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An ‘outstanding, pioneering’ Turkish shipyard of global quality

Interview - December 17, 2013
Turkey is one of the top five shipbuilding nations in the world. Atilla Çiftçigüzeli, CEO of Istanbul Shipyard, discusses the importance and capabilities of Turkey's shipbuilding industry, as well as how his company is currently building a first-of-its-kind submarine rescue mother ship and cutting-edge support vessels in its renovated facilities
ATILLA ÇIFTÇIGÜZELI, CEO OF ISTANBUL SHIPYARD
ATILLA ÇIFTÇIGÜZELI | CEO OF ISTANBUL SHIPYARD
Turkey is going through an exciting phase at the moment. In a period of global economic recession, Turkey has been the fastest growing economy in Europe, for two out of the last three years, and is even projected to post a respectable gross domestic product (GDP) growth figure of 4% for 2013. What impact would you say this economic prosperity has had on the shipbuilding sector?

I would like to start with a brief historical overview of the sector. The US imposed an embargo on arms sales to Turkey between 1974 and 1978. Until those years our production depended very much on imports. The lesson drawn from the embargo was to become self-reliant by expanding production in the country. We still reap the benefits of this self-reliance strategy. The recent crisis that peaked in 2008 has impacted the maritime sectors most and we still suffer from its effect. It would not be an overstatement to say that the crisis has crashed the maritime sector in Turkey. 
 
Now, a submarine rescue mother ship (Moship), which is going to be the first of its kind regarding its technical equipment and capabilities, is being built in our shipyard. The total domestic industry participation and offset percentage in its overall production is 70%. Another example illustrating the contribution of Turkish production is our Seismic and scientific research ship whose 50% of production relies on Turkish sources. The subject ships have been completely designed and outfitted by our own staff. 
 
The Moship will be capable of providing emergency life support to the disabled submarine and evacuating the crew up to 600 metres depth. She will be equipped with modern rescue systems and equipment such as a remotely operated vehicle (ROV), atmospheric diving suit, submarine ventilation system, pressure rooms, etc., and will be also able to perform the underwater repair works and wreck removal. 
 
The Seismic will be a multi-purpose vessel and with her 2D and 3D Seismic research capability and the scientists will have the opportunity to perform geophysical, geotechnical, bathymetric, hydrographical, oceanographic, hydro-acoustic researches. They will be able to carry out sampling studies in the fields of earthquakes, general geology, applied geology, environmental geology and earth sciences with respect to other sciences. 
 
We have to underline the fact that especially the naval ship has to be free of any flaws. Thus, I believe that these rates, 50 or 70% contribution, of Turkey to the overall production of a ship proves the general picture of the sector in our country. 90% of the remaining production stems from the EU countries while 10% originates from the US. The submarine rescue mother ship will be launched on February 27th. 
 
When we met Minister Çaglayan, he stressed the importance of value-added exports to reach some of Prime Minister Erdogan’s 2023 vision, one of them being to have $500 billion exports. What do you think the role of the shipbuilding industry is in supporting the Turkish economy in this regard? 

3% of our turnover is allocated to our R&D company which works on fixed-pitch propellers, controllable-pitch propellers, silencers and petrol platforms. We are already able to produce our own propeller, which we will soon be using in our own ships, and hopefully we will be exporting these. As Minister Çaglayan stated, exported goods should not be dependent on imported parts or materials, and thus, exports would make sense. I believe that the shipbuilding sector will play an important role in the targeted export volume. All our projects are authentic and original. Another point to be added is that three-quarters of Turkish exports are shipped via maritime [routes], which is also influential in the growth of shipbuilding sector. 
 
What is your assessment of your sector’s potential as a significant growth driver for the Turkish economy?

Turkey is one of the world's leading shipbuilding nations; in 2007 Turkish shipyards ranked fourth and in 2012 ranked fifth in the world (behind China, South Korea, Japan and Vietnam) in terms of the number of ordered ships. Since the early 2000s, Turkish shipyards have significantly increased their capabilities and competitiveness in the construction of a wide range of container ships, tugboats and mega yachts.

In addition since 2008 the Turkish yards are more involved in other niche market vessels, such as offshore supply and support vessels, fishing boats and research vessels. The Turkish shipbuilding industry has increasingly entered into niche markets, which has led to a growing participation by Turkish shipyards in the international market in new ships. 
 
In parallel, there has been a strong growth in the marine equipment manufacturing sector, which helped increasing share in the export market. These developments reflect the strategic location of the yards, experienced workforce, production quality and Turkey’s significant role as a political, cultural and economic bridge between Europe and Central Asian and Middle Eastern Countries.
 
The shipbuilding and repair industry is considered to be one of the most promising industrial sectors in Turkey, and there have been a significant development in the last 15 years. Our sector has been identified by the Turkish government as having the potential for a considerable growth, and which makes a very significant contribution to the Turkish economy. The global economic recession affected the ship building industry exports, which peaked at $2.7 billion in 2008, but had declined to just over $1 billion in 2010.

In addition, the support industries, which include the ship repair and conversion and the marine equipment manufacturers, contributed an estimated additional $1.5 billion to the Turkish economy in 2009. These figures may represent a relatively small proportion of the overall Turkish GDP, however its importance should not be underestimated. Because it represents the output of an industry sector that not only employs a large number of workers but also contributes to the country’s industrial capacity and technological know-how. Besides, the growing export performance of the shipbuilding sector means that it also makes a significant contribution to Turkey’s balance of payments and foreign currency reserves.
 
What are the main challenges facing the sector and what are the solutions to these problems?

The shipbuilding industry is facing a worldwide capacity surplus today. Shipbuilding is known as one of the oldest and highly competitive markets in the world. Even though the shipbuilding industry has a big experience in how to survive over peaks and sags of economy, it has been affected by the recent global crisis very seriously.

The shipbuilding industry is certainly one of the foremost sectors worst affected by the global financial crisis because the world seaborne trade has been decreased sharply, and it is mentioned in the market analysis that currently there is a big overcapacity of shipyards in the world and excessive supply of fleet than the actual requirement of the market. 
 
The factors affecting the shipbuilding industry can be listed as the world seaborne trade amount, oil prices, economic and political stability and also the subsidies by the governments, scrapping of old vessels, and the charter rates. Providing cost-effective solutions for construction of innovative eco-ships, offshore support vessels, research ships, naval ships and retrofitting processes is a new opportunity for the Turkish shipbuilding sector.
 
Can you give us a brief background of Istanbul Shipyard and its biggest accomplishments?

The shipyard was founded in the 1980s by another group and it was renamed as Istanbul Shipyard after joining under the flag of our SNR Holding in 2003. While we were reviving our corporate organization with technological improvements in our infrastructure, we have set a target for ourselves “to be a world brand serving the defence industry with our boutique studies.” Scientific knowledge has become our guide; priority has been given to research and development studies by establishing a Design and Project Group.

We always kept teamwork at the forefront and aimed to strengthen the weakest link to take it to the most powerful state by taking pains over all the rings in the chain one by one. Today we are seeing the positive consequences of those studies. The first stage of our reconstruction process started immediately after the acquisition of the shipyard and completed in 2004. Our first floating dock with a length of 105 metres and lifting capacity of 4000 tons was put into operation in 2005. Our metal processing factory, which is called ABS Metal, came into business with a total area of 8,000m2, having a 4,000m2 closed area, in 2006. Then the neighbouring shipyard Yildirim also joined SNR Holding in 2011 and later renamed as SNR Shipyard.
 
Finally, together with SNR Shipyard and ABS Metal being a branch of Istanbul Shipyard, the total shipyard area has reached 34,500m2, having a closed area of 14,400 m2. It has six slipways for new buildings and capable of offering repair and maintenance services to 14 vessels at the same time by means of its 105m length floating dock, three piers and extensive wharf area. The second floating dock with a length of 129m will be in service during 2014. 
 
During the building period of medium-sized chemical tankers, like many other shipyards in Turkey we have made extensive market research for special projects, and this became the starting point of entering the offshore market in 2006. And when commercial shipbuilding reached its peak point in Turkey in 2007, we decided strategically to diversify from other shipyards and target the naval projects. Within the scope of focusing on naval and special projects, the second large-scale reconstruction period began during the first quarter of 2011. In this period, a nine-floor administration building with a helicopter landing platform on the top, two prefabrication workshops, one blasting/painting workshop and one piping workshop have been constructed, and the shipyard has obtained a modern view. Today, Istanbul Shipyard is an outstanding and pioneering shipyard of the Turkish shipbuilding industry with its corporate identity, modernised infrastructure and international projects reflecting the latest technology. 
 
Can you please describe your main products and services? 

Our shipyard product portfolio covers a wide range of ships that can be classified as multi-purpose patrol boats, military support vessels, offshore support vessels and commercial vessels. Istanbul Shipyard enjoys a high degree of flexibility and versatility in its activities, ensuring it meets customers’ requirements and expectations in an efficient and effective manner.

We combine the group’s best practice methods and ship management experience and allow the shipbuilding processes to be highly successful for both our customers and ourselves. Istanbul Shipyard offers its customers design, new building, repair and maintenance, docking, modernisation and conversion services of any kind of vessels. We aim to broaden our horizon globally for more exports and global know-how exchange in order to become a global brand, serving the defence industry with patrol-boat, support and research-vessel projects. 
 
The shipyard has a great advantage as being a subsidiary of SNR Holding which has a strong financial background and decades of experience in marine trade, ship management and ownership. It has the capability of handling turnkey delivery, tailor-made projects covering complete design, construction and outfitting of high technology vessels.

Shipyard project management department is divided into powerful groups for electrics, electronics, outfitting, underwater and rescue systems coordinated by the project managers for the perfect design, installation and implementation of the required systems, working in close cooperation with a major design company of Turkey called Seft Design, which is also a subsidiary of SNR Holding.

Seft Design employs approx. 48 people and almost 35 of them are skilful and well-equipped naval architects, marine and mechanical engineers. They also supply ship designs to different customers in Turkey and abroad. The association of Seft Design and Istanbul Shipyard putting their signatures on unique projects creates a great advantage.
 
After obtaining the national and NATO-level security clearance certificates, our activity in the Navy sector started in 2007, when we were awarded by the SSM (Turkish Undersecreteriat for the Defence Industry) the contract for the modernisation of four SAR-35 boats that belong to the Turkish Coast Guard. The scope included the replacement of main engines and propulsion package and hull optimisation. The boats were delivered to the Coast Guard in 2009, before the contractual delivery time with a high performance beyond the requirements of the contract.
 
In July 2010, we signed a contract with the Romanian Border Police for the turnkey delivery of five 17-metre SNR-17 Aluminium River Patrol Boats. The project was financed by the European Union and the boats were delivered in a very short time, like 10 months. Finally, thanks to the successful delivery of the SAR-35 boats, the shipyard was crowned by SSM with the contract for the second modernisation program of the Turkish Coast Guard, consisting of five SAR-33 boats, with a scope of jobs similar to the SAR-35 program in January 2013, after the completion of negotiations which started in July 2012. 
 
Based on the experience gained in subject boats for hull and system design and integration, today we can offer our customers all over the world a wide range of Patrol Boats in various sizes from 15 meters up to 85 meters. 
 
The Undersecretariat for Defence Industries (SSM) awarded you the submarine rescue mother ship (Moship) and the rescue and towing ship (Ratship) construction programs. Could you please update us on the advancement of these programs? 

The contracts for the supply of one submarine rescue mother ship and two rescue and towing ships, based on the needs of the Turkish Navy, was signed on 28 October 2011 with the SSM. Construction of the Moship is one of the major projects of Istanbul Shipyard. She will be capable of providing emergency life support to the disabled submarine and evacuating the crew up to 600 metres depth, as a first in the world. The Ratships will be capable of towing the broken down, wrecked and ran ashore ships, as well as fire-fighting.

Moreover, both ships will be equipped with modern rescue systems and equipment such as remotely operated vehicle (ROV), atmospheric diving suit, submarine ventilation system, pressure rooms etc., and can also perform underwater repair works and wreck removal. The complete design, construction, outfitting and integration of the Moship and Ratships will be performed by Istanbul Shipyard. In this scope, the total industry participation and offset percentage of 65% will enable the utilisation of Turkish industry capabilities through the acquisition of the construction material and services as well as most of the systems to be integrated on the ships.
 
In addition to these unique projects, the tender for supply of one scientific research vessel (Seismic) for the MTA (Turkish General Directorate of Mineral Research and Exploration) had been awarded to the Istanbul Shipyard and the contract was signed on 24 April 2012 with the SSM. Seismic project is another critical milestone in our ship building process. Within the scope of the construction, the Ship will carry out scientific studies in addition to Seismic research.

Actually, she will be a multi-purpose vessel and with her 2 and 3 dimensional Seismic research capability, the scientists will have the opportunity to perform geophysical, geotechnical, bathymetric, hydrographical, oceanographic, hydro-acoustic researches.

They will be able to carry out sampling studies in the fields of earthquakes, general geology, applied geology, environmental geology, and earth sciences with respect to other sciences. Within this framework, in order to realize the aforementioned activities, the ship will be equipped with streamers, air guns, Seismic processing units, Seismic record units, Seismic navigation unit, sub bottom profiler, marine magnetometer, marine gravimeter, oceanographic measurement equipment, geological sampling equipment, remotely operated vehicle (ROV) etc.
 
The complete design, construction, outfitting and integration of the Scientific Research Vessel will be performed by Istanbul Shipyard. In this scope, the total industry participation and offset percentage of 50% will enable the utilisation of Turkish industry capabilities through the acquisition of most of the systems to be integrated on the ship, construction material and services as well as the integration of seismic and research equipment and systems.

As of today, one submarine rescue mother ship, two rescue and towing ships and one scientific research vessel are at the completion stage, completely designed and being outfitted by our own team. All of the mentioned projects are unique and complicated projects and we are proud to be the only shipyard that the Turkish government awarded three shipbuilding programs at the same time in the history of the Turkish shipbuilding industry. 
 
We must admit that the potential for export of the Moship is limited because there are not too many countries which may require this type of vessel, however we are happy to see that there are a few countries interested in this project. On the other hand there is much more interest and export potential for the multi-purpose Ratships and the Seismic ships, depending on the increasing demand for carrying out research under the sea. 
 
Why does the government trust you? What are your competitive advantages?

The most important difference is that we have a design company named Seft, where about 35 engineers and 12 technicians  work as designers. They work on genuine projects in Technopark Istanbul. Moreover, our R&D company operates in collaboration with Yıldız Technical and Istanbul Technical Universities. Because we are supported by our holding financially, our major aim was not to make profit but to create a brand name by proving our high quality products. We have already started reaping the benefits of our efforts. 
 
What are your top priorities for 2014?

For the next two years, our greatest challenge is to succeed the production and delivery of the submarine rescue mother ship with the world’s highest technological capability and Turkey’s first locally built seismic & scientific research vessel with the maximum quality and within the contractual delivery time. 
 
In the meantime, our company will be seeking for export opportunities for the subject projects and our patrol boats, as well as other value-added special projects, which will carry our vision to the future. Our vision is to become the most preferred shipyard in the world both for the naval and commercial ships built to the highest standards and equipped with hi-tech systems with continuous improvement in engineering, production quality and customer satisfaction, supplying the necessary information, technology and material from the national resources as much as possible. 
 
Can you outline Istanbul Shipyard’s commitment to sustainable, eco-friendly services?

In accordance with our environment policy, all aspects of environmental damages are minimised to legally acceptable levels and kept under control in the shipyard.

We have adopted the understanding of Environmental Risk Assessment (ERA) and have been taking precautions according to ERA results for years. Waste and resource planning always kept under observation and new methods sought in order to reduce resource usage and waste. Waste disposal management is being implemented within the Environment Management System (EMS) and accordingly the waste materials in our shipyard are grouped and stored separately as hazardous, non-hazardous, inert and recyclable waste, for the disposal by contracted authorised and licensed companies.

In addition, hazardous and non-hazardous waste management plans as well as prevention control and contingency plans have been generated, declared to the Ministry of Environment and Urbanisation and all required approval and permissions have been taken. We follow the technical innovations in relation to the goal of reducing exhaust gas emissions NOx, SOx and CO2 which require new hull designs, advanced hull paint, rudder and propeller design, speed nozzle, LNG as fuel, ballast water management systems etc. and we implement the new methods in our new ship design and production as much as possible. And we exert maximum effort to reduce the carbon trace associated with production, transportation of ship construction, ship maintenance and repair. 
 
The shipbuilding industry globally has become much more competitive over the last decade. For example, a lot of builders in the Far East have been cutting prices. Why would global customers or buyers in the UK in particular, consider Istanbul Shipyard over other global shipbuilders?

The main difference between European and Turkish shipbuilders is the lower labour costs in Turkey. As for the materials, what we use are all high quality products confirmed by the European authorities. One of the three global leaders that produce pressure/vacuum valves is a Turkish company.

Similar to other sectors, Far Eastern producers are believed to supply the cheapest products in the shipbuilding industry. However, the Far East produces on the basis of how much you pay. It is not possible to buy a high quality product from a Chinese supplier at a lower price than we sell. Yet, it is possible to buy a product paying less at the expense of quality. That is why we never regard Far Eastern companies as competitors. For instance, a British company, Zodiac, buys all its pressure and vacuum valves from us although it is possible to buy these products at half price. 
 
The UK has traditionally been one of the greatest shipbuilding countries in the world. Where do you think there are areas of synergy or mutual benefit between Turkey and the UK in shipbuilding?

The UK embassy works pretty efficiently creating contacts and promoting cooperation, which we are content with. We believe that cooperation will grow further in the near future between the two countries. It is also important to underline that the collaboration between the two countries is for the benefit of the both parties. The UK originated materials or products used in naval ship construction indicate how promising and crucial cooperation between the two countries is.
 
As the CEO of one of the leading shipbuilding companies, who is contributing to the Turkish economy through value-added exports, do you feel responsibility to the Turkish economy and the Turkish people?

We do feel responsible to our country and people as a whole, just as any Turkish person does. The projects assumed from the SSM are not highly profitable contracts, yet, they are quite important for us to reinforce and restore our brand name. Due to the projects we completed, we are negotiating with about five countries as our customers. Another advantage of these SSM projects is that we have been able to sustain the employment of our skilled personnel in our shipyard.
 
If we were to come back here and interview you again in say five years, as CEO of Istanbul Shipyard, ideally what achievements or accomplishments would you like to have completed?

We would like to be exporting patrol boats, naval support vessels and scientific research ships to a lot of countries.

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