Denel Land Systems (DLS) will not be able to pay November salaries and thirteenth cheques due to extreme financial pressures while the Group has initiated voluntary severance packages in order to reduce staff count.
Interim DLS CEO Phaladi Petje in a memo to employees dated 26 November stated that “the division’s financial position remains under extreme pressure and as a result it is not yet clear when can employees expect to receive full or partial salaries.”
He added that “management will continue working hard with all stakeholders to turn the situation around.”
An infogram sent to Denel Employees on 29 November noted that Section 189(A) retrenchment processes were initiated at PMP and Denel Land Systems in September 2020, while Denel Vehicle Systems also identified possible redundancies.
Owing to a change in executives and other factors, the process was abandoned in anticipation of the new Denel 5.Y turnaround strategy, which amongst others is consolidating Denel operating divisions from six to two.
“Current indications are that notwithstanding the natural attrition that has occurred in the past 12 months, the company still has some redundancies. To avoid or minimise the impact of forced retrenchments, a decision has been made to introduce a Voluntary Severance Package (VSP) process. VSPs are considered effective measures employers use before embarking on forced retrenchments, which must be implemented as a measure of last resort,” the Denel infogram stated.
Applications for the VSPs opened on 29 November and will close on 15 December, and are open to all permanent Denel employees.
“Retention of strategically important, scarce and critical skills determined will take precedence over any other criteria for the approval of VSPs,” Denel said, adding it reserves the right not to approve an application if there is no cost benefit.
Approved applicants will have their medica aid premiums paid for up to six months or will receive a once-off cash payment of R6 000 for non-medical aid members. They will also receive one week severance pay per year of completed service; a cash payment of up to R10 000 towards up-skilling for any trade of choice; optional financial and psychological counselling at R2 000 each; and up to R18 000 start-up capital towards starting an own business.
Denel as a Group owes staff more than half a billion rand in outstanding salaries, largely unpaid since May 2020, and suppliers nearly R1 billion. The company received a R2.9 billion state bailout this month, but this is only going towards repaying government-backed debt.
Denel has lost more than 20% of its staff over the last year, mostly over the non-payment of salaries, and now has around 2 500 people working for it. The state-owned entity made a R1.962 billion net loss for 2019/20 and due to liquidity and other constraints, is unable to deliver on most contracts, with production at 20-30% of the normal.
Siphiwe Dlamini, head of communications at the Department of Defence, in an opinion piece in Business Day this week warned that Denel’s demise is a sovereign risk for South Africa.
“The state of Denel, as one of the few entities through which the government incubates high-end technologies for spin-off to the economy and advances the hard science agenda — as well as providing a platform for the pursuit of the fourth industrial revolution — poses a significant strategic risk to the defence and sovereignty of SA,” he wrote.
He stated that the ‘calamitous’ mismanagement of Denel has reduced the company to a shadow of its former self and this is yet another crisis the military and South Africa will have to face in the near future.
“Denel is the original equipment manufacturer for most of the combat systems in the military. It is also the main contractor in the repair and maintenance of the army’s prime mission assets. The state of Denel has introduced significant risk to the defence of the Republic of SA. Not only are maintenance and repairs compromised, but the obsolescence of combat systems has been accelerated. Life-cycle costs are spiralling upwards and serviceability is declining.”
In addition to affecting the capabilities of the South African National Defence Force, Denel’s decline has a knock-on effect on research and development and risks putting many small businesses out of work as they depend on Denel.
“Six years ago, Denel was the poster child of how SOEs could, and should, be run. Sadly, it has become the poster child of catastrophic failure,” Dlamini wrote.
“The loss of Denel will grievously impinge on our sovereignty because we will be dependent on foreign defence manufacturers and countries. The whole point of developing a very strong defence industry was to avoid being dependent on the goodwill of other countries.
“SA’s defence and aerospace industry should be a national imperative, along with a commitment to adequately fund the military. But of the two, perhaps the most pressing is the plight of Denel. Its failure would have dire consequences for the ability of the army to carry out its constitutional mandate — safeguarding the sovereignty and territorial integrity of SA,” Dlamini concluded.