SaSaD Publishes Report on the Impact of COVID-19 on the Turkish Defense Industry

Date: Issue 101 - November 2020

The Defense and Aerospace Industry Manufacturers Association (SaSaD) published a far-reaching report on the Impact of COVID-19 on the Turkish defense and aerospace industry under the headings of ‘current status’ and ‘future projections’ on October 1, 2020.

We have compiled for you the highlights of the report by getting the opinions and suggestions of SaSaD member companies, under the subheadings of main findings, problems encountered, solutions developed, and the impact of the pandemic on business continuity, the effects on financial sustainability and the demands of the eco-system.

In the report, it was stated that despite the problems encountered in supply and production processes in 2020, deliveries continued with measures taken by companies, nevertheless, up to a 30% reduction in turnover is expected. It was also mentioned that the most critical risk in the ecosystem is still the cash flow blockage and companies are seriously worried about sustainability.

The report also examined the impact of COVID-19 on deliveries.  We’ve listed the problems encountered and the solutions developed below:

Problems Encountered

Problems in the supply of raw materials (steel, aluminum)

No-Cost Time Extension Requests of domestic/foreign suppliers

Logistics halts faced during sudden/unplanned lockdown periods 

Difficulties at checkpoints despite the exemption from the lockdown granted to defense industry companies 

Delays encountered in customs

Some public institutions’ stopping operation for precautionary measures

Delays in tests abroad

Travel restrictions

Psychological problems of employees and accordingly low performance and productivity

Reduced flights and accordingly increased shipping and freight charges 

Solutions Developed:

Adoption of working in shifts; reducing the number of employees working simultaneously

Weekend shifts

Remote work/work from home

The developments in the Aviation and Ship Building Industries were also examined in the report. 

The report stated that there has been a serious reduction, ranging from 25-70% in the number of orders for companies in the aviation industry due to the sharp fall in flights and civil aviation orders. It was also stated that there is an uncertainty in the business share of the Turkish Aerospace Industry (US$ 1.1 billion exported so far; total US$ 5.5 billion business potential) as a result of the removal of Turkey from the JSF program following the purchase of the S-400 Hight Altitude Air and Missile Defense Systems. 

The report emphasized that military projects in the ship building industry are in progress but there are delays in commercial orders, and it also stated that there may be a significant decrease in the turnover of shipyards, up to 50%, due to cancellations and delays in ship repair/refitting demands.

The impact of financial sustainability during the COVID-19 process was also discussed in detail in the report, and the evaluation points toward the fact that the most critical risk faced by the ecosystem is likely to be rooted in the dilemma of cash flow.

The report also stated that OEMs are making regular payments to subcontractors dubbed as Tier-1, but that Tier-1s cannot make regular payments to Tier-2 sub-contractors due to leasing/credit burdens, and this is one of the biggest challenges for the sustainability of the defense industry.