Denel Aerostructures is 95% of the way through its turnaround strategy and is on target to break even in the next three years, and is trying to attract further business and diversify its revenue streams, particularly in the commercial aviation sector.
Ismail Dockrat, CEO of Denel Aerostructures (DAe), noted that the company’s business plan calls for it to break even in 2016. “We are confident we will make it to breakeven by 2016 and possibly 2015. We have met and exceeded all targets in the business plan. I am confident we will break even in two years.”
DAe had for years run up losses but is dramatically reducing them every year – for instance, its losses in 2010 amounted to R328 million but this was down to R78 million in 2012. As a result of the company’s financial performance, a turnaround strategy was created to set it on the path of profitability.
The turnaround strategy has several components. Firstly, a credible business plan had to be drawn up. Secondly, key contracts with Airbus for A400M components were renegotiated and non-profitable contracts were restructured or terminated. Thirdly, the financial management and internal controls systems were overhauled. The supply chain was overhauled and restructuring also saw “very painful” retrenchments – Dockrat said reorganising the workforce was a major factor in the restructuring process. Part of restructuring involved shrinking the rental footprint from 54 000 to 25 000 square metres, halving DAe’s rental costs.
One of the most important parts of the turnaround process is targeting new business. “That last point is the most important part of the turnaround…growing the revenue base remains an outstanding challenge. It is the only area not ticked,” Dockrat told defenceWeb. “We have had some success but are nowhere where we want to be,” in pursuing new markets.
DAe has a R2.5 billion confirmed order book (up from R1.6 billion in 2013) but is looking for R1.5 billion in new orders over the next five years. Dockrat noted that while DAe was on track to break even, the company had to look beyond that point as “breaking even is only getting to the starting block.”
According to Victor Xaba, Executive Manager: Business Development, diversifying into the commercial arena is a key pillar of the turnaround strategy for DAe.
The company is focusing its marketing activities on diversifying its customer portfolio to include more Tier 1 companies such as GKN Aerospace, Spirit Aerosystems and Sogerma. The company seeks to expand its product portfolio to include major structures for commercial aircraft specifically within the single-aisle and wide-body segment of the market. At the moment DAe is manufacturing tailplanes for the Gulfstream G150 business jet and has just secured a contract to manufacture flight control parts for another US-based business jet manufacturer.
Some of the future projects DAe is eyeing include the fleet procurement programmes of South African Airways (SAA) and South African Express (SAX). SAA is looking to acquire new wide-body aircraft to replace its ageing A340s and SA Express is looking for new regional aircraft. Since both are state-owned carriers, the government requires local industrial participation on such procurement deals and Denel Aerostructures is ideally placed to manufacture components for the winning bidders. Dockrat said that SA Express was engaging with market players for new jets from manufacturers like Superjet, Bombardier and Embraer, while SAA was looking to Boeing and Airbus.
Dockrat said that he would be happy if DAe could become a supplier on a long-term civilian programme such as the Boeing 787, Airbus A350, Bombardier C-Series, Superjet 100 or Embraer E-Jet. “That would be wonderful,” he told defenceWeb.
In addition to the civil side, DAe is also looking at South Africa’s military aircraft requirements. The three acquisition programmes that are of interest to the company are the new VIP jet, the maritime patrol aircraft and light transport aircraft to replace the C-47TPs and C212s. Dockrat said these procurements are expected to happen within the next few years.