Denel at risk of collapse, with implications for the SANDF


Denel is at risk of collapse and this could affect the South African National Defence Force’s ability to fulfil its constitutional obligations.

This is according to the Department of Public Enterprises (DPE), which on Wednesday briefed the Portfolio Committee on Public Enterprises on the challenges of state-owned companies.

In its presentation, the DPE said Denel continues to experience liquidity challenges and is unable to raise the required bank guarantees to fund operations.

“The threat of liquidation is real, with a number of suppliers including individual employees approaching or threatening to approach the courts for relief.”

The DPE stated that Denel has lost critical skills, putting at risk the viability of certain capabilities that are critical to the Department of Defence. Indeed, it said the risk of Denel’s collapse would affect the SANDF’s ability to fulfil its constitutional obligations.

The loss of critical skills is also a risk to the new operating model being implemented. The new business model will see Denel split into two, with one division focussing on engineering, with manufacturing and maintenance, Denel’s core business, taking centre stage in the other.

Core maintenance and manufacturing businesses will be strengthened. Under aeronautics, this includes military aircraft and engine maintenance, repair and overhaul (MRO), systems integration and upgrades, the Rooivalk helicopter and unmanned aerial vehicles. Pretoria Metal Pressings will strengthen small and medium calibre ammunition and infantry weapon production. Other core areas include vehicle systems maintenance.

On the engineering side, new business and diversification will be promoted. This covers infantry and artillery systems, armoured vehicles, mechatronics, missiles, precision guided munitions, ICT and cyber solutions etc.

The turnaround aims to reduce overheads and redundancies; protect, retain and exploit intellectual property; continue research and development; streamline business processes; and develop non-military business technologies.

Loss-making divisions will be exited or transferred and under evaluation is the exit/transfer of Spaceteq, the exit of Mechem, the exit of Denel Gear Ratio (DGR), and property consolidation.

The DPE notes Denel is financially distressed, but “a solution is being formulated.” Regarding funding, the Department of Public Enterprises has made a submission for funding for Denel through the MTEF (Medium Term Expenditure Framework) process. The Department and National Treasury are finalising the options related to government guaranteed debt and the DPE is engaging the Department of Defence on the sale of non-core assets and businesses.

“A timeous decision on the future and support for Denel is critical,” the DPE stated.