Denel in fresh talks on military aircraft deal
Date: 20 July 2012
ENEL, the state-owned arms company, was renegotiating the country’s purchase of Airbus A400M carriers after the collapse of an earlier contract for the aircraft, which were intended to play a crucial role in SA’s contribution to peacekeeping efforts in Africa, Denel Saab Aerostructures CEO Ismail Dockrat said yesterday.
The Ministry of Defence cancelled a $5,3bn contract with Airbus in 2009 to buy eight A400M heavy-lift aircraft, saying that the order had become unaffordable because of the recession. The savings may have eased some of the demands on the fiscus, particularly during the Treasury’s recent framing of the budget.
The new development has presented Denel with an opportunity to renegotiate a viable offset programme to save its struggling Denel Saab Aerostructures subsidiary, which ran into financial trouble when former defence minister Lindiwe Sisulu cancelled the contract for the aircraft.
That led to the manufacturer, EADS, withdrawing the offset programme that would have been given to SA. This move damaged Denel Saab Aerostructures ’s prospects, particularly its recapitalisation programme.
However, the South African Air Force maintained that it needed the carriers to deploy peacekeeping troops with ease and with essential equipment for the protection of SA’s soldiers.
Denel Saab Aerostructures designs and manufactures complex metallic and composite aircraft parts for the military and commercial aviation sector.
Mr Dockrat would not reveal the details of the negotiation process, saying that if the deal was finalised it would end Denel Saab Aerostructures’ financial problems because the order book to manufacture some of the A400M components would look good.
The Denel Group yesterday announced that it posted a modest profit of R41m for the year ending March, compared to R110m last year. It generated cash of R210m. Fikile Mhlontlo, Denel’s c hief financial officer, said the improvement was a result of "growth in export orders, improved efficiencies and a 67% reduction in the losses posted by subsidiary Denel Aerostructures".
He said revenue improved by 10% to R3,57bn.
Mr Mhlontlo said net equity increased to R695m and was projected to exceed the R1bn mark following the allocation of R700m to the aerostructures business in this year’s budget by Finance Minister Pravin Gordhan.
Mr Gordhan also hinted that this could be the last attempt by the Treasury to save Denel.
Public Enterprise Minister Malusi Gigaba said that the release of Denels’ annual report coincided with the completion of the draft d efence r eview report which described the strategic role of Denel as a national asset in providing sovereign and strategic capabilities to the South African National Defence Force (SANDF).
Mr Gigaba said that discussions with various stakeholders were already taking a long-term view of the importance of the defence industry to the SANDF, the national and regional security within the Southern African Development Community, and the rest of Africa.
The defence industry also had an important role to play in boosting the manufacturing sector through the transfer of military technology for public benefit.
"We need a long-term programme to free Denel from National Treasury support and ensure it is self-sustained.
"We can continue to plan for short-term projects," Mr Gigaba said.
Source; Business Day
