Airbus Military has cancelled a Denel Saab Aerostructure (DSA) contract for the manufacture parts for the new A400M military transport and placed two others on review.
This comes six months after Defence Minister Lindiwe Sisulu cancelled an order for eight of the aircraft, saying that the move would not affect South African industrial participation in the about 31 billion euro programme.
Business Day reports the loss of the contract is a major blow to Denel Saab Aerostructure’s attempts to return to profitability after years of losses, while the Engineering News says the cancellation only affects two small parts: the manufacture of the main spar – known as the sword – of the vertical tail fin and for the manufacture of the ribs for the vertical tail fin. Industry sources have told defenceWeb that Airbus is under heavy pressure, especially from Turkey, to take over the entire DSA and Aerosud workshare to support its budding aerospace industry. Turkey and the European A400M partners, all still recovering from last year’s recession and facing high unemployment, reportdly cannot see why SA should retain any workshare now that it is not purchasing the aircraft.
The SA-made parts would have gone into all 181 aircraft that remain on order. Airbus spokesman Linden Birns confirms “Airbus is under pressure from the other A400M programme partner countries to redistribute the industrial work packages that South Africa contracted for.”
He says South Africa’s commitment to acquire the A400M was “tied to its earlier decision to join the A400M programme as a full industrial partner in 2005. Although Airbus has withdrawn the two smaller work share packages from Denel Saab Aerostructures, it has been able to protect DSA’s other more strategically important and valuable packages for the time being.”
“In the meantime, we hope that Government will soon identify South Africa’s future airlift requirement and engage with industry on the process for acquiring whatever equipment it specifies and selects to meet it,” Birns said. Sisulu in middle March intimated the requirement has been defined. She told a media briefing the defence department was “ready to put before Cabinet the necessary document that will assure that we can get this capacity and proceed with the necessary procurement processes. “We are not sure yet what we are going to get in the market so it would be very difficult to say whether we are going back to the A400. We are keeping our options open and we will follow the due processes of tender and come up with the best option in line with our budget and in line with our needs,” she said.
In the meantime, it is understood Airbus Military has made an unsolicited offer to SA for four of the aircraft on new terms. As far as can be determined SA has not yet responded to the offer. It is likely Airbus is holding out cancelling the remaining workshare, which is within its legal rights to do, pending a response on the offer. “So far, we have been able to protect the big DSA packages and all Aerosud’s work, but we won’t be able to do this indefinitely,” cautioned Birns.
Engineering News reports DSA continues to be responsible for two large and important work packages for the A400M programme, namely the centre fuselage top shells and the wing/fuselage fairings. DSA is producing two top shells for each aircraft – one each in front and behind of the wing box, which joins the wing to the fuselage. The wing/fuselage fairings are each 15m long, 7m wide, and nearly 3m high and are manufactured mainly from composite materials but including aluminium parts.
Business Day reminds DSA notched up a R452 million loss for the 12 months to March 2009. DSA and Treasury has invested millions in building prototype parts and ramping up for production of the A400M, and it is no longer clear whether it will be able to recoup any of these investments. DSA CE Ismail Dockrat told the broadsheet yesterday that the cancellation was a huge blow to the group. “We still have running contracts with Saab and AgustaWestland. However, this was an important contract in our order book, and will have a major impact on our financial recovery. We are speaking to Airbus to ascertain why they have cancelled the contract despite assurance last year that they would not. We are seeking to have the cancellations reversed,” said Dockrat.
DSA has already revised its restructuring strategy to deal with the loss of the Airbus contracts, and is due to submit it to the board in the next week. “We are also working with various government stakeholders in drawing up a long-term plan for the aerospace industry in SA which will inform the way forward for Denel Saab Aerostructures,” said Dockrat.
The work packages for South African private-sector aerospace company Aerosud have not yet been reduced in any way, Business Day and the Engineering News say. “We have a long relationship with Airbus over many years, and have several contracts for other Airbus products, including the A320 and A350 commercial aircraft. We are in the process of finalising several new contracts,” says
MD Paul Potgieter. “We understand the pressure Airbus Military are under from their European partners. If the contract is cancelled, it will not be a unilateral decision by Airbus but rather by mutual agreement,” he said.