Denel Saab Aerostructures (DSA), a subsidiary of state arsenal Denel, is to reduce its workforce by 300 as part of a turnaround plan to reduce costs and reach break even on its balance sheet within five years. DSA says it made a nett loss of R328 million in the financial year to March 2010, an improvement on the R452 million lost the year before.
In a statement released this afternoon, the company says DSA is to shrink its “current workforce of approximately 670 by an estimated 300 positions”. The company says the reductions will be achieved through the concluding of fixed-term contracts, the termination of foreign contractor agreements and exiting unemployed learners. “Should further reductions be required the company will consider forced retrenchments in terms of section 189A of the Labour Relations Act.”
The restructuring involves a renewed focus on core business activities, a reduction in its current workforce and a sharing of services with Denel Aviation, another subsidiary within the Denel group, the statement says.
DSA is responsible for the design and manufacturing of advanced aerostructures for the aviation industry. The global recession and delays to the Airbus Military A400M program have had a negative impact on DSA’s order book in recent years. The restructuring should ensure the longer-term survival of the business and enable it to meet its contractual obligations. “To achieve this certain functions within DSA, such as design-to-build, will be down-scaled significantly,” the company says.
Among the main cost drivers identified by DSA are material- labour- and rental costs. DSA has already embarked on an initiative to reduce significantly its material costs through developing long-term agreements with suppliers and scaling down its rental footprint through the optimization of space. The company is also investigating the possibility of outsourcing certain production processes such as sheet-metal manufacturing and conventional machining to domestic and other industry players to further reduce fixed costs.
“This will enable DSA to focus on its core activities of assembling, high-end machining and special processes in the future,” the statement adds. DSA is further consulting with Denel Aviation on how to share support services in functions such as human resources and information management to reduce overhead costs further. “Management is currently consulting with stakeholders, including organized labour, on the progress made on the turnaround plan. Once approval has been given DSA will initiate a S189A process during August 2010.
State arsenal Denel in February said it was expecting another loss for the financial year to March 31, 2010. Figures released at a Standing Committee on Public Accounts (SCOPA) meeting this week show the company expected a loss of approximately R600 million. The predicted losses included interest payments of R154million, impairments of R200 million and losses of R246 million at its subsidiaries.
In August last year Denel group CE Talib Sadik said Denel planned to report a profit for the financial year ending March 2014. The company posted a loss of R544 million for the year-to-March 2009, a considerable improvement on the loss of R1.6 billion for the period ending in March 2006. The company lasted posted a profit – of R24.1 million – in 2001. The last profit before that was R81.5 million in 1997.
Pic: Airbus A400M top shells on the DSA production line, 2008.