Sikorsky ready to partner on Hi- Tech Turkish Products

Sikorsky has designated Turkey as an “anchor country.” The relatio

Issue 20 - January 2010

Defence Turkey: In terms of production, investment, export and international projects, how could you evaluate the improvements in figures in 2009?
How do you assess Sikorsky’s position in 2010? What are Sikorky’s 2010 targets?

We finished 2009 very successfully. Our revenues increased by more than one billion dollars, to $6.3 billion for the year. Within a 15-month period, we achieved seven first flights of new aircraft that we are developing, ending with the first flight of the S-76D helicopter in February 2009.

We finished the year with about $12 billion in firm backlog. We delivered a record number of large helicopters – 244 – which was an increase of 20 percent compared with 2008. Our R&D programs continued to progress well. Just recently the Sikorsky S-92 helicopter was chosen as the preferred aircraft for the UK Coast Guard search and rescue program. Sikorsky is part of a consortium that also includes CHC, Thales and the Royal Bank of Scotland. This consortium was named as the preferred supplier of 24 S-92 helicopters and all the search and rescue support and maintenance operations in the U.K. for the next 25 years. We had won the pilot program about three or four years ago, and that program proved highly successful. This new program is a huge one for us for going forward.

Defence Turkey: Sikorsky Aircraft Corporation took a major step toward establishing its European operations foundation, completing the acquisition of aircraft maker PZL Mielec from the Polish government. In this respect international BLACK HAWK production is being realized in Poland? What are your international marketing objectives and plans in line with this recent investment?

We really have several different business lines. Our company is made up of three business units. We have Sikorsky Military Systems, or SMS, and we have the Sikorsky Global Helicopters business, which is responsible for manufacturing, design, and development of our commercial helicopters. Our third business is Sikorsky Aerospace Services, which is our aftermarket company.

In addition, our supply chain is really a business onto itself, and that organization is run by a very capable team that develops strategic sourcing in markets of interest to us. Turkey is such a market. We’re blessed in Turkey to have great capability, good component prices, longtime relationships, and the opportunity to sell our aircraft here.
You mentioned Poland. That’s primarily a supply chain investment. We found that to protect our supply prices for the longer term and to protect our delivery availability and quality, we think in some cases it’s better to own or form a joint venture in the supply chain market as opposed to just buying parts. You might recall that for a few years starting in 2005, aerospace suppliers could not keep up with the demand from both the big jet and helicopter manufacturers. Some suppliers couldn’t make the deliveries that we needed, and some elected to raise prices beyond the point where they were providing any value. So, we very purposely and strategically elected to start investing in the supply chain and you’ll see more of that.

India also is a very important market for us. Sikorsky has elected to approach India much like we have Turkey, as a strategic market with very defined management across all elements of our business: military, commercial and support. We’ll be addressing the Indian market much the same way we’re addressing Turkey. We have a joint venture signed with Tata, a huge conglomerate there. That joint venture will make aerospace components, and to supplement that we have signed a contract with Tata to manufacture S-92 helicopters. That continues a very strong demand so we moved purposefully to India as a low cost supplier for our needs. India has modified its acquisition rules where preference is given to local companies, so we’re establishing ourselves as a local company much like we’ve done in Turkey with Alp Aviation. That enables us to participate as citizens of that local market, not just as buyers and sellers in the marketplace. Tata is a great partner, obviously.

We’ll be looking for other partners in India as well, on a capability basis for composite manufacturing, some engineering design work, and mission equipment development that’s peculiar to India. A similar situation is emerging in Korea where there’s demand for helicopters that we can co-develop possibly with the Koreans.

Latin America also is an interesting place for that kind of activity. Brazil has great aerospace capability and good demand for helicopters both in the classes we manufacture and in the lighter weight classes. So we’re doing a lot of things to adapt to the global market.

Our U.S. government business is very stable. BLACK HAWK helicopter production is set to continue for the next 10-12 years. In addition, we are progressing very well with development of the new heavy lift helicopter for the U.S. Marine Corps, and it will be the most capable marinized heavy lift helicopter in the world. So our production lines are set, and, as I said, we’re continuing to invest in R&D programs that will bring our new technologies to the marketplace.

On the Sikorsky Aerospace Services side, we’re entering into joint ventures to round out our local support for regional aircraft operators. In the Middle East, we’re very close to completing a joint venture that will maintain both fixed-wing and rotary-wing aircraft. On the rotary-wing side, the joint venture will maintain Sikorsky and non-Sikorsky helicopters such as Apaches and models by Eurocopter that are owned by the UAE government. We’ll also do maintenance for fixed-wing aircraft such as F-16, F-18, C-130 airplanes. Our plan would be then to have full depot capability of all those aircraft. We’re seeking similar opportunities in other locations in the Middle East that will complete the service and maintenance network, so we’re very aggressive.

Sikorsky Aerospace Services also is expanding its service portfolio by developing aircraft accessories and completions businesses for both helicopters and fixed-wing aircraft. So you can see we’re really not just focusing on helicopters, we’re really becoming a more complete aerospace company.

Defence Turkey: Sikorsky has signed significant contracts with Turkey and Turkey has become one of the major international clients of Sikorsky. Within this context how do you assess the activities performed over the years?

We’re very pleased with the relationship. Sikorsky has designated Turkey as an “anchor country.” That means the country is very important for us, and we have a regular reporting system in place, a structure, such as an office here that’s manned by a director, and a supply chain team that appears frequently. Should we receive UHP, we’ll really expand our office here and you’ll see a supply chain team, program management team, and engineers all come here. We’ll provide oversight to get the program started and then hand off to our partners here in Turkey. So, long term it’s a great relationship.

Turkey has about 140 Hawks, both BLACK HAWK and SEAHAWK helicopters. It is one of the largest fleets outside the U.S. government. I think Turkey and Korea have about the same number. Of course when we win TUHP, Turkey will have the largest fleet of BLACK HAWK helicopters outside of the U.S. government by a big margin. This purchase will number 109 aircraft, with 12 more helicopters to follow. We hope to supply the Prime Minister with an aircraft that has more capability than the one he has now, which is important because of all the security issues around the world. Your Prime Minister and Head of State need that extra bit of security that we can provide and that has been developed locally here, by the way, with ASELSAN.

I’m very pleased when I come to Turkey and talk to members of the Land Forces who call our products “Sikorskys” rather than helicopters. There are a lot of stories that have been related to me where they say, “Hey, the Sikorskys came and saved my life or a Sikorsky got me out of trouble, a Sikorsky rescued my squad.” I think that’s a great acknowledgement for Sikorsky and also a great acknowledgement of how effectively the Land Forces and the Navy use our products to protect the interests of Turkey.

I believe we have a very strong relationship with industry, and we’re expanding it. TAI General Manager Muharrem Dörtka?l? told me he remembers when we first started working with Sikorsky products we did a million dollars a year, and pretty quickly that increased to a million dollars a month, or 12 million dollars a year. Now he said we are exceeding a million dollars a week for Sikorsky work. With what we have in the planning cycle and in agreements in place with TAI on the TUHP, they’ll be doing maybe a million dollars a day with Sikorsky and Sikorsky products if you count their sales to the Turkish government as well.

I think we have always lived up to our offset obligations here. In concert with SSM, the Ministry of Defense, we’ve used offset with the government here, and industries use offset very wisely to strategically develop the capability, the quality, and the processes to position Turkey to take all the elements of our helicopter and produce them locally with very low risk and very low start-up cost, in my opinion. Under UHP, we’ll be buying back completed helicopters from TAI for distribution and export outside Turkey. We offered to keep buying those helicopters so long as Turkey keeps buying helicopters from TAI. Effectively on the TUHP program, I think I’m right in saying the Turkish content is well over 85 percent of the total content of the helicopter. It will be made locally here, including the engine assembled by TEI, so it’s a Turkish program, not a Sikorsky program though we are happy to participate.

Defence Turkey: As it has been already known, Sikorsky offered significant opportunities to Turkey within the scope of general purpose helicopter project in terms of investment, joint production and export? Could you please enlighten us about the details? How do you assess your position in this project?

AgustaWestland offers a program that’s completely different from ours. They’re taking a commercial helicopter and militarizing it. I think that program can take about seven years, though I’m not sure. I think they’ve used the language. ‘teaching Turkey to hunt a fish.’ Our approach is much different. Turkey knows how to hunt a fish, and no one needs to teach them. We want a partner that includes very competent, very capable industry.

Turkey does not have to wait seven years. We can bring business to Turkey now. We can start this program from the date the contract is signed, with revenue from exports being derived from Turkey. We have MOUs signed with industry, with TAI, Alp, ASELSAN. We have the purchase orders ready to bring here. So that’s the primary difference: You don’t have to wait seven years to get business from Sikorsky. You will get instant business, instant revenue and instant exports from the program.

Turkey is bringing technology for the derivative BLACK HAWK helicopter, which is a very, very capable aircraft. So, again, we don’t have to teach Turkey anything, Turkey is teaching us, and I think that’s a significant difference between our program and the competitor’s. Sikorsky is offering a true partnership that can be executed immediately. The program is very low risk and can deliver helicopters much faster. ASELSAN is developing much of the state-of-the-art equipment, and we’re partnering with ASELSAN in developing a highly technical state-of-the-art avionics suite that will be developed for the TUHP and be inserted at an appropriate time in the international BLACK HAWK helicopters that will be exported.

So, ASELSAN up until now has been mostly a producer of equipment that has been licensed to them by U.S. and European manufacturers. This program puts ASELSAN into the driver’s seat in competing with international avionics companies. We’ve had very senior engineers here at ASELSAN looking at their capability, their schedule and prices, and we believe this will be a great partnership that gives Turkey instant access to the external defense market. And those are the kinds of things we do differently. We are not here to teach.

Defence Turkey: Sikorsky has signed significant contracts with Turkey, and Turkey has become one of the major international clients of Sikorsky. Within this context how do you assess the activities performed over the years?

We just finished a site survey of the 5th MMC Land Forces depot and the Air Force depot as well. Turkey has invested billions already in supporting its BLACK HAWK and naval SEAHAWK helicopter fleets. We finished the survey at the request of SSM, and the findings are very, very positive. What we found was that 5th MMCC has great, tremendous capability and while they were developing the BLACK HAWK maintenance and transmission gears and airframes, the Air Force was developing complementary capabilities such as metallurgical processing of cleaning materials and frame spray. So combining all these capabilities makes for a very low investment in depot level maintenance to set up for the TUHP.

Then you have the third element of all the extensive manufacturing we’re bringing here with Alp, TAI and ASELSAN as manufactures that will have the complementing depot level capability. The investment is almost zero. So, I mean it’s already here, you just need to manage these different elements. And, we are offering to do that in a joint venture with TAI, so we would manage the parts on behalf of the military. We don’t yet have an agreement on that but hope to. We could manage this logistics system that already exists and improve its efficiency by materials and parts management. Sikorsky is very experienced in doing that with the U.S. Navy and U.S. Army. The government here doesn’t want to duplicate capability; they want the capability managed so that it’s efficient. That’s what we are bringing.

Otherwise, if you have a new helicopter you’ve got to start all over again and duplicate all those investments.

Another benefit that we bring is that for years the spare parts for BLACK HAWK helicopters have been bought internationally, primarily through the Foreign Military Sale (FMS) system. We will be producing those parts locally, particularly the gear parts – Alp will be doing those. TAI will be doing assembly work, and the spare parts that the military needs for the self-sustainment and localization of spares will be done here.

Defence Turkey: Can Turkey due to her geopolitical location and developing defense technologies be considered a team player in Sikorsky’s Middle East marketing strategies and eventually reach success?

Sure. And that’s really the keyword. That’s in their objectives issued by SSM, and we have agreed, subscribed to that, with no problems. Certainly one region where we’re going to export completed BLACK HAWK helicopters from here is the Middle East. We’ve agreed to work with both the Ministry of Defense and Turkish industry to sell these products together.

On the service and support side, Turkey will be a hub for maintenance of S-70 helicopters from around the world. We’re already bringing pilots from the Middle East into Turkey for training. We will expand on that with BLACK HAWK pilots trained at the Turkish Land Forces Flight School. There are BLACK HAWK simulators here, and we will bring international students here to use them.

One of the key things we have offered in our program, and we are maturing this, is to co-develop a new helicopter with Turkish industry and Turkish government doing the primary design of the dynamic components and avionics systems. We’ll work with Turkish industry and other countries to develop an appropriate consortium so that the helicopter primarily is designed and largely manufactured here, and then maybe assembled in some of these other countries. So, we are rapidly maturing TAI into a business model that’s very much like the ones Sikorsky, Eurocopter and Agusta use around the world to develop business. Countries that buy hundreds of helicopters always require that some work be done locally, and TAI and SSM understand that and are willing to work with us in helping to develop this. We will be formalizing a proposal to SSM and TAI within the next three or four weeks so it will be included in the Executive Committee meeting discussion on June 6th.

In that context I want to address the design center as well. Sikorsky has connected design centers around the world. We can work 24 hours around the clock on designing a product. We are going through the analysis in qualification of TAI as an approved Sikorsky design center. So they’ll have online access to our commercial product developments and will be able to share data and engineering design work in real time.

Defence Turkey: As you mentioned Sikorsky has cooperated with such Turkish companies as TAI, Alp Havacilik, Aselsan, Milsoft in the past and is presently doing so. Could you please give more information about your partnerships with Turkish Defence Industry?

The components we’re designing to improve the BLACK HAWK helicopter’s technological capability are put into kits that are used to upgrade aircraft in the field or to install on new aircraft, Our plan will be to do the same with some of the ASELSAN avionics mission equipment, and to provide the kits to aircraft all over the world. Approximately 3,000 BLACK HAWK helicopters are operating today worldwide that will need upgrading or replacement, and Turkey can share in that from a components viewpoint .

We have already approached several small and medium sized businesses as well – Ayesa?, MegeTeknik, HAVELSAN, MilSOFT – on the Health and Usage Management and fleet management needs.

We have a gentleman’s agreement with SSM that if and when we’re announced as the winner of the TUHP, we will continue to work with subcontractors and bring their products into the Turkish manufacturing system. That’s a huge undertaking and we’ve put it on the shelf until a TUHP announcement. If we win, we will start looking at the build materials for the S-70 helicopter and look at trying to match industry capability here with those other non-Sikorsky components. Then in Turkey we’ll be developing a lot of this equipment.

Defence Turkey: Finally would you like to add some information for our readers?

Sikorsky brings low risk to programs. We bring our technology. And when we say we will be part of the local fabric, the local industry, and the local economy, we do that both by using and further developing the industrial capability that already exists here. We recognize that Turkey has invested a lot of money, energy and time into developing this industry.

In my view what we bring is quick market access external to Turkey, which is very difficult to achieve without partnering with an established world leader like Sikorsky. For example, how would a company like ASELSAN sell something in a country like Taiwan when the Taiwanese ask how are you going to support this? Through the Sikorsky Aerospace Services partnership, they will have a distribution and maintenance support organization. We bring a lot of complementary capabilities that will really allow the Turkish defense industry to move up rapidly rather than going to fight in the marketplace for their niche. But teaming with them will allow both Turkish industry and Sikorsky to expand our businesses in a very large and well established global marketplace.