Denel is in a death spiral. Its finances are a mess, its top management has left the company, and technical skills and valuable IP are walking out the front door.
Denel executives recently told Parliament the company remains rooted in a liquidity crisis and its order book is significantly exposed to risk.
Its financial situation is so dire that banks and financial institutions are no longer willing to provide facilities that are needed for operations and winning new business.
Corruption and mismanagement have reduced the once-proud arms manufacturer to a company begging for money from the government to stay afloat.
To add to Denel’s problems, Solidarity has obtained a warrant of execution to seize assets to the value of R12.7 million from Denel.
This comes after this state-owned enterprise failed to meet various contractual and statutory obligations towards its employees.
With R4.4 billion in losses in the last three years and R3.2 billion of debt, Denel is insolvent. There is also no clear path to save the company.
The people paying the price for the destruction of Denel is, however, not those responsible. Instead, it is hard-working employees and South African taxpayers.
Denel has already received R2.3 billion in government bailouts since 2019, and it now wants another R3.8 billion in financial support from the state. Taxpayers have to foot the bill for these bailouts.
Employees are the worst affected.
Helgard Cronjé, Solidarity’s sector coordinator for defence and aviation, told MyBroadband from April 2020 there has been a recurring theme where employees received partial salaries on most instances.
Some divisions of Denel, like Denel Dynamics, haven’t paid employees their salaries for January and February 2021 at all. Some other divisions have paid partial salaries of between 40% and 80%.
Some employees have reported that their medical aid fees and pension fund contributions have not been paid for several months.
Cronjé added that as far as they know pay-as-you-earn tax (PAYE) has not been paid to SARS in most divisions of Denel.
“The reality catching up with employees now is that they aren’t able to borrow money to survive anymore and most have run out of savings,” he said.
Many employees had to resign to enable them to access their pension funds to survive.
How to save Denel
To save Denel and create a sustainable state-owned enterprise will be an enormous task, but Cronjé believes it is possible.
The government will, however, have to face the fact that it is not realistic to expect Denel to trade itself out of the current situation.
“In most meetings, we have had in the different Denel divisions it has become clear that external funding is needed for Denel to become properly operational again to enable them to generate their own income,” said Cronjé.
It does not seem as though the government, as Denel’s shareholder, is willing to give this financial support any longer.
The only option left is therefore to get external funders or “strategic equity partners” as they are commonly referred to within the Denel environment.
“This has to happen urgently as employees are leaving Denel and it might soon reach the point of no return with regards to recovery as they might not have the people with the critical skills left within their own ranks,” Cronjé said.
“This is already the case in some divisions.”