Turkey’s main stock index, the BIST 100, surged Monday after the outlawed Kurdistan Workers’ Party (PKK) announced its decision to lay down arms and disband, but the shares of defense industry leader ASELSAN fell sharply, a departure from the market rally, according to the Dünya financial news website.
The BIST 100 rose 2.35 percent overall, with intraday gains surpassing 3 percent, reflecting strong investor optimism following the unexpected announcement. The market’s response suggests investors view the potential resolution of the decades-long conflict as a major economic turning point for Turkey.
The PKK, listed as a terrorist organization by Turkey and its Western allies, announced its dissolution on Monday, saying it was ending its armed conflict against the Turkish state and drawing a line under its deadly four-decade insurgency.
In contrast to the broader gains, ASELSAN, Turkey’s leading military electronics and systems producer, saw its shares drop 5.9 percent to close at 140.40 Turkish lira (approximately $4.25).
Analysts attribute the decline to concerns that Turkey’s defense spending could decline if the PKK dissolution leads to long-term peace. Despite the drop, ASELSAN posted a 9 percent increase in first-quarter revenue compared to the same period last year, and its stock was up 121.45 percent over the past 12 months.
Still, markets appear to be recalibrating expectations for defense contractors. Investors anticipate fewer government contracts and a shift in strategic priorities in a post-PKK environment.
Baykar effect
According to defense analyst and former naval officer Fatih Yurtsever, another factor behind ASELSAN’s decline was a joint venture between Turkish drone maker Baykar and Italian defense firm Leonardo, one of ASELSAN’s key clients.
The memorandum of understanding, signed on March 6, outlines plans to co-develop unmanned aerial vehicles (UAVs) for the European market. The agreement was formalized during Turkish President Recep Tayyip Erdoğan’s April 29 summit with Italian Prime Minister Giorgia Meloni. The two countries signed 12 cooperation agreements under a new strategic partnership framework.
The joint venture will combine Baykar’s TB2 and Akıncı combat drones with Leonardo’s mission systems and European certification capabilities, aiming to capture a portion of the $100 billion European UAV market over the next decade.
Baykar drones currently use ASELSAN’s ASELFLIR-500 electro-optic turret, a 52-kilogram, indigenously developed sensor system valued at approximately $1 million per unit. The system has been a key export product for ASELSAN.
However, Leonardo also manufactures competing sensors and radar systems. Analysts say these could replace ASELSAN’s components in future drone exports, especially in Europe, where Leonardo already holds a significant market presence.
Even a partial shift by Baykar to sourcing mission payloads from Leonardo could substantially reduce ASELSAN’s export revenue and hinder its ambitions in the European market, experts warn.
In addition, Baykar acquired Italy’s struggling Piaggio Aerospace in December, gaining access to established manufacturing infrastructure and Italian export-credit facilities.
These advantages are expected to strengthen Baykar’s position in Europe while reducing opportunities for Turkish subsystem providers like ASELSAN.
In short, the combination of the PKK ceasefire, Baykar’s partnership with Leonardo and the Piaggio acquisition signal an evolving and challenging landscape for ASELSAN. Investors appear to be factoring in a range of risks to the company’s future revenue streams.