British arms maker BAE Systems on Friday said it has cut ties with one of its civil offset projects after repeated failures on the South African partner's part to deliver their obligations.

"BAE Systems has reluctantly decided not to provide any further funding for a non-performing Industrial Participation project in the automotive sector," the company said.

"Further funding to Diesel Management Systems of Durban has been stopped since it became clear that the company was not addressing its failure to deliver on a promise to create benefit for the South African economy in return for substantial start-up funding from BAE Systems," the arms maker added.

The funding, of which R45,3 million has already been advanced, has been provided under BAE Systems' national industrial participation (NIP) obligations.

"Often referred to as offset, these are related to the purchase by the South African Air Force of 24 Hawk jet trainers."

BAE Systems said it understands that Diesel Management Systems has notified at least some of its approximately 20 staff members of its intention to retrench them.

In return for start-up funding of up to R120 million from BAE Systems, the Durban company has undertaken to manufacture and sell 180 000 units of an innovative diesel fuel saver for trucks and buses in the first year of operation.

"Although Diesel Management Systems [DMS] has already received R45,3 million in financing from BAE Systems, it only sold 22 units valued at R165 000 in the first year of operation. So far, the company has also not attained necessary certifications of the product in order to allow market penetration. A revised business plan agreed with BAE Systems in July this year forecast the sale of 300 units in September. In fact, only eight - 2,66% of target - were sold."

With acknowledgements to Sapa and The Natal Witness.