Meltdown at Denel

Denel is in a financial meltdown with debt of around R3.5 billion and cumulative losses of nearly R5 billion over the last few years.

The once-proud arms manufacturer, with great products like the Rooivalk attack helicopter and the G6 self-propelled howitzer, has been gutted.

Revenue has plummeted from R8.2 billion in 2015/6 to R2.4 billion in 2019/2020. With employee costs staying relatively stable, losses increased rapidly over the last five years.

Corruption and mismanagement have turned the former innovative and profit-making company into another state-owned enterprise begging for money to stay afloat.

Earlier this year, Denel executives told Parliament that they face a liquidity crisis, and their order book is significantly exposed to risk.

They admitted that the company is inefficient, and there is a high probability that they will not meet their contractual obligations.

Denel is in such a financial mess that banks and financial institutions are no longer willing to provide facilities that are needed for operations and winning new business.

The company is therefore unable to raise adequate working capital or performance bonds for new contracts.

The company is looking to the government for money. Denel has already received R2.3 billion in government bailouts since 2019 but wants another R3.8 billion in financial support.

Denel finances

Employees are particularly hard hit with infrequent and partial salary payments and an uncertain future.

Helgard Cronjé, deputy general secretary for the public sector at trade union Solidarity, said from April 2020, employees have only received partial salaries in most instances.

Denel Dynamics haven’t paid employees their salaries for January and February 2021 at all. Some other divisions have paid partial wages of between 40% and 80%.

Denel employees have also reported that their medical aid fees and pension fund contributions have not been paid for several months.

Even the taxman is losing out. Cronjé said the company has not paid pay-as-you-earn tax (PAYE) to SARS in most divisions of Denel.

Cronjé said the situation at Denel is still dire, with employees still not receiving their full salaries.

Many employees have left the company, which saw its workforce shrink from 4,000 to around 2,000 in recent years.

A large number of employees resigned to access their pensions. “Many employees at Denel have resigned or went on pension to access their pension funds,” Cronjé said.

He added that Denel Dynamics had lost a lot of technical skills, which put the company’s future at risk.

Cronjé said government intervention is urgently needed as Denel’s board and management team don’t have any answers.

He said the government should either recapitalise Denel or privatise it through strategic equity partners.

Now read: Life at Denel – No salaries and a struggle to survive

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Meltdown at Denel