Denel aims to end Airbus aircraft work in 18 months

State arms firm Denel aims to wind down production of parts for the Airbus A400M military aircraft over the next six to 18 months to achieve an annual cost saving of around $18m, a company presentation showed.

Under a new management team Denel, a cornerstone of SA's once mighty defence industry, is battling to emerge from a financial and operational crisis.

It said in March that it could wind down production for the A400M as part of a turnaround plan, but did not mention the estimated time-frame or financial impact.

But in a presentation dated March 29, Denel said a “managed exit with Airbus” could bring it an annualised benefit of R250m. 

Denel, which made a R1.7bn loss in the 2017/18 financial year, said in its annual report that the Airbus contract was historically loss-making and that liquidity challenges hampered its ability to deliver parts on time.

A Denel spokesperson said terms were not yet finalised with Airbus about stopping production for the A400M.

A spokesperson for Airbus said: “The agreement to withdraw the A400M work packages is a mutual one. Airbus and Denel are discussing how best to proceed.”

The presentation said Denel wanted to reduce its staff numbers by 400 employees. This week about 200 Denel staff agreed to voluntary severance packages, trade union sources said, adding that further severance packages were being discussed.

“With regards to the voluntary severance package process, it’s important to note this is done in such a way that we retain critical and scarce skills,” the spokesperson said. “A reduction in our headcount cannot be avoided if long-term growth and profitability is to be achieved.”