5 August 2010

South Africa: Denel Division Forced to Sack Top Designers

Johannesburg — DENEL Saab Aerostructures, the beleaguered Denel division, has been forced to cut its workforce by half in the next year, axing up to 300 highly skilled staff, as it battles to survive.

The cuts affect some of the division's important design-to-build capabilities, and the loss of such highly trained staff will be a blow to the industry as a whole. However, it is part of a turnaround plan to help the loss-making division break even in the next five years.

Chief operating officer Theo Kleynhans said while Denel's design capabilities were what gave the group its edge in the market, the high cost of these skills left the group no choice but cut back on staff .

"However, we are working on ways to retain these skills so that they are not lost to us forever," he said.

Over the past few years Denel has invested heavily in cultivating many of these highly specialist engineering skills and the loss of these employees would adversely affect the industry.

The cuts will result in saving almost a R100m a year, a big amount for a group that saw its revenue plunge from about R400m in 2008- 09 to R230m in 2009-10.

Revenue is expected to fall further in the next two years.

The group expects revenue to recover only when the Airbus A400M goes into full production in 2013. The global recession and lengthy delays in the Airbus A400M programme have left the group's order book on the brink of collapse.

The reduction in staff is part of a five-year turnaround plan that will result in its activities being scaled back dramatically.

Denel Saab Aerostructures' perennial losses continue to drag Denel into a loss year after year, with the group last year reporting a R543,9m loss largely due to the division. In 2009-10 the division has again reported a big R328m loss.

Management said the restructuring would allow the division to break even in the next five years.

"We are essentially positioning ourselves as a R300m-a-year company," Mr Kleynhans said. "These staff reductions will be achieved through the conclusion of fixed-term contracts, attrition, the termination of foreign contractor agreements and existing unemployed learners.

"Should further reductions be required, the company will consider forced retrenchments," he said.

There was also a focus on reducing material costs, which Mr Kleynhans said was the group's second-largest expense after labour.

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