The aerostructures arm of South Africa's state-owned aerospace and defence group Denel is emerging from turbulent times to establish itself as a tier one player in the global supply chain. Three years ago the Johannesburg-based business hit rock bottom. Having been appointed one of a handful of non-European partners for the Airbus Military A400M in an offset deal, Denel Aerostructures was struck first by a two-year programme delay and then by Pretoria's unexpected axeing of its order for eight of the transport aircraft.
With the government wavering on whether to continue supporting the heavily loss-making aerostructures business and Airbus bruised by the decision, Denel's ambitions of moving up the value chain as a first tier supplier to major airframers looked in tatters. Coupled with that, the business was saddled with a cost base it could not support. "It was a period of great uncertainty for us," admits chief executive Ismail Dockrat, who took over in early 2010 after a spell at sister unit Denel Aviation. "The company was in dire financial straits."
Denel is responsible for the wing to fuselage fairing and top shells of the Airbus Military A400M
Since then, Denel Aerostructures has begun to turn itself around, helped mainly by the A400M programme. Production of components for the transport is entering serial phase - Denel is responsible for the wing to fuselage fairing and top shells - with about 12 shipsets delivered to Airbus Military so far. Output will "increase significantly" during the next 36 months, says Dockrat, with 16 consignments due next year and 24 in 2014 as the final assembly line in Seville reaches full capacity.
Dockrat has also pushed through a rationalisation programme, reducing the workforce from more than 700 to only 380, and Denel Aerostructures' campus at Johannesburg's OR Tambo international airport to a third of its former 75,000m2 (800,000ft2) size. "We had to make some fundamental decisions and one of these was to cut our property outlay," he says. "Firstly we were told we could get rid of 25,000m2, but we said that was not good enough and we wanted another 25,000m2."
That process will be complete by the end of this year, and the redundant buildings are already being offered to subcontractors and other aerospace companies in an effort to create an "aeropolis" - or industrial cluster - at the airport. Aside from the obvious cost-cutting benefits - lower rental costs, power consumption and inventories - Dockrat says the move has helped streamline Denel Aerostructures' workflow. Although shedding staff was difficult when creating jobs is such a political priority, he notes that many similar-sized companies which avoided such tough decisions are "in deep trouble or don't exist any more".
With much of the wider Denel business focused on the domestic customer - the group produces equipment from ammunition to artillery systems and provides maintenance and overhaul support to the air force - the aerostructures business is a critical part of the South African government's strategy to nurture a domestic export-orientated aerospace industry. That is why Dockrat believes it "wouldn't have made sense" for Pretoria to leave Denel Aerostructures in the lurch after cancelling its A400Ms. In fact, the government is to invest R700 million ($84 million) directly in the business in the current financial year (see below).
Denel delivered eight upgraded Rooivalk helicopters to South Africa this year
Dockrat harbours hopes of winning further business with Airbus on the civil side and with Saab. After delivering almost 700 shipsets during more than a decade, Denel earlier this year completed its final components for the Swedish company's Gripen fighter, which is operated by South Africa. He says the Gripen contract, together with work on the AgustaWestland AW109 - both secured as offset deals as South Africa was emerging from the apartheid era in the late 1990s - helped "propel us to a 21st century capability in terms of serial production and supplying international OEMs" and laid the foundation for the A400M, "when we adopted five-axis machining and serious involvement in composites".
Denel's origins in aero manufacturing date to the 1980s when South Africa was assembling versions of Western equipment, moving on to more sophisticated upgrades and the indigenous Rooivalk attack helicopter just as the government was preparing for transition to democracy. Now, says Dockrat, Denel is well positioned to rise up the value chain. "Although we are relatively small, we have a world class design and development capability. We have outsourced all the tier three and four work we were doing three or four years ago to suppliers and we feel the A400M now gives us tier one status," he says.
The company is targeting the Airbus supplier network as well as business aviation: it makes the empennage for the Israeli-built Gulfstream G150. Denel is also "engaging with Bombardier and Embraer" on regional jets. Longer term, says Dockrat, South Africa's position as one of the "BRICS", alongside Brazil, Russia, India and China, also opens "strategic partnership" opportunities with aerospace industries in those countries.
DENEL FINISHES FINANCIAL YEAR IN BLACK
Losses at Denel Aerostructures fell 67% in the year to March, with parent company Denel posting revenues up 10% to R3.57 billion ($427 million) and a "modest profit" of R41 million, the second year running it has finished the financial year in the black. The state-owned defence and aerospace company - which has the remit of maintaining South Africa's strategic defence capabilities and contributing to developing skills and manufacturing capabilities - is "on the road to a sustainable financial turnaround" following more than a decade of losses, says board chairman Zoli Kunene.
The group is key to South Africa's struggle to create high-value careers for its citizens: it employs 6,700 people and claims to support another 30,000 indirectly. Among its non-aerostructures projects, its Denel Aviation arm delivered eight of 11 upgraded versions of the Rooivalk combat helicopter to the South African Air Force during the year. Its Denel Dynamics division is collaborating with Brazil on the A-Darter missile, completing the integration programme for it to be test-fired from the Saab Gripen fighter.
Denel Dynamics is also promising the maiden flight of the Seeker 400 unmanned air vehicle prototype - which has a range of 750km (400nm) and 16h endurance - by the end of the year.