Denel company logo, Pretoria. Picture:REUTERS/SIPHIWE SIBEKO.
Denel company logo, Pretoria. Picture:REUTERS/SIPHIWE SIBEKO.

Denel will not pay staff salaries for May, and wages for June and July are in jeopardy, said its CEO, weeks after it emerged that the state-owned arms maker missed the deadline to pay employee pensions and tax contributions as its long-standing cash flow crisis deepens. 

“Our liquidity is under severe pressure and we have to implement drastic measures to save the company. It is highly regrettable that we will not be able to pay salaries this month, but we have no other options,” CEO Danie du Toit told Business Day in a statement. 

Wages for June and July were “in serious jeopardy”, Du Toit said in a letter to staff obtained by Business Day.  

Denel, a pillar of the country’s defence industry, is part of a long line of state-owned enterprises that are either in dire financial straits or on the verge of collapse after years of mismanagement and corruption due to state capture. 

In 2019 it was handed a R1.8bn bailout after struggling to pay employees and suppliers. The company raised another R50m via the sale of bonds to ease the cash crunch after suffering a R1.7bn loss in the 2017/2018 financial year.   

Du Toit said the company, which earlier in May missed the deadline to make staff pension, Unemployment Insurance Fund and tax payments, was unable to complete orders in time as only 19% of its staff were able to work from home and only 30% are permitted at factories under the level 4 nationwide lockdown. 

The reduced Denel workforce comes as the company needs “all hands on deck to secure a successful turnaround for the business”, Du Toit wrote in a letter to staff. The turnaround includes cutting R1bn in costs and selling noncore assets with government approval. Du Toit has also asked the parastatal’s executives to take salary cuts for the rest of the year.

“Denel’s liquidity challenges have grown and the company has been pushed further into the red,” he said, adding that lowered demand from global buyers has worsened its financial position.  

Lockdowns in countries across the world have led to reduced demand and the IMF is predicting the deepest economic downturn since the Great Depression. 

Trade union Solidarity, which represents about a third of Denel’s 3,000 employees, called for an end to the lockdown so the company’s orders for export could be completed.  

“What we believe is that the lockdown should be eased as soon as possible,” spokesperson Helgard Cronje said. “Denel needs to finish its export orders, but they don’t have enough staff at work.” About 51% of staff are not working at all.

All ammunition requires a permit for export, but the national conventional arms control committee has not been sitting under lockdown to approve permits, so the trade union is also concerned that completed shipments of exports have been delayed, Cronje said.