finance

Denel teetering on the brink of disaster, warns CEO

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Armaments manufacturer Denel may not make it in the next two or three months, the CEO of the struggling state-owned company has warned.

The business, which was a weapons-development and manufacturing giant in the days of the apartheid-era SADF, has slowly faded into a shadow of its former self on the back of lowered demand in South Africa and around the world for its products. This is in addition to high levels of debt, state capture concerns and political interference.

Denel wants some bailout money to help generate revenue

This week, CEO Danie du Toit told news agency Reuters that he is “gravely concerned” despite being a “positive guy”.

He believes a turning point in Denel’s current struggle for survival will be whether the government will allow the company to use some of the promised bailout money to generate revenue rather than pay off debt.

Du Toit’s aim is to use some of the promised state fund – the bulk of which has not yet materialised – to restart operations in order to begin delivering on a backlog of orders totalling some R14-billion.

Fulfilling order backlog on time is a potential lifeline

These orders offer a potential lifeline if they can be fulfilled on time, following the reopening of the country’s factories after lockdown. Conversely, cancelled or late orders may mean Denel has to pay penalties or even repay certain advance payments from customers.   

If some of these major programmes are cancelled it has the potential to completely break the organisation,” Du Toit told Reuters.

In Finance Minister Tito Mboweni’s 2020-21 National Budget, Denel was promised R576-million. But, to date, only around R72-million has been paid over. The money has been earmarked to pay debt, rather than finance operations.

State wants Denel to sell assets and seek partners

As part of last year’s National Budget, the firm was given R1.8-billion in government funding.

To make the business more viable going forward, the government wants Denel to sell assets and find equity partners. This process is already underway.

“We cannot trade out of this situation, it’s impossible,” Du Toit has emphasised.

As a temporary measure to stave off possible closure, Denel is in discussion with unions about possible salary cuts.

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