1 UNCLASSIFIED

June 2014

TAI – Turkish Aerospace Industries Inc. (TUSAŞ-Türk Havacılık ve Uzay Sanayii A.Ş.)

TAI STRATEGY FOR SUBCONTRACTING: HOW TO BECOME A SUBCONTRACTOR

AND WHAT IS THE PROCESS

2 UNCLASSIFIED

Procurement of Lockheed Martin / General Electric shares (%49) by TUSAŞ

Establishment of TAI as a joint venture to manufacture F-16 aircraft in Turkey

Merger of TAI and TUSAŞ

3 UNCLASSIFIED

Aerostructures Integrated Systems

Aeroengines Aerospace

TAI-GE Joint Venture

SSM 45.45%

TAFF 54,49%

Ge

ne

ral

4 UNCLASSIFIED

5 UNCLASSIFIED

CEO & President

Industralization and Procurement

İlhami TANYOLU

Facilites and Asset Management

İsmail ULUBAYRAM

Human Resources

Oya TANSU

Strategy and Technology Management

Bekir Ata YILMAZ (a)

Enterprise Management Systems

Orhan Veli KAYA

Su

pp

ort D

ep

artm

en

ts

Flight and Flight Tests

Cemal Nadir SAYIN

Quality and Certification

Murat TAŞPINAR

Finance and Subsidiaries

Saadet KORKEM

Logistics

Muammer AKPINAR

Muharrem DÖRTKAŞLI

Bu

sin

ess U

nits

TAI BOARD Ge

ne

rea

l

Aerostructures Integrated Systems

Aerostructures

Naki POLAT Unmanned Air

Systems

Serdar ÖLEZ

Aircraft

Özcan ERTEM

Helicopter

Metin SANCAR

Space Systems

Sinan ŞENOL

AeroEngine

JV with GE

Aerospace

Strategy & Corporate Governance

Bekir Ata YILMAZ

6 UNCLASSIFIED

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2044 2406

2689 2995 3046

3541 3951

4269 4515 4633 G

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era

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200

400

600

800

1000

1200

1400

1600

1800

2005 2006 2007 2008 2009 2010 2011 2012 2013

ENGINEER DESIGN ENGINEER

7 UNCLASSIFIED

DEFENSE NEWS TOP 100 : RANK #85th

TURKISH EXPORTERS ASSEMBLY ‘s RANKING :

# 1 EXPORTER OF THE INDUSTRY

* IFRS

(E) 0

100

200

300

400

500

600

700

800

900

1.000

1.100

'05 '06 '07 '08 '09 '10 '11* 12* 13* 14*

EXPORT DOMESTIC

Ge

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ral

8 UNCLASSIFIED

TAI is accredited to the stringest quality standards in the aerospace business

Ge

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ral

BOEING

BOMBARDIER

NORTHROP GRUMMAN

LOCKHEED MARTIN

SPIRIT AEROSYSTEMS

SIKORSKY

LMMFC

MARVIN ENGINEERING

AGUSTA WESTLAND

AIRBUS D&S

FOKKER

ALENIA AERMACCHI

AIRBUS

PAG

IAMCO

TELESPAZIO

THALES

AIRBUS HELICOPTERS

9 UNCLASSIFIED

TAI meets the stringest quality standards in the

world satisfying :

AQAP-2110

ISO-9001 : 2008

AS EN 9100

AS 9110 Quality Management System for Maintenance

Organization

Production Organisation Approval (POA)

Production Organisation Competency Approval

(UrOYO)

Design Organization Approval (DOA)

Design Organization Competency Approval (TOYO)

NADCAP

ISO/IEC 27001

OHSAS 18001

ISO/IEC 20000

Ge

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ral

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1984 2003 1986 1989 1993 2014

1984 2003 1986 1989 1993 2014

1995

1995

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2014 2016 2021 2023 2018

2014 2021 2016 2023 2018

TFX

Turkish

Regional Jet

Aircraft

12 UNCLASSIFIED

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Infrastructure Target and

Recommendations (see Transport & Communication

Strategy of Turkey, Ministry of Transport,

Maritime & Communications)

100 wide body, 450 narrow body, 200 regional

jet

(page 88)

Infrastructure Target and

Recommendations (see Transport & Communication

Strategy of Turkey, Ministry of Transport,

Maritime & Communications)

Establishment of a regional jet aircraft

production organization

A/C Type /Capacity Around 100 passengers

Engine New generation engine

Market worldwide

1st prototype Within ~ 5 years after contract effectivity

Production facility In Turkey

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TR

JA

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Cruise Speed > 250 kts

G Limits +7g/-3.5g

Climb 15000ft in 5 min

Seating Configuration Stepped tandem

0/0 Ejection Seat Yes

First Flight 29 Aug 2013

EASA CS 23 Certification 2015

Inte

gra

ted

Sys

tem

s

Air

cra

ft

15 UNCLASSIFIED

Day & Night, High & Hot” Performance

Precision Strike Multi-Role Combat Helicopter

New

Avionics Hardware and Weapon Systems

Generation Engine (LHTEC CTS 800-4A)

Power Transmission

Tail Rotor

Several Fuselage Modifications

TAI has T129’s global marketing and sales rights.

Inte

gra

ted

Sys

tem

s

He

lic

op

ter

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Service Ceiling 30,000 ft

Endurance 24 Hours

MTOW 1750 kg

Payload 200 kg

EO/IR Camera

SAR/ISAR

Powerplant 155 HP HEAVY FUEL

Autonomous

Take-Off & Landing Integrated

Range 200 km LOS (BLOS Optional)

Inte

gra

ted

Sys

tem

s

UA

S

17 UNCLASSIFIED

HIGHER SPEED

SUPERIOR LETHALITY

GREATER AGILITY

WIDER COMBAT RADIUS

Definition of a new aircraft to substitute the existing Turkish Air

Forces T-38 Trainer Aircraft and F-16 Fighter Aircraft.

TAI is assigned as the Prime Contractor.

Inte

gra

ted

Sys

tem

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Air

cra

ft

F-16

18 UNCLASSIFIED

Prime responsibility to design, develop and manufacture a civil certified

light utility (5 ton) helicopter for military and commercial use.

Program contract was signed in June 2013.

First flight is expected to take place in 5 years.

Inte

gra

ted

Sys

tem

s

He

lic

op

ter

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Inte

gra

ted

Sys

tem

s

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Inte

gra

ted

Sys

tem

s

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MLU & Falcon Star

Falcon-Up / Falcon-Star / MLU ECM / Falcon-Up

TUAF RJAF

PAF

Inte

gra

ted

Sys

tem

s

Air

cra

ft

22 UNCLASSIFIED

T-70 Utility Helicopter is being developed from

Blackhawk S-70i platform by TAI (Prime

Contractor) and Sikorsky (Subcontractor), to

meet the requirements of Turkish General Staff,

Land and Air Forces, Turkish Gendarmerie,

Turkish Police Department and General

Directorate of Forestry.

109 “T-70 helicopters” and 2 different

configurations will be produced during next 10

years in TAI facilities.

Inte

gra

ted

Sys

tem

s

He

lic

op

ter

23 UNCLASSIFIED

Göktürk-1

High Resolution Earth Observation and

Reconnaissance Satellite

Telespazio (Italy): Prime Contractor and

Ground Segment

Thales Alenia Space (France): Space

Segment and AI&T Center

TAI:

• Direct Participation to all engineering

activities

• Manufacturing of Mission Model Structure

Panels (completed in Sept 2013)

• AI&T Center

Inte

gra

ted

Sys

tem

s

Sp

ac

e S

ys

tem

s

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Inte

gra

ted

Sys

tem

s

Sp

ac

e S

ys

tem

s

Göktürk-2

Earth Observation and Reconnaissance Satellite

Joint Design, Development and Manufacturing by

TAI and TÜBİTAK SPACE

Launched on 18 December 2012 from China and

under operation for more than one year.

Göktürk-3

SAR Earth Observation and Reconnaissance Satellite

Prime Contractor: TAI

Main Subcontractors: ASELSAN and TÜBİTAK

SPACE

Preliminary-Design Phase (phase 1) initiated on 26

November 2013

25 UNCLASSIFIED

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…… -

2005

No indigenous production :

Generally Turkish Government (SSM …etc) signs contract directly

with foreign companies.

Industrial Participation / Offset requirement

2005-2011

Indigenous Products

Turkish Govmt. & Turkish Prime Contractor

No ındustrial participation / offset requirement from foreign

companies directly.

Local Content Request from Turkish Prime Contractor (around

35 ~ 50% of total contract price) (in some case with export obligations)

2011 –

beyond

Indigenous Products

Turkish Govmt. & Turkish Prime Contractor

Generally no offset requirement

Industrial Participation & Offset requirement from Foreign

companies minimum 70% of total contract price

Local Content Request from Turkish Prime Contractor

minimum 70% of total contract price

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1984 -

2014

Subcontracting new work packages to local suppliers according to

outsourcing strategy without new investment and work force

improvement aerospace and defense capabilities in subcontractors

2014 –

2018 Transition period, defining the strategy policy outcome

2018 –

beyond

Wide Range of Indigenous Products (from civil to military); Hence

Export License Procedures,

Export to 3rd countries,

OFFSET Requirements,

Just-in-time requirement

Cost efficiency

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SYSTEM & EQUIPMENT PROVIDERS (REQUIRES INTEGRATION)

Pilot Systems (Avionics, panels, communication solutions)

Aircraft Systems (Hydraulic, Fuel, Landing Gear, actuators, ….etc)

BUILT-TO-PRINT PARTS, ASSEMBLY OR SUB ASSEMBLY,

SPECIAL PROCESSES PROVIDERS

Special Processes or Parts Made with special processes (Titanium

Forging, Forging …etc),

Aircraft parts, components, tools, jigs, fixtures …etc

RAW MATERIAL & COTS EQUIPMENT PROVIDERS

Sensors, nuts & bolts, connectors, switches ….etc

Raw Material (Composites, metal, chemicals, …etc)

BASIC REASON IS THAT SUCH SYSTEMS OR PRODUCTION

FACILITIES IS NOT COST EFFICIENT TO BE PRODUCED IN TURKEY

29 UNCLASSIFIED

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SYSTEM & EQUIPMENT (REQUIRES INTEGRATION)

Performed by Subcontracting Units under each Group

(Aircraft, Helicopter …etc)

BUILT-TO-PRINT PARTS, ASSEMBLY OR SUB ASSEMBLY,

SPECIAL PROCESSES

Performed by Outsourcing Operations Management

RAW MATERIAL & COTS EQUIPMENT

Performed by Procurement Management

30 UNCLASSIFIED

PRE AWARD POST AWARD

PRE AWARD POST AWARD

CUSTOMER

SUPPLIER

PCM

Make/Buy

Contract

BUY

CONTRACT

Prime

Contract

Between TAI

and

Customer

CUSTOMER

(RFP)

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B

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Business Planning

PROGRAM

Contracts Business

Planning

Purchase

Order (PO)

Metarial Planning and

Procurement

SUBCONTRACTS

RFP TAI PROJECT

CONTROL OFFICE

SUBCONTRACTS SUBCONTRACTS

RFTI RFI RFQ

Planning

and

Strategy

MAKE

Outsourcing and

Operations Purchase

Order (PO) Production with drawings, tools , molds, etc.

Metarial , chemicals , consumable, etc.

Program

aaaaaaaaa

aa

Contracts

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31 UNCLASSIFIED

1- A soft copy of the company’s valid third-party Quality

Management System (QMS) certificate (ISO/AS)

2-

A soft copy of the company’s current Q-Manual established in

accordance with the requirements of the company’s QMS

certification

3- A questionnaire filled by all potential suppliers submitted to TAI

PQA to ensure compliance with the approved QA requirements.

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32 UNCLASSIFIED

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Classical Supplier Rating Based on Previous Work Packages

TAI performs Supplier Rating for every supplier based on their delivery

performance and keep these records for future decision making

process.

On time deliveries

Low Rate of Return or No return

Proper documentation suitable for certification .

Supplier Rating for Complex System Developer

TAI also performs Supplier Rating with different criteria for System

Developers (a new design or modification of COTS equipment) and

also keep these records for future decision making process.

33 UNCLASSIFIED

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Depending on TAI’s & Turkish Industry workload more opportunities

exist between TAI and foreing suppliers.

TAI advices suppliers to benefit from Turkish companies capabilities as

well and create a bilateral trade. Hence Turkish content gives TAI more

flexibility when selecting foreign suppliers.

TAI advices suppliers to check opportunities for investment in Turkey.

Because of following opportunities for a win-win case:

A new hub of aerospace companies is being generated in a new

industry zone in Ankara, TURKEY, next to TAI.

Huge government incentives will be given for investors

TAI prefers not to deal with export licenses for every order

TAI’s business backlog and engagement in bigger projects are

giving TAI to order more in quantities and let suppliers become

more efficient every year.

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