The COVID-19 pandemic cast global markets into a period of uncertainty as it moved across the globe in early 2020. The impact of the virus is just beginning to be felt on manufacturers as containment efforts temporarily slow or halt work. Currently, the view is that commercial aviation will be the hardest hit, while defense manufacturers, due to their position as national assets, will not face as much difficulty.
Denel, like many other firms, has entered into a period of lockdown as the country seeks to ameliorate the worst of the pandemic. With operations idle, Denel engineers from have joined Project Sabela, a South African effort to develop medical ventilators and sanitizers, and convert Casspir mine-protected vehicles into ambulances.
Under its new management team, Denel continues to reshape its operations following years of mismanagement and corruption. For the fiscal year ended March 31, 2019, state-owned Denel posted gross revenue of ZAR3.8 billion, down 36 percent from 2018 sales of ZAR5.8 billion. The group posted a loss of ZAR1.75 billion, compared to a loss of ZAR1.1 billion in 2018. Results have been restated to the company’s current presentation.
Despite the recent losses, the new team has been successful in starting a restructuring process that will turn the firm around. The South African government has approved ZAR1.8 billion in recapitalization funds, and the second injection of ZAR1 billion is anticipated in the year ahead. The company is deemed a vital state organ for defense production and, while the government may balk initially, as it did with an earlier bailout, ultimately it will follow through.
As part of its effort to focus on core and profitable operations, the company has closed its Denel Aerostructures operation through a sale of manufacturing assets. In February 2020, Denel announced it would be closing its aerostructures business as it was no longer financially sustainable. As part of the process, Denel Aerostructures SOC Ltd has begun selling its manufacturing assets in accordance with South Africa’s Public Finance Management Act (PFMA) and National Treasury Regulations.
All that will remain are programs that support the Rooivalk combat helicopter, the Oryx medium transport helicopter, and the C-130 transport aircraft together with the export business for the Cheetah multirole fighter aircraft and Puma helicopter. In addition, the company will continue to provide various maintenance, repair, and overhaul (MRO) services to both the SA Air Force and other customers. Prior to this closure, the company exited the A400M component production program, which was expected to be a key component of the aerostructures business. With the loss of that program, it made sense to simply exit aerostructures production altogether.