State owned company Denel’s aviation division Denel Aviation is projecting itself into the world, establishing cooperation agreements with companies in the BRICS region and seeking to increase its foreign revenue sources. In spite of challenges in the industry, the Denel division made a healthy profit the last financial year, recovering from a loss the year prior.
Turnover for Denel Aviation for the 2012 financial year amounted to R1.047 billion, up from R736 million the year before. Export turnover was also up, to R226 million, from R37 million, according to Denel’s Annual Report 2012. However, the company’s confirmed order book is down to R330 million, from R2.213 billion in 2011. Most significantly, for the 2012 year Denel Aviation recorded earnings before interest and tax of R60 million, versus a loss of R159 million the previous year.
Denel Aviation CEO Mike Kgobe said that there are challenges in the industry, and “local defence spend is under tremendous pressure.” As a result, he said that his company needs to have a good mix of both domestic and export revenue and particularly civil and defence revenue. He pointed out that 80% of Denel Aviation’s revenue for the last year came from domestic contracts and 20% from export contracts. The ideal is to drive that to a 50-50% mix. Of that, Kgobe wants to see a mix of civil and military work so the company is never dependent on any one revenue stream.
As it seeks new opportunities, Denel Aviation is forging new partnerships in the Brazil, Russia, India and China (BRICS) grouping and is renewing focus on Africa. Although Denel exists to support the South African Air Force, “we should be able to project ourselves into the world. That’s what we are doing,” Kgobe said.
“The market we’re targeting is predominantly in Africa,” he told defenceWeb. “We see ourselves as a global player with primary focus on the continent.” He said that the continent was a good place to be at the moment. Defence expenditure in established markets like Europe and the United States is on the decline, especially with the winding up of conflict in Iraq and Afghanistan.
Denel Aviation has a number of collaborations in the works. It is at a “very advanced stage” in its dealings with Russian Helicopters, which has identified after-sales support in Sub Saharan Africa as a major gap in its portfolio and turned to Denel for help in setting up an MRO (maintenance, repair and overhaul) centre in Africa. “They see us as playing a big role there,” Kgobe said. “There is a clear need for a local maintenance capability.”
By having an MRO facility for Russian helicopters in South Africa, Denel Aviation will be able to provide quick turnaround times and save on logistics and shipping costs. As the company is situated next to O R Tambo International Airport, it can make use of an established logistics network. At the moment, Russian Helicopters products need to be sent overseas for deeper level maintenance.
A delegation of Russian Helicopters technical personnel are coming out to South Africa to conduct a technical audit of Denel Aviation’s capabilities and will arrive later this month. Kgobe said that as an outcome of the audit, Denel Aviation would also examine how local companies can also take part in the initiative. In turn, Denel Aviation is sending its technicians to Russia to train on Russian Helicopters aircraft. They will be there for 6-8 week courses.
Denel Aviation is collaborating with Russian aircraft manufacturer Irkut and in July signed a cooperation agreement regarding the promotion of Irkut’ aircraft in southern Africa, including its Yak-130 combat trainer and commercial MC-21 aircraft. The agreement also covers the establishment of a maintenance, repair and overhaul centre at Denel Aviation and for industrial cooperation between the two companies.
Kgobe said that Denel Aviation has also been talking to Antonov “for some time” and during the Farnborough Air Show in July 2010 signed a memorandum of understanding with South Africa’s Pamodzi Investment Holdings and Antonov to jointly promote Antonov aircraft in Africa and establish a centre for maintenance and overhaul. It was stated at the time that the estimated African MRO market was worth up to US$1 billion.
Indeed, Denel Aviation’s core focus is on the upgrades, systems integration, retrofits and maintenance, repair and overhaul of aircraft. One of its most important current projects is delivering 11 upgraded Rooivalk attack helicopters to the South African Air Force (SAAF). The first five Rooivalk Mk 1F helicopters were ceremonially handed over the Air Force on April 1 last year after 130 modifications to each aircraft. Kgobe said the tenth Rooivalk 1F is undergoing acceptance trials and he would like to see the eleventh and final aircraft being delivered by October.
With regard to the future production of Rooivalk aircraft, Kgobe said that Denel Aviation would be able to re-establish the production line and resume production given the right numbers. Around 75 to 100 aircraft would have to be ordered in order to make production economically viable.
Kgobe said that Denel Aviation had received interest from potential customers regarding Rooivalk production, but that the company’s main focus is to deliver the upgraded aircraft to the South African Air Force and to maintain the type for them.
Denel Aviation is also engaging in post-Block 1F modifications, including new drop tanks for extended range deployments. Kgobe said that the post 1F modifications were to enhance the operational efficiency of the aircraft.
Denel Aviation’s other helicopter activities for the South African Air Force include upgrading the Oryx communication and navigation systems as part of Project Drummer. Kgobe said that it’s “quite a complex process” as some analogue equipment was retained whilst new digital equipment was added. This has caused complications, and Denel Aviation had to produce an interface unit for the new equipment.
“We have made some progress,” Kgobe said. He added that the design and development phase has been completed and the qualification and certification process is underway, leading to production and deliveries of the balance of 38 aircraft.
Kgobe said that local company Advanced Technologies and Engineering (ATE) was one of the subsystems suppliers for the Oryx upgrade project and the company’s recent management and financial turmoil was an issue for the upgrade. Kgobe said Denel Aviation was being ‘cautious’ about the ATE situation. “It would make sense to sustain ATE. Most industry players are hopeful of a sustainable ATE.”
Denel Aviation’s other work for the South African Air Force includes supporting its C-130 Hercules fleet. In February Denel Aviation signed a memorandum of understanding cementing its agreement with the Air Force regarding the MRO and continued airworthiness for the assigned platforms of Oryx, Rooivalk and C-130 Hercules, with a scope to expand this to other SAAF platforms. Denel Aviation in March this year launched an air transport MRO capability jointly with the SAAF which will see the established C-130 MRO facility at Air Force Base Waterkloof being expanded to cover other SAAF transport aircraft. Denel Aviation is responsible for C-130 availability and works together with the SAAF to ensure the Hercules remain flying.
Kgobe said the C-130 MRO initiative has worked well. As a result, the SAAF saw it fit to expand the initiative to cover the Air Force’s Casa 212 and Cessna 208 Caravan fleets. There are some contractual and administrative issues to be resolved to ensure this. He said that Denel Aviation’s maintenance partnership reduces the cost of ownership for the SAAF.
Denel Aviation is the only Lockheed Martin accredited service centre for the C-130 Hercules and civilian L-100 in the whole of Africa – it is also one of only nine accredited C-130 airframe service centres in the world. The company has done C-130 work for other customers, such as Botswana, Uganda, Cameroon, Gabon and Safair, a local South African operator, and is in advanced negotiations with other countries in Africa regarding C-130 work.
Denel Aviation’s other MRO work involves helicopters and the company is a Eurocopter-accredited MRO service centre for AS 332 Super Puma, SA 330 Puma and AS 350 Squirrel aircraft. It also services the Bo 105, Alouette III and SAAF Oryx and Rooivalk helicopters.
Furthermore, Denel Aviation is an accredited Eurocopter dynamic component repair and overhaul centre that offers depot-level maintenance of avionics, electrical, oxygen and hydro mechanical components. The facility is also accredited to carry out repairs and calibration of ground support and test equipment.
Denel Aviation is currently performing work for the South African Police Service’s air wing, maintaining their Bo 105 and AS 350 helicopters. Kgobe said the company had worked with the police over the last two years and had bid for future police maintenance work and was awaiting the outcome of this process, which is now overseen by Armscor.
As part of Ecuador’s November 2010 acquisition of 12 ex-SAAF Cheetah fighters, Denel Aviation has a small team of 6-10 people in Ecuador to support the fighters. Earlier this year Denel said that despite the setback experienced during delivery of the first batch of Cheetahs, the project has recovered and all aircraft delivered and accepted by the customer, “thus instilling much confidence in the customer’s mind”.
Kgobe said that the company has more Cheetahs available for sale and has had two or three expressions of interest. Denel Aviation bought the Cheetah package from Armscor when the aircraft were retired.
As part of restructuring announced last month amongst the Denel Group in order to save costs and streamline the group, Denel Aviation now incorporates the Denel Technical Academy and Denel Personnel Solutions. Denel Aerostructures will remain a stand-alone company at the Kempton Park campus but will, in future, share certain management functions and support services with Denel Aviation.