SAHA EXPO 2021: Turkey – Ukraine Defense Industry Cooperation Panel
Delivering the opening remarks of the ‘Turkey – Ukraine Defense Industry Cooperation’ Panel, SAHA İstanbul Chairman and BAYRAKTAR DEFENSE General Manager Haluk BAYRAKTAR underlined that while he was checking the number of agreements between Turkey and Ukraine in the last 5 years he noticed that there is a really very high level of tendency between the two countries when we look at the memorandums of understandings (MoUs) and cooperation agreements. “Actually all of these are built between two friendly and neighbor countries in the good spirit of trust and our strategic partnership and actually all these defense oriented projects between Turkey and Ukraine, support and benefit both countries in a very clear way so it’s kind of a win-win strategy,” BAYRAKTAR said. He stressed that at the moment between Turkey and Ukraine there are more than 30 projects and added: “When you look at the trade volume, the total trade volume between Turkey and Ukraine is about 5 Billion dollars but when you look at the defense projects you have about more than a billion dollars in total contract value, ongoing projects, and most of them, almost all of them have been signed in the last 3-4 years. So, it constitutes a really large chunk of the total trade volume between the two countries.”
In his speech Ukraine’s Ambassador to Turkiye Vasyl BODNAR underlined that Ukraine is one of the stronger and potential country and very good ally for Turkey. Ambassador BODNAR stressed that Ukraine and Turkey are celebrating the 10th anniversary of their strategic partnership and this strategic partnership is based on two main dimensions. Ambassador BODNAR said: “First of all it’s a trust, and political cooperation and dialogue between our Presidents and their guiding number of their actions, but the other thing is we have a practical locomotive, and the practical locomotive of our strategic partnership is our defense cooperation. As you (Haluk BAYRAKTAR) correctly mentioned during the last couple of years this dimension of cooperation became very visible and became very important to our countries. So first of all why it is strategically important. We are the countries that are not only selling to each other some products, but we are doing things together, we are working on some prospects which could strengthen our defense strengthen our capabilities, strengthen our resilience. And in today’s world it is really important that we are complimentary countries, we are working together by supplying each other something but not competing, that is the basic ground of our interest. Secondly it is important that we are looking for the new dimensions of cooperation and I see it here in this Exhibition. So I have been working here a couple of years ago as consular general and I have also been visiting other exhibitions but such a strong presentation of Ukraine and such innovative products which have been produced/proposed here… it shows how strongly we are developing and how important to strengthen our cooperation and to look for the future. There is another thing, we have a wide range of things, not only concentrating something, specific areas, but widening it, starting from land, sea, air and space and it is also important to use all the potentials that we have.”
“So, Ukraine is a very strong country in science, in industry and Turkey is a very strong country in introducing something new into production and composing two elements, of these, let’s say strong elements of our countries, brings us as very strong allies to the international arena and we could work not only for the benefit of the two of us but also could work on the third markets and produce and compete with the relevant European and American companies. So that is also a very important interest for businesses both state-owned and private, and it is also something which has worked correctly well… So I am really happy that yesterday you have signed a number of agreements on different engine programs, but I also believe that we will have more and more contracts and finally we would have more and more developing balanced relationship based not only on what had already been done but also on the settling productions on the territory of our countries which is really important and the MoU that you have signed, for example, with our ministry of defense, shows how we are developing in this direction and how we are promoting the settling of industries on territories of both countries… Governments are working to support all positive initiatives and, for sure, for me as a new Ambassador it is the key task to strengthen all of what has been done and to work on new projects, and these new projects I believe will strengthen not only the, let’s say, bilateral strategic partnerships but also will bring our countries stronger in the region and in the world.”
For ‘Turkey – Ukraine Defense Industry Cooperation’ Panel, in order to motivate the dialogue between Ukraine and Turkey, Defence Technology LLC CEO Pavlo BUKIN has prepared an exclusive presentation focusing on five remarks of bilateral military-industrial cooperation between Ukraine and Turkey.
Defence Technology LLC CEO BUKIN said following during his presentation:
“In my presentation you will see the 5 critical points, which causes the development of both countries in the field of military industry. So, let’s start from Turkey. Pay attention, in 1974 the political idea of the creation of the National Defense Industry of Turkey was instituted in Turkey. It happened after the events in Cyprus when the United States imposed sanctions to Turkey. Then in 11 years, in 1985 Turkey launched the national project of the modernization of the Armed Forces. And also I would like to underline that during the following 10 years after 1985 the Turkish state invested 12 Billion US$ in the defense sector. It started in 1985. So, the next date is 1991. In Turkey there was a situation where an insignificant amount of defense companies mostly operating in the cooperation chains of the foreign manufacturers existed, and Turkish associations of defense industries manufacturers, at that time it was called SASAD, included only 21 members, so only 21 defense companies, it was in 1991.
The same year in 1991 in Ukraine. After the dissolution of the Soviet Union, Ukraine inherited 700 state owned military enterprises employing more than 1.3 million people. At that time the country also had famous design schools and serial plants in aircraft, armed vehicles, ship and engine building as well as aerospace. The cumulative annual production volume of these 700 factories was about 10 Billion US$. Pay attention that this is 1991 and 10 Billion US$ in 1991 is different from 10 Billion US$ now.
Turkey from 1986 demonstrated continued growth of the state capital investment in the defense sector. Constant increase in volume of the states’ defense procurement. During the next 10 years from 1986 only the Secretariate of Defense Industry of Turkey, now it’s the Presidency of Defense Industries under the President of Turkey, only this organization invested in the defense industry in 10 years, from 1986 to 1996 they invested 18.5 Billion US$ and it was done in addition to the Turkish defense procurement programs. Also, in 2004 Turkey announced its program of defense manufacturing localization. In the next year in 2005, SSB, the Secretariat of Defense Industries of Turkey, concluded, it was official information, concluded 100 contracts with local manufacturers in the total amount of more than 1 Billion US$, it was done in 2004.
In Ukraine until 2014 the state defense procurement was almost absent, we had very limited residual finance in our research and development projects in the defense sector. Ukrainian end users consumed only 5-7% of the general volume of the local defense manufacturing, from 93-95% of the Ukrainian defense products were exported. At the same time, due to the, of course, we see that we have lack of research and development, lack of capital investment, Ukrainian military export mostly consisted of outdated equipment and leftovers from the ministry of defense warehouse. And at that time what was most critical, Russia catered at that time 60% of the needs of the Ukrainian Defense Industry, being an extremely critical supplier for Ukrainian defense manufacturers.
Now we are going to 2009. In 2009 in Turkey the number of defense industry workers increased to 45.000. In the same period of time in 2009, the number of defense companies in the Ukraine dropped from 700 to 230 companies. The number of employees in the industry was reduced to 150.000 people and this indicator dropped from 1.3 Million in 1991. Annual production of goods fell to 1.5 Billion US$. I would like to remind that in 1991 it was 10 Billion US$. In 2010 the share of Turkish manufacturers in national defense procurement increased from 25 to 50%. Then in 2011, you see in the bottom, Ukroboronprom State Concern was established. The aim was declared to consolidate all the defense enterprises under the condition of very limited targets from the ministry of defense… so we would focus on exports and at that time in 2012-2013 the peak export indicator was 1.2 Billion US$ annually. In 2014 at the same time Turkey was focused on the creation of a closed production cycle, increased the market share of private defense companies, started to create joint ventures with the foreign manufacturers in Turkey and encouraged foreign companies to transfer technology from Turkey to their native countries.
In 2014, when the war started, you see that the war with Russia was a strategic precondition for the partnership between Ukraine and Turkey. In 2014, in Turkey it was the strengthened by expansion of the line of serial products, among them the most famous the unmanned vehicle, light armored vehicles, military cars, navy ships, patrol boats, electronic systems, means of communication, guided and unguided munitions, etc. Ukraine in 2014 actually started financing of the defense sector and launched the state defense procurement system.
It was a break of cooperation of ties with the Russian Defense Industry. The Armed Forces increased in size from 166.000 people to 250.000 people. The procurement system before 2014 was not operative, was absent, we had decayed demand for weapons and military weapons, and of course when you do not procure for a long time at one moment of time you have lack of current funding for this procurement, so we faced this in 2014. At that period of time 80% of expenses were directed to the routine needs of the armed forces of Ukraine.
We are getting closer to today… now the next point is 2018. In 2018, to go on from 2002 the number of defense manufacturers in Turkey increased from 56 to 150 companies. 65% of the needs of the Turkish Armed Forces were covered by local manufacturers. In 2018 Ukraine made the first successes in the creation of the new military systems but it was accompanied by slow serial production, and we activated the critical import procurement. Firstly, it was ATGM Systems, Combat UAVs, and communications means, as products, which were absent on the Ukrainian market and were needed for the Ministry of Defense of Ukraine.
What we have in 2020, it was the start of very active cooperation in all the fields. In Turkey in 2020 the size of the Armed Forces was 355.000 people, defense spending budget annually 13 Billion US$ and 70% of the military needs were covered by the national defense industry. In Ukraine, the same 2020, the size of the Army was 245.000 people, defense spending, it is total not only procurement, also routine needs of the Army was 4.3 Billion US$ and now the local defense industry caters only from 10-15% of the needs of the national defense.
What is inside these figures? First of all in Turkey now, currently 660 projects estimated in total more than 70 Billion US$ are realized, and they are realized beyond the budget of the Ministry of National Defense of Turkey. Turkey started aggressive export programs as well as expansion of the sales market. Also, 7 Turkish companies were included in the top 100 list of world defense companies, leaders on this list were ASELSAN and TAI. ASELSAN had 2.2 Billion US$ turnover in 2020, and TAI had 1.2 Billion US$.
Yearly export volume from Turkey currently is 2.7 Billion US$ (in 2021 it reached to US$3.224 Billion) and Turkey has already announced an ambition target 10 Billion US$ to be reached, as far as I remember, until 2025, let’s see… life will show.
In Ukraine we still have some troubles, we will overcome them, but currently the Government target programs for the development of weapons covered by actual finance by 25% rate of effectiveness of the program of development of new types of weapons is only 6.3%, but we were lucky to activate joint military industrial projects with Turkey (BAYKAR DEFENSE, STM, ASELSAN etc). Share of local private defense companies in Ukrainian defense procurement reaches more than 50%, it is a good rate.
Ukroboronprom Group cumulative gross income is estimated 650 Million US$ in 2020 and Ukroboronprom represented Ukraine in the top 100 list of world defense companies. Ukranian defense export estimated 700 Million US$ and we see that still Ukrainian Defense Industry is mostly oriented to export than to the national procurement programs.
So, with the previous information I tried to show where we were before and where we are now. What should be done for both countries. We see that Turkey for a long period of time, the national idea of creating the defense industry creation was announced in 1974, then the launch of massive targets in investment was done in 1985. In Ukraine the investment in the R&D sector in the defense sector, in defense procurement started in 2014. So, speaking frankly Ukraine is 29 years behind Turkey and Turkey in this relation is an icebreaker for Ukraine, really.
What should we do, what is very positive is that Ukrainian Defense Industry still has competitive cases on the world market. I’d like to mention here development of missiles and space technologies, special purpose aircraft, precision guided munitions, radars, light and carry armed vehicles, engines for missile aviation and navy systems. Already I counted, we already announced 30 joint Ukrainian-Turkish projects as preconditions for strategic partnership. Already we are conducting construction of corvettes for the UA Navy, construction of BAYKAR DEFENSE factory in Ukraine for the construction of new UAVs and supplying Ukrainian aircraft engines to Turkey.
What are the priorities for Ukraine in these conditions; of course, Turkey has invested a huge amount money and has spent a long time for R&D in the defense sector, so localization of Turkish flagship military products is very important for our Armed Forces to be more effective, to improve the level of their operational readiness. Also, economic reasons are very important, it’s the creation of a preferential system for the foreign investor, expansion of industrial parks… very important I would like to pay attention here to the optimization of offset regulation of Ukraine. Offset procedures should address critical technology and not vice versa. It should be taken into account that Ukraine is not a big importer of weapons and has a very limited internal military market. Our Ukrainian market is not huge as for example India or China or other countries. It is not reasonable to force transfer of technology as opposed to foreign manufacturers. Critical technology means you need it critically, if you need it critically its most important to have it, and of course this is the second priority.
We should also apply new approaches to human relations. We should involve young people in the defense industry of Ukraine. We should revive traditional Ukrainian engineering schools. For Turkey very precious is the Ukrainian experience in product promotion to the markets of the third countries also we can intellectually support the Turkish Defense Industry in traditional directions for Ukraine.
And of course, very important, but this job needs homework to be done… is joint development of air defense system, joint modernization of the aircraft and helicopters of the Armed Forces of Ukraine, joint manufacturing of guided munitions, adaptation of Ukrainian propulsion systems in the Turkish naval platforms, are the key initiatives to be launched as soon as possible.
In summary, out of this, that Turkey and Ukraine are natural partners. Both countries are sentenced for strategic partnership. I hope that we are sentenced for strategic partnership, and I think both market participants from both countries understand this.”
After Defence Technology LLC CEO BUKIN, the State Company UkrspecExport General Manager Vadym NOZDRIA took the floor. As a state-run arms trading company UkrspecExport is the biggest export agency of Ukraine and it is one of the flagship companies of Ukraine on Turkey – Ukraine Defense Industry Cooperation. In his speech UkrspecExport General Manager Vadym NOZDRIA underlined that for them SAHA EXPO is the best chance to meet their strategic partners, the state owned and private companies in Turkey. He also stressed that the timeline for development of defense industries of both countries is really synchronizing these days, and this is the biggest achievement for our nations. He also said that the mutual goal of the bilateral cooperation in defense field between Ukraine and Turkey is to extend defense industry capabilities for both countries. According to UkrspecExport General Manager NOZDRIA, through extending defense industry capabilities the strength of Ukranian and Turkish Armed Forces would be also increased. “And what is really important, in the recent years, our cooperation is guided and supervised by the excellencies, the presidents, the president Recep Tayyip ERDOĞAN and President Volodymyr ZELENSKY, and the intensity of the G2G relations is growing, and gives a very solid and positive basis to develop the cooperation between two nations. It is really hard to over-estimate the significance of the very clear and strong position of the Turkish Republic in supporting the sovereignty and territorial integrity of Ukraine. And we do appreciate this clear position. We have got a lot of areas of mutual interest and the dialogue is really developing between Turkey and Ukraine,” NOZDRIA said.
UkrspecExport General Manager NOZDRIA said following during his address:
“Of course for Ukraine, and for the state-concern UkrOboronProm, the main underparty is SSB and we have got already a lot of formalized cooperation programs signed between SSB and UkrOboronProm. UkrspecExport being the main export agency, state owned company authorized by the government of Ukraine to promote export of military goods and services, and also overseeing import and performing the main procurement roll, we would like use this opportunity to present our company that has already over 25 years of experience dealing on different markets around the world. And for our recent experience with the customers and our strategic partners from the Turkish Republic, we would like to underline that we have successfully performed several big scale contracts in different spheres. Namely, these are the sphere of air defense, this is the sphere of radar and supporting system, this is the high precision systems produced and exported from Ukraine also to Turkey and other markets, and other big scale and long-term contracts. I would also like to re-emphasize that we are not only doing the export contracts, but for us very significant experience that UkrspecExport, as a state company, gained was the contract for the supply of the first set of BAYRAKTAR TB2s to Ukraine and UkronbronExport was designated as the Procurement Agency for the needs of the Ministry of Defense of Ukraine and now this program is on-going and there are already direct supplies from BAYKAR DEFENSE to the MoD of Ukraine. But for us it is really hard to over-estimate the experience that we gained together since the start of this very important project. And if you are following the news, indeed the UAV, the BAYRAKTAR TB2 is a game changer now in the eastern part of Ukraine where we have the conflict.
Our experience in high precision weapons systems is now well evaluated by our Turkish customers, our Turkish partners and we do hope not only to expand this valuable cooperation, not only to supply the Ukrainian product, in fact, I would stop here and to mention one important word, which has in the modern world, gained a lot of importance, is indigenous production. For this case it is 100% that Ukraine and Turkey together for this type of product, because we do import some important components from the Turkish Republic, from ASELSAN the thermal imaging camera. We cover 100% and we produce 100% indigenously. We are not dependent, and this is very important in the modern world. We can decide for ourselves in case of some restrictions or sanctions may come.
I would also use this unique opportunity to re-emphasize again where we have the unique experience from Ukrainian Defense Industry and where we offer our goods and services, is of course, our unique tank diesel engines for our own platforms and we do hope that there is a room for further projects with the Turkish Defense Industry to supply these engines to power the new pieces of armed equipment produced in Turkey. As it has also been mentioned today, Ukraine is very well experienced in producing, design and delivery of gas turbine units for different naval platforms and what we see today the trend is to participate jointly in various projects, in exploring and collaborating to expand our export capacities for other markets and I’m sure Özgür Bey from STM will definitely elaborate on this fact. We in the Ukraine are always ready to supply and integrate and facilitate the integration of our gas turbine engines into naval platforms which are developed in the Turkish Republic.
I have to say that in April of this year (2021), there was a cooperation agreement signed between SSB and UkrOboronProm, which covers the potential spheres of our cooperation and it also includes the cooperation in potential joint manufacture of the Antonov aircraft. Supply first of all, and joint manufacturing. So here we offer our medium cargo aircraft for the joint production and also the second prototype of the world’s biggest airplane ‘Mryia’ which is our pride in the sky. And this is the great and unique experience today for us. Its an expo for us and we also take part in supporting new developments of unmanned platforms which are developed by Ukrainian state owned and private companies and I am sure that there is a very big room for cooperation in this sphere in the future and I would like to thank you once again for your kind attention. Thank you very much.”
Took the floor after NOZDRIA, STM General Manager Özgür GÜLERYÜZ provided some details about what they have done up to now and their plans for the future of cooperation with Ukrainian defense Industry.
“Our discussions are not new here, we have started to discuss with Ukrainian colleagues and Ukrainian MoD for 5 years ago, we started discussing about procurement of some systems, maybe some military systems for Ukraine and then maybe procurement of some Turkish systems to Ukraine and getting some things from Ukraine, but then as we started to discuss we discovered that we can do some products together instead of just standing on the procurement side” said GÜLERYÜZ. He went on to state that as an engineering company STM had a very long history in Turkish Naval platforms, especially in the MILGEM Program. “We have been, since the first day, together working with the Turkish Navy and come up with the Turkish ADA Class Corvettes. Now they are in service and now we are responsible for making the 5th ship,” GÜLERYÜZ added.
GÜLERYÜZ then provided some details about their cooperation with Ukrainian MoD and ongoing MİLGEM Class Corvette Construction Program of the Ukrainian Navy, which covers the construction of 4 ships. GÜLERYÜZ said:
“When we discussed with the Ukrainian MoD it was for sure that there was a need on the Ukrainian side for such platforms also. But since the first point we started the discussion, we said that we are an engineering company, we can give support to the Ukrainian side in any way we can. Ukraine has a very long history about naval platforms also. There have been aircraft carriers built in Ukraine and very big and powerful ships by that time. But now we decided that there was lack of some engineering support in Ukraine and STM was the right fit for that. And starting from the first day we always had our discussions so that we can complete ourselves in many senses…so our agreement is confidential, so up to now we did not give as the STM side too much detail, only what the Ukrainian MoD let us tell we have managed to do it, but we have already started to build our Corvette together. Now it is being built in Istanbul. The steel cutting ceremony was made in April 2021 and the keel laying was in August and now more than 10 blocks of the ship are on the keel, and everything is going on, on schedule. We are going to complete the hull here and then transfer the ship to Ukraine and we are going to outfit the ship in Ukraine so that our Ukrainian colleagues will have the capability to outfit and build NATO standard modern system ships in Ukraine. And one of the biggest motivations is so that, especially on the naval platforms, STM has been given the duty of localization in submarine programs that are going on in Turkey and naval platform building programs. The local contribution for the first MİLGEM ship was around 25% and now for the 5th ship we are around 75%. We know how to even sometimes encourage the local industry to build systems for the naval platforms and we believe that there is a huge potential in Ukraine in that sense. Already we know there are some systems like gas turbine that cannot be integrated into other prototypes also. For example, yesterday we had a very long discussion with our Ukrainian colleagues. Our aim is to integrate Ukrainian, not only gas turbines but also other systems to Turkish platforms and in the future to have the chance to export them together to third parties also.
Our current contract is for building 4 Corvettes, the first one as I mentioned started in Turkey, but the rest will be built in Ukraine with the contribution of Ukrainian side increasing day by day, we believe. It has not been very long since we started the project. We have signed the contract by the end of 2020, but already we have quite big improvements. As we get used to Ukrainian industry, as we have the chance to know them, we discover more and more. Already there are some systems that can be integrated directly to Turkish platforms on Ukrainian Corvettes, but we believe that as time passes, and as we start to work together and as the collaboration increases the local contribution of Ukraine to Ukrainian Corvettes and to Turkish systems will increase day by day.
So, our collaboration is really a must for both of us. Because when we look at the table, we are very complimenting each other. When there is lack of Turkish experience it exists in Ukraine and when the lack of experience and industry products is missing in Ukraine then we have the capability to do it. So being together will give us power to both sides…”
