Cape Town - Denel's lawyers were vigorously reviewing all contracts ever entered into by the arms company, chief executive Victor Moche said yesterday.

"A host of very bad contracts were entered into that we have to find our way out of now," Moche said after briefing parliament's defence portfolio committee.

He said many of the contracts - some signed as long ago as 1992 - were poorly drafted, were largely not in Denel's favour and had to be rewritten.

"We are continuing that rewriting exercise in Denel vigorously and I dare say that some of the busiest lawyers in South Africa make up the Denel legal team."

Denel reported a R377.5 million net loss for the year to March 2004. Moche said Denel's financial problem arose because the company was run by civil servants, administrators and engineers who had no business acumen.

These people were given the right to run the company "without being given the necessary support", he said.

"We had lease contracts, for instance, for helicopters, where people would not sit down and discuss with us. So we just ... cancelled the leases because they were all loss making," Moche said.

The contracts were now renegotiated on the basis of having been cancelled.

"We will proceed to do the same with any party that refused to sit with us."

He said contracts entered into by Denel and the so-called Defence Industrial Participation (DIP) - foreign firms which agreed to invest in South Africa as part of the government's multibillion-rand arms deal - were fundamentally flawed.

"The fundamental flaw in the contracting on the DIP has been that the companies executing DIP were not involved in the original contracting. This was done by Armscor.

"The result has been that a host of factors were not taken into account in terms of the operations of those companies. As a result, the majority of the DIP contracts are inefficient and loss making," Moche said.

He said the investments from DIPs were coming in but not sufficiently as the basis on which most of the "operational issues were calculated was essentially projections, and the reality has turned out to be different, at least in the case of Denel".

"Up to 80 percent of the DIPs in Denel are not profitable. We are not only talking to the government about it, we are talking to the entities concerned themselves.

"We have revamped, rewritten, modified some of the contracts that we have," Moche said.

With acknowledgements to Moffet Mofokeng and the Business Report.