Denel Aerostructures to break even in 2016/2017

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Denel Aerostructures will break even in 2016/2017, two years later than hoped. The Denel subsidiary that has been making a loss over the past five years is currently implementing a major turnaround strategy.

The new breakeven date was revealed by Department of Public Enterprises Minister Malusi Gigaba, who was responding to a parliamentary question posed by H B Groenewald of the Democratic Alliance.

Gigaba stated that Denel Aerostructures (DAe) “has posted significant losses over the past five years and DAe restructuring to respond to this was initiated in July 2010.” In the 2010/2011 financial year Denel Aerostructues posted a net loss of R237 million.

Current restructuring efforts include:

  • Reduction of the rental footprint
  • Implementation of shared services for Human Resources and Information Technology;
  • Outsourcing of non-core activities to reduce fixed cost, including the sale of the steel heat treatment facility to TMA [Turbomeca Africa] and the payroll function to DPS [Denel Personnel Solutions];
  • Reduction of the workforce;
  • Improvement of raw material stock accuracy from 65% to 98%;
  • Overall improvement in operational environment in terms of throughput, scrap rates and material costs; and
  • Restructuring of the loss-making programmes.

    Gigaba stated that, “the above restructuring resulted in improved delivery performance and improved financial performance,” but that “DAe remains in a turn-around phase, and due to the historic structural misalignment between its revenue and cost bases, it will continue to post losses in the short to medium term, before achieving break-even in 2016/17.”

    In June last year it was announced that Denel Saab Aerostructures, as it was then known, was hoping to break even in the 2014/2015 financial year.

    During Minister of Finance Pravin Gordhan’s budget speech on February 22, R700 million was allocated in the 2012/2013 financial year to recapitalise Denel Aerostructures.

    Denel Aerostructures CEO Ismail Dockrat earlier this year said that, “The recapitalisation is a vital strategic investment in a company that is at the forefront of high-tech manufacturing and advanced technology in South Africa. The skills and experience accumulated in DAe can be the basis for the future growth of the local aerospace and aviation sectors. This decision supports government’s industrial policy objectives of deepening aerospace advanced manufacturing capability in South Africa.”

    At the moment Denel Aerostructures is focusing primarily on Airbus Military A400M work, and is in the process of finalising A400M contract re-negotiations, which should see the scale and complexity of work packages increase.

    DAe is responsible for one of the largest composite-metallic hybrid structures on the A400M, namely the Wing-to-Fuselage Fairing (WFF). The WFF protects the equipment under the centre wing portion against lightning strikes, hail damage and bird strikes. Each fairing is 15 m long, 7 m wide, and nearly 3 m high.

    DAe also manufactures the aircraft’s Top Shells – positioned in front of and behind the wings where it is joined to the fuselage. They are made up of more than 1 100 parts, consisting of a large machined skin, engineered out of an aluminium alloy. Its brackets support the electric and electronic wiring, hot air and heat exchange piping as well as the aircraft’s life-rafts.

    Both parts were designed from scratch by DAe and are manufactured at the company’s production facilities located next to O R Tambo International Airport.

    Denel Aerostructures is currently ramping up its production to meet Airbus Military’s delivery schedules. Within the next four years DAe will manufacture 24 ship sets per year, moving off the production lines for final assembly in Seville, Spain.

    DAe is hoping to use its A400M experience to target additional work packages from companies in Europe and North America while the Department of Public Enterprises “is in a process to align to South African government fleet procurement programmes for possible offset work packages.”

    Martin Sefzig, Director Sales Africa at Airbus Military, earlier this year told defenceWeb that his company is satisfied with the work conducted in South Africa and does not want to remove the packages, as this would disrupt its supply chain. Sefzig said that, “We want a long-term partnership with Denel and Aerosud, beyond the existing work packages,” which would entail increased volumes and the fabrication of more complex parts.

    On a recent visit to South Africa, Cedric Gautier, the Head of the A400M programme, said that Denel Aerostructures is “one of Airbus’s most reliable suppliers for the manufacturing of the A400M. We are pleased with the quality of workmanship and the engineering know-how available in the company.”