South African Govt to Recapitalize Aero Firm

Denel built Rooivalk attack helicopter

The group CEO of Denel, Riaz Saloojee, has welcomed the budget announcement by South African Finance Minister Pravin Gordhan, that R700m is being allocated to recapitalise Denel’s subsidiary, Denel Aerostructures.

This comes at the back of an application for a significant recapitalisation for the Group. It is Denel’s understanding that there are fiscus challenges and as a result the Group will not be recapitalised in full in the short term.

The recapitalisation of Denel Aerostructures attributed to the significance of some of its industries to Government’s industrial programme. This is complemented by the achievements in restructuring the business as well as the successful conclusion of a renegotiated agreement with Airbus on work packages done on the A400M projects. It further reflects confidence that Denel will be able to turn the business around in the medium term.

Recapitalisation is a vital investment

“The recapitalisation is a vital strategic investment in a company that is at the forefront of high-tech manufacturing and advanced technology in South Africa. The skills and experience accumulated can be the basis for the future growth of the local aerospace and aviation sectors. This decision supports governments industrial policy objectives of deepening aerospace advanced manufacturing capability,” says Denel Aerostructures CEO, Ismail Dockrat. “Denel Aerostructures is one of a select few companies outside of Europe that designs and manufactures vital parts for the A400M, the world’s most advanced military airlifter.”

The detailed Budget documents that are published together with the Minister’s speech highlighted the fact that the company has posted a profit of R111 million in the 2010/2011 financial year. This is a significant improvement on the prior year’s result, but is as a result of a once-off R463 million for the restructuring gain of the pension fund.

Solvency position poses serious challenges

The Budget statement notes the progress Denel has made since embarking on a turnaround strategy in 2005, but adds that its solvency position continues to pose serious challenges.”We concur with the Minister’s observation and believe that we will address the challenges noted and critical to reposition Denel specifically with regards to its order revenue stream to ensure its medium to long-term sustainability and profitability,” Saloojee said. Denel projects a loss of less than R200m for the current financial year – an improvement from the prior year’s normalised loss of R246m.