Denel in a “death spiral” – Cachalia

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Denel has at least five problem areas needing urgent attention if the State-owned defence and technology conglomerate is to find a way out of what an Opposition MP terms is its “death spiral”.

Ghaleb Cachalia, Democratic Alliance (DA) shadow public enterprises minister, said the “bald facts” are Denel has no missile capacity; it’s lost irreplaceable engineering staff in droves to competitors; Denel Aviation Systems closed and 20 G6 guns stand on the floor of Lyttelton Engineering (Denel’s LIW division) “awaiting parts”.

These, he said, are some of a long list of company failures and “the writing is clearly on the wall – yet another SOE (State-Owned Enterprise) in a death spiral”.

He gives four reasons for Denel’s imminent failure. They are state interference, mismanagement, state capture and “historically indefensible cadre deployment at executive level”.

According to Cachalia “the impact on national defence capabilities and the fiscus of the destruction of a company once a global technology leader and one of the top defence companies in the southern hemisphere must be laid at government’s door”.

The shadow public enterprises minister’s words are partly in response to Defence and Military Veterans Minister Nosiviwe Mapisa-Nqakula’s answer to a parliamentary question posed by his shadow cabinet colleague for the portfolio, Kobus Marais.

She told Marais “it is clear Denel cannot, without a significant bailout from government, continue to exist in its current form”. When added to what acting chief executive Talib Sadik said in a media interview Cachalia maintains is another indicator “government is incapable of enabling sustainability of South Africa’s key State-owned enterprises”.

Sadik is reported as saying Denel would – at present – not seek any government equity injection because the conglomerate “needs” to fix its own house.

Denel received R1.8 billion from government in 2019 and expects R576 million, in tranches, from this year’s budget. With R3.4 billion of government guaranteed listed debt payable in September and little likelihood of it being honoured, Denel will have to go into business rescue, Cachalia said.



He will “request sight” of alternative options mentioned, but not named, by Mapisa-Nqakula in her response as well as ask for clarity on funds earmarked for paying government guaranteed debt to cover due principal and interest bond payments.