Denel, MBDA partnership still on cards: source

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The South African government is at loggerheads over the future of a mooted tie-up between Denel Dynamics and MBDA, the missile-arm of pan-European defence giant EADS.

The Sunday Times reported this weekend that the deal that could see the European missile house take a 51% stake in the local company has been scuppered by the Department of Defence, which wanted ownership to remain totally South African for strategic reasons.

But a well-placed source in industry says this is not the case. The source says the DoD is indeed oppose to the sale, while the Department of Public Enterprises and the National Treasury was in favour of the move. The Denel business unit posted a loss of R38.5 million for the year to March 2009, largely because the high cost of its research-and-development activities are not immediately offset by sales. Company CE Jan Wessels has also previously warned tat his business’ viability is undermined by its small orderbook. The SA National Defence Force tended to order small volumes of advanced weapons meaning production runs were too small to offset R&D costs.

The source says the DoD and DPE have “two different views on the future”, adding that Cabinet will have to decide the way forward. DPE acting director general Sandra Coetzee and DoD defence materiel division head Antonie Visser have been tasked to investigate the matter and advise the national executive. By this weekend Cabinet had made no known decision.

The Sunday paper says the deal is “in line with a number of other successful joint ventures Denel has entered into in recent years. Denel group CE Talib Sadik told it the strategic partnerships worked well. Current partnerships included Carl Zeiss Optronics, Turbomeca Africa and Rheinmetall Denel Munition, “all of which were concluded with international companies that hold the majority stake,” the paper said. “The partnerships were entered into to access stable export markets in an environment of reduced domestic defence spend and a global market which is largely closed, with significant consolidation having taken place,” Sadik told it.
“They have allowed the country to continue to utilise its [Denel’s] capabilities and have facilitated export earnings. The local businesses involved have been modernised and recapitalised. They have improved market access and resulted in “an immediate increase in self-funded research and development spend”, said Sadik. “Importantly, stability of supply is created for the local defence and security establishment.”

Sadik said Denel was keen to share risks with partners, ensure money was spent on research and development, and make use of outside expertise. The paper said it understood that the missiles business produces 100 missiles a year, 20 of which are sold to the SANDF. MBDA, on the other hand, produces 3000 a year and sells internationally. “Strategic partners give us the international relationships. SA wants 100%, but we can’t afford it,” Sadik said.

He added that in joint ventures where strategic partners were minority stakeholders, they did not show the same commitment as lead partners, the paper added. “We need to find partners internationally and even locally, as the defence force budget is flat.”

Pic: Assembling an Ingwe guided missile at Denel Dynamics