State-owned arms manufacturer Denel expects to know by July whether Turkey is to place an order for its Rooivalk attack helicopters in a deal expected to total R12-billion to R15-billion.
”Technically, we’re looking very good,” Denel chief executive Shaun Liebenberg told Parliament’s public enterprises portfolio committee on Wednesday.
”But when you’re playing with the big boys, political influences [and] the impact and imperatives around the European Union and the support Turkey would need from some of our competitors could impact on the way we’re going.
”But we’re feeling very comfortable that we’re looking good as far as that is concerned.”
Denel expects to have clarity on the matter by the end of July, Liebenberg told the committee. He extolled the virtues of the fighter helicopter, saying poor marketing skills and lacking political support are to blame for none having been sold.
”We have to try to make this thing work,” Liebenberg added. ”We cannot just close it down.”
He stressed the need to build a captive domestic market for South Africa’s armaments industry, and of political support for the industry to secure export contracts.
Domestic demand is the nucleus for success in the defence market, Liebenberg said. Other countries are unlikely to buy an untested product that South Africa’s own armed forces have no interest in acquiring.
Denel needs to plan with the Department of Defence around the government’s future weapons requirements, he added.
Liebenberg announced that negotiations are well under way with a number of companies to enter into ”equity partnerships” with nine new separate companies created through Denel’s recent unbundling, but still under its holding-company umbrella.
Potential partners have been identified for each of the nine except the new munitions company, and memoranda of understanding have been signed.
The deals are between one and seven months down the pipeline, Liebenberg said. If realised, they would provide the local companies with much-needed skills and expose them to broader markets.
Denel needs to realise it is a small company that cannot compete with big global players. Instead of building its own 12 helicopters, for example, it should, with a larger partner, build 10% of an order for 500 helicopters.
Finances
Having been declared technically insolvent last May, Denel sought R5,17-billion from the government over the next five years — R3,7-billion to settle old debts and the rest for new plants and equipment. It got R2-billion for the current financial year.
The company expects to post a loss in excess of R1-billion for the 2005/06 financial year. Revenue will be about 23% down from the previous year.
Denel hopes to break even in the fourth financial year from now, Liebenberg said, adding it would have cost three times more to close the company than to save it.
He expressed doubts about Denel’s ability to grow its revenue line by more than 5% to 10%, saying many of its processes and equipment are outdated.
Liebenberg highlighted possible future projects, including a ”vehicle programme” in South Africa to the tune of R7-billion to R8-billion, and a ”very big” Middle Eastern project worth between R3-billion and R5-billion.
He stressed the importance of investment in research and development in order to maintain existing expertise such areas as missile development — in which South Africa is considered a world leader. ”We need to continue investing or we will fall behind and never catch up again.”
If it fails to find an equity partner, Denel will need R1-billion from the government to build a new missile or face losing the capability, he added.
Liebenberg said Denel has beefed up its internal audit system, and warned the committee that ”skeletons” are likely to emerge from the clean-up process.
”You should not be surprised if certain skeletons come up,” he said. ”You should be patient. We are committed to be transparent, but we also don’t want to be smacked every time we put something on the table.”
Incompatibility
Incompatible weapon technologies could hamper combined African military operations in future, Liebenberg also said.
Only about 5% to 6% of the state-owned arms manufacturer’s business goes to Africa, he told the public enterprises portfolio committee. This is largely because of the budget constraints of governments on the continent,
African defence spending is generally on old, second-hand and ”dumped” technology, while Denel provides ”First World-type” weaponry.
”It is going to create a problem when you start looking at joint stand-by forces et cetera, when you will not have equipment that is inter-operable … technologies that don’t talk to each other because they come from different eras.
”Is there an opportunity? Absolutely. We don’t see it as a negative,” he said, referring to more and more markets opening up through diplomatic interaction.
Liebenberg said there are some concerns and frustrations on the part of the industry around the issuing of export permits.
Some markets remain closed for ”legacy reasons” and the systems have not yet caught up, he told the committee. — Sapa