South Africa's Denel group is making good progress with a multi-year recovery plan intended to deliver financial stability, but new international partnerships and better state planning are required if it is to complete the process, says company chief executive Shaun Liebenberg.

Efforts to transform government-owned Denel started when the fragmented company was reorganised into eight units, which are now being rationalised or partially sold off to create collaborative ventures with local or foreign companies. This so-called "unbundling" process "was the only way of sustaining the company", says Liebenberg, while noting: "The shareholder is absolutely determined to retain capability."

Board approval was recently granted for Denel to merge its unmanned air vehicle activities on a 60:40 basis with those of fellow South African manufacturer Advanced Technologies & Engineering. An earlier such partnership is Denel Saab Aerostructures, in which the South African firm has held an 80% stake since operations began last July. "The issue was to get competency," says Liebenberg. "We didn't have the depth of knowledge, but Saab has been through the challenges on aerostructures that Denel was facing."

When production of the Rooivalk attack helicopter ended in 1998, 95% of the Denel unit's orders came from the South African Air Force, but the company now produces parts for types including the AgustaWestland A109 light utility helicopter, Airbus Military A400M transport, BAE Systems Hawk advanced jet trainer, Gulfstream G150 business jet, Saab Gripen fighter and Airbus commercial aircraft.

Denel is investing heavily to modernise its Kempton Park facilities adjoining Johannesburg airport, but last year sold the 290ha (716 acre) site for R600 million ($84 million) after agreeing a long-term lease deal, "rather than be pushed out in five or 10 years", says Liebenberg. Denel hopes that its Swedish partner will soon exercise an option to increase its shareholding in Denel Saab Aerostructures - which employs around 900 staff and contractors - first to 51% and eventually to 70%. Saab has already invested significantly in local companies, including its acquisition of Grintek, as part of an offsets drive linked to its sale of 26 Gripens to the SAAF.

"Our vision is to be the reliable African link in the global aerostructures supply chain," says Denel Saab Aerostructures deputy chief executive Bengt Savén. But the transition "from job shop to lean manufacturing" has been a challenge, says executive manager business control Theo Kleynhans: "We've had to learn how to make a subsystem properly, before building an aircraft."

Problems encountered while producing the A400M's wing/fuselage fairing - a composite structure formed of more than 100 individual panels - were caused by "a combination of our own inexperience and changed requirements", says Liebenberg. "We've bumped our head and it has cost us money, but the relationship is strong and healthy."

Denel hopes to continue A109 production after the SAAF's 30-strong order is completed late this year, and intends to move workers from final assembly of the Hawk to other projects from April. These could include passenger and regional aircraft, freighters, business jets, and a possible risk-sharing role on Embraer's C-390 military transport.

Denel has previously sold 70% of its optronics business to Germany's Carl Zeiss and holds a 49% stake in Turbomeca Africa, but Liebenberg says the company's remaining Dynamics business line - which develops and produces systems including air-launched weapons - poses its biggest headache. "We are having to think very broadly as to how we fix this company," he says. "Dynamics has a great R&D capability, but you need production orders to be financially viable. I can't achieve that mandate."

Liebenberg hopes to take a proposal to the board during February on the future direction of the Dynamics business, which last year received a more than R1 billion contract to develop the A-Darter air-to-air missile for South Africa's Gripens and the Brazilian air force. Possible solutions could be to spin out R&D activities, or seek "build-to-print" production for an international partner, he says.

Denel also last year received a 10-year order worth R8.3 billion to produce 264 infantry combat vehicles for South Africa, but Liebenberg says: "We need to get the Department of Defence and Armscor to concentrate on longer-term capability. I need to know for the next seven to 10 years across the board."

In one recent advance, the company has reached an "in principle agreement" with the South African government, under which industry will begin to assume maintenance responsibilities from the SAAF. "The air force should concentrate on military operations, and industry on support," says Liebenberg.

Liebenberg will leave Denel in late May, having overseen the company's recovery to a net loss of around R550 million against a R3.2 billion turnover in the financial year ending 31 March 2007. This is down from previous deficits of approximately R1.4 billion and R1.5 billion. His replacement will face numerous challenges in completing the task, but Liebenberg has made great strides on Denel's long road to profit.


Source: Flight International