Denel cannot rely on government bailouts – committee

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The Portfolio Committee on Public Enterprises has expressed concern over entities including Denel and South African Express that rely on government for financial sustainability.

This follows the committee’s briefing on 29 August by Denel and South African Express. Denel briefed the committee on its performance targets for 2018/19 and progress made in addressing governance challenges. South African Express Airways briefed the committee on its turnaround strategy.

The committee said it welcomed the presentations from the two entities. However, the committee said it is concerned about entities, such as South African Express and Denel, that rely on government for financial sustainability. The committee has raised this issue with the Minister of Public Enterprises before, in a committee meeting. Members of the committee were of the view that tough decisions need to be taken on entities in this position, although selling is not an option.

The committee heard that, since it was grounded in May, South African Express has entered into negotiations with South African Airways. The committee welcomed the recommencement of South African Express flights and the announcement that the airline has stopped using chartering aircraft.

Members of the committee said they had expected to see plans to make these entities profitable and questioned Denel’s ability to meet its financial obligations, considering its liquidity challenges. Members assured Denel that it has their support for a review of all major contracts, so that it can recoup monies from those that did not follow due process. However, the committee cautioned against taking matters to the courts, as this burdens government with the high costs of litigation.

The committee proposed that the two entities and the Department of Public Enterprises return to update the committee on action plans to address governance challenges. Committee Chairperson Lungi Mnganga-Gcabashe said that, for these entities, quarterly reporting is not often enough; frequent updates on progress will be necessary.

The entities were asked to prepare forensic investigation and disciplinary process reports for when they next brief the committee and they were also asked to keep the committee informed about civil or criminal investigations. Mnganga-Gcabashe told South African Express management to lay criminal charges against the people allegedly responsible for bringing the airline to this point.

Denel and South African Express said they will be able to present turn-around plans when they next appear before the committee.

Denel yesterday said a board priority is to normalise the company’s capital structure and inject sufficient liquidity. It has requested government to extend its current guarantee of R3.3 billion when it expires at the end of September and provide an additional R1 billion guarantee to pay creditors and unlock operations.

Management has identified irregular expenditure of more than R315 million for the past two financial years. Further irregularities to the value of R1.3 billion are being investigated.



Denel has requested a postponement until the end of October to finalise its financial statements.