Denel’s 137m euro A400M offset “safe”: Talib

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Denel Group CE Talib Sadik says the state arsenal’s 137 million euro contract to supply parts to Airbus Military for its A400M aircraft will not be affected by a possible Cabinet decision to cancel an order to buy eight of the strategic transports for the South African Air Force.

Business Day reports today that government is understood to be reviewing the contract because of cost rises that “could see it pay up to R47 billion instead of the R17 billion agreed to in 2005”.

Defence department arms acquisition agency Armscor CE Sipho Thomo made the figures public in Parliament a week ago.

But an Airbus Military spokesman says that while the price is indeed under negotiation,the contract price signed in April 2005 – 837 million euro, then about R7.4 billion, today R9.2 billion – remains the stated cost.

The origin of Thomo’s R17 billion figure remains unclear.

Armscor general manager of acquisitions Sipho Mkwanazi over the weekend clarified the R47 billion as including the estimated full maintenance and life-cycle cost of the eight aircraft over at least 30 years, and according to Independent Group newspapers “spare parts, retention of skills and the SA National Defence Force having to pay for private freight charters for six years (to 2016) while it waits for delivery.”

Business Day continues that Sadik said at a briefing of the National Assembly’s Portfolio Committee on Public Enterprises that Denel had a separate contract with Airbus Military, “though Airbus have the right to say whether they want to cancel it or not. But our understanding is that they would like to continue the relationship with us.”

He reportedly added “there were opportunities for Denel to increase its supply of parts to Airbus as it was looking for cost reductions on the A400M and Denel could take advantage of this.”

Denel was in talks with the state for a cash injection of R1.7 billion to strengthen its balance sheet, but in the meantime had been given state guarantees to meet its liquidity requirements. Guarantees received by end-March amounted to R1.3 billion. Since then, Denel had been given R550 million.

Sadik told MPs Denel aimed to break even by 2012 on the assumption of the turnaround plans for Denel Saab Aerostructures – the unit involved with the A400M and Denel Dynamics, the group’s missiles and unmanned aerial vehicles business.

Meanwhile, the Bloomberg news service reports Sadik was paid R5.7 million in his first year as chief executive. Sadik earned a R2.6 million salary, R637 000 in allowances and benefits and a R2.5m payment in the year to March to cancel a “long-term incentive contract” related to his previous post.

Sadik is a chartered accountant and was named acting chief executive on July 1 last year, when then-CE, Shaun Liebenberg stepped down to join Germany’s Rheinmetall. His appointment made permanent on October 1. He was paid R2.4 million in the year-to-March 2008, when he served as chief finance officer and executive director. Liebenberg was paid R909 000 for the three months through June compared with R4.3m in fiscal 2008.



Sadik’s salary is slightly above the SA “median” for SA CE’s, put at R5.3-million by Mabili Reward in their “Directors Remuneration Report for 2009“, released last week.