South Africa’s two primary UAV manufacturers are in advanced discussions over a potential merger of their respective capabilities to form the basis of a single national unmanned systems company or co-operation agreement.

Officials from the Pretoria-based Advanced Technologies and Engineering (ATE) and Denel Aerospace Systems companies both confirm that negotiations have been underway since February this year. The talks follow a decision by the board of Denel, which is South Africa’s primary defence and aerospace systems supplier, to restructure itself into a holding company overseeing a range of national and international joint venture entities.

The proposed national UAV company would operate as a joint venture with equal shareholdings between ATE and Denel.

But in parallel the option of setting up a strategic agreement to co-operate within the South African domestic market is being explored to ensure both firms secure work share from emerging local military requirements, while remaining individually positioned to compete separately for international requirements.

Officials from both companies attending the African Aerospace and Defence (AAD) exhibition in Cape Town 20-24 September say “all options” are being explored with the intention of agreeing a plan in the near future.

ATE is the prime contractor for the South African Army’s tactical UAV. Denel has previously supplied Seeker Mk II tactical UAVs to the South African Air Force and now provides that service with UAV capability on a fee for service basis.

ATE special projects director Carel de Beer says that “the dream would be that we could possibly form a single company. There is quite a bit of energy going into this”.

A common entity “would only make sense from a South African point of view” de Beer argues, given the relatively small size of the domestic marketplace.

Denel confirms a tie-up is in discussion, saying: “We have started talking about a South African UAV business. Officials indicate that the discussions may also include other firms in the sensors and related technologies.

The joint venture option remains the biggest challenge Denel says, despite the six months of talks conducted thus far: “At equity level we do not know what form it will take.”

Denel regards the merger as a logical outcome because of the different market segments currently being engaged by the two companies within the South African domestic UAV marketplace. ATE is seen as supporting tactical and small systems, whereas Denel supports micro-, advanced tactical, and medium-altitude endurance UAVs. Denel also has a well established target drones business both within South Africa and internationally with at least three export customers being acknowledged by the firm.

However, the pair compete directly internationally in the tactical field notably in the Middle East marketplace. Denel has secured at least two Seeker Mk III customers elsewhere in Africa with both these having placed follow on orders in recent years.

Denel and ATE have also previously gone head-to-head in competing South African Army requirements.

However, both firms cite a looming South African National Defence Force intelligence UAV requirement as providing additional incentive for a merger or strategic agreement on the basis that the customer cannot afford to operate yet another stand-alone system. That tender was originally expected by December this year but has now slid into late 2007.

De Beer says “We are working very closely with Denel UAVs looking at maybe combining an ATE product with a Denel product to address the needs of the intelligence services”.

One potential solution being flagged by both firms is for integration of Seeker and Denel’s developmental Bateleur medium altitude long endurance UAV into the ATE tactical system’s ground control environment to provide a pathway for more capable surveillance operations by the Army.

But the option of using “capability taken from each aircraft and developing a new aircraft” currently remains on the table says de Beer.

South Africa’s national armaments acquisition agency, Armscor, is backing the merger talks and says that a formal tie-up is consistent with national government plans for a consolidation of existing defence and aerospace industrial capabilities.

Armscor chief executive officer Sipho Thomo has told Flight Unmanned that “in South Africa we are not such a huge country and subsequently our defence budget is not such that it could encourage a number of companies competing among themselves. It is easier to support the industry if industry is consolidated and united. So if the two companies are looking at joining hands, that we would appreciate and we would support 100%”.