Unlocking Value in Turkish Defense Equities: Geopolitical Thaw and Export Surge

The Turkish defense sector stands at a pivotal juncture, where geopolitical détente, surging NATO-driven exports, and currency stabilization are converging to create a compelling investment opportunity. For those willing to act swiftly, the BIST 100 defense constituents and lira-denominated bonds offer asymmetric upside potential—if diplomatic progress materializes.

Geopolitical Risk Reduction: The Sanctions Overhang Lifts

For years, U.S. sanctions under CAATSA have hamstrung Turkey’s defense ambitions, most notably crippling the Turkish Utility Helicopter Program (TUHP). Lockheed Martin’s force majeure declaration in 2024—due to export license delays—highlighted the sector’s vulnerability. However, recent diplomatic overtures suggest a thaw. Turkish President Erdogan’s optimism about sanctions relief, coupled with U.S. approval of missile sales and the $7 billion F-16 modernization deal, signals a strategic reset.

Both stocks have underperformed amid sanctions uncertainty. A resolution would unlock TAI’s helicopter co-production potential and Aselsan’s dominance in electro-optical systems, driving EBITDA margins higher.

NATO Integration: A $7.15B Export Machine

Turkey’s defense exports to NATO allies surged to $7.15 billion in 2024, with Europe and the U.S. as top markets. This momentum is fueled by cost-effective solutions like the TB2 drone (now operational with Poland and the Philippines) and Aselsan’s ASELFLIR-500 radars, which outpace European rivals in price-performance.

Exports are on track to double to $14 billion by 2026, driven by contracts for UAVs, smart munitions, and land systems. NATO’s push for 5% defense spending by 2032 will further amplify demand.

Macroeconomic Catalysts: Lira Stability and Fiscal Prudence

After hitting a record low of ₺40/USD, the lira stabilized at ₺28/USD in early 2025 as the central bank hiked rates to 46%, curbing inflation from 38.1% to 30% (projected). While risks remain, a sustained easing cycle is plausible if sanctions relief reduces geopolitical tension.

Investors in lira-denominated bonds (e.g., TPY25032027) benefit from high yields (15–20%) and a potential lira rebound. Pair this with equity exposure to capture the defense sector’s 80% localization rate and R&D prowess.

Sector-Specific Winners: TAI, Aselsan, and the Indigenous Play

• Turkish Aerospace Industries (TAI): Leads the ALTAY MBT and KAAN fighter jet programs. A sanctions thaw could reignite the TUHP program, unlocking $1.5B in deferred revenue.
• Aselsan: A $500M+ exporter of radar and EW systems, poised to gain from NATO’s €800B defense fund access for non-EU members.
• Baykar: Though not on BIST 100, its coproduction deals (e.g., Italy’s Piaggio) validate Turkey’s tech leadership.

The Investment Thesis: Act Now, but Stay Disciplined

Go Long:
1. BIST 100 defense constituents (TAI, Aselsan, Otokar) for export-driven growth.
2. Lira-denominated bonds to capitalize on stabilization.

Triggers to Monitor:
- Sanctions relief timeline: Track U.S. removal of the Presidency of Defense Industries (SSB) from CAATSA.
- F-16 deliveries: First jets to Turkey by Q1 2026 signal U.S. commitment.
- Inflation data: Aim for 25–30% by end-2025 to justify rate cuts.

Risks to the Outlook

• Geopolitical setbacks: Escalation in Syria or renewed PKK tensions could reignite lira volatility.
• Sanctions delay: TUHP’s recovery hinges on U.S. export license clarity.

Conclusion: The Turkish Defense Renaissance is Here

Turkey’s defense sector is no longer a geopolitical liability but a strategic asset to NATO and the U.S. With exports booming, indigenous innovation surging, and macro risks receding, the time to act is now. Investors who pair BIST 100 defense equities with lira bonds stand to profit from both sectoral growth and currency appreciation—provided diplomacy holds.

Act swiftly. The next phase of Turkey’s rise begins here.