Denel Aerostructures, Airbus renegotiating A400M work: Gigaba

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Minister of Public Enterprises Malusi Gigaba says there are positive developments regarding the renegotiation of Denel Aerostructures contracts related to the Airbus Military A400M programme. These are widely known to be loss-making for the state arsenal.

“It is pleasing that Denel Aerostructures’ delivery on the Airbus A400M programme has been exemplary despite the financial challenges, he told journalists at a media event to announce the state enterprise’s new group CE, Riaz Salojee. “I have been informed by the department that there are profound developments with regard to the contract renegotiations with Airbus on the A400M work packages which point to a commercially sustainable Denel Aerostructures,” Gigaba said. “Details of the contract renegotiations will be made available in due course once all the necessary amendments have been completed.”

Gigaba added Denel Aerostructures remains a challenge for the state arsenal as it continues to be the major contributor to losses at the company. “The 28% improvement in the performance of DSA in the previous year was an encouraging sign that the company is beginning to turnaround, mainly due to the ongoing restructuring in the business.” Denel Aerostructures posted a loss of R237 million for the year to March 31.

Addressing a Portfolio Committee on Public Enterprises on the future of the entity in May, Department of Public Enterprises director-general Tshediso Matona, said Saab, which had owned 20% of what was then Denel Saab Aerostructures (DSA) since 2007, exited the business the month before. Denel said at the time Saab had retained an irrevocable right to ‘put’ (sell) their shares back to the state arsenal between May 2010 and end March 2011. “Saab has indicated specific commercial reasons for exiting DSA.”A spokeswoman said Denel repurchased the 20% stake for the same value on SAAB’s exercise of the “put option”, as prescribed by the shareholders agreement. “Unfortunately, we cannot disclose the actual amounts as the information is commercially privileged.” But the INet Bridge financial news service reported in June 2006 that Saab would provide an “investment of R66 million over the first two years, ongoing skills and technology transfers, as well as management and market access.”

South Africa ordered eight of the aircraft for €837 million (then about R9.6 billion) in December 2004. Delays in the programme and cost overruns that became known during the 2009 recession caused the South African government to cancel its order in November 2009 to popular acclaim. The cost claims, on which Cabinet may have made its decision has proven exaggerated: then Armscor CE Sipho Thomo claimed the cost to South Africa had escalated from R17 billion to R47 billion, but this was repudiated by defence minister Lindiwe Sisulu as well as Airbus, the latter insisting that the €837 million figure remained accurate.

The buy followed South African interest in becoming a risk-sharing partner in the programme. Then-transport minister Jeff Radebe and public enterprises minister Alec Erwin spoke glowingly of the project’s prospects at the September 2004 edition of the Africa Aerospace & Defence exhibition, announcing the Cabinet decision’s to purchase eight with an option of six more. The order was duly signed in December 2004 and the workshare agreement – by then-defence minister Mosiuoa Lekota – in April the next year. Denel Aerostructures and private aerospace company Aerosud duly became risk-sharing partners in the programme while Armscor, Saab SA and Omnipless (now Cobham) were appointed contractors.

Denel Aerostructures is exclusively responsible for the production of so-called top shells for the centre fuselage section of the A400M, which it had also designed and developed. Engineering News’ Keith Campbell has picturesquely called these as being equivalent to roof panels. Denel says this is one of the largest composite-metallic hybrid structures on the aircraft. “This part’s main function is to provide aerodynamic efficiency over the wind box, as well as protecting critical aircraft systems.” The company is contracted to produce two top shells for each aircraft – one in front and one behind the wing box that joins the wing to the fuselage. In addition, it is making very large wing-to-fuselage fairings, manufactured mainly from composite materials but including aluminium parts. Each fairing is 15m long, 7m wide, and nearly 3m high.

In addition to the wing-to-fuselage fairings and top shelves, DSA was also contributing the ribs and spars for the tail fin as well as centre wing box structural components. It is the tail fin packages that were taken from DSA last year. The delays in the A400M programme has cost DSA and its staff dearly. The company posted a loss of R452.6 million for the year to March 2009, and some R328 million for the year to March 2010, while close to 500 staff have been laid off in three rounds of retrenchment.



Talks between Denel and Aerosud aimed at the latter purchasing Denel Aerostructures apparently ended in failure at some point earlier this year. Trade union Solidarity said in March that talks were underway, a development confirmed by Denel. Both companies last month confirmed that the negotiations had fallen by the wayside.