Vestel Defence Industry and AYESAŞ Complement Each Other to Strengthened its Presence on Global Markets

Defence Turkey: Mr. Aziz Sipahi, we thank you for taking the time to talk to us.  Vestel Defence Industry produces land, marine and aerial platforms, while its sister company AYESAŞ provides software, and electronic and electromechanical systems to its customers .  We would like to hear from you brief background information for the two companies and their scope of operations?

AYESAŞ [also known as “Aydın Yazılım”] was founded in 1990 as the Turkish subsidiary of a firm started in the U.S. by a Turkish entrepreneur.  AYESAŞ was founded specifically to address the need for mobile radar stations, which, at the time, comprised a top-priority Defence program for Turkey; later, L3 Communications purchased the company and became its owner.  In 2005, 60% of the shares of AYESAŞ were taken over by the Zorlu Group [parent company of Vestel Defence Industry] and currently, L3 Communications owns the remaining 40% of the shares.  Back in 2003, upon first deciding to enter into the Defence business, the Zorlu Group had also established Vestel Defence Industry.  As such, the group currently operates the two companies in the Defence business: AYESAŞ, a joint-venture, and Vestel Defence Industry, a wholly owned Turkish corporation.

We classify AYESAŞ as a systems company; Vestel Defence Industry, on the other hand, is a platforms company, as you also mentioned, and this is specifically due to its design and development focus on UAVs [Unmanned Aerial Vehicles].  AYESAŞ is involved in software development, electronic design, production, systems engineering and systems integration.  It does not design or produce end-to-end platforms for land, naval or aerial uses.  Its customers include some of the largest Defence and aerospace companies in the world, and those are primarily platform manufacturers.

Defence Turkey: Please describe for us your relationship with L3 Communications.  Are there advantages to this partnership when operating in global markets, and conversely, are there any disadvantages when it comes to doing business in Turkey?  We’d like to hear your assessment.

L3 Communications is a prominent U.S. company in the Defence and aerospace businesses, and one would expect to be deriving significant benefits from such a partnership; but in our situation, this is not exactly the case, as L3 Communications is a silent partner in AYESAŞ, not directly associated with our operations.  However, I should state here that it is our desire to be in a more collaborative relationship with them.

Defence Turkey: Vestel Defence Industry builds UAV platforms, while AYESAŞ produces sub-systems for avionics and command and control.  What advantages do you derive from having these two companies, producing both platforms and critical technologies, as being positioned in the same group under your parent company?

We experience some very significant advantages.  As a systems company, AYESAŞ has either ongoing business or existing relationships with most large Defence and aerospace companies in Europe and the U.S.  Therefore, it enjoys substantial name-recognition, which is very favorable for us.  On the other hand, as a platforms-supplier, Vestel Defence Industry presents an important advantage in those countries to which platform sales can be executed.  I am leaving out the U.S. and Western Europe here, as we are aware of the difficulty in executing platform sales in those markets.  The two companies complement each other, in terms of both technical infrastructure and targeted areas of operation, as well as their activities in the global marketplace.

Defence Turkey: You mentioned that with respect to the global marketplace, AYESAŞ is effective in the Western Hemisphere.  Please provide information on the international companies you are doing business with and the projects you are involved in.

Of the top 20 Defence companies in the world, AYESAŞ does business with 10 of them, and has relationships with the remaining 10.  These include Boeing, Lockheed Martin, Sikorsky, Rockwell Collins and GE Aviation in the U.S., and the Airbus Group, the Thales Group, the Kongsberg Group and Atlas Elektronik in Europe.  On a subsystems basis, we provide various solutions to all of the large platform builders in the business; these solutions range from electronics manufacturing services and software development to the production of various electromechanical systems.  As such, AYESAŞ enjoys a high level of name recognition and accreditation among international Defence and aerospace circles.

Clearly, the most crucial international project we are involved in is the JSF [Joint Strike Fighter] program.  Participation in this program is vital for both AYESAŞ and for Turkey in general.  AYESAŞ is the only Turkish company that has a stake in the electronics design, production and software development aspects of the JSF program, and only non-U.S. company in the world to do so.  This is an exception, as most of the JSF program components that are outsourced [from the U.S.] tend to be mechanical in nature; electronics design and software development activities are usually not outsourced from the U.S.  We have already completed one software development project as a supplier to the JSF program; additionally, we are involved in two ongoing projects: we are the single-source supplier of the electronic circuit boards for the Panoramic Cockpit Display, and we are responsible for the design and manufacturing of the Missile Remote Interface Unit circuit boards.  Due to serious delays in the [overall] program, production has not yet ramped up to required levels; nevertheless, this is a program to which we attach much importance.

Defence Turkey:  Which of your corporate capabilities and/or products stand out in those activities involving international companies with which you do business in Europe and the U.S.?

Although I would like to have cited our own products in response to your question, we currently do not have products that we sell as is to other companies.  However, I can certainly elaborate in terms of the corporate capabilities we possess.  AYESAŞ is primarily active on two fronts: command and control, and avionics.  For command and control, avionics and aerial platforms, we are involved in software development, design, systems engineering and production activities.  AYESAŞ may be viewed to be a somewhat conservative organization, but I feel that it is valuable to be known as a company that makes no compromises in integrity.  Therefore, we have stayed away from leaping at every business opportunity that comes along; rather, we have preferred to focus on those activities corresponding to our core capabilities.  In summary, I believe we are well established both in Turkey and overseas in the two areas I have mentioned.

Defence Turkey: Which companies does AYESAŞ do business with in Turkey and in which specific areas?

We started our avionics activities in Turkey in 2009; prior to that, we were involved in projects that were exclusively international in nature.  Since 2009, we have been actively working with both TAI [Turkish Aerospace Industries] and Aselsan.  Thanks to various projects dating back, AYESAŞ is experienced in both embedded software development and in the design and manufacturing of electronics equipment such as command control consoles and electronics enclosures.  While we work jointly with TAI, Aselsan and Havelsan on aerial and naval platforms, I would have to say that our most intensive efforts are carried out in cooperation with Aselsan.

Defence Turkey: At the Eurosatory 2014 Land and Air-Land Defence and Security Exhibition held in France, Vestel Defence Industry promoted its ground control station on the premises of the French firm LH Aviation’s exhibition stand, which was a first.  Can you please comment on your cooperation with LH Aviation?

We did not initially announce that we would be exhibiting at the Eurosatory 2014 show, as we first wanted to observe certain preliminary results and wanted to wait and see how the whole thing developed.  As you may know, for an extended period now we have been carrying out the design and production activities for our Karayel tactical unmanned aerial vehicle and its associated systems, including software development for the ground control station, the autopilot and core software control components.

LH Aviation is a mid-size but a a well established French firm that does design and production of piloted aircraft.  They approached us to explore opportunities for business cooperation.  In the introductory meeting held in our offices, LH Aviation stated that while they had experience in piloted aircraft, they were inexperienced in UAVs in general, and specifically in converting an existing piloted aircraft into a drone by taking the pilot out of the equation, and that they were seeking to work with a firm experienced in UAV technology.  Following up, we had technical and administrative discussions held in Turkey and France, and have recently reached an agreement.  The project involves taking LH Aviation’s aircraft with a two pilot crew and transforming it, partially or in full, into an Optionally Piloted Vehicle [OPV].

Such optionally piloted aircrafts, which are able to fly with or without human crew on board the aircraft, have been gaining serious traction in both Europe and the U.S.  One reason for their increase in popularity is the fact that in comparison to the U.S., Europe has much stricter rules governing the use of civil airspace by unmanned aerial vehicles.  Thus, an OPV provides for piloted navigation of the UAV when such a vehicle needs to fly over populated areas, and unmanned operation otherwise.  Our first presentation was to French prospects at the Eurosatory 2014 event in France, and we received an incredible level of interest.  Our exhibits were inspected by over twenty high-level French and regional delegations.  At present the business process is ongoing; we have completed preliminary agreements, and started on technical studies.  Active implementation will most probably be started in the coming weeks.  In this partnership, Vestel Defence Industry will be responsible for all electronics, software development, and autopilot development as well as for the ground control station.  

We are aware that it would be difficult for us to sell our product, the Karayel UAV, completely on our own in France; for sales success, you need to partner with a local company, and this is especially true for Western Europe.  No matter how technically superior a product you may have, executing sales is very difficult.  Partnering with a local company forms an important aspect of our strategy.  As a platforms-builder, you may have some success establishing yourself in the East or even in certain countries; however, to do the same in Western Europe or the U.S., you need to do so on a “systems-basis” [by selling sub-systems and critical technologies], or by partnering with a company located there.  Therefore, we decided that the local partnership approach was our only option to sell to French customers in France, a country that is at the forefront in Europe for unmanned aerial vehicles; and as such, our efforts are moving along successfully.

It needs to be emphasized that this partnership is also an indication of the progress made by Turkey, and by Vestel Defence Industry, in terms of UAV technologies.

Defence Turkey: When will you be commencing to the development phase?

As a first stage, we will develop a prototype of the system and will demo it to the user.  The prototype will use the same  electronics as our Karayel tactical UAV system, and a ground control station that is similar to the one used again by the Karayel system.  Modifications corresponding to user requests and enhancements will be implemented in the second stage.  Additionally, LH Aviation commands a large market for its products outside of France, and there is an especially high level of demand originating from North Africa.  As such, this project is being closely watched.

Defence Turkey: Will this partnership also involve joint marketing of the resulting platform to third countries?

Yes, one of the goals of this partnership is sales of the platform to third countries.  Frankly speaking though, as this is a project that has just been launched, we have not yet explored such marketing activities.  But as I have mentioned earlier, LH Aviation has very active marketing relationships in North Africa and the Far East, as well as in certain Central Asian countries.  There are no restrictions on the sales of this product; it is one that can be marketed anywhere.  However, at the outset, we need to first have our French customer endorse the product, which we can then use as a reference in our marketing efforts elsewhere in other countries.

Defence Turkey: As Vestel Defence Industry, your primary area of focus is UAV systems, where you have amassed considerable knowledge, technology and experience, especially in tactical UAVs.  The Turkish Armed Forces is expected to start using the Karayel UAV in the near future.  How is testing coming along for that product?  Can you provide information on its delivery schedule?

While our primary focus is UAV systems, we also have two additional areas of corporate interest.  One, while smaller in scope, is nevertheless highly important – we are conducting authentic technological research concerning fuel cells.  I truly believe that what we are achieving in terms of research and development is at a scale that is unheard of in Turkey for a private sector firm, both in terms of the amount of investment we are making, and the quality of the research we are conducting.  Our efforts related to fuel cells are continuing, and we are one of the companies cited worldwide in fuel cell research.  We have several joint international projects that are ongoing.

Our other area of interest is naval systems, and we currently have offices located in Gebze [port town in Turkey located on the Sea of Marmara with a concentration of shipyards].  That location develops command and control hardware.  However, as you have also mentioned, our primary area of interest is UAV development.  In this regard, we do have international goals that transcend our objectives for the Turkish market, but of course, things do take time.  We are therefore employing various strategies, such as making our presence known at trade shows, and establishing partnerships through local companies to get our foot in the door in Western Europe.

There were serious delays in the delivery of the Karayel UAV, some due to us, but mostly due to factors beyond our control.  Such delays need to be taken in stride when doing platform development and production projects, where brand-new requirements are being implemented.  Especially the U.S.-based export license problems, related to the camera system, caused significant deferments on our end.  That problem has been resolved and I believe the cameras are expected to be delivered within a month’s timeframe; we are continuing to do testing in the meantime.  Presently, we are in a position to make delivery of the product.  However, a critical feature request that was tagged on late is affecting delivery: testing for catapult launch and parachute recovery have not yet been conducted.  Due to this, certain cascading delays may take place.  Production of all UAVs slated for delivery is nearly complete, but the aforementioned issue may delay the delivery schedule somewhat.

I should also point out that this is the first project implemented in Turkey that adheres to the NATO STANAG 4671 standard, and Vestel Defence Industry is the first company in Turkey to do so.  We understand that this standard will be a requirement in future Defence projects as well.  The scale of additional overhead imposed by having to adhere to the 4671 standard and its overall effects may not be immediately apparent in any early assessment.  As this standard casts an entirely new perspective on the design, production and testing processes, it has multiplicative results in both the project schedule and associated costs.  Other than that, testing is proceeding well and, the delays notwithstanding, I am confident that we will be providing the Turkish Armed Forces with a quality product.

Defence Turkey: As you have mentioned, the Karayel project is a pioneering one, since it also happens to be one of the first projects where SSM’s [Turkish Undersecretariat for Defence Industries] Airworthiness Certification has been implemented.  For fixed-wing UAVs, what criteria must be met to qualify for the NATO STANAG 4671 standard?  And as a follow-up question, what advantages does compliance with STANAG 4671 airworthiness standards provide for the Karayel UAV with respect to its export potential?

Responding to the first part of your question is somewhat difficult, as the standard in question is an exhaustive one.  But I need to reiterate that adherence to the standard places a high level of burden on the implementing organization; each step that you may have already carried out will need to be redone per the NATO STANAG 4671 standard in question, as it is not possible to adapt to the standard any activity which you may have already completed.  

I would like to emphasize one thing in particular; we knowingly took a hit on this one, and while that hit was larger than we had expected, we knew from the start that the decision to implement the standard would cost us time and money.  Indeed, it truly raised our costs.  However, we had anticipated that compliance would help us achieve a much higher quality product and would provide us with leverage in overseas markets, and in fact, those are exactly what have happened.  Whenever we have met with representatives from an international company, we have observed an immediate change in their perception of us once we mentioned compliance of our product with the 4671 standard.  

I would like to share with you a recent experience.  I was meeting with representatives from a company that could be construed as the leader in Europe on UAV systems.  When the topic was raised, they mentioned our efforts on the 4671 standard, and asked me whether they could observe in detail the processes we employed.  They added that although they had been active in UAV systems for several years, they had started experiencing negative effects, relating to not having implemented their design and production processes in compliance with the STANAG 4671 standard.  

I feel that the difference will become better understood as the Karayel enters the Turkish Armed Forces inventory and starts to be used, and also as it is readied for sale in overseas markets.

Defence Turkey: Besides the Karayel UAV, what research and development are you conducting on any other fixed-wing and rotary-wing UAV systems?  Are you making related investments?

As Vestel Defence Industry we have the capability to be active in all categories of fixed-wing UAVs, and it is our intention to do so.  Besides the Karayel, we have two other, smaller UAV models.  Additionally, we are conducting preliminary studies on a UAV that will be somewhat smaller in size than the Karayel, with differentiating features.  We do not have any production activities for a large-scale UAV.  For such a product, we would first need to see a request for tender be issued.  So, to sum it up, I do not foresee any factors that could be limiting for Vestel Defence Industry in terms of fixed-wing UAVs.  Indeed, of the outstanding UAV contracts in Turkey, we handle part of them solely on our own, and we partner with leading players in the industry for the remaining projects, which are few in number.  We are also targeting to be active in a number of projects issued by the Turkish Ministry of National Defence and the Turkish Undersecretariat of Defence Industries.  

However, all of what I have mentioned so far involve fixed-wing UAVs only, as the rotary-wing UAVs are a different ballgame altogether.  My comments earlier about AYESAŞ, and being viewed there as a somewhat conservative organization, apply to some extent for Vestel Defence Industry as well.  We do not see ourselves as contenders in terms of a large-scale rotary-wing UAV, where we produce the entire range of components ourselves.  And this is not due to any lack of initiative on our part.  Rather, we know better than anyone else the challanges that would be involved for large-scale rotary-wing UAVs.  We do have certain initiatives involving UAV electronics and aircraft-to-drone conversions, but we do not see ourselves capable in producing a rotary-wing UAV where we can tackle everything ourselves, as we do in the case of fixed-wing UAVs.  And we think that those in Turkey who feel they can tackle it all by themselves do not have the domain knowledge.  We are involved in the software and electronics aspects, but we do not have plans for a rotary-wing UAV platform.

Defence Turkey:  In the past, we did not see much of AYESAŞ or Vestel Defence Industry at the international Defence show circuit.  But this seems to have changed lately, and you first exhibited at the Dubai Airshow 2013, then at the DSA 2014 show in Malesia.  Next you will be at the ADEX 2014 to be held in September in Azerbaijan.  Would you like to comment on your increased exhibition activity, as well as your expectations regarding the ADEX 2014 show?

We did not exhibit our UAV efforts at international shows until 2013, not counting a couple of international shows back when we had first started our UAV efforts.  But our goal back then was to gauge the reception we would get overseas in terms of the UAV marketplace.  Then we realized that it was not prudent to exhibit without having a finished product; that’s the reason why we have been holding back so long.  We began exhibiting at trade shows once we were in a position to start to display our platforms and describe product features.  There are certain regions in the world where you can enter the platform space.  These include the Middle East, the Far East, the Turkic states region, and Africa.  As you just mentioned, we started with the show in Dubai, and followed that with the exhibition in Malesia.  Our goal for exhibiting at the Dubai show was to get a feel for the Middle East market.  We will be in Azerbaijan due to the historical affinity between that country and Turkey, as well as to promote ourselves.  I am not optimistic on whether a business opportunity will materialize immediately following the ADEX 2014 show, but we know that there is demand for UAVs in Azerbaijan [and the region].  We know in fact that Azerbaijan is doing business with certain countries concerning UAVs.  We are attending ADEX 2014 in part to see whether we can replace those countries they currently do business with, or possibly influence them to also start looking at Turkey as a solutions provider.  In that region, this will be the first show we will be exhibiting in.  After the relationships are built,we will look at the type of feedback we’ll be receiving .To date, we have not actively dealt either with Azerbaijan or with any of the other Turkic states.  Our only active contacts at this time are with prospects in the Middle East region.  As our product line is rather new, I expect contacts to increase in the future.

Defence Turkey: What is your vision for Vestel Defence Industry and AYESAŞ concerning the next decade?

We have a clear-cut vision for Vestel Defence Industry: our goal is regional leadership in UAVs.  When I say UAVs, I am also including in that the aircraft-to-drone conversion activities.  While regional leadership is our goal, our first priority is to carry out our commitments for deliveries of products to our customers in Turkey.  Vestel Defence Industry’s goals on the international front is to enter our targeted markets and possibly outsource the manufacturing of our products through partnerships in those markets.  On a systems-basis, we need to provide products to markets in the West.  We have a goal of setting up a regional center of excellence and expand overseas.

AYESAŞ does not have a short term goal related to platforms; on a systems-basis, our goal is to strengthen our position in the Defence and aerospace businesses.  We are targeting to be a supplier of software and products to platform producers located in the U.S., Europe, and really any location in the world.  We may need to supplement this vision with certain secondary areas of interest.  Currently, AYESAŞ is in the process of an expansion where we are seeking to apply our capabilities in systems and software design and development to those business areas that are in the ecosystem of the Defence industry.  We are again negotiating with international companies on this.  Avionics software with its safety-critical traits may lend itself well for adaptation to certain secondary fields and we have tangible initiatives which we are following up on.

Defence Turkey:  Mr. Sipahi, we thank you for allocating your time to talk to us.  Is there anything you would like to pass onto the readers of Defence Turkey?

While the Turkish Defence and aerospace business has registered huge gains in the last decade, I feel we are still at the inception stage and that we have a long ways to go.  Even the largest corporations in the Turkish Defence industry have very few products that can be classified as indigeneous; dependence on overseas technologies is still very strong.  It is true that more than half of the demand from the Turkish Armed Forces is now being met from national sources.  Nevertheless, considering the degree of local content and the availability of original indigenous products, I can’t really say that we are in such a good place.  We should not decry our gains, but we need to be realistic in our plans for the future.  Within the last decade, the Turkish Undersecretariat for Defence Industries contributed greatly to the successes achieved by the Turkish Defence industry; in a sense, it was a quantum leap for the industry.  Certain Turkish companies are now being sought after in international projects, thanks to the quality of their products and their competitiveness.  However, in the end, I can’t say that the gains made are sufficient.

The Turkish Defence industry has a huge advantage in the Turkish Armed Forces being its reference user.  This is an advantage that no other country in the region or possibly even in Europe can claim to hold.  We need to make sure that we make the best use of this asset.  When we are presenting at any country overseas and mention that our product is being used by the Turkish Armed Forces, we need say no more.  Before anyone else, the Turkish Defence industry itself needs to grasp what a critical reference they have in the Turkish Armed Forces.

The support and contributions of the Turkish Undersecretariat for Defence Industries to the industry cannot be ignored, but I feel the processes employed need to be accerated.  Sometimes I feel time is being wasted.  The Undersecretariat needs to start treating the private sector firms with the same level of trust that it bestows on the firms owned by The Foundation for the Support of the Turkish Armed Forces [the parent investor of such companies as TAI and Aselsan].  I really feel it is time to review the implementation of the industrialization policies; the overall goals are on target, but care must be taken not to get lost in the details.  For years we have been hearing well-wishers promoting research and development, but the results achieved are not satisfactory.  The fundamental reason for this failure is not knowing how to truly conduct research and development projects in Turkey.  We seem to be focused too much on product development and get stuck in the stalemates created as a result of the product acceptance processes.  I think our capabilities as Turkish Defence and aerospace industrialists are obvious and well-defined.  Claiming that we are more capable than we really are may be all too well to impress the public opinion or to bolster morale, but privately we need to be realistic.  We need to emphasize our strong points and identify areas where strategic investments are required.

As an example, AYESAŞ and Vestel Defence Industry are contenders in unmanned aerial vehicle technologies, avionics software, command and control systems, radar integration and circuit board manufacturing.  But to lay claim for similar capabilities in other areas would not be realistic for us, at least for now.  If a company produces circuit boards for the JSF aircraft, it should not claim to be producing the aircraft itself.  We need to be well-grounded. We need to make the best use of our qualified human resources pool, which is one of our advantages, and we need to properly represent to the outside world such advantages that we possess.

Defence Turkey: Mr. Sipahi, we thank you for your time.