Armscor is getting creative in dealing with the crisis at Denel by paying Denel’s suppliers directly, amongst other measures, as Denel battles to deliver on South African National Defence Force contracts.
This is according to a presentation by Armscor to the Joint Standing Committee on Defence on 24 February. Providing an update on the A-Darter missile, Armscor told the Committee Denel Dynamics has been unable to deliver any production A-Darter air-to-air missiles to the South African Air Force (SAAF) “due to challenges faced by Denel.” This includes its liquidity crisis that has seen it unable to receive components due to the non-payment of suppliers, and a lack of capacity due to an exodus of skilled staff.
Consequently, Armscor is looking at partnering with other local entities on completing the industrialisation and production of the A-Darter and has had several engagements with entities that has revealed a willingness and sufficient capacity to execute missile production.
The only Denel entity that continues to provide a service to the SANDF is Denel Aeronautics, which is contracted for the maintenance of Rooivalk and Oryx Helicopters as well as C-130 Hercules transport aircraft. Denel Aeronautics has been financially ring-fenced in the group, so that its revenue is not diverted to pay for other loss-making divisions. This allows the company to utilise income for the procurement of essential spares. Armscor is assisting Denel by directly paying selected suppliers that Denel Aeronautics contracts – many refuse to work directly for Denel because of unpaid debt.
“Contracted maintenance work on SAAF aircraft is continuing, albeit at a slower pace,” Armscor said. Indeed, Denel Aeronautics is bidding for fresh maintenance contracts for the C-130 Hercules, Oryx and Rooivalk aircraft.
On the landward side, all contracted services from Denel Land Systems and Denel Vehicle Systems have been affected by Denel’s challenges, due to the unavailability of components from suppliers. Denel Land Systems is unable to deliver Badger infantry fighting vehicles under Project Hoefyster and Armscor has recommended this contract be cancelled.
With regard to vehicle maintenance, Armscor has identified alternate suppliers for the provision of spares traditionally procured from Denel Vehicle Systems, and has already placed orders to provide critical spares for the South African Army. “Armscor will continue to engage with potential alternate suppliers of spares and services traditionally sourced from Denel Land Systems.”
Armscor had identified the supply of ammunition and pyrotechnics by Denel PMP as a problem. In some cases Denel is the design authority of critical items like ejection seat cartridges, fire extinguishing cartridges and countermeasures and “it poses challenges to obtain the required equipment and services from other sources, as such equipment and services can only be obtained from Denel.”
Denel is not tax compliant with the South African Revenue Service (SARS) as it owes SARS millions of rands in taxes, and so Armscor has engaged National Treasury for a dispensation in order for PMP to supply critical small calibre ammunition to the Department of Defence. PMP is experiencing challenges with procuring raw materials required for the execution of contracts, and significant delays are being experienced in the execution of critical contracts such as pyrotechnics and ejection seat/fire extinguishing cartridges for SAAF aircraft. Aircraft cannot fly until the cartridges are replaced. Armscor said it is investigating alternative options to ensure continued supply of cartridges.
Armscor and the SANDF make regular use of the Denel Overberg Test Range (OTR) for things like weapon qualifications, and Armscor notes that although the OTR has suffered some personnel losses, it continues to be in a position to provide test and evaluation services.