Defence budget also to blame for poor serviceability of SANDF equipment – Denel


The real reason why some South African Air Force (SAAF) aircraft are grounded is the poor state of the defence budget, and not just problems at Denel.

This is according to Interim Denel Group CEO William Hlakoane, who told defenceWeb it’s a misconception that aircraft are standing because of Denel. The real problem, he said, is the lack of SAAF budget, which has seen the Gripen fighter grounded and only a quarter of the fleet serviceable.

The South African National Defence Force (SANDF), and in particular the South African Air Force, have expressed concern that loss-making Denel’s problems will mean it is unable to deliver on projects, such as the Badger infantry fighting vehicle being acquired under Project Hoefyster, or maintain and repair SAAF aircraft.

In August 2021, it was revealed that over a dozen product and support contracts with the SANDF were under threat due to challenges at Denel. For example, Project Muhali, for the upgrade of 15 of the South African Army’s G6 self-propelled howitzers, has been delayed by at least two years, until 2023. Other projects under threat include Project Topstar (gun laying and navigation system for G5 and G6 artillery and rocket launchers); Project Sable (ground-based air defence system); and Project Fellowship (mobile air defence system). Denel’s delivery of GI2 cannons for Project Biro is also at risk. Denel Land Systems is responsible for these projects.

The biggest project to be delayed is Project Hoefyster, for 244 Badger infantry fighting vehicles for the South African Army. This more than R16 billion project (R6.5 billion spent to date) aims to build vehicles in five main variants, but has been delayed almost indefinitely (it was due to be completed in 2023 but no production vehicles have been delivered to the SA Army). In early 2022, Armscor recommended cancelling the Badger contract as Denel Land Systems cannot deliver, and recalling R1.4 billion in bank guarantees, and R550 million covered by Denel. Hoefyster items worth R1.2 billion could be sold off. Armscor suggested spending the Hoefyster funds on upgrading Ratels. The state-owned defence material agency noted that recalling guarantees will likely result in Denel’s liquidation.

Hlakoane said Hoefyster, which is a dozen years late, has suffered a myriad of issues, including scope creep and designing and building simultaneously. “We are still committed to deliver, but not under the same budget,” he said. “Is there still a need for the full 220 Badgers? The South African Army has survived so far without it. Maybe we only need to supply 60 to 80.” A decision will have to be made by Armscor and the Department of Defence.

It is not clear whether the Air Force will receive all of its A-Darter fifth-generation air-to-air missiles or a new beyond visual range missile due to challenges at Denel Dynamics. Of all the Denel divisions, Hlakoane said he is most worried about Denel Dynamics, as it has suffered a significant loss of skilled personnel and therefore design capability and is in “dire straits”.

On the aviation side, Denel Aeronautics is supporting a number of South African Air Force aircraft, including Oryx and Rooivalk helicopters as Denel is the original equipment manufacturer (OEM) for these types. These support contracts are worth several billion Rand over three year periods. In early 2021, the SAAF’s Budget Control Committee stated that Denel’s financial situation has created a loss of capabilities which has impacted the operation of the SAAF and led to most of its aircraft systems being unavailable. It added that the inadequate supply of spares is a huge drive factor for unserviceability, with an adverse effect on deep-level maintenance for main propulsion components.

The SAAF is most concerned about maintenance and support for its C-130BZ Hercules, Oryx and Rooivalk fleets as these are critical and almost exclusively supported by Denel.

As of the beginning of 2022, only 46 of the SAAF’s 217 aircraft were serviceable, with Armscor putting the blame on Denel’s liquidity crisis, the SAAF’s reduced budget, ageing aircraft, and COVID-19-related disruptions. Of the aircraft Denel is contracted to maintain, only 4 out of 11 Rooivalks were serviceable; 17 out of 39 Oryx were airworthy; and one of six C-130BZ Hercules was serviceable in February 2022 but others were undergoing maintenance.

Hlakoane told defenceWeb that last year Denel Aeronautics delivered on more than 85% of its order book, including on maintaining SAAF platforms including the C-130BZ, Oryx and Rooivalk. To mitigate Denel’s financial challenges, Armscor has taken to paying Denel suppliers directly to ensure SAAF aircraft are maintained.

The Gripen fleet remains grounded, but this has nothing to do with Denel, as the support contracts are placed with Saab. Similarly, Denel does not maintain Hawk, Caravan, BK 117, C-47TP, PC-7, C212, Super Lynx or other aircraft, which are also suffering from poor serviceability.

Hlakoane is confident Denel can turn itself around, and therefore be in a better position to serve the SANDF. The SANDF needs Denel to meet many of its sovereign requirements, but the broader defence industry needs the company as well, as Denel subcontracts the majority of its work. “If Denel collapses, the industry collapses. We have to protect the industry,” Hlakoane said.

Denel used to be the main suppliers to the SANDF, but is only delivering half as much as it used to. The shrinkage and ultimate closure of the Special Defence Account (SDA) has had an impact, as this used to fund a lot of capability. “If we don’t keep that capability, the SANDF collapses,” Hlakoane said, but, “if we keep it, we can’t afford it.”

As part of its new 5.Y turnaround strategy, Denel aims to save nearly R250 million a year by restructuring into two divisions (from six operating units currently), and raise R2.5 billion by selling stakes in Rheinmetall Denel Munition (RDM), Hensoldt South Africa, and some of its property portfolio. The Public Investment Corporation (PIC) has been approached to buy some of Denel’s land while offers will be made soon for RDM shares. Denel is also waiting for final offers for Hensoldt shares, and hopes to conclude the sale around the end of May or June this year.

This will put Denel back on the path to sustainability, Hlakoane believes, and allow it to maintain SANDF equipment and deliver on new projects.