Denel unit under margin pressure

25 mai, 2011

Paul Vecchiatto

While the loss-making Denel Saab Aerostructures will show an improvement in this financial year, funding of the company remains a critical issue as margins remain under severe pressure, according to Tshediso Matona, the director-general of the Department of Public Services.

Delivering a briefing to the Parliamentary oversight committee on public service on Tuesday, Matona said that talks were still in progress with privately owned aerospace company Aerosud to replace Swedish aircraft manufacturer Saab, which sold its 20% stake in April.

Aeorsud made an unsolicited offer in December, but discussions around the possible stake and its size were still ongoing.

A key Aerosud shareholder is private arms manufacturer Paramount Group, whose executive chairman is well-known businessman and African National Congress (ANC) supporter Ivor Ichikowitz.

Matona told the committee that Denel Saab Aerostructures remained a key strategic challenge to state-owned arms manufacturer Denel.

Denel Saab Aerostructures is key to the Airbus Military A400M large military transport aircraft programme. Wing fuselage sections are manufactured by Denel Saab Aerostructures for the A400M and these are transported to Spain for final assembly.

Airbus Military has 174 confirmed orders for the military transport aircraft, with France ordering 50, the UK 22, Spain 22, Germany 53, Turkey 10, Malaysia four and Luxemburg one. The mature production rate should be about 2.5 aircraft per month, beginning next year when the first aircraft are due to be delivered to the French Air Force.

SA signed a deal originally valued at 18 billion rand to participate in the production and to buy a minimum of eight aircraft. However, two years ago Defense Minister Lindiwe Sisulu said SA would pull out of purchasing the aircraft as the total programme cost had accelerated to 47 billion rand – a figure disputed by Airbus Military.

Despite the troubled A400M program, Denel Saab Aerostructures continued to prepare itself to manufacture portions of the aircraft allocated to it.

Figures presented by Matona were that Denel Saab Aerostructures’s earnings before income tax was a loss of 259 million rand for the year ending in February. This is on top of a loss of 283 million rand for the year ended March 2010 and 444 million rand for the 2009 financial year.

He said that Denel Saab Aerostructures had begun a restructuring process that included reducing its labour costs, improvement in financial management and governance, reducing rental costs, implementing shared services with Denel Aviation and outsourcing non-core activities.

As part of the restricting of the company, headcount would be reduced from just less than 400 people to about 258 in 2015.

However, Matona said the company was strategic to SA and that its economic impact was conservatively estimated to be about 3,000 jobs. It produced R760 million in consumer revenue and paid about 180 million rand in taxes.

Matona asserted that Denel Saab Aerostructures was operating in a high-tech and advanced manufacturing sector and fell within the ambit of the Industrial Policy Action Plan II, which promoted the country’s advanced long-term manufacturing capabilities.

He said Denel Saab Aerostructures was targeting other aircraft manufactures such as Hondajet, Gulfstream and Lockheed Martin.

Source: businesslive.co.za

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