Finance minister Pravin Gordhan has allocated a further R181.296 million to Denel Saab Aerostructures (DSA). The assistance comes two days after the company handed retrenchment notices to 161 staff as part of a head count reduction of some 290 by coming June and follows several years of disasterous financial results.
The Additional Estimates of National Expenditure (AENE) notes the amount as an “unforeseeable and unavoidable expenditure” under Vote 10, Public Enterprises. “An additional R181.296 million is allocated to Denel for the fourth (R103.144 million) and fifth claims (R78.152 million) by Denel Saab Aerostructures under the indemnity agreement with the government for the [Airbus Military] A400M contracts,” the AENE reads.
It is the second year running that Gordhan has assisted the troubled company. Treasury last October allocated DSA R192 million to help pay for tooling related to the A400M project. The company is exclusively responsible for the production of so-called top shells for the centre fuselage section of the transport, which it had also designed and developed. Engineering News’ Keith Campbell has picturesquely called these as being equivalent to “roof panels”. The DSA has said 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.”
DSA 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. “Due to the sheer size of the wing-to-fuselage fairing, most of the equipment we have bought is larger than that of most of our competitors,” then-DSA CE Lana Kinley told defenceWeb last year.
At the time Kinley also said DSA expected to earn about R13 billion in revenue from its participation in the A400M programme over a period of some 15 years. Kinley added the company had spent some R400 million in a facility upgrade to prepare for the production of its workshare. It is understood Airbus invested a further about R1 billion in the local industry to support the participation of DSA, Aerosud, Cobham and SAAB Grintek. It is further understood the expectation of a refund for this following the South African Air Force’s cancellation of its order to purchase eight of the aircraft, may bedevil South Africa’s wish to be repaid some R2.7 billion in milestone embursements made between 2005 and 2009.
The Department of Public Enterprises last October said the A400M contract was awarded to DSA as part of a business exchange plan, set up with Airbus when the SA government signed “a deal to purchase the military aircraft as part of the South African Air Force’s renewal programme”. The department in a joint statement with the DSA noted the design of the A400M structure “has raised South Africa’s engineering skill base.” They added the “DSA has also developed a composite facility to global standards – with world class accreditation which will allow South Africa to position itself in advanced manufacturing and in obtaining further contracts in the aerostructures industry.”
Dr Ian Phillips, the late Special Advisor to then-Minister of Transport Jeff Radebe in a 2004 press statement noted that this was the fulcrum of SA’s participation in the programme. Phillips then a Denel board member avered that the government, through the Departments of Trade and Industry (DTI), Public Enterprises and Defence, had been since “at least 2000” developing a strategy for the long-term development of South Africa’s high technology aerospace sector.
A four year delay in the programme has cost DSA dearly. It posted a loss of R452.6 million for the year to March 2009, largely because of delays in the A400M programme, and R328 million this year. At the release of the Denel’s financial results later that month, CE Talib Sadik told journalists the group would have posted a R200 million profit if it was not for the loss at DSA.