Denel seeks to revise bailout conditions to survive

South African state defence firm Denel may not survive the next few months unless the government lets it use some promised bailout funds to generate revenues rather than to repay debt, the chief executive said.

Denel, one of several struggling state firms, launched a recovery plan in 2018 but the COVID-19 pandemic dealt a blow to the company, which makes equipment ranging from armoured vehicles to attack helicopters and missiles.

“I am a positive guy, but I’m gravely concerned that we are not going to make it in the next two to three months,” CEO Danie du Toit told Reuters.

“We cannot trade out of this situation, it’s impossible,” he said, adding that the management was in talks with union representatives about temporary salary cuts.

Denel received R1.8 billion ($107 million) from the state in 2019 and, in this year’s budget, was promised another R576 million. But it has only received R72 million of the latest funds, which are earmarked to help clear debt.

Du Toit said Denel was asking the government to let it use some funds to restart operations after the easing of a national lockdown, helping to generate revenues from a R14 billion order backlog.

He said the orders offered a lifeline, but the company might have to pay penalties or repay customer advances if orders were delayed or not fulfilled.

“If some of these major programmes are cancelled, it has the potential to completely break the organisation,” he said.

The government has said Denel must sell assets and find equity partners for some divisions. The firm is considering selling stakes in Hensoldt Optronics and LMT, a combat vehicle firm, and finding a partner for its Land Systems division.

Kgathatso Tlhakudi, acting director-general at South Africa’s Department of Public Enterprises, said the government would “be moving a lot faster” to approve divestments or equity partnerships in coming weeks.