Johannesburg - State defence equipment manufacturer Denel has had “positive” engagements with state logistics companies Transnet and the Passenger Rail Agency of SA (Prasa) in exploring options to diversify into the rail industry.

Working groups have been formed to explore where the three state-owned companies may collaborate.

Denel Aerostructures (DAe) chief executive Ismail Dockrat told Business Report yesterday that while the group was still in the early stages of exploring its diversification into rail manufacturing, a lot of work had gone into research, which gave it an edge if it were to play a role in manufacturing coaches.

Denel was positioning itself to manufacture the body structures and interiors of railway coaches.

DAe had been co-ordinating this rail diversification initiative across the Denel group.

“We believe we have capabilities across the group. In DAe, we manufacture composites and aluminium, which can be used for the interiors. Denel PMP has steel metal machining and Denel Dynamics has capabilities and capacity to produce the signalling systems,” Dockrat said.

Denel said the technology used in manufacturing aircraft parts for the Airbus A400M and its defence helicopters could easily be adapted for railway coaches because modern trains were increasingly being constructed out of lightweight aluminium and composite panels.

The capability for producing a rail signalling system existed in the technology that Denel had developed to guide sophisticated missiles. The company said it could easily be modified for rail networks.

Dockrat said Denel was not looking to be involved in heavy industrial rail activities such as rail tracks or engineering. But it could play a role in testing engineering parts to support quality requirements because the company had specialised testing and evaluation facilities.

“We’ve been talking to the big companies – General Electric, Bombardier, the Chinese manufacturer – elaborating how we can work with them since government wants a strong local content element.”

Having developed and worked with smaller suppliers in its Airbus package, the company was not looking at doing everything itself.

For instance, Denel specialised in high-end aluminium machines while some of the smaller suppliers working with it did other machining with titanium. Denel did larger and more complex fabrication tasks, while its suppliers were more competitive in simpler fabrication.

“We are not going to try to do everything ourselves. We’ve worked with these local suppliers and in locomotive contracts. That’s what government wants the big companies to do, to develop local suppliers,” Dockrat emphasised.

Denel group chief executive Riaz Saloojee said the collaboration Denel sought with Prasa and Transnet would enable the logistics utilities to meet their objective of producing more than 65 percent of the value of their combined R100 billion locomotive and coach contracts in South Africa.

All Denel’s business divisions have started initiatives to diversify beyond the defence and aerostructures industries, entering spaces such as explosives technology and hunting munitions. Although it has been the board and shareholder’s mandate to diversify the business, Dockrat said DAe would look only at areas compatible with what Denel was already doing.

The group has expanded its research and development activities in advanced manufacturing. It is conducting a study on solar and wind energy as it seeks other growth areas.

“We want to be seen as custodians of manufacturing. But anything we get into must make sense from a commercial point of view. Even with diversifying to rail, we need a strong business case behind it and we are still exploring it,” he said.