Government admits Denel cannot continue to exist without bailouts

In response to a Democratic Alliance (DA) parliamentary question, Defence and Military Veterans Minister, Nosiviwe Mapisa-Nqakula, said Denel cannot continue to exist in its current form: “[it] is clear, without a significant bailout by government, Denel will not be able to exist in its current form and will not be in a position to meet its contractual obligations to Armscor.” 

Interim Denel Chief Executive,Talib Sadik, is on record as saying that Denel would not seek any government equity injections to stay afloat: “[at] this stage it is not in our plan.”  Sadik is reported as saying in an interview, when asked if Denel would approach government for further bailouts; “[our] view is we need to fix our own house, because what we have is a bit of moral hazard”.

That said, Denel received R1.8 billion from government in 2019 and expects R576 million from this year’s budget, which is coming in tranches. With R3.4 billion of government guaranteed listed debt is payable this month and little likelihood of any prospect of honouring it, Denel will have to go into business rescue.

Minister Mapisa-Nqakula says both Armscor and the Department of Defence “developed alternative options” as regards the future of Denel which still have to considered by “decision makers in government.” However, almost every request by the DA to have a discussion of turnaround plans or alternative options with the interim CEO in Parliament has seemingly been blocked by the Minister of Public Enterprises , Pravin Gordhan. Leaving South Africans in the dark about this failing State Owned Enterprise (SOE).

The bald facts are that Denel has no missile capacity:

  • It has lost irreplaceable engineering staff in droves to competitors.
  • Key contracts are on hold and others cancelled.
  • The company Chairperson announced the closure of Denel Aviation Systems.
  • Twenty G6 155mm long-range guns developed and produced by the LIW division of Denel are on the floor awaiting parts.

The list of company failures is a long one and the writing is clearly on the wall: yet another SOE in a death spiral, the result of state interference, mismanagement, state capture looting and historically indefensible cadre deployment at Executive level.

The impact on national defence capabilities and the fiscus of the destruction of a company that was once a global technology leader and one of the top defence companies in the southern hemisphere must be laid at government’s door.

The DA will continue to request sight of ‘alternative options’ and clarity around monies earmarked for paying down government guaranteed debt to cover due principal and interest bond payments. It has become increasingly clear that this government is incapable of enabling sustainability of our key SOEs.