Interview: Temel Kotil, President & CEO of TAI
“By 2026, TAI will be making a turnover of $10 billion and employing 25,000.”
As one of the most well regarded companies when it comes to the future of the Turkish defence and aerospace industry, TAI is preparing for a new era where it will witness an increase in its business volume both in the areas of defence and commercial aviation. Temel Kotil, President and CEO of TAI, gave us some indications about this upcoming era.
MSI TDR: Mr. Kotil, you had previously said that the Turkish Fighter Development (TF-X) project was a very important factor behind your appointment. Shall we start from here? First of all, could you tell us about the progress in your activities relating to this project?
Temel KOTİL: The TF-X will be a fifth generation fighter. Currently operational fifth generation aircraft include the F-22 and F-35 in the inventory of the United States Air Force, while Russia and China are continuing to test their prototype aircraft. Once we develop the TF-X, we will become the world’s fourth country to have this type of aircraft. Meanwhile; Japan, the Republic of Korea, Iran and India are also working on similar projects. So there is a competition between countries.
TAI will be working with BAE Systems during the first phase of this project. At the signing ceremony we held with BAE Systems, we promised, in front of everyone, to both our Prime Minister and the British Prime Minister that the TF-X will become the world’s best fighter jet. We realise this is a very big and ambitious promise; but it is one based on solid grounds.
BAE Systems has assumed important roles in the F-35 project. It is a company that is knowledgeable on fifth generation fighter aircraft. Ahead of us is a four-year preliminary design phase, where the architecture of the aircraft will be determined. And in the following eight-year period, we will complete the design of the aircraft. The TF-X’s first flight is planned for 2023, and the aircraft is expected to enter the inventory in 2029. Serial production will then begin, to meet the requirements of the Turkish Air Force and of friendly and allied countries. Many countries across the world cannot afford the costs of other fifth generation aircraft. The TF-X will hence represent a very important alternative in this regard.
BAE Systems will be supporting us with more than 100 of its employees. Their level of technical support will be in the region of 450 man/years. They will also give us access to their software and database.
In addition, globally, there is a group of about 200 people working on various combat aircraft projects. This group is working on project basis, so when a project ends, its members move on to another project. The F-35 project has been completed, and we are now trying to attract a significant portion of this team to the TF-X project. Regardless of whether they are Turkish nationals or not, we are looking forward to bringing every experienced person in this field to our country. Of course, we also have our own staff. TAI has no prior experience in the development of supersonic aircraft, but we will fill this gap with the sources of support I just mentioned.
A very large team will be working on the project. Currently, we are constructing an immense engineering facility on our premises. It will be the best engineering facility in the world; It will, in a sense, be a Palace of Technology.
MSI TDR: Another important message you gave when you took office was that you would be adding another zero to TAI’s turnover, increasing it from its current level of $1 billion to 10 $billion. How will you achieve this? What type of activities are you conducting to reach this objective? What kind of a TAI will we see once this target is achieved?
Temel KOTİL: Allow me to explain what we are going to do at TAI by giving an example from Turkish Airlines (THY). Every year at Turkish Airlines, we achieved a higher growth rate than that the companies which were larger than us. If you carry more passengers than the annual increase in these companies’ number of passengers, you can eventually close the gap. And sooner or later, you can catch up with them. In this respect, the number of extra passengers you carry every year is significant. Although TAI is a small company when compared with the giants of the aviation industry, it is still the largest in Turkey and the Muslim world, and can utilise this potential to its benefits.
As long as it achieves a growth rate higher than larger companies, TAI will eventually catch up with them. To reach the target of $10 billion by 2026, we need to grow at an annual rate of at least 25 percent in the next decade, although this year our growth rate will be 67 percent. Across the globe, the average annual growth rate of the industry is just five percent. We aim to grow five times more.
Therefore, what we are doing, first of all, is to force TAI to grow at a rapid pace. When I use the word force, what I mean is: taking a decision, setting our goals and claims, and implementing our decisions as rapidly as possible.
Secondly, such a rapid growth rate can never be achieved organically, meaning that we need to grow inorganically. We have a small company in Germany, which we plan to make larger in the coming period. If we concentrate on it, we can definitely improve that facility. Moreover, as we have seen with Turkish Airlines, opening up to different parts of the world helps enrich the corporate culture. When acquiring companies abroad, TAI will also take the positive aspects of their cultures.
Thirdly, Turkey is still an inexpensive country. We can engage in production more economically than any other country. We are now restructuring our company and are increasing the number of staff. But this recruitment only includes engineers and technicians. As the number of engineers and technicians increases, our overall expenses will decrease. In one or two years, you will see that TAI will be offering the lowest-cost production capabilities in the world.
MSI TDR: Which country and company is next, according to the company acquisition plans of the TAI?
Temel KOTİL: TAI is conducting significant projects with leading international companies, such as Lockheed Martin, Northrop Grumman and Boeing. That’s why we want to acquire a US based company that is part of these companies’ supply chain. We will provide this company every kind of support; however our expectation is, of course, to see the company standing on its own two feet. We are also interested in acquiring companies in France, the United Kingdom and Canada.
MSI TDR: What kind of a TAI will we see, once this target of $10 billion is achieved?
Temel KOTİL: It is all about mathematics. Today, our revenue is slightly over $500 million, and this comes from our work for Airbus, Boeing, Bombardier and Lockheed Martin. This means that the value of the parts we produce for platforms designed by others is valued at $500 million. Had our departments carried out production for TAI’s own indigenous products, our revenues would have been $5 billion, because you create more value when you integrate parts to make your own product. You just need to have indigenous products and designs – and we have our own designs. We developed HÜRKUŞ as a trainer aircraft. We recently conducted the fire test of the close air support version, and are about to start its production. We also designed the Indigenous Helicopter, which is going to conduct its first flight in September 2018. We also have the ANKA, in the field of unmanned aerial vehicles.
In this way, we will achieve growth with our indigenous products. Of course, we will also increase the share related to the production of parts in our turnover, which is currently at $500 million. We envisage that we can reach a turnover of $2-3 billion in this area. To achieve this goal, we will reduce our costs even further; because if we are expensive, we will not be awarded with projects involving the production of parts. We will reduce our labour costs by 30 percent in two years. Of course, we will do this by increasing productivity rather than paying fewer wages.
MSI TDR: What will be export performance of a TAI with a turnover of $10 billion?
Temel KOTİL: Looking at the domestic market, we can see, for example, that the Turkish Armed Forces will not be making procurements at a level of $10 billion per year anytime in the near future. So we envisage that 90 percent of our $10 billion turnover will come from abroad.
As a matter of fact, in today’s world, technology companies can only survive by exporting. Turkey makes about one percent of the world in terms of population, economy and surface area. However, the only way of becoming a player that has a say in the world is to hold approximately five to ten percent of the market. Even if we were to meet all of Turkey’s needs, this would still leave us at one-fifth of our target. That’s why we will be focusing more on exports.
MSI TDR: At this point, would you like to say something about Turkey’s 2023 export targets? What portion of these targets will TAI accomplish?
Temel KOTİL: TAI is a platform manufacturer and integrator. From this point of view, yes, our products will incorporate subsystems provided by various Turkish companies, even though we will be the one selling the products. Thus, we will be making a considerable contribution to the export figures. Currently, our annual export is at the level of $500 million, and we are aiming to be making $2-3 billion of exports by the year 2023.
MSI TDR: As you are also the Chairman of the Board of Directors of TEI, we would like to ask you how TEI will be affected by this goal?
Temel KOTİL: We are TEI’s major shareholder. Under my chairmanship, we have also held the first board meeting, where I emphasised that TEI’s turnover should increase. Prof. Dr. Mahmut Faruk Aksit, President and CEO of TEI, is a very knowledgeable person. He has worked at GE, so he knows all about engines and their parts. He has also reached the summit of his academic career, and is a professor. We expect TEI to make high turnovers under his leadership. Just like TAI, TEI should also be producing indigenous products. For example, they will develop the engine of the Indigenous Helicopter.
We don’t Want Engineers on Paper
MSI TDR: We know from our previous conversations that another issue to which you attach importance is having a qualified work force that will help Turkey reach its future goals. Both as an executive and an academician, could you tell us about your approach to this issue and your projects aimed at improving human resources?
Temel KOTİL: The defence industry and advanced technology sector can be likened to the jewellery business. It is a boutique service, so to speak, but it also requires detailed analysis. You can carry out this business only if you work with engineers and technicians of the highest quality. To give you example: the tolerance values for a car’s body are within millimetre ranges, while in the aerospace industry, we sometimes have to deal with tolerance values within micron ranges. So we have to assign Turkey’s most qualified human resources to TAI.
There is a commonly used expression: “An engineer on paper”. Young people arrive at the university without any previous practical experience. But they then graduate from university in the same way, without having learned anything practical during their education, the difference being that they are now labelled as engineers. So everything – including their knowledge – is just on paper, which is why we use call them “engineers on paper.” From now on, we don’t want our universities to raise engineers on paper. For this reason, we have launched an excellent project with Istanbul Technical University (İTÜ), thanks to the support of the valued members of the Board of Directors. Twenty-four students and 11 faculty members from the Departments of Aeronautical Engineering and Mechanical Engineering have formed a team that will design an aircraft within the next 2 years, going through the same processes we experienced when designing the HÜRKUŞ. We will support them, buy them the necessary equipment, and manufacture the aircraft they design. But they will have to work as if they are preparing a project for the Undersecretariat for Defence Industries (SSM); they will go through certain phases such as preliminary design and critical design. We would like to carry out a similar project with the Middle East Technical University (METU) as well.
We also want students to work part-time with us before they graduate from university. Currently, we have eight students from İTÜ working part-time.
In addition to the engineering projects, we also have a similar ongoing work for technicians. We are operating a joint academy with Gazi University, where we train technicians.
MSI TDR: How many people will TAI be employing on the way to achieving its turnover targets?
Temel KOTİL: This is also about mathematics. Let me remind you what I just said: Currently, we are only recruiting engineers and technicians. At the moment, our company employs 1,400 engineers. Over the next decade, a total of 10,000 engineers will be working on the TF-X project alone, although some of them will be outsourced. The technicians will be twice this number, so there will be 25,000 employees. This means that by 2026, TAI will be making a turnover of $10 billion and employing 25,000.
At this point, I would like to share a message with our young friends. We want young, hardworking and self-learning engineers who are fluent in English and have a high-grade point average.
MSI TDR: In this process, where do you position the Small and Medium-sized Enterprises (SMEs) that are your subcontractors, and the subsidiary industry? How will this growth be mirrored on them? What do you expect them to do?
Temel KOTİL: Recently, we had a meeting with SMEs. We told them: Just tell us which part of our work you are interested in; we can handover all of that part to you, because we have other more ambitious work to deal with. But there is a bottleneck here: These companies are generally interested in the production of detail parts. They cut block metals to produce parts from them. But today, CNC machines do not require as much workforce as they did before. TAI can purchase these machines at a more competitive price, as it buys large numbers of them. Accordingly, companies that produce detail parts are no longer attractive. However, we need companies that can produce subsystems for platforms, such as landing gear, ventilation systems and hydraulic systems. We want SMEs to focus on these areas.
For example, we want companies that are able to produce the prototypes of the designs we develop. We are in need of labour-intensive and boutique works that require great expertise. If they offer us such work, we can indeed transfer more business to them; however, there is not much future for usual and ordinary work.
Platforms are Becoming Mature
MSI TDR: What can you say about your work on the unmanned aerial vehicle (UAV) projects? There were plans for six ANKA UAVs and associated ground systems being delivered in 2017, and four UAVs and associated ground systems being delivered in 2018. Is this plan still valid?
Temel KOTİL: We are continuing our work on the ANKA-S programme at full speed. We have completed the assembly of two aircraft. They are ready, and are being used in the qualification tests we are conducting together with our customer. In these tests, we are demonstrating that we meet each one of the contract requirements. We have improved our aircraft manufacturing processes, and now we are able to make serial production much faster. In addition to the two ready-to-use aircraft, we have six more aircraft that are still in the assembly phase. Of these, we will deliver a total of six this year, and the deliveries of the remaining four will be made together with the Operations Training and Simulator Centre in 2018, as scheduled. With the introduction of these capabilities, the Turkish Air Force will acquire the ability to control the ANKA from a single centre, independently of the site of deployment, via satellites and the TAFICS (Turkish Armed Forces Integrated Communication System).
We are also continuing to work at full speed for ANKA Block-B. This year, we will complete a total of 17 ANKA UAVs. There is a very strong demand. We see a lot of demand from countries around the world, especially from the Far East, Gulf Region and South America. We have also been continuously improving the aircraft. We add features that will reduce its weight, increase its performance, and share more work with our subsidiary industry.
MSI TDR: Could you tell us about the delivery activities for the T129 ATAK helicopter to the Turkish Armed Forces and the related export activities? What would you like to say about the recent situation regarding your campaign for Pakistan?
Temel KOTİL: In accordance with the signed contract, 20 helicopters have been delivered in the context of the ATAK Programme, which was initiated for the production of a total of 91 helicopters consisting of 59 firm and 32 optional orders, as of April. T129 ATAK helicopters have been in active use in the inventory of the Turkish Armed Forces (TAF) since 2014.
Since the time it was selected by the TAF, there has been great interest for the T129 ATAK helicopter in foreign markets. This high level of interest is increasing day by day, especially as the deliveries progress and the delivered helicopters prove themselves on the field of operations. With its superior performance at high altitude and under high temperatures, the T129 ATAK helicopter is attracting keen interest from the international market, especially from Pakistan, Gulf countries and Asian countries.
Within the framework of the intensive and serious testing process of the Pakistan Armed Forces, our T129 ATAK helicopter has carried out all kinds of difficult tasks in the Pakistan environment, even in the Himalayas, and has successfully completed the tests, making us proud of its great performance. In this context, our talks with Pakistan’s official authorities are taking place at every level.
MSI TDR: How is the Indigenous Helicopter project progressing?
Temel KOTİL: Within the scope of the Indigenous Helicopter Development Programme, which is progressing in line with all the milestones, programme budgets and timetables, we are now working on the critical design phase. In the context of the programme for the prototype development of the T625 Helicopter and the production of two of these helicopters, we are designing fuselage and advanced avionic systems. This is being done in addition to designing and manufacturing of the systems of critical importance – such as the transmission, rotor, dynamic components and landing gear – by using totally indigenous capabilities.
As Fikri Işık, the Minister of National Defence, emphasised during his visit to our facilities, we are working with determination to carry out the first flight of T625 Helicopter on September 6, 2018, at 06:00 A.M. at the TAI facilities.
MSI TDR: What about the progress of the HÜRKUŞ programme? We know that the first fire test was conducted on the HÜRKUŞ-C. When replying, could you also comment on this development?
Temel KOTİL: As you know, our project activities for three different variants of the HÜRKUŞ – namely the A, B and C variants – are continuing intensively. In the HÜRKUŞ-A project, we received a certificate from the Directorate General of Civil Aviation and EASA, based on CS-23 standards – which is a first for Turkey. The aircraft were then approved by SSM and delivered to TAI. We are now carrying out weapon firing demonstrations with these aircraft and conducting improvement work for the HÜRKUŞ-B project. As part of the weapon firing demonstrations, we successfully conducted our first fire test, with our Minister of National Defence in attendance. In the coming period, we will proceed with the preparatory tests for the HÜRKUŞ-C project.
On April 7, the SSM published the Request for Proposal Document concerning the Procurement of Armed HÜRKUŞ, which is needed by the Turkish Land Forces. We are working on the proposal and its submission. Accordingly, the contract for HÜRKUŞ-C is scheduled for signing in May. A total of 32 aircraft, consisting of 8 in initial configuration, 12 in full configuration and 12 optional orders, are planned for procurement within the scope of this project.
In the context of the HÜRKUŞ-B project, assembly works are continuing for the 15 aircraft that were ordered to meet the basic flight training need of the Turkish Air Force. In addition, there are 40 optional orders for this variant. At the moment, the seventh fuselage and the fifth wing are in the stage of assembly and system deployment. We are aiming to initiate the ground tests in the summer months, and the flight tests of the HÜRKUŞ-B aircraft over the course of this year. According to the signed HÜRKUŞ-B contract, the first delivery is scheduled for June 2018, while the fifteenth and final delivery is scheduled for June 2019.
MSI TDR: In some phases of the HÜRKUŞ project, the issue of implementing the option for 15 aircraft within the scope of the KT-1T project had caused considerable debate. Now, could it be possible for Turkey to buy an aircraft of this class from abroad?
Temel KOTİL: There shouldn’t be such a purchase, because we are completing the HÜRKUŞ this year. We are grateful to ASELSAN for accelerating its work on the digital cockpit. So we are talking about an earlier date of delivery: late 2017 or early 2018, instead of June 2018, the previously scheduled date. We will first start producing for the needs of the Turkish Air Force, and then begin the production of the close air support version for the Turkish Land Forces. During 2018, we will produce three aircraft a month.
We will also develop a simulator for the HÜRKUŞ. For this, our business partner will be HAVELSAN. We are preparing a full-fledged training programme, and our forecast is that around 100 HÜRKUŞ aircraft will be sold.
MSI TDR: What can you say about the cooperation with Pakistan within the scope of the Primary Trainer Aircraft project?
Temel KOTİL: Currently, contract negotiations are underway between the SSM and Pakistan’s PAC Kamra, regarding the procurement of Super Mushshak aircraft to meet the Turkish Air Force’s need for 52 Primary Trainer Aircraft. In order to increase the rate of local participation, in line with our government’s expectations, we are in talks with PAC Kamra concerning the tasks to be given to TAI within the scope of this programme.
MSI TDR: In addition to the ATAK project, which was built on a model similar to that of the Regional Aircraft Project, TAI has also covered serious ground in the HÜRKUŞ project, where the aircraft was designed from scratch. Given TAI’s current level of knowledge and experience, would you have preferred to design an aircraft from scratch, instead of building on an existing aircraft?
Temel KOTİL: The HÜRKUŞ is a full-fledged aircraft. There is no equipment on other aircraft that is not also found in the HÜRKUŞ. It is a single engine aircraft. If you put two engines on it, it would become a little larger; and if you added a jet engine, it would become a different type of aircraft. But the computer, controls, displays, and the digital cockpit would not be so different. Of course, larger aircraft require different budgets and more time for development. But they are essentially the same. Therefore, TAI is capable of building an aircraft from scratch.
We are also working on different projects. Boeing is at the eve of an aircraft development decision that will address the segment between the Airbus A321 and the A330. This will be equivalent to the Boeing 757. We sent an official letter to Boeing in which we stated that we would like to take part in this project as a partner. I cannot give an exact figure, but we can contribute a serious budget. At this point, our experience in the airline business helps us know what needs to be done regarding the aircraft to be developed. We are also looking after such opportunities.
The future and sustainability of companies such as TAI depends on civilian programmes. These programmes provide a continuous input. Last year, Turkish Airlines received the 10,000th aircraft of Boeing 737 series. You cannot manufacture 10,000 warplanes. As a result, civilian programmes are a must for us. I am looking at this issue from a commercial point of view. For the defence side, it is not a very good model to be always dependent on government support. We need civilian projects to be able to stand on our own two feet.
MSI TDR: Is there anything you would like to add?
Temel KOTİL: TAI is a very strong company. Today, we are working towards increasing the number of TAI’s projects concerning the production of indigenous products. That’s why I place emphasis on engineers and technicians. While having engineers means unique designs, having technicians means the work force to produce them. In the course of the next decade, this is what you will see in TAI: Technicians will be at the forefront, engineering will be right behind them, and I will be at the very back.
On behalf of our readers, we would like to thank Temel Kotil, President and CEO of TAI, for taking the time to answer our questions and for providing us with such valuable information.
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