Split within Albayrak family and real story behind Turkey's Altay tank saga

Tümosan AŞ of Albayrak Group, a Turkish conglomerate close to the government, sent notification to the Istanbul Stock Exchange late last Friday that the company would be split into two with the R&D division being transformed into a company under the name Tümosan Technology and Engineering.

This may sound like a standard business development. Reorganizing technological activities to be independent is a widespread practice due to competition conditions, and the notification from Tümosan AŞ explained this at length. However, in the “Division Report that they gave, there was a paragraph embedded within the text which pointed to the underlying issue and possible cause.

I will go word by word through the paragraph in question, but for now, let me first say that it is about the Altay tank program. The decision to split up the Albayrak family allows us to have a productive discussion about Turkey’s recent property developments and the consequences of government-corporate symbiosis.

In an interview published in Capital magazine in 2017, the Kolin Construction company’s owner Naci Koloğlu, who is also close to the government, summed up the risks posed by government favoritism. “Despite the fact that we earn our money from contracting jobs, there are always long-term risks associated. For this reason, we should not wait too long.” Koloğlu’s words are important, as they lay out the difference between political and financial incentives: “International partnerships are offered, but most are partnerships via tenders, contracts, and bids, not investments.”  

The division of Tümosan is certainly related to this international non-investment situation Koloğlu is speaking of.

Tümosan was the first diesel engine manufacturer established as a public subsidiary in 1975. The company moved to the Turkish city of Konya in 1985. They signed licensing agreements with global giants such as Fiat, Mitsubishi, German ZDF, and Daimler Benz. Let’s now go into detail about how Tümosan was blocked and the private company BMC, its rival, became the favored choice for diesel motor manufacturing. The government at the time did not provide funding to Tümosan, which resulted in a sudden switch from Volvo to BMC. On one hand, there was the intentional collapse of a public initiative; on the other, there is BMC which continued to stay stagnant even though it has been protected, looked after, and favored since former President Turgut Özal was in power between 1983 and 1993. The fact that both companies have taken turns being a burden on the country is a brief summary of Turkey’s market economy.
The story of Tümosan is similar to what we have seen happened to each and every Public Economic Enterprise (KİT). In 2003, Tümosan  was transferred to Sümer Holding. It was put out to tender in 2004 and the Albayrak Group bought it for 30 million dollars. The main opposition Republican People’s Party (CHP) claimed that the company was worth 200 million dollars at that time. In fact, even the value of the land the factory sits on was above the sale price. From then on, it has been nothing but favoritism.

In 2010, a loan advantage was given to farmers by public Ziraat Bank who bought tractors from them. But the real turning point was the Altay tank program. In debates about why the Altay tanks have never been produced, the Albayrak family has remained behind the scenes.

The idea for the project dates back to 1992, but no tangible initiatives started until after 2001. The primary goal of the project was to establish infrastructure for the production of local Turkish tanks. The tender in 2007 was won by Otokar, a vehicle manufacturer, which bid 495 million dollars. These are the firms with which Otokar cooperated for the project: The local firms are MKEK, Aselsan, and Roketsan; and the foreign firms are, for technology transfer, Hyundai Rotem and, for engine and transmission, MTU by German Daimler-Chrysler. It was once again MTU that produced the engine for Turkey’s “national ship.”

Otokar completed the infrastructure phase of the Altay tank program in 2014. In 2015, a tender was opened for the production of 250 tanks. According to the information which was shared with the public, BMC won the tender, offering 3 billion dollars more than Otokar. After that, Qataris stepped in and the Tank Pallet Factory in Arifiye, a Marmara region town, was given to them.

This is where Tümosan comes in. Turkey’s Presidency of Defense Industries (SSM) signed an engine development deal with Tümosan on March 17, 2015 worth 190 million dollars. The deadline for the deal was 54 months later and there was a foreign partner requirement in the specifications. The same year, Tümosan struck a licensing and technology transfer deal with Austrian AVL. The Austrian government, citing Turkey’s stance on Syria as justification, didn’t allow such a transfer to be made to Turkey. On January 17, 2017, Tümosan issued the following statement to the Istanbul Stock Exchange: “The AVL Company, which is required by contract to submit for government approval in 90 days, has not fulfilled its commitment, even after repeated extensions; due to the Austrian government’s insistence on an export license which contains conditions interfering with our country’s internal affairs. Because the SSM has not accepted the aforementioned export license, the AVL Company has failed to meet its commitments.”

In another statement to the Istanbul Stock Exchange on February 17, 2017, the following reasons were given:

* The Austrian government has set out conditions meant interference with Turkey's sovereign rights and internal affairs. Within the international environment, the “national force factor” is perceived as being very important. Hence, a negative attitude has been observed from those countries who hold the greatest control of the market, with the intention that Turkey not be able to obtain the technology in question.  

* Tümosan has repeatedly met with companies from Germany, the U.K., South Korea, Spain, the U.S., Ukraine, Russia, Japan, and Canada. Since it was a requirement that technical support be sought from Western countries, it is now clear that due to political reasons, this business model is not able to be carried out.

* Due to the negative attitude of EU member states towards Turkey, it was revealed that several companies did not respond to calls and some even avoided cooperation with our country following incidents in the Middle East.

In short, Tümosan is saying: “Nobody wants to work with me.”
In October 2017, the SSM went out to tender again, but this time, one change in the tender specifications was very important. The "international partner condition" was lifted. Whether this had anything to do with the inability of Tümosan, and other companies close to the government, to find international partners… I’ll leave that for you to decide.

Now, turning to the most recent statement on Friday, let’s look at what it says in its “Division Report” section:

“As a result of the increased weight of military projects in the R&D Directorate and subsequent R&D Service Activities after the bid for the Altay tank tender in 2014, costs incurred which affected the financial structure of the company. Also, since the name of the company is cited together with the defense industry, this was done to prevent any negative impact on access to technology and other opportunities for international commercial cooperation.”

In other words, they are saying that our only industrial company, Tümosan, cannot transfer technology or find financial resources from abroad, even for tractor production, let alone to produce engines for the defense industry.

If anyone can derive a different meaning from this statement, please let me know; it would be eye-opening.

These are the reasons for Tümosan’s split. However, this problem is not limited to the Albayrak family.

There is a continued insistence on state tenders in Turkey and the billions of dollars of profit associated with them. Also, the fact that the government coalition has in it a senior partner, from AKP, and a junior partner, from MHP. These big capital owners have been raising some objections recently. Nowadays, opposition parties repeatedly make statements on “productive capital.”

Taking all these things together, when we project them at the Altay tank program, like a beam of light into a prism, an image is reflected on the wall in front of us, a photograph taken from the arms industry’s camera of recent history. After the 2000s, tough competition among capital owners started with a share of the military-industrial complex, and this competition was clearly related to political authoritarianism. One should not forget that when the political landscape changes, it causes major earthquakes in the standing of capital groups.