Londiwe Buthelezi
Denel Aerostructures (DAe) would deliver the first patrts under the Airbus A400M contract this year, the Department of Public Enterprises (DPE) said in Parliament yesterday.
However, the loss-making division of Denel, which designs and manufactures aerostructures, was expected to break even two years later than Denel had estimated when it reported its financial results last year.
The division, previously known as Denel Saab Aero, was now likely to break even in the 2016/17 financial year, DPE deputy director-general responsible for Denel, Weekend Bangane, said. This is despite the company getting a R700 million capital injection from the National Treasury.
The recapitalisation would fund a five-year business plan during the ramp-up phase as well as operational networking capital requirements, capital equipment and non-recurring costs to secure new business.
The Treasury decided on the capital injection for DAe following Denel’s pledge last year that the division would become self-sustainable over the next five years, although it would require further shareholder support to ensure this.
However, Bangane said the company would need further funding sources.
DAe cut its loss by 28 percent last year and the only loss-making project in the division was the A400M contract. This contract to supply structures for the military transport plane had been successfully negotiated with Airbus and was no longer an open-ended liability.
“The company remains in a turnaround phase and it is still going to take time before achieving breakeven,” Bangane said.
But he maintained things would turn around for the better as Airbus, the only major client that DAe was relying on, had given its commitment and agreed to increase the price of work packages handled by DAe.
The company also agreed to pay DAe all non-recurring costs for modification claims dated between January and December last year. All major modifications above the agreed threshold would also be paid by Airbus in future.
The DPE had said before the A400M contract was renegotiated that DAe’s business plan was unsustainable while the contract was its only loss-making project in the company.
DAe underwent restructuring in the past two years with the intention of looking after the Airbus A400M contract.
Bangane said although DAe had other small contracts, these were “sunset” contracts and most were ending soon.
The portfolio committee on public enterprises questioned DAe’s reliance on only one contract. The committee said that if Airbus withdrew, the whole project would collapse.
“What makes Airbus so committed to us that three years down the line they won’t say we’ve found another partner to do this for us?” members of the committee asked.
But Bangane said Airbus was not ready to give up on South Africa.
“In fact, the latest information is that Airbus is looking to Africa generally to drive sales.”
He admitted that there was risk potential, which was why DAe had appealed to Airbus to link the A400M contract to other work opportunities. He said Airbus was also concerned about DAe finding itself in a risky situation and would look to provide the company with access to other contracts.
Last year Denel said it was looking to secure new contracts worth R14 billion.
The DPE said targeted new business included second tier aerostructure work of similar technology to the A400M.
Other opportunities existed for fleet procurement offset prospects on government-related fleet procurement.
There would also be a focus on European and US original equipment manufacturers and tier 1 suppliers and Airbus had agreed on marketing support.