Acquisitions By Turkish Defense Companies and The Control of Supply Chains

What is Baykar’s connection to Italy? And why is Greece complaining to the European Union about Turkey’s growing influence in European defense industries?

This part requires some reflection and calm to understand a little-known aspect of the Turkish defense industry… An aspect that differs from videos of drones and news of military deals. It is an economic and business aspect that gives us a deeper understanding of the nature of this industry and reveals details that are often overlooked.

In 2022, Turkey’s Presidency of Defense Industries (SSB) imposed a requirement on any large company awarded a defense project to award at least 21% of the contract share to small and medium-sized enterprises. These companies are called “KOBİ” in Turkey, which is equivalent to small and medium-sized enterprises (SMEs) in English. This was an important step in activating the role of these companies in the industrial sector. I have previously written about the importance of this category of companies and why they are the real key to the development of the defense industry.

At the same time, there is another mandatory law that requires companies to allocate a minimum of 2% of the value of defense contracts to localize research and development activities. This was one of the reasons why Turkish Aerospace Industries (TAI) implemented more than 125 localization programs and is currently working on 300 new programs in this field. This saves approximately $1 billion annually that would have left the country in the form of imports.

Stay with me, we haven’t gotten to the heart of the matter yet, but we need this explanation first.

TAI has set a goal of producing 1,500 aircraft of various types — including drones, training aircraft, and fighters — by 2034. Among these aircraft are 500 KAAN fighter jets, 350 ATAK and GOKBAY helicopters, and 600 AKINCI and AKSONGUR drones.

ASELSAN achieved 13% growth and a 25% increase in operating profit (EBITDA) in 2024. Baykar is seeking to expand its production lines to meet orders from 36 countries and has increased the proportion of local content in its products from 38% in 2008 to over 70% in 2020.

Major projects such as the MİLGEM warship project rely on local suppliers for about 65% of their needs, and among these suppliers, about 48% are small and medium-sized enterprises.

Taken together, these data indicate that there is great ambition, but current capabilities do not quite match the scale of that ambition. The solution lies in acquisitions, as this ambition, coupled with increased production capacity, despite its importance, could become a major problem. I have addressed this issue before when talking about South Africa and how increased production coupled with weak demand led to the complete collapse of its defense industries.

In Turkey, this ambition requires careful coordination of supply chains, reduction of administrative and logistical costs, and financial stability.

Who can achieve this equation?

Exactly, small and medium-sized enterprises. They have greater ability to obtain financing quickly, have existing markets in which they already operate, and are more flexible in their movement and development compared to large companies such as TAI, which have thousands of employees, complex administrative structures, and long decision-making chains.

For example, in 2024, Baykar acquired the Italian company Piaggio, one of the oldest aviation companies in Italy. Thanks to this acquisition, Baykar was able to manufacture the Italian company’s products in its factories in Turkey, while at the same time, the deal became an opportunity for the company to overcome obstacles related to customs tariffs and international trade restrictions. The acquisition also helped it access European supply chains through an existing company that operates in accordance with NATO and EU standards.

In 2023, the Turkish company SYS acquired the British company AEI Systems Ltd, which specializes in the production of medium-caliber cannons. The Turkish company acquired 80% of the British company’s shares, valued at approximately 1 billion Turkish lira at the time, which allowed for the distribution of production and development work between Turkey and the United Kingdom. This opened up new markets for the Turkish company to enter through the British company, while achieving a balanced distribution of risks and production lines at the same time.

In the same year, 2023, the Turkish company Nurol acquired the German company IndustrieKeramik Hochrhein (IKH), which specializes in the manufacture of ceramic materials used in armored vehicles and tanks. This acquisition expanded Nurol’s activities in the field of ballistic ceramics and gave it greater control over supply chains, both within Turkey and in European markets.

This year, the Turkish company ARCA Savunma acquired the Italian company Esplodenti Sabino S.p.A, which operates in the field of ammunition and explosive disposal services. This company is important to both NATO and the European Union and has ongoing contracts with the Italian Ministry of Defense. Reports indicate that the Turkish company has plans to expand the Italian company’s activities to include rockets and artillery ammunition, thereby entering the European market through this company.

The Turkish company Sarsılmaz had previously acquired the Italian company Vincenzo Bernardelli, which specializes in the manufacture of light weapons.

The Turkish company moved the production lines to Turkey while retaining the Italian brand name, but thanks to this acquisition, it was able to flood the European market with products that were both less expensive and of higher quality.

This month, ASSAN announced its acquisition of South African company Dynaflow Technologies, which specializes in the manufacture of ammunition detonators. This acquisition was made with the aim of supporting the Turkish company’s plan to expand its research and development capabilities, combine its expertise with the technical capabilities of the South African company, and at the same time open up new markets that serve the interests of both companies, both inside and outside Turkey.

These acquisitions are not limited to foreign companies, but also include deals within Turkey itself.

Sarsılmaz acquired Yavaşçalar Av Spor Malzemeleri (Yavaşçalar Hunting and Sporting Ammunition Equipment Manufacturing), with the aim of expanding production and strengthening horizontal control of the domestic market. Then, in 2024, the same company acquired Best Group, a company specializing in the manufacture of remote control towers, thereby entering the field of land and sea systems for the first time.

Finally, in 2024, the Nurol Holding acquired the British company BAE Systems’ stake in the Turkish company FNSS, a leader in the development and production of armored vehicles. This was not a small or medium-sized acquisition, but rather an important strategic acquisition for Nurol, as it enabled it to dominate the market and become the sole owner of FNSS, allowing it to develop the localization of intellectual property for a Turkish product that is among the most important in the defense industry.

What we often overlook in this wave of acquisitions is that Turkey is trying to transform itself from a mere supplier of components to the “architect” responsible for the entire chain.

In other words, the goal is no longer limited to manufacturing and selling a part, but rather to designing the production network itself, determining who enters and exits the market, and who survives and who disappears. When a Turkish company buys an ammunition factory in Italy, a ballistic ceramics production facility in Germany, or a company that manufactures detonators in South Africa, it not only opens up a new market, but also creates a situation of mutual dependence.

Europe needs the technical capabilities of companies that have become Turkish-owned, and Turkey, in turn, needs the European market to expand its production and enhance its competitiveness.

Are these acquisitions a positive development that benefits the industry, or could they harm it in the long run?

This is a question on which experts differ. These operations have many benefits, including opening new markets and controlling supply chains, which I mentioned earlier as being an essential part of the concept of national security itself. These acquisitions also contribute to reducing dependence on imports and opening up more flexible and less restrictive foreign markets, especially in the European market, where Turkey is expanding so rapidly that Greece and Greek Cyprus are repeatedly complaining to the European Union about the growing influence of Turkish defense industries within the continent.

At the same time, however, there are serious drawbacks to acquisitions in general, most notably that they can lead to monopolization, when a limited number of companies come to dominate the market and the entire industry.

A report on the Turkish aviation and defense sector states that this sector in Turkey is organized in the form of an industrial pyramid, with a broad base consisting of a large number of small suppliers, while its apex comprises a limited number of large companies. For this reason, every acquisition always requires a readjustment of this pyramid, because its most important part is medium-sized companies, a category that declines as acquisitions increase, which means weakening the elements of flexibility and innovation within the industrial system as a whole.

Acquisitions also cause the acquired companies to lose some of their flexibility and ability to innovate, as they often transform from independent competitors in the market to internal divisions of the larger company that owns them.

Some European reports indicate that Turkish companies’ acquisitions of their counterparts within the European Union enable those companies to obtain European funding, which creates unequal competition for other European companies and raises concerns in some countries, particularly Greece.

Another negative aspect, which also has a positive side, is that transferring part of the industrial and production capacity outside the country may harm the national industry in terms of job losses and loss of local expertise, but on the other hand, it achieves an important benefit in terms of risk distribution, which is a very important issue in a sensitive industry such as the defense industry.

This raises a very important question:

In the event of a political crisis between Turkey and the European Union, who will have the upper hand? Who will have the ability to put pressure on the other?

Can Turkey use supply chains as a soft political weapon? Or could these companies themselves become leverage within the Turkish system to mitigate any potential clash with Europe?

Because it is a complex network of interests, part of which represents a source of strength, and another part of which may turn into a weakness if there is no conscious industrial policy that sets clear rules of the game and protects medium-sized companies from dissolving into giant entities.

In my opinion, there is a rising wave of Turkish acquisitions, which cannot be viewed as mere isolated news items about unrelated deals, but rather as part of a systematic attempt to move Turkish defense industries from a phase of catching up to a phase of redrawing the map itself.

Turkey seeks to be at the heart of European supply chains and refuses to play a marginal role, using a combination of small and medium-sized companies, acquisitions, and localization policies to build a solid position for itself within a global defense system undergoing a major transformation.

Although this policy has some drawbacks, what will ultimately make the difference is how Turkey handles acquisitions:

Will it treat them as a long-term strategic weapon managed within a clear framework that preserves diversity and innovation? Or will it see them as a quick way to inflate export figures and profits at the expense of the strength of its defense system in the long term?

In my view, the real battle is not with Greece and its repeated complaints to the European Union, but within Ankara itself, in how it manages the Turkish defense industrial pyramid and in its ability to protect the middle tier of companies that form the solid foundation of this industry.