Turkish defense firms set to lose billions after F-35 removal

By Ece Toksabay and Tuvan Gumrukcu

ANKARA (Reuters) - Turkish defense companies helping to build F-35 stealth fighter jets are set to lose work worth billions of dollars after Washington said it was removing Turkey from the program over its purchase of a Russian missile defense system.

Eight Turkish firms have been involved in producing the advanced fighter jets, supplying hundreds of items including parts for cockpit display systems and landing gear, on contracts the Pentagon said would have been worth $9 billion over the course of the program.

The head of Turkey's Defense Industry Directorate acknowledged on Thursday that the U.S. decision to move the work elsewhere - and the potential for additional U.S. sanctions - would be a setback for those companies.

Ismail Demir said the losses would be only temporary, arguing that the companies could emerge stronger in the long run. But analysts said the move was a major blow to firms which had worked on the jet production for a decade, and would also limit Turkey's access to new defense technology.

"I don't know how companies will try to compensate for this, as they have been part of an established production chain since 2007," Sinan Ulgen, visiting scholar at Carnegie Europe and a former Turkish diplomat, told Reuters.

Turkish companies involved in the program are Roketsan, Havelsan, Alp Aviation, Ayesas, Kale Aerospace, Tubitak-SAGE, the Turkish Aerospace Industries (TAI), and the Turkish leg of the Dutch Fokker Elmo, according to the F-35 official website.

None of the companies were immediately available to comment.

Demir said they would evaluate how to compensate for their losses. Kale Group said in April that if Turkey were to be excluded from the F-35 project, any lost sales would be offset by turning to civil aviation.

But Ulgen said that finding swift alternatives to such highly specialized work was not easy.

"What can a factory that produces a part for the body of the F-35 do? What can it change into, where can it go? ... This isn't the automotive sector, where you make a part for a BMW and then sell it to Ford when there is a change," Ulgen said.

Unal Cevikoz, Deputy Chairman of the main opposition Republican People's Party, put the value of contracts that would be canceled at $12 billion and said many jobs were at stake.

"These firms have almost 30,000 employees. What are these people going to do?" he said in a statement.


Announcing Turkey's suspension from the program on Wednesday, the Pentagon said that Turkish companies produced more than 900 parts for the F-35.

The supply chain would be transferred to mainly U.S. factories in a move that would cost the United States between $500 million and $600 million, it said.

Washington had warned for months that it would act if Turkey took delivery of Russian S-400 missile defense systems, arguing that the S-400's radar and tracking software would undermine the F-35's stealth capabilities if the two were deployed together.

Turkey dismissed those concerns, saying that the two countries should set up a working group to assess any threat posed by the S-400s.

On Friday it took delivery of the first S-400 parts, finally sealing the deal with Moscow and marking a breach with Washington and other NATO allies.

As well as losing its role in F-35 production, Turkey's planned purchase of more than 100 jets is being canceled and it also faces sanctions under a 2017 law known as the Countering America's Adversaries Through Sanctions Act (CAATSA).

That could further damage the Turkish defense industry, deal another blow to an economy in recession and accelerate Turkey's drift away from its Western allies.

Russian news agencies on Thursday cited Sergei Chemezov, the head of Russian state corporation Rostec, as saying Russia would be ready to supply its SU-35 fighter jets to Turkey if Ankara wants them.

"The F-35 move isn't a determining decision on its own, but it is an important indication on the direction of the relations in the current context. Turkish-American ties are more damaged than we have seen in our recent history," Ulgen said.

(Writing by Tuvan Gumrukcu; Editing by Dominic Evans)