Denel has asked for R3.8 billion rand in state financial support over the next three fiscal years, according to the National Treasury.
“Denel has requested a 3.8 billion rand bid over the 2021/22 to 2023/24 MTEF (Medium Term Expenditure Framework) period,” the National Treasury told Reuters in an emailed response to questions on Friday.
Denel has struggled to pay salaries this year amid a liquidity crisis aggravated by the coronavirus crisis. Some Denel divisions received full net salaries at the end of September – others not, according to trade union Solidarity sector co-ordinator for defence and aviation, Helgard Cronjé. Solidarity is still busy with court and legal processes to enforce a court order for outstanding payments for May, June and July.
Denel is struggling with liquidity and this affects its ability to pay salaries as well as complete projects for the SANDF. Project Hoefyster (new infantry fighting vehicles for the SA Army) is of particular concern, being years behind schedule. Denel is receiving capital from the State to stay afloat this money is earmarked to service debt and cannot be used for salaries and other expenses.
Alarmed by financial difficulties at Denel and their impact on SA National Defence Force (SANDF) projects, the Department of Defence (DoD) has appointed a Save Denel technical team, Secretary for Defence Sonto Kudjoe announced at the end of September.
She stated, “the problems of Denel are giving us sleepless nights and that is why we have appointed the Save Denel technical team”. The team comprises industry body AMD’s executive director Sandile Ndlovu, Armscor non-executive director Dr Moses Khanyile, the chief executives of Denel (acting, at present) and Armscor as well as representatives from the departments of Public Enterprises and Defence.
According to Kudjoe, the Department of Defence asked Armscor to pay suppliers directly and ordered Denel to centralise all funding from it “to avoid money intended to equip our forces with the right equipment at the right time being used for salaries by Denel.”
Last month, Ghaleb Cachalia, Democratic Alliance (DA) shadow public enterprises minister, warned that Denel was in a ‘death spiral’ as the company has lost its missile capacity as well as irreplaceable engineering staff in droves to competitors.
The shadow public enterprises minister’s words are partly in response to Defence and Military Veterans Minister Nosiviwe Mapisa-Nqakula’s answer to a parliamentary question posed by his shadow cabinet colleague for the portfolio, Kobus Marais.
She told Marais “it is clear, without a significant bailout by government, Denel will not be able to exist in its current form and will not be in a position to meet its contractual obligations to Armscor.” Mapisa-Nqakula also indicated Denel’s performance against Department of Defence contracts is “hindered to a great extent as a result of financial distress which impedes procurement of sub-systems and components required to meet contractual deliveries”. Making matters worse is “a significant loss of capability in certain critical areas”.
She went on to inform Marais both Armscor and the DoD “developed alternative options” as regards the future of Denel.
Denel received R1.8 billion from government in 2019 and expects R576 million, in tranches, from this year’s budget. With R3.4 billion of government guaranteed listed debt payable in September and little likelihood of it being honoured, Denel will have to go into business rescue, Cachalia said earlier this month.