If the USG would not permit local integration of components into aircraft, then SSM would not attempt to change the terms and conditions in its RFP to facilitate Sikorsky's participation in tenders, he declared. Turkey has options, he stated repeatedly. The old model of the US as the seller and Turkey as the buyer could not continue; the relationship needed to be restructured, according to Bayar. ¶4. (C) Bayar then complained about how companies cry "discrimination" but continue to pursue their interests, but "responsible bodies" like the ATC, ODC Turkey and the US Embassy replay their complaints without knowing the facts. The ATC should be working for the benefit of both sides, he asserted, but was only promoting US companies' interests. Despite ATC's complaints to Defense Minister Gonul in Washington in January, ATC President Amb (ret.) Holmes said last week that the companies could not agree on a single issue as standing in the way of their bidding. (The Ambassador noted that Holmes told him that they could not agree on an entire package of issues, but there were clearly common elements in each company's decision to stay out of the marketplace.) Bayar concluded his monologue by declaring that SSM's T&Cs are not the issue, but the USG's approach was. "If you won't change, then there will be no relationship." ¶5. (C) The Ambassador responded that the Mission wanted to work with SSM to find ways to broaden competition. He identified three categories of factors influencing corporate no-bid decisions: commercial issues specific to each company, commercial issues common to all US companies, and legal issues beyond companies' control. He was trying to discern those factors common to all US companies to find a way that Turkey could pursue its policy of developing its defense industry while permitting the broadest possible competition, which Bayar claimed he desired. He worried that some of Turkey's long-time partners had departed and if the problem was not managed better it would have a corrosive effect on both the military-to-military and broader bilateral relationship, including because the longest-lived supporters of that relationship are leaving. In addition to the steps Bayar identified, SSM could do a better job of dealing with US companies, he said. Bayar's visit to Washington for the ATC conference March 26-28 would also provide an opportunity for the undersecretary to discuss his concerns with US officials. While he understood the Turkish Embassy in Washington would be in the lead in organizing Bayar's schedule, he offered the Mission's assistance in arranging appropriate appointments. The two agreed to try to meet again before the ATC conference. -------------- Joint Strike Fighter Work-share -------------- ¶6. (C) Turning to the Joint Strike Fighter, Bayar relayed a now-familiar refrain about the small amount of work-share Turkey has gained in the program compared to its investment. He stated that the USG was working with the UK to work out technology transfer issues and he asked for similar treatment for Turkey. He called on the ATC and USG to help increase Turkey's share of JSF work, noting that the GOT must decide in 2006 on whether to continue to participate in JSF or not. The Ambassador agreed that the JSF program office should be on Bayar's schedule in Washington. ¶7. (C) When MOD Gonul made a similar plea for help with JSF work-share during a subsequent meeting, the Ambassador reminded the minister that JSF was a best value program in which companies needed to compete for work, but he had heard expectations among US colleagues that Turkey could expect to win significant new work in the near future. -------------- Helicopters: Utility and Attack -------------- ¶8. (C) With Bayar, the Ambassador recalled his meeting with Sikorsky executives the previous day and assured the undersecretary that Sikorsky could not bid unless SSM addresses the company's redline issues. That said, Sikorsky was genuinely interested in locating a production facility in Turkey for export model Black Hawks. This proposal was exactly the kind of program Turkey needed to grow its defense industry. But to get this facility in Turkey, Sikorsky would need to be able to bid on the current utility helicopter tender. Bayar acknowledged the point, reiterating that he desired a level playing field for all. (Comment: Sikorsky representatives had suggested to us that SSM did not believe the company was serious about locating its "International Black Hawk" facility in Turkey. They told us that they are. End comment.) ¶9. (C) Recalling American companies had similar difficulty with SSM's RFP and standard terms and conditions in the attack helicopter tender, the Ambassador warned Bayar that we would have an additional problem if the final contract was significantly different from the standard T&Cs in the RFP. Bayar took the point, but he tried to minimize Boeing reaction to such an eventuality by asserting the company chose not to bid because it knew it could not be competitive on price. The Ambassador responded that the company told us that the problem was with SSM's RFP. The Ambassador concluded by observing that American defense materiel have a proven track record; some of the alternatives SSM might turn to may not work. ¶10. (C) During their separate meeting, MOD Gonul informed the Ambassador that the minister had earlier that day instructed Bayar to change the terms and conditions to permit Sikorsky to compete for the utility helicopter tender to the extent permissible under Turkish law. Gonul preferred to approach our companies' problems on a case-by-case basis rather than systematically -------------- Delivering the Message to Bayar -------------- ¶11. (C) Comment: Bayar is seeking appointments with USD(P) Edelman, USD(AT&L) Krieg, DSCA Chief LtGen Kohler, PM DAS Suchan and Lockheed Martin JSF Project Office Director Enewald while in Washington March 26-28. We would encourage those who can receive Bayar do so and reinforce the message that SSM will need to address those concerns our companies have in common if defense industrial relations are not to be an irritant in our relationship. He should be discouraged from believing the ITAR will change to accommodate Turkey. At the same time, PM should be ready to explain why the provisos on engine co-production and systems integration were included in the Sikorsky marketing license. End comment. WILSON