Denel to march off with big European contracts
The arms group may get a second life after recent woes, write HENRY LUDSKI and ANDREW GILL
Denel is this week likely to land a R1-billion contract to boost the firepower of artillery guns being used by British peacekeeping forces in Bosnia, and has secured a deal to produce components for the Agusta A119 Koala helicopter, a single turbine helicopter suitable for passenger transport and law enforcement. Denel will also in time be responsible for design certification, production and customisation of specific versions of the helicopter.
Agusta was named as a preferred bidder to supply 40 light utility A109 helicopters in the arms-for-investment package, which will see SA buying military equipment worth about R29-billion from three European countries over 10 to 15 years.
The R1-billion British contract will be for an estimated 1.2-million propellant charges for Britain's AS90 Howitzer guns.
Lord Gilbert, Britain's Minister of Defence Procurement, this week expected to confirm the deal, which will come as a major boost for Denel's Cape-based explosives division Somchem.
Denel acting CE Flip Botha said: "Denel has proved the quality of its product to the UK defence ministry and we are confident of being awarded the contract."
The contract is seen as a direct result of SA's defence spending plans. SA is set to buy fighter and trainer aircraft worth up to R15-billion from British Aerospace (BAe) in the deal.
These developments could signal a change in the fortunes of Denel, which in the past three years has seen a dramatic fall in profits. In addition to writing off orders running into billions of rands, it has also carried its share of the burden of cuts in government defence spending.
Denel's modular charge system got the highest rating in three months of trials at the Eskmeals test range in north-west England last year.
Denel and BAe have also embarked on a joint venture to market the Rooivalk attack helicopter in Australia.
However, in what is seen as the strongest indicator that BAe may be the Denel equity partner Public Enterprises Minister Stella Sigcau has mentioned, BAe's Royal Ordnance has stood aside to allow Somchem to walk off with the defence ministry deal.
It may also be a trade-off which makes the most strategic sense for Royal Ordnance, which, together with US consortium Team Macs, was shortlisted for the contract.
At stake for Royal Ordnance is the loss of 300 jobs and the sacrifice of Britain's ammunition propellant capacity, which could explain the delay in the ministry making a decision on the matter.
However, what it gets from the SA venture is a strong return on investment and the possible entry into new markets in southern Africa.
Denel's "very bad year" to which Sigcau referred at this week's Dexsa air show at Waterkloof, Pretoria, has seen the arms producer hit by retrenchments and a spate of resignations as it slipped into the red for the first time.
However, the UK munitions contract, the Agusta deal and the considerable business expected to flow from the industrial participation packages linked to SA's defence procurement could be a decisive turning point.
Denel's Botha said the deals could secure or create about 1 400 jobs in Denel with about 6 000 additional jobs at its affiliates.
Armscor chairman Ron Haywood said the industrial offset from the procurement packages could mean a turnaround for the SA industry. However, despite his confidence in the future of the local arms industry, the reality is a battle to break into the international market.
Said Sigcau: "For Denel to be competitive it has to be restructured. We have to look at how we fit into the scale of things in the armaments industry and transform accordingly."