Airbus, Rolls-Royce close to $20 billion Turkish Airlines parts deal

Turkish Airlines is set to sign an agreement with Rolls-Royce Holdings Plc and Airbus SE for the domestic production of aircraft components valued at as much as $20 billion, part of its mega plane purchase announced last year.

A deal could be announced at a ceremony in Istanbul later this month, according to Turkish officials familiar with the matter. The Turkish state is the largest shareholder in the airline. 

Turkey’s flagship carrier firmed up the purchase of 230 aircraft from Airbus in December, with options for more as the airline looks to scale up its Istanbul hub and take on regional rivals such as Emirates and Qatar Airways. As part of the order, Turkey pushed for local production of airplane parts, the people said.

A spokesman for Turkish Airlines confirmed the date for a signing ceremony, without elaborating. Airbus and Rolls-Royce declined to comment.

The agreement for domestic production of airplane parts is a key component in Turkey’s goal to develop its civilian and military aviation industry and is part of the 2023 Airbus order that’s valued at about $70 billion. 

Turkish companies including state-run TUSAS Engine Industries Inc., or TEI, will likely be part of the manufacturing program, said the officials, who asked not to be identified as the discussions are confidential. 

Local subcontractors will receive contracts worth $20 billion for their part in production, the people said. The aircraft deliveries are scheduled over a 10-year period, from 2026 to 2036.

While plane orders have rebounded since the Covid-19 pandemic, manufacturers worldwide are struggling to find ways to deal with persistent shortages of parts.

Rolls-Royce CEO Tufan Erginbilgic said he expect component manufacturers to remain under strain for “at least another 18 to 24 months,” in an interview at Bloomberg headquarters in New York last month.

Shares of Airbus and Rolls-Royce climbed as much as 1.6% and 2.8%, respectively, after the news, before trading 1.4% and 2% higher as of 14:40 p.m. in London.

Turkey has long been engaged in talks with foreign companies including Rolls-Royce to acquire engine technology for its domestic tank and warplane projects. 

The jet-engine maker, whose chief executive holds Turkish and British citizenships, already has a joint venture with industrial conglomerate Kale Group in Turkey.

The government in Ankara has been pushing to make domestic production a part of its foreign purchases, including in defense equipment and passenger airplanes.