Interview: K. Nail Kurt, General Manager and CEO of FNSS

28 Nisan 2017
DSC_5886- C- MSI Dergisi

We have conducted an interview with K. Nail Kurt, General Manager and CEO of FNSS, in the 30th issue of MSI Turkish Defence Review. You can read the full content of the interview below.

 

“Today, FNSS is one of the main players of the land systems market in the world.”

 

Having recently signed a contract with a friendly and allied country in the Middle East for the PARS 8×8 and 6×6 vehicles and also won the tender for the Anti-Tank Vehicles (ATV) project, FNSS is moving forward towards its strategic goals with confident steps. We had an interview with K. Nail Kurt, the General Manager and CEO of FNSS, in which we discussed the company’s current position, projects and objectives.

 

MSI TDR: Mr. Kurt, we first would like to ask you about FNSS’ current position in Turkey. As someone who is holding high-rank offices at the Defence and Aerospace Industry Manufacturers’ Association (SASAD) and the Defence and Aerospace Industry Exporters’ Association (SSI), where exactly do you see FNSS in the Turkish defence industry?

Nail KURT: FNSS is the first private defence industry company established in Turkey. This exceptional feature places a certain responsibility on us. I see FNSS as a pioneer for private sector companies operating in the defence industry. FNSS is the company which, in terms of numbers, has delivered the most land platforms in Turkey; it also ranks first in terms of platform sales value. We rank first in Turkey both in the area of military land platforms and among private defence industry companies. The numbers clearly show this. Over the years, our activities have further reinforced our position. FNSS has always been a leading and exemplary company in every task it undertook, with the quality of the products it delivers, the way it has always stood behind its products, its customer relations, its relations with society and the environment, the value it attaches to its employees, and its attention to occupational safety.

FNSS also has many groundbreaking achievements in the area of exports. To give you a list of what we have achieved:

  • In 1998, the Armoured Combat Vehicle (ACV) we exported to the United Arab Emirates (UAE) was also Turkey’s first platform export in the area of defence.
  • Following the UAE, we then exported our ACV family to Malaysia in 2000. This export was valued at $300 million, making it, at its time, Turkey’s single largest defence export. Another groundbreaking aspect of the [ACV contract with Malaysia] was that it involved the transfer of technology. The vehicles were produced in Malaysia under license.
  • Later on, we assumed the operation of a factory in Saudi Arabia. This, too, was a first for our industry, and we have been operating this factory for over 12 years now.
  • After this, we went back to Malaysia once again, where had a big achievement with the PARS 8×8, our newly developed product which we haven’t yet sold to a Turkish customer. The project for the PARS 8×8 was yet another record for Turkey in terms of being the single largest export, a record that still remains unmatched. The contract for the PARS 8×8 involved an even more comprehensive technology transfer.

We have had a lasting and continuous presence in every country we set foot, and our contracts with the UAE, Malaysia and Saudi Arabia are all continuing. I think that this is an important feature [of our activities]. The total value of our activities in Malaysia and Saudi Arabia has exceeded $1 billion. This is another one of our groundbreaking achievements.

Still another highly important development in the area of exports was the signing of a contract with a friendly and allied country in the Middle East towards the end of 2015. The value of this contract is in the region of half a billion US dollars. Adding up all these exports figures, we can see that our total export volume has reached approximately $2.6 billion.

All these achievements were made in tenders that were open to international competition. We had a though competitor in Malaysia, while in Saudi Arabia, foreign companies are still making offers to wrestle away our project. In our latest export success, our largest foreign competitor took part in the tender with two vehicles. We managed to outperform this company and the others in both technical and financial areas, and thus managed to win the tender. These achievements have made FNSS an export leader in Turkey.

Another area where we are leading is definitely the importance we place on our local suppliers. We are working to increase the number of solution partners as well as strategic partners we have. We are trying to disseminate knowledge and technology to a broad basis. And in so doing, we are looking after not only FNSS’ own interests, but also Turkey’s interests. During our production of the ACV, which lasted from the 1990s to 2005, we have reached localisation ratios of up to 83%. Such figures probably represent a record for the projects of the Undersecretariat for Defence Industries. I also see ourselves in a leading position with regards to the training and the business and export opportunities we provide to our local suppliers. The suppliers that have worked with us in Saudi Arabia and Malaysia are also gradually establishing a lasting presence in these countries.

Looking from all these different perspectives, we rightly consider FNSS as being an industry leader.

 

MSI TDR: As the General Manager and CEO of a company with so many ground-breaking achievements, I would like to ask you this: What is FNSS currently doing to maintain its current position?

Nail KURT: Ou motivation is to engage in new endeavours, to develop and expand the company, to engage is activities that benefit our country, and to spread technology and business volume to a wider basis. I like to use this analogy: If you only work to earn money, how good can become you at what you do? But if you really like your work and always strive to do better, just think about what you might achieve. As long as you like what you do, you will always make a profit anyway. If other companies perform better than us, this would only make us happy, since this would all be to Turkey’s benefit. All we want is to make sure FNSS doesn’t fall behind where it stands right now. As we develop and move forward on our own path, we would simply be pleased to see companies that develop faster and get ahead of us.

 

Turnover Determined Largely by Domestic Market Size

MSI TDR: When we look at Defense News magazine’s Top 100 defence industry companies worldwide, we see that, in recent years, companies that exclusively have land platforms in their product portfolio generally rank between the 50th and 100th places, and that their turnover is usually between $1 billion to $1.5 billion. Looking at this general picture worldwide, how do you see FNSS’ position?

Nail KURT: In land systems, having a turnover at the levels you mention is largely dependent on the size of the domestic market. Within the frame of Turkey’s own domestic requirements, it is only by taking part in the serial production of main battle tanks that a company might achieve such high turnovers. Aside from this, to be able to reach these turnover levels, you need to focus on exports. And to determine whether exports will be able to raise your turnover to such levels, you first need to look at your export markets. Our main export markets are the Middle and Far East, with South America also on the way of becoming one of our markets. In these markets, even if you manage to reach turnovers of $1 billion or more, it is unlikely for your turnover to remain above that level for a long period. To constantly maintain your turnover at those levels, you would have to export to the United States and Europe; however, considering that these countries already have their own companies and capabilities, they are not going to purchase these systems from other countries. That is only natural.

For all the reasons I’ve mentioned, all [land platform] companies that manage to reach a turnover level of $1 billion or more are able to do so owe this to their domestic markets. But given the business volume for land systems in Turkey, it is unlikely to permanently keep you above the $1 billion mark. There is also something else I would like to draw attention here: As a country, Turkey has preferred not to have a single giant company in the field of land systems. Otherwise, there was a plenty of potential to have a single giant in this field, similar to TAI, ROKETSAN and ASELSAN that operate in other fields of the defence industry. I think this was the result of a deliberate policy. Maybe if there were a foundation company [affiliated with the Turkish Armed Forces Foundation] specialized in this area, it might have been turned into a giant in the land systems. However, since there were a number of private sector companies instead, the field was kept open to competition. I am not saying this as a criticism. This, in the end, was simply a matter of choice. In this competitive environment, we are entering a period where we start hearing the names of new companies in the land systems industry.

Looking at past events, we see the following picture: Turkey established its land vehicle industry, along with its suppliers, about 30 years ago around FNSS. While the ACV contract was successfully continuing, FNSS was not assigned in the M113 project. Instead existing military factories being assigned to carry out this project. Following this, a foreign company was assigned on the modernisation project of the M60 tanks. FNSS, a domestic company with expertise on tracked vehicle technology, was completely excluded from this project. And afterwards, the FIRTINA howitzer was developed in cooperation with South Korea. Although the FIRTINA howitzer was designed based on the K9, that was based on a product initially developed for the United States by our foreign partner, FNSS was kept completely out of this project. Given such an environment, how are we to become a giant? If FNSS had taken part in these projects, it would have reached turnovers of $1-1.5 billion about three or five years ago.

During this time, we also survived the risk of shutting down completely in 2005. Our partners were very patient with us for two-three years, and thanks to their vision and tolerance, we were able to move upwards from turnovers of $20-25 million to where we stand today. Presently, our turnover is about to cross the $300 million threshold, and we are determined to reach $500 million. To this day, I haven’t seen any user or any officer at a headquarters or unit who expressed dissatisfaction with the ACV. Everyone is extremely pleased with it… Yet, FNSS was not given any other project for 15 years. Following this, we were able to successfully complete a very difficult project, the Armoured Amphibious Assault Bridge (AAAB), at a cost far lower than the available foreign solution. Then there was the Amphibious Armoured Combat Earthmover (AACE) project, and we were the only company taking part in the tender. There was a lot of price negotiation, and we completed this difficult project for just 12 vehicles, producing the world’s only amphibious earthmover in the process. We did not gain anything financially from these projects; in fact, we had to subsidise, so to speak, these projects with our export projects.

From this point of view, we can say that the story of our company was riddled with many difficult days. But that’s the reason why it is, at the same time, a story of success, one which we feel very proud of. From where we stand today, I notice that all managers and officials in decision-making mechanisms clearly see this and that they place great importance on FNSS, which makes me proud.

What I have said until now is more or less an assessment of the situation from a turnover standpoint. However, we focus on more than just turnover: We look at how efficiently we work, how profitable we are, how flexible we can be, and how fast we can grow or shrink when necessary. These are all essential techniques for survival. The more we are able to perfect these techniques, the better we will be able to adopt and continue our operations.

 

MSI TDR: Can we say that FNSS has become a worldwide brand? And if so, what are the features that distinguish FNSS as a brand?

Nail KURT: I would like to explain this by giving you an example. In recent days, a leading British organisation contacted us concerning their research on the land systems industry in the world. FNSS’ name was mentioned in almost in every part of that research. There will be 20 leading companies in this research, and we will definitely rank among the top 10. Over the past 5 years, there have been two major wheeled vehicle tenders, and we have won both of them. This says a lot, a lot more than what rankings would indicate. We compete and manage to strike deals by competing against the top three companies [of the industry]. Therefore, we can say that today, FNSS is one of the main players of the land systems market in the world.

I will put it very simply: What distinguish us is our capabilities. These capabilities did not appear out of the thin air; they are the products of certain management systems and approaches, and of a rightly-defined corporate mission and vision. FNSS has reached its current position over a 25-year period. We first began with the transfer of technology, and we got quite good at it. We merged foreign and local cultures in the same pot, keeping the best traits from each party, and creating an excellent hybrid. And we also developed an excellent business model. All this had a positive impact on the products. The expected lifespan of a joint venture – and especially of multi-national ones – is usually seven to eight years. But for FNSS, it has now been 25 years. And no party has any plans of leaving the company. In business plans for the future, we assume that the joint venture will remain as is for at least 10-15 years.

During this period, we have also seen an end to all discussion concerning the future of FNSS’ joint venture. The initial assumption in the first 10 years was that, once the ACV project would be completed, the partners would separate. But today, FNSS has become a brand. If any one of the partners would want to move out of this joint venture, there would be many companies willing to take its place; in fact, we keep receiving such offers from abroad. Today, the likelihood of FNSS closing down its operation is practically zero. FNSS is a brand, with many potential buyers, and this brand will not vanish anytime soon.

 

MSI TDR: We notice that the land platform manufacturers which have made it into Defence News’ list generally have a broader product family than FNSS. In your view, will FNSS have to expand its product family in order to reach higher turnovers?

Nail KURT: There are several points in this assessment that I disagree with. For example, there is a foreign company that was able to exceed our turnover by just selling an 8×8 in its domestic market and Europe. Product families can expand as long as there is a customer or market need. FNSS has a tracked vehicle family ranging from 10 tons to 35 tons, which includes, at the lowest level, its 10-15 ton tracked vehicles, as well as its 30 ton vehicles with air defence systems, and a medium tank we are presently developing for Indonesia. When you remove the turret of a main battle tank, its body is less than 40 tons. Therefore, we are able design the chassis of main battle tanks. And in the area of wheeled vehicles, we have vehicles for every type of requirements, ranging from the 4×4 to the 8×8. I don’t think that our product range is lacking in any respect. For weapons system – and hence, turrets – the development and qualification costs for higher calibres is very high. Unless there is a project in which the costs are assumed by the customers, these systems are quite difficult to develop. Under these circumstances, we have developed our own 25 mm and 30 mm turrets. The qualification process has been completed for some of them; for others, it is still ongoing. However, the development costs of turrets bearing cannons with calibres of 105 mm and above require somewhere around $50 million in expenses.

 

Flexible Business Models

MSI TDR: Although there is presently no particular demand in Turkey, do you have any plans on your agenda to design special vehicles for countries such as Malaysia and Saudi Arabia, places where you are very well established?

Nail KURT: We have such an idea on our agenda. We keep bringing this up during our meetings with the SSM, SSI and SASAD. Turkey is a country that has already developed its own basic technologies in field of defence. However, when you want to produce and qualify a serious, more complex product, financing the development of such a product is near impossible if there isn’t a project for the domestic market. On the other hand, among friendly and allied countries, there are those which haven’t yet reached Turkey’s level in terms of technology, but which have the financial means to finance such projects. Besides, partnerships are about complementing one another. If two countries that already have the necessary technology attempted to develop a joint product, it would probably lead to a lot of disagreements between them. Similarly, two countries that have the financial means, but lack the necessary technology, would end up by producing products that are not competitive. That’s why we want to cooperate with countries that have the financial means while also requiring certain types of products. The best example of this is the medium class tank we’re developing for Indonesia. Since these types of activities can be seen as international projects, governments [and state institutions] should also be involved. The SSM, for instance, was directly involved in this project with Indonesia.

To reach our objectives and increase our exports, we have to focus on developing specific products for other countries, and we are currently working on this.

 

MSI TDR: You have a foreign partner that also has a significant presence in other countries. These countries often announce tenders for various armoured vehicles. Do you submit offers independently, or are they submitted under your partner’s leadership? How does this process work?

Nail KURT: The most important feature of FNSS is its ability to act independently from its partners – something our partners allow us to do. This doesn’t mean that we ‘always do things our way.’ The way we use this ability will differ according to the conditions of the market. For example, we might enter a certain market in cooperation with one of our partners. Our strategies will vary depending on the project and product. This, in fact, reflects another important feature of FNSS: Its flexibility. We don’t adhere to a single business model and just say ‘that’s the way we do things.’ We show great flexibility in meeting the requirements of a country, market and customer. This has allowed us to make exports in so many different areas and venues. Each one of our export projects are in fact based on a different business model.

All the offers we have made until now were submitted independently of our partners. We, of course, act according to the guidance, approved budget and strategies, long-term business plans of the board of directors, as well as the course they have laid out. However, when it comes to entering markets, we have always worked on our own until now.

In recent times, we are trying to create the conditions in which our partners might utilise our capabilities, and we have already made good progress in that direction.

 

MSI TDR: What can you say about your cooperation with Nurol Makina, one of the companies of the Nurol Group? What kind of strategy do you implement together?

Nail KURT: Our relation with Nurol Makina has precisely reached the point where we would want it to be; in other words, it has entered the framework which we had always anticipated and recommended. Our cooperation is increasing with each passing day, and we are very satisfied with the current situation [in our relations]. We work as two sister companies that complement each other.

Both parties have agreed that Nurol Makina will specialise on 4×4 vehicles, while FNSS will concentrate to greater extent on 6×6 and larger vehicles. When it comes to design, the two companies provide every kind of support to one another. We also cooperate on production. We have a fully strategic partnership going on. Some of the sub-systems we use in our vehicles are same, and we work with the same subsidiary industry companies. Together, we do whatever logic dictates, without any dispute or quarrel, just as we have done in the Anti-Tank Vehicles (ATV) project. PARS 4×4, one of the vehicles selected for the ATV project, was developed jointly by the two companies, and these vehicles will later be produced by Nurol Makina.

Time will tell whether this cooperation and process will lead to a merger. However, at an operational level, we are currently working together as if we were a single company.

 

PARS: A Vehicle Preferred Worldwide

MSI TDR: The PARS family has just achieved its second big export success after Malaysia, despite not being in the TAF’s inventory yet. To what do you attribute this game-changing success?

Nail KURT: Although the vehicle hasn’t yet entered the inventories in Turkey, there is also a situation that is greatly to our advantage: The PARS family hasn’t participated to and lost any tenders in Turkey. And since we haven’t actually lost in any tender, we don’t run into questions such as “why weren’t you able to sell the vehicles in your country?” In the case of Malaysia, FNSS already had a long-established reputation thanks to the ACVs. Additionally, FNSS hasn’t dissatisfied any customers in the countries it operates. All these factors make it easier for customers trust us. There is, of course, a technical aspect as well. The vehicles pass through very rigorous tests, and are selected based on their performances.

The second contract we signed with a Middle East Country further reinforced the PARS’ success. Our leading competitors also took part in the tender, and we clinched the project by outperforming them. The contract value is over $500 million. Furthermore, there are many logistic requirements as well, which is a clear indication that we will be working with that country for a long time. In addition to the main contract, we also signed a long-term maintenance contract. The vehicles will be produced at FNSS’ facilities. It has been a long time since we engaged in such a large volume production. The number of vehicles produced in the AAAB and AACE projects was relatively low, while in our overseas projects, production was largely local [and carried out in the recipient country], so over here in Turkey, we just produced the kits. This project will increase our number of blue-collar workers.

Moreover, the project involves both the PARS 8×8 and PARS 6×6, which will be produced in a total of 12 different configurations. The tender initially didn’t require a 12.7 mm remote-controlled weapon station; however, we had integrated ASELSAN’s SARP system to the vehicle we sent for testing. They liked this solution, so the SARP was included into the project as well. There are also some offset requirements in the project. We will be evaluating those requirements; we might consider benefiting from a local company for maintenance activities.

Had we been currently engaged in extensive production activities under a domestic contract involving numerous vehicles, we would have been even more competitive overseas. But right now, we are seeing the exact opposite; our exports projects abroad are enhancing our competitiveness in Turkey.

 

MSI TDR: Could you tell us about the latest activities of FNSS Middle East?

Nail KURT: Our activities in Saudi Arabia are going well, and there is a chance that we might strike another deal. Additionally, the budget allocation is in the process for the next phase of the M113 contract. In the upcoming period, we will have the opportunity to sign an ever larger contract. There is a need for other vehicles as well. The Armed Forces of Saudi Arabia is currently engaged in a serious conflict. For this reason, certain emergency procurements have taken precedence over other requirements. We have set our eyes of three major projects. In these new projects, we will be able to submit our offers through FNSS Middle East.

 

MSI TDR: The AACE (SAMUR) and AAAB (KUNDUZ) designed by FNSS are very special vehicles that appeal to a niche market. Looking from outside, the fact that these vehicles’ production has been completed, and the fact that there aren’t many international tenders for these types of vehicles, seem to depict a rather pessimistic picture for the future of these two vehicles. How do you see the future of these vehicles?

Nail KURT: These are very niche products. We developed these vehicles specifically for the requirements of the Turkish Land Forces Command, and we never saw them as products that would have a tremendous potential in the world market. Nevertheless, we are seeing some significant interest and demand for these vehicles from around the world, especially for the AACE. However, potential customers also have different budget-related expectations. The AACE shouldn’t be thought of as any bridge; it is a versatile product that can also be used as a ferry boat in natural disasters. Countries which have understood this concept of use already have vehicles of this class. I believe that we will be able to make progress once our potential customers also see and understand [the versatility of the vehicle].

 

MSI TDR: The second MILDESIGN event held last year has drawn quite a lot of attention. I first would like to ask you how this contest has contributed to FNSS. Are there are any ideas from the contest that have found their way into FNSS’ own vehicle designs?

Nail KURT: The MILDESIGN contest didn’t have a direct influence on our products; however, the fact that various ideas are being put forward in this contest, and that these are worthy of being evaluated, is something important in itself. We don’t look at the MILDESIGN contest and say “What can we get out of it?” There are two colleagues who began working with us after winning a prize in the contest. Maybe without this contest, we would have never met them. The first prize winner of the first contest is also now working in a land systems company. So, in other words, it is clear that this event benefits the industry.

With MILDESIGN, our goal was to raise awareness on design, to emphasise its importance, and to contribute to the training and raising of more designers in Turkey. I think we have achieved these goals, and have even exceeded them.

 

MSI TDR: In your speech about the future of MILDESIGN, you invited the rest of the industry to cooperate on this event. Have you received any responses to this invitation yet? What kind of a future can we expect for this contest?

Nail KURT: We haven’t received any tangible responses so far. At this stage, it seems that this event will continue to be organised once every three or four years. Depending on developments, we might bring a new approach that also involves the SSM, SSI, SASAD, the universities, and other companies. However, regardless of how this goes, it clear that we can also organise this event quite successfully on our own.

 

On behalf of our readers, we would like to thank K. Nail Kurt, General Manager and CEO of FNSS, for taking the time to answer our questions and for providing us with such valuable information.

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