Publication: Business Report Issued: Date: 2006-05-18 Reporter: Michael Hamlyn

Denel Unveils Plan to Put it Back on Solid Ground



Business Report

Date 2006-05-18


Michael Hamlyn 

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Cape Town - While admitting, yet again, that state-owned arms manufacturer Denel was not a viable business as it operated at present, chief executive Shaun Liebenberg has unveiled a plan to put it back on a sound financial footing.

The plan involves several hundred retrenchments and it will require the company to operate in global terms as only a second- or third-tier arms supplier.

Liebenberg told MPs on the portfolio committee yesterday that he expected 750 jobs to be lost by the end of July this year. About 500 of these employees had left their jobs since October last year. Between 150 and 200 job losses were still to come and as many as 350 jobs would be affected if the plan to close the munitions plant in Philippi in the Western Cape went ahead.

A major part of the plan to make Denel viable is to restructure its operating divisions as subsidiaries of a central holding company. Each will be a separate company, and each is currently seeking an international strategic partner.

"Much of the global defence spend is inaccessible to independent contractors, making them highly reliant on their domestic markets, forcing players to build alliances and carefully focus their businesses," said Liebenberg.

He told MPs that Denel no longer had a domestic market on the scale to succeed as an independent systems integrator and exporter of a broad range of products. He explained: "To succeed, Denel should produce a strategy based on prime contracting in the domestic market, and the export of components through selective equity partnerships and alliances with global partners."

The search for equity partners was going well, Liebenberg said. Potential partners had already been identified for all the new subsidiary companies, with only munitions and the Rooivalk still to be decided. Liebenberg said that Saab, Zeiss, British Aerospace and Alliance Data Systems were among companies with which talks were continuing.

Memorandums of understanding had been entered into with a number of companies.

Announcements are expected about the deals as early as September for the aerostructure division of Denel Aviation; in November for the missile company; in January next year for the command and control contractor, and for the support and maintenance division of Denel Aviation.

Aside from the possible closure of the munitions plant at Philippi, Denel is greatly reducing its geographic spread in this country. From having six campuses spread around South Africa, the company's new subsidiaries will be housed at three. The Aviation Campus was on 280ha in Kempton Park, but Liebenberg said it needed only 10ha.

Accordingly, the company will move elsewhere and the campus will be sold to Airports Company South Africa for further expansion of Johannesburg International Airport.

Liebenberg said that at the end of the financial year in March, revenue was 23 percent lower than last year.

With acknowledgement to Michael Hamlyn and Business Report.