TBY talks to İlhan Özaydın, General Manager of Kale Aero, on the growth of Turkey’s aerospace industry.
TBY How did Kale Aero evolve from Kale Group?
İLHAN ÖZAYDIN Kale Group, founded in 1957, is one of the largest holdings in Turkey. It started as a ceramic tile business, then evolved into diversified sister companies, one of which was founded in 1969. KaleKalıp was a molding and dye company that originally served the ceramic tile business. It was a machine-based company, and through time it was able to adapt to the defense industry. In the 1980s, KaleKalıp took part in the Euro Stinger Missile Defense Project, which was a NATO-based program where KaleKalıp manufactured critical parts and assemblies for Stinger missiles for about 12 years. Our next project was the Rapier Missile Program, which lasted until 2007. We then participated in an offset project for Lockheed Martin Missiles and Fire Control, and through a productive and dedicated relationship, we were granted the Star Supplier Award in 2004 by Lockheed Martin. This gave us the opportunity to take part in the world’s largest defense project, namely the Joint Strike Fighter program for Lockheed Martin’s Aeronautics division. Our performance in the defense business thus has turned into an aerospace-dedicated company, Kale Aero. The company was set up in a separate and larger location that would be 100% export-oriented due to the nature of the business.
Was your relationship with Lockheed Martin facilitated by any offset agreements, or was it achieved independently by Kale Group?
Our first contact with Lockheed Martin was through an offset program. However, since the end of offsets, due to our quality and delivery performance, backed by our competitive cutting edge, all of our business with Lockheed Martin is independent. We were also given the opportunity by Lockheed Martin to bid on the new generation fighter F-35 project, where in 2009 we were granted a substantial portion of the international statement of work from Lockheed Martin Aeronautics. Today, Kale Aero is a major player in the F-35. We manufacture and deliver almost 230 parts, mainly for the wings and fuselage. Having the necessary engineering background, the qualifications, and the quality approvals, Kale Aero is well established and approved to work with all aerospace giants, including Boeing, Airbus, Spirit Aerospace, and Northrop Grumman.
How much technology originates in Turkey, and how much of it is a result of technology transfer?
There isn’t much in the way of technology transfer. Over the years, Kale Aero has developed its own know-how and engineering background to be the best in what we do. Only aerospace-grade raw materials are imported, and the products are manufactured here with our own capabilities. Working with our counterparts at Lockheed Martin, Boeing, Spirit, and others, certain improvements, small design changes, and revisions are made accordingly for the mutual benefit of customers as well as for Kale Aero.
What are your current export volumes?
In 2008 our turnover was about $6.7 million. In 2009 it was $12.3 million, and in 2010 it was $23 million. In 2011, it was $30 million. Our projection for the 2015-2016 period is to achieve $54 million in sales turnover. Over the long term, the aim is to become a $100 million company by 2023. However, there are certain bottlenecks in developing or creating new businesses, because we are a private and 100% family-owned Turkish company. Kale Aero is the only enterprise in this sector not to have the advantage of the government ownership and participation and the customer partnership behind it. We had to work very hard to get to where we are.
How is Kale Aero developing from being a supplier to a producer?
About a year ago Kale Group signed a 51%-49% joint-venture (JV) agreement with Pratt & Whitney, one of the world’s largest aircraft engine companies, to manufacture parts and subassemblies for the F-135 engine as well other military and commercial jet engines. It will be a greenfield operation located in Izmir province, and the production facility will be completed by late this year. In four year’s time, we estimate that the company will have an annual turnover of $84 million. We accomplished this all on our own merits, and we are very proud of the outcome. At Kale Aero, we are also very open to partnerships and have already had companies approach us. We can communicate the JV idea with companies that could bring value-added to the mutual benefit of both sides and develop the innovation side of the company. In 2011, there was a tender from the Undersecretary for Defense Industries (SSM) to develop Turkey’s first turbo jet engine for the stand-off missile project. Kale Aero was awarded the contract at the beginning of 2012. It is a four-year project where we will develop and deliver a complete turbo jet engine to the SSM. This is a great achievement for us, and we are very proud. We will start with a prototype and then move on to mass production. If the need arises, we will create new facilities and make fresh investments in Turkey accordingly.
What makes Turkey such an attractive partner for international aerospace giants?
First off, Turkey is a NATO country. For the F-35 program, we are one of the countries that actually wanted to put in the resources. With SSM involvement right from start, this is a big asset for companies like us. The portion of the equipment investment at Kale Aero was done through an SSM credit line for the F-35 program. I now see that there are other small companies applying for the same credit lines also. Eventually, as Kale Aero becomes a $50 million-$100 million company, we would like to develop our own sub-tiers, because we believe that you can’t do it all on your own.
How is Turkey perceived by international aerospace companies?
When Kale Aero was awarded a contract for the substantial portion of the international scope of work from Lockheed Martin Aeronautics, there were typical concerns in giving work to a company 5,000 miles away. However, upon completion of the stringent due diligence survey in engineering, planning, manufacturing, quality, and special process capabilities on rate readiness, there was no doubt whatsoever. The F-35 is currently an expensive plane, and there is a great pressure from US Congress as well as from other partner countries on Lockheed Martin Aeronautics to bring the cost of the plane down to a certain level, which reflects on us too.
However, in parts production, one can only reduce the costs to a certain level, since all the raw materials have to be imported, and value-added is not as much. If subassemblies and major assemblies were contracted to Kale Aero, that is where real cost savings could be achieved due to lower direct labor rates.
Who is your greatest competition?
There is competition around the world. Europe is expensive due to rigid labor laws and low hours of work a week, while we work a standard 45 hours per week with very flexible shifts. We have good engineers, a very qualified labor force, and high-quality, on-the-job training. We recruit young engineers primarily from Turkish universities, rather than directly recruiting from other companies.
Are you looking to expand into any other markets?
We recently signed a large contract for 10 years with Korean Aerospace Industries (KAI) for the Korean General Utility Helicopter program. We are definitely looking for more business opportunities from large commercial aircraft manufacturers. Our current turnover is heavily on the military side, and we would like to grow more on the commercial projects side where, ideally, 50% of our business should be.
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