You can read the Interview published in the 79th Issue of MSI Turkish Defence Review here:
Ümit BAYRAKTAR / email@example.com
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With the establishment of the General Directorate of Military Factories, General Directorate of Shipyards and ASFAT (Military Factory and Shipyard Management) Inc., the military factories and shipyards operating under the Force Commands affiliated to the Ministry of National Defence (MND) have become important stakeholders of the Turkish defence and aerospace sector. We spoke with Muhsin Dere, Deputy Minister of National Defence, about the changes brought by this development to date, and its effects on the future.
MSI TDR: Mr. Dere, the establishment of ASFAT Inc. in early 2018 has been one of the most important developments in the Turkish defence and aerospace sector in recent years. We would like to begin our interview by talking about the effects of this important development to date. How do you evaluate ASFAT Inc. as a model for the commercialisation of the work of state-owned military factories and shipyards?
Muhsin DERE: First of all, when we look at the subject from a macro point of view, we can see that the influence of countries in the world parallels the strength of their economies. We are fully aware that in order to have a strong economy, countries need to produce qualified products and maintain a say in the global market.
The defence sector is one of the most valuable commercial areas, given its ability to accelerate exports, as the most important factor in reducing the current account deficit. In line with the goal of the Ministry of National Defence (MND) to revive the sector by increasing the production capabilities of our factories and shipyards, thus contributing further to our country’s exports, the establishment of ASFAT Inc. had become a necessity.
In countries that are unable export, the defence sector tends to disappear after a while, meaning that exports are a matter of survivability for our sector. Clearly, exports are not an option, but a necessity for the Turkish defence sector.
The fact that ASFAT Inc. is a public company whose capital is owned by the Treasury, and that was established under the MND, make it distinct and strong, although ASFAT Inc. operates based on a private sector approach that allows it to be flexible and to make quick decisions. The main goal of ASFAT Inc. is to meet the needs of the Turkish Armed Forces (TAF) in the fastest and most efficient way; promoting the capabilities of our military factories and shipyards abroad in the fields of maintenance, repair and sustainment, and establishing such a market abroad; contributing to the country’s economy by engaging in exports; and making our facilities more efficient and productive by investing revenues into the modernisation of the factories and shipyards.
In short, considering its legislation, powers and capabilities, ASFAT Inc. has brought new life and excitement to the defence sector. Looking at how much ground has been covered in such a short time, I am confident that this model will be successful.
MSI TDR: Having left almost two years behind since its foundation, to what extent have the founding goals of ASFAT Inc. been accomplished?
Muhsin DERE: Although ASFAT Inc. was officially established around two years ago, its corporate structuring was completed in late 2018, so we should base an evaluation of its performance only on the past year. In this one-year period, we performed the steel cutting of the first ship in the MİLGEM Project of the Pakistan Navy (PN), which will be built by Istanbul Shipyard Command, and will be Turkey’s largest ever single defence product export.
The main goals of ASFAT Inc. are to meet the needs of the TAF in the fastest and most efficient manner; to promote the capabilities of our military factories and shipyards abroad in the fields of maintenance, repair and sustainment, and to establish such a market abroad; to contribute to the country’s economy through exports; and to make its facilities more efficient and productive by investing revenues into the modernisation of the factories and shipyards.
Meanwhile, a floating drydock of 10,000 tons will be delivered to our Izmir Shipyard. In addition, ASFAT Inc. facilitated the signing of a five-year framework agreement on 7 August, 2018 for the supply of military uniforms and boots to the Ministry of Defence of Montenegro, and a supply contract to meet the requirements for 2018, under which the first export was completed on 3 December, 2018. As a result of these achievements, ASFAT Inc. was awarded the “Exporter of the Year Jury Grand Award” at the “Stars of Export” event in Turkey.
As our priority is to carry the production power of our Ministry to the optimum level rather than to fill the gaps in the defence sector, we expect ASFAT Inc. to both contribute to the country’s economy, and to take many different subsectors to a point beyond global standards, as I mentioned previously.
A signing ceremony was held between ASFAT Inc. and Airbus on 3 October, 2019 covering the retrofitting of nine A400M aircraft in the inventory of the Turkish Air Force, at the 2nd Air Maintenance Factory Directorate in Kayseri. Under this recently signed agreement, the reconfigurations of the nine A400M aircraft will be completed in five years, and as a result, our factory will gain an important capability. It is apparent that these capabilities to be gained will be utilised in providing technical support to friendly and brotherly nations, and accordingly Turkey will become a regional centre in this field.
New Excitement and a Breath of Fresh Air
MSI TDR: What kind of feedback do you receive from the sector? How did the sector react to ASFAT Inc.?
Muhsin DERE: The feedback we receive both from domestic and foreign companies has been very positive. ASFAT Inc. has brought a new excitement and a breath of fresh air to the sector in terms of exports. With the PN MİLGEM Project, valued at some $1 billion, many of our subcontractors gained the opportunity to introduce their products to foreign markets. I see this development as a starting point. The number of projects carried out will increase every passing day, and an ecosystem will begin to form, especially in the areas of maintenance, repair and sustainment. This ecosystem will feed the companies operating in our sector and will be an important gain for our country.
It has been suggested in some quarters that ASFAT Inc. is a competitor to private firms. I should emphasise that ASFAT Inc. will definitely not compete against our companies abroad, and will stand by them as a reliable partner whenever they ask for support.
MSI TDR: The production, maintenance and repair capabilities of the military factories and shipyards are well known in the sector. Has there been, or will be there be, any change in the scope or subjects of the R&D studies of the factories and shipyards? Will the factories and shipyards develop and market indigenous products through ASFAT Inc., as they already do with other companies in the sector?
Muhsin DERE: After the coup attempt of 15 July, 2016, important changes were made in the structure of the MND and TAF, and many transformations took place. One of the most important of these changes was the affiliation of the military factories and shipyards operating under the Force Commands to the General Directorate of Military Factories and the General Directorate of Shipyards established under the central organisation of the MND. The intention in this regard was to allow TAF to focus more on its combat and operational priorities, and to enable the MND to provide the best service in such fields as logistics, maintenance, repair, supply, health, etc. that are required under combat conditions.
There are 27 military factories and three shipyards operating under our Ministry, employing approximately 25,000 people. Of these, the 5th Main Maintenance Factory Directorate in Ankara is the only repair and maintenance facility authorised for helicopters; the 1st Air Maintenance Factory Directorate in Eskişehir is the sole authorised repair and maintenance facility for fighter aircraft; and the 2nd Air Maintenance Factory Directorate in Kayseri is the only authorised repair and maintenance facility for cargo and transport aircraft. Meanwhile, Istanbul Shipyard Command, where our MİLGEM Corvettes were built, and Gölcük Shipyard Command, where our new submarine TCG PİRİREİS was recently docked, are important facilities for our country in terms of their construction, maintenance and repair capabilities.
Our factories serve two purposes: main maintenance and regular maintenance. While our regular maintenance factories support our army corps all over the country, our main maintenance factories also make production in certain areas, in addition to the maintenance, repair and sustainment services they provide. We will also add new lines to our indigenous products, such as MİLGEM Corvettes and the FIRTINA Howitzer, in line with the needs of TAF. Investing the profits from the projects realised by ASFAT Inc. back into our factories and shipyards will make them an important resource for both R&D works and the design and production of new products.
At this point I should say that our strength comes from our workforce, which has been trained with years of experience and knowledge in our factories and shipyards.
Pakistan Office of ASFAT Inc. to Start Operations Soon
MSI TDR: How do you see the future of ASFAT Inc.?
Muhsin DERE: Since ASFAT Inc. is a company, turnover and profit are of course important, although its goals are of equal importance. These goals include: meeting the requirements of TAF to the maximum level in the shortest time and at the most affordable cost; to improve the capabilities of our factories and shipyards; and to add value to the national economy through exports. For this reason, I do not consider it appropriate to make predictions about turnover. We continue to put every effort into increasing our exports. ASFAT Inc.’s Pakistan Office will begin operations soon. Through this office, we will have the opportunity to closely follow the ongoing project, while also being on hand to identify further potential projects in Pakistan. That said, this office will not focus exclusively on Pakistan. Through this office, we will also carry out business development activities addressing other countries in the region. In 2020, our company will participate in various exhibitions that we consider important.
With the dozens of projects being carried out at ASFAT Inc., our turnover has exceeded millions of liras and has reached the billion mark. This is a relay race. We are working on various projects in accordance with our mission to carry the flag even further, and when the time comes, we will be happy to share with you the news about these projects.
MSI TDR: Private sector firms have recently accelerated their works on small and medium-calibre weapons and ammunition, and have developed some indigenous products. How will this shape the future of the Mechanical and Chemical Industry Company (MKEK)? For example, what do you think MKEK will look like in five years?
Muhsin DERE: We are pleased to see private firms introducing new products and increasing their production capabilities in this field, and this situation offers various opportunities to MKEK. Today, the product group that MKEK produces the most, and that generates the highest income, is the small- and medium-calibre firearm and ammunition group. In other words, these competitive conditions enable us to demonstrate our competitive power rather than reducing our share, and allow us to strengthen our pioneering position in the sector by developing many new products. They also allow us to cooperate with more competent partners and suppliers. On the other hand, the efforts of private-sector companies in the light weapons and ammunition market will lead MKEK to focus on special products of such calibres, and to spend most of its energy on the diversification of heavy weapons. I would like to think that in five years, in line with its private sector dynamism, we will see a MKEK that has added new products to its portfolio through its qualified human resources and management, in line with its stated goal of “Doing What Has Never Been Done Before”. I would also expect to see increased profitability and new technology investments, thereby increasing product quality, and an expansion of its market into the production of heavy weapons as well as qualified steel and critical raw materials.
MSI TDR: Do you have any message for the sector?
Muhsin DERE: As the Ministry, we aim to benefit from, support and develop our sector as much as possible through both Strategic Cooperation Agreements (SİA) and a system based on a Pool of Approved Suppliers. To date, we have signed SİA with 48 companies for the indigenisation of 589 components, and included 170 companies in the pool of approved suppliers following our evaluation of applications. Companies that are willing to play a role in indigenisation are always welcome. All related announcements and manuals are available on the MND website.
The local participation rate in the equipment and ammunition used by TAF has already reached 70 percent. Since this rate was only around 20 percent at the outset, we can consider this a great success. In order to carry this rate even higher, we should continue to cooperate with the sector at the highest levels. The doors of our Ministry and our affiliated institutions are wide open to the sector whenever they have a problem related to legislation or implementation. We will continue to work in a disciplined and focused manner, in line with our slogan “Whoever works best, loves his homeland most!”, in coordination with companies of all kinds, be they public, foundation or private-sector companies, and with no discrimination between the military and civil sectors.
On behalf of our readers, we would like to thank Muhsin Dere, Deputy Minister of National Defence, for taking the time to answer our questions and for providing us with such valuable information.