How a small investment is set to earn a Turkish businessman $4.4B from tank sales

Burak Ege Bekdil
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How a small investment is set to earn a Turkish businessman $4.4B from tank sales

ANKARA, Turkey — When businessman Ethem Sancak in 2014 purchased BMC, a troubled armored vehicles maker controlled by the Turkish government, he might have not known how profitable his $200 million investment would become in just a few years. But new information tells a story of how Sancak used a top political connection and international support to further his commercial venture that might eventually net his company $4.4 billion.

Sancak was no ordinary businessman. He once declared that he was in spiritual love with Turkey’s Islamist leader, President Recep Tayyip Erdoğan. He’s served on boards of Erdoğan’s Justice and Development Party, which as uninterruptedly been in power in Turkey since November 2002.

After buying BMC, Sancak contacted Erdoğan in quest of a partner to back his new venture. Erdoğan recommended businessman Talip Öztürk, a distant relative of the president. Öztürk invested $100 million in BMC to become partners with Sancak.

But still he went back to Erdoğan for additional help. The president brokered a deal in which a Qatari fund would invest $300 million to buy a 49.9 percent share in BMC — hydrocarbon-rich Qatar has been Erdoğan’s staunchest regional ally.

Sancak, with the $100 million investment from Öztürk, now owned 25 percent of BMC and had already raised $300 million for the remaining 75 percent.

Next, Erdoğan’s government allocated approximately 23.7 million square feet worth of public land to BMC for the company’s future investments. Subsequently, BMC defeated two local rivals and won a strategic contract for the initial production of a batch of 250 Altay tanks, the country’s first indigenous tank in the making. Industry sources estimate the Altay contract, which was signed in November 2018 and orders 1,000 units, is worth about $11 billion.

In May 2018, the government granted 1.4 billion liras (U.S. $236.8 million) in incentives to BMC for the Altay program, including tax cuts, pension premium reductions and energy subsidies, among other perks. The government also provided the company with a military tank production and maintenance factory in Arifiye, near Istanbul. The company was only obligated to invest $50 million in return for the right to operate the Arifiye plant for 25 years.

Industry sources say BMC will make a net profit of $1.1 billion from the Altay contract, excluding exports. If the company attains its export target of 3,000 units, it’s expected to make a net profit of $4.4 billion (excluding potential follow-on orders and repairs, maintenance, and parts).

A solid return for an initial investment of $100 million.

Meanwhile, Turkey’s opposition parties are demanding a parliamentary investigation into BMC, but this is unlikely given the Justice and Development Party’s majority (together with its ultranationalist partners) in the legislative branch.

In addition, the Altay program has been struck with critical technology problems that could impact its timeline. President Erdoğan’s office lists the Altay in the military’s inventory as part of a 2020 program list; Sancak has said the tank might instead be ready near the end of 2021.

“I am hoping that the Altay would be at the battlefield within 24 months,” Sancak said in an October speech. Industry sources have said even the 24-month target could be too optimistic.

A procurement official told Defense News that “there are major problems concerning critical parts, like the engine and transmission.”

Western countries, particularly Germany, have been reluctant to share such critical technology with Turkey over political concerns.

The Altay contract involves the production of an initial batch of 250 units, life cycle logistical support, and the establishment by the contractor of a tank systems technology center and its operation.

Also as part of the contract, BMC is to design, develop and produce a tank with an unmanned fire control unit. The contract called for the first Altay tank to roll off the assembly line within 18 months — by May 2020.

The Altay program is broken into two phases: T1 and T2. T1 covers the first 250 units, and T2 involves the advanced version of the Altay. Under the original program, Turkey planned to eventually produce 1,000 Altay tanks, to be followed by an unmanned version of the platform.

“Most Western countries, most notably Germany, are more than reluctant to share engine and transmission technology for the Altay,” said a Turkish government official familiar with the program. “We are still looking for alternative combinations [of engine and transmission].”

Asked if there is an imminent solution to the problem, the official told Defense News: “I cannot say. ... All I can say is there is a genuine problem here.”